ARATA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥503.30B
• Operating Income: ¥7.38B
• Net Income: ¥5.82B
• EPS: ¥150.79

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

Arata Co., Ltd. (27330) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but pressure on earnings and cash conversion. Revenue rose 2.4% YoY to ¥503.3bn, while gross profit reached ¥48.6bn, implying a gross margin of 9.7%, broadly stable for a low-margin wholesale model. Operating income declined 9.7% YoY to ¥7.38bn, compressing operating margin to 1.47%, indicating SG&A or logistics cost pressure and limited pricing power. Ordinary income was ¥7.55bn, and net income was ¥5.04bn, with a net margin of 1.00%, underscoring the thin profitability typical of the sector. DuPont analysis shows ROE of 4.18% driven by a 1.00% net margin, strong asset turnover of 1.534x, and financial leverage of 2.72x; the engine remains efficiency rather than margin. EBITDA was ¥9.72bn with a 1.9% margin, offering a modest buffer, while interest coverage is healthy at 38.9x, reflecting low financial expense burden. Liquidity appears adequate with a current ratio of 147% and working capital of ¥74.7bn, though certain items are undisclosed in XBRL (e.g., inventories, cash), which limits precision. Operating cash flow was negative at ¥-2.78bn against positive net income, yielding an OCF/NI ratio of -0.55, pointing to working capital outflow or timing effects during H1. The reported effective tax rate in calculated metrics shows 0.0%, but disclosed income tax of ¥2.77bn versus profitability indicates a normal tax burden; thus, the 0.0% figure reflects a calculation anomaly rather than economics. Capital structure is moderate with total liabilities/equity of 1.62x; solvency risk appears manageable given earnings coverage. Free cash flow is not derivable this quarter because investing cash flow was not disclosed (reported as zero), so the “FCF: 0” metric should be treated as unavailable. Dividend data are also undisclosed in this dataset; the recorded DPS and payout ratio of zero should not be interpreted as an omission of dividends but as non-disclosure in this period. Overall, the business shows resilient sales but compressing margins and negative operating cash conversion in H1, consistent with heightened logistics costs and seasonal working capital usage in wholesale. The key to improving ROE (4.18%) will be stabilizing gross margin, controlling SG&A intensity, and normalizing working capital to restore positive OCF. Balance sheet flexibility remains acceptable, but sustained negative OCF would increase reliance on short-term funding and pressure liquidity. Given several unreported items, conclusions focus on disclosed non-zero data with caution around cash and inventory dynamics.

Profitability Analysis

ROE is 4.18% via DuPont: Net margin 1.00% x Asset turnover 1.534x x Financial leverage 2.72x. Operating margin stands at 1.47% (¥7.38bn/¥503.3bn), indicating pressure relative to revenue growth and suggesting SG&A/logistics cost headwinds outweigh modest gross profit expansion. Gross margin of 9.7% is stable for a wholesale model but leaves little room to absorb cost volatility. EBITDA margin of 1.9% provides limited cushion; any incremental cost inflation materially impacts EBIT, exhibiting high operating leverage to small margin changes. Ordinary margin is 1.50% and close to operating margin, indicating limited non-operating gains/losses. Interest coverage is strong at 38.9x (operating income/interest expense), so financing costs are not the driver of profit decline. The YoY operating income decline of 9.7% versus revenue +2.4% points to negative operating leverage in the period, likely from higher distribution, labor, or promotional expenses. Profit quality at the bottom line is thin (1.00% net margin), and small shocks to gross profit or SG&A can meaningfully affect ROE given the low-margin, high-turn model.

Growth Assessment

Revenue grew 2.4% YoY to ¥503.3bn, consistent with steady demand in daily necessities and FMCG distribution. The growth appears volume or mix-driven rather than pricing-led given margin compression at operating level. Gross profit increased to ¥48.6bn, but flow-through to operating income was weak; the operating income decline of 9.7% YoY indicates rising costs or increased competitive intensity. Ordinary income (¥7.55bn) broadly tracks operating income, suggesting limited reliance on non-operating items for growth. Net income fell 13.2% YoY to ¥5.04bn, underscoring that cost inflation and/or promotional spend are eroding profit growth despite sales expansion. Growth quality is therefore mixed: topline sustainable, earnings less so until cost dynamics normalize. Outlook hinges on stabilization of logistics and labor costs and on procurement terms with suppliers; with asset turnover healthy at 1.534x, improved margin management could restore earnings momentum. Absent disclosure of inventories and cash, we cannot assess inventory optimization initiatives or cash conversion cycle improvements, which are important to sustaining growth.

