CENTRAL SPORTS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.30B
• Operating Income: ¥1.17B
• Net Income: ¥578M
• EPS: ¥51.61

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: Solid top-line growth and sharp operating profit recovery, but bottom-line fell YoY due to heavier below-the-line burden and tax, leaving overall capital efficiency still weak. Revenue rose 5.2% YoY to 243.01, while operating income surged 69.9% to 11.71 and ordinary income doubled to 9.55. Despite this, net income declined 36.0% YoY to 5.78, implying pressure from non-operating expenses (2.48, including 2.43 interest) and a higher effective tax rate of 36.2%. Operating margin improved to 4.8% (11.71/243.01) from roughly 3.0% a year ago, an estimated expansion of about 184 bps. Gross margin stood at 11.8%; EBITDA was 19.02, an EBITDA margin of 7.8%. Ordinary margin reached 3.9% and net margin was 2.4%. Earnings quality was strong: operating cash flow of 14.16 exceeded net profit by 2.45x, underscoring cash conversion strength. Implied free cash flow of about 3.67 (OCF 14.16 minus capex 10.49) was positive despite steady investment. Balance sheet liquidity is adequate but thin versus best-practice: current ratio 107.1% and quick ratio 107.1%; cash of 54.24 is sizable relative to current liabilities of 81.49. Leverage remains conservative with D/E 0.58x and interest coverage 4.82x, but just below the 5x “strong” benchmark. DuPont ROE is 2.2% (NPM 2.4% × AT 0.591 × leverage 1.58x), reflecting very low profitability rather than excessive leverage. ROIC at 3.5% is below the 5% warning threshold, signaling capital efficiency remains a key challenge. The divergence between operating profit growth and net income decline likely stems from higher interest expense, the normalization/absence of prior-year one-offs, and tax effects rather than core operations. Cash flow strength and moderate leverage support continuity in operations and investment, but with a calculated payout ratio of 99.2%, dividend flexibility appears limited against low ROE/ROIC. Forward-looking, sustained margin improvement and utilization gains are necessary to lift ROIC toward cost of capital; monitoring interest costs, energy/utilities, and membership trends will be critical. Overall, the quarter evidences an operational recovery with healthy cash conversion, but capital efficiency and bottom-line resilience need further improvement.

Profitability Analysis

ROE decomposition: ROE 2.2% = Net Profit Margin 2.4% × Asset Turnover 0.591 × Financial Leverage 1.58x. The largest swing vs last year appears in net profit margin: operating income grew +69.9% on revenue +5.2%, but net income fell -36.0%, implying net margin contracted YoY despite operating margin expansion (c. +184 bps to 4.8%). Business drivers: core club operations likely benefited from demand recovery and operating leverage (SG&A at 17.04 grew slower than revenue), while non-operating expenses (interest expense 2.43) and a 36.2% tax rate diluted net. Sustainability: operating margin gains look partially sustainable if utilization and pricing hold and cost controls persist; however, the net margin drag from interest/tax may persist without deleveraging or tax optimization, and any absence of prior-year one-offs won’t repeat as a tailwind. Concerning trends: capital efficiency is weak (ROIC 3.5%), and interest coverage at 4.82x is only moderate; also, with net margin at 2.4%, small shocks (energy, wages) could erase profits. Watch that SG&A growth continues to run below revenue growth to maintain improving operating leverage.

Growth Assessment

Revenue grew 5.2% YoY to 243.01, consistent with gradual post-pandemic normalization in fitness club attendance and ancillary sales. Operating income growth of 69.9% demonstrates strong operating leverage from higher utilization and controlled SG&A. However, profit quality diverged at the bottom line: ordinary income +103% but net income -36%, suggesting heavier non-operating burden and tax normalization. Given EBITDA of 19.02 and depreciation/amortization of 7.31, cash generation from operations is improving, supporting maintenance and selective growth capex (capex 10.49). Outlook hinges on sustaining membership retention, pricing discipline, and managing energy/utilities and labor costs; if these remain contained, operating margins can trend toward mid-5% range. Non-operating headwinds (interest expense 2.43) cap net margin upside unless debt service declines. Overall growth trajectory appears steady but bottom-line sensitivity remains elevated.

