Komehyo Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥95.65B
• Operating Income: ¥1.76B
• Net Income: ¥679M
• EPS: ¥61.75

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

FY2026 Q2 was a mixed-to-weak quarter operationally: strong top-line growth did not translate into earnings, with sharp margin compression and materially lower profits. Revenue rose 37.7% YoY to 956.46, driven by robust demand and likely higher transaction volumes in the reuse/luxury categories. Despite this, operating income fell 43.7% YoY to 17.59, and net income declined 65.5% YoY to 6.77. Gross profit reached 196.90 (gross margin 20.6%), but SG&A of 179.30 (18.7% of sales) consumed most of the gross profit, limiting operating leverage. The operating margin fell to 1.84% from an estimated 4.50% a year ago, implying about 266 bps of compression. Net margin fell to 0.71% from an estimated 2.82% last year, or about 211 bps of compression, reflecting weaker operations, higher non-operating drag, and a high effective tax rate. Ordinary income decreased 56.5% YoY to 13.35, with net non-operating expense of roughly 4.23 (non-op income 0.76 vs non-op expenses 4.99) further pressuring earnings. Interest expense was 2.63, and interest coverage was 6.69x, still adequate but trending tighter alongside lower EBIT. The effective tax rate was elevated at 43.7%, amplifying the bottom-line decline relative to pre-tax profit. Balance sheet shows total assets of 971.04, with inventories of 443.87 and cash of 186.12; short-term loans are sizable at 429.55, indicating reliance on short-term funding to support inventory. Liquidity is mixed: current ratio is 144% (adequate), but quick ratio is 59.5% (weak), highlighting inventory intensity. Equity is 328.02 (equity ratio ~34%), and D/E is 1.96x—elevated but not extreme; however, short-term debt concentration increases refinancing risk. ROE stands at 2.1% via DuPont (net margin 0.7% × asset turnover 0.985 × leverage 2.96x), reflecting low profitability as the main constraint. Total comprehensive income was only 1.08, much lower than net income, implying negative OCI (likely valuation losses) and additional headwinds to equity. Dividend payout ratio is indicated at 172.9%, which appears stretched relative to earnings and uncertain cash flow (OCF not disclosed). Looking ahead, the company needs to restore gross margin and control SG&A to convert growth into profit, while managing inventory and short-term debt to reduce liquidity and refinancing risk.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.1% = Net Profit Margin 0.7% × Asset Turnover 0.985 × Financial Leverage 2.96x. The component that changed most YoY is the net profit margin, given revenue expanded 37.7% while operating income fell 43.7% and net income fell 65.5%, indicating sharp margin compression. Business drivers likely include: (1) lower gross margin mix/pricing amid procurement competition and possibly higher sourcing costs; (2) SG&A intensity rising with store/format investments, personnel, and/or marketing; (3) higher non-operating expense including interest; and (4) an elevated effective tax rate (43.7%). Asset turnover is near 1.0x; with inventories elevated, turnover likely did not improve materially despite revenue growth. Leverage (assets/equity 2.96x) provided limited ROE support but increases financial risk. Sustainability: Margin pressure may be partly cyclical (demand normalization, pricing) and partly investment-related (store/IT growth expenses). Without clear gross margin recovery and SG&A discipline, ROE will likely stay subdued. Concerning trends: operating expense intensity outpacing profit growth; non-operating drag (net −4.23) reducing ordinary income; and a high tax rate diluting bottom line.

Growth Assessment

Top-line growth of 37.7% YoY to 956.46 is strong and suggests healthy transaction volume or expanded footprint, but monetization is poor as profit metrics contracted sharply. Operating income down 43.7% and net income down 65.5% indicate negative operating leverage. The operating margin fell to 1.84% (−266 bps YoY by estimate), and net margin fell to 0.71% (−211 bps YoY by estimate). Revenue sustainability will depend on inventory availability, procurement competitiveness, and consumer demand for reuse/luxury, which can be cyclical. Profit quality is weakened by high SG&A and non-operating costs; ordinary income margin is just 1.40%. Near-term outlook hinges on stabilizing gross margin (procurement spreads), tightening SG&A, and reducing interest burden by optimizing working capital. Absent margin recovery in H2 seasonally stronger periods, full-year profit risk is biased downward.

