H2O RETAILING CORPORATION

Business Details

Subsidiary Hankyu Hanshin Department Stores, Inc. operates the department store business, primarily selling apparel, personal items, household goods, and food products, and providing high-value-added products and services to domestic and overseas customers mainly through urban flagship stores such as Hankyu Umeda Main Store, Hanshin Umeda Main Store, and Hakata Hankyu. In FY2026 (ending March 2026), despite the impact of sales floor closures associated with the Hankyu Main Store remodeling work, domestic sales reached a record high. On the other hand, due to the sharp decline in visitors from China, inbound sales fell to 80.1% of the prior-year level, and combined with a temporary increase in costs associated with the renewal of POS registers, operating profit decreased to 84.2% of the prior-year level.

Recent Overview

Both gross sales and operating profit decreased year on year due to the sharp decline in inbound demand and the impact of remodeling work.

In the department store business for FY2026 (ending March 2026), inbound sales fell to 80.1% of the prior-year level due to the sharp decline in visitors from China, and this, combined with sales floor closures associated with the Hankyu Main Store remodeling, resulted in gross sales of ¥621,037 million (97.8% of the prior-year level). Domestic sales reached a record high, and Kawanishi Hankyu Square and the renovated Hanshin Umeda Main Store performed well, but a temporary increase in costs associated with the renewal of POS registers pushed up selling, general and administrative expenses, resulting in operating profit of ¥23,783 million (84.2% of the prior-year level). In addition, an impairment loss of ¥8,376 million was recorded at Kobe Hankyu and other stores.

Key Products

Growth Drivers

• Demand from domestic customers for high-value merchandise such as luxury brand fashion, jewelry, and watches remained solid throughout the year, with domestic sales reaching a record high
• The opening of "HANKYU LUXURY" in March 2026 established a system to strengthen customer attraction from a wide domestic and international area, expected to contribute to future growth in high-value merchandise sales
• Hanshin Umeda Main Store, which completed renovation in November 2025, and Kawanishi Hankyu Square, which had its grand opening in May 2025, performed well, partially offsetting the impact of sales floor closures at the Hankyu Main Store
• Potential for sales and profit recovery once sales floor space is restored following the completion of the Hankyu Main Store remodeling work
• Efficient event management and expanded customer touchpoints through enhanced e-commerce

Risks

• Inbound sales have fallen to 80.1% of the prior-year level due to the sharp decline in visitors from China, with risk of further decline depending on geopolitical risk and exchange rate fluctuations
• Risk of sales floor closures, lost sales opportunities, and temporary costs (such as POS register renewal) arising from the continuation of the Hankyu Main Store remodeling work
• An impairment loss of ¥8,376 million was recorded at Kobe Hankyu and other stores, leaving a risk of additional impairment at less profitable stores
• Risk that continued price increases, leading to lower real wages and heightened cost-consciousness, will suppress consumption among the domestic middle class
• A rebound effect is emerging following last fiscal year's sharp rise in inbound demand, with the risk of continued high year-on-year comparison bases persisting into FY2027 (ending March 2027)