MarketEnterprise Co.,Ltd FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥6.33B
• Operating Income: ¥-80M
• Net Income: ¥-19M
• EPS: ¥-20.06

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

FY2026 Q1 was a top-line beat but profitability remained in the red, with losses narrowing versus last year. Revenue rose 15.3% YoY to 63.34, supported by a solid gross profit of 19.81 and a gross margin of 31.3%. Operating income improved YoY but stayed negative at -0.80, implying an operating margin of -1.3%. Ordinary income came in at -0.85, and net income was -1.07 (EPS -20.06 JPY), yielding a net margin of -1.7%. While year-on-year growth rates indicate losses narrowed materially (operating income +75.8% YoY; ordinary income +53.4% YoY; net income +34.1% YoY), margins have not yet crossed into positive territory. The P/L shows taxes of 0.44 against profit before tax of 0.24, contributing to a bottom-line loss; this suggests valuation allowance movements or other tax effects below the ordinary line. Balance sheet scale is modest at total assets of 57.72 with current assets of 45.93 and cash of 13.07, indicating reasonable liquidity. However, leverage is elevated: D/E is 2.22x and short-term loans are 21.00, driving current liabilities to 39.37. Interest coverage is negative (-11.3x), reflecting limited earnings buffer against financing costs. Working capital is positive at 6.56, and the current ratio stands at 116.7%, above the 1.0 threshold but below the >1.5 comfort zone. Asset turnover of 1.097 is healthy for this model, but ROIC is -1.5% and ROE is -6.0%, signaling sub-par capital efficiency. Earnings quality assessment is limited as OCF and FCF are unreported; hence cash conversion could not be verified this quarter. The path to profitability appears close: gross profit (19.81) nearly covers SG&A (19.11), implying small incremental revenue or cost control could tip operating income positive. Forward-looking, continued demand growth and disciplined SG&A could drive an operating margin inflection, but elevated short-term debt and negative interest coverage are near-term constraints. In sum, Q1 shows encouraging revenue momentum and loss-narrowing, but leverage and the lack of positive operating margin remain key hurdles.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-1.7%) × 1.097 × 3.22 ≈ -6.0%. The dominant drag is net profit margin, as asset turnover is decent and leverage is high. Business drivers: gross margin is 31.3% and SG&A is nearly equal to gross profit (19.81 vs 19.11), leaving a small operating deficit (-0.80); ordinary income is further pressured by interest and non-operating costs (non-operating expenses 0.46 vs income 0.02). The improvement YoY in operating and ordinary losses indicates better operating leverage from higher revenue, though precise bps margin expansion cannot be quantified due to lack of prior-period margins. Sustainability: revenue growth appears to be translating into better loss coverage, and given the tight GP–SG&A gap, modest growth or cost efficiencies could sustainably lift operating margin above zero. However, the tax expense overshoot relative to PBT this quarter dampened net margin and could recur if valuation allowances or non-cash tax items persist. Watchpoints: any acceleration of SG&A above revenue growth would quickly erode the thin margin buffer; we do not have SG&A YoY data this quarter to confirm discipline.

Growth Assessment

Revenue growth of +15.3% YoY to 63.34 demonstrates solid demand traction. Gross profit increased to 19.81, maintaining a 31.3% gross margin, which is consistent with a stable pricing/mix backdrop. Operating loss narrowed to -0.80, indicating improving operating leverage but not yet breakeven. Non-operating balance was negative (net -0.44), and interest expense (0.07) absorbed a meaningful share of the small operating base. The reported PBT of 0.24 juxtaposed with a tax expense of 0.44 led to the net loss, implying non-recurring or timing tax effects. Outlook hinges on converting top-line growth into positive OPM; given GP nearly equals SG&A, incremental revenue growth of low-single-digit percent or targeted SG&A optimization could cross breakeven. Without OCF/FCF data, we cannot confirm cash-backed growth; thus, sustainability depends on maintaining growth while containing working capital. Accounts receivable of 24.39 against quarterly sales of 63.34 implies AR days around mid-30s, reasonable for the model. Near-term, monitoring seasonality and any cost inflation in logistics/fulfillment is critical to protect gross margin.

