GUNZE LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥65.27B
• Operating Income: ¥3.19B
• Net Income: ¥2.99B
• EPS: ¥-20.27

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

Gunze Co., Ltd. (3002) reported FY2026 Q2 consolidated results under JGAAP showing a modest top-line decline and a swing to a bottom-line loss despite healthy gross margins and strong liquidity. Revenue was ¥65.27bn, down 3.1% YoY, while operating income fell 10.7% YoY to ¥3.19bn, indicating negative operating leverage as costs did not flex down in line with sales. Gross profit of ¥21.03bn implies a solid gross margin of 32.2%, but the operating margin compressed to roughly 4.9%, reflecting higher SG&A or less favorable mix. Ordinary income was ¥3.21bn, close to operating income, suggesting minimal non-operating drag given small interest expense of ¥42m. Net income was a loss of ¥658m (EPS: -¥20.27), implying below-the-line items (e.g., special losses or taxes) more than offset operating profits; reported income tax expense was ¥1.35bn, making the effective tax rate metric not meaningful this period. Despite the accounting loss, operating cash flow was positive at ¥5.65bn, supported by ¥3.39bn of depreciation and amortization; OCF/Net Income was -8.59x, signaling cash earnings exceeded accrual earnings this half. EBITDA was ¥6.58bn with a 10.1% margin, and interest coverage was very strong at 75.9x, underlining limited financial risk from interest-bearing debt. The balance sheet is robust with total assets of ¥157.44bn, total equity of ¥112.65bn, and total liabilities of ¥38.69bn; this implies an equity ratio near 71.6% (despite a 0.0% placeholder in the dataset). Liquidity is ample with a current ratio of 317.6% and quick ratio of 218.9%, underpinned by ¥77.97bn of current assets versus ¥24.55bn of current liabilities and ¥53.42bn of working capital. Inventory stood at ¥24.23bn; without turnover data, we cannot assess inventory efficiency, but inventory management will be an important lever for cash flow. Investing cash flow is shown as zero in the dataset (unreported), limiting free cash flow analysis; financing cash flow was a ¥571m inflow. The DuPont ROE decomposition indicates a modest asset turnover (0.415x), low financial leverage (1.40x), and a negative net margin (-1.01%), yielding a calculated ROE of -0.58%. The negative bottom line alongside positive OCF suggests either transitory non-cash or one-off items, or timing differences; cash generation appears healthier than headline earnings. Dividend fields are unreported (zeros), so payout policy cannot be assessed from this dataset; historical policy and guidance would be necessary for a proper view. Overall, the company retains financial flexibility to navigate margin pressure, but profit quality at the bottom line and operating leverage need monitoring. Data limitations (e.g., unreported investing CF, share count, cash) constrain precision in several ratio analyses; conclusions are based on available non-zero data points.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -1.01%, asset turnover 0.415x (Revenue/Total assets), and financial leverage 1.40x (Assets/Equity) produce a calculated ROE of -0.58%. Gross margin is 32.2% (¥21.03bn/¥65.27bn), highlighting decent product-level economics. Operating margin is ~4.9% (¥3.19bn/¥65.27bn), down YoY as operating income fell 10.7% on a 3.1% revenue decline, indicating negative operating leverage and/or mix/SG&A pressure. EBITDA margin is 10.1% (¥6.58bn/¥65.27bn), providing a cushion above operating profit; D&A of ¥3.39bn is sizeable relative to operating income, affecting accounting profitability. Ordinary income (¥3.21bn) is close to operating income, suggesting limited non-operating headwinds; interest expense is very low at ¥42m. The net loss despite positive operating profit points to below-the-line items (taxes and potentially special losses), making effective tax rate metrics not meaningful for this period. Overall, core profitability is modest and sensitive to sales volume/mix, with clear evidence of negative operating leverage in this half.

Growth Assessment

Revenue declined 3.1% YoY to ¥65.27bn, reflecting soft demand and/or product mix headwinds. Operating income fell 10.7% YoY to ¥3.19bn, a larger drop than revenue, implying operating deleverage and SG&A absorption challenges. Gross profit held at ¥21.03bn with a 32.2% margin, suggesting pricing and input-cost pass-through were reasonably maintained, though not enough to prevent operating margin compression. Ordinary income tracked operating income closely, so non-operating factors were not the main driver of the decline. The swing to a net loss (-¥658m) primarily reflects below-the-line items (including ¥1.35bn tax), rather than a collapse in core operations. Profit quality appears better on a cash basis than on an accrual basis: OCF was ¥5.65bn in the half, supported by non-cash D&A. Sustainability of revenue will depend on stabilization in end-markets and maintaining price/mix; with limited reported segment data, we cannot attribute changes to specific businesses. Outlook-wise, the company’s strong balance sheet allows time to execute margin defense (cost control, mix improvement) and to invest, but near-term earnings momentum is negative given the operating deleverage shown. Monitoring sequential revenue trends, order intake, and any commentary on demand normalization will be important to assess whether the YoY decline is transitory.

