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

Financial Highlights

• Net Sales: ¥6.70B
• Operating Income: ¥287M
• Net Income: ¥241M
• 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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Up Garage Group (71340) delivered FY2026 Q2 results showing modest top-line growth but weaker profitability and pressured cash generation. Revenue rose 4.8% year over year to 6,703 million yen, while operating income fell 9.9% to 287 million yen and net income declined 30.5% to 167 million yen. Gross profit margin remained healthy at 37.7%, but operating margin compressed to 4.3%, indicating higher SG&A or cost headwinds outweighed revenue growth. EBITDA was 424 million yen (6.3% margin), highlighting reduced operating leverage as revenue growth did not translate into commensurate profit expansion. DuPont analysis indicates a reported ROE of 3.69%, driven by a modest net margin of 2.49%, solid asset turnover of 1.048, and moderate financial leverage of 1.41. Liquidity is strong with a current ratio of 268.8% and working capital of 2,603 million yen; solvency appears comfortable with total liabilities at 1,981 million yen against equity of 4,523 million yen (implying an equity ratio of roughly 70.8% despite a reported 0.0% placeholder). Ordinary income of 282 million yen is close to operating income, and interest expense is minimal at 0.8 million yen, supporting an interest coverage ratio of 338x. Cash conversion is a concern this half: operating cash flow was negative 79.5 million yen despite positive earnings, reflecting working capital outflows (likely inventory and/or receivables build, though detail is undisclosed). Financing cash outflows of 345 million yen suggest debt repayments or other financing uses; there were no disclosed dividends this period. The effective tax burden appears meaningful based on disclosed income tax of 111 million yen versus ordinary income, implying a roughly 40% effective tax rate, even though a calculated metric shows 0.0% (likely a data placeholder). No dividend was paid (DPS 0), consistent with prioritizing reinvestment and balance sheet robustness amid uneven cash generation. Overall, the company shows resilient demand and a solid balance sheet but faces margin compression and weaker cash flow conversion in the half. Key uncertainties include the mix of franchise versus company-operated earnings, inventory dynamics, and the trajectory of SG&A as the company invests for growth. With relatively low financial leverage and ample liquidity, downside from balance sheet stress appears limited. However, sustaining ROE improvement will require margin stabilization and better operating cash flow. Data limitations (notably inventories, cash balance, investing CF, and share data) temper the precision of some assessments, but the core picture suggests modest growth with near-term profitability and cash conversion challenges.

From Earnings Presentation: UPGARAGE Group's Q2 FY2026 (ending March 2026) achieved revenue growth with sales of 6,703 million yen (+4.8% YoY) driven by expanding reuse demand, but saw decreased profits with operating income of 287 million yen (-9.9%) and net income of 167 million yen (-30.5%). The main causes of profit decline were: (1) upfront costs from accelerating store openings to 7 stores (first half) significantly exceeding the annual plan of 5 stores, (2) human capital investments including strengthened recruitment, increased starting salaries for new graduates, and salary table revisions, and (3) advance investments in anticipation of the busy second half. While SG&A expenses expanded +9.4% YoY, the reuse business segment saw same-store sales exceed prior year for all months at both directly-operated and FC stores, FC stores remained solid with 4 new openings, and although the distribution wholesale segment fell short of first-half plans due to delayed studless tire sales from extreme heat, gross profit margin improved +0.8pt due to increased system usage fee revenue from Nexlink. While management acknowledged the first-half plan shortfall, they maintained full-year guidance (sales 15,500 million yen, operating income 1,315 million yen) and declared a second-half recovery. For directly-operated stores, 4 additional openings are confirmed through October, and the company aims to improve operational efficiency and increase customer touchpoints through store DX initiatives and OMO strategy enhancements including AI purchase assessment and app updates. The year-end dividend forecast of 36.5 yen (payout ratio 33.9%) is maintained, and the medium-term management plan targets gradually raising the payout ratio to 40% to strengthen shareholder returns. ROE was 18.2% (FY2025 actual) with plans to improve capital efficiency through a second-half turnaround.

