NAFCO Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥96.29B
• Operating Income: ¥1.83B
• Net Income: ¥813M
• EPS: ¥33.07

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Nafco Co., Ltd. (27900) reported FY2026 Q2 standalone results under JGAAP showing flat topline but sharply improved profitability. Revenue was ¥96.289bn, essentially unchanged YoY, while operating income rose 106.5% to ¥1.833bn, indicating significant operating leverage and cost discipline. Gross profit was ¥31.755bn, implying a gross margin of 33.0%, a solid level for a home improvement/general merchandiser, and likely supported by mix optimization and procurement efficiency. EBITDA came in at ¥4.783bn (5.0% margin), with depreciation and amortization of ¥2.95bn implying a capital-intensive store network. Ordinary income of ¥1.71bn was slightly below operating income due to net non-operating expenses (including ¥90m interest), but interest burden remains low with coverage of ~20x. Net income was ¥813m, up 134.8% YoY, with a net margin of 0.84%, demonstrating meaningful bottom-line recovery despite flat sales. DuPont metrics show a modest calculated ROE of 0.53%, driven by thin net margins (0.84%), moderate asset turnover (0.432), and conservative leverage (financial leverage 1.45x). Balance sheet strength is notable: total assets ¥223.1bn, equity ¥154.1bn, liabilities ¥71.2bn; this implies an equity ratio around 69% despite the reported equity ratio being unreported (0%). Liquidity is sound with a current ratio of 162% and working capital of ¥34.5bn, suggesting ample short-term buffer. Operating cash flow was robust at ¥5.142bn, exceeding net income by 6.3x, supported by non-cash charges and likely favorable working capital movements; investing cash flow was unreported, limiting free cash flow analysis. Financing cash flow was an outflow of ¥1.777bn, likely reflecting debt repayment and/or shareholder returns, though DPS and share data are unreported. EPS was ¥33.07; based on net income, this implies roughly 24–25 million shares outstanding (estimated), but official share counts were not disclosed here. Overall, the quarter evidences margin-driven profit recovery, disciplined cost control, and strong cash generation against a stable revenue base. The conservative capital structure and strong interest coverage indicate low financial risk. However, several data fields (inventories, equity ratio, investing cash flows, cash balance, DPS, shares) are unreported, requiring caution in interpreting efficiency, working capital quality, and dividend capacity. Outlook hinges on sustaining cost efficiencies, managing procurement and energy/utility costs, and stabilizing demand in core DIY/home improvement categories. Continued monitoring of gross margin resilience and SG&A discipline will be key to assessing the durability of this profit inflection.

Profitability Analysis

ROE_decomposition: DuPont ROE = Net profit margin (0.84%) × Asset turnover (0.432x) × Financial leverage (1.45x) = ~0.53%. The ROE is primarily constrained by low net margins, while leverage is conservative and asset turnover is modest. margin_quality: Gross margin was 33.0% on ¥31.755bn gross profit, indicating healthy merchandise economics. Operating margin was ~1.90% (¥1.833bn/¥96.289bn), more than doubling YoY on flat sales, pointing to SG&A efficiency improvements. Net margin at 0.84% improved strongly YoY but remains thin, characteristic of the sector and reflective of non-operating costs. operating_leverage: With revenue flat and operating income +106.5% YoY, operating leverage was significant. The expansion suggests fixed-cost absorption gains and disciplined expense management, with D&A of ¥2.95bn highlighting the importance of asset utilization. Interest expense of ¥90m minimally affects profits given EBIT/interest coverage of ~20x.

Growth Assessment

revenue_sustainability: Sales were stable at ¥96.289bn (0.0% YoY), indicating steady demand but no visible volume or price growth in the period. Maintaining this base while pursuing mix improvements remains key. profit_quality: Profit growth outpaced sales due to cost control and improved operating efficiency. Ordinary income (¥1.71bn) slightly lagged operating income due to net non-operating costs, but the gap is small, supporting earnings quality. outlook: Absent disclosed guidance, near-term growth depends on sustaining procurement efficiencies, controlling utilities/logistics, and category mix. A stable sales base with continued cost discipline could support further margin normalization; macro and consumer demand remain watch factors.

