JAPAN CRAFT HOLDINGS CO.,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥3.21B
• Operating Income: ¥-87M
• Net Income: ¥-219M
• EPS: ¥-3.37

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q1 was weak but slightly improving at the operating level, with flat sales, a narrower operating loss, and persistent bottom-line red ink amid leverage and liquidity pressures. Revenue was 32.09 (100M JPY), essentially flat YoY (-0.0%), indicating no top-line momentum. Gross profit was 18.51, yielding a strong gross margin of 57.7%, but SG&A of 19.77 outpaced gross profit, driving an operating loss of -0.87. Operating income improved by +408.7% YoY in percentage terms (from a deeper loss), but remained negative, implying only partial cost containment. Non-operating items were net -0.19 (income 0.02 vs expenses 0.21) with interest expense of 0.14 a key drag, culminating in ordinary income of -1.03 and profit before tax of -1.93. Net income was -1.25 (EPS -3.37 JPY), and total comprehensive income was -1.04, confirming sustained losses. Operating margin stood at -2.7% (operating loss 0.87 / revenue 32.09), ordinary margin at -3.2%, and net margin at -3.9%, all below break-even. Given the lack of prior-period margin disclosure, basis-point changes cannot be precisely quantified, but the improved operating loss suggests directional margin improvement versus last year. Earnings quality cannot be assessed because operating cash flow was not disclosed; this is a key data gap. Balance sheet shows total assets of 114.35 and equity of 34.77, implying financial leverage of 3.29x and a reported D/E of 2.29x—elevated for a retailer-like business. Liquidity is mixed: current ratio is 129.1% (above 1.0 but below a comfortable 150%), while quick ratio is weak at 59.9%, reflecting heavy inventory of 40.05 (over one quarter’s sales). Interest coverage is deeply negative at -6.33x, highlighting debt service risk if operating losses persist. ROE is -3.6% (DuPont: margin -3.9% × asset turnover 0.281 × leverage 3.29x), and ROIC is -1.9%, well below the 5% warning threshold. Forward-looking, sustaining cost discipline and converting inventory into cash will be critical to restore positive operating margin and mitigate refinancing risk on 28.80 of short-term loans. Without OCF disclosure and with ongoing losses, dividend capacity appears constrained near term.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-3.9%) × (0.281) × (3.29x) ≈ -3.6%. The largest negative contributor is the net profit margin (-3.9%), which overwhelms modest asset turnover and magnifies through leverage. Asset turnover at 0.281 for the quarter is low, consistent with inventory-heavy, store-based or product-based businesses; leverage at 3.29x amplifies bottom-line volatility. The operating loss of -0.87 despite a high gross margin (57.7%) indicates SG&A absorption issues; SG&A of 19.77 exceeded gross profit, preventing operating profitability. Business drivers likely include fixed costs (rents, staffing) and possibly promotional intensity; interest expense (0.14) further pushes ordinary income negative. The YoY improvement in operating income (+408.7% vs prior deeper loss) suggests early effects from cost control or mix, but sustainability is uncertain without visible SG&A breakdown or volume growth. Given flat revenue (-0.0% YoY), any margin gains are more likely cost-driven than demand-driven, which tends to be more fragile. Concerning trend: SG&A (absolute) remains larger than gross profit this quarter; with revenue flat, there is limited operating leverage in the short term. Monitoring the relationship between gross profit growth and SG&A growth will be key; if SG&A growth continues to exceed revenue growth, profitability will remain pressured.

Growth Assessment

Top-line growth was stagnant at 32.09 (-0.0% YoY), implying no underlying volume or price growth momentum. Gross margin at 57.7% is strong, suggesting product mix or pricing power at the gross level, but cost structure prevents translation to operating profit. Operating income improved YoY in percentage terms but is still negative; sustainability hinges on further SG&A efficiencies or sales uplift. Non-operating items remain a net drag due to interest costs; limited upside from non-operating income (0.02) offers little buffer. With ROIC at -1.9%, the current investment base is not earning its cost, indicating growth should prioritize profitability over expansion. Outlook: focus on inventory normalization and cost agility to lift operating margin back to break-even; absent a sales inflection, growth quality will remain weak. Near-term catalysts could include seasonal demand or pricing/mix actions; risks include softer consumer spending and elevated financing costs.

