K.UNO Co., Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥7.00B
• Operating Income: ¥102M
• Net Income: ¥23M
• EPS: ¥21.87

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: Soft quarter with revenue growth but sharp profit compression and negative operating cash flow; leverage elevated and ROIC subpar. Revenue grew 5.2% YoY to 70.04, while operating income fell 60.8% YoY to 1.02 and net income dropped 86.3% to 0.22. Gross profit reached 40.59 with a robust gross margin of 57.9%, but the SG&A burden at 39.56 (56.5% of sales) squeezed operating margin. Operating margin compressed to 1.46%, down roughly 244 bps from ~3.90% last year. Ordinary income margin declined to 1.07%, down about 241 bps YoY. Net margin fell to 0.31%, a contraction of ~210 bps YoY driven by non-operating losses (net -0.27) and a high effective tax rate of 63.4%. Equity-method investment income was negative (-0.22), further dragging ordinary income. EBITDA was 1.91 (2.7% margin), implying modest interest coverage by operating income (about 8.9x) but leaving little buffer for volatility. Cash generation deteriorated: operating cash flow was -0.44 versus net income of 0.22 (OCF/NI -2.0x), and free cash flow was -1.83 after 0.92 of capex. The balance sheet shows current assets of 34.03 versus current liabilities of 23.00 (current ratio 148%), with cash of 10.21 and short-term loans of 4.40, indicating adequate near-term liquidity. However, leverage is high with D/E of 2.58x and total liabilities of 32.72 against equity of 12.69, and ROIC of 3.7% suggests weak capital efficiency. Financing inflow (1.91) appears to have funded the OCF shortfall and capex, pointing to reliance on external funding in this period. With revenue momentum modest and margins under pressure from SG&A and non-operating items, earnings visibility is limited until cost discipline and cash conversion improve. The unusually high tax rate and negative equity-method contribution look non-recurring candidates, but clarity is required. Inventory at 7.64 and receivables at 4.39 alongside negative OCF raise questions about working capital usage. Overall, the quarter underscores the need to stabilize margins, normalize tax and affiliate contributions, and restore positive OCF to support investment and potential shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.7% = Net Profit Margin 0.31% × Asset Turnover 1.54 × Financial Leverage 3.58x. The dominant drag was net profit margin, which compressed from 2.41% to 0.31% (-210 bps), driven by a heavier SG&A ratio, negative net non-operating items (-0.27), and a very high effective tax rate (63.4%). Asset turnover at 1.54 is reasonable for a specialty retailer and likely stable YoY, while financial leverage at 3.58x amplified the low margin outcome without improving underlying economics. Business drivers: (1) SG&A rose faster than revenue, compressing operating margin to 1.46% (down ~244 bps YoY); (2) Non-operating expense outweighed income, including negative equity-method income (-0.22) and interest expense (0.11); (3) Elevated tax burden eroded after-tax profitability. Sustainability: Margin pressure from SG&A could be addressed via cost control and operating leverage if sales growth persists, but non-operating volatility and tax rate normalization are uncertainties; leverage-based ROE is not a quality driver. Warning signs: SG&A intensity at 56.5% of sales is high relative to the 57.9% gross margin, leaving a thin operating spread (~140 bps); any demand softness would quickly push operating profit lower.

Growth Assessment

Top-line growth of 5.2% YoY to 70.04 reflects modest demand resilience. However, profit growth was negative across all levels: operating income -60.8%, ordinary income -67.7%, and net income -86.3%, indicating negative operating leverage. The SG&A ratio increased relative to sales, neutralizing gross margin strength. Non-operating headwinds (net -0.27) and a 63.4% effective tax rate compounded declines in bottom line. EBITDA margin at 2.7% suggests limited buffer against cost inflation or sales volatility. Equity-method loss (-0.22) likely one-off or cyclical but materially impacts small earnings base. Without evidence of structural revenue acceleration, growth sustainability hinges on cost optimization and stabilization of non-operating items. Near term, we expect cautious outlook until OCF turns positive and SG&A discipline is evident.

