HALOWS CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥167.39B
• Operating Income: ¥8.85B
• Net Income: ¥6.38B
• EPS: ¥298.53

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 topline growth with stable earnings and slight margin compression; liquidity remains structurally tight but manageable for a supermarket format. Revenue rose to 1,673.88 (100M JPY), up 7.5% versus the prior period’s 1,557.49, indicating healthy demand and/or contribution from new stores and price pass-through. Operating income increased 2.1% YoY to 88.45, while net income grew 7.2% to 63.75, outpacing operating profit due to a benign non-operating line and steady tax rate. Gross margin printed at 24.6%, and operating margin was 5.29%, down about 27 bps from an estimated 5.56% in the prior period. Net margin was 3.81%, essentially flat versus 3.82% previously (a ~1 bp compression), reflecting disciplined cost control offsetting cost inflation. DuPont analysis shows ROE at 8.5%, driven by a 3.8% net margin, 1.279x asset turnover, and 1.74x leverage—respectable but below the 10–15% ‘good’ benchmark. The 5-factor DuPont indicates a normal tax burden (0.715) and very strong interest burden (>1.0) thanks to minimal net interest drag. Earnings quality can’t be fully assessed due to missing operating cash flow; this is a key monitoring gap. Liquidity is tight with a current ratio of 0.86 and quick ratio of 0.73, though this is typical for supermarkets that run negative working capital funded by payables. Balance sheet risk is otherwise low: interest-bearing debt is modest at 66.72, Debt/Capital is just 8.2%, and interest coverage is exceptionally strong at 132x. Dividend policy looks conservative; an annual DPS of ¥60 implies a payout ratio of about 20.2%, well within sustainable levels given profitability and low leverage. Inventory appears lean relative to cost of sales, consistent with a fresh-goods-heavy format, limiting markdown risk. Forward-looking, maintaining gross margin amid food inflation, labor cost pressure, and price competition remains the swing factor for FY26 Q4 and FY27. With low financial leverage and conservative payouts, the company has room to invest in store development and digital capabilities, but sustained earnings growth will hinge on same-store sales and SG&A productivity. The principal near-term watchpoint is whether operating cash flow tracks net income when disclosed, and whether margin pressure stabilizes as input costs normalize.

Profitability Analysis

ROE decomposition (3-factor): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.8% × 1.279 × 1.74 = 8.5%. The component with the most notable change versus the prior period is Net Profit Margin, which was essentially flat but under slight pressure, while asset turnover likely improved mildly given higher sales on a largely fixed asset base. Operating margin declined ~27 bps YoY (from ~5.56% to 5.29%), indicating mild operating deleverage or cost inflation not fully passed on. Business drivers: food and utility cost inflation and higher labor costs likely weighed on gross/SG&A, partially offset by scale benefits and mix. The 5-factor shows: Tax burden 0.715 (normal), Interest burden 1.008 (non-operating net positive; extremely low interest drag), EBIT margin 5.3%. Sustainability: the interest burden advantage is sustainable given low debt; the slight operating margin compression could be cyclical and may stabilize if input cost inflation eases and price/mix adjustments continue. Concerning trend: SG&A ratio at 22.1% is high and, combined with lower operating margin, suggests operating leverage is not fully capturing revenue growth; if SG&A growth continues to outpace sales, profitability could be pressured.

Growth Assessment

Revenue growth of 7.5% YoY (1,673.88 vs 1,557.49) indicates solid momentum, likely from a combination of new store openings and price/mix; same-store metrics were not disclosed. Operating income grew 2.1% and net income 7.2%, demonstrating resilience despite margin headwinds and reflecting disciplined non-operating items and stable taxation. Gross margin at 24.6% is consistent with a supermarket mix; the key will be maintaining merchandise margin amid competitive pricing and supplier negotiations. Without segment or format detail, we assume core food retail drove most of the growth. Outlook: Continued top-line progression is plausible with stable consumer staples demand and potential store network expansion, but earnings trajectory will depend on gross margin management, labor productivity, and energy cost normalization. Watch for Q4 seasonality and promotional cadence that could pressure margins.