Financial Health

Liquidity is strong: current assets ¥77.97bn vs current liabilities ¥24.55bn give a current ratio of 317.6% and a quick ratio of 218.9%. Working capital is ¥53.42bn, providing a sizeable buffer for operations. Solvency is robust: total equity is ¥112.65bn and liabilities ¥38.69bn, implying an equity ratio of roughly 71.6% (despite the dataset’s 0.0% placeholder) and low leverage. Debt-to-equity is 0.34x per the provided metric, indicating conservative capital structure. Interest burden is minimal with ¥42m expense and very high interest coverage at 75.9x (EBITDA basis), pointing to low refinancing risk. Asset base stands at ¥157.44bn, with inventories at ¥24.23bn; absent turnover data, we cannot assess inventory liquidity but inventory management remains a key working capital lever. Overall, balance sheet strength is a clear positive and a mitigant to earnings volatility.

Cash Flow Quality

Operating cash flow was ¥5.65bn versus a net loss of ¥658m, yielding an OCF/Net Income ratio of -8.59x; this indicates cash generation significantly exceeds accounting earnings this period. Key drivers likely include non-cash D&A of ¥3.39bn and potential favorable working-capital movements (details not disclosed). EBITDA was ¥6.58bn, so OCF/EBITDA of ~0.86x is reasonable for a half, suggesting decent cash conversion before capex. Investing cash flow is shown as 0 in the dataset (treated as unreported), preventing a reliable free cash flow calculation; the provided “Free Cash Flow: 0” should be interpreted as unavailable rather than true zero. Financing cash flow was an inflow of ¥571m, indicating minor net financing activity. With cash and equivalents shown as 0 (unreported), period-end liquidity cannot be confirmed from the dataset alone. Overall, earnings quality appears better on a cash basis than accrual, but the absence of investing cash flow data limits full FCF assessment and capex intensity analysis.

Dividend Sustainability

Dividend data are unreported in this dataset (Annual DPS 0.00 and payout ratio 0.0% are placeholders), so we cannot assess current payout levels from the provided figures. Given a net loss in the half, payout ratio based on earnings would be undefined if dividends were paid; cash-based coverage would depend on OCF and capex, which is not disclosed (investing CF unreported). With strong liquidity and low leverage, the balance sheet could support dividends from a capacity perspective, but sustainability should be judged against normalized earnings and required reinvestment. Policy outlook cannot be inferred without management guidance or historical dividend records. In summary, insufficient disclosed data prevent a definitive dividend sustainability assessment this period.

Risk Assessment

Business Risks:

• Revenue decline of 3.1% YoY indicates demand softness and/or unfavorable mix.
• Negative operating leverage: operating income down 10.7% on modest revenue decline.
• Exposure to input cost volatility and pricing power constraints affecting margins.
• Potential inventory risk (¥24.23bn) if demand weakens further; turnover not disclosed.
• Dependence on below-the-line items (taxes, special factors) driving net loss despite operating profit.

Financial Risks:

• Earnings volatility: net loss despite positive operating and ordinary income.
• Limited visibility on capex and investing cash flows (unreported), constraining FCF analysis.
• Data gaps for cash and equivalents and share count impede per-share and liquidity fine-tuning.
• Potential tax volatility given large tax expense in a loss-making period.

Key Concerns:

• Sustained margin pressure and operating deleverage if sales do not stabilize.
• Quality of bottom-line earnings affected by non-operating/one-off items and tax.
• Unreported investing cash flows obscure true free cash flow and reinvestment needs.

Investment Implications

Key Takeaways:

• Core operations profitable at the operating level but bottom line negative in H1 FY2026.
• Gross margin resilient at 32.2%, yet operating margin compressed to ~4.9%.
• Strong liquidity (current ratio 3.18x) and low leverage (~71.6% implied equity ratio) provide flexibility.
• Positive OCF (¥5.65bn) versus net loss highlights stronger cash earnings than accruals.
• Operating deleverage evident as operating income fell 10.7% on a 3.1% revenue decline.

Metrics to Watch:

• Sequential revenue trends and order intake to gauge demand stabilization.
• Operating margin trajectory and SG&A ratio for signs of margin defense.
• Working-capital movements, especially inventory levels and turnover.
• Capex and investing cash flows to assess true free cash flow and reinvestment.
• Below-the-line items (special gains/losses) and tax expense normalization.
• ROE components: net margin recovery and asset turnover.

Relative Positioning: Relative to typical apparel/materials peers, Gunze exhibits a stronger balance sheet with high equity ratio and ample liquidity, but faces near-term profitability pressure and negative operating leverage; cash generation appears comparatively resilient despite a reported net loss.

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