RENAISSANCE,INCORPORATED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.70B
• Operating Income: ¥59M
• Net Income: ¥25M
• EPS: ¥0.77

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: A weak FY2026 Q2 with severe margin compression and debt-service pressure, saved at the bottom line by a tax benefit. Revenue grew modestly by 1.1% YoY to 317.0, but operating income collapsed 93.0% YoY to 0.59, implying operating margin of roughly 0.19%. Based on last year's implied operating income (~8.4) and revenue (~313.6), operating margin likely compressed by about 250 bps YoY (from ~2.69% to ~0.19%). Gross profit was 19.0 with a slim 6.0% gross margin, nearly fully absorbed by SG&A of 18.4, leaving little buffer for interest and other costs. Ordinary income was a loss of 3.48 (reported +108.0% YoY, but still negative), reflecting high non-operating expenses of 4.66, including interest expense of 4.09. Despite a pre-tax loss of 3.60, net income was a small profit of 0.24 due to a sizable tax benefit of 3.85, driving an unusual effective tax rate of 106.8%. EBITDA was 17.16, but interest coverage based on operating income was just 0.14x, underscoring debt-service risk. Operating cash flow turned negative at -0.96, diverging from positive net income and signaling weak earnings quality. Capex was sizable at -20.39 and was largely funded by financing cash inflows of 24.76, indicating reliance on external funding. Liquidity is tight with a current ratio of 0.82 and negative working capital of -27.68. Leverage is high with total liabilities/equity at 3.68x, while interest-bearing debt totals at least 126.2 against equity of 119.7. ROE is a negligible 0.2% (DuPont: NPM 0.1% × AT 0.566 × FL 4.68x), and ROIC is only 0.2%, far below cost of capital. The quarter’s bottom line was not reflective of operating strength but of tax effects and financing support. Forward-looking, management must restore operating leverage (pricing, utilization, cost control) and improve cash conversion to alleviate refinancing and liquidity risks. Absent a visible recovery in club utilization and margin, debt burden and low coverage ratios will continue to constrain flexibility. Dividend capacity appears strained given negative OCF and heavy capex, though DPS details are unreported.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (0.1%) × Asset Turnover (0.566) × Financial Leverage (4.68x) ≈ 0.2%. The largest driver of weakness is the net profit margin, pressured by razor-thin operating margin (~0.19%) and high interest costs (4.09). Asset turnover of 0.566 is middling for a facility-based fitness operator and did not offset margin pressure. Financial leverage is high at 4.68x, amplifying small margins but also increasing sensitivity to profit swings. Business drivers: revenue growth was modest (+1.1% YoY), but gross margin at 6.0% and SG&A at 18.4 left minimal operating profit; increased financing costs (and possibly utilities/rent/labor inflation) further compressed ordinary profit. Sustainability: the margin compression appears cyclical/operational rather than one-time, unless management executes pricing/mix improvements or cost reductions; interest expense burden is structurally high absent deleveraging. Watch-outs: SG&A is nearly equal to gross profit; with revenue growth sluggish, any SG&A uptick outpacing sales would exacerbate losses. Non-operating expense (mainly interest) now overwhelms operating profit, a concerning trend.

Growth Assessment

Top-line grew 1.1% YoY to 317.0, indicating modest demand recovery but insufficient to leverage the fixed-cost base. Operating income fell 93.0% YoY to 0.59, highlighting severe operating deleverage. Gross margin at 6.0% suggests continued pressure from input costs (utilities), labor, and potentially discounting or slow unit economics per club. Non-operating income was only 0.58 versus non-operating expenses of 4.66, with interest at 4.09, turning ordinary income negative. Net income of 0.24 was achieved via a tax benefit (-3.85), not underlying earnings momentum. EBITDA of 17.16 provides some cushion for maintenance capex but is insufficient given interest and capex scale. Outlook hinges on improving membership volumes, ARPU/pricing, and cost controls; near-term growth appears constrained by weak operating leverage and high financing costs. Without clear signs of utilization recovery or price realization, profit growth sustainability is low.