Financial Health

Liquidity: Current ratio is 116.7% (above 1.0 but below the >1.5 comfort benchmark); quick ratio mirrors current ratio at 116.7% given unreported inventories. Solvency: D/E is 2.22x (warning >2.0); total liabilities are 39.79 against equity of 17.93. Debt profile: short-term loans are 21.00, representing over half of current liabilities (39.37), indicating reliance on short-term funding. Maturity mismatch risk is moderate: current assets (45.93) exceed current liabilities (39.37), but the high share of short-term debt necessitates continuous refinancing or rapid cash generation. Interest coverage is negative (-11.3x), highlighting limited capacity to service debt from operations. Off-balance sheet obligations: none disclosed in the provided data. Equity cushion: owners' equity is 12.61, with retained earnings of 6.03, leaving limited buffer if losses persist. No explicit long-term loans are reported; noncurrent liabilities are minimal (0.42), concentrating refinancing risk in the short term.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were unreported; hence OCF/Net Income and FCF coverage cannot be assessed. With net income at -1.07 and operating income at -0.80, cash conversion quality remains uncertain this quarter. Working capital: accounts receivable are sizeable at 24.39 relative to quarterly sales; AR days are roughly mid-30s, not indicative of strain, though inventories are unreported (zeros indicate not disclosed, not zero). Potential manipulation signs cannot be evaluated without OCF and detailed WC breakdown. Given negative interest coverage and reliance on short-term loans, the company likely needs positive OCF in coming quarters to maintain flexibility; absence of data is a key limitation.

Dividend Sustainability

Dividend-related metrics are unreported. With negative net income (-1.07), negative ROE (-6.0%), and unknown FCF, assessing dividend capacity is not possible this quarter. Given elevated leverage (D/E 2.22x) and negative interest coverage, prioritization of balance sheet stability over distributions would typically be prudent; however, no explicit policy update was provided. We cannot calculate payout ratios or FCF coverage.

Risk Assessment

Business Risks:

• Margin pressure risk: SG&A nearly equals gross profit (19.11 vs 19.81), leaving a thin buffer.
• Execution risk on scaling: breakeven depends on sustaining >10% revenue growth and cost discipline.
• Operational cost inflation (logistics/fulfillment) could erode the 31.3% gross margin.
• Customer acquisition and marketing efficiency risk in recommerce/e-commerce channels.
• Tax volatility: effective tax rate of 177.9% this quarter despite small PBT indicates non-recurring tax effects.

Financial Risks:

• High leverage: D/E 2.22x (warning) with concentrated short-term loans of 21.00.
• Negative interest coverage (-11.3x) implies low debt-servicing capacity from current earnings.
• Refinancing risk due to reliance on short-term debt (current liabilities 39.37 vs current assets 45.93).
• Potential covenant pressure if lenders require profitability/coverage metrics (not disclosed).
• ROIC of -1.5% indicates value dilution if maintained.

Key Concerns:

• Sustained negative operating margin (-1.3%).
• Tax expense exceeding PBT, contributing to net loss.
• Unreported cash flow statements limit visibility on cash conversion and FCF.
• Equity cushion is limited (owners' equity 12.61) relative to total liabilities 39.79.

Investment Implications

Key Takeaways:

• Top-line growth strong at +15.3% YoY; demand trend intact.
• Operating loss narrowed to -0.80; breakeven appears near as GP (~19.8) nearly covers SG&A (~19.1).
• Net margin (-1.7%) and ROE (-6.0%) remain negative; ROIC at -1.5% signals under-earning the cost of capital.
• Leverage elevated (D/E 2.22x) with significant short-term borrowing (21.00); interest coverage negative.
• Liquidity adequate but not robust: current ratio 1.17x and positive working capital 6.56.
• Earnings quality unverified due to unreported OCF/FCF; monitor cash conversion closely.
• Tax impact unusually high (effective tax ~178%), adding volatility to net income.

Metrics to Watch:

• Operating margin turning positive and sustaining >1-2% over coming quarters.
• Gross margin stability around 31% amid logistics and pricing dynamics.
• OCF and FCF trends; OCF/NI ratio once disclosed (target >1.0).
• Leverage trajectory (D/E) and mix of short-term vs long-term funding.
• Interest coverage improvement toward >2x.
• Working capital efficiency: AR days and any disclosure on inventory turns.
• Tax expense normalization and any disclosures on valuation allowances.

Relative Positioning: Versus domestic recommerce/e-commerce peers, MarketEnterprise shows healthy revenue growth and asset turnover but lags on profitability and capital efficiency, with above-average leverage and weaker interest coverage; a breakeven inflection is plausible but balance sheet constraints heighten execution risk.

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