Financial Health

Liquidity is tight: current ratio 0.86 and quick ratio 0.73, with working capital at -53.79 (100M JPY). This warrants a warning but is typical for supermarkets operating with high trade payables and fast inventory turns. Cash and deposits of 221.57 provide a cushion against current liabilities of 390.23; accounts payable are 242.76, underscoring the negative working capital model. Solvency is strong: interest-bearing debt is 66.72, Debt/Capital 8.2%, and interest coverage is 132x; reported D/E of 0.74x reflects broader liabilities rather than financial debt and is not alarming. Maturity mismatch risk appears contained given low debt and cash on hand, but reliance on payables funding requires stable supplier relationships and consistent inventory turnover. No off-balance sheet obligations were disclosed; given the retail format, lease exposures likely exist but are not quantified here under JGAAP.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be assessed. As such, we cannot verify earnings quality via cash conversion or accruals. Structural indicators suggest sound cash generation potential: negative working capital model (payables > inventory) and low interest burden. However, without OCF, we cannot exclude working capital timing effects or promotional funding that could temporarily inflate earnings. Dividend sustainability from cash is likely given low leverage and modest payout, but confirmation awaits cash flow disclosure.

Dividend Sustainability

Declared DPS totals ¥60 (¥26 interim + ¥34 year-end), implying a payout ratio of approximately 20.2% against EPS of ~¥298. This is comfortably below the <60% sustainability benchmark and affords capacity for reinvestment. With interest-bearing debt low (66.72) and strong coverage, financing risk to dividends is minimal. FCF coverage cannot be computed due to missing OCF and capex, but given the payout scale and profitability, the dividend appears conservative. Policy outlook: room remains for gradual dividend increases if earnings and cash flows track growth, prioritizing store development and maintenance capex.

Risk Assessment

Business Risks:

• Gross margin pressure from food cost inflation and competitive pricing
• Rising labor costs impacting SG&A ratio and operating margin
• Promotional intensity and markdown risk to protect traffic
• Regional concentration risk (western Japan exposure) amplifying local economic/weather impacts
• Energy and utility cost volatility affecting store operating costs

Financial Risks:

• Low liquidity metrics (current ratio 0.86; quick ratio 0.73) typical but still a risk in stress scenarios
• Dependence on trade payables for funding working capital
• Potential lease obligations not disclosed under JGAAP increasing fixed cost leverage
• Limited visibility on cash flow timing without OCF disclosure

Key Concerns:

• Operating margin compression of ~27 bps YoY despite strong revenue growth
• Absence of cash flow data hampers validation of earnings quality
• SG&A intensity at 22.1% constraining operating leverage

Investment Implications

Key Takeaways:

• Topline up 7.5% YoY with stable net margin; operating margin modestly compressed
• ROE at 8.5% is acceptable but below the 10–15% ‘good’ range; low leverage limits risk
• Liquidity ratios are below 1.0, consistent with the model but still a monitoring point
• Dividend payout ~20% appears conservative and sustainable
• Cash flow disclosure is the largest data gap for assessing earnings quality and FCF

Metrics to Watch:

• Same-store sales growth and traffic vs. ticket size split
• Gross margin and markdown rate; private-brand mix
• SG&A ratio trend, especially labor and energy costs
• Inventory days and payables days to validate healthy negative working capital
• Operating cash flow vs. net income once disclosed
• Capex intensity and new store performance ramp

Relative Positioning: Within Japanese food retail, the company exhibits above-market revenue growth with conservative leverage and very strong interest coverage; profitability is mid-pack with operating margin around 5% and ROE in the high single digits, leaving upside if SG&A productivity improves and gross margin stabilizes.

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