WACOAL HOLDINGS CORP. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥87.51B
• Operating Income: ¥21.54B
• Net Income: ¥12.33B
• EPS: ¥243.98

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

For FY2026 Q2, Wacoal Holdings reported revenue of 875.11 (100M JPY), down 2.9% YoY, while operating income surged 86.5% YoY to 215.41, highlighting substantial margin expansion and likely material contributions from non-core or other operating income. Gross profit is not disclosed, but based on reported revenue and cost of sales, implied gross profit is approximately 484.00 with an implied gross margin of 55.3%, a healthy level for branded innerwear. SG&A of 487.52 exceeds the implied gross profit, suggesting that other operating income (IFRS ‘other income’ or gains) likely bridged the gap to deliver strong operating income. EBITDA reached 271.76, translating to an EBITDA margin of 31.1%, which is elevated for the sector and further points to non-recurring or non-core contributions within the operating result. Net income rose 41.5% YoY to 124.18, with an effective tax rate of 20.3% (taxes 41.00 vs. PBT 201.66). Total comprehensive income was 209.88, well above net income, indicating significant favorable OCI (e.g., FX translation gains or valuation gains on securities). DuPont indicates a net margin of 14.2%, asset turnover of 0.310x, and financial leverage of 1.39x, yielding a reported ROE of 6.1%—improved but still modest for a consumer brand platform. The balance sheet remains conservative: total equity of 2,034.78 and liabilities of 776.25 imply an equity ratio around 71%, with borrowings (short-term 119.15, long-term 25.54) comfortably covered by cash and equivalents of 234.19, implying a net cash position. Operating cash flow was 52.93, only 0.43x of net income, indicating weaker earnings-to-cash conversion this period. Investing cash flow was positive at 38.67, implying asset sales or investment redemptions; as a result, reported “free cash flow” of 91.60 here reflects OCF plus positive investing inflows rather than the conventional OCF minus capex definition. Inventory is sizable at 502.26 (57% of half-year revenue), highlighting working capital intensity and inventory risk if demand softens. Shareholder returns included share repurchases of 40.61; calculated payout ratio is 42.3% and FCF coverage is estimated at 1.74x, indicating coverage in this period but aided by investing inflows. With revenue softness but substantial operating profit gains, the quality and durability of earnings depend on normalization of other operating income and restoration of OCF alignment with earnings. Data limitations exist due to unreported gross profit, current liabilities, detailed cash breakdown, and dividend amounts; conclusions are based on available items and derived calculations.

Profitability Analysis

ROE decomposition (DuPont): Net margin 14.2% x asset turnover 0.310 x financial leverage 1.39x = ROE 6.1%, consistent with the reported figure. The margin expansion is notable given revenue declined 2.9% YoY, indicating a strong positive mix of cost actions and likely other operating income. Implied gross margin is 55.3% (gross profit ~484.00; derived from revenue minus cost of sales), consistent with branded innerwear but above-trend operating performance suggests reliance on non-core operating income and/or significant SG&A efficiencies. EBITDA margin of 31.1% is unusually high for the category and underscores the contribution of non-operating-like items classified within operating income under IFRS (e.g., gains on asset sales, subsidies, and other income lines). Operating leverage: Despite lower revenue, operating income rose 86.5% YoY, reflecting strong incremental margins; however, the fact that SG&A (487.52) exceeds implied gross profit implies that recurring operating leverage may not be the sole driver—other operating gains likely boosted results. Profit-before-tax of 201.66 vs operating income of 215.41 suggests limited drag from below-the-line items this period. Equity-method gains of 5.67 provided a minor contribution to profit. Overall profitability improved materially, but the quality mix tilts toward non-recurring or non-core elements.

Growth Assessment

Revenue decreased 2.9% YoY to 875.11, indicating soft topline trends amid macro and channel headwinds. The significant YoY surge in operating income (+86.5%) despite lower sales suggests restructuring benefits, cost controls, and other operating income; sustainability into 2H is uncertain without evidence of demand recovery. Net income grew 41.5% YoY to 124.18 with an effective tax rate of 20.3%; however, OCF lagged earnings (0.43x), implying weaker cash conversion and raising questions about the durability of profit growth. Total comprehensive income of 209.88 exceeded net income, signaling positive OCI (likely FX translation or valuation gains), which may not be repeatable. Inventory remains elevated at 502.26 (57% of half-year sales), suggesting cautious sell-through and potential discounting risk if demand slows. Equity-method income of 5.67 adds a small, potentially steady contribution. Near-term outlook hinges on inventory normalization, maintaining gross margins without heavy promotions, and the degree to which other operating income recurs. Given limited disclosure on regional/channel performance and R&D, visibility on structural growth drivers is constrained.

Financial Health

Liquidity is solid, with cash and equivalents of 234.19 exceeding total borrowings of approximately 144.69 (short-term 119.15, long-term 25.54), leaving net cash around 89.5. Current assets are 998.93; current liabilities are unreported, so current and quick ratios cannot be calculated. Working capital of 998.93 (proxied by current assets due to missing current liabilities) is ample but inventory-heavy at 502.26. Solvency is strong: total liabilities of 776.25 against equity of 2,034.78 yield an equity ratio near 71% and a debt-to-equity ratio of 0.38x (based on total liabilities/equity). Financial leverage is modest at 1.39x (assets/equity), moderating balance sheet risk. Interest coverage cannot be computed due to unreported interest expense, but EBITDA and net cash suggest comfortable coverage. No goodwill or intangible balances are disclosed, limiting assessment of impairment risk; investment securities data is also unreported, constraining visibility into hidden balance sheet volatility. Overall, the company maintains a conservative capital structure with resilience to near-term shocks.

