JSS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.34B
• Operating Income: ¥247M
• Net Income: ¥160M
• Earnings per Unit (EPU): ¥39.64

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

FY2026 Q2 was a solid profitability quarter for JSS, with modest topline growth translating into stronger operating leverage and healthy cash generation. Revenue rose 3.2% YoY to 43.44, while operating income increased 18.0% YoY to 2.47, lifting the operating margin to approximately 5.7%. Gross profit reached 7.59, implying a gross margin of 17.5%. Ordinary income was 2.41 (+16.1% YoY), and net income came in at 1.59 (+6.5% YoY), equating to a net margin of 3.7%. EBITDA was 3.66, for an EBITDA margin of 8.4%. We estimate operating margin expanded by roughly 70 basis points YoY (from ~5.0% to ~5.7%), supported by disciplined SG&A and improved mix/efficiency. The effective tax rate was 33.9%, dampening the flow-through from ordinary income to net income. Earnings quality was high: OCF of 4.24 was 2.67x net income, indicating profits were well-backed by cash. Liquidity remains the main weak point, with a current ratio of 0.64 and negative working capital of -8.61, signaling reliance on ongoing cash generation and revolving facilities. Leverage is moderate with D/E at 1.39x and strong interest coverage (circa 24x), though ROIC at 4.5% sits below the 5% warning threshold. Capital intensity remains evident (D&A 1.19) but capex was controlled at 0.83, allowing OCF to comfortably fund maintenance investment and buybacks (1.02). Book value per share is calculated at 778.51 JPY, with basic EPS of 39.64 JPY. The payout ratio is estimated at 44.3%, appearing reasonable against cash generation, though total dividends were not disclosed. Forward-looking, the company’s ability to sustain margin gains amid modest demand growth and cost pressures (labor, utilities) will determine whether ROE can move materially above the current 5.1%. Improving ROIC through asset utilization and pricing/mix will be key to offsetting structural headwinds in the swim school market. Near term, tight liquidity and upcoming debt service require careful working capital management and steady OCF.

Profitability Analysis

ROE (5.1%) = Net Profit Margin (3.7%) × Asset Turnover (0.580) × Financial Leverage (2.39x). The primary driver of YoY improvement appears to be margin expansion: operating income grew 18.0% on 3.2% revenue growth, implying positive operating leverage and an estimated ~70 bps operating margin uplift (from ~5.0% to ~5.7%). Asset turnover at 0.58 is consistent with a capital-intensive site-based model and likely changed little YoY. Financial leverage at 2.39x provided a stable boost to ROE but did not materially change performance dynamics this quarter. Business factors behind margin improvement likely include mix/attendance recovery, capacity utilization gains, and controlled SG&A (current SG&A ratio ~11.8% of sales). These improvements are somewhat sustainable if utilization and pricing hold, but sensitivity remains to wage/utility inflation and membership churn, which could cap further margin gains. Watch for any instance where SG&A growth outpaces revenue; while not disclosed this quarter, a reversal would quickly pressure the thin gross margin (17.5%).

Growth Assessment

Topline growth was modest at +3.2% YoY, but profit growth outpaced sales with operating income +18.0% and ordinary income +16.1%, indicating healthy operating leverage. Non-operating items were small in absolute terms (non-op income 0.08; expenses 0.14), so growth was predominantly operating-driven. The net income growth of +6.5% lagged operating/ordinary growth due to a higher effective tax rate and small non-operating expense. With EBITDA margin at 8.4% and operating margin ~5.7%, incremental profitability improvements seem feasible through utilization and pricing, but the low gross margin ceiling (17.5%) limits expansion potential. Outlook: steady single-digit sales growth with disciplined cost control could sustain mid-single-digit operating margins; ROE uplift depends on either margin expansion or asset turnover improvement. ROIC of 4.5% remains below a typical 7–8% hurdle; improving site productivity, optimizing underperforming locations, and selective capex should be focal points. Absent a stronger demand catalyst or material restructuring, growth is likely steady rather than rapid.