Financial Analysis

Profitability

ROE_decomposition: ROE 3.69% = Net margin 2.49% × Asset turnover 1.048 × Financial leverage 1.41. The principal drag is the low net margin as operating income fell despite revenue growth. margin_quality: Gross margin is 37.7%, indicating solid merchandise economics. Operating margin is 4.3% (287/6,703), down YoY as operating income declined 9.9% versus +4.8% sales growth, implying higher SG&A (estimated ~2,238 million yen; ~33.4% of sales). Ordinary margin is 4.2% and close to operating margin, showing limited non-operating impact. Net margin at 2.49% was compressed by tax expense of 111 million yen (~40% implied ETR on ordinary income), not 0% as a placeholder metric suggests. operating_leverage: Negative operating leverage in the half: revenue +4.8% but operating income -9.9%, implying cost growth exceeding sales. EBITDA margin at 6.3% versus operating margin 4.3% shows modest D&A burden (137 million yen) but insufficient to offset higher operating costs. To re-expand margins, the company must improve SG&A efficiency and merchandise mix.

Growth

revenue_sustainability: Sales growth of 4.8% YoY suggests steady demand for reuse auto parts/services and potentially continued store network contribution. However, disclosure lacks same-store sales and mix between company-operated and franchised stores, limiting visibility into underlying growth drivers. profit_quality: Profitability lagged revenue due to higher operating costs. Ordinary income tracked operating income closely (282 vs. 287 million yen), indicating limited reliance on non-operating gains. Net income fell 30.5%, amplified by a normalizing tax burden. The margin profile remains positive but pressured. outlook: For the second half, normalization of working capital and disciplined SG&A could support earnings recovery, while stable gross margins should buffer cost pressures. Key swing factors include inventory availability/turnover, promotional intensity, and franchise fee momentum. Absent acceleration in top-line or cost relief, full-year margin expansion looks challenging from the current run-rate.

Financial Health

liquidity: Current assets 4,146 million yen vs. current liabilities 1,543 million yen yield a current ratio of 268.8% and working capital of 2,603 million yen. Quick ratio is shown as 268.8% due to undisclosed inventories; actual quick ratio may be lower if inventories are material. solvency: Total liabilities are 1,981 million yen against equity of 4,523 million yen (debt-to-equity 0.44x using total liabilities). Based on disclosed totals, the implied equity ratio is approximately 70.8% (4,523/6,393), despite a reported placeholder of 0.0%. Interest expense is only 0.8 million yen and coverage is 338x, indicating very low financial risk. capital_structure: Leverage is modest with financial leverage of 1.41 supporting ROE without undue balance sheet risk. Financing CF was -345 million yen, likely debt repayments or lease/other financing outflows; no dividends were paid.

Cash Flow

earnings_quality: OCF was -79.5 million yen versus net income of 167 million yen (OCF/NI = -0.48), indicating weak cash conversion in the half, likely due to working capital outflows. EBITDA of 424 million yen supports operating earnings quality, but cash timing is unfavorable. FCF_analysis: Investing cash flow was undisclosed (shown as 0), preventing precise FCF estimation. If capex were modest, the negative OCF would likely translate into negative FCF for the half. working_capital: Inventories and receivables are undisclosed, but the OCF shortfall suggests investment in inventories and/or receivables or lower payables. Monitoring inventory turnover and payables days is crucial to assess normalization potential in H2.

Dividend Sustainability

payout_ratio_assessment: DPS was 0 and payout ratio reported 0%. With net income positive but OCF negative in the half, a conservative stance on dividends aligns with preserving liquidity. FCF_coverage: FCF coverage cannot be assessed due to undisclosed investing cash flow; given negative OCF, FCF likely did not cover dividends even if any were planned. policy_outlook: Given modest ROE (3.69%), negative OCF in the half, and financing outflows, priority likely remains on reinvestment and balance sheet strength. Dividend initiation or increases would depend on restored cash conversion and clearer visibility on growth capex needs.

Business Outlook

Full-year guidance maintained at sales of 15,500 million yen (+10.9% vs. prior year) and operating income of 1,315 million yen (+25.9%), expecting profit recovery in second half. Second-half drivers include: (1) contribution from stores opened in first half and new stores from October onward, (2) full-scale studless tire sales season (recovering from first-half delay due to extreme heat), (3) effects of FC store royalty rate and franchise fee revisions, (4) full-year contribution from U.S. store and reduced overhead burden from second store opening, (5) tire distribution center expansion (4 stores in first half, annual target 30 stores), and (6) existing store profit margin improvement initiatives (enhanced purchase and sales capabilities, expanded installation service menu, operational efficiency through DX). Due to seasonal factors, sales and profits are weighted toward the second half, with first-half progress rates of 43.3% for sales and 21.9% for operating income being low but within expected range compared to historical performance. Tailwinds include expanding reuse market trends (used car accessories market size grew from 57.8 billion yen in 2018 to 72.1 billion yen in 2024, approximately 3.8% annual growth) and rising reuse demand amid inflation. The reuse market represents 5% of the approximately 1.4 trillion yen new car accessories market, with the company's chain total sales of 24.8 billion yen commanding a 34.4% share as a niche leader, offering significant growth potential with targets of 300 domestic stores and overseas expansion.