Cash Flow Quality

Earnings quality is mixed: Net income of 124.18 contrasts with operating cash flow of 52.93 (OCF/NI 0.43x), indicating weaker cash realization, likely due to working capital absorption (e.g., inventory build or receivables). Investing cash flow was positive at 38.67, implying asset sales or redemptions; the reported free cash flow of 91.60 appears to be OCF plus investing inflows, not the conventional OCF minus capex measure (capex unreported). The positive investing CF boosts period cash generation quality superficially but may be non-recurring. Cash and equivalents were 234.19 at period end, up supported by positive total cash flow (OCF 52.93 + ICF 38.67 + FCFin -41.96 ≈ +49.64). Share repurchases totaled 40.61, funded by internal cash generation and prior cash reserves. With inventories at 502.26 and accounts receivable at 168.35, working capital management remains a key swing factor for OCF normalization. Absent capex disclosure, maintenance vs. growth investment cannot be assessed; however, given positive ICF, net investment likely declined via disposals. Sustained improvement in OCF/NI toward 0.8–1.0x would signal healthier underlying cash conversion.

Dividend Sustainability

Calculated payout ratio is 42.3% based on EPS of 243.98 JPY, broadly aligned with a moderate payout policy typical for stable consumer brands. FCF coverage is noted at 1.74x, but this includes positive investing inflows; on a stricter basis (OCF only), coverage would be weaker at 0.43x of earnings, implying reliance on working capital normalization or non-recurring inflows for full coverage. Total dividends paid and DPS are unreported, limiting precision in cash outflow analysis; however, the net cash balance and low leverage provide a buffer for distributions. Share repurchases of 40.61 indicate active shareholder returns; future buybacks may be paced to OCF strength. With an equity ratio of ~71% and modest leverage, medium-term dividend sustainability is supported by balance sheet strength, but near-term capacity depends on improving OCF. Policy outlook appears to target stable dividends with opportunistic buybacks, contingent on earnings stability and cash conversion.

Risk Assessment

Business Risks:

• Demand softness in core innerwear categories amid consumer weakness and channel shifts
• Inventory risk (502.26 or ~57% of half-year sales) leading to markdown pressure
• High apparent reliance on other operating income to achieve operating profit targets
• Foreign exchange volatility impacting overseas subsidiaries and OCI
• Competition from fast-fashion, e-commerce, and DTC brands pressuring pricing
• Execution risk in restructuring and cost optimization programs
• Potential supply chain and input cost fluctuations (materials, logistics)

Financial Risks:

• Weak OCF-to-net income conversion (0.43x) indicating working capital drag
• Positive investing cash flow suggests asset sales; profits may be non-recurring
• Short-term debt (119.15) introduces refinancing timing risk despite net cash
• Limited disclosure on interest expense and current liabilities constrains coverage and liquidity analysis
• Potential pension/retirement obligations not visible in provided data
• Sensitivity of ROE (6.1%) to margin normalization or OCI reversal

Key Concerns:

• Sustainability of elevated operating margin (EBITDA margin 31.1%) if other income normalizes
• Inventory normalization without sacrificing gross margin
• Restoration of OCF/NI toward historical norms
• Visibility on capex and capital allocation priorities amid buybacks
• Reliance on OCI for total comprehensive income uplift

Investment Implications

Key Takeaways:

• Topline declined 2.9% YoY, but operating income jumped 86.5%, implying strong cost/mix and likely other income support
• Implied gross margin is solid at ~55.3%, but SG&A exceeds gross profit; operating profit likely includes sizable other operating income
• ROE improved to 6.1% with net margin 14.2% and modest leverage (1.39x), still below typical consumer discretionary targets
• OCF of 52.93 vs net income of 124.18 (0.43x) signals weak cash conversion; working capital is the key swing factor
• Positive investing CF (38.67) and buybacks (40.61) indicate active portfolio and shareholder returns; part of cash generation may be non-recurring
• Balance sheet strength (equity ratio ~71%, net cash ~89.5) provides resilience and supports dividends
• Total comprehensive income significantly exceeds net income, highlighting FX/valuation sensitivity

Metrics to Watch:

• OCF/Net income ratio and working capital turnover (inventory days, receivables collection)
• Breakdown of other operating income and recurring vs. non-recurring components
• Gross margin and SG&A ratio trajectory amid inventory normalization
• Revenue trends by region/channel (Japan vs. overseas; wholesale vs. DTC/e-commerce)
• Capex level and guidance (maintenance vs. growth) and its impact on true FCF
• FX effects on OCI and translation impacts on equity
• Payout policy detail (target payout, buyback cadence) vs. cash generation

Relative Positioning: Within Japanese apparel/innerwear peers, Wacoal exhibits a stronger balance sheet with net cash and a high equity ratio, but currently lower ROE and revenue softness. The reported EBITDA margin is above typical peers, likely buoyed by non-recurring or other operating income; on a purely recurring basis, profitability is closer to industry norms. Execution on inventory normalization and cash conversion will determine whether the company closes the ROE gap versus domestic apparel 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