H2O Retailing (8242): FY2025 Results Summary — Operating Profit Beats Guidance as Supermarkets Hit a Record

This article is based on publicly available IR materials and is not a recommendation to buy or sell any specific securities.

H2O Retailing Corporation reported results for FY2025, the fiscal year ended March 31, 2026 (period: Apr. 1, 2025 – Mar. 31, 2026). Consolidated gross sales increased slightly to JPY 11,624 (JPY 100M), up 0.2% year on year, while operating profit declined 7.0% to JPY 324 (JPY 100M) on cost increases and a decline in inbound sales in the Department Store Business. Operating profit nevertheless exceeded the company forecast (JPY 30.0 bn), coming in JPY 24 (JPY 100M) above plan. Profit fell 14.0% to JPY 300 (JPY 100M) on high base effects from extraordinary gains recorded in the previous year and increased impairment losses.

Consolidated Results (Full-Year Actual)

Full-year consolidated operating profit exceeded the company forecast (JPY 30.0 bn), but declined due to rising costs and lower inbound sales in the Department Store Business. The fourth quarter (Jan.-Mar.) achieved both gross sales and operating profit growth, driven by the Department Store Business where domestic sales remained strong: 4Q gross sales rose 1.4% to JPY 2,896 (JPY 100M) and 4Q operating profit rose 20.1% to JPY 71 (JPY 100M).

Item (JPY 100M)	FY2025	FY2024	YoY change	YoY amount	vs. Forecast
Gross sales	11,624	11,596	+0.2%	+28	▲6
Net sales	6,802	6,818	▲0.2%	▲15	▲88
Operating profit	324	348	▲7.0%	▲24	+24
Ordinary profit	345	359	▲3.9%	▲14	+35
Profit	300	348	▲14.0%	▲49	+60

Extraordinary income/loss fell to JPY 10 (JPY 100M) from JPY 154 (JPY 100M), a decrease of JPY 145 (JPY 100M), reflecting a decrease in gain on step acquisitions (▲80), a decrease in gain on sale of shares of subsidiaries (▲17) and an increase in impairment loss (▲66). Cash flows from operating activities were JPY 483 (JPY 100M) and free cash flow was JPY 436 (JPY 100M), up JPY 106 (JPY 100M) year on year. The equity ratio stood at 43%, versus 41% at FY24.4Q.

Segment Results

In the Department Store Business, domestic sales remained steady for the full year; however, gross sales and operating profit declined due to high base effects from the previous year’s surge in inbound sales, as well as the impact of major renovations at the Hankyu Main Store. In the fourth quarter, strong domestic sales fully offset the decline in profit margin caused by a higher sales mix of luxury items, and both gross sales and operating profit increased, supported by reduced repair and outsourcing expenses. In the Supermarket Business, existing store sales remained steady at +1.7% compared to the previous year, and effective control of SG&A expenses contributed to achieving record operating profit of JPY 10.0 bn. The Other segment grew sharply, with Ningbo Hankyu—newly consolidated in 2Q of the previous year—contributing JPY 1.0 bn. in operating profit increase.

Segment (JPY 100M)	Gross sales FY2025	Gross sales FY2024	Gross sales YoY	Operating profit FY2025	Operating profit FY2024	Operating profit YoY
Department Store	6,210	6,350	▲2.2%	238	282	▲15.8%
Supermarket	4,325	4,285	+0.9%	100	89	+12.0%
Shopping Center	301	318	▲5.3%	38	39	▲2.2%
Other	789	644	+22.5%	75	22	+242.8%
Consolidation adjustments	―	―	―	▲128	▲85	―
Total	11,624	11,596	+0.2%	324	348	▲7.0%

Within the Department Store Business, 4Q domestic sales were strong, driven by the two main stores (up 7% YoY). The Hanshin Umeda Main Store, which completed renovation work in Nov. 2025, was up 27% YoY, and at the Hankyu Main Store, while renovation work led to reduced floor space, sales of luxury goods (LUX/jewelry) surged by more than 20% YoY. Inbound sales fell: 4Q inbound sales were down 14% YoY, and since December the number of Chinese customers has remained down by approximately 40%, while other regions performed steadily. Inbound sales were JPY 104.0 bn in FY2025 against JPY 130.0 bn in FY2024, and the number of overseas VIP members rose to 53,000 from 39,000, with overseas VIP customer sales of JPY 40.7 bn (39% share).

In the Supermarket Business, gross profit margin improved by +0.3pt, driven by growth in prepared foods and unified promotional policies. Existing-store metrics for the full year were: number of customers ▲0.3%, average spend per customer +2.0%, unit price +4.4% and number of items purchased ▲2.3%. Two new store formats were launched in FY2025—the value-driven MARCHÉ (3 stores) and the price-driven daily mart (10 stores)—with plans for 11 and 22 stores respectively in FY2026. In the Shopping Center and Other segments, core business hotel Oi Development was affected by renovation work but operating profit remained largely flat versus the record-high FY2024 performance, supported by an increase in average room rates.

