GEO HOLDINGS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥216.94B
• Operating Income: ¥5.08B
• Net Income: ¥3.27B
• EPS: ¥81.22

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 mixed quarter—top-line growth was solid, but operating profitability compressed and cash conversion was only fair, with net income supported by non-operating gains and financing inflows funding capex. Revenue rose to 2,169.43 (+8.6% YoY), with gross profit of 887.65 and gross margin of 40.9%. Operating income declined 6.1% YoY to 50.85 despite higher sales, as SG&A of 836.80 (38.6% of sales) absorbed most of the gross margin. Ordinary income improved 7.1% YoY to 55.72, helped by net non-operating gains (non-operating income 12.62 vs expenses 7.75), partially offsetting weaker core operating leverage. Net income increased 14.2% YoY to 32.27, implying a net margin of 1.5% and an effective tax rate of 40.9%. Operating margin compressed an estimated ~36–37 bps YoY to 2.35% (from ~2.71% prior), while ordinary income margin improved modestly to ~2.57% on higher net non-operating gains. EBITDA was 87.56, with an EBITDA margin of 4.0%, indicating thin operating economics typical of the format but a weaker flow-through in this period. ROE calculated at 3.5% is subdued, reflecting low net margin (1.5%), modest asset turnover (0.793x), and relatively high leverage (2.94x). Cash flow quality was adequate but not strong: OCF of 26.45 equated to 0.82x of net income, and capex of 74.51 exceeded OCF, implying negative FCF for the half. Liquidity remains robust (current ratio 382%) with cash of 694.71, while solvency is more stretched (D/E 1.94x; Debt/EBITDA ~10x), suggesting reliance on leverage to fund growth and store assets. ROIC of 2.7% is below the 5% warning threshold, underscoring capital efficiency challenges. The quarter’s positive net income growth was aided by non-operating contributions rather than core operating improvement. Dividend affordability appears acceptable against earnings (calculated payout ~41.9%) but not against period FCF, implying dependence on balance sheet strength or seasonality. Forward-looking, margin recovery hinges on SG&A discipline and better operating leverage; monitoring cash conversion and capex cadence will be critical amid an elevated leverage profile.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.5% = Net Profit Margin 1.5% × Asset Turnover 0.793 × Financial Leverage 2.94x. The most notable change this quarter was margin compression at the operating level (operating margin ~2.35%, down ~36–37 bps YoY), even as revenue grew, suggesting SG&A growth outpaced gross profit expansion. Business drivers likely include wage/utility pressure, store-related costs, and mix effects (e.g., lower rental yield or promotional intensity) that reduced operating leverage despite higher sales. Asset turnover modestly improved on sales growth, but not enough to offset margin pressure; leverage appears broadly stable but remains high, magnifying small changes in margin into ROE volatility. Sustainability: margin compression could be cyclical/temporary if driven by near-term cost inflation or upfront costs for growth; however, if structural (e-commerce competition, lower rental utilization), recovery may be slower. Watch for SG&A ratio discipline (currently 38.6% of sales) and gross margin resilience (40.9%). A concerning trend is that ordinary income growth (+7.1% YoY) diverged from operating income (-6.1% YoY), indicating increased reliance on non-operating items to support bottom line.

Growth Assessment

Revenue growth of +8.6% YoY is healthy and suggests resilient customer traffic or expansion effects; however, the quality of growth is tempered by weaker operating leverage. Gross margin at 40.9% held up, but SG&A intensity at 38.6% drove operating margin down to ~2.35%. Ordinary income grew on net non-operating gains, which are less recurring, raising questions about repeatability. Net income growth (+14.2% YoY) outpaced sales due to the non-operating tailwind and a small delta from interest/other items, not from core operations. EBITDA margin at 4.0% is thin for funding both growth and shareholder returns without leverage. Outlook hinges on cost control, productivity (labor and occupancy), and improving mix; if capex is targeted at higher-ROI refurbishments/digital initiatives, a gradual ROIC uplift is possible, but near-term ROIC at 2.7% is below cost of capital benchmarks. Given the effective tax rate of ~41%, incremental pre-tax gains are partly offset by taxation; interest coverage of 11.6x remains comfortable for now.

