DAIDOH LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.29B
• Operating Income: ¥-698M
• Net Income: ¥-155M
• 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

For FY2026 Q2, Daidoh Limited (TSE:3205, consolidated, JGAAP) reported revenue of ¥13.294bn, down 3.1% year on year, indicating a modest top-line contraction amid what appears to be a challenging demand environment. Gross profit was ¥7.372bn, equating to a robust gross margin of 55.5%, suggesting pricing power and/or a favorable product mix despite lower revenue. Operating income remained in the red at ¥-698m, essentially flat YoY (0.0% change), indicating that cost controls and SG&A efficiency have not yet offset soft sales. Ordinary income was ¥-807m, reflecting net non-operating expenses (notably interest expense of ¥139m) that widened the loss versus operating level. Net income came in at ¥-186m, also flat YoY (0.0% change), implying the presence of non-operating or extraordinary items that partially mitigated the deeper loss at the ordinary level. The net margin was -1.40%, highlighting that profitability remains challenged even with a solid gross margin base. DuPont metrics show an asset turnover of 0.370x and financial leverage of 3.57x, resulting in an ROE of -1.85%, confirming equity value accretion remains negative at mid-year. Liquidity appears adequate: the current ratio stands at 141.6% with working capital of ¥5.796bn, while the quick ratio of 85.8% reveals reliance on inventories (¥7.777bn) within current assets. The capital structure is geared, with total liabilities of ¥25.2bn versus equity of ¥10.077bn (debt-to-equity 2.50x), and an implied equity ratio of about 28.0% (computed from the balance sheet despite an unreported equity ratio field). Interest coverage is weak at approximately -5.0x (operating loss versus ¥139m interest), underscoring sensitivity to financing costs. Inventory represents roughly 39% of current assets, which could elevate markdown risks if demand softens further. Cash flow statements are not disclosed in the dataset (zeros indicate unreported), limiting assessment of earnings-to-cash conversion and free cash flow. Dividend per share is shown as ¥0.00 with a 0% payout ratio, consistent with loss-making status and a likely conservative capital return stance. Overall, the company maintains a healthy gross margin but is constrained by operating losses, interest burden, and modest asset turnover. Near-term priorities likely include cost discipline, inventory management, and safeguarding liquidity to navigate subdued sales trends. The outlook hinges on stabilizing revenue, improving operating leverage, and managing financing costs amid a leveraged balance sheet.

Profitability Analysis

ROE decomposition indicates: Net margin -1.40%, asset turnover 0.370x, and financial leverage 3.57x, yielding an ROE of -1.85% for the period. Operating margin is -5.25% (¥-698m on ¥13.294bn sales), implying that SG&A and fixed costs continue to outweigh gross profit headroom despite a high 55.5% gross margin. Ordinary margin is -6.07% as interest and other non-operating items deepen losses below the operating line. The tax line is a ¥15m benefit, producing a net margin loss of -1.40%, implying some offset from extraordinary or non-operating items versus ordinary loss. Margin quality: the strong gross margin suggests favorable mix/brand position, sourcing benefits, or real estate/other high-margin contributions, but negative operating margin indicates SG&A intensity and limited ability to flex costs against softer revenue. Operating leverage remains unfavorable: a 3.1% revenue decline coincides with flat operating losses, suggesting cost base rigidity and that incremental gross profit is not translating to EBIT. Interest expense of ¥139m meaningfully burdens earnings given the current loss profile, with interest coverage around -5.0x, leaving little buffer until operating profitability improves. Given missing D&A disclosure, EBITDA cannot be reliably assessed, but the persistence of operating losses points to the need for further structural cost actions or top-line recovery to restore positive operating leverage.

Growth Assessment

Revenue fell 3.1% YoY to ¥13.294bn, reflecting soft demand or portfolio rationalization; no segment data is available to attribute the decline. Despite the contraction, gross profit of ¥7.372bn remained high in margin terms (55.5%), suggesting product mix resilience but possibly lower volumes. Profit quality is weak: operating loss was unchanged YoY, pointing to limited progress in cost containment or insufficient sales scale to cover fixed costs. Ordinary loss widened from operating loss due to interest and non-operating items, and net loss was contained at ¥-186m, implying offsets at the extraordinary/non-operating level. Sustained negative operating profit suggests that near-term earnings recovery depends on either a reacceleration of sales or more aggressive SG&A optimization. Inventory levels of ¥7.777bn indicate a meaningful working capital commitment; successful sell-through without heavy discounting will be important for maintaining gross margin. Without disclosed cash flows, visibility on organic investment (capex, R&D, store refurbishments) is limited, constraining assessment of growth investments. Near-term outlook: cautious, given weaker revenue and persistent operating losses; stabilization could emerge if demand improves and inventory is managed tightly, while cost actions could gradually narrow losses. Medium term, improving asset turnover and lifting operating margin are key levers to restore ROE.

