ZOA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.40B
• Operating Income: ¥240M
• Net Income: ¥164M
• EPS: ¥131.20

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: Solid profitability recovery despite a slight revenue decline, with clear margin expansion and disciplined cost control in FY2026 Q2 (single, JGAAP). Revenue declined 1.5% YoY to 44.01, but operating income rose 27.0% YoY to 2.40, lifting operating margin to approximately 5.45%. Gross profit was 11.40 (gross margin 25.9%), and SG&A was 9.51, indicating improved operating efficiency. Ordinary income increased 26.2% to 2.42, supported by small non-operating income (0.05) and minimal non-operating expense (0.02). Net income grew 24.1% YoY to 1.64, taking net margin to about 3.7%. Based on estimated prior-period figures, operating margin expanded by roughly 120 bps (from ~4.23% to ~5.45%), and net margin by roughly 80 bps (from ~2.95% to ~3.73%). A likely extraordinary loss (~0.50 implied by the gap from ordinary income 2.42 to PBT 1.92) partially offset operating gains but did not derail earnings growth. Liquidity is strong with a current ratio of 242% and cash and deposits of 12.47 against current liabilities of 16.04. Leverage is moderate with D/E of 0.82x and long-term loans of 7.72; interest burden is very light (interest coverage 115.8x). ROE is 5.4% on a DuPont basis (NPM 3.7% × Asset Turnover 0.838 × Leverage 1.74x), indicating modest returns helped by margin improvement more than asset efficiency. ROIC is 6.5%, below the typical 7–8% target threshold, suggesting room to enhance capital efficiency. Cash flow disclosure is absent this quarter, limiting assessment of earnings quality, working capital dynamics, and dividend coverage. The calculated payout ratio is 62.1%, slightly above a conservative sustainability threshold (60%), which warrants monitoring absent OCF/FCF data. Forward-looking, operational discipline (SG&A control, pricing/mix) and stabilization of any one-time losses should support margins; sustaining ROE improvement will depend on better asset turnover and consistent OCF conversion. Overall, the quarter demonstrates resilient profitability in a soft sales environment, with healthy liquidity and manageable leverage providing flexibility for ongoing optimization.

Profitability Analysis

ROE decomposition: Net Profit Margin (3.7%) × Asset Turnover (0.838) × Financial Leverage (1.74x) = ~5.4% ROE. The component that changed most versus last year is likely Net Profit Margin, given operating income rose 27% on a 1.5% revenue decline, implying significant margin uplift. Business driver: tighter SG&A discipline relative to gross profit and potential improvement in merchandise mix/pricing, as evidenced by operating margin rising to ~5.45% despite slightly lower sales. An implied extraordinary loss (~0.50) depressed PBT but did not negate margin gains at the operating level, suggesting core operations improved. Sustainability: operating margin gains appear more structural (cost control, mix) than one-off; however, without gross margin YoY or SG&A breakdown, persistence cannot be fully validated. Asset turnover (0.838) is modest for a retailer and likely constrained by high cash/current assets versus sales in the half-year period; improving inventory turns and receivables would lift ROE without extra leverage. Financial leverage (1.74x) is moderate and stable; ROE gains are not leverage-driven, which is positive quality. Watch for concerning trends: while SG&A grew slower than operating profit, we cannot confirm whether SG&A growth exceeded revenue growth due to lack of prior SG&A data; absent detail, no red flag is evident. Effective tax rate is 31%, consistent with normalization, indicating no material tax distortions to ROE. Overall, ROE improvement hinges on maintaining higher operating margin and enhancing asset efficiency; leverage provides limited incremental lift.

Growth Assessment

Top-line contracted 1.5% YoY to 44.01, suggesting a soft demand backdrop or deliberate pruning (stores/SKU optimization). Profit growth was robust: operating income +27.0% YoY to 2.40 and net income +24.1% YoY to 1.64, signaling strong cost execution and likely mix/pricing support. Operating margin rose to ~5.45% (up ~120 bps YoY by estimate), and net margin to ~3.7% (up ~80 bps YoY by estimate). Non-operating items were small (net +0.03), so growth was primarily operating-driven. An implied extraordinary loss (~0.50) affected PBT; if non-recurring (e.g., impairment, store closure), underlying profit momentum is stronger than reported PBT suggests. Revenue sustainability: modest decline indicates cautious consumer spending and/or competitive intensity; stabilization depends on category mix and promotions. Profit quality: uplift is driven by operating performance rather than financial income; however, absence of CF data precludes validation of cash conversion. Outlook: near-term earnings trajectory depends on maintaining SG&A discipline, protecting gross margin amid potential price competition, and avoiding further extraordinary losses. Medium-term growth requires improving asset turnover (inventory productivity, store efficiency) to lift ROIC above 7–8%.

