Waqoo Inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥1.96B
• Operating Income: ¥150M
• Net Income: ¥-44M
• EPS: ¥12.32

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: A solid turnaround quarter with strong operating leverage and clean cash generation, albeit offset by a very high effective tax rate and still-low ROE. Revenue in FY2025 Q4 rose 0.9% YoY to 19.60, while operating income surged 169% YoY to 1.50, driving operating margin to 7.65%. Ordinary income increased 165.9% YoY to 1.52, and net income jumped 319% YoY to 0.44, lifting net margin to 2.24%. We estimate operating margin expanded by roughly 478 bps YoY (from ~2.87% to 7.65%). Net margin expanded by about 170 bps YoY (from ~0.54% to 2.24%), despite a 71.1% effective tax rate that suppressed bottom-line conversion. Gross margin remained very high at 79.5%, indicating favorable product mix/pricing and likely a D2C-heavy model. SG&A was 14.08 against GP of 15.59, implying improved cost discipline and operating leverage as small top-line growth translated into outsized profit gains. Earnings quality was strong: OCF was 1.36 versus NI of 0.44 (OCF/NI 3.09x), indicating cash-backed earnings with no evident working capital stress. Free cash flow was slightly negative at -0.52 due to 1.93 of capex; combined with 1.00 of share repurchases, cash still remains ample at 13.02. The balance sheet is conservative: current ratio 257.6%, D/E 0.53x, and interest coverage 17.44x. However, ROE is still low at 2.1% (DuPont: 2.2% margin × 0.613 turnover × 1.53x leverage), reflecting modest margin conversion and low asset turnover. ROIC at 5.7% trails the 7–8% benchmark, highlighting a need for further efficiency gains and/or mix/pricing actions. Goodwill/intangibles are sizable (10.1/10.12), pointing to acquisition-driven growth and integration discipline requirements. Tax normalization represents upside to net income if the effective rate reverts closer to statutory levels. Forward-looking, sustaining SG&A efficiency while modestly accelerating revenue will be key to lift ROIC above the target zone. Capital allocation has turned more shareholder-friendly (buybacks), but must be balanced against capex and the still-modest FCF profile.

Profitability Analysis

ROE (2.1%) = Net Profit Margin (2.2%) × Asset Turnover (0.613) × Financial Leverage (1.53x). The most material change this quarter appears in the margin component, evidenced by a 169% YoY rise in operating income on just 0.9% revenue growth, implying significant operating leverage. The business drivers likely include improved gross margin execution (79.5%) and tighter SG&A control, possibly aided by more efficient customer acquisition and marketing spend. The tax rate (71.1%) tempered net margin, suggesting part of the bottom-line weakness is non-operational (e.g., valuation allowance or non-deductible items under JGAAP). Sustainability: gross margin quality looks structurally sound for a D2C/brand model; SG&A leverage may normalize if the firm resumes growth investments, but some efficiency gains can persist. Watch for any re-acceleration of marketing spend that could compress operating margin. Asset turnover (0.613) remains a headwind for ROE given a balance sheet with large intangibles; improving turnover will likely require faster top-line growth or asset-light scaling. No explicit evidence of SG&A growth outpacing revenue this quarter; on the contrary, profits rose disproportionately, signaling positive operating leverage.

Growth Assessment

Revenue grew 0.9% YoY to 19.60, modest but positive. Operating income rose 169% YoY to 1.50, showcasing substantial operating leverage from cost control and mix. Ordinary income (+165.9%) tracked operating gains, with limited contribution from non-operating items (0.13). Net income grew 319% YoY to 0.44, albeit dampened by a 71.1% effective tax rate. Gross margin at 79.5% indicates strong pricing/mix; maintaining this while scaling could sustain profit growth. The quality of growth appears healthy given OCF/NI at 3.09x and no signs of working capital strain. Outlook: if the company can slightly accelerate top-line (new channels/SKU expansion) while retaining part of the SG&A efficiency, ROIC should move toward 7–8%. Normalization of the effective tax rate would provide additional EPS tailwind. Near term, expect focus on disciplined marketing, cohort monetization, and controlled capex after a heavier quarter (-1.93).

