Isetan Mitsukoshi Holdings Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥253.87B
• Operating Income: ¥31.45B
• Net Income: ¥25.35B
• 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

Mitsukoshi Isetan Holdings reported FY2026 Q2 consolidated results under JGAAP showing softer top-line momentum but resilient profitability and cash generation. Revenue was ¥253.9bn, down 3.9% YoY, indicating deceleration in underlying demand and/or a normalization from post-COVID travel tailwinds. Gross profit was ¥161.7bn, implying a high gross margin of 63.7%, consistent with a department store model that relies heavily on concession and commission-based formats. Operating income declined 9.8% YoY to ¥31.5bn, with an operating margin of 12.4%, suggesting some negative operating leverage as revenue contracted. Ordinary income reached ¥33.1bn, slightly above operating income, indicating modest non-operating gains and low financing burden. Net income rose 15.7% YoY to ¥29.4bn, driving a net margin of 11.57%, likely supported by non-operating factors and tax effects rather than pure operating expansion. EPS was ¥81.75, though share count data were not disclosed in the provided dataset. DuPont decomposition indicates ROE of 5.03% (net margin 11.57% × asset turnover 0.217 × financial leverage 2.01), reflecting solid margins tempered by low asset turnover and moderate leverage. Operating cash flow was strong at ¥32.6bn, equating to 1.11x net income, supportive of earnings quality. EBITDA of ¥43.6bn (17.2% margin) and interest coverage of 90.6x underscore robust operating capacity and minimal interest burden. Liquidity is tighter, with a current ratio of 67.2% and quick ratio of 61.0%, characteristic of a negative working-capital retail model reliant on advance receipts and payables. Total liabilities stand at ¥602.8bn versus equity of ¥583.8bn (D/E 1.03x), implying a balanced but not overly levered capital structure. Working capital is negative at ¥-124.4bn, which is typical for department stores but does increase sensitivity to sales cycles. Several items are not disclosed in this snapshot (e.g., cash balance, investing cash flows, dividend payments, equity ratio, effective tax rate), so interpretations of liquidity buffers, free cash flow and payout capacity are constrained. Net income outpacing operating income YoY suggests favorable below-OP items and/or tax dynamics, but the tax line disclosures are insufficient to determine a normalized effective rate. Overall, the company maintains strong margins and cash conversion despite top-line softness and tight short-term liquidity metrics, with ROE limited by low asset turnover.

Profitability Analysis

ROE at 5.03% is driven primarily by a high net margin (11.57%), offset by low asset turnover (0.217) and moderate leverage (assets/equity 2.01x). Operating margin is 12.4% (¥31.5bn OI on ¥253.9bn revenue), down YoY given the 9.8% decline in operating income vs. a 3.9% revenue decline, indicating negative operating leverage in the period. Gross margin remains elevated at 63.7%, reflecting the commission/concession-heavy model and good merchandise/tenant mix. Ordinary income exceeded operating income (¥33.1bn > ¥31.5bn), implying positive non-operating contributions and a very low financing drag (interest expense ¥0.35bn). EBITDA margin of 17.2% indicates solid underlying profitability, with depreciation/amortization at ¥12.1bn providing a manageable non-cash burden. Interest coverage is very strong at 90.6x, evidencing minimal sensitivity to interest costs. Margin quality appears robust, but the YoY decline in operating income points to some SG&A rigidity and/or mix effects as sales softened. With net income up 15.7% YoY, below-OP items and taxes likely aided bottom-line growth; however, the effective tax rate metric is not usable due to incomplete disclosures in the provided data.

Growth Assessment

Revenue decreased 3.9% YoY to ¥253.9bn, signaling a slowdown versus prior-year comparatives. Operating income fell 9.8% YoY, showing negative operating leverage and potential pressure from fixed costs and/or promotional intensity. Net income increased 15.7% YoY to ¥29.4bn, suggesting supportive factors below operating profit (non-operating gains, financial income, tax effects). The sustainability of the net income growth is uncertain without detail on one-off items in non-operating income or taxes. The high gross margin suggests the core merchandising/tenant structure remains intact, but revenue normalization after strong inbound/tourism demand could weigh on near-term growth. Asset turnover at 0.217 indicates a capital-intensive footprint with slow balance-sheet velocity, which structurally caps ROE expansion without higher sales density. Outlook hinges on consumer demand, inbound tourist recovery trajectory, and cost control; given the period’s negative operating leverage, stabilizing revenue is key to defending margins. Absent disclosure of segment or same-store sales, the breadth of weakness (flagship vs. regional stores, specialty formats) cannot be parsed. Near-term profit quality appears adequate given OCF > net income, but persistence depends on recurring, not one-off, below-OP contributions.

