ASAHI CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥64.11B
• Operating Income: ¥4.32B
• Net Income: ¥2.93B
• EPS: ¥112.43

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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Verdict: FY2026 Q3 was a softer quarter with margin compression and double-digit profit declines despite broadly stable topline. Revenue came in at 641.1 (100M JPY), down 0.7% YoY, indicating flat demand against a high base. Operating income fell 22.6% YoY to 43.2, and net income declined 22.4% YoY to 29.27, reflecting negative operating leverage. Operating margin deteriorated to 6.7% from 8.6% a year ago, a compression of roughly 191 bps. Net margin contracted to 4.6% from 5.9% YoY, a decline of about 129 bps. Gross profit margin is a solid 47.8%, but SG&A at 250.65 absorbed most of the gross profit, signaling cost pressure and reduced efficiency. Ordinary income decreased 20.2% to 45.1, though non-operating income (2.65) partially offset expenses (1.98), evidenced by an interest burden above 1.0. ROE was 7.2%, below the 8–10% comfort range and trailing a typical 10–15% ‘good’ benchmark, due mainly to lower margins rather than asset turnover or leverage. The company maintains a healthy balance sheet: current ratio 216% and D/E 0.38x indicate strong liquidity and conservative leverage. Cash and deposits were 94.64, providing a buffer for seasonality and working capital needs. Earnings quality cannot be confirmed as operating cash flow data is unreported, creating uncertainty around cash conversion and FCF. A quality alert is flagged for high tax burden (tax burden 0.52), suggesting an effective rate above normal; this depressed net income beyond the 33% statutory-like expense recorded. The discrepancy between tax expense (33% of PBT) and the tax burden metric implies additional below-the-line effects impacting NI, which investors should clarify. Dividend payout ratio is 44.8%, seemingly sustainable on earnings, but FCF coverage is unknown due to missing cash flow data. Forward-looking, margin recovery hinges on SG&A control, gross margin stability, and normalization of the effective tax burden; with strong liquidity, the company has flexibility, but ROE improvement requires profitability gains rather than increased leverage.

From Earnings Presentation: The financial results briefing materials for FY2026 Q3 (released on December 22, 2025) detail initiatives in the final year of VISION2025 and the underperformance versus assumptions. Net sales were 64,110 million yen YoY -0.7%, operating income 4,320 million yen -22.6%, exactly matching the figures in the GPT analysis. Management explicitly identified the deterioration in consumer sentiment due to inflation and the sluggish demand for durable goods as the primary drivers, emphasizing the worsening trend especially since autumn. Store traffic held at 98.0% (-2%), but the slight uptick in average ticket of 101.1% was insufficient, resulting in a YoY decline in sales. Although the EC ratio reached 18.5% (exceeding the 16.9% target), it could not offset the sharp decline in store sales. The variance analysis for the decline in operating income showed: lower sales volume -202 million yen, cost improvements, etc. +202 million yen, higher SG&A -1,263 million yen, clearly identifying SG&A rigidity as the principal drag on profit. The full-year plan was significantly revised downward from the April announcement (net sales 85,800 → 81,000 million yen, operating income 5,620 → 4,230 million yen). While the GPT analysis flagged taxes and extraordinary items, the materials did not address the details; however, the company stated it would maintain a 50-yen dividend (with a 35% payout ratio guideline). Medium term, key initiatives are “OMO/CRM reinforcement,” “circular businesses (reuse, etc.),” “zero-based review of SG&A,” and “traffic-driving services,” while accelerating store openings (16 per year, including 4 urban-format stores) and continuing DX investments backed by a sound balance sheet. The GPT analysis’ diagnosis of “SG&A rigidity,” “negative operating leverage,” and “short-term demand headwinds” is fully consistent with the materials, while the background to the “tax burden coefficient 0.520” (extraordinary items and tax effects) is not described and cannot be further clarified.

Financial Analysis

Profitability

DuPont (3-factor): ROE 7.2% = Net Profit Margin (4.6%) × Asset Turnover (1.151) × Financial Leverage (1.36x). The biggest driver of YoY deterioration is the net profit margin, which fell roughly 129 bps as operating income declined 22.6% on a 0.7% revenue dip, indicating negative operating leverage. Asset turnover remains healthy at 1.15x, broadly stable for a specialty retailer, and leverage is modest at 1.36x, not a major ROE driver. Business reasons: SG&A grew relative to revenue (or did not flex down), likely reflecting wage inflation, utilities, and store-related fixed costs; non-operating dynamics and an unusually heavy tax burden also depressed NI. Sustainability: the cost pressure may moderate with tighter expense control, but benefits require active management; the elevated tax burden looks partly one-off or non-recurring given the gap between income tax expense (33% of PBT) and NI/EBT (52%). Concerning trends: operating margin compressed from 8.6% to 6.7% (≈191 bps), and SG&A intensity increased relative to revenue and gross profit, signaling reduced operating efficiency. DuPont (5-factor): Tax Burden (NI/EBT) 0.520 (high burden), Interest Burden (EBT/EBIT) 1.303 (indicates non-operating gains offset financing costs), EBIT Margin 6.7%. The EBIT margin decline is the core issue; tax burden magnifies the drop in ROE.

