HARD OFF CORPORATION Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.26B
• Operating Income: ¥1.33B
• Net Income: ¥928M
• EPS: ¥66.58

Income Statement

Balance Sheet

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: Solid top-line growth but notable margin compression led to weaker earnings in FY2026 Q2. Revenue rose 6.8% YoY to 172.57, while operating income fell 13.3% YoY to 13.28 and net income declined 9.4% to 9.25. Gross profit reached 118.10, implying a high gross margin of 68.4%, but SG&A at 104.81 (60.7% of sales) limited operating leverage. Operating margin stands at 7.7% (13.28/172.57), down from an estimated 9.5% a year ago, a compression of roughly 179 bps. Net margin is 5.4% (9.25/172.57), down about 96 bps from last year’s ~6.3% by our back-calculation. Ordinary income was 14.30, down 12.7% YoY, with modest non-operating income of 1.18 (dividend income 0.72, interest income 0.03) helping cushion the decline. Interest expense remains minimal at 0.15, and interest coverage is robust at 87.2x, indicating no near-term debt service strain. Liquidity is healthy with a current ratio of 191.9% and working capital of 74.92, though reliance on short-term loans (53.80) warrants monitoring for refinancing risk. ROE is a modest 5.1%, and ROIC is 4.4% (below the 5% warning threshold), signaling capital efficiency challenges. The decline in operating income despite higher sales suggests negative operating leverage, likely from SG&A growth outpacing revenue or mix effects. Earnings quality cannot be fully assessed due to unreported cash flow data; OCF/NI and FCF are unavailable, creating uncertainty around cash conversion. The calculated payout ratio is high at 117.7%, flagging potential dividend pressure if cash generation does not improve, though DPS is unreported and needs confirmation. Balance sheet strength (equity 182.83 vs liabilities 93.59) provides a buffer for execution and investment. Forward-looking, stabilizing SG&A intensity and protecting gross margin will be key to restoring operating margin. Monitoring store productivity, used-goods procurement dynamics, and wage/rent inflation will be critical. With ROIC below cost-of-capital benchmarks, management’s path to efficiency improvement (store mix, pricing, digital channels, and franchise productivity) is an important watchpoint.

Profitability Analysis

DuPont ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.4% × 0.624 × 1.51 ≈ 5.1%. The most impactful change in the period appears to be margin compression: operating income fell 13.3% YoY while revenue grew 6.8%, implying a sharper drop in operating margin (about -179 bps YoY to 7.7%) and net margin (-96 bps to 5.4%). Asset turnover at 0.624 suggests moderate efficiency typical for a specialty retailer with substantial store assets and deposits; no evidence of improvement is visible this quarter. Financial leverage (1.51x) is conservative and likely stable; leverage did not drive ROE changes. Business drivers for margin pressure likely include SG&A inflation (labor and rent), possible store-opening drag, and/or sales mix shifts that diluted contribution margin; gross margin remains high (68.4%), pointing more to SG&A as the culprit rather than pricing/gross loss. Sustainability: some SG&A pressure (wages, utilities, rents) is structural, but cost control and productivity gains could partially reverse the margin compression over time. Concerning trend: SG&A ratio is 60.7% of sales; given revenue growth was +6.8% while operating income declined, SG&A growth likely exceeded sales growth, indicating negative operating leverage.

Growth Assessment

Revenue grew 6.8% YoY to 172.57, evidencing resilient demand and/or footprint expansion. However, profit growth lagged: operating income -13.3% and net income -9.4% YoY, reflecting cost pressure and lower operating leverage. Operating margin contracted to 7.7% (approx. -179 bps YoY), and net margin to 5.4% (approx. -96 bps YoY). Non-operating income of 1.18 (notably dividend income 0.72) provided a modest cushion but is not a core growth driver. Given the high gross margin (68.4%), the key headwind is overhead absorption; resolving SG&A intensity will be critical for sustainable earnings growth. Outlook hinges on: stabilizing wage and rent inflation; improving store productivity and same-store sales; optimizing procurement of used goods to support sell-through; and controlling new-store ramp costs. Absent cash flow data, we cannot confirm if growth is supported by strong cash conversion; this is a watch item. Overall, top-line momentum is positive, but translating it into profit will require tighter cost discipline and potential mix/pricing adjustments.

