Gunze Q1 Operating Profit Jumps 88% and Returns to Net Profit as Apparel Shrinks by Design

Revenue falls, profit nearly doubles

GUNZE LIMITED (TSE: 3002), the Kyoto-based group that makes plastic films and engineering plastics alongside its long-established innerwear business, reported consolidated first-quarter results for the three months to June 30, 2026 under Japanese GAAP on August 5, 2026. Revenue fell 2.7% to ¥31,367 million from ¥32,240 million, but operating profit rose 87.6% to ¥3,387 million, ordinary profit 86.0% to ¥3,419 million, and the group swung to net profit attributable to owners of the parent of ¥2,640 million from a ¥1,473 million loss. Earnings per share were ¥84.23 against a loss of ¥45.37; diluted EPS was ¥84.08.

Falling revenue with sharply rising profit is a deliberate outcome here, not an accident. Gunze is in the second year of its medium-term plan "VISION 2030 stage2", a period it calls its "three years of reinvention": strengthening and expanding functional solutions and medical, and restructuring apparel and life creations. Shrinking the apparel top line is part of the design. The operating margin reached 10.8%, from 5.6%.

Management attributes the ¥1,581 million operating-profit gain to three things: a timing lag between selling prices and raw-material prices that lifted plastic-film profit, improved earnings overseas, and steady progress on the apparel restructuring. The ¥4,113 million swing at the net line adds a fourth: the prior year carried business-structure improvement costs in apparel that do not repeat.

Apparel: less revenue, three times the profit

Four segments, and the two that matter moved in opposite directions on revenue. Functional Solutions — plastic films and engineering plastics — produced revenue of ¥12,354 million, up 7.3%, and operating profit of ¥2,526 million, up 59.7%. Plastic film ran strongly: customers brought orders forward against rising raw-material prices, the lag between selling and input prices lifted profit, overseas markets recovered, and product cost structures improved at home and abroad. Engineering plastics tracked a recovering semiconductor market.

Apparel is the restructuring story. Revenue fell 9.8% to ¥13,321 million — the largest segment by revenue, and the one dragging the group top line down — while operating profit rose 226.7% to ¥1,185 million. Brand consolidation and price revisions under a focus-and-concentrate strategy cut unit volumes, but improvements in production and logistics more than compensated. Sales through mass merchandisers and other existing routes declined, which is the single largest reason group revenue fell.

Medical was the weak point: revenue of ¥2,925 million, down 7.0%, and operating profit of ¥315 million, down 41.7%. Absorbable products such as anti-adhesion materials and bone-fixation devices progressed steadily in a competitive domestic market, but the scaling-back of the medical laser business weighed, and Chinese sales continued to suffer from high-value medical-procurement regulation and purchase restraint linked to Japan-China relations. Life Creations produced revenue of ¥3,056 million, up 1.3%, and operating profit of ¥321 million, up 30.4%, helped by the renewal of a commercial property.

Dividends outrun profit and the equity ratio slips

Total assets were ¥154,490 million at June 30, up ¥877 million from March 31, the main increase being ¥988 million more cash and deposits. Liabilities rose ¥4,768 million to ¥44,634 million, driven by a ¥5,563 million increase in short- and long-term borrowings including commercial paper, partly offset by a ¥774 million fall in the bonus provision.

Net assets fell ¥3,890 million to ¥109,856 million. The arithmetic is straightforward: ¥2,640 million of quarterly profit in, ¥6,770 million of dividends out. Equity fell to ¥107,839 million from ¥111,756 million and the equity ratio to 69.8% from 72.8%, with net assets per share at ¥3,440.20 against ¥3,565.39. The balance sheet remains conservatively financed — a near-70% equity ratio is high for a manufacturer — but the quarter consumed rather than built equity.

Guidance unchanged, and it implies a much weaker rest of year

Full-year guidance is unchanged from the May 14 forecast, the company saying the quarter tracked broadly within expectations: revenue of ¥132,000 million, up 0.8%; operating profit of ¥8,800 million, up 80.3%; ordinary profit of ¥8,400 million, up 70.7%; and net profit of ¥5,200 million, up 921.6%, for EPS of ¥165.89.

Those growth rates are large because FY3/2026 was a weak base, but the quarter's progress against them is what stands out. Operating profit of ¥3,387 million is 38.5% of the full year and net profit of ¥2,640 million is 50.8% — half the guided year in one quarter. Revenue at ¥31,367 million is 23.8%. Since the group has not raised guidance, it is in effect assuming that the raw-material price lag benefiting plastic film unwinds, and that the remaining nine months earn roughly what the same period did last year.

The dividend forecast is unchanged at ¥216.00 for the year, paid entirely at the year-end and split between an ordinary dividend of ¥147.00 and a special dividend of ¥69.00 — identical in both amount and structure to FY3/2026. On guided EPS of ¥165.89 that is a payout above 100%, which is consistent with the ¥6,770 million of dividends already recorded against ¥5,200 million of guided annual profit.

JapanStockPulse provides informational content only and does not constitute investment advice. Figures are taken from the company's published earnings short report and may be subject to subsequent revision.