SATUDORA HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥50.31B
• Operating Income: ¥540M
• Net Income: ¥245M
• EPS: ¥17.93

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

Verdict: Soft quarter with margin compression and significantly lower profits despite modest topline growth, cushioned by unusually strong operating cash flow. Revenue grew 1.3% YoY to 503.15, but operating income fell 38.3% to 5.40 and net income declined 47.4% to 2.46. Gross profit was 128.43, yielding a gross margin of 25.5%, while SG&A reached 123.02, or 24.5% of sales, leaving an operating margin of 1.07%. Operating margin compressed by about 69 bps YoY (from ~1.76% to 1.07%) as cost pressure outpaced sales growth. Ordinary income of 5.06 implies a small non-operating loss (net -0.34), largely from interest expense (1.17), highlighting the drag from leverage. Net margin fell to 0.49% from ~0.94% a year ago, a compression of roughly 45 bps. ROE stands at 2.5%, with very thin profitability being partly masked by high financial leverage (5.1x assets/equity). ROIC is only 1.7%, well below the 5% warning threshold, signaling capital inefficiency. On earnings quality, operating cash flow was exceptionally strong at 48.87 (19.9x net income), far exceeding EBITDA (12.66), implying a large working-capital release and seasonality rather than a step-change in structural cash generation. Liquidity is adequate but thin (current ratio 107%), while solvency risk is elevated (D/E 4.1x; interest coverage 4.6x, below the “strong” threshold). Effective tax rate was high at 44.9%, exacerbating the drop in net income. Capex of 2.31 is below depreciation (7.26), suggesting restrained investment this half. Dividend sustainability looks borderline by income (payout ~58%) but likely covered by current OCF; however, sustainability depends on whether cash flow strength persists. Forward-looking, the key debate is whether gross margin and SG&A ratio can be stabilized and if OCF normalizes without pressuring liquidity. With margins thin and leverage high, execution on merchandising, cost control, and inventory discipline will determine FY profitability trajectory.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (0.5%) × Asset Turnover (0.985x) × Financial Leverage (5.10x) = ~2.5%. The component that moved the most YoY is the net profit margin, which compressed by ~45 bps (from ~0.94% to 0.49%), driven by operating margin contraction (~69 bps) and a higher effective tax rate (44.9%), with additional drag from non-operating costs (interest). Asset turnover at ~1.0x remains typical for drugstore retail and likely stable YoY; leverage is high at 5.1x but not the source of the decline. Business drivers of the margin compression include SG&A intensity rising faster than sales (+1.3% sales vs. SG&A ratio of 24.5%), wage and utility inflation, and softer sales mix or price promotions pressuring gross margin (current 25.5%) even if gross margin YoY is not disclosed. Interest expense (1.17) meaningfully eroded ordinary profit given the small operating base. These margin headwinds are partly structural (labor/utility costs) and partly cyclical (promotional cadence, seasonal mix), making a full margin snapback unlikely without targeted cost actions and sales mix improvements. Concerning trend flags: SG&A ratio at 24.5% is high versus the 1.1% operating margin; ordinary to operating profit gap underscores financing burden; ROIC at 1.7% is well below cost of capital, signaling low capital efficiency.

Growth Assessment

Revenue grew 1.3% to 503.15, indicating modest top-line momentum, likely driven by incremental same-store sales and/or limited new store contribution. Profit growth was negative across the P&L: operating income -38.3%, ordinary income -43.0%, net income -47.4%, highlighting unfavorable operating leverage. Gross margin stands at 25.5%; while YoY comparison is unavailable, the large drop in operating profit versus slight sales growth implies either gross margin pressure or rising SG&A per sales (or both). EBITDA margin is 2.5%, indicating thin cash earnings capacity for a leveraged balance sheet. Non-operating results turned slightly negative (net -0.34) due to interest expense, amplifying the earnings decline at the bottom line. The elevated effective tax rate (44.9%) further compressed net income and may normalize if profits stabilize, providing some upside to the net margin mechanically. Looking ahead, sustainable growth depends on improving merchandise mix (higher-margin categories), controlling personnel and occupancy costs, and maintaining tight inventory management to avoid cash drains. Any store network expansion should be paced against cash generation given leverage. Absent visible cost relief, profit growth likely lags sales growth in the near term.

