BANNERS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.47B
• Operating Income: ¥147M
• Net Income: ¥103M
• EPS: ¥6.59

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

Verdict: Soft quarter with slight top-line decline and modest profit contraction, alongside weak cash conversion and elevated leverage. Revenue was 24.74 (−1.1% YoY), with gross profit of 6.34 and operating income of 1.47 (−4.3% YoY), indicating mild operating deleverage. Operating margin stood at 5.9%, ordinary income was 1.35 (−4.0% YoY), and net income was 1.00 (−4.4% YoY), implying net margin near 4.0%. Gross margin printed at 25.6%, while the SG&A ratio was approximately 19.7%, leaving limited operating leverage at current scale. Operating margin likely compressed by roughly 20–40 bps YoY given OP decline outpacing revenue decline. EBITDA was 2.39 (margin 9.7%), supporting interest coverage of 9.6x; however, leverage remains high with D/E at 2.28x. Cash generation was notably weak: operating cash flow was only 0.09 versus net income of 1.00 (OCF/NI 0.09x), flagging earnings quality and probable working capital drag, likely inventory-related given inventories of 9.09 versus receivables of 0.98. Liquidity is mixed: current ratio is 1.43 (adequate), but quick ratio is 0.82 (below 1.0), reflecting reliance on inventory liquidation for short-term obligations. Total assets were 88.12 against equity of 26.87, implying financial leverage of 3.28x; ROE was 3.7%, constrained by low asset turnover (0.281) and modest margins. ROIC was 2.4%, well below typical cost of capital, indicating value dilution risk absent improvement. Non-operating balance was slightly negative (income 0.04 vs expenses 0.16), adding a small drag to ordinary profit. Financing cash flow was −1.29, suggesting net repayments or dividend outflows, though specific dividend cash was unreported; calculated payout ratio at 101.2% raises sustainability concerns. With leverage elevated and cash conversion weak, near-term priorities are inventory discipline, working capital normalization, and margin protection. Forward-looking, sustained earnings growth likely hinges on throughput (asset turnover) and improved cash conversion; otherwise, dividend capacity and deleveraging could be constrained.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.7% = Net Profit Margin 4.0% × Asset Turnover 0.281 × Financial Leverage 3.28x. The weakest structural component is asset turnover (0.281), indicating low revenue generation relative to the asset base; leverage is high (3.28x) and is the main prop to ROE, while margins are modest. Versus last year, profit fell faster than revenue (OP −4.3% vs sales −1.1%), implying mild operating margin compression (roughly 20–40 bps). Business drivers: a stable-to-soft gross margin (25.6%) coupled with an SG&A ratio of ~19.7% left limited room for operating leverage; small non-operating losses also tempered ordinary income. Sustainability: leverage-supported ROE is not robust; with ROIC at 2.4% (below WACC), incremental growth without margin or turnover improvement risks further value dilution. Concerning trends: revenue contraction alongside higher relative SG&A burden and very weak cash conversion (OCF/NI 0.09x) suggests earnings quality pressure; any SG&A growth above revenue would further compress margins, so cost control is critical.

Growth Assessment

Top-line declined 1.1% YoY to 24.74, indicating a soft demand backdrop or mix effects. Operating income declined 4.3% to 1.47, and ordinary income −4.0% to 1.35, reflecting modest operating deleverage and slightly negative non-operating balance (0.04 vs 0.16). Net income fell 4.4% to 1.00; net margin stands at ~4.0%. EBITDA margin at 9.7% is decent for a small operator but below what is needed to offset leverage risk. Profit quality is weakened by OCF lagging NI significantly, hinting at working capital build (inventories 9.09 vs receivables 0.98), which could be seasonal or reflect slower sell-through. With asset turnover at 0.281, volume growth and faster inventory turns are essential for sustainable profit growth. Near-term outlook depends on gross margin defense and inventory normalization; any FX or input cost volatility could pressure margins further. Non-operating income is not a driver; core operations must deliver to sustain earnings.

