ASMO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.37B
• Operating Income: ¥323M
• Net Income: ¥216M
• EPS: ¥15.95

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

FY2026 Q2 was a clear improvement quarter for Asmo, with profits expanding meaningfully on modest sales growth. Revenue increased 0.9% YoY to 103.72, while operating income surged 133.7% YoY to 3.23, demonstrating strong operating leverage. Ordinary income rose 153.1% YoY to 3.34 and net income climbed 185.0% YoY to 2.14, indicating that both core and bottom-line profitability improved. Operating margin expanded to roughly 3.11% from about 1.35% a year ago, implying an estimated 170–180 bps uplift driven by better cost control and/or improved gross margin. Gross profit was 20.05 with a 19.3% gross margin, and SG&A held at 16.81 (about 16.2% of sales), keeping the cost base contained relative to revenue. Non-operating items were small (income 0.13, expenses 0.02), and interest expense was effectively nil, so earnings quality mainly reflected operating performance. The effective tax rate was 35.9%, consistent with typical domestic retail levels, and did not obscure the underlying profit gains. Cash generation was solid with operating cash flow (OCF) of 3.03, exceeding net income by 41% (OCF/NI = 1.41x), signaling healthy earnings quality. The balance sheet remains conservative with cash and deposits of 55.35, current assets of 84.24, and low financial debt (short-term loans 0.11), supporting robust liquidity. Liquidity ratios were strong (current ratio 334.5%, quick ratio 334.5%), and leverage was modest (Debt-to-Equity 0.42x; financial leverage 1.42x). ROE calculated at 3.2% remains subdued due to low net margin and ample equity, though asset turnover is reasonable at 1.085x for a food retail model. Working capital discipline looks prudent given high cash and manageable payables (7.10), mitigating refinancing or maturity mismatch risk. While the calculated payout ratio is elevated at 70.8%, OCF likely covers the implied dividend based on current cash generation. Forward-looking, sustaining the margin gains will be key amid input cost volatility (procurement, utilities, wages), but the lean cost base and cash-rich balance sheet provide resilience. Overall, the quarter points to operational improvement with healthy cash conversion and low balance sheet risk, albeit with room to improve structural returns (ROE).

Profitability Analysis

Step 1 (ROE decomposition): ROE ≈ Net Profit Margin (2.1%) × Asset Turnover (1.085x) × Financial Leverage (1.42x) = 3.2%. Step 2 (biggest change): The sharp increase in operating income versus modest sales growth implies net margin improvement was the primary driver of ROE change (rather than asset turnover or leverage). Step 3 (business reason): Likely drivers include improved merchandise mix, procurement efficiencies, lower shrink, and/or tighter SG&A control (SG&A at ~16.2% of sales) against stable top line. Step 4 (sustainability): Some efficiency gains can persist, but in food retail, cost tailwinds may be partially cyclical (commodity and utility costs) and competitive pricing can cap margins; thus, a portion may be one-time or hard to repeat without further mix or process improvements. Step 5 (flags): No evidence of SG&A growing faster than revenue this quarter; revenue +0.9% YoY vs operating profit +133.7% suggests positive operating leverage, but sustaining this while sales growth remains low is a watch point.

Growth Assessment

Revenue growth was modest at +0.9% YoY, indicating stable but not accelerating demand. Profit growth was outsized (OP +133.7%, NI +185.0%), indicating margin-driven improvement rather than volume expansion. Operating margin rose to ~3.11% from ~1.35% a year ago, an estimated +176 bps expansion. Non-operating contributions were limited (net +0.11), so core operations drove the improvement. With gross margin at 19.3% and SG&A at 16.2% of sales, the company captured operating leverage by holding costs flat relative to slightly higher sales. The sustainability of this growth will hinge on cost inflation trends, procurement discipline, and pricing power in a competitive regional supermarket environment. Near-term outlook leans cautiously positive given cost control and cash-rich position, but top-line acceleration remains necessary to compound earnings. Absent stronger sales, incremental margin gains may be harder to repeat from here. Monitoring category mix, private brand growth, and energy cost trajectories will be important for forward growth quality.