FY2026 Forecast

For FY2026, gross sales are expected to increase due to the effects of major renovations at the Hankyu Main Store. However, the overall operating profit increase will remain modest, as rising costs and declining inbound sales from Chinese tourists are anticipated, and strategic investment in growth areas such as overseas, the High-Net-Worth segment and Customer Data Businesses will be further accelerated. Long-term adverse effects from the situation in the Middle East (after 2Q) are not factored in.

Item (JPY 100M)	FY2026 Forecast	FY2025 (Actual)	YoY change	YoY amount
Gross sales	12,450	11,624	+7.1%	+826
Net sales	7,120	6,802	+4.7%	+318
Operating profit	325	324	+0.4%	+1
Ordinary profit	330	345	▲4.4%	▲15
Profit	230	300	▲23.2%	▲70

By segment, Department Store gross sales are forecast at JPY 6,835 (JPY 100M), up 10.1%, and Supermarket at JPY 4,410 (JPY 100M), up 2.0%. Segment classifications have been partially revised starting from the FY2026 forecast: Hankyu Kitchen Yell Kansai was transferred from the Supermarket Business to the Other Business, and Chinese operating companies (including Ningbo Hankyu) were moved from the Other Business to the Shopping Center Business. FY2025 results are presented based on the previous segment classifications prior to this reorganization. On the operating profit bridge, a sales increase at the Department Store from renovation effects at the Hankyu Main Store adds +84 and initiatives of each company add +29, offset by an expense increase of ▲76, the impact of China (inbound sales decrease) of ▲20 and strategic investment of ▲16. Inbound sales are projected at JPY 115.0 bn for FY2026.

Shareholder Returns

Under the Shareholder Return Policy for FY2024-2026, the Company will in principle pay out dividends based on a DOE of over 1.8% and will flexibly return profits to shareholders in accordance with business performance, alongside acquisition of own shares on a scale of JPY 30.0 bn. in 3 years (equivalent to a total payout ratio of 60% or more over 3 years). The annual dividend for FY2025 is planned to be JPY 46.0, an increase of JPY 2.0 from the previous forecast, and for FY2026 it is planned to increase by a further JPY 2.0 to JPY 48.0.

Item	FY2024	FY2025	FY2026e
Dividends per share (JPY)	42	46	48
Dividend payout ratio	14%	18%	24%
DOE	1.8%	2.1%	2.1%
Total dividends payout (JPY 100M)	42	53	54
Acquisition of treasury shares amount (JPY 100M)	44	150	107
Total payout ratio	25%	68%	70%

A new acquisition of own shares was resolved for FY2026: up to 6,000,000 common shares of the Company (5.22% of the total number of outstanding shares excluding treasury shares), for a total acquisition cost of up to JPY 10.7 bn., over an acquisition period of May. 13, 2026 – Mar. 31, 2027, by market acquisition on the Tokyo Stock Exchange through discretionary trading via a securities company. With this implementation, the Company is expected to meet the share buyback target of JPY 30 bn. set out in its Mid-Term Management Plan (2024-2026).

Mid-Term Management Plan and Capital Policy

Operating profit has exceeded final-year targets of the Mid-term Management Plan (2024-2026) for two consecutive years, and the FY2026 target has been revised upward from the initial plan of JPY 320 (JPY 100M) to a revised forecast of JPY 325 (JPY 100M). ROE was 12.3% in FY2024 and 9.8% in FY2025 (underlying basis 8.9% and 7.9% respectively), against an initial plan target of 6.6% or higher, with a FY2026 forecast of 7.4%. ROIC was 6.0% in FY2024 and 5.5% in FY2025, with a FY2026 forecast of 5.6%.

On capital and stock price, the Company aims to achieve a PBR of 1.0 as soon as possible and sustain this level on a long-term basis. The stock price at the end of the period was JPY 2,385 with BPS of JPY 2,695 and a PBR of 0.88 times as of 26/03, against a cost of shareholders’ equity of 6.0-6.9%. The Company has been steadily reducing its strategic shareholdings, including the sale of TOHO shares in April 2026, and following this latest sale the ratio of strategic shareholdings to consolidated net assets is expected to fall below 20% by the end of Mar. 2027.

The largest-scale remodeling of the Hankyu Main Store since 2012 was substantially completed in Mar. 2026, targeting sales of JPY 400.0 bn. in FY2026. In the Supermarket Business, the company reorganization integrating Izumiya, Hankyu Oasis and Kansai Super Market was completed. Capital investment totalled JPY 276 (JPY 100M) in FY2025 versus JPY 313 (JPY 100M) in FY2024, with a FY2026 forecast of JPY 341 (JPY 100M); consolidated depreciation was JPY 248 (JPY 100M), up JPY 13 (JPY 100M) year on year.

This article is an analysis based on publicly available information and is not a recommendation to buy or sell any specific securities. Investment decisions are your own responsibility.