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

Japan Craft Holdings (71350) reported FY2026 Q1 consolidated results under JGAAP showing flat topline performance with revenue of ¥3,209 million (±0.0% YoY) and a modest operating loss of ¥87 million. Gross profit was ¥1,851 million, implying a strong gross margin of 57.7%, but SG&A and other operating costs of roughly ¥1,938 million exceeded gross profit, resulting in a negative operating margin of 2.7%. Ordinary income deteriorated further to a loss of ¥103 million, reflecting net non-operating expenses, including interest expense of ¥13.7 million. Net income was a loss of ¥125 million (EPS -¥3.37), with a small tax expense booked despite the loss, which may indicate non-deductible items, prior period adjustments, or taxes unrelated to current-period profits. Balance sheet strength appears moderate: total assets were ¥11,435 million and equity ¥3,477 million, implying a leverage ratio (assets/equity) of 3.29x and an equity ratio of about 30.4% (derived from balance sheet, as the reported equity ratio is shown as 0.0% and likely unreported). Liquidity is adequate on a current basis with a current ratio of 135%, but the quick ratio of 66% highlights reliance on inventory to meet short-term obligations. Inventories are sizeable at ¥3,892 million, representing approximately 34% of total assets and 51% of current assets, underscoring working-capital intensity. Interest coverage is negative (-6.3x) due to the operating loss, though the absolute interest burden (¥13.7 million in the quarter) is manageable if operating profitability improves. DuPont decomposition indicates ROE of approximately -3.6%, driven by a -3.9% net margin, quarterly asset turnover of 0.281x, and financial leverage of 3.29x. On an annualized view, asset turnover would be closer to ~1.1x, suggesting scope for ROE repair if margins normalize. Cash flow information (OCF, capex, FCF, and cash balance) was not disclosed in the XBRL for this quarter, limiting cash flow quality assessment. Depreciation and amortization were also unreported, making EBITDA metrics non-informative this period. Revenue stability alongside an improved but still negative operating result (YoY change reported at +408.7% from a weak base) suggests cost structure and operating leverage are the primary swing factors for earnings. The absence of dividends (DPS ¥0) appears consistent with the current loss and the need to prioritize balance sheet resilience and operating turnaround. Overall, the quarter shows resilient gross profitability offset by heavy overheads and inventory intensity; execution on cost controls, inventory normalization, and traffic/mix is critical to restoring profitability.

Profitability Analysis

ROE decomposes to approximately -3.6% = (-3.9% net margin) × (0.281x asset turnover, quarterly) × (3.29x leverage). The strong gross margin of 57.7% signals solid pricing/mix or category economics, but SG&A of roughly ¥1,938 million (≈60.4% of sales) more than consumed gross profit, driving a -2.7% operating margin. Operating leverage remains unfavorable in Q1; small changes in sales or cost discipline can meaningfully impact earnings given the tight spread between GP and SG&A. The gap between operating and ordinary income (−¥16 million) reflects net non-operating expenses, principally interest of ¥13.7 million. Interest coverage is -6.3x due to operating losses; in absolute terms, the interest burden is modest versus revenue (~0.4% of sales), suggesting that a return to even low-single-digit operating margins would quickly restore coverage. Effective tax appeared non-zero despite losses, implying non-recurring or non-deductible tax items; this does not reflect core operating profitability. EBITDA and D&A were not disclosed, limiting margin quality triangulation; however, the negative operating result indicates EBITDA was likely negative absent large unreported non-cash charges.

Growth Assessment

Revenue was flat YoY at ¥3,209 million, implying steady demand but no growth catalyst visible this quarter. The reported +408.7% YoY change in operating income denotes a significant improvement from a weaker base, yet the company remains loss-making at the operating level. With gross margin at 57.7%, product mix appears supportive; the drag is in operating expenses, suggesting growth sustainability hinges more on cost alignment than on pricing. Inventory levels are elevated relative to current sales, which may constrain near-term growth quality if sell-through lags or markdowns are required. Ordinary income and net income are negative, highlighting that any near-term growth needs to be margin-accretive to improve profitability. Given the lack of disclosed cash flow, we cannot confirm whether the current growth is supported by operating cash generation or by working-capital expansion. Outlook hinges on cost control (SG&A productivity), inventory optimization, and stable customer traffic; improvement in these operational levers would have outsized impact on earnings given the current operating leverage.

