Fast Fitness Japan Incorporated FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.98B
• Operating Income: ¥1.95B
• Net Income: ¥1.21B
• EPS: ¥64.63

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: Strong FY2026 Q2, with double-digit top-line growth translating into outsized operating and ordinary profit increases, supported by robust cash generation and a conservative balance sheet. Revenue rose 15.6% YoY to 99.85, while operating income grew 36.0% to 19.52, demonstrating healthy operating leverage. Ordinary income advanced 41.0% to 20.63, with modest net non-operating gains (income 1.40 vs expenses 0.29) augmenting operating results. Net income increased 35.2% to 12.11, despite a high effective tax rate of 43.1% that tempered bottom-line conversion. Gross margin stands at 44.9%, and operating margin improved to roughly 19.6%, indicating better cost absorption and SG&A efficiency. Based on prior-period implied figures, operating margin expanded by about 294 bps YoY (from approximately 16.6% to 19.6%). EBITDA reached 24.73, for a 24.8% margin, highlighting strong underlying profitability in an asset-light model. Cash generation outpaced earnings, with operating cash flow of 19.65 vs net income of 12.11 (OCF/NI = 1.62x), underscoring solid earnings quality. The balance sheet is liquid and conservative: current ratio 209%, cash and deposits 82.74, and long-term loans only 3.12, implying net cash and very low leverage. Interest coverage is extremely strong at 75.1x, signaling minimal financial risk. ROE is 8.2% on the DuPont framework (NPM 12.1%, asset turnover 0.448x, leverage 1.52x), roughly in line with a mid-to-high single digit return profile backed by prudent leverage. Reported ROIC is 16.5%, comfortably above the 8% excellence benchmark, indicating disciplined capital allocation and high asset productivity. While DPS data are unreported, the calculated payout ratio is 69.8%, which appears covered by implied free cash flow given OCF strength and capex of 7.16. Non-operating contributions (net +1.11) are supportive but not the primary driver of growth; operating momentum is the key. Forward-looking, continued margin discipline, membership growth, and controlled capex should sustain mid-teens ROIC, though the elevated tax rate and potential wage/rent inflation could cap further margin expansion.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.2% = Net Profit Margin 12.1% × Asset Turnover 0.448 × Financial Leverage 1.52x. The most notable change in the period appears to be margin-driven: operating income grew 36.0% vs revenue +15.6%, implying meaningful operating margin expansion (~+294 bps YoY to ~19.6%). Business drivers likely include operating leverage from revenue growth at stable gross margin, improved SG&A efficiency as a percent of sales, and modest positive non-operating balance. Asset turnover at 0.448 suggests moderate efficiency for a service/light-asset model; with revenues growing faster than asset base (assets 222.75), turnover likely held stable to slightly up. Financial leverage remains conservative at 1.52x, contributing modestly to ROE, consistent with a net cash position and strong interest coverage. Sustainability: margin gains look largely operational (scale and cost control), and thus at least partially sustainable, though normalization could occur as wage and facility costs rise. Watch for SG&A growth versus revenue: if SG&A grows faster than revenue in subsequent quarters, operating leverage will reverse. The elevated effective tax rate (43.1%) is a headwind to NPM; any normalization would be a tailwind to ROE without added risk.

Growth Assessment

Top-line growth of 15.6% YoY to 99.85 indicates healthy demand recovery/expansion, likely driven by increased memberships and contribution from new locations or stronger royalty streams. Profit growth outpaced sales (OP +36.0%, OI +41.0%, NI +35.2%), signaling operating leverage and better cost absorption. Margin expansion (~+294 bps at the operating level) underpins the earnings delta and appears operational rather than one-off. Non-operating net contribution (+1.11) is supportive but not the primary growth engine. Depreciation of 5.21 against EBITDA of 24.73 indicates a light capital intensity profile, supporting scalable growth. Outlook hinges on membership churn, same-store performance, and pace of new openings; current metrics suggest revenue growth is sustainable near term if consumer momentum holds. ROIC at 16.5% suggests growth investments are value-accretive relative to cost of capital. Risks to growth include wage and rent inflation, potential tax rate persistence at a high level, and any slowdown in new site pipeline. Overall, growth quality is solid given cash conversion and limited leverage reliance.