Financial Health

Liquidity: Current ratio is 107.2% and quick ratio 107.2%, just above the 1.0x threshold but below the 1.5x comfort benchmark—adequate but thin. Cash and deposits of 56.58 plus receivables of 44.11 are smaller than accounts payable of 155.91, implying reliance on trade credit; inventory data is unreported, limiting a full quick ratio assessment beyond disclosed items. Solvency: Debt-to-equity is high at 4.10x (warning), with long-term loans of 128.68 and short-term loans of 2.00; total liabilities 410.76 vs equity 100.28 imply financial leverage of 5.1x assets/equity. Interest coverage is 4.62x (EBIT/interest), below the >5x strong benchmark but above the <2x warning, indicating moderate headroom. Maturity mismatch risk: Current assets (266.27) exceed current liabilities (248.43), mitigating near-term refinancing pressure, but the structure leans heavily on payables. Off-balance sheet: No disclosures provided; potential lease obligations typical for retail are not available and could represent additional fixed commitments.

Cash Flow Quality

OCF was 48.87 versus net income of 2.46, yielding OCF/NI of 19.87x—very strong on headline quality. Given EBITDA of 12.66, the outsized OCF implies significant working capital release (likely lower inventories and/or higher payables/other accruals), as well as seasonality; this should not be extrapolated as structural. Capex was 2.31, below depreciation (7.26), indicating net investment restraint this period. Free cash flow cannot be fully calculated due to unreported investing CF lines; if using capex only as a proxy, FCF would be robust, but this may overstate sustainable FCF if other investments exist. There are no clear signs of aggressive working capital manipulation from the limited data, but reliance on payables remains high relative to cash and receivables. Dividend and financing outflows: Financing CF was -13.54, suggesting repayments and/or dividends, but dividend cash data is unreported. Overall, cash conversion this half is strong but likely to normalize.

Dividend Sustainability

Payout ratio is estimated at 57.9%, near the upper bound of the sustainable range (<60%). With OCF of 48.87 and modest reported capex (2.31), dividend coverage appears comfortable for this half; however, the sustainability depends on OCF normalization and actual full investing cash flows (unreported this period). High leverage (D/E 4.1x) and low ROIC (1.7%) argue for balance sheet prudence, potentially constraining dividend growth ambitions. Policy visibility is limited due to unreported DPS and total dividend paid; we assume steady policy unless management updates guidance. Monitor payout against full-year FCF and any debt reduction priorities.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation, utilities, and stronger promotions
• Competitive intensity in drugstore retail impacting pricing and footfall
• Potential category mix deterioration reducing gross margin
• Operational concentration risk (regional exposure) raising volatility from local demand/weather
• Supply chain and procurement cost volatility (FX, logistics)

Financial Risks:

• High leverage (D/E 4.1x) with interest expense eroding thin profits
• Interest rate increase risk pressuring interest coverage (currently 4.62x)
• Dependence on trade payables for working capital funding
• ROIC at 1.7% well below cost of capital, risking value dilution
• Potential lease obligations (not disclosed) adding fixed-cost rigidity

Key Concerns:

• Operating margin compressed ~69 bps YoY to 1.07%, leaving little buffer for shocks
• Net margin fell to 0.49% and effective tax rate elevated at 44.9%
• Debt/EBITDA (alert) indicates elevated leverage relative to earnings capacity
• Liquidity only slightly above parity (current ratio 1.07x)
• Visibility limited due to many unreported XBRL items (inventories, investing CF, DPS)

Investment Implications

Key Takeaways:

• Revenue +1.3% but profits down sharply (OP -38%, NI -47%) due to margin pressure and financing costs
• Operating margin 1.07% and ROIC 1.7% indicate weak profitability and capital efficiency
• Leverage elevated (D/E 4.1x); interest coverage 4.6x leaves moderate headroom
• Exceptionally strong OCF (48.87) likely working-capital/seasonal; not necessarily repeatable
• Dividend payout near 58% appears covered this half but should be monitored against full-year FCF

Metrics to Watch:

• Same-store sales and ticket/traffic trends
• Gross margin by category and private-brand mix
• SG&A ratio trajectory (personnel, rent, energy)
• Inventory days and payables days (cash conversion cycle)
• Operating margin and EBITDA margin recovery
• Interest coverage and effective tax rate normalization
• ROIC vs. WACC and capex/reinvestment needs
• Net debt trend and maturity profile

Relative Positioning: Versus domestic drugstore peers, profitability and ROIC are low and leverage is high; scale and cost efficiency lag national leaders, leaving less cushion in a competitive, low-margin retail environment.

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