SALA (2734) FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥193.46B
• Operating Income: ¥8.17B
• Net Income: ¥6.52B
• EPS: ¥99.06

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

SALA Corporation’s FY2026 Q3 cumulative results show stronger profitability but substantially weaker cash generation. Revenue rose 3.5% year on year to ¥193.46 billion. Operating income increased 34.1% to ¥8.17 billion, outpacing sales growth. Gross margin improved by approximately 55 basis points to 25.2%. Operating margin improved by approximately 96 basis points to 4.2%, though it remains thin. SG&A grew 1.5%, below revenue growth, supporting operating leverage. Profit attributable to owners rose 25.5% to ¥6.32 billion. Its margin increased by approximately 57 basis points to 3.3%. Energy & Solutions was the core business, contributing ¥5.04 billion of segment operating profit. Engineering & Maintenance earned ¥2.88 billion at a substantially higher 10.2% segment margin. Housing profit improved, while Car Life Support and Animal Healthcare remained loss-making. Earnings quality was less convincing: operating cash flow fell to ¥1.64 billion from ¥11.39 billion a year earlier, despite higher profit. Operating cash flow covered only 0.26 times profit attributable to owners, and reported free cash flow was negative ¥11.16 billion. Investment and shareholder distributions consequently relied on cash reserves and financing during the nine months. The company has already exceeded its full-year operating-profit forecast, but that forecast implicitly allows for a fourth-quarter operating loss. The principal issues for the remainder of the year are whether cash conversion recovers, elevated investment moderates, and segment profit holds up outside the stronger energy-demand months.

Profitability Analysis

The reported annualized DuPont ROE is 8.6%: a 3.3% nine-month net margin × 1.165x annualized asset turnover × 2.27x financial leverage. Using prior-period closing balances as a comparable approximation gives a prior annualized ROE of about 7.2%; the improvement is primarily margin-led, with a modest asset-turnover gain partly offset by lower leverage. Gross profit rose 5.8% year on year to ¥48.81 billion, while SG&A rose only 1.5% to ¥40.64 billion. The SG&A-to-sales ratio declined approximately 42 basis points to 21.0%. EBITDA was ¥13.37 billion, a 6.9% margin; its operating-cash conversion, however, was only 0.12x. JGAAP goodwill amortization was ¥0.19 billion, or about 1.4% of EBITDA, so the ¥13.55 billion pre-goodwill-amortization EBITDA is not materially different. The 4.2% operating margin remains below the 5% concern threshold: modest pricing or cost pressure could have a meaningful profit impact. The 1.151x reported interest-burden factor reflects pre-tax profit exceeding operating profit, principally through net non-operating gains, rather than an absence of financing costs.

Growth Assessment

Nine-month revenue reached 74.4% of the ¥260.00 billion full-year forecast, broadly in line with the standard 75% Q3 pace. Operating income reached 104.7% of its ¥7.80 billion forecast, ordinary income 102.1% of its ¥9.40 billion forecast, and profit attributable to owners 107.1% of its ¥5.90 billion forecast. Those profit measures are 27.1–32.1 percentage points ahead of the standard pace. The unchanged forecast implies fourth-quarter revenue of ¥66.54 billion and an operating loss of ¥0.37 billion; energy-demand seasonality may be relevant, but sustained margins would provide scope to outperform. Energy & Solutions, the core business by operating-profit contribution, recorded revenue of ¥93.69 billion (+0.7% YoY) and operating profit of ¥5.04 billion (+8.8%); its margin was 5.4%. Engineering & Maintenance recorded ¥28.16 billion (+9.6%) and ¥2.88 billion (+6.0%), respectively, with the highest major-segment margin at 10.2%. Housing recorded ¥35.04 billion (+12.7%) and ¥0.81 billion (+278.5%), but its margin was only 2.3%. Animal Healthcare recorded ¥18.38 billion (+2.9%) and a ¥0.29 billion operating loss, an 8.2% narrowing, for a −1.6% margin. Car Life Support recorded ¥12.69 billion (−3.7%) and a ¥0.31 billion loss, a 62.0% narrowing, for a −2.4% margin. Property recorded ¥4.78 billion (−4.3%) and ¥0.36 billion in operating profit (+466.7%), a 7.5% margin. Other operations recorded ¥0.57 billion in revenue (−39.8%) and ¥0.03 billion in operating profit (+114.3%), a 5.3% margin. The mix of stronger engineering profit and continuing losses in two consumer-facing segments warrants monitoring for repeatability.

Financial Health

Current assets of ¥90.05 billion exceeded current liabilities of ¥57.21 billion, leaving ¥32.84 billion of working capital; the 1.57x current and 1.30x quick ratios indicate adequate near-term liquidity. Cash of ¥26.41 billion covered stated short-term loans of ¥5.96 billion 4.43x. Including the separately disclosed ¥10.11 billion current portion of long-term loans, coverage of these identified near-term borrowings was approximately 1.64x. Reported interest-bearing debt was ¥59.86 billion, and cash less that amount implies net debt of ¥33.45 billion. The reported 4.48x debt/EBITDA alert divides debt by cumulative nine-month EBITDA; on an explicitly annualized EBITDA basis it is approximately 3.36x, still above the 2.5x benchmark. The reported debt figure excludes the separately stated current portion of long-term loans: including it produces approximately ¥69.97 billion of identified borrowings and 3.93x debt to annualized EBITDA. This increases sensitivity to refinancing or continued negative free cash flow, although operating-profit interest coverage was strong at 17.23x. Long-term loans rose ¥6.95 billion year on year, short-term loans ¥1.60 billion, and cash declined ¥5.47 billion. Investment securities rose ¥4.35 billion to ¥16.81 billion, increasing exposure to market-value movements. Goodwill was just 1.0% of equity and 0.07x cumulative EBITDA, limiting balance-sheet dependence on acquisition premiums. The ¥8.02 billion defined-benefit liability and ¥0.30 billion construction-loss provision are additional obligations to consider.

