Ikka Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.21B
• Operating Income: ¥-46M
• Net Income: ¥-53M
• EPS: ¥-7.35

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: Weak quarter with a marginal operating loss despite double-digit revenue growth; leverage and thin liquidity keep financial risk elevated. Revenue rose 14.7% YoY to 52.15, but operating income was -0.46, yielding an operating margin of -0.9%. Gross profit was 35.28, but SG&A of 35.75 exceeded gross profit, driving the operating loss. Ordinary income was -0.69 and net income -0.52 (EPS -7.35 yen), indicating losses persisted below the operating line. Despite the loss, operating cash flow was positive at 0.25, helped by non-cash items (D&A 1.44), but this did not cover capex of 3.01, implying an OCF-minus-capex deficit of -2.76. Financing cash inflow of 2.36 bridged the cash gap, underscoring reliance on external funding. Gross margin printed a high 67.7%, but the cost structure (SG&A at 68.5% of sales) offset that advantage. We cannot compute YoY basis-point changes in margins due to missing prior-period margin disclosure; however, current operating margin (-88 bps) and net margin (-100 bps) are weak for mid-year results. ROE was -5.6% (DuPont: net margin -1.0%, asset turnover 0.868, leverage 6.5x), with negative margin being the primary driver. ROIC was -1.6%, below the 5% warning threshold, signaling value destruction on invested capital. The balance sheet shows total assets 60.08 and equity 9.25; D/E of 5.49x is high, and interest coverage is negative (-2.18x), highlighting debt service risk. Liquidity is thin: current ratio 1.04 and quick ratio 1.04 imply only a small cushion; cash 13.51 plus receivables 4.00 still falls short of current liabilities 19.25. Earnings quality is a concern: OCF/NI at -0.48x (with NI negative) indicates weak alignment between cash generation and accounting profit. Forward-looking, profitability hinges on tightening SG&A and improving store/unit economics to lift operating margin into positive territory while deleveraging to restore coverage headroom. With retained earnings at -4.64 and negative ROE, capital policy flexibility (including dividends) appears constrained until sustainable FCF is restored.

Profitability Analysis

ROE decomposition: ROE (-5.6%) = Net Profit Margin (-1.0%) × Asset Turnover (0.868x) × Financial Leverage (6.50x). The dominant negative driver is the net profit margin, which is negative due to SG&A exceeding gross profit (SG&A 35.75 vs GP 35.28). Asset turnover at 0.868x indicates modest efficiency for a service/retail-style model but cannot offset the margin shortfall. Financial leverage at 6.5x amplifies the impact of losses on equity, worsening ROE. Business reason: fixed/semi-fixed SG&A (labor, rent, utilities) appears heavy relative to sales scale, leading to operating deleverage; interest expense (0.21) further widens loss at the ordinary level. Sustainability: without SG&A rightsizing and/or higher same-store sales, the negative margin is not sustainable; gross margin (67.7%) is adequate, so the pivot is cost control and utilization. Warning signs include SG&A as a percent of sales at 68.5% exceeding gross margin, and negative interest coverage (-2.18x) indicating margin recovery must outpace rising funding costs.

Growth Assessment

Revenue growth was robust at +14.7% YoY to 52.15, suggesting demand recovery and/or footprint expansion. Profit growth did not accompany top-line growth, as operating income was -0.46 and net income -0.52, reflecting operating deleverage. Gross margin at 67.7% supports the notion that revenue quality is acceptable, but the expense base absorbed the gains. With EBITDA at 0.98 (1.9% margin), earnings remain thin and vulnerable to cost shocks (labor and energy). Non-operating items netted to -0.23 (income 0.05, expenses 0.28), showing limited offset from below-the-line items. Outlook hinges on SG&A efficiency gains and mix improvement; absent that, incremental sales may not translate into profit. Given high leverage and negative ROIC (-1.6%), expansionary growth should be balanced against returns discipline. No segment detail or same-store metrics were disclosed, limiting visibility on sustainability.

Financial Health

Liquidity: Current ratio 1.04 and quick ratio 1.04 indicate a very thin cushion; warn threshold (<1.0) is narrowly avoided. Cash (13.51) plus receivables (4.00) totals 17.51, still below current liabilities (19.25), implying timing risk within working capital. Solvency: D/E at 5.49x is high (warning >2.0); total liabilities 50.82 versus equity 9.25 signal elevated leverage. Interest coverage is negative (-2.18x on EBIT), highlighting debt service strain. Maturity profile: current liabilities 19.25 are roughly matched by current assets 20.04, but tight; noncurrent liabilities 31.58 (including long-term loans 26.48) add refinancing dependence. No explicit off-balance sheet obligations disclosed in the provided data.

Cash Flow Quality

OCF was 0.25 versus net income -0.52, yielding OCF/NI of -0.48x, a quality flag. Positive OCF largely reflects non-cash D&A (1.44), not robust working capital inflows. Investing cash flows were unreported; however, disclosed capex was 3.01, implying OCF minus capex of -2.76, pointing to negative organic FCF. Financing inflow of 2.36 funded the capex/FCF shortfall, indicating external funding reliance. Working capital details are sparse; with AR at 4.00 and no inventory disclosure, we cannot assess potential pull-forward of payables or receivables; no clear signs of manipulation are inferable from the limited dataset.

Dividend Sustainability

Dividend data were unreported. Retained earnings are negative (-4.64), ROE is -5.6%, and OCF minus capex is -2.76, all of which constrain capacity to fund dividends from internal cash generation. With interest coverage negative and D/E 5.49x, cash preservation and deleveraging are likely higher priorities. Without positive, durable FCF and accumulated earnings, dividend sustainability appears weak; policy outlook cannot be confirmed absent management guidance.

Risk Assessment

Business Risks:

• Operating deleverage with SG&A (68.5% of sales) exceeding gross profit, risking continued operating losses.
• Cost inflation in labor, utilities, and raw materials compressing margins.
• Execution risk in store operations and utilization needed to turn EBITDA into sustainable EBIT.
• Dependence on external financing to fund capex amid negative FCF.

Financial Risks:

• High leverage (D/E 5.49x) and negative interest coverage (-2.18x) elevating refinancing and covenant risk.
• Thin liquidity (current ratio 1.04) with cash plus receivables below current liabilities, raising short-term funding risk.
• Negative ROIC (-1.6%) signaling value destruction and potential constraints on future funding at acceptable terms.

Key Concerns:

• Sustained losses at ordinary and net levels despite double-digit revenue growth.
• Reliance on financing cash inflows (2.36) to offset OCF-minus-capex deficit (-2.76).
• Accumulated deficit (retained earnings -4.64) limiting capital policy flexibility.

Investment Implications

Key Takeaways:

• Revenue growth strong at +14.7% YoY, but profitability remains negative (operating margin -0.9%).
• SG&A exceeds gross profit, indicating the need for cost restructuring or higher sales density.
• Leverage is high (D/E 5.49x) with negative EBIT coverage, keeping financial risk elevated.
• OCF positive but insufficient versus capex, resulting in negative organic FCF.
• ROE (-5.6%) and ROIC (-1.6%) point to subpar capital efficiency.

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio.
• Same-store sales and traffic/pricing (not disclosed here) to gauge operating leverage potential.
• OCF and OCF minus capex to assess FCF sustainability.
• Interest coverage and net debt trajectory, including refinancing activities.
• Working capital turns (AR days) and liquidity buffers versus current liabilities.

Relative Positioning: Within domestic F&B/retail peers, the company appears more leveraged with weaker profitability and coverage; absent a near-term margin turnaround, it sits in the lower quartile on solvency and return metrics.

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