Financial Health

liquidity: Current assets ¥90.228bn vs current liabilities ¥55.703bn yield a current ratio of 162% and working capital of ¥34.525bn. Quick ratio is shown as 162%, but inventories are unreported; true quick ratio may be lower if inventories are material. solvency: Total liabilities of ¥71.239bn against equity of ¥154.084bn imply an inferred equity ratio of ~69.1% (despite the reported 0% being unreported) and financial leverage (Assets/Equity) of 1.45x. Debt-to-equity is indicated at 0.46x (likely total liabilities/equity), reflecting low leverage. capital_structure: Interest expense is modest at ¥90m with interest coverage ~20.4x, indicating ample buffer. The balance sheet is conservatively financed, supporting resilience.

Cash Flow Quality

earnings_quality: Operating cash flow of ¥5.142bn vs net income of ¥0.813bn yields an OCF/NI of 6.32x, suggesting strong cash conversion aided by non-cash D&A (¥2.95bn) and likely favorable working capital. FCF_analysis: Investing cash flow is unreported (shown as 0), preventing a reliable free cash flow calculation; the displayed FCF of 0 should not be interpreted as actual zero. Given positive OCF and typical maintenance capex needs in retail, underlying FCF is likely positive, but cannot be quantified here. working_capital: Working capital increased to ¥34.525bn. Detailed components (inventories, receivables, payables) are not disclosed in this dataset, limiting diagnosis of the OCF driver split between non-cash add-backs and working capital movements.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are unreported (displayed as 0). With EPS at ¥33.07 for the period and net income of ¥813m, there appears to be capacity for distributions, but an explicit payout cannot be assessed from the provided data. FCF_coverage: Free cash flow cannot be calculated given unreported investing cash flows; hence FCF coverage of dividends is indeterminable in this dataset. policy_outlook: Financing cash outflow of ¥1.777bn suggests potential debt repayment and/or shareholder returns. However, without disclosed DPS or policy commentary, we cannot infer changes to dividend policy.

Risk Assessment

Business Risks:

• Flat revenue indicates limited growth momentum; sensitivity to consumer demand cycles.
• Category and price competition in home improvement/general merchandise compressing margins.
• Procurement cost volatility (materials, FX for imports) impacting gross margin.
• Energy, logistics, and labor cost inflation pressuring SG&A.
• Execution risk in store operations and asset productivity given sizable D&A.

Financial Risks:

• Unreported cash and investing cash flows limit visibility on liquidity buffers and capex commitments.
• Potential inventory risk (levels and obsolescence) not disclosed in this dataset.
• Interest rate risk is limited but present; interest coverage currently strong.
• Concentration risk from single-entity (non-consolidated) reporting, omitting subsidiary-level dynamics if any.

Key Concerns:

• Sustainability of margin gains without revenue growth.
• Lack of disclosure on inventories and capex impedes assessment of working capital and FCF durability.
• Thin net margin (0.84%) leaves limited cushion against cost shocks.

Investment Implications

Key Takeaways:

• Profitability inflected strongly with operating income +106.5% on flat sales, evidencing operating leverage.
• Gross margin at 33.0% and improved SG&A efficiency drove margin expansion.
• Balance sheet is conservative with inferred equity ratio ~69% and low leverage (financial leverage 1.45x).
• Operating cash flow is robust (¥5.142bn; OCF/NI 6.3x), supporting earnings quality.
• Visibility gaps remain: inventories, investing CF, cash, DPS, and share counts are unreported in this dataset.

Metrics to Watch:

• Gross margin trend and category mix to validate procurement and pricing discipline.
• SG&A ratio and store productivity (sales per store/sqm) as indicators of sustained operating leverage.
• Capex and investing cash flows to gauge FCF and store network strategy.
• Working capital metrics (inventory days, payables days) once disclosed.
• Ordinary income vs operating income spread to monitor non-operating costs.
• Interest coverage and any changes in leverage.

Relative Positioning: Relative to typical domestic home improvement retailers, Nafco shows stronger near-term margin momentum and conservative leverage, but with similar low net margins and currently limited topline growth; disclosure gaps constrain full comparability on FCF and inventory efficiency.

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