Financial Health

Liquidity is strong: current ratio 334.5% (>1.5 benchmark) and quick ratio 334.5%. No warning triggers (Current Ratio well above 1.0). Solvency is conservative with Debt-to-Equity 0.42x and minimal short-term loans (0.11). Financial leverage (assets/equity) is low at 1.42x, supporting balance sheet resilience. Working capital is ample at 59.06; cash and deposits of 55.35 cover all current liabilities (25.19) more than 2x, minimizing maturity mismatch risk. Interest coverage is extremely strong at 724x given negligible interest expense. No off-balance-sheet obligations are disclosed in the provided data. Overall capital structure is cash-heavy, offering flexibility for capex, dividends, or potential store refurbishments without external funding.

Cash Flow Quality

OCF of 3.03 exceeds net income of 2.14 (OCF/NI = 1.41x), indicating high-quality earnings with positive cash conversion. Free cash flow cannot be fully determined due to unreported investing CF, but reported capex was small at -0.05, implying FCF was likely positive given strong OCF. No clear signs of working capital manipulation are evident from available data; accounts receivable and payables appear manageable relative to sales, and cash levels are high. With minimal interest burden and limited debt, OCF is largely available for reinvestment and shareholder returns. Sustainability appears good assuming stable operating margins and disciplined capex.

Dividend Sustainability

The calculated payout ratio is 70.8%, above the <60% benchmark, suggesting a somewhat elevated distribution relative to earnings. Based on NI of 2.14, implied dividends would be ~1.52 if the calculated payout is accurate; this would be covered by OCF of 3.03 (~2.0x), indicating near-term affordability. However, absence of disclosed dividends paid and DPS details limits precision. Given modest growth and low leverage, maintaining this payout depends on sustaining current margins and OCF; any margin compression could pressure coverage. Policy outlook likely emphasizes stability, but room for increases appears limited without stronger earnings growth or explicit capital policy shifts.

Risk Assessment

Business Risks:

• Thin structural margins in food retail limit pricing power and leave little buffer for cost shocks
• Commodity and procurement cost volatility (fresh foods, imports) impacting gross margin
• Energy and utility cost fluctuations affecting store operating expenses
• Labor cost inflation and staffing constraints pressuring SG&A
• Regional demand softness and demographic headwinds in local markets

Financial Risks:

• Potential margin mean reversion after a strong cost-driven quarter
• Elevated payout ratio (~70.8%) reducing retained earnings flexibility if profits dip
• Tax rate variability near 36% affecting net margin sensitivity

Key Concerns:

• Sustaining operating margin around ~3% with limited top-line growth
• Dependence on cost control over volume growth; limited operating leverage if sales stagnate
• Data gaps (investing CF, dividend cash outflow, inventory detail) obscure full cash dynamics

Investment Implications

Key Takeaways:

• Profit recovery with operating income +134% YoY on low single-digit sales growth
• Operating margin expanded ~+176 bps YoY to ~3.1%, driven by cost discipline
• Healthy cash conversion (OCF/NI 1.41x) and net cash balance sheet de-risk the story
• ROE remains modest at 3.2% given low net margin and high equity base
• Payout ratio (~71%) is on the high side but appears OCF-covered near term

Metrics to Watch:

• Like-for-like sales and traffic/ticket trends to validate revenue sustainability
• Gross margin trajectory (mix, private brand penetration, shrink control)
• SG&A ratio vs sales (labor and utility cost drift)
• OCF and working capital movements (AR/AP/inventory once disclosed)
• Capex plans and any updates to dividend policy or buybacks

Relative Positioning: Versus domestic supermarket peers, Asmo exhibits comparable top-line stability, improving cost efficiency, and a stronger-than-average liquidity position, but still operates with thin margins and below-market ROE; the balance sheet strength provides defensiveness while structural returns lag larger scale peers.

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