RENAISSANCE,INCORPORATED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.70B
• Operating Income: ¥59M
• Net Income: ¥216M
• 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

Renaissance (TSE:2378) reported FY2026 Q2 consolidated results under JGAAP showing modest topline growth but a sharp deterioration in profitability and weak coverage metrics. Revenue grew 1.1% YoY to ¥31,702 million, but operating income fell 93.0% YoY to ¥59 million, indicating significant margin compression amid cost pressures or loss of temporary tailwinds. Gross profit was ¥2,713 million with an 8.6% gross margin, highlighting a cost base that remains heavy relative to sales for a service model with sizable fixed expenses. Ordinary income turned to a loss of ¥348 million, reflecting the drag from financial costs (interest expense of ¥370 million) and possibly other non-operating factors. Despite the ordinary loss, net income was marginally positive at ¥24 million (EPS ¥0.77), implying the presence of non-operating or extraordinary gains; the reported effective tax rate rounds to 0.0% given near-breakeven earnings. DuPont shows a razor-thin net margin of 0.08%, asset turnover of 0.566x, and financial leverage of 4.68x, resulting in a very low calculated ROE of 0.20%. EBITDA was ¥1,573 million (5.0% margin), but EBIT-based interest coverage is weak at roughly 0.2x, underscoring sensitivity to borrowing costs. Operating cash flow of ¥511 million greatly exceeded net profit (OCF/NI 21.29x), supported by non-cash charges and working capital dynamics; however, investing cash flows were not disclosed, limiting free cash flow assessment. Financing cash inflows of ¥1,965 million suggest increased reliance on external funding during the period. The balance sheet shows total assets of ¥56,032 million and equity of ¥11,974 million; based on these figures, the implied equity ratio is about 21–22% (the disclosed 0.0% equity ratio appears not reported), while liabilities total ¥43,317 million (debt-to-equity 3.62x). Liquidity is tight with a current ratio of 80.8% and negative working capital of ¥2,995 million, indicating short-term refinancing and cash management pressures. Dividend per share is reported as ¥0.00 with a 0% payout, consistent with preserving liquidity amid weak earnings, though dividend policy details for the full year are not provided. Overall, the quarter illustrates high operating leverage: small revenue growth failed to translate into profit due to cost inflation, energy/utilities, wage pressures, or normalization from prior-year subsidies. Interest expense is a key headwind, and ordinary loss despite positive EBITDA flags limited headroom before debt servicing. The positive OCF is a relative bright spot, but absent investing cash flow disclosure, sustainability of free cash flow cannot be judged. Data limitations (notably zero-reported items for equity ratio, cash, investing CF, and share data) constrain depth of conclusions; the analysis focuses on disclosed non-zero items and internally consistent calculations.

Profitability Analysis

ROE decomposition: Net profit margin 0.08% x asset turnover 0.566 x financial leverage 4.68 ≈ ROE 0.20%, indicating that minimal profitability is being modestly amplified by leverage. Operating margin compressed sharply: operating income ¥59m implies an operating margin of ~0.19%, down from the prior-year base (−93% YoY), pointing to adverse cost dynamics. Gross margin of 8.6% is low for the business model and suggests elevated cost of sales (e.g., personnel, utilities, facility-related costs). EBITDA margin at 5.0% provides limited buffer for interest and lease-like obligations; conversion from EBITDA to EBIT is weak given D&A of ¥1,514m. Ordinary loss (−¥348m) against positive operating income implies non-operating burdens, chiefly interest expense of ¥370m. Interest coverage on an EBIT basis is about 0.16x–0.2x (¥59m/¥370m), signaling materially constrained profitability after financing costs; on an EBITDA basis, coverage improves but remains modest given other fixed charges. Operating leverage appears high: a 1.1% YoY revenue increase coincided with a 93% decline in operating profit, implying that fixed costs rose or previous temporary supports rolled off. Margin quality is weak near term, with sensitivity to small revenue shortfalls and cost inflation (energy, labor).

Growth Assessment

Revenue growth was +1.1% YoY to ¥31,702m, indicating modest demand recovery or stabilization. However, profit growth is not keeping pace; operating profit fell sharply, and ordinary income moved to a loss, demonstrating unsustainable cost absorption at current volumes. The disconnect between revenue and profit suggests that the revenue mix and pricing power may be insufficient to offset input cost inflation and fixed overheads. Net income remained positive at ¥24m, likely supported by non-recurring or non-operating items; underlying run-rate profitability appears weaker than headline net income suggests. EBITDA of ¥1,573m indicates some operating cash generation capacity, but depreciation is sizeable, reflecting capital intensity of facilities. Without disclosed investing cash flows, capacity expansion and maintenance investment trends cannot be assessed, limiting visibility on medium-term growth. Outlook hinges on same-store sales, membership trends, pricing actions, utilization, and cost normalization (especially utilities and wages). Absent stronger topline momentum or cost control, operating leverage will continue to work against earnings. Sustainable growth will likely require tighter expense discipline, optimized club portfolio, and improved ARPU or membership acquisition/retention.