Financial Health

Liquidity: Current ratio 129.1% (>1.0 but below the 150% comfort threshold); quick ratio 59.9% is weak due to large inventories (40.05). Explicit warning: D/E ratio 2.29x (>2.0) indicates high leverage for this profile. Maturity profile: short-term loans of 28.80 are sizeable versus quick assets (cash 22.18 + AR 7.64 ≈ 29.82) and must also cover other current liabilities (total current liabilities 57.89), indicating potential refinancing/maturity mismatch risk if inventory does not convert to cash timely. Long-term loans are 5.21; total liabilities 79.58 vs equity 34.77 underscores reliance on debt. Interest coverage is -6.33x, reflecting insufficient earnings to service interest from operations. No off-balance sheet obligations were disclosed in the provided data, so contingent risks (leases, guarantees) cannot be assessed here.

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income cannot be computed; earnings quality assessment is constrained. We therefore cannot test the OCF/NI threshold of 0.8, nor assess free cash flow after capex and dividends. Working capital risk is notable: inventories (40.05) exceed quarterly sales (32.09), implying potential cash tied up and susceptibility to markdown risk if demand softens. No signs of working capital manipulation can be inferred without cash flow detail; however, the combination of negative earnings and heavy inventory indicates potential future cash strain if sell-through lags. With interest expense present and no OCF data, FCF coverage of debt service and any dividends cannot be verified.

Dividend Sustainability

Dividend data is unreported; payout ratios are not reliably calculable for this quarter. Given negative net income (-1.25) and unknown OCF, dividend sustainability cannot be confirmed and appears constrained near term. Without FCF disclosure, we cannot assess coverage for dividends plus capex. Policy outlook: if management prioritizes balance sheet stability amid losses and high leverage, a conservative stance on shareholder returns would be prudent until operating profitability and cash generation recover.

Risk Assessment

Business Risks:

• Flat revenue (-0.0% YoY) indicating weak demand momentum
• Negative operating margin (-2.7%) despite high gross margin, implying fixed-cost burden
• Inventory overhang (40.05 vs quarterly sales 32.09) raising markdown and obsolescence risk
• Potential store cost inflation (rents, labor) pressuring SG&A
• Consumer discretionary sensitivity impacting sell-through

Financial Risks:

• High leverage: D/E 2.29x and financial leverage 3.29x
• Negative interest coverage (-6.33x) signaling debt service stress
• Liquidity pressure: quick ratio 59.9% with sizable short-term loans (28.80)
• Refinancing/maturity mismatch risk given current liabilities 57.89 vs quick assets
• ROIC -1.9% below threshold, implying value dilution if not corrected

Key Concerns:

• Sustained bottom-line losses (net margin -3.9%)
• Dependence on cost cuts rather than growth to improve margins
• Limited non-operating income to offset interest burden
• Data gaps (no OCF, capex, dividends) hindering cash flow assessment

Investment Implications

Key Takeaways:

• Operating loss narrowed but remains negative; margin recovery is incomplete
• Leverage and interest burden are material constraints on flexibility
• Inventory intensity elevates cash conversion risk
• ROE (-3.6%) and ROIC (-1.9%) signal subpar capital efficiency
• Liquidity adequate by current ratio but weak on a quick basis

Metrics to Watch:

• OCF and FCF (when disclosed) vs net income
• Inventory levels and inventory-to-sales ratio
• SG&A trajectory relative to gross profit
• Operating margin progression toward break-even
• Debt mix and refinancing of short-term loans; interest coverage
• ROIC improvement back toward 5%+

Relative Positioning: Versus small-cap specialty retail/consumer peers, Japan Craft Holdings shows weaker operating profitability, higher leverage, and lower ROIC, with a heavier working capital footprint that heightens liquidity and refinancing risk until operating margins and cash conversion improve.

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
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