Notable B/S Changes

Investment securities: +¥4.35 billion (+34.9% YoY) to ¥16.81 billion — greater exposure to market-value movements. Short-term loans: +¥1.60 billion (+36.8%) to ¥5.96 billion — higher short-term funding needs. Treasury stock: carrying-value deduction increased ¥0.91 billion, from ¥1.21 billion to ¥2.12 billion (75.8% increase in magnitude) — consistent with the reported repurchase activity. Construction in progress: −¥3.69 billion (−71.9%) to ¥1.44 billion — potentially reflects completion or transfer of projects into operating fixed assets. Long-term loans: +¥6.95 billion (+14.8%) to ¥53.90 billion — a material increase in absolute borrowings alongside elevated capital expenditure.

Cash Flow Quality

Operating cash flow of ¥1.64 billion was only 0.26x profit attributable to owners of ¥6.32 billion, well below the 0.8x quality threshold; it also fell ¥9.74 billion year on year. Cash conversion was 0.12x cumulative EBITDA, below the 0.7x concern threshold, so the accounting-profit improvement has not translated into cash. The trade-receivables cash inflow was ¥1.72 billion, versus ¥9.00 billion a year earlier. Inventory absorbed ¥2.22 billion, trade-payable reductions absorbed ¥2.69 billion, and other operating-cash-flow items absorbed ¥4.97 billion. These movements explain much of the pressure without, by themselves, establishing working-capital manipulation. Derivative valuation gains of ¥1.02 billion contributed to earnings but were reversed in the operating-cash-flow reconciliation. Capital expenditure increased to ¥10.61 billion, or 2.04x depreciation and amortization. Operating cash flow less capital expenditure was negative ¥8.97 billion; the supplied broader free-cash-flow measure, operating plus investing cash flow, was negative ¥11.16 billion. This was not sufficient to internally fund capital expenditure, cash dividends of ¥2.09 billion, and repurchases of ¥1.70 billion. Financing cash flow of ¥6.05 billion and a ¥5.11 billion decline in cash and cash equivalents helped bridge the shortfall.

Dividend Sustainability

The full-year forecast dividend of ¥34 per share represents an indicated dividend payout ratio of approximately 36.6% against forecast EPS of ¥92.85. On the nine-month cash-flow basis, dividends paid of ¥2.09 billion were about 33.1% of profit attributable to owners. Including ¥1.70 billion of repurchases, the nine-month total return ratio was approximately 60.0% of that profit. Neither earnings-based measure is excessive, but operating cash flow did not cover dividends plus repurchases, and free cash flow was negative. Maintaining distributions alongside ¥10.61 billion of nine-month capital expenditure therefore depends on improved cash generation or continued use of liquidity and financing. The unchanged dividend forecast supports policy continuity, while cash coverage—not the accounting payout ratio—is the near-term sustainability test.

Risk Assessment

Business risks include Energy & Solutions supplies the largest segment-profit contribution; gas and electricity demand, weather, energy procurement costs, and the timing of customer-price adjustments could affect its 5.4% margin., Car Life Support and Animal Healthcare remain loss-making despite narrower losses; consumer demand and competitive pricing could delay a return to profitability., Housing’s 2.3% margin leaves limited room for construction-cost inflation or execution setbacks; the construction-loss provision is ¥0.30 billion..

Financial risks include Operating cash flow covered just 0.26x profit attributable to owners, and the broader free-cash-flow measure was negative ¥11.16 billion, increasing reliance on cash and external financing., Debt to annualized EBITDA is approximately 3.36x on the reported debt definition, or 3.93x including separately disclosed current long-term-loan maturities. Both measures warrant monitoring despite strong interest coverage., Investment securities increased 34.9% year on year to ¥16.81 billion, increasing exposure to valuation changes..

Key concerns include The 4.2% operating margin remains below the 5% concern threshold even after approximately 96 basis points of improvement., A ¥1.02 billion derivative valuation gain, equivalent to approximately 10.6% of ordinary income, makes the composition of non-operating profit important to earnings repeatability., The full-year profit forecast has already been exceeded at Q3 but implies a fourth-quarter operating loss; the trajectory of energy demand and costs is consequential., Segment-level cash generation and the composition of other operating-cash-flow outflows could affect how quickly consolidated cash conversion recovers..

Investment Implications

Key takeaways include Margin expansion and restrained SG&A growth delivered operating-profit growth well ahead of revenue growth., Forecast profit progress is strong, but nine-month cash generation and free cash flow are weak., Liquidity is adequate today; leverage and investment spending make a cash-flow recovery important..

Metrics to watch include Fourth-quarter operating profit versus the implied ¥0.37 billion loss in full-year guidance, Operating cash flow relative to profit and EBITDA, Capital expenditure, free cash flow, and identified borrowings including current maturities, Energy & Solutions margin and losses in Car Life Support and Animal Healthcare.

Regarding relative positioning, The 25.2% gross margin falls within a general-retail benchmark range, but consolidated comparisons with pure-play retailers have limited value for SALA’s mix of energy, engineering, housing, automotive, animal healthcare, and property businesses. Its improved but thin operating margin and weak cash conversion are more informative than a single retail-sector margin benchmark.