Universal Entertainment Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥92.57B
• Operating Income: ¥-280M
• Net Income: ¥-19.46B
• EPS: ¥-137.42

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

FY2025 Q3 was weak, marked by an operating loss and heavy non-operating burdens that drove a deep net loss despite flat revenue. Revenue was 925.72, up a modest 0.2% YoY, while gross profit was 538.95, implying a gross margin of 58.2%. SG&A reached 534.72, consuming 57.8% of sales, leaving operating income at -2.80 and an operating margin of -0.3%. Non-operating items were a major drag: non-operating income of 36.85 was overwhelmed by non-operating expenses of 160.84, resulting in ordinary income of -171.31. Interest expense alone was 40.83, contributing to an interest coverage ratio of -0.07x, signaling elevated debt-service pressure. Profit before tax was -131.18, and net income was -106.49, translating to EPS of -137.42 JPY. The effective tax rate was -48.4%, indicating tax expense despite pre-tax losses, likely reflecting jurisdictional mix, valuation allowances, or non-deductible items. On margins: gross margin stood at 58.2% and operating margin at -0.3%; lack of prior-period detail prevents precise basis-point YoY comparisons. Operating margin likely compressed meaningfully given the sharp decline in operating income (-97.4% YoY reported), but exact bps cannot be quantified with available data. Earnings quality cannot be validated because operating cash flow was not disclosed; OCF/NI is not calculable. The balance sheet shows ample liquidity (current ratio 221.7%, quick ratio 214.5%) and moderate leverage (D/E 0.69x), but long-term loans of 561.98 against cash of 273.59 suggest continued reliance on debt capital. Asset efficiency remains low (asset turnover 0.157), and ROE is negative at -3.0% (DuPont), with ROIC at -0.1%, indicating capital is currently not earning its cost. With non-operating expenses and interest costs weighing on results, near-term profit recovery hinges on tighter SG&A control and reduction of financing burden. Forward-looking, stabilization requires restoring positive operating margin, improving affiliate/financial income or reducing non-operating drag, and demonstrating positive OCF to support any shareholder returns. The quarter underscores sensitivity to financing costs and non-operating items, which will likely dominate short-term earnings variability. Absent cash flow disclosure, we maintain a cautious stance on earnings quality pending further detail.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (-11.5%) × Asset Turnover (0.157) × Financial Leverage (1.69x) = ROE (-3.0%). The weakest link is the net profit margin, driven by a negative operating margin (-0.3%) and substantial non-operating expense (net -123.99 = 36.85 income - 160.84 expense), including 40.83 interest cost. Asset turnover at 0.157 indicates low capital efficiency relative to the asset base (5,903.74), consistent with heavy noncurrent assets (5,091.56). Financial leverage at 1.69x is moderate; leverage is not the primary driver of the ROE decline—profitability is. Business explanation: SG&A nearly matched gross profit (57.8% of sales), leaving minimal operating cushion, and financing/other non-operating burdens pushed ordinary income deep into the red. Sustainability: the elevated non-operating expense (notably interest) is likely recurring unless debt is refinanced/repaid; SG&A normalization could improve margins if management executes cost control. Concerning trends: implied SG&A intensity looks high against flat revenue (+0.2% YoY); with no growth leverage, fixed/semi-fixed costs are diluting margins. Without data on D&A and segment mix, we cannot assess operating leverage precisely, but current figures indicate insufficient scale efficiency.

Growth Assessment

Top-line growth was essentially flat at +0.2% YoY (revenue 925.72), suggesting limited momentum in the core businesses during the period. Gross margin at 58.2% is healthy in isolation, but SG&A consumed 57.8% of revenue, erasing operating profit and indicating that cost escalation or limited operating scale offset gross profit gains. Operating income fell to -2.80; reported -97.4% YoY suggests a sharp deterioration, but the prior-period base is not disclosed to quantify bps changes. Non-operating expenses (160.84) significantly outweighed non-operating income (36.85), with interest expense (40.83) a key headwind; this mix is likely to persist near term absent balance sheet action. Effective tax expense despite losses (-48.4% effective rate) further dampened bottom-line growth, likely a function of jurisdictional/timing factors. Overall, current growth appears unsustainable for profit recovery without cost reductions or a stronger revenue mix. Outlook near term: focus should be on improving operating margin above 3-5% to cover interest and stabilize ordinary income, alongside actions to reduce financing costs. Lack of segment and cash flow detail limits visibility into recurring vs one-time drivers.

