GEO Holdings Q1 FY2027 Earnings Deep Dive: Record-High Sales Driven by Reuse Business and the Growth Story Toward a 1 Trillion Yen Revenue Goal by 2035

GEO Holdings (Securities Code: 2681) reported strong results for the first quarter of the fiscal year ending March 2027 (April–June) , achieving record-high sales for a first quarter, underpinned by the remarkable growth of its core reuse business.

This report extracts 10 key topics that investors should note from the disclosed financial materials, providing a comprehensive analysis of current performance, segment-specific trends, and the long-term growth strategy leading up to 2035.

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1. Q1 Earnings Highlights: Significant Growth in Both Sales and Profits to Record Highs

For the first quarter, consolidated results showed net sales of 125 billion yen (up 19.7% YoY) , operating profit of 5.3 billion yen (up 32.8% YoY) , ordinary profit of 5.5 billion yen (up 30.1% YoY) , and net profit attributable to owners of the parent of 3.1 billion yen (up 30.8% YoY) , marking a substantial increase in both revenue and profit.

The robust demand for reuse clothing, fashion accessories, and luxury goods, centered on the flagship "2nd STREET" brand, significantly boosted the group's overall performance.

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2. Sales Trends by Product Category: Explosive Growth in Reuse and the Status of New Goods and Rentals

Looking at the breakdown by product category, the reuse segment saw explosive expansion with sales of 84.8 billion yen (up 31.6% YoY) .

• Reuse Clothing & Fashion Accessories : Sales of 35 billion yen (up 27.3%) . In addition to the expansion of sales channels through new store openings, an early rise in temperatures led to front-loaded demand for summer apparel, maintaining strong performance.
• Reuse Luxury Goods : Sales of 17.8 billion yen (up 95.2%) . The resolution of U.S. tariff issues from the previous year, combined with increased inbound demand and rising prices for pre-owned watches, served as strong tailwinds.
• Reuse Smartphones & Tablets : Sales of 11.9 billion yen (up 9.2%) . Increased demand for devices at "GEO mobile" and price adjustments in response to soaring memory costs proved successful.
• New Goods : Sales of 25.5 billion yen (down 3.4%) . Despite a boost from last-minute demand ahead of the "Nintendo Switch 2" price revision, the decline was driven by the reactionary drop following major title releases in the same period last year.
• Rental Goods : Sales of 5.6 billion yen (down 14.5%) . The downward trend continues due to structural shifts toward digital distribution.

The following slide details the performance trends for each product category.

[Slide Commentary: The Importance of Sales by Product Category]

This slide clearly illustrates the shift in the GEO Group's revenue structure. While traditional core businesses like rentals (down 14.5% YoY) and new game sales (down 3.4% YoY) are shrinking, reuse clothing/accessories (up 27.3%) and luxury goods (up 95.2%) have emerged as the group's powerful new growth drivers. The fact that luxury goods nearly doubled year-on-year highlights the sophistication of the store expansion strategy targeting inbound customers and the pricing strategy adapted to market fluctuations.

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3. Cost Structure and SG&A Expenses: Improving Operating Margin to 4.2% While Investing in New Stores and Talent

SG&A expenses for the first quarter were 47 billion yen (up 15.3% YoY) . Personnel costs rose to 23.3 billion yen (up 17.1%) , and other expenses such as utilities and rent increased to 18.6 billion yen (up 17.2%) , reflecting "proactive investments for the future" including store network expansion, base salary increases, and headcount growth.

However, thanks to efficiency measures such as bringing advertising production in-house (down 17.8%), the SG&A-to-sales ratio improved by 1.4 percentage points to 37.7% from 39.1% in the same period last year, and the operating profit margin rose from 3.8% to 4.2% .

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4. Full-Year Forecast and Progress: High Operating Profit Progress Rate of 40.8% in Q1

GEO Holdings has maintained its full-year earnings forecast for the fiscal year ending March 2027, as announced in May 2026.

• Net Sales : 510 billion yen (up 6.0% YoY) [Q1 Progress: 24.5% ]
• Operating Profit : 13 billion yen (down 8.7% YoY) [Q1 Progress: 40.8% ]
• Ordinary Profit : 12.5 billion yen (down 18.6% YoY) [Q1 Progress: 44.2% ]
• Net Profit Attributable to Owners of the Parent : 6 billion yen (down 31.3% YoY) [Q1 Progress: 53.2% ]

While the group's performance typically skews toward the second half (winter apparel and year-end sales), the fact that the operating profit progress rate exceeded 40% at the end of the first quarter is noteworthy. The full-year profit decline forecast conservatively accounts for the reactionary drop in "Nintendo Switch 2" demand and store network optimization costs, but the current momentum of the reuse business is exceeding initial expectations.