Financial Health

Liquidity is strong: current assets 38.88 vs current liabilities 16.04 yields a current ratio of 242.4% and a quick ratio of 242.4% (inventory not disclosed), with cash and deposits of 12.47 covering ~78% of current liabilities. No warning triggers: Current Ratio is well above 1.0 and D/E is 0.82x (<2.0). Solvency: total liabilities 24.90 vs equity 30.24; noncurrent liabilities 8.86 include long-term loans of 7.72, indicating terming out of debt and limited refinancing pressure. Maturity mismatch risk appears low given ample current assets relative to current liabilities; short-term debt is unreported, but accounts payable of 6.30 is well covered by cash and receivables (5.04). Interest burden is minimal with an interest expense of 0.02 and interest coverage of 115.8x, suggesting high resilience to rate movements. Off-balance sheet obligations are not disclosed; no explicit guarantees/leases were presented, which limits full obligation assessment. Equity base is solid at 30.24 with retained earnings of 25.19, supporting balance sheet flexibility.

Cash Flow Quality

Operating cash flow is unreported, preventing calculation of OCF/Net Income and assessment against the 0.8 threshold; earnings quality cannot be validated from a cash perspective. Free cash flow is also unreported, so we cannot confirm coverage of capex and dividends. Working capital quality: accounts receivable of 5.04 vs sales implies modest credit exposure; inventory is unreported, limiting evaluation of inventory turns and potential margin risk from markdowns. No signs of working capital manipulation can be inferred or ruled out given limited disclosures. Given the implied extraordinary loss this period, a review of cash impact (if any) will be important once CF statements are available.

Dividend Sustainability

The calculated payout ratio is 62.1%, slightly above the conservative benchmark of 60%, implying a moderate-to-high payout relative to earnings. DPS and total dividends paid are unreported, and FCF coverage cannot be calculated, so sustainability cannot be confirmed from cash flow. Balance sheet capacity (cash and strong liquidity) provides short-term support, but medium-term sustainability hinges on consistent OCF generation and stable capex. With ROE at 5.4% and ROIC at 6.5%, incremental increases to payout could pressure reinvestment capacity unless profitability and asset efficiency improve. Policy outlook: maintain or cautiously adjust payout in line with earnings stability and cash conversion; monitor for any explicit dividend policy guidance in subsequent disclosures.

Risk Assessment

Business Risks:

• Soft demand or competitive pricing pressure evidenced by a 1.5% YoY revenue decline.
• Merchandise mix and gross margin sensitivity in consumer electronics/IT retailing.
• Supply chain and vendor terms risk affecting gross margin and inventory availability.
• Operational risk from potential store closures or impairments (implied extraordinary loss).
• Execution risk in maintaining SG&A discipline amid inflationary pressure on wages and rents.

Financial Risks:

• Capital efficiency risk: ROIC at 6.5% below the 7–8% target range.
• Refinancing/interest rate risk is low but present due to long-term loans of 7.72.
• Cash flow visibility risk due to unreported OCF/FCF; dividend coverage cannot be verified.
• Working capital risk from potential inventory build or obsolescence (inventory not disclosed).

Key Concerns:

• Implied extraordinary loss (~0.50) reduced PBT; recurrence would dilute earnings quality.
• Lack of cash flow disclosure limits validation of earnings convertibility and dividend safety.
• Asset turnover at 0.838 suggests underutilized assets; sustained low turnover caps ROE.
• Payout ratio estimated at 62.1% slightly above conservative benchmark without FCF data.

Investment Implications

Key Takeaways:

• Margin-led earnings recovery with operating income +27% YoY on -1.5% revenue.
• Operating margin expanded by an estimated ~120 bps to ~5.45%; net margin to ~3.7%.
• Balance sheet is liquid (CR 242%) with moderate leverage (D/E 0.82x) and very high interest coverage.
• ROE at 5.4% and ROIC at 6.5% indicate improving but still modest returns; asset efficiency is the swing factor.
• Extraordinary loss likely masked even stronger underlying operating progress.

Metrics to Watch:

• OCF/Net Income and FCF once disclosed (target OCF/NI > 1.0).
• Gross margin trend and discounting intensity.
• SG&A ratio vs sales and operating margin sustainability.
• Inventory levels and inventory turnover (stock health, obsolescence risk).
• Same-store sales and ticket/mix indicators.
• ROIC trajectory toward or above 7–8% and ROE improvement.
• Nature and recurrence of extraordinary items.

Relative Positioning: Within small-cap specialty retail peers, the company shows stronger-than-average margin discipline and liquidity with moderate leverage, but trails best-in-class on capital efficiency (ROIC/ROE), leaving upside if asset turnover improves and non-recurring losses abate.

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