Morozoff Limited FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥22.25B
• Operating Income: ¥-202M
• Net Income: ¥345M
• EPS: ¥-10.01

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

Morozoff (2217) reported FY2026 Q3 (cumulative) revenue of 222.55 (100M JPY), down 0.4% YoY, indicating largely flat topline momentum amid a challenging consumer environment. Gross profit was 115.56, translating to a robust gross margin of 51.9%, consistent with a premium confectionery mix but offset by high operating costs. SG&A expenses were 113.45, nearly fully absorbing gross profit and resulting in an operating loss of -2.02, with an operating margin of approximately -0.9%. Non-operating items were modestly positive on balance (income 0.45 vs expenses 0.22), narrowing the loss at the ordinary level to -1.50. The company reported profit before tax of 5.69, which diverges from ordinary income and implies the presence of significant extraordinary gains not detailed in the dataset. Despite the positive pre-tax figure, net income was a loss of -2.02, and total comprehensive income was -0.98, suggesting either additional below-the-line losses, tax adjustments, or other one-off effects. The effective tax rate is shown as 39.3% based on reported tax and pre-tax figures, though this is difficult to interpret given the negative ordinary income and a negative bottom line. Liquidity remains strong with a current ratio of 282.6% and a quick ratio of 238.7%, supported by cash and deposits of 45.95. The balance sheet is conservative: total liabilities are 61.08 vs total equity of 190.01, and interest-bearing debt totals 18.90 (short-term 15.10 and long-term 3.80). On a net basis, the company appears to hold net cash of roughly 27.05 (cash 45.95 minus interest-bearing debt 18.90), mitigating refinancing risk. DuPont analysis indicates a negative ROE of -1.1%, driven by a -0.9% net margin, with asset turnover of 0.813 and financial leverage of 1.44x. Working capital is ample at 98.81, with accounts receivable of 68.92 and inventories of 23.72, consistent with a wholesale/retail mix and seasonality ahead of peak events. Interest coverage is negative (-11.68x) when measured against operating income, highlighting thin operating profitability despite low absolute interest costs (0.17). DPS and cash flow statements were not disclosed, constraining dividend sustainability and cash conversion analysis. Overall, the quarter demonstrates resilient gross profitability but inadequate operating leverage to convert sales into earnings, while the balance sheet provides resilience. Data limitations (cash flow and key breakdowns) and atypical gaps between ordinary income, PBT, and net income indicate one-off items and reduce visibility into underlying earnings quality.

Profitability Analysis

ROE of -1.1% decomposes into net margin of -0.9%, asset turnover of 0.813, and financial leverage of 1.44x; the negative margin is the primary driver of weak equity returns. Gross margin of 51.9% is healthy for a premium confectionery model, but the SG&A ratio of roughly 51.0% (113.45/222.55) leaves limited room for operating profit, reflecting a cost-heavy retail footprint, higher personnel costs, and likely elevated utility and logistics expenses. Operating margin is -0.9%, indicating insufficient operating leverage at current sales levels; modest top-line pressure (-0.4% YoY) and cost inflation likely eroded incremental margins. Non-operating items netted +0.23, too small to offset operating weakness. Interest expense is low at 0.17, but with negative operating income, interest coverage is -11.68x; this is more a profitability issue than a balance sheet risk given net cash. The divergence between ordinary income (-1.50), profit before tax (5.69), and net income (-2.02) points to significant extraordinary items and/or tax effects; without disclosure, recurring profitability is best proxied by operating and ordinary income, both negative. Overall margin quality appears pressured by fixed-cost intensity and possibly under-recovered cost inflation; pricing/mix discipline preserved gross margin but did not translate into operating profit.

Growth Assessment

Revenue declined slightly (-0.4% YoY to 222.55), signaling stable-but-soft demand ahead of key seasonal peaks. Given the company’s Valentine’s/White Day concentration, Q4 seasonality may materially affect full-year growth; Q3 cumulative trends alone understate peak season performance. Gross margin resilience suggests pricing and mix management, but negative operating income indicates growth is not currently translating to profit growth. Ordinary income deterioration (to -1.50) and an operating loss indicate weaker core earnings quality. The positive PBT implies extraordinary gains (e.g., asset sales or other special gains), which are non-recurring and do not improve the underlying outlook. Near-term outlook depends on holiday sell-through, cost normalization (cocoa/dairy, packaging, utilities), and SG&A containment. Sustainable growth will require either meaningful cost efficiency (store opex, logistics, labor productivity) or stronger like-for-like sales and pricing power to expand operating margin.

