TRIAL Holdings,Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥326.62B
• Operating Income: ¥5.14B
• Net Income: ¥3.25B
• EPS: ¥-8.01

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Strong top-line growth but margin compression and a surprise net loss make FY2026 Q1 a mixed quarter with elevated balance-sheet risk. Revenue surged 66.8% YoY to 3,266.17, indicating aggressive network expansion and/or consolidation impact. Gross profit was 391.34, implying a gross margin of 12.0%, while SG&A reached 348.53, consuming 10.7% of sales. Operating income increased 4.2% YoY to 51.40, but ordinary income fell 38.3% YoY to 32.47, signaling pressure below the operating line. Operating margin declined to 1.57%, down roughly 95 bps from an estimated 2.52% in the prior-year quarter. Despite positive profit before tax of 52.66 and a 38.2% effective tax rate, net income was a loss of -9.79, suggesting substantial deductions post-tax, likely from non-controlling interests or unreported special items. Interest burden remains low (interest expense 0.18; interest coverage 285.6x), but leverage is very high (D/E 4.96x). Liquidity is strained with a current ratio of 0.28 and a quick ratio of 0.14; short-term loans of 3,819 dwarf cash of 447.22. Intangibles and goodwill are large at 3,148.16 and 3,027.06, respectively, compared to total equity of 1,263.49, elevating impairment risk. ROE printed at -0.8% on weak net margin (-0.3%) despite very high financial leverage (5.96x), and ROIC is only 0.7%, well below retail benchmarks. Cash flow data are unreported, limiting earnings quality assessment and free cash flow coverage visibility. Working capital is deeply negative (-4,040.85), partly structural for retail but magnified by heavy short-term borrowing. Forward-looking, the company must improve gross margin mix and SG&A efficiency to restore double-digit ROIC and positive ROE, while addressing refinancing and impairment risks. Absent cash flow disclosure and with a net loss, dividend capacity (if any) appears constrained in the near term.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-0.3%) × 0.434 × 5.96 ≈ -0.8%. The largest swing driver is Net Profit Margin, which turned negative despite positive operating income, reflecting adverse below-OP impacts (ordinary income down 38.3% YoY and a swing to net loss). Business reasons likely include heavier non-operating losses or higher minority interest allocations and tax/valuation effects not fully itemized in the disclosed non-operating line. Asset turnover at 0.434 is moderate for a scale retailer but likely diluted by a larger asset base (notably intangibles) post expansion/consolidation. Financial leverage is very high (5.96x), which amplifies net profit volatility; however, low interest expense masks the underlying refinancing sensitivity. Sustainability: margin pressure appears cyclical/strategic (mix, price investment, opening costs) and could improve with stabilization, but the net loss underscores that current profitability is not yet sustainably above the cost of capital. Concerning trend: SG&A grew to 10.7% of sales and, with revenue up 66.8% YoY but operating income up only 4.2% YoY, operating leverage is negative; cost growth outpaced gross profit gains, compressing OPM by ~95 bps YoY.

Growth Assessment

Revenue growth of +66.8% YoY is exceptional and likely driven by aggressive store additions, format expansion, and/or M&A consolidation effects. However, profit growth lagged sharply: operating income rose only +4.2% YoY, ordinary income fell -38.3% YoY, and net income turned to a loss. The gross margin at 12.0% suggests continued price investment and mix headwinds; given the SG&A ratio at 10.7%, scale benefits did not translate into operating leverage this quarter. Quality of profit is mixed—core operations remained profitable, but below-OP and after-tax items dragged to a net loss. Outlook hinges on improving merchandise margin (category mix, private brand penetration, shrink control) and SG&A productivity (labor scheduling, logistics efficiency), and curbing non-operating drags. With ROIC at 0.7%, growth is currently value dilutive; management needs to pull margin levers to exceed the cost of capital. Near-term catalysts would be stabilization of OPM toward prior-year levels, clearer disclosure on non-operating impacts, and cash flow normalization.