Financial Health

Liquidity is strong: current assets 156.47 vs current liabilities 81.54 yields a current ratio of 191.9% (no warning; >1.5 is healthy) and working capital of 74.92. Quick ratio is reported equal to current ratio at 191.9%, though inventories are unreported; we cannot verify the quick ratio quality. Solvency is conservative: total liabilities 93.59 vs equity 182.83 implies D/E of 0.51x, comfortably below 1.5x. Interest-bearing debt detail is limited, but short-term loans are 53.80; long-term loans are unreported. Interest coverage is very strong at 87.2x, indicating low near-term interest burden. Maturity mismatch: concentration in short-term loans (53.80) vs cash and deposits (39.61) suggests some refinancing reliance; however, overall current assets (156.47) cover short-term loans well, moderating liquidity risk. No off-balance-sheet obligations are disclosed in the provided data. Equity base (owners’ equity 181.73) is robust, supporting resilience against cyclical swings.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so OCF/Net Income and FCF coverage cannot be assessed. Consequently, earnings quality cannot be validated via cash conversion metrics; this is a key limitation. With net income at 9.25 and high SG&A intensity, working capital dynamics (particularly inventory turns and payables) would typically be influential, but inventories and OCF are unreported. No clear signs of working capital manipulation can be identified from the available figures. Given short-term loans of 53.80, monitoring OCF stability and seasonality is important to ensure debt service and reinvestment needs are met without stressing liquidity.

Dividend Sustainability

DPS and total dividends paid are unreported; however, a calculated payout ratio of 117.7% suggests potential overdistribution relative to current earnings if accurate. Without OCF/FCF, we cannot confirm cash coverage of dividends. Retained earnings stand at 129.74, and liquidity is solid, which can temporarily support distributions, but sustained payout above earnings is typically not sustainable. Policy outlook should be reassessed if margin recovery is delayed; a payout aligned closer to <60% of earnings and covered by FCF would be healthier. Confirmation of actual DPS and FCF is required for a definitive view.

Risk Assessment

Business Risks:

• Margin pressure from SG&A inflation (labor, rents, utilities) causing negative operating leverage.
• Procurement and pricing risk for used-goods inventory affecting gross margin and sell-through.
• Store expansion ramp risk leading to temporarily dilutive margins.
• Demand sensitivity to consumer sentiment in discretionary categories.

Financial Risks:

• Refinancing risk due to reliance on short-term loans (53.80) despite overall strong liquidity.
• Interest rate risk on floating-rate short-term borrowings.
• Earnings shortfall vs dividends (calculated payout 117.7%) potentially straining cash if sustained.

Key Concerns:

• ROIC at 4.4% is below the 5% warning threshold, indicating capital efficiency challenges.
• Operating margin compressed by approximately 179 bps YoY despite revenue growth.
• Cash flow data unreported, preventing validation of earnings quality and dividend coverage.
• Asset turnover at 0.624 and ROE at 5.1% underscore modest returns relative to retail peers.

Investment Implications

Key Takeaways:

• Top-line growth (+6.8% YoY) did not translate to profit growth; operating income -13.3% YoY.
• Operating margin compressed to 7.7% (~-179 bps YoY), driven by SG&A intensity.
• ROIC 4.4% and ROE 5.1% highlight sub-par capital efficiency.
• Balance sheet is conservative (D/E 0.51x) with strong interest coverage (87.2x).
• Dividend sustainability is uncertain given a calculated payout of 117.7% and no FCF data.

Metrics to Watch:

• Same-store sales growth and ticket/traffic trends.
• SG&A growth vs revenue growth; SG&A-to-sales ratio trajectory.
• Gross margin stability and used-goods procurement/sell-through metrics.
• OCF/Net Income and FCF after capex (once disclosed).
• Short-term debt levels and effective interest rates.
• Store count, new-store ramp performance, and closure productivity.

Relative Positioning: Within specialty retail, the company shows healthy gross margins and strong liquidity but faces cost-driven margin compression and below-benchmark ROIC. Its conservative leverage is a positive, yet return metrics lag peers that sustain higher ROIC (>8%) and stable operating margins.

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