Cube Co., Ltd. (Securities Code: 7112) reported its financial results for the second quarter of the fiscal year ending December 2026, posting net sales of 2.223 billion yen and an operating loss of 136 million yen . This represents a year-on-year decline in both revenue and profit, resulting in an operating deficit. However, this performance is underpinned by strategic upfront investments, including the acceleration of its D2C shift and promotional spending to strengthen brand equity , aimed at securing sustainable long-term growth.

This report provides a detailed analysis of the company’s current financial and business structure, as well as its future growth trajectory, based on 10 key topics derived from the earnings materials.

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1. Q2 Earnings Summary and Overview

First, we examine the overall performance for the first half of FY2026 (2Q).

As shown in the summary above, net sales decreased by 5.8% year-on-year to 2.223 billion yen , and the operating result swung from a profit of 36 million yen in the same period last year to a loss of 136 million yen . Net income also recorded a loss of 120 million yen (compared to a profit of 17 million yen in the previous year).

While the headline figures appear challenging, a breakdown of the business segments reveals a clear contrast. The core domestic retail business grew steadily by 16% year-on-year , whereas the primary driver of the revenue decline was a 220 million yen drop in wholesale sales to South Korea , a market undergoing adjustments following the post-COVID boom.

Conversely, the strategic D2C ratio rose by 8.1 percentage points from 60.7% to 68.8% , indicating steady progress in shifting toward high-margin channels that connect directly with customers.

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2. Analysis of Operating Profit Fluctuations (Why the Deficit?)

The factors behind the 172 million yen year-on-year decline in operating profit are clearly illustrated in the waterfall chart below.

The primary drivers for the decline in operating profit are as follows:

• Decrease in Gross Profit (▲29 million yen) : Impact of the decline in net sales.
• Increase in Advertising Expenses (▲39 million yen) : Enhanced promotions following the appointment of a new brand ambassador.
• Increase in Taxes and Dues (▲24 million yen) : Higher import tariffs associated with the promotion of direct trade.
• Increase in Rent (▲24 million yen) and Depreciation (▲20 million yen) : Costs associated with domestic retail expansion and new store openings (outlets, directly managed stores, etc.).
• Increase in Personnel Expenses (▲14 million yen) : Staffing requirements for the expanding store network.

Thus, the operating deficit is not a result of poor business performance, but rather the upfront realization of fixed costs for promotional activities and store infrastructure development aimed at future revenue growth .

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3. Key Performance Indicators and Financial Trends (Margin Improvement and Strong Equity)

The trends in the company’s medium-to-long-term management and financial indicators are summarized in the slide below.

Three key points stand out:

1. Improvement in Gross Profit Margin (60.2% → 62.6%) Driven by the promotion of direct trade and the rise in the D2C ratio (68.8%), the cost of sales ratio declined, resulting in a 2.4pt year-on-year increase in the gross profit margin .
2. Increase in SG&A Ratio (58.6% → 68.7%) As noted, the SG&A ratio temporarily rose by 10.1pt year-on-year due to upfront promotional and store-related expenses.
3. Maintenance of High Financial Soundness (Equity Ratio 88.1%) Despite the reported loss, the equity ratio remains at a very high level of 88.1% (up from 85.9% in the same period last year). With a BPS (book value per share) of 643.43 yen, the company possesses a robust financial foundation capable of supporting growth investments.

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4. Trends in Directly Managed Stores and Domestic Retail

Monthly sales trends (year-on-year) for domestic directly managed stores show that total store sales reached 111% and existing store sales reached 102% , maintaining positive growth despite the impact of unfavorable weather.

• April–May : Driven by the announcement of the new brand ambassador and the consecutive release of ambassador-model products, monthly sales for all stores remained strong at 110%–112%.
• June : Although monthly sales fell below the previous year due to typhoons and poor weather, a swift recovery was observed in July, with total store sales at 111%.
• Notably, the Hankyu Umeda Main Store underwent a renovation to expand its sales floor, resulting in a significant 136% year-on-year increase in sales .