Financial Health

Total assets were ¥11,435 million and total equity ¥3,477 million, implying an equity ratio of ~30.4% (derived) and financial leverage (A/E) of 3.29x. Total liabilities were ¥7,861 million, with current liabilities of ¥5,640 million. Liquidity appears adequate on a current basis: current ratio 135%, quick ratio 66%, and working capital of ¥1,985 million. The reliance on inventory (¥3,892 million) to support liquidity is high, making cash conversion dependent on sell-through. Debt-to-equity is 2.26x (all liabilities to equity), indicating moderate leverage; net debt cannot be assessed as cash was undisclosed. Interest expense of ¥13.7 million suggests a manageable financing cost load, but sustained operating losses would pressure coverage metrics. Absent cash flow data, we cannot assess near-term refinancing risk or covenant headroom, but balance sheet size versus earnings suggests maintaining liquidity buffers is important.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed this quarter, so OCF/NI, FCF, and cash conversion cannot be reliably assessed. The reported OCF/Net Income ratio of 0.00 and FCF of 0 reflect non-disclosure, not actual zero cash flows. Working capital intensity is evident: inventories are large at ¥3,892 million (~34% of assets), and the quick ratio is 66%, indicating dependence on inventory monetization for liquidity. With an operating loss, high inventory raises the risk of cash outflows if sell-through slows or markdowns occur. Without D&A disclosure, we cannot separate non-cash components of earnings or approximate maintenance capex needs. Overall, cash flow quality is indeterminate this quarter; monitoring future OCF, inventory turns, and capex disclosures is essential.

Dividend Sustainability

DPS was ¥0 with a payout ratio of 0.0%, consistent with loss-making status and a prudent stance to preserve capital. Given negative net income and undisclosed OCF/FCF, cash-based coverage of dividends cannot be assessed; the reported FCF coverage of 0.00x is not meaningful due to non-disclosure. With leverage moderate and operating losses ongoing, maintaining a no-dividend policy appears aligned with balance sheet preservation until sustained profitability and positive OCF are demonstrated. Future resumption would depend on turning operating margin positive, stabilizing interest coverage, and demonstrating consistent free cash flow after working capital.

Risk Assessment

Business Risks:

• High operating leverage: SG&A exceeds gross profit in the quarter, making earnings sensitive to small sales or cost changes.
• Inventory intensity: large inventories (¥3.9bn) increase markdown and obsolescence risk if demand slows.
• Demand variability and potential seasonality in discretionary categories affecting traffic and mix.
• Competitive pressures from specialty retail and e-commerce impacting pricing and margins.
• Potential need for promotional activity to drive sell-through, risking gross margin dilution.

Financial Risks:

• Negative operating income driving negative interest coverage (−6.3x).
• Moderate leverage (D/E 2.26x; A/E 3.29x) with unknown cash position increases refinancing and liquidity uncertainty.
• Dependence on inventory for liquidity (quick ratio 66%) raises cash conversion risk.
• Tax expense despite losses suggests potential non-recurring or structural tax cash outflows.
• Limited visibility on cash flows (OCF/FCF undisclosed) complicates covenant and liquidity assessment.

Key Concerns:

• Turning operating margin positive through SG&A discipline without sacrificing gross margin.
• Reducing inventory to improve cash conversion and sustain liquidity.
• Maintaining lender confidence and interest coverage if losses persist.
• Visibility on cash balances, capex, and OCF to assess sustainability of operations.
• Stabilizing ordinary income by curbing non-operating expenses.

Investment Implications

Key Takeaways:

• Topline stable at ¥3.21bn, but operating loss persists as SG&A outpaced gross profit.
• Gross margin robust at 57.7%, indicating pricing/mix strength; cost structure is the bottleneck.
• Liquidity acceptable on a current basis (CR 135%), but quick ratio of 66% highlights reliance on inventories.
• Leverage is moderate (A/E 3.29x; D/E 2.26x) with manageable interest costs if operating profit normalizes.
• Cash flow and cash balance were not disclosed; earnings quality and FCF cannot be judged this quarter.

Metrics to Watch:

• Operating margin progression and SG&A as a percentage of sales.
• Inventory levels, inventory turnover, and gross margin sustainability (markdowns).
• Ordinary income vs. operating income gap (non-operating costs, interest).
• Interest coverage (EBIT/interest) and any disclosures on net debt and cash.
• OCF, capex, and FCF once disclosed; cash balance and liquidity buffers.

Relative Positioning: Versus specialty retail peers, the company exhibits higher gross margins but weaker operating margins due to heavier SG&A, higher inventory intensity, and moderate leverage; restoring operating efficiency and cash conversion is key to closing the gap.

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