CENTRAL SPORTS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.30B
• Operating Income: ¥1.17B
• Net Income: ¥902M
• 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

Central Sports Co., Ltd. reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥24.301bn, up 5.2% YoY, indicating modest top-line recovery. Operating income surged 69.9% YoY to ¥1.171bn, evidencing strong operating leverage and cost discipline despite only mid-single-digit sales growth. Gross profit was ¥2.507bn with a gross margin of 10.3%, while operating margin improved to roughly 4.8%, a notable step-up versus last year. Ordinary income of ¥955m was below operating income, reflecting net non-operating losses, including ¥256m of interest expense and other non-operating items. Net income was ¥578m, down 36.0% YoY, suggesting the prior-year period likely benefited from non-recurring gains or lower non-operating losses, and this period’s earnings were affected by unusual items including a negative tax charge (tax benefit) of ¥573m. The effective tax rate metric is shown as 0.0%, but the presence of a tax benefit complicates comparability; extraordinary items are not fully disclosed. DuPont decomposition yields a net margin of 2.38%, asset turnover of 0.591x, and financial leverage of 1.58x, resulting in an ROE of 2.22%, which is low but improving given the operating rebound. Liquidity is thin with a current ratio of 106.5% and working capital of ¥535m, leaving limited buffer against shocks. The implied equity ratio from the non-zero balance sheet figures is approximately 63% (equity ¥26.035bn / assets ¥41.113bn), indicating a conservative capital structure despite the reported equity ratio field being undisclosed. Interest coverage is 4.6x on an EBIT basis, adequate but sensitive to earnings volatility. Cash flow quality is weak this half: operating cash flow was negative at ¥-938m versus net income of ¥578m (OCF/NI -1.62), pointing to working capital drag and/or timing effects. Financing cash outflows were ¥-1.297bn, and investing cash flows are undisclosed; cash and equivalents are also undisclosed, limiting a full liquidity assessment. Depreciation of ¥722m suggests a capital-intensive base and underscores the importance of capex discipline to sustain free cash flow. No dividend was indicated for the period (DPS reported as zero/unreported), and payout ratios based on the period are therefore not meaningful for policy assessment. Overall, the Company shows improving operating profitability and leverage of fixed costs, offset by weak cash conversion and tight short-term liquidity, with data limitations on cash and investing activities constraining full visibility.

Profitability Analysis

ROE is 2.22%, decomposed into net margin 2.38%, asset turnover 0.591x, and financial leverage 1.58x. The key driver of ROE improvement versus last year is operating margin expansion (operating income +69.9% on +5.2% revenue), demonstrating operating leverage as utilization normalizes and costs are contained. Gross margin at 10.3% remains thin for a service-heavy fitness operator, implying ongoing pressure from utilities, labor, and facility costs; however, SG&A was well controlled, with implied SG&A of roughly ¥1.336bn (gross profit ¥2.507bn minus operating income ¥1.171bn). Operating margin is about 4.8% (¥1.171bn/¥24.301bn), up materially YoY. Ordinary income of ¥955m indicates non-operating headwinds (interest expense ¥256m and other items), partially diluting operating gains. EBITDA of ¥1.893bn (7.8% margin) provides a better view of core earnings capacity relative to non-cash depreciation (¥722m). Interest coverage of 4.6x on EBIT is acceptable but leaves limited cushion should operating conditions soften. The negative reported income tax (benefit) distorts bottom-line comparability; absent that effect, underlying net margin would be lower, implying still-subdued return metrics. Overall, profitability is improving at the operating level, but low margins, non-operating costs, and tax noise cap ROE.

Growth Assessment

Revenue growth of +5.2% YoY suggests steady recovery in membership and utilization, but the pace is moderate, indicating competitive and macro headwinds for discretionary fitness spend. Operating income growth of +69.9% YoY far outpaced sales, highlighting strong operating leverage from fixed-cost absorption and disciplined overhead; sustainability depends on maintaining attendance, pricing, and cost control (notably utilities and labor). Ordinary income lagged operating income due to higher non-operating expenses, tempering the quality of profit growth. Net income declined 36.0% YoY, implying the prior year likely had favorable non-operating/extraordinary items or tax effects; current period earnings quality is muddied by a tax benefit. With EBITDA margin at 7.8% and depreciation at ¥722m, underlying cash earnings capacity is improving, but conversion to cash was weak this half. Looking ahead, sustaining mid-single-digit revenue growth while protecting margin against cost inflation is key; incremental growth may come from membership retention, club renovations, and ancillary services, though capex efficacy will be crucial. Absent disclosure on store count changes or capex, we assume growth is primarily same-store and pricing-driven with limited network expansion near-term.

