4Cs HD Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥2.44B
• Operating Income: ¥-165M
• Net Income: ¥-197M
• EPS: ¥-23.64

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: FY2025 Q4 shows top-line growth but a clear deterioration in profitability and cash generation, culminating in a net loss and negative free cash flow. Revenue grew 8.1% YoY to 24.41, demonstrating some demand resilience or successful commercial initiatives. Gross profit was 16.61 with a high gross margin of 68.0%, indicating a relatively asset-light or service-heavy revenue mix. However, SG&A of 18.26 exceeded gross profit, driving operating income to -1.65 and an operating margin near -6.8% on our calculation. Ordinary income deteriorated further to -2.06, reflecting a net non-operating expense burden (non-op income 0.17 vs non-op expenses 0.58), including interest expense of 0.28. Net income was -2.43, translating to EPS of -23.64 JPY and reported ROE of -14.7%, driven primarily by a -9.9% net margin. Asset turnover was modest at 0.817 and financial leverage at 1.80x, meaning margin weakness, not leverage, primarily explains the ROE decline. Operating cash flow was -7.13 while net loss was -2.43; although the reported OCF/NI ratio is 2.93x, both metrics are negative, signaling weak earnings quality in cash terms. Free cash flow was deeply negative at -12.84, even with modest capex of 0.16, implying cash burn funded by financing inflows (financing CF +9.38). Liquidity appears adequate near term (current ratio 238%, quick ratio 183%), supported by cash of 4.39 and working capital of 15.08. Solvency looks moderate (D/E 0.80x), but debt service capacity is poor (interest coverage -5.97x) given negative EBITDA. The balance sheet includes 1.95 of goodwill and 3.12 of intangibles, raising impairment risk if losses persist. ROIC is reported at -9.5%, well below acceptable thresholds, indicating value destruction at current performance levels. With revenue growth in place but cost structure misaligned, management’s ability to reduce SG&A intensity and convert growth into operating profit will be critical. Near-term focus should be on restoring positive OCF, lowering interest burden, and safeguarding liquidity. Forward-looking, stabilization hinges on cost discipline, working capital normalization (especially inventories at 6.00), and potential restructuring to protect equity (book value per share ~148 JPY) amid continued losses.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-9.9%) × 0.817 × 1.80 ≈ -14.7%. The component that drove ROE the most is Net Profit Margin, which is sharply negative despite a high gross margin of 68.0%. Business reason: SG&A of 18.26 exceeded gross profit (16.61), implying insufficient scale or elevated overheads (e.g., labor, rent, marketing, delivery platform fees or head-office costs) that the 8.1% revenue growth could not absorb. Non-operating drag (net -0.41) and interest expense (0.28) further widened losses. Sustainability: Without structural SG&A reduction or stronger operating leverage, current negative margins are not sustainable; however, the high gross margin suggests latent earnings potential if fixed costs are right-sized. Concerning trends: - SG&A as a percentage of sales is ~74.8% (18.26/24.41), far above the level consistent with break-even, and likely growing faster than sales given the operating loss. - Interest coverage is negative due to negative EBITDA (-1.43), making earnings more sensitive to financing costs. - Asset turnover at 0.817 is modest; combined with high SG&A, it depresses returns despite moderate leverage (1.80x).

Growth Assessment

Revenue increased 8.1% YoY to 24.41, indicating some underlying demand or footprint expansion. Gross margin at 68.0% supports that the core offering retains healthy unit economics at the gross level. However, operating income was -1.65, implying operating deleverage; revenue growth did not translate into profit, likely due to fixed cost creep or inflation in SG&A lines. Non-operating items also detracted, with interest expense meaningfully larger than interest income. With no segment or YoY SG&A detail disclosed, sustainability of growth is uncertain; rising inventories (6.00 on a 24.41 revenue base) could reflect expansion, seasonal build, or slower sell-through. The company’s negative ROIC (-9.5%) suggests growth is currently dilutive to value. Outlook hinges on cost containment, pricing/mix improvements, and working capital normalization to restore positive operating margin and cash conversion. In absence of disclosed order backlog or guidance, we assume near-term revenue can hold, but profitability will remain under pressure unless SG&A-to-sales is reduced by several hundred basis points.