Management Guidance

President and Representative Director Kono explained the first-half profit decline: "Due to advance investment in new store opening costs and store human capital investment in anticipation of the busy second half, we fell short of the first-half plan, but there is no revision to full-year guidance." He cited the following as background for accelerated store openings: (1) favorable property acquisition environment, (2) increase in FC franchise candidates, and (3) solid existing store launch performance (e.g., Cycles Tamaplaza Station Store achieved monthly profitability in the second month of operation), analyzing that "accelerating store openings at a pace significantly exceeding the annual plan resulted in a substantial increase in initial opening costs in the first half." Regarding human capital investment, first-half hiring increased +40% YoY, with personnel costs rising +8.8% YoY due to increased starting salaries for new graduates and salary table revisions for store employees, but "operational efficiency improvements that enhance customer service are also progressing," with expectations that effects of AI and DX initiatives on operational efficiency and increased customer touchpoints will materialize from the second half onward. For the full year, he stated intentions to "achieve early launch of new stores in the second half," outlining a scenario where first-half advance investments lead to second-half profitability. Regarding dividend policy, he maintained "the policy of continuous shareholder returns each period with a target payout ratio of 30%" and declared in the medium-term management plan "we aim to strengthen profit distribution to shareholders through gradual increases in the target payout ratio to 40%." He demonstrated a stance of emphasizing ROE and ROIC improvement, stating "we aim to achieve ROE and ROIC exceeding cost of capital through continuous sales and profit growth."

Strategic Initiatives

• [Accelerated Store Openings] 7 directly-operated store openings exceeding the annual plan of 5 stores (3 stores in first half, 4 stores confirmed by October). FC stores: 4 stores in first half, 10-store annual target. Cycles: 1 store in first half, 5-store annual plan. Estimated 400 potential domestic opening areas, expanding areas while evaluating dominant strategy results.
• [Overseas Expansion] U.S. second store in Ontario opening end of November 2025. Following the Garden Grove, California store (opened 2024), promoting North American market awareness expansion and know-how accumulation.
• [Store DX] AI purchase assessment function developed with beta testing to begin in second half. Learning from 25 years of purchase data to provide appropriate pricing based on product information and condition, enabling even new staff to conduct assessments confidently. Trial automation of sales price changes also initiated to avoid long-term inventory.
• [OMO Strategy Enhancement] App updated with reward features, enabling roulette challenges upon completing in-app missions. After implementing reward features, daily data acquisition increased significantly (prefectural data +429%, vehicle data +217%). Strengthening store traffic through 1-to-1 marketing including coupon distribution and campaign push notifications using app member information.
• [Corporate Purchase Enhancement] Expanding corporate purchases against the backdrop of heightened sustainability and compliance awareness. Formed new business development team to approach automotive-related businesses. Purchase value +145% YoY, number of trading companies +90%, both significantly increased.
• [Tire Distribution Center Expansion] Formed new business development team focusing on large-scale chain stores. Annual target of 30 stores (300 million yen annual revenue increase). Cross-selling through recruitment services and order platform. 4 stores joined in first half, on track toward annual target.
• [Nexlink Profit Margin Improvement] Shifted some transaction models from wholesale to system usage, with fee-based transactions growing. Focused on improving wholesale profit margins, a prior-year issue, through new tire warehouse establishment, achieving gross profit margin improvement of +0.8pt YoY (9.5%→10.3%).
• [Human Capital Enhancement] First-half hiring +40% YoY. Implemented human capital investments including increased starting salaries for new graduates and salary table revisions for store employees. Held 43rd National Store Manager Meeting and 2nd Women's Meeting, promoting nationwide standardization including FC stores and human resource development. Conducting employee satisfaction surveys for over 10 years, working on personnel evaluation and work environment improvements.
• [Shareholder Benefit Enhancement] Increased gift certificates to 3,000 yen × 3 for shareholders holding 300+ shares for 1+ year (previously 3,000 yen × 1 for 100+ shares). Promoting medium to long-term ownership to stabilize shareholder base.