Financial Health

Liquidity is strong: current assets 152.94 vs current liabilities 54.12 yield a current ratio of 282.6% and a quick ratio of 238.7%. Cash and deposits of 45.95 and investment securities of 12.75 enhance financial flexibility. Leverage is conservative: total liabilities/equity is approximately 0.32x (61.08/190.01), while interest-bearing debt is 18.90, implying interest-bearing debt/equity of about 0.10x and a net cash position near 27.05. Equity stands at 190.01 with retained earnings of 126.41, indicating cumulative profitability capacity despite the current loss. Short-term borrowings (15.10) dominate, but refinancing risk appears low given cash on hand. The strong balance sheet offsets weak current profitability and supports working capital needs through seasonal peaks. No goodwill is reported, reducing impairment risk from acquisitions. Overall solvency is solid, and capital structure conservative.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed, preventing a direct assessment of earnings-to-cash conversion, OCF/NI, and free cash flow. Given negative operating income and a negative bottom line, cash generation likely depends on seasonality and working capital inflows around peak sales periods; however, this cannot be confirmed. Working capital looks ample: receivables 68.92 and inventories 23.72 suggest significant seasonal buildup ahead of peak periods; subsequent collection and sell-through will determine OCF quality. With interest expense of only 0.17 and a net cash position, liquidity coverage of operations appears adequate even if OCF is volatile intra-year. Capex and depreciation are not reported, so maintenance vs growth investment intensity, and EBITDA-based metrics, are unavailable. In sum, cash flow quality is indeterminate from disclosed data, with seasonality a key swing factor.

Dividend Sustainability

Dividend per share and total dividends paid are unreported; the calculated payout ratio of -863.2% is not meaningful in the context of a net loss and absent DPS disclosure. Without OCF and FCF, coverage analysis cannot be performed. Balance sheet strength (retained earnings 126.41 and net cash roughly 27.05) provides headroom for a dividend, but current period losses and negative operating income introduce caution about earnings cover. Future dividend sustainability will hinge on restoring positive operating income and stable OCF through the seasonal peaks. Policy signals (not provided) and historical payout tendencies would be useful to contextualize the likely path; these are not available in the dataset.

Risk Assessment

Business Risks:

• High seasonality around Valentine’s/White Day; Q4 outcome is critical for full-year earnings
• Input cost volatility (cocoa, dairy, sugar, packaging) and energy/logistics cost inflation
• Intense competition from convenience stores and other confectionery brands pressuring price/mix
• Labor cost inflation and staffing constraints impacting SG&A
• Retail footprint fixed-cost burden leading to low operating leverage at flat sales
• Demand sensitivity to consumer sentiment and weather during promotional periods
• Potential product mix shifts away from premium gifting affecting gross margin

Financial Risks:

• Negative operating income and weak ordinary income reduce interest coverage despite low leverage
• Earnings volatility from extraordinary items obscuring core profitability
• Working capital swings tied to seasonal sales and receivables collection
• Limited visibility due to unreported cash flow statements and D&A
• Short-term borrowing reliance (15.10) amid seasonal cash needs, albeit mitigated by cash on hand

Key Concerns:

• Operating margin at -0.9% with SG&A nearly equal to gross profit
• Discrepancy between ordinary income (-1.50), PBT (5.69), and net income (-2.02) implying material one-offs
• Negative interest coverage (-11.68x) on operating basis
• Absence of OCF/FCF data to validate cash conversion and dividend cover

Investment Implications

Key Takeaways:

• Topline is stable but slightly negative YoY (-0.4%); gross margin strong at 51.9% but not converting to operating profit
• Operating and ordinary losses indicate core earnings weakness; extraordinary items likely drove the positive PBT
• Balance sheet remains conservative with net cash (~27.05) and low liabilities/equity (0.32x)
• Liquidity robust (current ratio 282.6%, quick ratio 238.7%), supporting seasonal requirements
• Visibility is limited due to missing cash flow data and key operating breakdowns

Metrics to Watch:

• Like-for-like sales and sell-through during Valentine’s/White Day
• Gross margin versus input cost trends (cocoa, dairy, packaging) and pricing actions
• SG&A ratio and cost control (labor productivity, store opex, logistics)
• Inventory and receivables days to gauge working capital normalization post-peak
• Ordinary income trajectory as a cleaner proxy for recurring earnings
• Disclosure of cash flow from operations and capex to assess FCF and dividend cover

Relative Positioning: Within Japanese confectionery/retail peers, Morozoff exhibits a premium gross margin profile but weaker operating profitability due to high SG&A intensity. Its balance sheet is stronger than many small/mid peers (net cash, low leverage), but current profitability trails sector leaders that sustain positive operating margins.

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