Financial Health

Liquidity: Current ratio 144.3% (adequate but below the >150% comfort benchmark) and quick ratio 59.5% (weak) reflect inventory-heavy working capital. Cash is 186.12 versus current liabilities 523.44; inventories are 443.87, underscoring reliance on inventory conversion. Solvency: Total equity 328.02 and total assets 971.04 imply an equity ratio ~33.8%. Debt-to-equity is 1.96x (elevated vs 1.5x benchmark but below the 2.0x explicit warning threshold). Interest coverage is 6.69x (acceptable). Maturity mismatch: Short-term loans are high at 429.55, materially exceeding quick assets; dependency on short-term funding poses refinancing and interest rate risk if inventory turns slow. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

OCF is unreported, so OCF/Net Income and FCF cannot be assessed; this is a key limitation. Earnings quality flags from the balance sheet: inventory intensity (443.87) and a low quick ratio suggest potential working capital consumption, which, if OCF/NI were <0.8, would indicate quality issues—but we lack confirmation. Interest burden (2.63) is manageable today, but further EBIT pressure could squeeze coverage. Dividend and capex coverage by FCF cannot be evaluated without cash flow data; given the indicated payout ratio of 172.9% amid falling profits, external funding or balance-sheet draw would likely be needed if OCF is weak. No explicit signs of working-capital manipulation can be concluded from disclosed data, but monitoring inventory turnover and payables is critical.

Dividend Sustainability

The indicated payout ratio is 172.9%, which is above the <60% sustainability benchmark and looks stretched relative to current earnings. With OCF and FCF unreported, coverage cannot be validated; however, given profit compression and elevated short-term debt, maintaining such a payout would likely depend on stronger H2 cash generation or balance-sheet capacity. Policy-wise, management may prioritize stable dividends, but prudence suggests aligning payouts with normalized earnings and cash flow once margins recover. Until operating cash flow trends are visible, dividend sustainability is uncertain and sensitive to inventory turnover and interest costs.

Risk Assessment

Business Risks:

• Gross margin pressure from procurement competition and pricing in the reuse/luxury category
• Demand cyclicality tied to consumer discretionary trends and secondhand luxury appetite
• Inventory valuation risk and potential markdowns if sell-through slows
• Execution risk in store expansion/format changes and associated SG&A ramp
• Digital/e-commerce competition impacting spreads and customer acquisition costs
• Elevated effective tax rate reducing net profitability

Financial Risks:

• High reliance on short-term loans (429.55) creating refinancing and interest rate risk
• Weak quick ratio (59.5%) indicating liquidity sensitivity if inventory conversion slows
• Leverage near 2.0x D/E, limiting flexibility if profits weaken further
• Negative OCI impact (total comprehensive income 1.08 vs net income 6.77) suggests valuation sensitivity in securities/FX
• Potential covenant headroom tightening if earnings decline persists

Key Concerns:

• Operating margin compression to 1.84% and net margin to 0.71%
• Ordinary income down 56.5% YoY, reflecting both operating and non-operating headwinds
• Payout ratio at 172.9% despite earnings decline and unknown OCF
• Elevated tax rate at 43.7% magnifies bottom-line pressure
• Inventory-heavy balance sheet with short-term funding dependence

Investment Implications

Key Takeaways:

• Strong revenue growth did not translate to profits; margin repair is the immediate priority
• Operating and net margins compressed by an estimated 266 bps and 211 bps YoY, respectively
• Short-term debt-heavy funding structure heightens liquidity and rate sensitivity
• ROE low at 2.1% with profitability the main constraint; leverage cannot offset weak margins
• High indicated payout ratio looks inconsistent with current earnings trajectory and uncertain cash flow
• Negative OCI drove comprehensive income far below net income, pressuring equity accumulation

Metrics to Watch:

• Gross margin and take-rate trends by channel
• SG&A-to-sales ratio and operating margin trajectory
• Inventory turnover days and sell-through, especially post-quarter seasonality
• Operating cash flow and FCF (once disclosed), OCF/NI ratio
• Debt mix (short vs long term) and average interest cost
• Effective tax rate normalization
• Interest coverage as EBIT recovers or declines

Relative Positioning: Within Japan’s reuse and specialty retail peers, the company demonstrates superior top-line momentum but weaker earnings conversion this quarter. Liquidity is adequate on a current ratio basis but weaker on a quick basis due to inventory intensity, and leverage is higher than conservative peers, leaving less cushion if margins remain compressed.

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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