Financial Health

Liquidity is weak: Current ratio 0.28 and quick ratio 0.14 both trigger warnings (threshold <1.0). There is pronounced maturity mismatch risk with current liabilities of 5,630.35 versus current assets of 1,589.50, driven by short-term loans of 3,819 and trade payables of 1,219.58. Solvency risk is elevated: D/E is 4.96x (>2.0 warning) despite low interest expense, reflecting reliance on inexpensive short-term funding. Cash and deposits of 447.22 cover only 11.7% of short-term loans, highlighting refinancing dependence. Intangibles (3,148.16) and goodwill (3,027.06) together exceed total equity (1,263.49), creating a high potential for equity erosion upon impairment. No off-balance sheet obligations were disclosed in the provided data; absence of disclosure limits full risk capture.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed and FCF cannot be computed. Given the retail model and the reported working capital of -4,040.85, a portion of negative working capital is structural (supplier financing). However, the outsized short-term loans indicate additional funding needs beyond trade credit, suggesting cash burn or front-loaded capex/inventory build tied to expansion. Without OCF/NI, we cannot flag earnings quality quantitatively, but the divergence between positive operating income and net loss, plus heavy current liabilities, increases the need for close OCF monitoring. Dividend and capex coverage by FCF cannot be evaluated this quarter.

Dividend Sustainability

Dividend data are unreported; a calculated payout ratio of -200% is not meaningful due to a net loss. With net income negative, ROE negative, ROIC at 0.7%, and no visibility on OCF/FCF, near-term dividend capacity (if any) appears constrained. Sustainability would require a return to positive net profit and demonstrably positive OCF after maintenance capex. Policy outlook is unclear in the absence of guidance; a conservative stance would be expected until leverage and cash generation improve.

Risk Assessment

Business Risks:

• Margin pressure from price competition and mix (gross margin at 12.0% with OPM 1.57%)
• Execution risk from rapid expansion/M&A integration implied by +66.8% revenue growth
• Logistics and labor cost inflation impacting SG&A ratio (10.7% of sales)
• Supply chain volatility affecting inventory and shrink
• Potential impairment risk given goodwill 3,027.06 and intangibles 3,148.16 versus equity 1,263.49

Financial Risks:

• Refinancing risk due to heavy reliance on short-term loans (3,819) and current ratio 0.28
• High leverage (D/E 4.96x) amplifying earnings volatility
• Interest rate risk on short-term borrowings despite currently low interest expense
• Maturity mismatch: current liabilities 5,630.35 vs current assets 1,589.50
• Potential equity erosion if goodwill/intangibles are impaired

Key Concerns:

• Ordinary income down 38.3% YoY and a swing to net loss despite positive PBT, indicating significant post-tax/NCI or unreported items
• Lack of cash flow disclosure obscures earnings quality and dividend/FCF coverage
• ROIC at 0.7% indicates growth is currently value-dilutive
• Negative working capital and high ST debt suggest liquidity tightness if trade terms or credit availability change

Investment Implications

Key Takeaways:

• Top-line growth is strong but not translating to bottom-line or ROIC; operating leverage negative
• Operating income positive with low interest burden, yet net loss points to below-OP and after-tax drags
• Balance sheet highly leveraged with acute short-term funding dependence and large intangibles
• Liquidity is a primary constraint; refinancing capacity and cost are critical near-term variables
• Improving gross margin and SG&A productivity is essential to restore sustainable ROE/ROIC

Metrics to Watch:

• Same-store sales and traffic vs ticket growth
• Gross margin and markdown/shrink trends
• SG&A ratio and labor/logistics cost indices
• Operating margin (target recovery toward >2.5%)
• Operating cash flow and free cash flow
• Inventory turnover and payable days (supplier financing stability)
• Short-term debt balance, average interest rate, and maturity profile
• Goodwill impairment indicators and segment profitability
• Tax and non-controlling interest impacts bridging PBT to net income

Relative Positioning: Versus domestic discount and GMS peers, Trial Holdings shows superior revenue growth momentum but materially lower profitability and capital efficiency, with leverage and liquidity risks notably higher than sector averages.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis