BUFFALO INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥60.10B
• Operating Income: ¥5.55B
• Net Income: ¥1.94B
• EPS: ¥347.12

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

Buffalo Inc. (66760) reported FY2026 Q2 consolidated results under JGAAP showing a sharp profit recovery despite a double-digit revenue contraction. Revenue declined 18.7% YoY to ¥60.1bn, yet operating income surged 84.4% YoY to ¥5.55bn and net income rose 137.6% YoY to ¥4.62bn, reflecting substantial margin expansion and cost discipline. Gross profit is presented at ¥19.01bn (31.6% margin), consistent with the provided gross margin figure, implying significant improvement in product mix, pricing, or procurement efficiency. There is an apparent inconsistency between the stated gross profit and the reported cost of sales; however, the gross margin and operating income are internally consistent, so margin commentary relies on those. EBITDA reached ¥6.97bn (11.6% margin), indicating improved operating leverage and controlled SG&A. DuPont analysis shows ROE at 11.09%, driven by a 7.68% net margin, 0.847x asset turnover, and 1.70x financial leverage—suggesting quality earnings with moderate balance sheet leverage. Liquidity appears strong with a current ratio of 224% and quick ratio of 177%, supported by large current assets and ample working capital of ¥38.25bn. Solvency is sound with total liabilities of ¥31.75bn versus equity of ¥41.62bn (debt-to-equity 0.76x). Operating cash flow was negative ¥0.32bn despite strong earnings, likely due to working capital movements; inventories stand at ¥14.48bn, and the quick ratio implies substantial liquid assets excluding inventories. Financing cash outflows of ¥6.25bn suggest debt reduction and/or shareholder returns, though dividends are not disclosed; DPS and cash balances are reported as zero (unreported), limiting visibility on capital allocation. The effective tax calculation based on provided tax and net income suggests ~21% rather than the displayed 0.0%, indicating that some calculated metrics are placeholders. Interest expense is shown as zero (unreported), so interest coverage metrics are not meaningful, but profitability indicates comfortable coverage. Overall, the company is navigating a softer top line with decisive cost and mix actions, translating into robust earnings and ROE, while liquidity and solvency remain conservative. The key watchpoint is the conversion of profit into cash, given negative OCF and the sizeable financing outflows. Data limitations (zeros indicating non-disclosure) constrain full assessment of cash, capex, dividends, and interest burden. Near-term outlook hinges on sustaining margin gains as demand normalizes and on working capital discipline to restore OCF.

Profitability Analysis

ROE is 11.09%, decomposed into a 7.68% net margin, 0.847x asset turnover, and 1.70x financial leverage, indicating profits are driven primarily by margin expansion rather than higher asset intensity or leverage. Gross margin of 31.6% (¥19.01bn gross profit on ¥60.10bn sales) shows strong improvement versus the YoY decline in sales, implying favorable mix/pricing and/or input cost tailwinds. Operating margin is 9.2% (¥5.55bn/¥60.10bn), a major YoY uplift consistent with the 84% growth in operating income despite lower revenue, highlighting operating leverage and SG&A efficiency. EBITDA margin is 11.6%, with D&A at ¥1.42bn, suggesting a relatively asset-light cost structure and manageable non-cash charges. Ordinary income (¥5.64bn) is close to operating income, implying limited non-operating drag or gains; interest expense is unreported, but the small gap indicates non-operating items are not material. Net margin at 7.68% benefits from a roughly 21% effective tax rate (derived), reinforcing the sustainability of bottom-line gains absent one-off items. The reported cost of sales figure is inconsistent with gross profit; analysis relies on the provided gross margin as the more internally consistent indicator. Overall profitability quality appears improved, with better pricing discipline, procurement, and scale efficiencies outweighing volume declines.

Growth Assessment

Revenue declined 18.7% YoY to ¥60.1bn, signaling softer demand or normalization after prior peaks in key categories (likely storage/networking). Despite this, operating income rose 84.4% and net income 137.6% YoY, underscoring that margin management, mix optimization, and cost control offset volume pressure. The sustainability of this profit growth will depend on maintaining improved gross margins while volumes stabilize; the achieved 31.6% gross margin provides a stronger base. Asset turnover of 0.847x suggests decent utilization relative to the balance sheet; with revenue down, maintaining turnover will require tighter inventory and receivables management. The improvement in profitability alongside negative OCF points to a temporary working capital drag; normalizing inventories and receivables would support future growth funding. Near-term outlook is cautiously positive on margins but contingent on demand recovery and supply-chain stability; any price competition could compress margins from current highs. We see evidence of structural efficiency gains (EBITDA margin 11.6%), but confirmation requires more periods of consistent performance and cash conversion.

Financial Health

Liquidity is strong: current assets ¥69.04bn vs. current liabilities ¥30.80bn yield a current ratio of 224%, and a quick ratio of 177% after excluding ¥14.48bn inventories. Working capital is ample at ¥38.25bn, providing cushion for operations and procurement cycles. Solvency appears healthy with total liabilities ¥31.75bn and equity ¥41.62bn, producing a debt-to-equity of 0.76x and financial leverage of 1.70x (assets/equity). The equity ratio is shown as 0.0% (undisclosed/placeholder) and should not be interpreted literally; calculated equity ratio would approximate 58.7% (¥41.62bn/¥70.93bn). Interest expense is unreported; nonetheless, profitability levels suggest comfortable implied coverage. The balance sheet is conservatively positioned with substantial current assets and moderate leverage, supporting resilience against market volatility.

Cash Flow Quality

OCF was negative ¥0.32bn even as net income was ¥4.62bn, leading to an OCF/Net Income ratio of approximately -0.07; this points to working capital absorption (likely in receivables or inventory) or timing effects. D&A of ¥1.42bn supports cash profitability, but without disclosed investing cash flows or capex detail, free cash flow cannot be reliably assessed; the displayed FCF of 0 is a placeholder. Financing cash outflow of ¥6.25bn suggests debt repayment and/or shareholder returns (buybacks or dividends), but the DPS figure is undisclosed; clarity on the nature of outflows is needed to judge recurring FCF usage. Inventory stands at ¥14.48bn; with quick ratio at 177%, liquidity excluding inventories is strong, but elevated inventory relative to sales could be a driver of OCF drag if turns slowed. Earnings quality appears decent given the alignment between operating and ordinary income and moderate tax burden, but cash conversion needs improvement and monitoring.

Dividend Sustainability

Dividend data (annual DPS 0.00 and payout 0.0%) are not disclosed and should not be taken as actual zero payouts. EPS is ¥347.12 for the period, implying capacity to pay dividends if policy permits; however, negative OCF this period and ¥6.25bn financing outflows complicate assessment. Without capex and actual DPS, FCF coverage cannot be determined; the stated FCF coverage of 0.00x is a placeholder. Balance sheet strength (approx. 59% equity ratio by calculation and strong liquidity) provides capacity for distributions, but sustainability hinges on consistent OCF generation and working capital normalization. Policy outlook is unclear due to missing disclosure; we look for explicit dividend policy, payout target, and any buyback announcements.

Risk Assessment

Business Risks:

• Revenue decline of 18.7% YoY indicates demand normalization or competitive headwinds in core product categories.
• Margin compression risk if input costs rise or if pricing/mix tailwinds fade.
• Supply chain and inventory management risk given ¥14.48bn inventories and negative OCF.
• Product obsolescence and price erosion typical in consumer/IT peripherals.
• Customer concentration or channel inventory risk (not disclosed, but relevant to sector).
• Foreign exchange volatility affecting procurement costs and overseas sales, if applicable.

Financial Risks:

• Negative operating cash flow despite strong earnings highlights cash conversion risk.
• Large financing outflows (¥6.25bn) without disclosure of purpose increase visibility risk around capital allocation.
• Potential reliance on short-term liabilities (current liabilities ¥30.80bn) if OCF remains weak.
• Interest expense not disclosed; while likely low, lack of transparency hinders coverage assessment.

Key Concerns:

• Data inconsistency in cost of sales vs. gross profit; reliance on margin figures for analysis.
• Multiple zeros indicate undisclosed items (cash, investing CF, DPS, interest), limiting precision.
• Sustainability of elevated operating margin amid declining revenue.
• Working capital drag impacting OCF; need for inventory and receivable discipline.

Investment Implications

Key Takeaways:

• Strong profit rebound (OP +84% YoY, NI +138% YoY) despite revenue -19% indicates effective margin and cost actions.
• ROE of 11.1% supported mainly by higher net margin (7.68%) and moderate leverage (1.70x).
• Liquidity and solvency are solid (current ratio 2.24x; D/E 0.76x), providing flexibility.
• Cash conversion is the weak spot this period (OCF -¥0.32bn), likely working-capital driven.
• Financing outflows of ¥6.25bn suggest balance sheet or shareholder actions; disclosure needed for clarity.

Metrics to Watch:

• Gross and operating margin trajectory vs. competitive pricing and input costs.
• OCF/NI ratio and working capital turns (inventory and receivable days).
• Revenue stabilization and backlog/order trends, if disclosed.
• Capex and investing cash flows to assess true FCF.
• Capital allocation updates (dividends, buybacks, debt changes).

Relative Positioning: Within Japan-listed hardware/peripherals peers, Buffalo shows above-peer margin recovery and solid balance sheet strength but lags on current-period cash conversion; sustaining margins while normalizing OCF would improve its relative stance.

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