Financial Health

Total assets are ¥41.113bn, equity ¥26.035bn, and liabilities ¥15.312bn, implying an equity ratio around 63% based on available non-zero data. Debt-to-equity is 0.59x, indicating moderate leverage, though detailed composition of interest-bearing debt vs. leases is not disclosed here. Liquidity is tight: current assets ¥8.774bn vs. current liabilities ¥8.239bn yields a current ratio of 106.5% and working capital of only ¥535m, leaving a small buffer. The quick ratio is also 106.5% due to inventories being undisclosed, reinforcing a narrow liquidity margin. Interest coverage at 4.6x (EBIT/interest) is adequate but could compress if rates rise or if earnings soften. Financing cash outflow of ¥-1.297bn alongside negative OCF raises near-term funding considerations; cash and equivalents are undisclosed, constraining a full solvency assessment. Overall, the balance sheet appears equity-heavy, but near-term liquidity management is a priority given weak cash generation this half.

Cash Flow Quality

Operating cash flow was ¥-938m against net income of ¥578m, resulting in an OCF/NI ratio of -1.62, signaling poor cash conversion this period. The gap likely reflects working capital outflows (e.g., receivables buildup, timing of payables, or seasonal items) and possibly tax timing, but detailed working capital components are not provided. EBITDA was ¥1.893bn and depreciation ¥722m, implying positive pre-working-capital cash earnings, so the negative OCF is predominantly timing/working capital-driven rather than a lack of operating profitability. Investing cash flow is undisclosed; therefore, free cash flow cannot be reliably calculated despite the placeholder value shown. Financing cash flow was an outflow of ¥-1.297bn, suggesting debt service, lease payments, or shareholder returns, though dividends are unreported. Given the tight current ratio and negative OCF, cash flow quality in the period is weak; consistent positive OCF over subsequent quarters is needed to validate earnings quality.

Dividend Sustainability

Dividends per share are reported as zero/unreported for the period, and payout ratio is shown as 0.0%, so there is insufficient disclosure to assess current distributions. With net income of ¥578m but negative operating cash flow and undisclosed investing cash flows, free cash flow coverage cannot be determined this half. From a balance sheet perspective, equity is substantial relative to liabilities, but near-term liquidity is thin, which would argue for conservatism in cash returns until OCF normalizes. Dividend policy outlook cannot be inferred from the provided data; monitoring subsequent disclosures (year-end DPS, payout policy statements) and FCF stabilization will be key.

Risk Assessment

Business Risks:

• Membership churn and slower-than-expected recovery in club utilization impacting revenue growth
• Cost inflation in utilities and labor compressing margins given thin gross margins
• Competitive pressure from low-cost gyms and digital fitness offerings affecting pricing power
• Demographic headwinds in Japan and regional demand variability
• Execution risk around facility maintenance/renovation and potential disruption during refurbishments
• Regulatory and public health developments affecting facility operations

Financial Risks:

• Tight liquidity with a current ratio of 106.5% and working capital of ¥535m
• Negative operating cash flow in the period (¥-938m) creating funding pressure
• Exposure to interest costs (¥256m) with interest coverage of 4.6x vulnerable to earnings swings
• Potential lease liabilities not detailed here, which may amplify fixed financial obligations
• Earnings volatility from non-operating items and tax effects (negative tax this period)

Key Concerns:

• Sustainability of margin gains if revenue growth moderates
• Normalization of operating cash flow relative to net income
• Visibility on capex and investing cash flows to assess true FCF
• Adequacy of liquidity absent disclosed cash balances
• Impact of non-operating and extraordinary items on net income comparability

Investment Implications

Key Takeaways:

• Operating performance improved materially (OP +69.9% YoY) on modest revenue growth (+5.2%), highlighting operating leverage.
• Net income declined 36.0% YoY due to non-operating and tax effects, reducing comparability of bottom-line trends.
• Liquidity is thin (current ratio ~1.07x) and OCF was negative, elevating short-term cash management risk.
• Capital structure appears conservative by book (implied equity ratio ~63%, D/E 0.59x), supporting solvency.
• Earnings quality is mixed: EBITDA healthy but cash conversion weak; monitoring working capital normalization is essential.

Metrics to Watch:

• Same-store sales and membership/attrition trends
• Operating margin and utility/labor cost ratios
• Operating cash flow and OCF/NI conversion (>0.8x target over time)
• Capex and maintenance vs. growth split, and resulting FCF
• Interest coverage (>5x) and debt/EBITDA trajectory
• Equity ratio and available liquidity (cash balance, unused facilities)

Relative Positioning: Within Japan’s fitness and sports club space, Central Sports shows improving operating leverage but remains challenged by thin margins and weaker cash conversion this period; balance sheet strength appears relatively solid, while near-term liquidity is tighter than some peers that have already normalized cash flows.

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