Mercari (4385) FY2026 Q2 Earnings Report

Quick View

Executive Summary

This earnings period was characterized by a significant increase in operating income, driven by double-digit revenue growth, an improvement in gross margin, and a decline in the SG&A expense ratio. Revenue was ¥1,062.5B (+12.8% year on year), operating income was ¥197.8B (+73.3%), and net income attributable to owners of the parent was ¥105.9B (+43.4%). Although the rate of profit growth exceeding the rate of revenue growth indicates the emergence of operating leverage, the effective tax rate increased from 42.2% in the previous year to 46.7%, resulting in relatively restrained net income growth compared with profit before tax growth (+55.0%).

Factors Affecting Earnings

【Revenue】Revenue increased 12.8% year on year to ¥1,062.5B. Gross profit rose 16.0% year on year to ¥778.3B, exceeding revenue growth, and the gross margin improved to 73.2% from 70.8% in the previous year.

【Profit and Loss】SG&A expenses increased only 3.9% year on year to ¥576.0B, substantially below the rate of revenue growth, resulting in a decline in the SG&A expense ratio to 54.2% from 58.9% in the previous year. Consequently, operating income increased significantly by 73.3% year on year to ¥197.8B. Net financial income and expenses were broadly neutral, comprising financial income of ¥4.9B and financial expenses of ¥4.7B, while profit before tax increased 55.0% year on year to ¥197.9B. However, income taxes of ¥92.4B increased the effective tax rate to 46.7%, resulting in net income of ¥105.9B (+43.4% year on year). Both revenue and profit increased, and a key characteristic was that the rate of profit growth substantially exceeded the rate of revenue growth.

Key Financial Indicators

【Profitability】The operating margin was 18.6%, an improvement of approximately 6.5pt from 12.1% in the same period of the previous year, while the net profit margin also increased to 10.0% from 7.8% in the previous year.【Cash Flow Quality】Operating cash flow (OCF) was negative ¥12.9B, representing a significant divergence from net income of ¥105.9B, indicating weak cash conversion of earnings as of the current period. The primary factor was a ¥549.1B (+21.6%) increase in trade receivables, which expanded at a pace exceeding revenue growth.【Investment Efficiency】Annualized ROE was 19.0%, supported by the improvement in the net profit margin as well as high financial leverage. Against total assets of ¥6,151.4B, net assets were ¥1,112.3B, indicating that the impact of the capital structure is greater than that of asset efficiency.【Financial Soundness】The equity ratio was 18.0%, slightly down from 18.3% in the same period of the previous year. Total liabilities amounted to ¥5,039.1B, approximately 4.5 times net assets, with a net increase of ¥318.2B in short-term borrowings serving as the primary source of financing.

Cash Flow Analysis

Operating cash flow was negative ¥12.9B, deteriorating from positive ¥69.9B in the same period of the previous year. The principal factor was a ¥542.2B increase in trade receivables, which was not offset by the ¥32.8B increase in trade payables. Investing cash flow was negative ¥229.3B, primarily reflecting ¥200.0B deposited into time deposits; capital expenditures of ¥7.4B and acquisitions of intangible assets of ¥19.5B were limited in scale. Free cash flow (operating cash flow + investing cash flow) was negative ¥242.2B, indicating that investment activities could not be funded solely by internally generated funds during the period. Financing cash flow was positive ¥347.2B, primarily due to the ¥318.2B net increase in short-term borrowings, creating a structure in which the shortfall in funds for operating and investing activities was covered by borrowings. As a result, cash and cash equivalents increased to ¥1,590.5B; however, it should be noted that this increase resulted from financing activities rather than autonomous cash generation.

Earnings Quality

The increase in profit for the current period was primarily based on improved business efficiency, reflected in a lower SG&A expense ratio and higher gross margin, with no temporary factors such as extraordinary gains or losses identified. Non-operating income and expenses—financial income of ¥4.9B, financial expenses of ¥4.7B, other income of ¥2.9B, and other expenses of ¥7.5B—resulted in a slight net expense, with a limited impact on profit before tax. Meanwhile, income taxes of ¥92.4B caused the effective tax rate to rise to 46.7% from 42.2% in the previous year, and net income growth was limited to +43.4% compared with profit before tax growth of +55.0%. In addition, operating cash flow was negative ¥12.9B while net income was positive ¥105.9B; this divergence was primarily attributable to accrual-related factors arising from the increase in trade receivables. Although profit growth on the income statement was solid, the quality of earnings warrants monitoring from the perspective of conversion into cash.

Shareholder Returns

Both the Q2 dividend and the full-year dividend forecast are ¥0 per share, and the Company has no dividend. There were also no share repurchases, resulting in both the payout ratio and total return ratio being 0% for the current period. Given that free cash flow was negative ¥242.2B, the current capital allocation policy appears to prioritize securing liquidity and funding growth investments over shareholder returns.

Risk Factors

1. Increase in trade receivables and collection cycle: Trade receivables increased by ¥549.1B (+21.6%), exceeding revenue growth (+12.8%) and representing the primary factor behind negative operating cash flow. If business expansion is accompanied by a lengthening of the cash collection period, it could lead to a sustained increase in working capital requirements.

2. High financial leverage: Total liabilities of ¥5,039.1B reached approximately 4.5 times net assets of ¥1,112.3B, while the equity ratio was 18.0%. The net increase of ¥318.2B in short-term borrowings was the primary component of financing cash flow, and continued reliance on borrowing while operating cash flow remains negative increases sensitivity to changes in financing conditions.

3. Lower conversion into net income due to the higher effective tax rate: The effective tax rate increased to 46.7% from 42.2% in the previous year, limiting net income growth to +43.4% compared with profit before tax growth of +55.0%. Fluctuations in the tax burden may continue to affect the conversion of profit growth into net income.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The operating margin is slightly above the industry median, while the net profit margin is below the industry median due to the heavier tax burden.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, indicating a relatively slower growth pace within the industry.

Source: Compiled by the Company

Key Points in the Earnings

1. The operating margin improved to 18.6% from 12.1% in the previous year, an improvement of approximately 6.5pt, confirming the emergence of operating leverage resulting from higher gross margin and a lower SG&A expense ratio. Profit growth of +73.3%, exceeding revenue growth of +12.8%, suggests a structural improvement in business efficiency.

2. On the other hand, operating cash flow was negative ¥12.9B and free cash flow was negative ¥242.2B, indicating a clear divergence between accounting profit growth and cash generation capacity. This divergence was primarily attributable to the increase in trade receivables and is a key consideration in evaluating earnings quality.

3. ROE of 19.0% was at a high level, but was substantially supported by high financial leverage, as indicated by the equity ratio of 18.0%. In evaluating profitability, it is therefore necessary to assess the capital structure together with cash flow trends.

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not constitute a recommendation to invest in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

---End of Report---