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5. Long-Term Vision: Roadmap to "1 Trillion Yen Consolidated Sales and 5,000 Stores" by FY2035

The group has set an ambitious vision to achieve 1 trillion yen in consolidated sales and 5,000 stores worldwide (including 1,000 overseas stores) by FY2035 as a long-term goal for sustainable growth.

The core of this goal is the globally expanding reuse market. The company has indicated a policy of thorough portfolio management tailored to the growth phase of each country and region.

[Slide Commentary: Future Outlook and the Background of Growth Images for Each Business]

This slide is a crucial conceptual diagram visualizing the GEO Group's diverse brand portfolio and growth strategy. With ROIC (Return on Invested Capital) on the vertical axis and sales growth rate on the horizontal axis, the bubble size represents sales scale. It clearly organizes a circular structure where domestic "2nd STREET," boasting overwhelming profitability and stability, is positioned as a "growth area," with cash generated there being prioritized for investment into "nurturing areas" such as overseas "2nd STREET," off-price stores "Luck Rack," and the digital content business "viviON."

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6. Domestic 2nd STREET Strategy: Achieving "1,000 Domestic Stores" Two Years Ahead of Schedule

"2nd STREET," which holds the overwhelming No. 1 position in the domestic reuse market, is accelerating its store openings. The goal of "1,000 domestic stores," originally targeted for the fiscal year ending March 2029, is now expected to be achieved two years ahead of schedule, within the fiscal year ending March 2027 . Looking further ahead, the company aims to build a structure of 1,500 domestic stores by the fiscal year ending March 2036 .

[Slide Commentary: 2nd STREET Domestic Store Trends and the Significance of Mid-Term Goals]

This slide demonstrates the execution capability of "2nd STREET," which has expanded its store network approximately fourfold in just 15 years since the 2009 M&A. A major strength is the successful shift from the store expansion phase (nurturing area) to the profitability improvement phase (growth area) by centralizing operations based on the three principles of "standardization, simplification, and specialization" and ensuring the PDCA cycle is fully executed at the store level.

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7. Full-Scale Global Expansion: Overseas Dominant Strategy Toward a 1,000-Store Global Structure

The expansion of "2nd STREET" overseas is also progressing rapidly. As of the end of June 2026, the number of overseas stores reached 158 (56 in the U.S., 50 in Taiwan, 34 in Malaysia, 11 in Thailand, 4 in Hong Kong, and 3 in Singapore).

• U.S. : Starting from the West Coast, local staff training is progressing well, and the company is promoting dominance in existing areas. It aims for 100 stores by the fiscal year ending March 2030.
• Southeast Asia & Taiwan : In Malaysia, the company has established an efficient model for redistributing "Used in Japan" quality clothing from logistics hubs. It continues to actively open stores in urban areas in Thailand and Taiwan.

The global reuse market is projected to grow from $245 billion in 2026 to a $1 trillion (approx. 150 trillion yen) scale by 2036 , and the company is accelerating the pursuit of global economies of scale by rolling out its proprietary core systems to each country.

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8. Development Status of New Formats and Diverse Products

New formats outside of general reuse are also continuing to expand steadily.

• Luck Rack (Off-Price Store) : A model offering manufacturer surplus inventory at discounted prices. The company is promoting dominant store openings in the Tokyo metropolitan area and regional cities, with 52 stores operating at the end of the current period.
• Capsule Gakkyoku : A capsule toy specialty store themed after a pharmacy. It has expanded to 69 stores by the end of the period, aiming for a 100-store structure.
• Digital Content (viviON) : Continued high growth with sales of 5.5 billion yen (up 15.1% YoY), contributing to the improvement of the group's gross profit margin.

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9. Financial Soundness, Capital Efficiency, and Shareholder Return Policy (ROE of 8% or Higher)

Financially, while raising 7 billion yen in capital, the company is securing the inventory and making the store/system investments necessary for business expansion. Net assets have reached 100.8 billion yen, and the equity ratio is maintained at 33.3%.

Regarding capital efficiency, while continuing proactive investment, the company has set a target of "ROE of 8% or higher for the time being," aiming to establish an ROE level of 10% in the future and improve the PBR to over 1.0x.

As for shareholder returns, the company maintains a policy of stable dividends, with an annual dividend of 34 yen per share (17 yen interim, 17 yen year-end) planned for the fiscal year ending March 2027 (forecasted dividend payout ratio of 22.5%). An optimal balance between capital efficiency improvement and growth investment is being maintained.

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10. Transformation for the Future: Trade Name Change (to "Second Retailing Co., Ltd.")

To better align its corporate image with its actual business operations, GEO Holdings has decided to change its trade name to "Second Retailing Co., Ltd." effective October 1, 2026 .

This serves as a symbolic declaration of its evolution from the former "video rental and game sales GEO" to a "global reuse company" operating on the world stage, steadily advancing its mid-to-long-term strategy to become the world's undisputed leader in the reuse industry.