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5. Global Market Expansion (Structural Reform in Korea and Progress in China JV)

Different approaches are being implemented across overseas regions:

• South Korean Market (19.0% of total sales) : The market is undergoing adjustments due to the reaction to the COVID-era golf boom, with sales down 220 million yen year-on-year. The company is currently in the midst of structural reforms , focusing on selecting and concentrating on key stores and inventory.
• Chinese Market (3.0% of total sales) : Expansion is accelerating through a joint venture (JV). In March, the company opened a store at the Beijing CBD International Golf Club , one of Asia's premier membership golf courses, aiming to expand permanent locations targeting the affluent segment.
• Other Asian Regions : Operations in Taiwan remain strong with two specialty stores (2.7% of total sales). Development of bases and partner acquisition in Vietnam, Indonesia, and Singapore are also ongoing.

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6. Strengthening the Women's Category and Promotional Initiatives

The company has identified the development of the female customer base as a key strategy for its core "MARK & LONA" brand.

• Appointment of Brand's First Female Ambassador : The company appointed KARINA , a globally popular K-pop artist. The launch of visual campaigns and promotional videos has significantly increased awareness among new customer segments.
• Events and Collaborations : Sponsorship of the "Maezawa Cup" (providing costumes for approximately 100 round girls and leveraging social media) and the launch of Hello Kitty collaboration products have driven women's sales. As a result, women's sales have shown growth of over 120% year-on-year .
• Success of Contracted Professional Golfers : Contracted pro Hana Nagai achieved her second career tour victory after nine years, and the company has signed new apparel contracts with promising young players Shua Matsubara and Minami Kiyomoto.

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7. Promotion of New Brands and Licensing

Business expansion initiatives beyond traditional golf wear are also underway.

• MODE COMMUTER : Released the "MC BY HIDETAKA FUKUZONO" collaboration line. In addition to pop-up stores at Hankyu Umeda and Seibu Shibuya, sales have commenced on "ZOZOTOWN," expanding awareness in the lifestyle wear segment.
• TECH SKIN : Signed a master distribution agreement for the Korean golf accessory brand "TECH SKIN." Plans are in place for a full-scale rollout of products such as the "Control Golf Tee," which has surpassed 1.8 million units sold, and functional innerwear.

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8. Channel Strategy and Future Store Opening Policy

The store opening plan for the second half of the fiscal year ending December 2026 is packed with initiatives to boost sales.

• Domestic Retail : Ongoing renovations to expand floor space in department stores and commercial facilities (Hankyu Umeda Main Store), new permanent store openings (Fukaya-Hanazono Premium Outlets, etc.), and strategic pop-up stores at Yokohama Takashimaya, Osaka Takashimaya, and Tokyo Daimaru.
• Overseas : New store openings in commercial facilities and golf courses in major Chinese cities, and the utilization of e-commerce (Tmall, etc.).

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9. Progress Against Full-Year Earnings Forecasts

Progress against the full-year consolidated earnings forecast as of the second quarter is as follows:

• Net Sales : 44.8% progress (2.223 billion yen) against the 4.965 billion yen target.
• Gross Profit : 44.5% progress (1.391 billion yen) against the 3.179 billion yen target.
• Operating Profit : 136 million yen loss against the 115 million yen profit target.

Due to seasonality, the company tends to see a concentration of sales and profits in the third and fourth quarters (second-half weighted) when autumn/winter items (heavy apparel, etc.) are sold. In the second half, the company plans to boost sales through the full penetration of promotional effects from the new ambassador and the full-year operation of new and renovated stores.

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10. Shareholder Return Policy and Shareholder Benefits

Regarding shareholder returns, the company maintains a basic policy of prioritizing capital investment and human resource investment for business expansion as a growing enterprise. At the same time, it has introduced a shareholder benefit program to increase investment appeal and encourage long-term holding.

• Eligibility : Shareholders holding 200 shares (2 units) or more as of the end of December each year.
• Benefits : A 10,000 yen coupon that can be used at domestic stores and the official online store.
• Capital Policy : The company has indicated a policy of considering flexible capital policies, such as share buybacks, in the event of sudden changes in the external environment.

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Conclusion

Cube's Q2 FY2026 earnings resulted in an operating deficit due to revenue declines from the Korean market adjustment and upfront costs associated with promotions and store investments. However, the seeds of structural reform are clearly visible, evidenced by the expansion of the D2C ratio to 68.8% , the increase in gross profit margin to 62.6% , the steady performance of domestic directly managed stores , and a rock-solid financial foundation with an equity ratio of 88.1% . The key focus moving forward will be how much these upfront investments bear fruit during the peak season in the second half.