Sekisui House reported Q1 2026 results with record high revenue driven by MDC's contribution and strong domestic performance, but a decrease in profits due to reduced gains from urban redevelopment and lower profitability in the US housing business due to high mortgage rates and buyer hesitancy, leading to increased incentives like buy-downs. Revenue increased to ¥894.0 billion, while net profit attributable to the parent company decreased to ¥33.3 billion. The company aims to improve profitability in the US by focusing on revenue efficiency over volume.
Sekisui House reported record revenue of ¥894.0 billion for its first quarter of the fiscal year ending January 2026, an increase of ¥116.9 billion year-over-year, primarily driven by the consolidation of MDC Holdings and continued stable growth in domestic contracting and stock-type businesses. However, this top-line strength was offset by a significant decline in profitability, with operating profit falling by ¥11.4 billion to ¥60.2 billion and net profit attributable to the parent company decreasing by ¥17.0 billion to ¥33.3 billion. The profit erosion stemmed from multiple factors: domestically, a reduction in property sales within the urban redevelopment segment compared to a strong prior-year quarter which included major asset disposals, and internationally, substantial pressure on the US single-family home business. Persistently high US mortgage rates and economic uncertainty led to buyer caution, compelling increased use of sales incentives such as rate buy-downs, particularly for MDC Holdings, which saw its operating profit (excluding purchase price allocation effects like goodwill amortization and inventory step-up) decline approximately 60% and its gross margin compress by 4.1 percentage points due to these incentives. MDC's reported Q1 US detached homes operating profit was only ¥0.3 billion after factoring in approximately ¥4.5 billion in quarterly goodwill and trademark amortization and ¥4.6 billion in inventory step-up costs related to the acquisition. Overall group gross profit margin softened by 0.6 percentage points to 20.1%, while SG&A expenses rose, largely due to MDC's inclusion, pushing the SG&A ratio up 1.8 percentage points to 13.3%. The company's balance sheet reflected an increase in interest-bearing debt to ¥1.9539 trillion, resulting in a debt-to-equity ratio of 1.04x, and operating cash flow was negative at -¥162.3 billion, primarily due to investments in real estate for sale. Despite US challenges, the domestic detached homes segment showed resilience with improved margins (5.8%, +1.2 ppt) and higher unit prices, and the stock-type business delivered steady growth with its rental housing management arm achieving an 11.0% operating margin. Management aims to improve US performance by focusing on revenue efficiency over sheer volume for MDC's targeted 15,000 annual deliveries and anticipates domestic contributions from an expected Q2 recovery in rental and business segment margins and a significant urban redevelopment asset sale profit contribution in Q3.
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