Growth

Revenue declined 0.7% YoY to 641.1, suggesting flattish demand and/or slight ASP/mix pressure. Operating income fell 22.6% and ordinary income fell 20.2%, implying deleveraging of fixed costs amid soft sales. Net income decreased 22.4%, exacerbated by a high tax burden, compressing the bottom-line more than the top-line softness would imply. Gross margin remains robust at 47.8%, but higher SG&A intensity offset the gross profit base, limiting operating leverage. With asset turnover steady (1.15x), the path to growth hinges on restoring operating margin through cost control, procurement optimization, and improved store productivity. Outlook drivers: same-store sales recovery, inventory discipline to protect gross margin, and normalization of the effective tax burden could support a rebound in NI. Non-operating items provided a modest tailwind this quarter, but reliance on these is not a sustainable growth lever. Given the conservative balance sheet, the company can invest in selective store refurbishments and omnichannel initiatives to drive mid-term growth without stressing leverage. Near-term, we model a cautious stance on operating margin until SG&A normalization is evident.

Financial Health

Liquidity is strong: current ratio 216.1% and reported quick ratio 216.1% (note: inventories are unreported, so true quick ratio may be lower). There is no warning trigger (Current Ratio > 1.0). Working capital stands at 164.20, supported by cash and deposits of 94.64. Solvency is conservative: D/E is 0.38x, well below the 1.0x threshold, and total liabilities are 153.36 versus equity of 408.74. Interest-bearing debt levels are unreported, but the balance sheet composition suggests limited leverage risk. Maturity mismatch risk appears low: current assets of 305.61 comfortably cover current liabilities of 141.41. Off-balance sheet obligations are not disclosed; no data on leases or guarantees were provided, which may understate true leverage for a retailer with store leases.

Cash Flow

Operating cash flow is unreported, preventing assessment of OCF/NI and free cash flow. As such, we cannot test OCF/NI > 0.8 or cash conversion quality. Capex and depreciation are unreported, so Capex/Depreciation and maintenance vs growth spend cannot be evaluated. Without FCF, we cannot confirm coverage of dividends or discretionary investments. Working capital signals: accounts receivable are modest at 40.01 in a largely cash-retail model, but inventories are unreported, limiting analysis of inventory turns and potential margin risk from markdowns. No evident signs of working capital manipulation can be confirmed or dismissed due to data gaps. Conclusion: earnings quality is uncertain pending OCF disclosure.

Dividend Sustainability

Payout ratio is 44.8% on reported net income, within a generally sustainable range (<60%). However, FCF coverage is not calculable due to missing OCF and capex data, creating uncertainty about cash-backed dividends. The conservative balance sheet and cash reserves support near-term dividend continuity, but long-term sustainability depends on restoring operating margin and maintaining gross margin. Absent clarity on capex needs (store refurbishments, new openings, IT/omnichannel), we cannot assess whether payout competes with growth investments. Policy outlook likely targets stable or progressive dividends typical of Japanese specialty retailers, contingent on earnings trajectory.

Business Outlook

Under the revised full-year plan, net sales are 81,000 million yen (YoY -0.7%), operating income 4,230 million yen (-22.9%), and net income 2,640 million yen (-25.7%), reflecting Q3 softness carrying into the full year. In H2 (Q4), the company aims to recover through a 550-store milestone campaign, early demand for school commuting (including the Christmas season), and the expansion of new services such as wash and maintenance packs. Medium term, it targets repeat purchases by leveraging its app member base (31% CAGR over the past three years) via strengthened CRM, expands circular revenues through a fortified reuse business platform, improves gross margins by enhancing the competitiveness of private brands such as “Enasis,” and pursues share gains by maintaining the store opening pace (16 per year, including 4 urban-format stores). The macro view recognizes “lengthening replacement cycles due to inflation and frugality,” “a demand shift toward electric-assist bicycles,” and “demand normalization.” Tactically defensive in the short term, the company intends to continue growth investments medium term on the back of financial soundness. This aligns with the GPT analysis view that “a return to low single-digit growth is possible but depends on external factors.”

Management Guidance

Management stated that “consumer frugality is stronger than expected, and sales continue to struggle,” and assessed that “while we continue to execute priority initiatives, recovery remains insufficient.” To protect profitability, they cited: (1) revisiting procurement costs (improving gross margin for Enasis), (2) zero-based review and reallocation of SG&A (excluding growth investments), (3) strengthened sales initiatives tailored to Q4 seasonality (Christmas and early school-commuting demand), (4) expansion of traffic-driving services (wash and maintenance packs plus additional offerings), and (5) development of proposal-based offerings for circular businesses. Medium term, they reaffirmed: “to achieve VISION2025, we will execute four priority strategies (CRM enhancement, revitalization of existing stores, development of new formats, and expansion of business domains) and strengthen three growth platforms (Digital/IT, logistics, and branding).” They also clearly stated: “we will maintain stable dividends with a 35% payout ratio guideline,” alongside a capital allocation policy of “continuing proactive investments in foundations that support profitability and future growth.” There was no detail on higher tax burden or extraordinary losses, leaving the background to the GPT analysis’ “tax burden coefficient 0.520” unresolved.

