DAIDOH LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.29B
• Operating Income: ¥-698M
• Net Income: ¥-153M
• EPS: ¥-6.87

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: FY2026 Q2 was weak with a modest top-line decline and a swing to operating/ordinary losses, highlighting structural profitability and leverage concerns. Revenue came in at 132.94, down 3.1% YoY, while gross profit was 69.36, yielding a high gross margin of 52.2% but insufficient to cover SG&A of 76.34. Operating income deteriorated to -6.98 (operating margin roughly -5.3%), and ordinary income was -8.07 as non-operating expenses (2.54) exceeded non-operating income (1.44). Net income was -1.86 (net margin -1.4%), although total comprehensive income turned positive at 2.94, likely on valuation gains. Interest expense was 1.67, driving a negative interest coverage ratio of -4.18x, underscoring debt-service strain. Balance sheet shows total assets of 359.44 and equity of 100.77 (equity ratio ~28%), with current assets of 196.17 and current liabilities of 173.82, resulting in a current ratio of 112.9% but a weak quick ratio of 61.1%. Inventories at 89.88 are large versus accounts receivable 27.53 and cash 64.02, implying working capital tied up in stock. Leverage is elevated with a reported D/E of 2.57x; short-term loans are high at 90.80, raising refinancing risk. DuPont indicates ROE of -1.9% driven chiefly by negative net margin (-1.4%) and low asset turnover (0.370), despite high financial leverage (3.57x). ROIC is -2.2%, well below the 7–8% target benchmark, signaling value erosion. Margin comparison in basis points versus last year is not possible due to missing YoY margin data, but the move to operating loss implies material compression at the operating level. Earnings quality cannot be assessed as operating cash flow is unreported; the large tax benefit (-11.86) narrowed the loss and introduces potential volatility in the effective tax rate. Forward-looking, the combination of weak operating leverage, high inventories, and short-term debt dependence suggests cautious near-term prospects until SG&A is right-sized and inventory turns improve. Watch for potential goodwill/intangible impairment risk (goodwill 42.24, intangibles 46.57 vs equity 100.77), which could pressure equity further if performance does not recover.

Profitability Analysis

ROE decomposition (DuPont): ROE (-1.9%) = Net Profit Margin (-1.4%) × Asset Turnover (0.370) × Financial Leverage (3.57x). The largest driver of ROE deterioration is the negative net profit margin, reflecting operating losses as SG&A (76.34) exceeded gross profit (69.36). Asset turnover of 0.370 indicates slow capital turns, consistent with heavy inventories and a balance sheet with sizable intangibles. Financial leverage at 3.57x is high and magnifies the negative margin into negative ROE, rather than offsetting it. Business reason: sales softness (-3.1% YoY), high fixed SG&A base, and increased non-operating burden (interest expense 1.67) pushed ordinary income negative. Sustainability: without structural SG&A reduction and faster inventory turnover, the margin pressure looks persistent rather than one-time; the tax benefit (-11.86) that cushioned net loss is unlikely to be repeatable at the same magnitude. Concerning trend flags: SG&A exceeds gross profit (operating deleverage), non-operating expenses outpace non-operating income, and interest coverage is negative, all pointing to profit fragility.

Growth Assessment

Top-line declined 3.1% YoY to 132.94, indicating weak demand or product/brand mix headwinds. Gross margin remains high at 52.2%, suggesting product differentiation or licensing strength, but the inability to cover SG&A points to scale inefficiency. With operating income at -6.98 and ordinary income at -8.07, profit growth is negative across levels. Non-operating income (1.44) is insufficient to offset interest and other costs (2.54), resulting in an ordinary loss. Profit quality is weak as the bottom line benefited from a substantial tax benefit (-11.86), which may not recur. Outlook depends on rightsizing SG&A, improving inventory turnover, and stabilizing revenue; without these, near-term operating margin recovery is unlikely. No guidance or segment breakdown reported; thus, the durability of revenue and margin trends cannot be assessed beyond the headline decline.