Financial Health

Liquidity is mixed: current ratio at 143% is acceptable, but quick ratio at 81.9% is below the 100% benchmark, indicating dependence on inventory conversion. Debt is elevated: D/E at 2.28x (warning) with long-term loans of 25.22 and short-term loans of 3.50; interest coverage is comfortable at 9.6x for now. Maturity mismatch risk appears moderate: current assets 21.25 exceed current liabilities 14.86, but the high inventory component raises liquidity execution risk if demand slows. Total liabilities are 61.26 versus equity of 26.87; financial leverage is 3.28x. No off-balance sheet obligations are reported in the provided data; none assessed. Explicit warnings: D/E > 2.0 (elevated leverage). Current ratio is above 1.0 (no immediate red flag), but quick ratio < 1.0 warrants caution on short-term liquidity.

Cash Flow Quality

OCF/Net Income is 0.09x, well below the 0.8 threshold, signaling weak earnings quality and likely working capital build (inventory heavy balance sheet). Operating CF was 0.09 versus capex of 0.09, implying near-zero proxy free cash flow before other investing items (full investing CF not disclosed). Financing CF of −1.29 suggests debt repayment and/or shareholder returns; with OCF so weak, this draws on cash or increased balance sheet strain. Sustainability: current cash generation is insufficient to comfortably fund dividends and capex concurrently; improvement in working capital turns is needed. No overt signs of working capital manipulation can be concluded from the limited data, but the inventory magnitude relative to receivables and sales suggests a need for tighter inventory management.

Dividend Sustainability

Calculated payout ratio is 101.2%, above sustainable benchmarks (<60%), implying dividends are not fully covered by earnings. With OCF at 0.09 and proxy FCF near zero after capex, cash coverage is thin. Dividend cash outflow is unreported, but financing CF negative indicates potential distributions and/or debt repayments despite weak OCF. Policy outlook: unless earnings and cash conversion improve, maintaining a >100% payout would likely require balance sheet support, which is risky given D/E of 2.28x. Near-term sustainability is questionable without operational and cash flow improvement.

Risk Assessment

Business Risks:

• Demand softness evidenced by −1.1% YoY revenue and low asset turnover (0.281)
• Margin pressure from SG&A burden (~19.7% of sales) and limited operating leverage
• Inventory risk: high inventory relative to receivables and sales could lead to markdowns if sell-through slows
• Supplier/input cost and FX volatility potentially compressing gross margin

Financial Risks:

• High leverage (D/E 2.28x) raising refinancing and covenant risk
• Quick ratio below 1.0 indicating reliance on inventory for liquidity
• Weak cash conversion (OCF/NI 0.09x) stressing funding of dividends and debt service
• Interest rate risk on 28.72 of loans (short + long) if floating-rate exposure is significant

Key Concerns:

• ROIC at 2.4% below likely cost of capital, implying value dilution risk
• Payout ratio above 100% despite weak OCF, questioning dividend sustainability
• Non-operating expenses exceeding non-operating income, trimming ordinary profit
• Low ROE (3.7%) despite high leverage, indicating core profitability constraints

Investment Implications

Key Takeaways:

• Modest profit decline with slight margin compression amid flat-to-soft demand
• Leverage elevated (D/E 2.28x) but interest coverage currently adequate (9.6x)
• Earnings quality weak: OCF/NI 0.09x and inventory-heavy current assets
• ROIC 2.4% signals subpar capital efficiency; ROE relies on leverage, not operations
• Dividend coverage appears stretched with >100% payout ratio and thin cash generation

Metrics to Watch:

• OCF/Net Income and working capital movements, especially inventory days
• Gross margin and SG&A ratio for operating leverage indications
• Net debt/EBITDA and interest coverage as rates and refinancing conditions evolve
• Asset turnover (sales/asset base) and ROIC progression
• Quick ratio and cash balance versus short-term borrowings

Relative Positioning: Relative to small-cap consumer/wholesale peers, profitability is mid-single-digit at the operating line but below-average on ROE/ROIC due to low asset turnover; leverage is higher than conservative peers, leaving less room for error if cash conversion does not normalize.

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