DCM Holdings Co.,Ltd. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥405.03B
• Operating Income: ¥26.76B
• Net Income: ¥15.34B
• EPS: ¥113.39

Income Statement

Balance Sheet

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: A stable but margin-pressured quarter with flat bottom-line performance and weak capital efficiency. Revenue was 4,050.33, down 2.9% YoY versus 4,169.22 in the prior period. Operating income declined 3.9% YoY to 267.60, while ordinary income was down 1.6% to 254.36. Net income was essentially flat at 153.41 versus 153.46 in the prior period, supported by a slightly lower revenue base and a steady cost structure. Gross profit was 1,377.24, implying a gross margin of 34.0%, consistent with a stable merchandise mix and controlled markdowns. The operating margin was 6.6%, slipping by roughly 7 bps from 6.7% YoY, indicating mild operating deleverage as sales softened. Net margin improved by about 11 bps to 3.8% from 3.7% last year, aided by a solid interest burden (EBT/EBIT 0.913) and no unusual non-operating charges. SG&A was 1,174.44, translating to a 29.0% ratio of sales, within retail benchmarks but showing limited flexibility as sales declined. Interest coverage remains healthy at 12x, reflecting manageable financing costs despite 1,978.84 of interest-bearing debt. Liquidity is sound (current ratio 231%), though the quick ratio at 0.98 highlights inventory reliance. Capital efficiency is the key weakness: ROE is a modest 5.0% and ROIC is flagged at 4.1%, below a 5% warning threshold for retailers. Total comprehensive income was 414.84, far above net income, likely reflecting sizable unrealized gains (e.g., investment securities), which do not bolster recurring cash generation. Cash flow data were not disclosed, limiting assessment of earnings quality and dividend coverage; however, the payout ratio is a reasonable 43% on earnings. Forward-looking, the priority is reigniting same-store growth, protecting gross margin, and improving ROIC through tighter working capital and focused capex. Absent operating momentum, capital returns may stay constrained and valuation tied to stable but low-growth fundamentals.

Profitability Analysis

ROE decomposition: ROE 5.0% = Net Profit Margin (3.8%) × Asset Turnover (0.575x) × Financial Leverage (2.28x). The biggest drag is the low net margin and moderate asset turnover inherent to a store- and inventory-intensive model. Business driver: operating margin at 6.6% contracted ~7 bps YoY as SG&A leverage weakened on lower sales; gross margin held around 34%, suggesting product mix and markdown discipline prevented a sharper decline. Interest burden is benign (0.913), indicating financing costs are not the core issue; the effective tax burden (0.628) is heavier than the >0.70 benchmark and weighs on ROE. Sustainability: gross margin stability looks sustainable near term, but operating leverage will remain challenged if sales stay soft; absent acceleration in traffic or basket, ROE uplift is limited. Concerning trends: revenue declined 2.9% while SG&A rose in absolute terms to 1,174.44 (or at best was not reduced commensurately), implying negative operating leverage; with ROIC at 4.1% (<5%), incremental investment returns appear below a typical retail WACC, reinforcing the need for disciplined capital allocation.

Growth Assessment

Top line contracted 2.9% YoY to 4,050.33, indicating either weaker traffic, lower ticket size, or store network effects; comparable-store metrics are not disclosed, limiting diagnosis. Operating income fell 3.9% YoY to 267.60 as SG&A absorption worsened, while net income held flat at 153.41 thanks to stable non-operating items and no tax spikes. Gross margin at 34.0% looks resilient, suggesting controlled promotions and a stable merchandise mix; however, the 29.0% SG&A ratio indicates limited cost flexibility in the short term. With no capex or depreciation disclosure, growth investment cadence is unclear; goodwill (443.78) and intangibles (574.68) imply prior M&A that must be monetized via synergy capture. Outlook hinges on same-store recovery, inventory productivity improvements ahead of seasonal peaks, and continued cost discipline; without these, growth is likely to remain muted.

Financial Health

Liquidity: very strong current ratio at 231% and working capital of 1,657.46; quick ratio at 97.7% is slightly below the 1.0 benchmark, reflecting inventory-heavy retail operations. Solvency: D/E at 1.28x is above the conservative <1.0 threshold but not excessive; interest-bearing debt is 1,978.84, with debt/capital at 39.1% within investment-grade norms. Interest coverage is robust at ~12x, indicating ample headroom under typical covenants. Maturity and funding: short-term loans are 78.05 vs cash of 971.93 (cash/short-term debt 12.45x), minimizing near-term rollover risk; the bulk of borrowings are long term (1,900.79), aligned with long-lived store assets. No off-balance sheet obligations disclosed; lease details not provided may understate economic leverage customary in retail.

Cash Flow Quality

Cash flow statements are not disclosed for the period, preventing OCF/NI and FCF analysis. Consequently, we cannot test the OCF/NI >1.0 quality benchmark or dividend FCF coverage. Working capital indicators suggest significant inventory (1,686.94) relative to payables (322.60), implying low supplier financing leverage; absent inventory turnover data, we cannot assess potential inventory build or markdown risk. With comprehensive income far above net income due to OCI gains, recurring cash generation should be evaluated cautiously once OCF is available.

Dividend Sustainability

Declared DPS totals 45 JPY (interim 22, year-end 23), equating to a payout ratio of about 43% on reported net income, comfortably below the 60% sustainability threshold. Earnings coverage appears adequate given stable net income and strong interest coverage; however, FCF coverage cannot be assessed due to missing OCF and capex. Balance sheet flexibility is reasonable with ample liquidity and long-dated debt, supporting continuity of the current dividend policy, contingent on stable operating cash flow.

Risk Assessment

Business Risks:

• Demand softness in home improvement categories leading to negative operating leverage
• Gross margin pressure from competitive pricing and promotional intensity
• Inventory obsolescence/markdown risk given high inventory balance
• Execution risk on synergy realization from past M&A (goodwill/intangibles)

Financial Risks:

• ROIC at 4.1% below a typical retail WACC, risking value dilution from new investments
• Quick ratio below 1.0, indicating reliance on inventory conversion for liquidity
• Moderate leverage (D/E 1.28x) with potential sensitivity to rate increases despite current coverage
• OCI-driven equity volatility from investment securities valuations

Key Concerns:

• Capital efficiency remains weak (ROE 5.0%, ROIC 4.1%)
• Revenue decline of 2.9% YoY without commensurate SG&A adjustment
• Limited disclosure on cash flows hampers assessment of earnings quality and dividend coverage
• Tax burden (0.628) below the >0.70 benchmark, pressuring net margins

Investment Implications

Key Takeaways:

• Stable bottom line with mild operating margin compression and improving net margin bps due to steady non-operating items
• Healthy liquidity and coverage mitigate near-term balance sheet risk
• Core weakness is sub-WACC capital efficiency (ROIC 4.1%, ROE 5.0%)
• Dividend payout (~43%) appears sustainable on earnings, but FCF confirmation is pending
• Large gap between net and comprehensive income signals non-recurring OCI gains, not operating strength

Metrics to Watch:

• Same-store sales growth (traffic vs ticket)
• Gross margin vs markdown rates
• SG&A ratio and labor productivity
• Inventory turnover and aged inventory levels
• Operating cash flow/Net income and free cash flow
• ROIC trajectory and capex discipline
• Interest coverage and debt/EBITDA once EBITDA is disclosed
• Quick ratio trend and payable terms

Relative Positioning: Within Japanese home improvement retail, DCM exhibits adequate liquidity and interest coverage but lags on capital efficiency and sales momentum; improving same-store performance and inventory productivity are necessary to close the ROIC gap versus best-in-class peers.

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