Misawa & Co.,Ltd. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥8.51B
• Operating Income: ¥-130M
• Net Income: ¥-98M
• EPS: ¥-13.92

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 revenue contraction and a swing to operating loss, driven by deleveraging on lower sales and additional operating charges. Revenue declined 9.0% year over year to 85.11, while operating income fell 93.1% to -1.30, and net income was -0.98. Gross profit was 46.66, implying a strong gross margin of 54.8%, but SG&A of 45.78 (53.8% of sales) left little room for profit. The reported operating loss is notably worse than the simple gross profit minus SG&A bridge, implying roughly 2.18 of other operating charges weighed on results. Operating margin printed at approximately -1.5%, indicating margin compression versus last year, though the exact basis-points change is not disclosed. Ordinary income was -1.13, but profit before tax came in at 0.60, suggesting about 1.73 of extraordinary or non-recurring gains below operating line. Despite PBT being positive, net income was -0.98 after a 0.33 tax charge, implying additional below-the-line or tax-related adjustments. Asset turnover remains healthy at 1.67x, and financial leverage is moderate at 1.68x; however, the negative net margin (-1.1%) pulled ROE down to -3.2%. Liquidity is solid with a current ratio of 199.7% and working capital of 18.10, and the balance sheet shows conservative leverage (D/E 0.63x). A debt service warning is triggered as interest coverage is far below threshold, reflecting weak EBIT rather than heavy interest burden. Operating cash flow was not disclosed, so earnings quality (OCF vs. NI) cannot be assessed this quarter. Dividend information is not available; with negative earnings, distribution capacity depends on free cash flow and retained earnings. Key concerns include deleveraging on lower sales, tight operating cost envelope, and non-recurring items driving volatility between ordinary income, PBT, and bottom line. Looking ahead, restoring positive operating margin likely requires either a sales rebound or SG&A/operating cost reduction to reestablish operating leverage. The strong gross margin suggests pricing and mix remain supportive, but cost discipline is needed to translate into earnings.

Profitability Analysis

ROE decomposition: ROE (-3.2%) = Net profit margin (-1.1%) × Asset turnover (1.67x) × Financial leverage (1.68x). The largest driver of deterioration is the net profit margin turning negative on lower sales and incremental operating charges. Business explanation: revenue declined 9.0% YoY, SG&A ran at 53.8% of sales, and roughly 2.18 of other operating expenses pushed operating margin to about -1.5%; below-the-line swings (extraordinary gains and subsequent adjustments) added volatility. Sustainability: the negative margin appears partly cyclical (sales deleverage) and partly one-time (other operating items and extraordinary movements); normalization is possible if sales stabilize and one-offs fade, but cost base rigidity is a risk. Operating leverage: with gross margin at 54.8%, even small revenue changes materially affect operating income given the high SG&A ratio. Watch for SG&A growth versus revenue: this quarter, revenue fell while SG&A remained high, indicating adverse operating leverage.

Growth Assessment

Top-line contracted 9.0% YoY to 85.11, indicating soft consumer demand and/or fewer transactions in the period. Gross margin remained robust at 54.8%, suggesting pricing/mix discipline or lower product cost pressure, but deleveraging at the operating level erased benefits. Ordinary income (-1.13) versus PBT (0.60) implies reliance on non-operating/extraordinary factors to support pre-tax results, which is not a sustainable growth driver. Absent disclosure of segment/store data, it is unclear whether declines are broad-based or store-specific. Near-term outlook hinges on traffic recovery, promotional intensity, and fixed-cost absorption; any rebound in sales should disproportionately improve operating income given high gross margin. With many items unreported (cash flow, capex), visibility into investment-led growth is limited.

Financial Health

Liquidity is healthy: current ratio 199.7% and quick ratio 199.7%, supported by cash and deposits of 11.04 and accounts receivable of 5.45 versus current liabilities of 18.16. There is no warning for current ratio (<1.0), and debt-to-equity of 0.63x is conservative (well below 2.0). Maturity profile: current liabilities (18.16) are adequately covered by current assets (36.26); cash plus receivables (16.49) nearly cover current liabilities, leaving a modest gap that inventory and other current assets should bridge. Long-term loans are small at 0.29; noncurrent liabilities total 0.95, indicating low structural leverage. Interest-bearing debt detail is unreported, but overall liabilities are manageable relative to equity of 30.31. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, and free cash flow were not disclosed, so OCF/Net income and FCF coverage cannot be calculated. As such, we cannot validate earnings quality through cash conversion this quarter. Working capital dynamics: cash (11.04) and receivables (5.45) are substantial versus payables (3.61), but inventory was not disclosed; no signs of deliberate working capital manipulation can be inferred from the limited data. Sustainability of cash outflows for capex or dividends cannot be assessed without cash flow and capex detail.

Dividend Sustainability

Dividend payments and DPS were not disclosed. The calculated payout ratio of -58.1% is not meaningful due to negative net income. With retained earnings of 24.63 and a solid equity base, the company has capacity to sustain modest distributions if free cash flow is positive; however, absent OCF/FCF data and with current-period losses, prudence would suggest prioritizing balance sheet strength. Policy outlook is unclear due to missing disclosures; monitor year-end guidance and board resolutions for dividend policy signals.

Risk Assessment

Business Risks:

• Demand softness in discretionary home furnishings/interior goods leading to negative operating leverage (revenue -9.0% YoY).
• High fixed/semifixed SG&A base (53.8% of sales) compressing operating margins in downturns.
• Potential other operating charges (~2.18) increasing earnings volatility.
• FX and import cost exposure (yen weakness raising merchandise costs for imported goods).
• Store traffic and rent cost pressure in a retail footprint-heavy model.

Financial Risks:

• Debt service stress signal from very weak interest coverage (-414.01x) driven by negative EBIT.
• Maturity mismatch limited but present: cash + receivables (16.49) slightly below current liabilities (18.16).
• Lack of cash flow disclosure impairs assessment of cash generation and dividend capacity.
• Extraordinary/non-operating volatility between ordinary income, PBT, and net income.

Key Concerns:

• Operating margin turned negative (~-1.5%) despite high gross margin (54.8%).
• Reliance on below-the-line items to raise PBT above ordinary income, yet net loss after tax.
• Visibility constraints due to unreported cash flow, capex, and dividend details.

Investment Implications

Key Takeaways:

• Revenue decline and deleveraging drove an operating loss; cost base rigidity is evident.
• Gross margin remains strong, indicating pricing/mix resilience.
• ROE is negative (-3.2%) due to margin pressure; asset turnover and leverage are stable.
• Balance sheet liquidity and leverage are sound, offering time to execute adjustments.
• Earnings volatility from other operating/extraordinary items complicates trend analysis.

Metrics to Watch:

• Same-store sales/transaction growth and total revenue trajectory.
• SG&A as a percentage of sales and progress on fixed-cost reduction.
• Operating margin recovery and bridge from gross to operating profit (size of other operating items).
• OCF and FCF once disclosed; cash conversion versus net income.
• Inventory levels and turnover (if disclosed), given retail exposure.
• Currency impact on gross margin and purchasing costs.

Relative Positioning: Within Japan specialty retail/home furnishings, the company shows a stronger gross margin profile but weaker operating leverage in a down cycle, with conservative balance sheet leverage yet currently inferior profitability momentum versus peers showing stable operating margins.

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