Financial Health

Total assets are ¥328.2bn and equity ¥120.7bn, implying financial leverage of 2.72x and liabilities/equity of 1.62x—moderate for a wholesale distributor. Liquidity appears adequate: current assets ¥233.7bn vs current liabilities ¥159.0bn yield a current ratio of 147% and working capital of ¥74.7bn. Quick ratio is shown as 147% because inventories are unreported; true quick ratio is likely lower but not observable here. Interest expense is modest at ¥0.19bn, with robust coverage (38.9x), indicating low near-term solvency risk. The equity ratio is shown as 0.0% due to non-disclosure in the calculated field; based on assets and equity, the equity ratio is approximately 36.8% (¥120.7bn/¥328.2bn), which is comfortable. Negative operating cash flow this period is a watchpoint; persistent outflows would pressure liquidity and increase dependence on short-term borrowings or payables management. No conclusions can be drawn about cash balances or debt maturities because cash and certain line items are undisclosed.

Cash Flow Quality

Operating cash flow was ¥-2.78bn versus net income of ¥5.04bn, yielding an OCF/NI ratio of -0.55, indicating earnings did not convert to cash in H1—typically due to working capital outflows (receivables buildup and/or payables reduction), which are common seasonally in distribution. Depreciation and amortization of ¥2.34bn vs EBITDA of ¥9.72bn suggests limited non-cash add-backs beyond D&A; cash earnings before working capital are positive, reinforcing that the OCF shortfall is likely timing-related. Investing cash flow is undisclosed (reported as zero), so free cash flow cannot be reliably computed; the reported “FCF: 0” should be treated as unavailable rather than actual. Without inventory and cash disclosures, we cannot dissect changes in inventory days or cash buffers, both critical for assessing cash conversion cycle. Overall earnings quality is acceptable at the accrual level but currently weak on cash conversion; normalization of working capital in H2 will be important to validate earnings quality.

Dividend Sustainability

Dividend per share and payout ratio are undisclosed in this dataset (zeros indicate non-reporting). With net income positive (¥5.04bn) but operating cash flow negative in H1, dividend sustainability depends on second-half cash conversion and full-year free cash flow. Absent investing cash flow data, free cash flow coverage of dividends cannot be determined; the reported FCF coverage of 0.00x reflects non-disclosure. Capital structure (liabilities/equity 1.62x) and interest coverage (38.9x) suggest some capacity to maintain ordinary shareholder returns if cash conversion normalizes. Policy outlook cannot be inferred from this data alone; monitor company guidance and board resolutions for dividend policy and payout intentions.

Risk Assessment

Business Risks:

• Thin margins (net ~1.0%) amplify sensitivity to gross margin and SG&A swings
• Cost inflation in logistics, fuel, and labor compressing operating margin
• Competitive pricing pressure from large retail customers and peers
• Supplier terms and promotional spend volatility affecting gross-to-operating flow-through
• Demand normalization risks in FMCG categories post-pandemic and channel mix shifts
• Operational execution risk in nationwide distribution and warehouse operations

Financial Risks:

• Negative operating cash flow in H1; reliance on working capital normalization in H2
• Exposure to short-term funding and payable/receivable timing
• Leverage moderate (liabilities/equity 1.62x); could rise if OCF remains weak
• Interest rate risk on floating-rate short-term borrowings (if applicable)
• Limited disclosure on cash balances and inventories reduces visibility on liquidity buffers

Key Concerns:

• Operating income down 9.7% YoY despite +2.4% revenue growth, indicating negative operating leverage
• OCF/Net income at -0.55, pointing to weak cash conversion year-to-date
• Sustainability of gross margin at 9.7% amid ongoing cost pressures
• Dependence on H2 rebound to meet full-year profit and cash targets
• Data gaps (inventories, cash, investing CF) constrain full assessment

Investment Implications

Key Takeaways:

• Top line resilient (+2.4% YoY) but earnings under pressure (OP -9.7% YoY)
• ROE of 4.18% driven by high asset turnover; margin uplift is key to improvement
• Interest coverage strong; solvency not an immediate concern
• Liquidity adequate on reported metrics, but negative OCF is a watchpoint
• Free cash flow and dividend visibility limited due to non-disclosure of investing CF and DPS

Metrics to Watch:

• Gross margin and SG&A-to-sales ratio (operating margin trajectory)
• Working capital metrics: receivable days, payable days, and inventory days (when disclosed)
• Operating cash flow recovery in H2 and full-year FCF
• Asset turnover and ROE progression
• Interest expense trend and short-term debt levels
• Management guidance on dividend policy and capital allocation

Relative Positioning: Within Japan’s consumer goods wholesale sector, Arata exhibits typical thin margins with solid asset turnover and moderate leverage; profitability currently trails topline growth due to cost pressures, leaving ROE in the mid-single digits and dependent on operating discipline and cash conversion.

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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