Strategic Initiatives

• CRM enhancement: Strengthen communications leveraging the app membership base and promote repeat purchases through personalized information
• OMO enhancement: Building on the achieved EC ratio of 18.5%, deliver a seamless purchasing experience by utilizing the store and logistics network
• Circular business: Strengthen the reuse business platform; expand purchasing and sales to reconcile “safety/security” with a “circular society”
• Revenue expansion outside new bicycle sales: Reinforce repair and maintenance campaigns; develop proposal-based offerings such as maintenance packs and wash services
• Improve private-brand competitiveness: Enhance functionality and price competitiveness of Asahi brands such as “Enasis” to improve gross margin
• Accelerate store openings: Maintain a pace of 16 stores per year (including 4 urban-format stores), with 7 planned in H2 to expand share
• Revitalize existing stores: Renew/relocate 18 stores (+1 YoY) to prevent obsolescence
• SG&A efficiency: Zero-based review of SG&A (excluding growth investments), optimize staffing, and improve productivity
• Continue DX investments: Following completion of core system replacement, strengthen the digital backbone for CRM, logistics, and inventory management
• Sales promotion initiatives such as the 550-store milestone campaign: Short-term actions aligned with Q4 seasonality (Christmas and school-commuting demand)

Risk Assessment

Business Risks:

• Demand normalization in bicycles and related goods leading to flat or declining same-store sales
• Gross margin pressure from discounting or product mix shifts
• Procurement cost inflation and FX-driven import costs (yen weakness)
• Inventory obsolescence/markdown risk in seasonal merchandise
• Competitive intensity from mass retailers and e-commerce

Financial Risks:

• Earnings sensitivity to SG&A inflation given high fixed cost base
• Potential lease liabilities not visible in balance sheet (data unreported)
• Tax burden volatility impacting net income

Key Concerns:

• Operating margin compression of ~191 bps YoY indicates negative operating leverage
• High tax burden (tax burden 0.52) depressed NI beyond tax expense implied rate
• Data gaps on OCF, capex, and inventories hinder assessment of cash flow quality and inventory risk

Risk Factors from Presentation:

• Deterioration in consumer sentiment due to inflation and sluggish demand for durable goods (notable since autumn)
• Lengthening of replacement cycles due to heightened frugality
• Presence of excess inventory risk (explicitly noted in the environmental assessment)
• Sales sluggishness due to demand normalization
• Price competition and discounting pressure (indirectly referenced)
• High seasonality and weather dependency driving earnings volatility
• Supply chain delays and parts shortages (industry-specific to bicycles, indirectly referenced)
• Rising import costs due to foreign exchange fluctuations (indirectly referenced)

Investment Implications

Key Takeaways:

• Quarter characterized by flat sales and sharp profit decline; margin repair is the pivotal lever
• ROE at 7.2% is below the ‘good’ range and requires operating margin recovery to improve
• Balance sheet strength (CR 216%, D/E 0.38x) provides resilience and optionality
• High tax burden reduced net income; normalization could unlock bottom-line recovery
• Non-operating gains supported EBT (interest burden >1.0), but this is not a durable driver

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue
• Gross margin and inventory turnover once inventory data is available
• Operating cash flow and FCF to confirm earnings quality
• Effective tax rate and reconciliation to NI/EBT (tax burden) normalization
• Same-store sales growth and ASP/mix trends

Relative Positioning: Within domestic specialty retail, Asahi exhibits conservative leverage and solid liquidity but lags on profitability this quarter; improving SG&A efficiency and stabilizing effective tax burden are required to close the ROE gap versus peers.

Supplementary Insights (Key Highlights)

• 2025 Q3 existing-store sales at 97.6%, traffic 96.5%, and average ticket 101.1%; sales underperformed YoY primarily due to lower traffic
• EC ratio at 18.5%, exceeding the 16.9% target; app membership posted a 31% CAGR over the past three years
• Electric-assist bicycles at 105.0% showed strong momentum, led by Asahi’s “Enasis” brand
• Repairs and parts sales at 100.9% remained solid, with progress in initiatives to improve profitability outside new bicycle sales
• Full-year plan was revised downward on December 22: net sales -4,800 million yen, operating income -1,390 million yen (vs. prior plan)
• Variance analysis of operating income decline highlights SG&A increase of -1,263 million yen as the largest factor (personnel costs, new-store fixed costs, core system amortization)
• Store openings lagged at five in H1, but are accelerating in H2 with seven planned (five already in progress)
• As the final year of VISION2025, the company prioritizes “OMO/CRM enhancement,” “circular business,” and “SG&A efficiency”
• Dividend maintained at 50 yen with a 35% payout ratio guideline, reaffirming shareholder return policy
• Alongside capital cost awareness, the company lists “profitability improvement,” “continued investment in growth platforms,” and “stable dividends”

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