HABA LABORATORIES,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.55B
• Operating Income: ¥257M
• Net Income: ¥188M
• EPS: ¥49.71

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: FY2026 Q2 was a modest top-line increase with clear margin compression and subdued profitability, though cash generation remained solid. Revenue grew 1.7% YoY to 55.50, but operating income fell 15.2% YoY to 2.57, and net income declined 16.7% to 1.87, indicating negative operating leverage. Operating margin stood at 4.6% (2.57/55.50), down from roughly 5.6% a year ago, implying about 93 bps of YoY compression. Gross margin was high at 66.8%, but SG&A intensity at 62.1% of sales curtailed operating leverage. Ordinary income decreased 19.5% YoY to 2.52 as non-operating items were a small net expense. Earnings quality was respectable: operating cash flow of 2.46 exceeded net income (OCF/NI 1.31x), pointing to reasonable cash conversion. Liquidity remained very strong with a current ratio of 375% and quick ratio of 314%, and leverage was conservative at D/E 0.34x with interest coverage of 29.5x. Capital efficiency is weak: ROE was 2.1% and ROIC 3.5%, below the 5% warning threshold, highlighting underutilized assets and heavy overhead. Inventory appears elevated relative to COGS (half-year inventory turns ~1.29x; annualized ~2.6x), which could pressure cash if demand slows. The payout ratio is high at 84.2%, implying limited room for further dividend increases absent stronger earnings or efficiency gains. With non-operating items minimal, core operating performance and SG&A control are the key earnings drivers. The decline in operating profit despite higher revenue suggests rising personnel and marketing costs (salaries 8.79, 15.8% of sales) and/or an adverse channel mix. Near term, management likely needs to prioritize SG&A discipline, pricing, and mix optimization to restore margins. Balance sheet strength and positive OCF provide flexibility, but sustained ROIC improvement is necessary to enhance shareholder returns. Forward-looking, stabilization of SG&A-to-sales and inventory normalization will be critical to re-accelerate profit growth in 2H and beyond.

Profitability Analysis

ROE (2.1%) decomposes into Net Profit Margin (3.4%) × Asset Turnover (0.461) × Financial Leverage (1.34x). The primary drag YoY appears to be net margin: operating income fell 15.2% on 1.7% sales growth, compressing operating margin by ~93 bps to 4.6%. Asset turnover at 0.461 indicates modest efficiency for a branded cosmetics/skin care business, and leverage is low at 1.34x (equity/asset base large relative to debt). The biggest component change is the net profit margin, driven by elevated SG&A (62.1% of sales), despite a strong gross margin (66.8%). Business-wise, this likely reflects higher personnel costs (salaries 8.79, 15.8% of sales) and marketing/customer acquisition spending, as well as potential channel mix shifts that require more promotion. This margin pressure is partly cyclical/controllable rather than structural, suggesting potential to recover through cost discipline, pricing/mix, and efficiency, although near-term normalization may be gradual. Watch for concerning trends: SG&A growth likely exceeded revenue growth given margin compression (exact YoY SG&A not disclosed), a negative signal for operating leverage.

Growth Assessment

Revenue expanded 1.7% YoY to 55.50, indicating steady but slow demand. Profitability deteriorated: operating income -15.2% to 2.57 and net income -16.7% to 1.87, reflecting negative operating leverage amid rising SG&A intensity. Gross margin remained high at 66.8%, suggesting product-level economics are intact; the issue is overhead and commercial spend. Non-operating items were small (income 0.07 vs expenses 0.13), so core operations explain most of the decline. Inventory metrics (half-year turns ~1.29x; annualized ~2.6x; days inventory ~141) imply slower movement, which could weigh on future OCF if sales do not accelerate. Receivable days are moderate (~36), and payable days ~48, indicating manageable working capital terms. Outlook hinges on SG&A normalization and sales mix; even flat SG&A vs slightly higher sales could drive margin recovery. If management can defend gross margin and improve SG&A efficiency, mid-single-digit operating margin is attainable; absent that, ROIC will remain subscale. Key swing factors: marketing ROI, EC vs store channel mix, and pricing actions to offset cost inflation.