Financial Health

Liquidity: Current ratio 148% (slightly below the >150% healthy benchmark) and quick ratio 115% indicate acceptable short-term coverage; cash (10.21) exceeds short-term loans (4.40). Working capital of 11.03 provides a cushion. Solvency: D/E of 2.58x is high (warning threshold >2.0), and total liabilities (32.72) materially exceed equity (12.69). Interest coverage by operating income is ~8.9x (above 5x benchmark), but the thin operating margin raises sensitivity to shocks. Maturity profile: Current assets (34.03) comfortably cover current liabilities (23.00), suggesting limited near-term maturity mismatch risk. Off-balance sheet: None disclosed in the provided data.

Cash Flow Quality

OCF/Net Income at -2.0x flags poor earnings quality for the period. Free cash flow was -1.83 after capex of 0.92, requiring financing inflows of 1.91 to bridge. The negative OCF despite positive EBITDA (1.91) implies significant working capital outflow and/or tax/cash interest timing effects; specific drivers are not disclosed. Sustaining dividends or incremental growth capex from internal cash is currently challenging without improving OCF. No clear signs of deliberate working capital manipulation can be concluded from the limited disclosure, but the combination of rising sales and negative OCF warrants monitoring of inventory and receivables turnover.

Dividend Sustainability

Dividend data are unreported, so payout metrics cannot be calculated. From a capacity perspective, negative FCF (-1.83) and low net income (0.22) suggest limited headroom for meaningful cash distributions absent balance sheet usage or improved cash generation. With D/E at 2.58x and ROIC at 3.7%, prioritizing balance sheet strengthening and ROIC-improving investments may be prudent before raising shareholder returns. Policy outlook cannot be assessed due to disclosure gaps.

Risk Assessment

Business Risks:

• Demand sensitivity in discretionary/bridal jewelry impacting sales and operating leverage
• Input cost volatility (precious metals, gemstones) compressing gross margins
• Negative equity-method contribution (-0.22) indicating affiliate volatility
• High SG&A intensity (56.5% of sales) limiting margin resilience
• Execution risk in cost control and store productivity

Financial Risks:

• High leverage (D/E 2.58x) increases sensitivity to profit downturns
• Negative operating cash flow requiring external funding in the period
• Interest rate risk on loans (short-term 4.40; long-term 6.90)
• High effective tax rate (63.4%) depressing net income; potential volatility
• Thin operating margin (1.46%) leaves limited buffer for shocks

Key Concerns:

• OCF/NI at -2.0x signaling weak cash conversion
• ROIC at 3.7% below 5% threshold, indicating subpar capital efficiency
• Margin compression across operating, ordinary, and net levels (~210–244 bps YoY)
• Reliance on financing inflows (1.91) to cover negative FCF
• Inventory and receivables levels vs OCF suggest potential working capital drag

Investment Implications

Key Takeaways:

• Revenue grew 5.2% but profit collapsed: OP -60.8%, NI -86.3%
• Operating margin fell ~244 bps to 1.46%; net margin down ~210 bps to 0.31%
• OCF negative (-0.44) despite positive EBITDA; FCF -1.83
• Leverage elevated (D/E 2.58x) though liquidity acceptable (CR 148%, QR 115%)
• ROIC 3.7% indicates weak returns on capital and need for efficiency gains
• Non-operating drag (net -0.27) and high tax rate (63.4%) exacerbated earnings decline
• Equity-method loss (-0.22) a notable headwind given small earnings base

Metrics to Watch:

• SG&A ratio and operating margin trajectory
• OCF/Net income and free cash flow recovery
• Inventory and receivables turnover (cash conversion cycle)
• Debt levels, D/E ratio, and interest coverage
• ROIC progression versus internal targets
• Equity-method income normalization and tax rate trend
• Same-store sales and gross margin resilience

Relative Positioning: Versus domestic specialty retailers, the company shows lower profitability (OP margin 1.5%, NI margin 0.3%), weaker cash conversion this period, and higher leverage, leaving it more exposed to demand and cost volatility until SG&A efficiency and OCF improve.

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