Financial Health

Total assets are ¥1,172.4bn and equity is ¥583.8bn, implying financial leverage of ~2.0x and D/E of 1.03x, a moderate level for the sector. Current assets are ¥254.9bn against current liabilities of ¥379.3bn, yielding a current ratio of 67.2% and quick ratio of 61.0%; this tight short-term liquidity is typical for department stores operating with negative working capital. Working capital is negative at ¥-124.4bn, reflecting the business model’s reliance on payables and advances; it is efficient but increases sensitivity to sales downturns. Interest expense is low at ¥0.35bn, and strong operating income delivers 90.6x coverage, indicating very low refinancing/interest rate stress in the current period. Total liabilities are ¥602.8bn, balanced against sizable equity, suggesting no excessive balance-sheet risk in aggregate. The provided equity ratio is listed as 0.0% but should be considered undisclosed rather than zero. Cash and cash equivalents are not disclosed in this dataset, limiting visibility on immediate liquidity buffers and net debt. Overall solvency appears sound, while near-term liquidity rests on continued sales flow and working capital discipline.

Cash Flow Quality

Operating cash flow of ¥32.6bn exceeds net income of ¥29.4bn (OCF/NI 1.11x), indicating solid earnings-to-cash conversion in the period. Depreciation and amortization of ¥12.1bn supports cash earnings, and limited interest expense further aids cash retention. Free cash flow cannot be reliably derived because investing cash flows are not disclosed in this snapshot (reported as zero, which should be treated as unreported). Working capital management appears effective given the negative working capital model, but absent detail on receivables, payables, and inventory movements, we cannot isolate the drivers of OCF outperformance. EBITDA of ¥43.6bn provides headroom for maintenance capex, but capex data are not available to assess reinvestment intensity. Overall, cash flow quality looks healthy based on OCF/NI, but the lack of investing CF disclosure prevents a definitive FCF assessment.

Dividend Sustainability

Dividend per share is shown as ¥0.00 and payout ratio as 0.0%, which should be treated as undisclosed in this dataset rather than an actual suspension. Without DPS and share count detail, we cannot compute cash payout or assess coverage. Free cash flow is also not computable due to missing investing CF. On earnings capacity, net income of ¥29.4bn and OCF of ¥32.6bn would generally support distributions, subject to capex and strategic investments; however, absent capex and policy guidance, sustainability cannot be judged. Policy outlook cannot be inferred from the provided data; we would need management guidance or historical payout norms to comment on direction.

Risk Assessment

Business Risks:

• Domestic consumer demand volatility impacting department store traffic and basket size
• Exposure to inbound tourism flows and currency-driven duty-free demand
• Structural shift to e-commerce and digital channels reducing physical store productivity
• High fixed-cost base leading to operating leverage in downturns
• Tenant mix and concession contract renegotiation risks affecting gross margin
• Wage and utility cost inflation compressing SG&A efficiency
• Project execution risk on store refurbishments/redevelopments impacting capex and downtime
• Brand and merchandising risks in luxury and premium categories

Financial Risks:

• Reliance on negative working capital increases sensitivity to sales cycles and calendar seasonality
• Potential refinancing and interest-rate risks over time despite currently low interest expense
• Pension/retirement benefit obligations and impairment risks on long-lived assets (typical for the sector)
• Real estate valuation risk in owned properties in a changing retail landscape
• Limited visibility on cash balances and capex could mask near-term liquidity pressures

Key Concerns:

• Negative operating leverage with operating income down 9.8% on a 3.9% revenue decline
• Tight short-term liquidity metrics (current ratio 67.2%, quick ratio 61.0%)
• Inability to assess FCF and dividend coverage due to undisclosed investing cash flows and DPS
• ROE constrained at 5.03% by low asset turnover (0.217)
• Dependence on non-operating/tax effects to drive net income growth this period

Investment Implications

Key Takeaways:

• Revenue contracted 3.9% YoY to ¥253.9bn; operating income fell 9.8% YoY to ¥31.5bn
• Margins remain strong (gross 63.7%, operating 12.4%, EBITDA 17.2%) despite top-line softness
• Net income rose 15.7% YoY to ¥29.4bn, aided by non-operating/tax effects
• ROE at 5.03% reflects high margins but low asset turnover and moderate leverage
• OCF/NI of 1.11x indicates decent earnings quality; interest coverage is very strong at 90.6x
• Liquidity is tight (current ratio 67.2%, quick 61.0%) consistent with negative working capital
• Debt-to-equity of 1.03x suggests balanced solvency with low financing risk currently
• Key disclosures missing (cash balance, investing CF, DPS), constraining FCF and payout analysis

Metrics to Watch:

• Same-store sales and traffic, including inbound duty-free trends
• SG&A ratio and operating leverage as revenue normalizes
• Capex and redevelopment spend to gauge FCF and balance-sheet use
• Working capital turns (inventory days, payable days, receivable days) and OCF sustainability
• Non-operating income and tax rate normalization impacts on net income
• Asset turnover improvements via sales density and space productivity

Relative Positioning: Within Japanese department store peers, Mitsukoshi Isetan shows robust margins and very strong interest coverage alongside moderate leverage; however, low asset turnover and tight short-term liquidity are consistent with the sector profile, and limited disclosures in this period reduce visibility versus peers on FCF and payout capacity.

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