Financial Health

Liquidity is tight: current ratio 0.82 and quick ratio 0.82 (warning), with negative working capital of -27.68. Cash and deposits are 79.62 versus current liabilities of 153.44; short-term loans of 58.00 contribute to a maturity mismatch risk. Total liabilities are 440.58 against equity of 119.74 (D/E 3.68x), indicating high leverage; interest-bearing debt disclosed totals 126.2 (58.0 ST + 68.2 LT). Interest coverage is weak (0.14x on operating income), posing debt-service risk. Noncurrent liabilities of 287.14 imply ongoing refinancing needs. No off-balance sheet obligations are disclosed in the provided data. Overall solvency pressure is elevated, and liquidity buffers are thin.

Cash Flow Quality

OCF was -0.96 versus positive net income of 0.24, yielding OCF/NI of -4.00x (quality concern). The positive NI was driven by a tax benefit; core cash generation was negative, pointing to weak cash conversion or adverse working capital movements. Capex was heavy at -20.39, resulting in negative pre-financing cash flow; financing inflow of 24.76 likely backfilled the OCF and capex gap, increasing reliance on debt. Free cash flow is not fully reported, but directionally negative given OCF and capex. No clear signs of deliberate working capital manipulation are observable from the limited breakdown, but the OCF shortfall alongside thin profits warrants caution. Sustainability: without a rebound in operating margin and OCF, funding needs will likely persist.

Dividend Sustainability

Dividend details are unreported; the calculated payout ratio of 1069.0% implies any dividend relative to the very small NI would appear unsustainably high. With OCF negative and capex sizable, internal FCF coverage for dividends is weak. Given leverage and liquidity constraints, maintaining dividends at prior levels (if any) would likely require continued external funding or balance sheet draw, which is risky. Policy outlook is uncertain due to data gaps, but fundamentals argue for a conservative stance until OCF improves.

Risk Assessment

Business Risks:

• Operating leverage risk: small revenue changes have outsized profit impact given low gross margin and high fixed costs
• Customer demand risk: membership churn and slower new sign-ups affecting utilization and ARPU
• Cost inflation: utilities, labor, and rent pressures compressing margins
• Execution risk on pricing and cost control initiatives

Financial Risks:

• Liquidity risk: current ratio 0.82 and negative working capital
• Debt-service risk: interest coverage 0.14x and high interest expense (4.09)
• Refinancing risk: short-term loans 58.0 vs limited cash buffer
• Leverage risk: liabilities/equity 3.68x; ROIC 0.2% below cost of debt and capital

Key Concerns:

• Earnings quality: NI positive only due to tax benefit; OCF negative
• Margin compression: operating margin ~0.19% leaves no room for shocks
• Capex funding via financing CF suggests growing balance sheet strain
• Sensitivity to macro softness and competitive pricing in fitness industry

Investment Implications

Key Takeaways:

• Severe margin compression (~250 bps YoY) despite +1.1% revenue growth
• Ordinary loss driven by interest burden; tax benefit masked bottom-line weakness
• OCF negative; capex funded by financing inflows, elevating balance sheet risk
• High leverage (D/E 3.68x) with weak coverage (0.14x) limits flexibility
• ROE 0.2% and ROIC 0.2% highlight inadequate returns versus cost of capital

Metrics to Watch:

• Monthly membership trends and ARPU/pricing actions
• Operating margin trajectory and utility/labor cost ratios
• OCF versus NI to gauge earnings quality improvement
• Net debt and interest coverage; refinancing schedule of short-term loans
• Capex plans (growth vs maintenance) and any revisions to dividend policy

Relative Positioning: Within Japan’s fitness/health club operators, results indicate below-peer profitability and weaker balance sheet resilience this quarter due to thin margins and higher financing costs; recovery in utilization and pricing, plus deleveraging, are needed to close the gap.

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