Financial Health

Total assets are ¥35.944bn, liabilities ¥25.2bn, and equity ¥10.077bn. Computed equity ratio is approximately 28.0% (equity/assets), even though the reported equity ratio field is unreported. The debt-to-equity ratio is 2.50x, indicating a leveraged balance sheet relative to equity. Liquidity appears decent: current assets ¥19.736bn against current liabilities ¥13.94bn yield a current ratio of 141.6% and working capital of ¥5.796bn. The quick ratio of 85.8% (excluding ¥7.777bn inventories) shows that liquidity depends significantly on inventory conversion and receivables collection. Interest expense of ¥139m with operating losses results in negative interest coverage, indicating heightened sensitivity to financing conditions and potential covenant pressure if covenants exist. Asset turnover at 0.370x is modest, reflecting capital tied up in working capital and fixed assets, and suggests room to improve efficiency. Cash and equivalents are unreported in the dataset, limiting precise net debt analysis and short-term liquidity buffers assessment.

Cash Flow Quality

Cash flow statements (operating, investing, financing) are not disclosed in the provided data, so OCF/NI, FCF, and capex cannot be reliably evaluated. The reported OCF/Net Income ratio of 0.00 and FCF of 0 should be treated as unreported rather than actual zero. Earnings quality thus cannot be validated through cash conversion analyses for the period. Working capital observations from the balance sheet indicate inventories of ¥7.777bn (about 39% of current assets), which could become a drag on cash if sell-through weakens or markdowns rise. Receivables and payables are not provided separately, limiting assessment of collection cycles and supplier credit reliance. In the absence of OCF, we cannot confirm whether the operating loss is translating into cash burn or being cushioned by working capital inflows. Monitoring forthcoming cash flow disclosures will be essential to judge the sustainability of operations and investment capacity.

Dividend Sustainability

DPS is shown as ¥0.00 with a 0% payout ratio for the period. Given negative net income (¥-186m) and operating losses, a conservative or suspended dividend stance appears aligned with earnings capacity. Free cash flow coverage cannot be assessed due to unreported cash flows and capex, so FCF support for any future dividends is unknown. Balance sheet leverage (2.50x liabilities/equity) and negative interest coverage argue for prioritizing balance sheet resilience over distributions until operating profitability recovers. Policy outlook likely remains conservative, contingent on restoring positive operating income, improving interest coverage, and demonstrating sustained cash generation.

Risk Assessment

Business Risks:

• Demand volatility in apparel/textiles and potential channel inventory overhang
• High inventory levels increasing markdown and obsolescence risk
• Pressure on SG&A productivity leading to persistent operating losses if sales do not recover
• Competitive pricing and mix shifts that could erode the currently strong gross margin
• FX exposure on sourced materials and imports (if applicable) affecting cost of goods
• Execution risk in cost restructuring and working capital management
• Potential reliance on specific customers or channels (data not disclosed)

Financial Risks:

• Weak interest coverage (-5.0x) and sensitivity to interest rate increases
• Leverage of 2.50x liabilities/equity with an equity ratio around 28%, limiting financial flexibility
• Cash flow visibility is low due to unreported OCF/FCF, hindering assessment of liquidity runway
• Potential covenant or refinancing risk if lenders require improved profitability
• Asset turnover of 0.370x indicates efficiency challenges and capital tied up in working capital

Key Concerns:

• Persistent operating losses despite a high gross margin
• Inventory intensity and its impact on cash and margin via potential markdowns
• Dependence on non-operating/extraordinary items to narrow losses at the net level
• Limited disclosure of cash flows constrains evaluation of earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Top line down 3.1% YoY with operating loss unchanged, pointing to adverse operating leverage
• Gross margin strong at 55.5%, but SG&A/fixed costs prevent breakeven at EBIT level
• Leverage is meaningful (2.50x liabilities/equity) with negative interest coverage, elevating financial risk
• Liquidity is adequate on paper (current ratio 141.6%), but depends on inventory conversion (quick ratio 85.8%)
• ROE negative at -1.85% due to losses and modest asset turnover (0.370x)

Metrics to Watch:

• Revenue trend and like-for-like sales growth
• Gross margin resilience versus markdowns and input cost pressures
• SG&A ratio and operating margin trajectory toward breakeven
• Inventory turnover days and working capital intensity
• Interest coverage and ordinary income improvement
• Equity ratio and liabilities-to-equity trend
• Operating cash flow and free cash flow once disclosed

Relative Positioning: Versus domestic apparel/textile peers, Daidoh exhibits comparatively strong gross margins but weaker operating profitability and interest coverage, coupled with higher balance sheet leverage; improvement in cost efficiency and asset turnover is needed to close the gap to more profitable peers.

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