Financial Health

Liquidity is strong: current ratio 257.6% and quick ratio 257.6%. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.53x, well within conservative bounds. Working capital is ample at 10.90, with cash and deposits of 13.02 exceeding short-term loans (1.90) and supporting current liabilities (6.92). Maturity profile is balanced: long-term loans 3.41 and short-term loans 1.90 are comfortably covered by liquidity. Equity/asset ratio is approximately 65.3% (20.91/31.99), indicating a solid capital base. No off-balance sheet obligations are disclosed in the provided data. Interest coverage is strong at 17.44x, limiting refinancing risk.

Cash Flow Quality

OCF of 1.36 versus net income of 0.44 yields OCF/NI at 3.09x, indicating high-quality, cash-backed earnings. FCF was -0.52, driven by capex of 1.93; this appears manageable given cash on hand (13.02) and modest leverage. Financing CF was -1.50, including 1.00 of share repurchases; distributions were covered by beginning liquidity rather than current-period FCF. No clear signs of working capital manipulation: receivables (3.11) look proportionate to quarterly sales; payables (0.04) are very low, consistent with a D2C/light supplier credit model, though inventory data is unreported. We view cash generation sustainability as reasonable if capex normalizes and operating margins hold.

Dividend Sustainability

Dividend disclosures are unreported; thus payout ratio and DPS cannot be assessed. Given NI of 0.44 and negative FCF (-0.52) this quarter, capacity for cash dividends in the near term would rely on existing cash reserves rather than internally generated FCF. The company executed share repurchases (1.00), signaling shareholder return appetite. For sustainability, consistent positive FCF after capex will be necessary before committing to a stable dividend policy. With ROE at 2.1% and ROIC at 5.7%, prioritizing reinvestment to lift returns may take precedence over cash dividends.

Risk Assessment

Business Risks:

• Demand variability in beauty/cosmetics and D2C channels affecting revenue stability
• Customer acquisition cost inflation that could pressure SG&A and margins
• Brand/reputation risk and product quality or liability issues
• High effective tax rate volatility impacting net profit conversion
• Execution risk around leveraging large intangible assets and any acquired businesses

Financial Risks:

• ROIC at 5.7% below 7–8% benchmark, risking value creation shortfall
• Negative FCF this quarter due to elevated capex; reliance on cash for buybacks
• Low asset turnover (0.613) constraining ROE despite healthy leverage
• Intangible concentration (goodwill 10.10; intangibles 10.12) raising impairment sensitivity

Key Concerns:

• Sustainability of SG&A efficiency as growth investments resume
• Potential reversion of gross margin if pricing/mix or promotions shift
• Tax normalization timing; current 71.1% rate materially depresses net margins
• Limited disclosed detail on inventory and SG&A components (data gaps)

Investment Implications

Key Takeaways:

• Strong operating leverage: OI +169% on revenue +0.9%; operating margin ~7.65%
• Clean cash earnings: OCF/NI 3.09x; interest coverage 17.44x
• Balance sheet conservative: current ratio 258%, D/E 0.53x, equity ratio ~65%
• ROE still low at 2.1% due to thin net margin and low asset turnover
• ROIC 5.7% below target zone; margin and turnover improvements needed
• Tax rate (71.1%) is the primary drag on net margin; normalization is upside
• Capex-heavy quarter and buybacks drove negative FCF; liquidity remains ample

Metrics to Watch:

• Operating margin progression and SG&A as a % of sales
• Effective tax rate trajectory
• OCF and FCF trend versus capex plans
• Asset turnover and revenue growth acceleration
• Intangible/goodwill impairment indicators and amortization burden

Relative Positioning: Within Japan small-cap beauty/consumer brands, Waqoo shows superior gross margin and improving operating discipline, offset by below-peer ROIC/ROE and tax-driven net margin pressure; balance sheet strength provides flexibility to invest and refine the model.

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