Financial Health

Liquidity: Current assets 26.00 vs current liabilities 10.93 yield a current ratio of 238% and a quick ratio of 183%, both healthy; no warning for current ratio <1.0. Cash and deposits of 4.39 plus receivables of 2.00 cover short-term loans of 3.40, mitigating immediate refinancing stress. Solvency: Total liabilities 13.28 against equity 16.58 give a D/E of 0.80x, within conservative thresholds (<1.5x) but trending riskier given negative earnings. Interest-bearing debt detail is partly unreported, but disclosed short-term (3.40) and long-term (1.74) loans total 5.14. Debt service risk is elevated with interest coverage -5.97x and EBITDA negative. Maturity mismatch: Short-term debt 3.40 is well covered by current assets; however, persistent cash burn could erode this cushion. Off-balance sheet: No disclosures provided; potential lease obligations or guarantees cannot be assessed from available data.

Cash Flow Quality

OCF was -7.13 versus net income -2.43; although the mechanical OCF/NI indicator shows 2.93x, both figures are negative, signaling weak cash earnings quality. FCF was -12.84, driven by negative OCF and modest capex (0.16), implying reliance on financing CF (+9.38) to fund operations. Working capital likely contributed to OCF weakness; inventories at 6.00 and receivables at 2.00 relative to sales suggest either build or slower turnover (exact changes not disclosed). No signs of deliberate working capital manipulation can be confirmed given missing period-over-period detail, but the negative OCF despite D&A (0.22) is a concern. Sustainability: Current cash burn is not sustainable without either operating turnaround or continued access to financing; interest expense (0.28) further pressures cash. Near-term priorities include inventory and receivables discipline to release cash.

Dividend Sustainability

Dividend data were not disclosed; payout ratio and total dividends are unreported. With net income negative (-2.43) and FCF negative (-12.84), internal coverage for any cash distributions is absent this period. Even if a dividend policy exists, sustaining cash returns would likely require drawing on balance sheet liquidity or incremental financing, which is not advisable given negative ROIC (-9.5%) and poor interest coverage. Policy outlook is therefore cautious until profitability and OCF normalize.

Risk Assessment

Business Risks:

• Persistent operating losses despite 8.1% revenue growth indicate an unbalanced cost structure.
• High SG&A intensity (~75% of sales) impedes operating leverage and breakeven.
• Execution risk in reducing fixed costs without harming revenue trajectory.
• Inventory management risk (inventories 6.00 vs sales 24.41) affecting cash conversion.
• Intangible asset impairment risk (goodwill 1.95, intangibles 3.12) if losses persist.
• Potential cost inflation (labor, rent, utilities, logistics/delivery fees) compressing margins.

Financial Risks:

• Debt service pressure with negative EBITDA and interest coverage of -5.97x.
• Reliance on financing cash flows (+9.38) to fund negative FCF (-12.84).
• Refinancing and interest rate risk given short-term loans of 3.40.
• ROIC of -9.5% signaling value destruction and limited capacity to self-fund growth.

Key Concerns:

• Net margin -9.9% and ROE -14.7% driven by SG&A exceeding gross profit.
• Negative operating cash flow (-7.13) and deep negative FCF (-12.84).
• Limited visibility due to unreported breakdowns (SG&A details, dividends, segment performance).
• Potential covenant constraints not disclosed but plausible given earnings profile.

Investment Implications

Key Takeaways:

• Top-line grew 8.1% YoY to 24.41, but operating margin deteriorated to roughly -6.8%.
• ROE (-14.7%) is driven by a deeply negative net margin; leverage is moderate at 1.80x.
• Cash burn is material (FCF -12.84) and funded by financing (+9.38), not operations.
• Liquidity is currently adequate (current ratio 238%, quick 183%), but debt service capacity is weak.
• ROIC -9.5% underscores the need for cost restructuring and improved asset utilization.

Metrics to Watch:

• SG&A-to-sales ratio and operating margin progression (bps improvement needed).
• Operating cash flow and inventory/receivable turnover trends.
• Interest coverage (EBIT/interest and EBITDA/interest) and total debt trajectory.
• ROIC versus cost of capital to assess value creation.
• Goodwill/intangible impairment tests and any restructuring charges.
• Short-term loan refinancing activity and borrowing costs.

Relative Positioning: Within small-cap Japanese consumer/food-service oriented operators, the company shows relatively strong gross margin but weaker operating leverage and cash conversion, with moderate balance sheet leverage yet inferior debt service coverage versus peers that maintain positive EBITDA.

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