Isetan Mitsukoshi Holdings Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥253.87B
• Operating Income: ¥31.45B
• Net Income: ¥29.36B
• EPS: ¥81.75

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: Mixed quarter—core operations softened with revenue and operating income declining, but bottom-line rose on one-off gains, while liquidity remains a key weak point. Revenue was 2,538.66 (100M JPY), down 3.9% YoY, reflecting softer demand and/or normalization from high inbound comps. Gross profit was 1,561.31, yielding a high gross margin of 61.5%, consistent with a department store model but not enough to offset higher fixed costs. SG&A totaled 1,246.79, resulting in operating income of 314.51, down 9.8% YoY. Operating margin compressed to 12.4% from an estimated 13.2% last year (about 79 bps compression), driven by negative operating leverage. Ordinary income fell 14.5% YoY to 331.06 as non-operating swings were modest (+16.55 net). Profit before tax rose to 437.19, implying roughly 106 of extraordinary gains, which underpinned net income growth. Net income increased 15.7% YoY to 293.73, lifting net margin to 11.6%, but the quality is flattered by one-time items. OCF was 315.04, modestly exceeding net income (OCF/NI 1.07x), a positive datapoint, yet it still partly mirrors the one-off-supported earnings base. EBITDA was 436.83 (margin 17.2%), and interest coverage was very strong at 79.6x, indicating minimal near-term servicing risk. Balance sheet leverage is moderate (D/E 1.01x), but liquidity is weak with a current ratio of 0.72 and negative working capital of -1,058.40. ROE was 5.0% via DuPont (11.6% margin × 0.217 turnover × 2.01x leverage), and ROIC of 3.6% sits below a typical cost of capital—signaling subpar capital efficiency. Cash returns to shareholders were heavy, with share repurchases of 310.92 and a calculated payout ratio of 69.9%, implying distributions above a conservative range and above our proxy FCF. Comprehensive income of 230.18 was below net income (likely valuation losses on investment securities), pointing to market-driven equity valuation headwinds. Forward-looking, sustaining current EPS run-rate will require margin stabilization (SG&A discipline) and steady inbound/consumer demand; absent new one-offs, net income growth may normalize lower. Liquidity preservation and ROIC improvement via portfolio pruning, productivity, and selective capex will be key to rerating.

Profitability Analysis

ROE decomposition: ROE ≈ 5.0% = Net Profit Margin (11.6%) × Asset Turnover (0.217) × Financial Leverage (2.01x). The largest headwind this quarter came from margin compression at the operating level: operating income declined 9.8% versus a 3.9% revenue drop, implying negative operating leverage and an estimated 79 bps contraction in operating margin (to 12.4%). Asset turnover remains structurally low at 0.217, typical for a department store with large fixed assets and working capital needs; given revenue contraction, turnover likely softened marginally. Leverage at 2.01x is moderate and broadly stable, not a major ROE driver. Business reason: softer topline and relatively sticky SG&A (personnel, rent, utilities, store opex) diluted operating margin; non-operating/extraordinary gains boosted net margin, masking the core margin softness at the bottom line. Sustainability: cost deleverage risk persists unless sales recover or costs are flexed; extraordinary gains (~106 pre-tax) are by definition one-time and will likely not recur at the same scale. Watch for any trend of SG&A growth outpacing revenue—while we lack SG&A YoY detail, the disparity between revenue and operating income suggests cost pressure.

Growth Assessment

Topline declined 3.9% YoY to 2,538.66, suggesting softer domestic demand or normalization of inbound luxury purchases. Operating income fell 9.8%, indicating negative operating leverage; ordinary income fell 14.5% due to limited offset from non-operating items. Net income rose 15.7% to 293.73, driven primarily by extraordinary gains (implied ~106 pre-tax), not underlying operating expansion. EBITDA margin at 17.2% remains solid for the format but trended down with operating margin compression. Without recurring extraordinary support, earnings growth likely reverts closer to operating trends. Near-term outlook hinges on same-store sales, inbound tourism resilience, and SG&A control; store renewal ROI and merchandising mix will influence gross and operating margins.

