Excluding postage, revenue grew 17.2% on a like-for-like basis, and standalone 2Q revenue and operating income both hit record highs. Achieving full-year guidance depends on whether logistics infrastructure investment translates into profit recovery in 2H.

Key Positives From The 2Q Results

An accounting change removed DM postage from revenue, so reported revenue growth was only +4.4%. On a like-for-like basis, with postage also excluded from the prior-year period, revenue rose +17.2%. We view it positively that the company still grew operating income while absorbing upfront costs for additional logistics sites, a new shareholder benefit program and new office openings. Growth was driven by cross-selling ancillary services to manufacturer clients, with Co.HUB as the entry point.

• Standalone 2Q (Jul–Sep) revenue of JPY 3,913M (+17.3% YoY) and operating income of JPY 505M (+3.3% YoY) were both record highs for a 2Q. Profit grew despite absorbing approx. JPY 40M in shareholder benefit costs (company disclosure).
• All three domains posted revenue growth. Value added (revenue minus purchases, outsourcing and freight) expanded to JPY 4,507M (+14.1%). The company's proprietary profit metric, V/(BI+SR), improved from 1.19 in 1Q to 1.23.
• Automation and mechanization lowered fulfillment labor costs to 9.0% of revenue (9.2% in the prior-year period; 9.8% in the prior quarter). The Digital & Creative division cut operating costs by 12.2% through AI adoption.
• PromOS deployments reached 37 companies (+32%), with 41 contracts confirmed through end-FY3/27. Co.HUB is slated for its first supermarket deployment in January 2027, extending its reach beyond drugstores and consumer electronics retailers.
• On-site staff stationed at clients rose to 107 (+7%). Deeper client relationships through BPO (outsourced operations) are laying the groundwork for cross-selling.

Key Concerns From The 2Q Results

On a like-for-like basis, revenue grew +17.2% but operating income rose only +5.3%, signaling weaker operating leverage. OPM fell 1.3pt like-for-like (excluding postage) to 11.7%. Meeting the full-year operating income plan assumes a sharp profit increase in 2H.

• Gross Profit Margin was 34.3% (-1.3pt like-for-like, excluding postage). This reflected a higher mix of outsourcing-heavy work such as IP and novelty projects, along with higher purchasing and freight costs tied to the Middle East situation.
• Operating income progress was 41.9%, below the 48.1% of the prior-year period (our estimate). The company expects price pass-through to drive a 2H recovery, but its likelihood needs to be assessed.
• A buildup in construction in progress pushed investing CF to -JPY 1,104M, funded by a JPY 1,003M increase in short-term borrowings. Long-term assets are being financed with short-term funds, which raises funding-structure concerns.
• Interim net income growth of +17.6% includes a JPY 21M gain on sale of fixed assets. Guidance already factors in an extraordinary loss of approx. JPY 100M in 2H related to a site relocation.
• Strategic division operating expenses (SR, as defined by the company) rose +25.7% and fulfillment operating costs +28.0%. Both continue to grow faster than revenue.

Focus Areas / Items To Monitor Going Forward

• Hitting the full-year plan requires 2H operating income of JPY 1,186M (+35.5% vs. JPY 875M in 2H of the prior year; our estimate). The key question is whether price pass-through and full contributions from new projects won in 1H materialize on schedule.
• For the new logistics center (operational from November 2026) and the flagship center expansion (scheduled to start January 2027), we will watch start-up costs and the timing of the company's targeted approx. JPY 100M reduction in site operating costs.
• How far the recurring revenue and cross-selling base expands, anchored by 41 confirmed PromOS contracts and Co.HUB's entry into the supermarket sector.

Key Financial Highlights

From FY3/27, DM postage (approx. JPY 2B per year) is excluded from revenue, with no impact on profit. The "YoY" figures below are as reported in the earnings release. For items affected by postage, the company's like-for-like comparisons excluding postage are shown alongside.

• Outsourced processing costs and manufacturing overhead reflect the company's like-for-like comparisons excluding postage. Manufacturing overhead includes approx. JPY 26M in contract brokerage fees for the new fulfillment center.
• Non-operating expenses were JPY 11M (JPY 3M in the prior-year period). The main driver was JPY 10M in interest expense on higher borrowings, so recurring profit grew more slowly than operating income.

Performance By Business Segment

The company operates a single segment: the Retail Promotion 360° Full-Service Business, providing end-to-end services from promotion planning through manufacturing and logistics. It discloses revenue across three customer domains, all of which grew. The Manufacturer Domain led overall growth with a +JPY 511M revenue increase, driven by Co.HUB-centered cross-selling.

(Revenue YoY calculated by us from the company's disclosed absolute figures)

Progress Versus Full-Year Guidance

Revenue progress of 47.3% was roughly in line with the 47.1% achieved in the prior-year period (like-for-like excluding postage), consistent with the company's explanation of a 2H-weighted profile. Operating income progress of 41.9%, however, trailed the prior-year 48.1% (our estimate). Achieving the plan requires 2H operating income up +35.5% vs. 2H of the prior year, which assumes contributions from price pass-through and new projects.

Changes To Guidance

The company maintained the full-year plan announced on May 14, 2026 (revenue JPY 15,400M, operating income JPY 2,040M, net income JPY 1,350M). Management stated that 2H orders are solid and it expects to achieve its initial plan. One-off costs related to the site relocation (approx. JPY 100M extraordinary loss) are already factored into guidance.

Commentary On Shareholder Returns

• The annual dividend forecast is unchanged at JPY 77 (+JPY 7 YoY, paid entirely at year-end). The company aims for a payout ratio of around 40% and plans to keep raising dividends in line with profit growth.
• A new shareholder benefit program was introduced, with September 30, 2026 as the first record date. A JPY 40M provision for shareholder benefits was booked in the interim period.
• No share buybacks were executed and there was no change in policy.

Financial Position

The equity ratio fell to 71.2% (74.8% at the prior fiscal year-end) as logistics site expansion was funded with short-term borrowings. However, the company remains in a net cash position, with cash and deposits exceeding borrowings, and its balance sheet is sound.

Key Figures

(Free cash flow, the sum of operating CF and investing CF, was -JPY 405M; our estimate)

Leverage Metrics

Disclosures Released Alongside The Earnings Announcement

None

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

None