Financial Health

Liquidity is strong: current ratio 375.2% and quick ratio 314.1%—no warning flags (well above 1.0). Solvency is conservative: D/E 0.34x with interest-bearing debt of 8.68 (short 2.00, long 6.68). Interest coverage is robust at 29.49x, implying low refinancing risk. Maturity mismatch risk appears low: current assets 87.94 comfortably cover current liabilities 23.44; cash and deposits 43.83 alone cover all short-term loans. Working capital is ample at 64.50. No off-balance sheet obligations are reported in the data provided. Equity base is solid at 89.63, supporting resilience. No explicit covenant risks indicated.

Cash Flow Quality

OCF/Net Income is 1.31x, indicating healthy cash conversion this period. Operating CF of 2.46, coupled with reported capex of 0.47, implies an estimated core free cash flow of about 1.99 (OCF – capex), though full investing CF details are unreported. Earnings quality is supported by the gap between OCF and NI, suggesting limited accrual build this half. Working capital shows potential stress in inventories (14.33 versus half-year COGS 18.46, days ~141), which could reverse OCF if inventory needs to be cleared; receivables and payables are within normal ranges. Financing CF was -5.68, indicating outflows likely for debt service and/or shareholder returns; specifics on dividends and buybacks are unreported. No overt signs of working capital manipulation from available figures, but elevated inventory warrants monitoring.

Dividend Sustainability

The calculated payout ratio is high at 84.2%, leaving a slim buffer against earnings volatility. With estimated core FCF around 1.99 (based on OCF and capex), coverage of ordinary dividends appears feasible if the implied total cash dividends are in line with the payout ratio; however, total dividends paid are unreported, so exact FCF coverage is uncertain. Balance sheet strength (net cash position when considering cash vs short-term debt) provides flexibility to sustain dividends near the current level in the short term. Medium term, sustaining a high payout will require margin recovery or improved asset efficiency given ROIC of 3.5%. Policy outlook likely remains stable but with limited headroom for increases absent earnings growth.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A (62.1% of sales) despite high gross margin.
• Inventory build (days ~141) increases risk of discounting and cash drag if demand slows.
• Marketing ROI and customer acquisition cost risk, especially if channel mix shifts toward EC requiring higher promotion.
• Product concentration/innovation pipeline risk typical in cosmetics/skincare.
• Regulatory and quality/compliance risks in cosmetics formulations and advertising claims.

Financial Risks:

• Low ROIC (3.5%) and ROE (2.1%) indicate weak capital efficiency, constraining value creation.
• High payout ratio (84.2%) reduces financial flexibility if earnings weaken further.
• Potential inventory valuation/write-down risk if sell-through underperforms.
• Dependence on domestic demand; limited FX natural hedge if material imports for raw materials rise.

Key Concerns:

• Negative operating leverage: operating income -15.2% on +1.7% sales.
• Operating margin compressed ~93 bps YoY to 4.6%.
• Salaries at 15.8% of sales suggest structural cost pressure if not offset by growth.
• ROIC below 5% warning threshold; improvement needed to justify continued high payout.
• Data gaps on investing CF and dividends paid obscure full cash return capacity.

Investment Implications

Key Takeaways:

• Top-line growth was modest (+1.7%), while profits fell on higher SG&A intensity.
• Core profitability remains pressured; operating margin at 4.6% vs ~5.6% last year.
• Cash conversion is solid (OCF/NI 1.31x) and liquidity is strong, reducing near-term risk.
• Capital efficiency is weak (ROIC 3.5%, ROE 2.1%), a strategic overhang.
• High payout ratio constrains reinvestment and raises sensitivity to earnings volatility.

Metrics to Watch:

• SG&A-to-sales ratio and breakdown of advertising/promotion vs personnel.
• Inventory turnover and days inventory; sell-through trends by channel.
• Gross margin stability amid input cost and pricing actions.
• Operating margin trajectory and OCF/NI ratio.
• Capex and any changes in dividend policy or shareholder returns.

Relative Positioning: Within Japanese cosmetics/skin care peers, Harbor Research Institute shows solid gross margins and a strong balance sheet but lags on operating margin and ROIC due to high SG&A intensity. Its conservative leverage is a positive, but sustained improvements in SG&A efficiency and inventory management are needed to close the profitability gap.

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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