Financial Health

Liquidity is weak: current ratio 0.72 (<1.0) and quick ratio 0.65 signal a cushion shortfall. Working capital is negative at -1,058.40, typical for retail with high payable leverage but still a monitoring point. Maturity mismatch risk exists: current liabilities (3,752.30) exceed liquid current assets (cash 615.61 + AR 1,456.95 + inventories 250.15), implying reliance on payables and short-term funding. Short-term loans are 404.63 versus long-term loans of 258.00; overall D/E is 1.01x (moderate) and interest coverage is very strong at 79.6x, mitigating solvency concerns. No explicit off-balance sheet obligations were disclosed in the provided data. Investment securities total 1,011.50; the gap between net income and comprehensive income suggests valuation losses flowing through OCI, which could impact equity in volatile markets.

Cash Flow Quality

OCF/Net Income is 1.07x, above the 0.8 threshold—headline earnings are supported by cash flow this period. However, net income benefited from extraordinary gains (~106 pre-tax); cash conversion should be assessed on recurring earnings in future quarters. Capex was 136.27; using a proxy FCF (OCF − Capex), FCF is approximately 178.8, noting that full investing CF was unreported and this proxy excludes acquisitions/disposals. Financing CF was -430.64, driven largely by share repurchases of -310.92 and possibly dividends/debt flows, implying shareholder returns exceeded proxy FCF and were funded by balance sheet capacity. No obvious working capital manipulation flags from the limited data, but negative working capital structure warrants monitoring of payables/receivables timing.

Dividend Sustainability

The calculated payout ratio is 69.9%, above the <60% conservative benchmark and thus somewhat stretched relative to normalized earnings. Dividend cash outflow was unreported; buybacks were sizable at 310.92, suggesting total capital returns likely exceeded our proxy FCF (~178.8). Sustainability depends on maintaining strong OCF and disciplined capex; absent recurring extraordinary gains, maintaining a near-70% payout and concurrent buybacks may require balance sheet usage or reduced capital returns. Policy outlook likely prioritizes stable dividends with flexible buybacks; visibility improves with clearer guidance on normalized earnings and planned capex.

Risk Assessment

Business Risks:

• Demand cyclicality in discretionary retail; sensitivity to consumer confidence and real wage trends
• Inbound tourism and luxury exposure volatility impacting high-ticket categories
• Fixed-cost burden (personnel, rents, utilities) creating negative operating leverage when sales soften
• Merchandising and brand mix risk affecting gross margin resilience

Financial Risks:

• Low liquidity: current ratio 0.72 and negative working capital, reliance on payables/short-term funding
• Capital efficiency shortfall: ROIC 3.6% below typical WACC
• Earnings volatility from extraordinary items; non-recurring gains propping up net income
• Market valuation risk on investment securities (OCI losses implied by comprehensive income < net income)

Key Concerns:

• Operating margin compression (~79 bps YoY) amid revenue decline
• High shareholder returns (buybacks) exceeding proxy FCF
• Potential sustainability issues if one-off gains do not repeat
• Sensitivity to wage inflation and SG&A rigidity

Investment Implications

Key Takeaways:

• Core profitability softened: revenue -3.9% YoY and operating income -9.8% YoY with margin compression
• Net income +15.7% was lifted by sizable extraordinary gains (~106 pre-tax), not core improvement
• Liquidity is the weak spot: current ratio 0.72; working capital negative
• Capital efficiency is subpar: ROE 5.0%, ROIC 3.6%
• Cash conversion acceptable this quarter (OCF/NI 1.07x), but returns to shareholders exceeded proxy FCF

Metrics to Watch:

• Same-store sales and inbound sales mix
• Operating margin and SG&A-to-sales ratio
• OCF/NI and working capital turns (AR/AP days)
• ROIC trajectory versus 7–8% target range
• Extraordinary and non-operating items scale
• Valuation movements in investment securities (impact on OCI/equity)
• Liquidity metrics (current and quick ratios) and short-term debt rollover

Relative Positioning: Within Japan’s department store peers, the company maintains strong gross margins and franchise strength but faces similar structural pressures: modest growth, high fixed costs, and sensitivity to inbound demand. Its liquidity is weaker than ideal, capital efficiency trails best-in-class peers, and the quarter’s EPS outperformance relied on non-recurring gains.

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