Risk Assessment

Business Risks:

• Margin pressure from higher SG&A, logistics, and procurement costs.
• Inventory availability and obsolescence risk in reuse auto parts merchandising.
• Demand sensitivity to macro conditions and used car/parts market cycles.
• Franchise performance variability and potential need for support to franchisees.
• Competitive intensity from online marketplaces and specialty retailers.

Financial Risks:

• Weak cash conversion in the half (OCF/NI -0.48) implying working capital risk.
• Potential for further financing outflows (345 million yen in H1) reducing cash buffers.
• Limited transparency on investing cash flows and cash balances due to undisclosed items.
• Tax burden around ~40% compressing net margin versus operating profit.

Key Concerns:

• Negative operating leverage with operating income down despite sales growth.
• Negative OCF despite positive earnings, pointing to working capital strain.
• Data gaps (inventories, cash, investing CF) impede precise assessment of liquidity runway.

Risk Factors from Presentation:

• [Purchase (Inventory Acquisition) Shortage Risk] Inventory gathering at store opening is a challenge for new openings. Addressing through strengthened individual purchases at stores, expanded corporate purchase channels, inventory supply from FC headquarters, and advance purchases during pre-opening.
• [Long-term Inventory Risk] Deterioration of capital efficiency and balance sheet due to long-term inventory retention. Suppressing long-term inventory occurrence through market monitoring and sales price management, and clearance sales at proprietary auctions. Aiming for sales floor where all products turn over within 3 months.
• [Competition Risk] Entry of new car accessories stores into reuse industry, CtC marketplace focus on used car accessories. Differentiating through database accumulated since founding, quality verification by professionals, warranties, and ancillary services such as installation work.
• [Automotive Technology Innovation (EV adoption, etc.) Risk] Changes in product handling. Responding to market environment changes through new business and service development.
• [Geopolitical Risk] Lockdowns due to COVID-19 pandemic, etc. Risk diversification by increasing new product suppliers.
• [Talent Shortage Risk] Difficulty securing sufficient personnel for store opening and business expansion plans. Implementing planned recruitment of new graduates and experienced hires, investing sufficiently in human resource development.

Investment Implications

Key Takeaways:

• Top-line grew 4.8% but operating income declined 9.9%, signaling cost pressure.
• Gross margin resilient at 37.7%, but SG&A ratio elevated (~33.4% of sales).
• ROE at 3.69% is modest; improvement hinges on margin recovery and asset turns.
• Strong balance sheet implied (equity ~70.8% of assets) with minimal interest burden.
• Cash conversion weak in H1 (OCF -79.5 million yen), likely from working capital build.
• No dividend (DPS 0), consistent with liquidity preservation and reinvestment.

Metrics to Watch:

• Same-store sales and ticket size in core reused auto parts retail.
• Gross margin trend and markdown/promotion levels.
• SG&A ratio and operating margin trajectory in H2.
• Inventory turnover, receivables days, and OCF/NI recovery.
• Store count and franchise fee income mix versus company-operated sales.
• Capex and investing cash flow disclosure for FCF visibility.

Relative Positioning: The company appears operationally resilient with a conservative balance sheet versus typical small-cap retailers, but lags on profitability momentum and cash conversion this half, positioning it as a steady top-line grower facing near-term margin and working capital headwinds.

Supplementary Insights (Key Highlights)

• 7 directly-operated store openings confirmed in the first half, significantly exceeding the annual plan of 5 stores (3 stores opened in first half, 4 stores by October), establishing a growth foundation from the second half onward through accelerated openings
• AI purchase assessment function developed with beta testing to begin in second half; store DX initiatives materialized including trial automation of sales price changes
• App updates significantly increased customer data acquisition (prefectural data +429%, vehicle data +217%), enabling enhanced 1-to-1 marketing
• Corporate purchases increased significantly due to heightened sustainability and compliance awareness (purchase value +145%, number of trading companies +90% YoY)
• Nexlink's transaction model partially shifted from wholesale to system usage, improving distribution wholesale segment's gross profit margin by +0.8pt (9.5%→10.3%)
• Held 43rd National Store Manager Meeting and 2nd Women's Meeting to promote nationwide chain standardization including FC stores and human resource development
• U.S. second store in Ontario, California scheduled to open end of November 2025, accelerating overseas expansion
• Enhanced shareholder benefits, increasing gift certificates to 3,000 yen × 3 for shareholders holding 300+ shares for 1+ year, promoting medium to long-term ownership

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