Financial Health

Liquidity: Current ratio 112.9% (above 1.0, but below the 1.5 healthy benchmark), quick ratio 61.1% (below 1.0, signaling tight liquidity). Working capital is 22.35, but tied up with inventories (89.88), limiting flexibility. Solvency and leverage: Reported D/E is 2.57x (warning: >2.0). Approximate equity ratio is ~28% (equity 100.77 over assets 359.44). Debt profile shows elevated short-term loans of 90.80 versus cash 64.02 and receivables 27.53, indicating potential maturity mismatch risk and reliance on inventory conversion or refinancing. Interest coverage is -4.18x, highlighting debt-service vulnerability should rates rise or lenders tighten terms. Off-balance sheet obligations are not reported; no disclosures available to assess guarantees or leases beyond what may be embedded in SG&A.

Cash Flow Quality

Operating cash flow is unreported; thus OCF/Net income and free cash flow cannot be calculated. This prevents a direct assessment of accruals intensity, cash conversion, and dividend/CapEx coverage. Working capital composition (large inventories vs smaller receivables) suggests possible cash drag and risk of markdowns. No indication of working capital optimization or one-off timing effects can be confirmed due to missing CF details.

Dividend Sustainability

Dividend data (DPS, total dividends paid, FCF coverage) is unreported; the calculated payout ratio figure is not reliable given negative net income. With operating and ordinary losses and negative interest coverage, internal capacity to fund dividends appears constrained absent asset sales or additional debt. Policy outlook cannot be inferred from the data; sustainability would hinge on restoring operating profitability and generating positive, repeatable free cash flow.

Risk Assessment

Business Risks:

• Demand softness in core apparel/textile channels leading to revenue decline (-3.1% YoY)
• Inventory risk (inventories 89.88) with potential markdowns and obsolescence impacting margins
• Goodwill/intangible impairment risk (goodwill 42.24; intangibles 46.57 vs equity 100.77)
• Dependence on tax benefits to narrow losses, creating volatility in effective tax rate
• Supplier and input cost volatility potentially compressing gross margins despite current 52.2% level

Financial Risks:

• High leverage (D/E 2.57x) increasing sensitivity to earnings volatility
• Debt-service strain (interest coverage -4.18x) and refinancing risk on short-term loans (90.80)
• Liquidity tightness (quick ratio 61.1%) amid large working capital needs
• Potential covenant pressure if lenders require profitability/coverage thresholds
• Interest rate risk on floating-rate borrowings

Key Concerns:

• Structural operating deleverage: SG&A (76.34) exceeds gross profit (69.36), causing operating loss
• Low capital efficiency (ROIC -2.2%) indicates value erosion
• Negative ROE (-1.9%) driven by margin weakness and high leverage
• Reliance on non-operating items insufficient to offset core weakness
• Data limitations on cash flows and segment performance obscure forward visibility

Investment Implications

Key Takeaways:

• Core profitability under pressure with operating loss of -6.98 and ordinary loss of -8.07
• High gross margin (52.2%) is a relative strength but outweighed by elevated SG&A
• Leverage elevated (D/E 2.57x) and debt service weak (interest coverage -4.18x)
• Liquidity adequate on a current ratio basis but thin on a quick basis; inventories are heavy
• ROIC at -2.2% signals sub-par capital efficiency and potential for further balance sheet stress if not addressed
• Comprehensive income positive (2.94) likely reflects valuation gains; not a substitute for operating cash generation

Metrics to Watch:

• Operating margin recovery and SG&A trajectory versus revenue
• Inventory turnover days and markdown rates
• Operating cash flow and free cash flow once disclosed
• Interest coverage and debt maturity profile (short-term loans rollover)
• Impairment indicators for goodwill and intangibles
• Asset turnover improvement toward >0.5 over time

Relative Positioning: Within the Japanese apparel/textile peer set, the company exhibits weaker operating leverage and higher financial leverage than conservative peers, with heavier inventory intensity and lower capital efficiency (negative ROIC), implying a need for cost structure optimization and working capital normalization to converge toward sector norms.

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