UP GARAGE GROUP Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.70B
• Operating Income: ¥287M
• Net Income: ¥168M
• EPS: ¥21.19

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

FY2026 Q2 was a mixed quarter for Up Garage Group: topline grew but profit contracted as operating and net margins compressed. Revenue rose 4.8% YoY to 67.03, while operating income fell 9.9% YoY to 2.87 and net income declined 30.5% YoY to 1.67. Gross profit reached 27.00, implying a gross margin of 40.3%. Operating margin stood at 4.3% (2.87/67.03), down from an estimated 5.0% a year ago, indicating about 69 bps of compression. Net margin was 2.5% (1.67/67.03) versus an estimated 3.8% last year, a contraction of roughly 126 bps. Ordinary income declined 20.0% YoY to 2.82, more than operating income, reflecting a net non-operating drag (0.24 income vs 0.30 expenses). The effective tax rate was elevated at 39.9%, amplifying the drop from ordinary income to net income. Despite weaker earnings, cash flow quality was solid: operating cash flow of 3.15 was 1.88x net income, comfortably covering capex of 1.34 on a year-to-date basis. Liquidity remains strong with a current ratio of 271.5% and cash and deposits of 15.84 against short-term loans of 1.50. Leverage is conservative (D/E 0.41x) and interest coverage is extremely high at 274x, limiting financial risk. ROE calculated at 3.7% is modest, constrained by thin margins and moderate asset turnover; ROIC at 5.6% trails the typical 7–8% hurdle. SG&A intensity appears high at 36.0% of sales, implying negative operating leverage as revenue growth did not translate into profit growth. Non-operating items were a small net headwind and not a primary driver, but the high tax burden weighed on bottom line. Dividend-related disclosures are limited; a calculated payout ratio of 154% suggests potential pressure if sustained, though OCF currently supports capex and some shareholder returns. Looking ahead, restoring operating leverage via cost control and improving gross margin will be key to re-accelerate profit growth. The balance sheet provides ample flexibility to navigate near-term cost pressures and invest in growth, but sustained improvement in ROIC toward management-level targets will be needed to enhance value.

Profitability Analysis

ROE (3.7%) = Net Profit Margin (2.5%) × Asset Turnover (1.048x) × Financial Leverage (1.41x). The largest deterioration came from net profit margin, which contracted an estimated ~126 bps YoY to 2.5% due to negative operating leverage and a high effective tax rate. Asset turnover at ~1.05x is steady, reflecting modest revenue growth on a relatively stable asset base (assets 63.93). Financial leverage of 1.41x remains conservative and largely unchanged, making it a limited driver of ROE variability. Business drivers of margin compression likely include higher SG&A ratio (36.0% of sales) and possibly mixed gross profit dynamics; with gross margin at 40.3%, the fall in operating income despite higher sales points to SG&A growth outpacing revenue. This change is partially cyclical/operational (wage, rent, store rollout costs), rather than structural, but sustained cost inflation could keep pressure on margins absent productivity gains. Tax headwinds (39.9% effective rate) further reduced net margin and ROE in the period. Concerning trends include profit growth lagging revenue and SG&A intensity remaining high; without improvement in cost discipline or gross margin mix, operating leverage will stay negative.

Growth Assessment

Revenue grew 4.8% YoY to 67.03, indicating steady demand, but profit growth was negative (OP -9.9%, NI -30.5%), showing revenue quality did not translate into earnings. Operating margin fell to 4.3% from ~5.0%, and net margin to 2.5% from ~3.8%, reflecting cost pressure and tax burden. Non-operating items were a minor net drag (0.24 income vs 0.30 expense), and not a major growth driver. EBITDA was 4.65 (margin 6.9%), providing some cushion, but not enough to offset SG&A growth. Given the solid OCF, the company retains capacity to invest (capex 1.34 YTD), but ROIC at 5.6% suggests returns are below desirable thresholds; improving store productivity, sourcing, and inventory efficiency will be important to lift ROIC. Near-term outlook hinges on restoring operating leverage (SG&A control) and protecting gross margins; any improvement here could quickly flow to profit given low interest burden.