Financial Health

Liquidity: Current ratio 107.1% and quick ratio 107.1% (slightly above 1.0 but below the 1.5x comfort benchmark). No red flag trigger (CR < 1.0) but buffer is modest. Cash and deposits 54.24 vs current liabilities 81.49 reduces near-term pressure, especially with positive OCF. Solvency: Total liabilities 150.77 vs equity 260.35 (D/E 0.58x), indicating conservative leverage. Long-term loans are 5.42; other liabilities likely include leases/other payables not disaggregated. Interest coverage is 4.82x—adequate but not strong. Maturity mismatch: Current assets 87.25 exceed current liabilities 81.49; working capital is positive at 5.76, suggesting manageable short-term funding risk. Off-balance sheet obligations: Not disclosed in provided data; fitness operators commonly have lease commitments for clubs, which may imply additional quasi-debt not visible here.

Cash Flow Quality

OCF/Net Income at 2.45x signals high earnings quality and strong cash conversion this period. Implied free cash flow is approximately 3.67 (14.16 OCF minus 10.49 capex), positive despite ongoing reinvestment. Financing cash outflow of -4.11 suggests dividends and/or debt service; exact dividend cash amount is unreported. Working capital signals: With accounts receivable at 19.88 and cash strong, there is no evident sign of aggressive working capital releases; the OCF beat vs NI likely reflects improved profitability and non-cash D&A (7.31). No explicit red flags of manipulation are apparent from available line items.

Dividend Sustainability

Calculated payout ratio is 99.2%, implying near-full earnings distribution, which is high relative to the <60% sustainability benchmark. With implied FCF of ~3.67 and limited liquidity buffer (current ratio 1.07x), dividend flexibility could be constrained if profitability or OCF softens. Low ROE (2.2%) and ROIC (3.5%) argue for cautious payout until capital efficiency improves. Policy outlook: If management prioritizes balance sheet resilience and ROIC improvement, a stable-to-cautious dividend stance is prudent; higher payouts would likely require sustained operating margin expansion and/or lower interest burden. Coverage by FCF this period appears positive but thin; visibility would improve with disclosed dividend cash amount.

Risk Assessment

Business Risks:

• Membership churn and slower new sign-ups affecting utilization and revenue
• Energy and utilities cost inflation especially for pools and large facilities
• Labor cost pressures for instructors and staff amid tight labor market
• Competitive pricing dynamics vs other gyms and low-cost operators
• Execution risk in opening/closing or refurbishing clubs impacting fixed-cost absorption

Financial Risks:

• Interest expense burden (2.43) limiting net margin; interest coverage only 4.82x
• Liquidity buffer modest with current ratio 1.07x and working capital 5.76
• Low capital efficiency (ROIC 3.5%, ROE 2.2%) heightens sensitivity to shocks
• Potential lease obligations not fully visible in reported debt figures

Key Concerns:

• Net income down 36% YoY despite operating recovery, indicating below-the-line pressure
• High calculated payout ratio (99.2%) reducing financial flexibility
• Thin margins (net 2.4%) vulnerable to cost spikes or demand softness
• Data gaps on SG&A breakdown and dividends limit transparency of cost and payout drivers

Investment Implications

Key Takeaways:

• Operational recovery evidenced by +69.9% operating profit and ~184 bps operating margin expansion
• Bottom-line deterioration (-36% NI) due to non-operating expenses and higher tax dilutes equity returns
• Cash conversion strong (OCF/NI 2.45x) with positive implied FCF despite capex
• Balance sheet conservative (D/E 0.58x) but liquidity only modest (CR 1.07x)
• Capital efficiency weak (ROIC 3.5%, ROE 2.2%); improving utilization and pricing needed

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue
• Energy/utilities and labor cost trends
• Membership KPIs: net adds, churn, average revenue per member
• Interest expense run-rate and interest coverage
• Capex intensity vs OCF to gauge FCF durability
• Effective tax rate normalization

Relative Positioning: Within Japan’s fitness club operators, Central Sports shows improving operating leverage and solid cash conversion but remains weaker on capital efficiency and net margin resilience versus best-in-class peers. Balance sheet leverage is conservative, offering optionality, yet liquidity is thinner and interest coverage slightly below the strong benchmark.

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
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