Domestic business: assessing underlying profit excluding gains on sales of fixed assets

Domestic business revenue was ¥8,782.8 million and operating income was ¥297.0 million in FY2025, compared with revenue of ¥8,772.3 million and operating income of ¥1,879.1 million in FY2026. Revenue declined only 0.1% year on year, while operating income rose 532.7%, indicating that profit was driven much more by a one-off asset sale than by growth in revenue.

FY2026 domestic operating income included ¥1,954.5 million in gains on sales of fixed assets, including the New Kyoto Building. Accordingly, the reported operating income of ¥1,879.1 million cannot be regarded as the domestic business's normalized profit level. The earnings summary also cited improvements in gross profit margin, cost control and EC growth, but profit and profit margin for the domestic business excluding gains on sales of fixed assets were not presented as separate items.

In FY2027-Q1, domestic revenue was ¥2,181.7 million, down 2.0% year on year, and segment profit was a ¥275 million loss. Although EC continues to offset weak performance at physical stores, the domestic business has not yet secured stable profitability on a quarterly basis. The reversal of gains on sales of fixed assets recognized in the year-earlier period is also weighing on consolidated profit, so it is necessary to distinguish whether the domestic business's loss is driven by demand or by costs such as brand investment, personnel expenses and input costs.

At the next earnings announcement, the focus will be on whether domestic revenue turns from a year-on-year decline to growth and whether domestic segment profit turns profitable on a cumulative first-half basis. In particular, it will be important to see whether the company can disclose separate figures for EC revenue growth, physical-store customer traffic, deliveries to department stores and mass retailers, and sales of core brands. Disclosure of business profit excluding gains on sales of fixed assets, gross profit margin and year-on-year changes in selling, general and administrative expenses would make it easier to assess whether FY2026's sharp profit increase resulted from asset sales or was accompanied by an improvement in underlying earnings power.