Kotobuki Spirits Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥35.79B
• Operating Income: ¥7.44B
• Net Income: ¥5.02B
• EPS: ¥32.49

Income Statement

Balance Sheet

Cash Flow Statement

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: Solid top-line growth but mild margin compression, resulting in flat operating/ordinary profit and only slight net profit growth for FY2026 Q2 (cumulative). Revenue rose 8.8% YoY to 357.9, outpacing the domestic confectionery market and indicating robust demand recovery (likely aided by travel/inbound channels). Gross profit reached 215.3 with a strong gross margin of 60.2%, underscoring premium product positioning and pricing power. Operating income was 74.4 (-0.5% YoY), implying limited operating leverage this half despite healthy sales expansion. Ordinary income was essentially flat at 75.2, with non-operating net contributing a modest +0.76 (dividends/interest). Net income increased slightly to 50.2 (+0.5% YoY), with an effective tax rate of 33.2% serving as a drag. Operating margin declined from roughly 22.8% to 20.8% (-196 bps), as SG&A intensity rose to 39.4% of sales, offsetting gross profit growth. Net margin compressed from roughly 15.2% to 14.0% (-117 bps), consistent with the operating trend. Earnings quality is adequate: OCF of 52.6 exceeded net income of 50.2 (OCF/NI 1.05x), suggesting profits are cash-backed. The balance sheet remains very strong with an estimated equity ratio around 79% and a very high current ratio of 425%, supported by cash and deposits of 247.6. DuPont ROE is 12.4% driven mainly by healthy net margins and moderate asset turnover; leverage remains conservative at 1.26x. Capex was 12.4, implying an estimated FCF proxy of about 40.2 (OCF − capex), leaving capacity for reinvestment and shareholder returns. The reported payout ratio of 99.3% looks elevated, but dividend disclosures are unreported and the payout metric may not be strictly comparable at the Q2 cumulative stage. Forward-looking, the key questions are whether SG&A normalization and mix/pricing can restore operating margin, and how inbound/travel retail trends evolve into H2. With strong liquidity and cash generation, the company appears well-positioned to navigate cost pressures while pursuing growth initiatives. However, vigilance is warranted on cost inflation (ingredients and labor) and any slowdown in travel-related demand that could weigh on margins. Overall, the quarter demonstrates resilient demand but highlights the need for tighter cost control to sustain earnings growth.

Profitability Analysis

ROE decomposition (DuPont): ROE 12.4% = Net Profit Margin 14.0% × Asset Turnover 0.702 × Financial Leverage 1.26x. The largest change driver this quarter appears to be the margin component: operating income fell 0.5% YoY despite +8.8% revenue, implying operating margin compression of ~196 bps (from ~22.8% to 20.8%). Business context: higher SG&A intensity (39.4% of sales) likely reflects wage inflation, store/format expansion costs, promotional investments, or travel-retail ramp costs; gross margin remained robust at 60.2%, so deleverage mainly stemmed from overhead and selling expenses. Asset turnover likely improved modestly with sales growth, though prior asset levels are not disclosed; leverage remained conservative (1.26x) and is not a material ROE driver. Sustainability: the margin headwind may prove partially transitory if H2 volume/mix improves and cost actions catch up, but persistent labor/utilities/logistics inflation poses risk to a quick rebound. Watch for SG&A growth outpacing revenue—this period’s flat OI vs +8.8% revenue implies SG&A growth likely exceeded gross profit growth, a negative operating leverage signal.

Growth Assessment

Top-line growth of +8.8% YoY to 357.9 indicates healthy demand, likely supported by tourism recovery, channel expansion, and brand strength. Operating income (-0.5% YoY) lagged revenue, signaling cost pressure and negative operating leverage in H1. Net income grew +0.5% with a normalized tax rate (33.2%), suggesting limited assistance from non-operating items (non-op income ratio 1.6%). Revenue quality looks solid given high gross margin (60.2%), implying sustained pricing power and premium positioning. Profit quality is mixed: cash conversion is sound (OCF/NI 1.05x), but SG&A intensity constrained profit growth. ROIC is reported at 32.0% (definition not disclosed), consistent with an asset-light, brand-driven model; sustainability hinges on maintaining high gross margins and disciplined SG&A. Outlook hinges on H2 seasonality and inbound: if traffic and mix remain favorable and cost normalization occurs, operating margin can stabilize or recover; conversely, any inbound slowdown or persistent cost inflation could cap earnings growth. With strong liquidity and low leverage, the company has flexibility to invest in capacity, product innovation, and channel optimization to support mid-term growth.