Financial Health

Liquidity is solid: current assets 805.00 vs current liabilities 363.09 yields a current ratio of 221.7% and quick ratio of 214.5%. No warning on current ratio (<1.0). Working capital stands at 441.91, providing a cushion for operations. Solvency: D/E is 0.69x, within conservative ranges; total liabilities 2,416.69 vs equity 3,487.05. Long-term loans are 561.98 against cash of 273.59, suggesting some net debt but total interest-bearing debt was not fully disclosed, limiting precise leverage assessment. Interest coverage is weak at -0.07x (operating income / interest), indicating debt-service strain if operating losses persist. Maturity mismatch risk appears manageable in the short term given current asset coverage of current liabilities, but the heavy noncurrent liabilities (2,053.59) imply ongoing long-term obligations. No off-balance sheet obligations were disclosed in the data provided. Overall, liquidity is adequate, but earnings weakness elevates financial risk through low coverage.

Cash Flow Quality

Operating cash flow was not disclosed; OCF/Net Income is not calculable, preventing a direct assessment of earnings quality. Free cash flow is also unreported; therefore, coverage of dividends and capex cannot be evaluated. Given negative operating income and significant interest expense, internal cash generation risk is elevated unless working capital inflows or non-cash charges (D&A) materially offset losses. No obvious working capital manipulation can be identified from the limited balance sheet snapshot; receivables (44.27) and inventories (26.08) appear small relative to sales, but period dynamics are unknown. The absence of OCF and capex data is a key limitation to judging sustainability.

Dividend Sustainability

Dividend data were not reported; DPS and total dividends paid are unavailable. The calculated payout ratio of -22.6% is not economically meaningful due to negative net income. With FCF unreported and operating income negative, we cannot assert coverage; prudently, dividends (if any) would need to be supported by existing liquidity or financing. Policy outlook cannot be inferred from the data; visibility improves with disclosure of OCF, capex plans, and any stated shareholder return policy.

Risk Assessment

Business Risks:

• Cost structure rigidity: SG&A at 57.8% of revenue leaves minimal operating buffer.
• Revenue stagnation: +0.2% YoY growth limits operating leverage.
• Jurisdictional and regulatory exposure in gaming operations (e.g., integrated resort/casino markets) can affect licenses, taxes, and visitation.
• Tax volatility: negative effective tax rate (-48.4%) despite losses suggests potential future volatility.

Financial Risks:

• Debt-service risk: interest coverage at -0.07x indicates inability to cover interest from operations.
• Non-operating expense burden: net non-operating expenses of 123.99 weigh on ordinary income.
• Refinancing risk: long-term loans of 561.98 vs cash 273.59 amid loss-making operations.
• Earnings sensitivity to FX given overseas exposure; currency mismatches can affect both income and balance sheet.

Key Concerns:

• Sustained negative ROIC (-0.1%) indicates value dilution if not reversed.
• Negative ROE (-3.0%) driven by margin pressure and low asset turnover (0.157).
• Lack of operating cash flow disclosure obscures earnings quality and liquidity trajectory.
• Potential for further tax charges or limited tax shields while loss-making.

Investment Implications

Key Takeaways:

• Flat revenue with strong gross margin (58.2%) but operating loss due to SG&A intensity (57.8% of sales).
• Heavy non-operating drag (net -123.99) and interest expense (40.83) drove ordinary income to -171.31.
• Liquidity is adequate (current ratio 221.7%), leverage moderate (D/E 0.69x), but coverage metrics are weak (-0.07x).
• Capital efficiency is low: asset turnover 0.157; ROE -3.0%, ROIC -0.1%.
• Earnings quality cannot be verified without OCF; caution warranted until cash generation improves.

Metrics to Watch:

• Operating margin progression (targeting sustained >3-5%).
• SG&A trend versus revenue growth.
• Non-operating expenses and interest cost trajectory; refinancing actions.
• Operating cash flow and free cash flow once disclosed.
• Effective tax rate normalization and drivers.
• Debt maturity profile and any changes in interest-bearing debt.

Relative Positioning: Relative to peers, the company shows adequate liquidity and moderate balance sheet leverage but underperforms on profitability and capital efficiency, with negative coverage metrics and unverified cash flow, implying a need for cost discipline and balance sheet optimization 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