Cross Marketing Group Inc. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥6.71B
• Operating Income: ¥286M
• Net Income: ¥142M
• Earnings per Unit (EPU): ¥6.29

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: A soft FY2026 Q1 with margin compression and subdued ROE/ROIC, cushioned by solid liquidity. Revenue was 67.08 (−0.8% YoY), essentially flat, but operating income fell to 2.86 (−19.5% YoY) and net income to 1.22 (−14.2% YoY). Gross profit was 25.23, implying a gross margin of 37.6%. The operating margin was 4.3% (2.86/67.08), down ~99 bps YoY from ~5.3% by our back-calculation. Ordinary income margin was 4.3%, down ~6 bps YoY, indicating relatively stable non-operating items aside from higher non-operating expenses. Net margin declined to 1.8%, down ~28 bps YoY, weighed by an elevated effective tax rate of ~51.8% and net non-operating expense of ~0.60. SG&A of 21.68 implies an SG&A-to-sales ratio of 32.3%, pressuring operating leverage amid flat sales. ROE was 1.5% (DuPont: NPM 1.8% × Asset Turnover 0.418 × Leverage 1.98x), highlighting profitability as the key drag. ROIC is 3.7%, below the 5% warning threshold, signaling capital efficiency challenges. Liquidity remains strong with a current ratio of 238% and cash of 70.90; interest coverage is robust at 17.9x. Leverage is moderate (D/E 0.98x reported) with loans totaling 28.52 (short-term 4.50; long-term 24.02). Earnings quality is hard to assess given unreported cash flows; however, the high tax burden and non-operating expense mix reduce the conversion of pre-tax profit to net profit. The payout ratio appears elevated at 229% on a quarterly basis, likely not indicative of full-year policy but warrants monitoring absent FCF data. Forward-looking, management likely needs to tighten SG&A and improve mix or pricing in core research/marketing services to restore mid-single-digit operating margins. Balance sheet capacity provides runway for execution, yet low ROIC underscores the need for more disciplined capital deployment and productivity gains.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 1.8% × Asset Turnover 0.418 × Financial Leverage 1.98x = ROE 1.5%. The most material change YoY is the Net Profit Margin, given operating income declined 19.5% on nearly flat revenue and the effective tax rate rose to ~52%. Business driver: limited top-line growth combined with SG&A intensity (SG&A-to-sales 32.3%) compressed operating margin to 4.3% from ~5.3%, and higher non-operating expenses (0.67 vs 0.07 income) plus tax burden further diluted net margin. Asset turnover at 0.418 appears stable for a Q1 snapshot; leverage at ~2.0x assets/equity is unchanged and not the main driver. Sustainability: margin pressure could be reversible with cost discipline and mix improvement, but absent revenue acceleration, operating leverage will remain unfavorable. Concerning trend: likely SG&A growth > revenue growth (revenue −0.8% YoY while OI −19.5%), suggesting cost creep or investment spending not yet yielding revenue.

Growth Assessment

Revenue contracted slightly (−0.8% YoY) to 67.08, indicating stable but not growing demand. Operating profit fell disproportionately (−19.5% YoY), pointing to negative operating leverage and/or a less favorable project mix. Ordinary income held better (−1.9% YoY), but net profit declined 14.2%, reflecting higher taxes and net non-operating expenses. With gross margin at 37.6%, the key swing factor is SG&A absorption rather than production cost inflation. Outlook: near-term growth hinges on client budget trends in marketing research/insights and the company’s ability to upsell analytics/digital solutions; pricing power and utilization will be critical. Without reacceleration of top-line or SG&A containment, operating margin likely tracks low- to mid-4% in the near term. Mix toward higher-value-added digital/consulting services could lift GP and OPM gradually if executed. M&A-driven growth remains a lever but must be ROIC-accretive given current 3.7% ROIC.

Financial Health

Liquidity is strong: current ratio 238.2% and quick ratio 238.2% (no inventory reported). No warning on current ratio (<1.0) or D/E (>2.0); reported D/E is 0.98x. Working capital is 72.30, supported by 70.90 in cash. Maturity mismatch risk is low: short-term loans 4.50 are well covered by cash, and current assets 124.60 comfortably exceed current liabilities 52.30. Total loans are 28.52 (ST 4.50; LT 24.02); interest coverage is robust at 17.91x, implying manageable debt service. Equity is 81.18 with assets 160.57 (leverage ~1.98x), a conservative structure for services. Off-balance sheet obligations are not disclosed; no explicit lease/guarantee information available in the data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed; this limits earnings quality conclusions. Given receivables of 34.82 vs quarterly sales of 67.08, AR days are roughly ~47 days, reasonable for the sector; payables days ~29 (13.66 on COGS 42.38), suggesting a typical cash conversion profile without obvious red flags. No signs of working capital manipulation can be concluded or ruled out due to missing cash flow details. Sustainability of FCF for dividends/capex cannot be evaluated without OCF and capex data, though the cash balance (70.90) provides short-term flexibility.

Dividend Sustainability

The calculated payout ratio of 229.2% on Q1 earnings indicates dividends exceeding current-quarter net income, but quarterly payout ratios can be misleading given seasonality and unknown interim DPS timing. FCF coverage is not calculable (OCF and capex unreported). Balance sheet cash (70.90) and solid liquidity offer a buffer for stable dividends in the short term, but medium-term sustainability requires earnings and FCF alignment. With ROIC at 3.7%, capital returns should be weighed against reinvestment opportunities to lift profitability; policy details are unreported this quarter.

Risk Assessment

Business Risks:

• Demand softness or delays in client marketing/research budgets, pressuring utilization and pricing.
• Project mix shift toward lower-margin offerings, compressing OPM.
• Execution risk in SG&A efficiency and cost control amid flat revenue.
• Intangible asset and goodwill impairment risk (goodwill 11.03; intangibles 16.32), if acquired units underperform.

Financial Risks:

• Elevated effective tax rate (~52%) suppressing net income.
• Exposure to interest rate increases on floating-rate debt portions (total loans 28.52), albeit with strong coverage.
• Working capital swings (AR 34.82) could affect quarterly cash conversion.

Key Concerns:

• Low ROIC at 3.7% (<5% threshold), indicating capital efficiency challenge.
• Margin compression: operating margin down ~99 bps YoY on nearly flat sales.
• Non-operating expense burden (0.67 vs 0.07 income), reducing ordinary profit translation to net.
• Lack of cash flow disclosure this quarter limits assessment of earnings quality and dividend cover.

Investment Implications

Key Takeaways:

• Top line nearly flat (−0.8% YoY) but operating profit down 19.5%: negative operating leverage.
• Operating margin 4.3% versus ~5.3% YoY: ~99 bps compression.
• Net margin 1.8% with high effective tax rate (~52%) dampening bottom line.
• Strong liquidity (current ratio 238%, cash 70.90) and solid interest coverage (17.9x).
• ROE 1.5% and ROIC 3.7% point to profitability/capital efficiency headwinds.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio in coming quarters.
• Order intake/backlog or pipeline indicators for core research/insights services.
• Effective tax rate normalization potential and drivers.
• Working capital trends (AR days, cash conversion) once cash flow is disclosed.
• ROIC progression and capital allocation (M&A vs organic investments vs dividends).

Relative Positioning: Within Japanese marketing research/insights peers, profitability this quarter appears on the lower side with compressed OPM and low ROIC, though liquidity and leverage are comparatively conservative; execution on cost control and mix/pricing will determine whether margins can revert toward sector averages.

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