Financial Health

Liquidity is strong: current ratio 209.2% and quick ratio 209.2%, with cash and deposits of 82.74 covering 157% of current liabilities (52.82). No warning on current ratio (<1.0) and no maturity mismatch indicated; current assets (110.52) comfortably exceed current liabilities (52.82). Solvency profile is conservative: debt-to-equity 0.52x (total liabilities to equity), with long-term loans of only 3.12 and implied net cash. Interest coverage is exceptionally strong at 75.1x, indicating ample buffer for rate or earnings volatility. Equity stands at 146.72 with retained earnings of 103.54, reflecting capacity to absorb shocks and fund growth. No off-balance sheet obligations are reported in the provided data; however, lease commitments are common in this sector and may not be fully visible here.

Cash Flow Quality

OCF/Net income is 1.62x, comfortably above the 1.0x benchmark, indicating high earnings quality with positive working capital dynamics and solid cash conversion. Operating CF of 19.65, against capex of 7.16, implies an estimated free cash flow of about 12.49 (OCF minus capex), despite total investing CF being unreported. Financing CF is -11.21, likely reflecting shareholder returns and/or debt service; dividends and buybacks are unreported but consistent with the negative financing flow. No signs of working capital stress are apparent given the strong OCF vs NI; absent itemized WC details, no manipulation flags can be confirmed. Given the cash balance (82.74) and modest capex, internal cash generation appears sufficient to fund growth and shareholder returns.

Dividend Sustainability

Reported payout ratio (calculated) is 69.8%, above the <60% benchmark, but appears serviceable given strong cash generation. Using NI of 12.11 and the payout ratio, implied dividends approximate 8.45; against estimated FCF of 12.49, coverage is around 1.5x in the period, suggesting adequate headroom. EPS is 64.63; a 69.8% payout implies an indicative DPS near 45 JPY (exact DPS unreported). Balance sheet strength (net cash) further supports dividend stability. Sustainability will depend on maintaining OCF/NI at or above 1.0x and capex discipline; any ramp in new openings could temporarily compress FCF coverage. With DPS and total dividend paid unreported, conclusions rely on the provided payout ratio.

Risk Assessment

Business Risks:

• Membership churn and slower same-store sales growth could pressure revenue and operating leverage.
• Wage and rent inflation may erode SG&A efficiency and compress operating margin.
• Execution risk in new club openings and ramp-up timelines affecting near-term profitability.
• Competitive intensity in Japan’s fitness market (price promotions, new entrants) impacting pricing power.
• Potential regulatory or health-related disruptions affecting gym attendance patterns.

Financial Risks:

• High effective tax rate (43.1%) suppresses net margin and ROE; persistence poses ongoing headwind.
• Limited visibility into lease liabilities and other off-balance sheet commitments could understate obligations.
• Dividend payout ratio near 70% reduces buffer if cash flow weakens.
• Interest rate risk minimal given low debt, but deposit income sensitivity may affect non-operating line.

Key Concerns:

• Sustainability of recent margin expansion if cost pressures intensify.
• Dependence on continued membership growth to sustain asset turnover and ROIC.
• Data gaps (investing CF details, DPS, SG&A breakdown) limit granularity of cost and FCF analyses.

Investment Implications

Key Takeaways:

• Strong quarter with revenue +15.6% and operating income +36.0%, showing clear operating leverage.
• Operating margin expanded ~294 bps to ~19.6%; EBITDA margin at 24.8% confirms healthy unit economics.
• Cash conversion is robust (OCF/NI 1.62x), supporting growth and shareholder returns.
• Balance sheet is liquid and conservative (current ratio 209%, net cash, interest coverage 75x).
• ROE 8.2% with low leverage and ROIC 16.5% suggest quality growth at attractive returns.
• Payout ratio ~70% appears covered by estimated FCF, but leaves less buffer if growth slows or capex rises.
• High tax rate is a material drag on bottom line; any normalization would be an upside lever.

Metrics to Watch:

• Same-store sales and membership churn/retention rates.
• SG&A as a percentage of sales and wage/rent inflation trends.
• OCF/Net income and working capital movements (receivables, payables).
• Capex per new opening and total pipeline to gauge FCF resilience.
• Effective tax rate trajectory and any structural drivers.
• Cash balance and uses (dividends, buybacks, growth investments).

Relative Positioning: Versus domestic fitness peers, Fast Fitness Japan exhibits stronger balance sheet conservatism (net cash), solid cash conversion, and mid-teens ROIC, positioning it favorably for disciplined growth with lower financial risk; key watchpoint is maintaining recent margin gains amid potential cost inflation.

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