Financial Health

Liquidity: Current assets ¥12,591m vs current liabilities ¥15,586m yields a current ratio of 80.8% and negative working capital of ¥2,995m, indicating short-term funding pressure. Quick ratio matches current ratio (no inventories reported), emphasizing the importance of receivables and cash management. Solvency: Total liabilities ¥43,317m vs equity ¥11,974m results in debt-to-equity of 3.62x; implied equity ratio is ~21.4% (equity/total assets), higher than the 0.0% reported value which appears undisclosed. Interest expense of ¥370m against limited EBIT signals thin debt service capacity at current earnings levels. Capital structure is leveraged, and ordinary loss underscores vulnerability to rate increases or tightening credit. Asset base of ¥56,032m versus modest operating profit suggests low return on assets in the period.

Cash Flow Quality

Earnings quality: OCF of ¥511m relative to net income of ¥24m (OCF/NI 21.29x) indicates that accounting earnings understated cash generation this half, driven by non-cash D&A (¥1,514m) and working capital movements. However, the large gap also reflects that net income was near breakeven; sustainability of OCF depends on maintaining EBITDA and managing payables/receivables. Free cash flow: Investing cash flows are not disclosed (recorded as zero, indicating unreported), so FCF cannot be reliably computed; reported FCF of 0 should be interpreted as not assessable rather than zero. Financing cash flows: Inflow of ¥1,965m points to increased borrowing or other financing to support liquidity and operations. Working capital: Negative working capital and current ratio below 1.0 imply reliance on short-term liabilities; close monitoring of receivable collections and payables is essential.

Dividend Sustainability

Reported DPS is ¥0.00 with a 0% payout ratio for the period, consistent with conserving cash amid weak earnings and tight liquidity. With EBIT-based interest coverage at ~0.2x and ordinary loss, internal coverage for dividends is currently limited. OCF was positive, but absent capex disclosure, FCF coverage of dividends cannot be determined; reported FCF coverage of 0.00x should be treated as not assessable rather than indicative of zero capacity. Balance sheet leverage (D/E 3.62x) and negative working capital further constrain room for distributions in the near term. Policy outlook will depend on full-year earnings recovery, stabilization of operating margins, and visibility on maintenance capex and financing conditions.

Risk Assessment

Business Risks:

• High operating leverage: small revenue changes drive outsized profit swings
• Cost inflation in utilities and labor compressing margins
• Demand volatility in fitness/health services (membership, utilization, ARPU)
• Potential need for higher maintenance capex to sustain facility quality
• Competitive intensity from domestic peers and alternative wellness offerings
• Execution risk in pricing, product mix, and network optimization

Financial Risks:

• Weak interest coverage (~0.2x on EBIT) and ordinary loss
• Leverage elevated (D/E 3.62x) with implied equity ratio ~21%
• Tight liquidity (current ratio 0.81x, negative working capital)
• Refinancing risk and sensitivity to interest rate increases
• Uncertain free cash flow due to undisclosed investing cash flows

Key Concerns:

• Sustained margin pressure despite revenue growth
• Reliance on financing inflows (¥1,965m) to support liquidity
• Visibility on capex and FCF limited by non-disclosure of investing CF

Investment Implications

Key Takeaways:

• Topline grew modestly (+1.1% YoY), but operating profit collapsed (−93% YoY), evidencing significant margin compression
• Ordinary loss (−¥348m) driven by interest burden underscores fragile earnings after financing costs
• OCF (¥511m) outpaced net income (¥24m), but FCF can’t be assessed without investing CF disclosure
• Leverage is high (D/E 3.62x) and liquidity tight (current ratio 0.81x), elevating refinancing and rate sensitivity
• ROE is negligible at 0.20%, as minimal margins offset moderate asset turnover and high leverage

Metrics to Watch:

• Same-store sales, membership counts, ARPU, and churn
• Energy and personnel cost run-rate versus pricing actions
• Operating margin and EBITDA margin trajectory
• Interest coverage (EBIT/interest) and net debt/EBITDA
• Working capital turns and OCF sustainability
• Maintenance and growth capex once disclosed
• Any covenant headroom and refinancing timelines

Relative Positioning: Within Japan’s fitness and wellness operators, Renaissance currently exhibits weaker near-term profitability and coverage metrics, with higher sensitivity to financing costs and operating leverage; improvement hinges on margin recovery and cost control relative to peers facing similar cost inflation.

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
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