Financial Health

Liquidity is strong: current assets 38.76 vs current liabilities 14.28 yields a current ratio of 271.5% (no warning). Quick ratio appears identical due to unreported inventories; actual quick ratio may be lower, but likely still healthy given cash of 15.84 and receivables of 8.70. Solvency is conservative with total liabilities 18.70 vs equity 45.23 (D/E 0.41x) and short-term loans of only 1.50. Interest coverage is very strong at ~274x, indicating minimal refinancing risk. No warning thresholds breached (Current Ratio well >1.0; D/E well <2.0). Maturity mismatch risk is low: cash and receivables (24.54 combined) comfortably exceed short-term obligations (14.28). Off-balance sheet obligations are not disclosed; lease/rental commitments may exist but are unreported here.

Cash Flow Quality

OCF of 3.15 vs net income of 1.67 yields an OCF/NI ratio of 1.88x, indicating high earnings quality. Estimated FCF (OCF minus capex) is ~1.81, suggesting internally generated cash can fund maintenance capex and modest shareholder returns. Working capital dynamics appear supportive: receivables of 8.70 imply DSO of roughly ~24 days on H1 sales, reasonable for the business; inventories are unreported, limiting assessment of turns and potential cash tie-up. No signs of aggressive working capital management are evident from the provided data. Financing CF of -3.58 likely reflects dividend payments and/or debt repayment; specifics are unreported. Overall, cash conversion is healthy this period, providing flexibility even as margins compress.

Dividend Sustainability

Dividend disclosures are limited (DPS and total dividends unreported). A calculated payout ratio of 154.0% suggests distribution above earnings capacity if accurate, which would be unsustainable over time. However, with estimated FCF of ~1.81, modest dividends could be covered by cash flow; coverage of a high payout would be unlikely to persist without profit recovery. Balance sheet strength (net cash position implied by cash > total interest-bearing short-term debt) provides temporary headroom, but policy sustainability hinges on restoring earnings growth and margins. Near-term, prudent calibration of dividends to FCF would be advisable until ROIC and margins improve. Absent explicit guidance, dividend outlook remains uncertain due to data gaps.

Risk Assessment

Business Risks:

• Margin pressure from rising SG&A (labor, rent, store expansion) leading to negative operating leverage
• Potential gross margin volatility due to mix shifts and sourcing conditions in used parts/accessories
• Execution risk in store rollout or format changes affecting same-store sales and productivity
• High effective tax rate (39.9%) weighing on net profitability

Financial Risks:

• Small scale and low margins resulting in modest ROE (3.7%) and ROIC (5.6%) below typical targets
• Dividend policy risk given a calculated payout ratio of 154% if maintained
• Data gaps on inventories and long-term debt that could mask liquidity or leverage nuances

Key Concerns:

• Operating margin compression (~69 bps YoY) despite revenue growth
• Net margin compression (~126 bps YoY) exacerbated by high tax rate
• SG&A ratio at 36.0% of sales limiting operating leverage

Investment Implications

Key Takeaways:

• Topline growth (+4.8% YoY) did not translate into profit growth; OP -9.9%, NI -30.5%
• Operating margin compressed to 4.3%; SG&A intensity at 36.0% likely the main driver
• Cash flow quality solid (OCF/NI 1.88x) with estimated FCF ~1.81, supporting reinvestment
• Balance sheet robust (current ratio 271.5%, D/E 0.41x, strong interest coverage)
• ROE 3.7% and ROIC 5.6% remain modest, requiring margin and asset efficiency improvements
• Dividend sustainability uncertain; calculated payout ratio of 154% appears high relative to earnings

Metrics to Watch:

• SG&A-to-sales ratio and wage/rent trends
• Operating and net margin trajectory (bps change QoQ/YoY)
• Gross margin mix and sourcing costs
• Inventory levels and turnover (currently unreported)
• Same-store sales growth and store count productivity
• OCF/NI and FCF after capex
• ROIC progression toward 7–8%+
• Effective tax rate normalization

Relative Positioning: Versus domestic specialty retail peers, Up Garage Group exhibits a stronger liquidity profile and low leverage but weaker profitability momentum, with margins under pressure and ROIC below typical targets; near-term performance hinges on cost control and operating leverage recovery.

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