Financial Health

Liquidity is tight. Current ratio is 0.64 (<1.0 warning) and quick ratio is also 0.64, with negative working capital of -8.61, highlighting near-term funding pressure. Current assets of 15.09 are below current liabilities of 23.70; cash and deposits of 10.86 plus receivables of 1.46 cover only about half of current liabilities, indicating a maturity mismatch risk mitigated by continuous OCF and access to short-term facilities. Solvency is acceptable: total equity is 31.34 against total assets of 74.96 (equity ratio ~41.8%). Debt-to-equity is 1.39x, and interest coverage is strong (~24x), suggesting manageable debt service. Debt composition skews long-term (LT loans 13.80 vs ST loans 1.80), which moderates refinancing risk, but the large non-debt current liabilities still pressure liquidity. No explicit off-balance sheet obligations were disclosed; however, given the facility-heavy model, lease commitments could be material though not reported here.

Cash Flow Quality

OCF of 4.24 is 2.67x net income, indicating strong earnings quality with cash conversion aided by working capital. Capex was 0.83, implying an operating free cash flow proxy (OCF - capex) of about 3.41, sufficient to fund buybacks (1.02) and likely cover ordinary dividends (amount not disclosed). Financing CF was -3.50, implying net outflows for shareholder returns and/or debt service; cash on hand (10.86) provides additional cushion. With OCF/NI well above the 0.8 threshold, there is no immediate quality concern. No signs of working capital manipulation are evident from the limited data; however, the absence of inventory and payables detail caps our ability to assess timing effects. Sustainability: as long as attendance/utilization remains stable and capex stays near maintenance levels, FCF should cover dividends and selective buybacks.

Dividend Sustainability

The calculated payout ratio is 44.3%, within the <60% sustainable benchmark. While total dividends paid were not disclosed, OCF of 4.24 and an operating FCF proxy of ~3.41 (after 0.83 capex) imply coverage for ordinary dividends and modest buybacks (1.02 executed). Liquidity constraints (current ratio 0.64) argue for prudent cash returns policy despite healthy cash generation. Assuming earnings stability and maintenance capex, current payout looks sustainable; upward adjustments should be contingent on sustained OCF and progress on ROIC. Policy outlook: prioritize liquidity buffer and debt reduction of short-term obligations while maintaining a mid-40% payout range, subject to cash visibility.

Risk Assessment

Business Risks:

• Membership/attendance volatility in swim school operations, impacting utilization and pricing.
• Cost inflation (labor, utilities, maintenance) pressuring thin gross margins (17.5%).
• Demographic headwinds in Japan potentially limiting long-term enrollment growth.
• Event/accident and compliance risks inherent to sports facilities, with potential reputational impact.

Financial Risks:

• Low liquidity: current ratio 0.64 and negative working capital (-8.61) create refinancing and rollover risk.
• Maturity mismatch: current liabilities (23.70) exceed current assets (15.09), requiring consistent OCF.
• ROIC at 4.5% below 5% warning level indicates sub-par capital efficiency.
• Interest rate risk on floating-rate borrowings amid potential rate normalization.

Key Concerns:

• Sustainability of margin gains given limited gross margin headroom.
• Potential undisclosed lease/contract commitments related to facilities.
• Limited disclosure granularity (SG&A and non-operating breakdowns) reduces visibility into drivers.

Investment Implications

Key Takeaways:

• Solid operating leverage: +18% OI on +3.2% sales with ~70 bps margin expansion.
• High earnings quality: OCF 2.67x net income supports shareholder returns and capex.
• Liquidity is the primary weak point: current ratio 0.64 and negative working capital.
• ROIC 4.5% and ROE 5.1% remain modest, requiring efficiency improvements.
• Leverage manageable with strong interest coverage (~24x) and equity ratio ~42%.

Metrics to Watch:

• Enrollment/attendance trends and pricing per member.
• Operating margin trajectory and SG&A ratio versus revenue growth.
• Working capital (AR/payables) and current ratio recovery toward >1.0.
• ROIC progression toward 6–7% via asset utilization and selective capex.
• Debt maturity profile and interest rate exposure.

Relative Positioning: Within domestic facility-based education/fitness operators, JSS shows better-than-peer cash conversion and disciplined capex, but trails on liquidity buffers and capital efficiency (ROIC 4.5%). Sustained margin discipline and working capital normalization are needed to close the 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
• 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