Financial Health

Liquidity is very strong: current ratio 424.8% and quick ratio 385.1%, with cash and deposits of 247.6 and working capital of 275.6. No warning flags (Current Ratio >> 1.0). Solvency is robust: total liabilities 106.8 vs equity 403.1 implies an equity ratio near 79% (despite the metric being unreported) and very conservative leverage (financial leverage 1.26x). Debt details are unreported, but D/E is indicated at 0.26x; given the sizeable cash balance, net cash position is highly likely. Maturity mismatch risk appears low: current assets (360.4) far exceed current liabilities (84.9). No off-balance sheet obligations are disclosed in the provided data. Overall, the balance sheet affords substantial resilience and optionality.

Cash Flow Quality

OCF/Net Income is 1.05x—above the 0.8 threshold—indicating reasonable earnings quality. Operating CF of 52.6 comfortably supports capex of 12.4, yielding an estimated proxy FCF of about 40.2 (OCF − capex), though full investing cash flows are unreported. With financing CF of -52.4 (details unreported), cash deployment likely included dividends and/or share-based returns and lease/repayment items; specifics are unclear. No clear signs of working capital manipulation can be inferred without period-over-period AR/inventory/AP movements; current composition (cash-heavy, modest inventories/receivables) appears conservative. Sustainability: barring a sharp margin deterioration, cash generation should remain adequate to fund maintenance capex and ordinary dividends.

Dividend Sustainability

Dividend disclosures (DPS, total dividends) are unreported, and the calculated payout ratio of 99.3% likely reflects a partial-period denominator/estimation and may not align with full-year policy. On a cash basis, estimated FCF (~40.2) provides room for ordinary dividends if the actual annual cash outlay is moderate; however, without investing CF details and precise dividend amounts, coverage cannot be confirmed. Balance sheet strength (net cash, ~79% equity ratio) provides a buffer even if payout is temporarily elevated. Policy outlook: given the company’s asset-light profile and healthy ROE (12.4%), a stable to moderately progressive dividend policy is plausible, but prudence would suggest aligning payout with mid-cycle FCF rather than near-100% earnings payout. Watch for full-year guidance on DPS and payout framework.

Risk Assessment

Business Risks:

• Margin pressure from rising SG&A (wages, logistics, utilities) reducing operating leverage
• Raw material cost inflation (sugar, wheat, dairy/butter, chocolate) impacting gross margins
• Demand sensitivity to tourism/inbound traffic and travel-retail channels
• Seasonality risk around holiday and travel peaks
• Brand and product concentration in regional gift categories

Financial Risks:

• Limited disclosure on interest-bearing debt and investing cash flows
• Potential FX exposure on imported ingredients and packaging materials
• High reported payout ratio (methodology unclear) could constrain reinvestment if sustained

Key Concerns:

• Operating margin compression of ~196 bps despite +8.8% revenue growth
• SG&A ratio elevated at ~39.4% of sales, indicating negative operating leverage
• Net margin compression of ~117 bps alongside a 33.2% effective tax rate
• Data gaps on debt profile, investing CF, and dividends hinder full cash return assessment

Investment Implications

Key Takeaways:

• Healthy top-line momentum (+8.8% YoY) with premium gross margin (60.2%)
• Operating and net margin compression due to SG&A intensity; earnings roughly flat
• Strong cash generation (OCF > NI) and robust net cash balance sheet
• ROE 12.4% with conservative leverage, indicative of quality franchise economics
• Estimated FCF positive after capex, supporting capacity for returns and reinvestment

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue in H2
• Gross margin resilience amid ingredient and energy cost trends
• OCF/NI ratio and working capital movements (AR and inventory turns)
• Inbound/tourism demand indicators and airport/terminal sales mix
• Full-year dividend guidance and payout policy vs FCF

Relative Positioning: Within Japanese confectionery and regional gift peers, the company exhibits superior gross margins and balance sheet strength, with competitive ROE. The near-term differentiator will be the ability to re-assert operating leverage by controlling SG&A while sustaining growth from travel-related and premium channels.

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