cotta CO.,LTD FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥13.68B
• Operating Income: ¥772M
• Net Income: ¥201M
• EPS: ¥41.15

Income Statement

Balance Sheet

Cash Flow Statement

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

Cotta (3359) delivered a strong FY2025 Q4 finish under JGAAP on a consolidated basis, highlighted by rapid top-line expansion and solid operating leverage. Revenue rose 52.8% year over year to ¥13.675 billion, while operating income increased 61.6% to ¥772 million, indicating improving operating scale and cost efficiency. Gross profit totaled ¥2.824 billion with a gross margin of 20.6%, suggesting disciplined input cost management despite rapid growth. Operating margin improved to roughly 5.6%, and EBITDA of ¥891 million (6.5% margin) demonstrates healthy underlying cash earnings before non-cash charges. Net income grew 28.1% to ¥437 million, with net margin at 3.2%, moderating versus operating income growth likely due to higher tax outflows and investment-related costs. DuPont decomposition shows ROE of 9.75%, driven by a 3.20% net margin, 1.329x asset turnover, and 2.29x financial leverage, implying a balanced contribution from efficiency and moderate leverage. ROA implied by DuPont is approximately 4.25% (3.20% × 1.329), consistent with a capital-efficient, asset-light leaning model relative to traditional manufacturing. Ordinary income of ¥771 million is nearly aligned with operating income, indicating minimal reliance on non-operating gains and a clean earnings profile. Liquidity is strong with a current ratio of 235% and a quick ratio of 130%, underpinned by working capital of ¥2.68 billion. The balance sheet appears conservatively capitalized: using total assets of ¥10.287 billion and equity of ¥4.484 billion implies an equity ratio around 43.6% (the reported 0% should be treated as unreported), and total liabilities are a manageable ¥2.235 billion. Cash flow quality is robust at the operating level, with OCF/NI of 1.99x indicating high earnings convertibility. That said, free cash flow was negative ¥1.727 billion due to sizable investing cash outflows (¥2.595 billion), which were largely funded by positive financing cash flows (¥2.436 billion). Interest burden remains minimal: interest expense was only ¥8.3 million, and interest coverage stood at a very comfortable 93.4x, limiting financial risk from rising rates. The company paid no dividend (DPS ¥0), consistent with a reinvestment phase given the outsized capex/investment program. Inventory of ¥2.088 billion represents a significant share of current assets and total assets, highlighting working capital execution as a key swing factor for future cash generation. Data limitations exist for certain line items (e.g., cash balance and equity ratio are shown as zero/unreported), but the available metrics provide a coherent picture of profitable growth supported by strong liquidity and an investment-driven expansion phase.

Profitability Analysis

ROE of 9.75% decomposes into a 3.20% net margin, 1.329x asset turnover, and 2.29x financial leverage, indicating balanced returns from margin expansion and efficient asset use with moderate leverage. Gross margin is 20.6% on ¥2.824 billion gross profit over ¥13.675 billion revenue, reflecting adequate pricing and purchasing discipline amid growth. Operating margin is approximately 5.64% (¥772 million/¥13.675 billion), outpacing revenue growth and evidencing operating leverage as fixed costs were spread over a larger base. EBITDA margin of 6.5% (¥891 million) confirms improving operating efficiency beyond non-cash depreciation (¥119 million). Ordinary income is nearly equal to operating income (¥771 million vs. ¥772 million), implying limited dependence on non-operating items and indicating quality of core profitability. Net margin at 3.2% trails operating margin, consistent with tax expense recognition (¥194 million) and modest interest costs (¥8.3 million). ROA, implied at around 4.25%, is healthy for a business with meaningful inventory investment, and should improve if margin gains persist. Operating leverage appears positive as operating income growth (+61.6% YoY) outpaced revenue growth (+52.8% YoY). Further gains could come from scale effects in logistics, procurement, and SG&A efficiency, though mix and promotional intensity will influence margin trajectory.

Growth Assessment

Revenue growth of 52.8% YoY to ¥13.675 billion signals strong demand and/or footprint expansion. Operating income growth of 61.6% YoY outpacing sales suggests favorable operating leverage and cost control. Net income growth of 28.1% YoY lagged operating growth due to taxes and investment-related costs, but absolute profitability expanded. Sustainability of >50% growth is uncertain; a normalization toward mid- to high-teens or lower is a reasonable base case unless structural drivers (capacity additions, channel expansion) persist. Gross margin at 20.6% is consistent with scalable merchandising and price architecture; sustaining this amid potential input cost volatility will be important. The investment program (¥2.595 billion investing CF) likely supports capacity, infrastructure, and/or strategic initiatives, which could underpin medium-term growth. Ordinary income closely tracking operating income indicates that growth is organically driven rather than financial. Outlook hinges on successful absorption of recent investments and the company’s ability to convert revenue growth into steady cash profits while managing inventory turns. Mix, customer acquisition costs, and retention economics will be key to durable growth. Given robust OCF conversion (1.99x of NI), earnings quality appears supportive of continued expansion provided working capital remains disciplined.