Financial Health

Liquidity is strong: current ratio 381.9% and cash 694.71 provide ample coverage for current liabilities of 469.47. No warning on current ratio (<1.0) or D/E (>2.0) triggers; however, D/E at 1.94x is elevated versus conservative benchmarks and close to the 2.0x caution level. Equity ratio (calculated) is ~34.0% (930.53 / 2,737.23), indicating a moderate capital base. Maturity profile shows a large tilt to noncurrent liabilities (1,337.22) vs current liabilities (469.47), suggesting limited near-term refinancing pressure; long-term loans total 871.81. Interest coverage at 11.61x is solid, but Debt/EBITDA of ~9.96x (quality alert) signals high leverage relative to cash earnings. No off-balance sheet obligations were disclosed in the provided data. Overall, balance sheet liquidity is ample, while solvency metrics warrant monitoring given high debt relative to EBITDA and low ROIC.

Cash Flow Quality

OCF was 26.45 versus net income of 32.27, yielding OCF/NI of 0.82x—below the >1.0x high-quality threshold but not a red flag. With capex of 74.51 exceeding OCF, period free cash flow was likely negative, implying reliance on cash reserves or financing to fund investments. Financing cash inflow of 160.42 indicates external funding (likely debt) covered capex and working capital needs. Potential working capital drag is implied by OCF < NI, but the absence of inventory and payables detail limits diagnostic precision; receivables were 149.19, with no prior period to compare. No clear signs of earnings manipulation are evident from the limited dataset, but the higher non-operating contribution to profit reduces quality of earnings from a recurring standpoint. Sustainability: dividend and growth capex together are not covered by period FCF; improvement depends on stronger OCF conversion and/or calibrated capex.

Dividend Sustainability

The calculated payout ratio is 41.9%, within a generally sustainable range versus earnings. However, since OCF (26.45) was below capex (74.51), FCF for the period appears negative, implying dividends would be funded by cash on hand or financing rather than internally generated free cash flow this half. Liquidity is ample to support dividends near term, but medium-term sustainability requires OCF to exceed maintenance capex. Policy outlook is likely to favor stable dividends, but scope for increases may be constrained until operating margin and cash conversion improve. Dividend data (DPS, total dividends paid) were unreported, so assessment relies on the provided payout ratio and cash flow figures.

Risk Assessment

Business Risks:

• Operating margin compression amid rising SG&A intensity (38.6% of sales) and thin EBITDA margin (4.0%).
• Competitive pressure from e-commerce and alternative media/entertainment affecting rental and used-goods turnover.
• Mix risk if lower-margin categories grow faster, diluting margins.
• Execution risk on store productivity and labor cost management.

Financial Risks:

• High leverage relative to cash earnings (Debt/EBITDA ~9.96x).
• ROIC at 2.7% below 5% threshold, indicating weak capital efficiency versus cost of capital.
• Dependence on non-operating income to support ordinary income when operating profit is soft.
• Potential sensitivity to interest rate increases given sizable long-term loans (871.81).

Key Concerns:

• Operating margin down ~36–37 bps YoY despite strong sales growth.
• OCF/NI at 0.82x and capex exceeding OCF, leading to negative period FCF.
• Effective tax rate of ~41% dampening net income scalability.
• Data gaps (investing CF details, dividends paid, inventory) limit cash conversion analysis.

Investment Implications

Key Takeaways:

• Top-line growth robust (+8.6% YoY) but operating leverage negative; non-operating gains propped up ordinary income.
• ROE low at 3.5% and ROIC 2.7%—capital efficiency improvement is a key medium-term task.
• Leverage elevated (D/E 1.94x; Debt/EBITDA ~10x) though liquidity is strong (current ratio ~3.8x).
• Cash conversion modest (OCF/NI 0.82x) and capex-heavy period produced negative FCF.
• Dividend payout (calculated ~42%) is covered by earnings but not by period FCF.

Metrics to Watch:

• Operating margin and SG&A ratio trajectory
• OCF/Net income and inventory/receivables turnover (when disclosed)
• Capex cadence and ROI of investments
• Debt/EBITDA and interest coverage under different rate scenarios
• Non-operating income volatility and its share of profit
• ROIC progress toward >5–7%

Relative Positioning: Versus domestic specialty retailers, liquidity is stronger than peers with comparable scale, but profitability and capital efficiency are weaker, and leverage is higher, leaving the story dependent on execution to restore operating leverage and improve cash generation.

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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