Morgan Stanley downgrades Chiyoda stock on shoe business concerns

Morgan Stanley downgraded Chiyoda Co Ltd (8185:JP) to Underweight with a price target of JPY1,100.00, citing concerns over the company's shoe business. The downgrade reflects a 2.2% decline in same-store sales in Q1 fiscal 2026, ending 14 quarters of growth, and leading to a reduced operating profit forecast for fiscal years 2026 and 2027; Morgan Stanley now projects Chiyoda will fall short of its ¥3.6 billion operating profit guidance for fiscal 2026, despite a prior divestiture of its clothing business.

Analysis

Morgan Stanley has downgraded Chiyoda Co Ltd (8185:JP) to Underweight from Equalweight, concurrently reducing its price target to JPY1,100.00 from JPY1,250.00. This revision is primarily driven by concerns regarding Chiyoda's shoe business, which experienced a 2.2% decline in quarterly same-store sales in the first quarter of fiscal 2026, marking an end to 14 consecutive quarters of growth and the first negative growth since Q4 fiscal 2022. Consequently, Morgan Stanley has lowered its operating profit forecast for Chiyoda for the fiscal year ending February 2026 to ¥2.5 billion from ¥2.7 billion, anticipating Chiyoda will fall short of its own ¥3.6 billion guidance, despite this still representing year-over-year growth from fiscal 2025's ¥2.193 billion. The investment bank attributes the sales decline to a potential tapering of outing demand recovery and reduced popularity of Chiyoda's private-brand products, also expecting the shoe business's operating profit to be lower than the ¥2.994 billion recorded in fiscal 2025. Furthermore, the operating profit forecast for fiscal 2027 has been revised downwards to ¥2.4 billion from ¥2.7 billion, reflecting skepticism about a short-term recovery even after Chiyoda's divestiture of its loss-making clothing business in fiscal 2025. The sentiment from this analysis is strongly negative.

Key Decisions for Investors

• Investors should consider the implications of Morgan Stanley's Underweight rating and significantly lowered price target on Chiyoda Co Ltd (8185:JP), particularly given the identified weakness and negative outlook for its core shoe business.
• Close monitoring of Chiyoda's upcoming same-store sales figures is crucial, as the recent 2.2% Q1 FY2026 decline marks a significant trend reversal after 14 quarters of growth and is a primary driver for the revised forecasts.
• The substantial discrepancy between Chiyoda's ¥3.6 billion operating profit guidance for fiscal 2026 and Morgan Stanley's ¥2.5 billion forecast highlights a key risk, suggesting potential for investor disappointment or further downward estimate revisions if company targets are not met.