Financial Health

Liquidity is strong: current ratio 235.3% and quick ratio 129.9%, supported by ¥2.68 billion in working capital. Inventories of ¥2.088 billion represent about 44.8% of current assets and roughly 20.3% of total assets, making inventory management central to liquidity. Total assets are ¥10.287 billion versus total liabilities of ¥2.235 billion, implying an equity buffer; equity is ¥4.484 billion, suggesting an implied equity ratio around 43.6% (reported 0% appears unreported). Debt-to-equity ratio is 0.50x, indicating moderate leverage relative to equity. Interest expense is low at ¥8.268 million with interest coverage of 93.4x, pointing to strong solvency and minimal near-term refinancing risk. Current liabilities total ¥1.982 billion, well covered by current assets of ¥4.662 billion, reducing short-term liquidity risk. Financing CF of ¥2.436 billion indicates reliance on external capital in the period, likely to fund investments; leverage should be monitored if investment intensity persists. Cash and equivalents were shown as 0 (unreported), so net cash/debt and cash ratios cannot be precisely assessed.

Cash Flow Quality

Operating cash flow of ¥868 million versus net income of ¥437 million (OCF/NI 1.99x) indicates high earnings quality and positive working capital contribution or non-cash add-backs. Depreciation of ¥119 million is modest relative to EBITDA of ¥891 million, consistent with an asset-light or recently invested asset base. Free cash flow was negative ¥1.727 billion due to significant investing cash outflows (¥2.595 billion), signaling a deliberate reinvestment phase. Financing inflows of ¥2.436 billion largely bridged the FCF shortfall, implying a planned capital structure strategy rather than cash strain. Working capital appears sizable (¥2.68 billion), with inventories a key component; sustaining strong OCF will depend on inventory turns and receivables/payables discipline. The close alignment of operating and ordinary income suggests limited distortion from non-operating cash items. With cash balances unreported, short-term liquidity buffers cannot be directly verified, but strong coverage ratios and current liquidity metrics mitigate immediate concerns.

Dividend Sustainability

The company paid no dividend in the period (DPS ¥0; payout ratio 0.0%), aligning with a reinvestment-led strategy amid heavy capital spending (investing CF of -¥2.595 billion). Given negative FCF (¥-1.727 billion), initiating or increasing dividends would not be supported by internal cash generation this period without reducing investment or raising external capital. OCF of ¥868 million demonstrates the capacity to fund part of growth internally, but current priorities clearly favor expansion over distributions. Policy outlook likely remains growth-first until the recent investment cycle translates into higher steady-state FCF. Future dividend capacity will depend on normalization of capex/investing outflows and sustained OCF conversion above earnings. Absent explicit guidance, a conservative stance on distributions appears prudent while leverage and investment needs are managed.

Risk Assessment

Business Risks:

• Revenue growth normalization after a >50% YoY surge, risking negative operating leverage if costs do not adjust
• Gross margin pressure from input cost volatility and competitive pricing
• Inventory concentration (¥2.088 billion) increasing obsolescence and markdown risk
• Execution risk in integrating and ramping recent investments (logistics, capacity, systems)
• Customer demand variability and seasonality affecting working capital and cash conversion
• Supply chain and procurement disruptions impacting fulfillment and COGS

Financial Risks:

• Negative free cash flow driven by high investing cash outflows requiring continued external financing
• Potential leverage creep if investment pace continues alongside financing inflows (current D/E 0.50x)
• Limited visibility on cash balances (cash reported as unreported), constraining assessment of liquidity buffers
• Tax cash outflows impacting net margins despite strong operating results

Key Concerns:

• Sustainability of current growth rate and ability to maintain operating leverage
• Execution on inventory turns to protect OCF and margin
• Managing investment cadence to pivot from FCF-negative to FCF-positive without elevating leverage

Investment Implications

Key Takeaways:

• Strong top-line growth (+52.8% YoY) with superior operating leverage (+61.6% YoY operating income)
• Healthy profitability profile: 20.6% gross margin, ~5.6% operating margin, 6.5% EBITDA margin
• ROE at 9.75% driven by balanced margin, efficiency, and moderate leverage
• Robust OCF conversion (1.99x of net income) contrasted by FCF-negative due to heavy investments
• Solid liquidity (current ratio 235%, quick ratio 130%) and very high interest coverage (93.4x)
• Moderate leverage (D/E 0.50x) with equity cushioning implied at ~43.6% of assets
• Dividend on hold (DPS ¥0) while pursuing expansion and capacity-building

Metrics to Watch:

• Revenue growth trajectory and normalization versus current +52.8% YoY
• Gross margin sustainability and SG&A ratio to maintain operating leverage
• Inventory turnover and working capital intensity impacting OCF
• Free cash flow progression as investing CF normalizes
• Leverage and interest coverage post financing activities
• ROE/ROA trend as new investments scale

Relative Positioning: Within TSE small/mid-cap consumer and commerce-related peers, Cotta shows stronger-than-average near-term growth, solid liquidity, and very high interest coverage, albeit with FCF temporarily pressured by an aggressive investment cycle and a moderate leverage profile.

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
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