Decollte Holdings Corporation FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥6.05B
• Operating Income: ¥294M
• Net Income: ¥145M
• EPS: ¥28.42

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

FY2025 Q4 results show a clear improvement in core operations with operating income growth outpacing revenue, albeit with notable non-operating headwinds that compressed profit before tax relative to operating profit. Revenue rose 8.2% YoY to 60.46, while operating income climbed 34.3% YoY to 2.94, evidencing operating leverage. Gross profit reached 20.78, implying a gross margin of 34.4%. SG&A was 16.47, or 27.3% of sales, allowing operating margin to expand to 4.86%. By our back-calculation, operating margin expanded roughly 94 bps YoY (from ~3.9% to ~4.9%), supported by scale and cost discipline. Net income increased 37.1% YoY to 1.45, lifting net margin to 2.4%. However, profit before tax (1.98) was substantially below operating income (2.94), indicating roughly 0.96 in net non-operating losses; ordinary income was notably low at 0.19 (-88.4% YoY), underscoring non-operating drag. Cash flow quality was excellent: operating cash flow of 13.66 was 9.4x net income, driven by sizable non-cash add-backs (D&A 8.38) and likely favorable working capital, resulting in robust free cash flow of 11.02 after capex of 1.80. The balance sheet is mixed: equity ratio is a moderate 40.4%, debt/EBITDA is conservative at 1.92x, but goodwill is large at 56.36 (46% of assets), keeping ROIC modest at 3.0%. Asset efficiency improved with asset turnover at 0.491, yet overall capital efficiency remains a concern given ROE of 2.9% and ROIC below typical cost of capital benchmarks. Liquidity visibility is limited due to unreported current liabilities, though current assets of 8.09 and end cash of 3.29 compare to short-term loans of 5.03 and payables of 2.27. EPS was 28.42 JPY on 5.12 million average shares; BVPS was ~972 JPY, implying low single-digit ROE on book value. No dividend data were disclosed, so payout and policy trajectory remain unclear. Net, the quarter demonstrates improving core profitability and very strong cash conversion, offset by non-operating losses and structurally low ROIC. Forward-looking, sustained margin gains and FCF-led deleveraging are the key positives, while goodwill concentration, non-operating volatility, and subdued capital returns are the principal watch items.

Profitability Analysis

Step 1 (ROE decomposition): ROE ≈ Net profit margin × Asset turnover × Financial leverage = 2.4% × 0.491 × 2.47 ≈ 2.9%. Step 2 (what changed most): The primary driver appears to be margin improvement; operating income rose 34.3% vs revenue +8.2%, implying operating margin expansion (~+94 bps YoY). Step 3 (business reason): Better SG&A efficiency (SG&A 27.3% of sales) and scale benefits supported operating leverage, while gross margin held at 34.4%. Step 4 (sustainability): Operating leverage from revenue growth and cost control is partially sustainable, but the sizable non-operating losses that pulled PBT below OI (1.98 vs 2.94) introduce volatility that could cap net margin gains unless addressed. Step 5 (flags): ROIC is low at 3.0% versus a 7–8% management target common in Japan, indicating limited value creation; watch SG&A growth versus revenue—this quarter was favorable (revenue outgrew SG&A), but persistence is key.

Growth Assessment

Revenue growth of 8.2% YoY to 60.46 indicates steady top-line momentum in the core business. Operating income growth of 34.3% suggests improved cost absorption and operating leverage. Net income growth of 37.1% outpaced revenue, but was partly tempered by non-operating losses (PBT < OI). EBITDA of 11.32 (18.7% margin) reflects healthy underlying earnings capacity supported by D&A of 8.38. Sustainability hinges on continued demand in the company’s service categories and disciplined SG&A; no evidence of one-off gains was disclosed at operating level. The sharp drop in ordinary income (-88.4% YoY) signals non-operating volatility that could recur (e.g., valuation losses, FX or other items under IFRS), and should be monitored. Outlook: incremental margin expansion appears achievable if revenue growth continues and non-operating drag normalizes; otherwise, net margin recovery may stall.

Financial Health

Liquidity: Current assets are 8.09, but current liabilities were not disclosed; thus, the current ratio is not calculable. Short-term loans (5.03) plus accounts payable (2.27) total 7.30, which is broadly covered by current assets, but absence of full current liabilities warrants caution on near-term liquidity. Cash and equivalents ended at 3.29. Solvency: Total liabilities 73.41 vs equity 49.82 imply a D/E of 1.47x (moderate). Interest-bearing debt totals 21.71 (ST 5.03 + LT 16.68), yielding Debt/EBITDA of 1.92x (conservative). Equity ratio is 40.4%, adequate for the sector. Maturity mismatch: Potential risk exists if additional undisclosed current liabilities are material; however, strong OCF mitigates refinancing pressure. Off-balance sheet: Not disclosed; no explicit leases or guarantees provided in the data. Warning thresholds: No explicit breach of D/E > 2.0; current ratio cannot be assessed due to missing data.

Cash Flow Quality

OCF/Net income is 9.42x (13.66 / 1.45), indicating very high earnings quality this period. The spread between EBITDA (11.32) and OCF (13.66) suggests favorable working capital movements in addition to non-cash add-backs (D&A 8.38). Free cash flow was strong at 11.02 after capex of 1.80, comfortably funding potential debt service and leaving room for deleveraging. There are no signs of aggressive working capital manipulation in the reported figures, but detailed components (AR, AP, inventory changes) were not disclosed, limiting definitive conclusions. Given robust OCF and moderate leverage, FCF sustainability appears solid assuming stable EBITDA and capex discipline.

Dividend Sustainability

Dividend data were not disclosed; payout ratio and FCF coverage cannot be calculated. From a capacity standpoint, FY2025 FCF of 11.02 comfortably exceeds net income of 1.45 and appears sufficient to support a modest dividend policy if pursued. However, with ROIC at 3.0% and goodwill concentration high, management may prioritize balance sheet strength and selective reinvestment/deleveraging over payouts. Policy outlook remains uncertain due to missing disclosures.

Risk Assessment

Business Risks:

• Demand sensitivity in core service markets (consumer discretionary exposure affecting booking volumes).
• Execution risk on margin improvement and SG&A control needed to sustain operating leverage.
• Large goodwill (56.36; ~46% of assets) elevates impairment risk if performance underwhelms.
• Operational cost inflation (labor and rents) that could compress margins if not offset by pricing/productivity.

Financial Risks:

• Non-operating income volatility (ordinary income 0.19; PBT materially below OI) impacting bottom line predictability.
• Liquidity visibility constraints due to unreported current liabilities; potential short-term refinancing risk vs ST loans (5.03).
• Interest rate risk on floating-rate debt given total interest-bearing debt of 21.71.
• Low ROIC at 3.0% risks value dilution if growth requires additional capital.

Key Concerns:

• Capital efficiency: ROIC (3.0%) and ROE (2.9%) are below typical cost of equity/wacc levels.
• Goodwill concentration and potential impairment charges in a downturn.
• Sustaining net margin improvements amid non-operating headwinds.

Investment Implications

Key Takeaways:

• Core operations strengthened: operating income +34.3% vs revenue +8.2%, operating margin ~4.9% (+~94 bps YoY).
• Exceptional cash conversion: OCF 13.66 (9.4x NI) and FCF 11.02 support de-leveraging capacity.
• Balance sheet moderate: equity ratio 40.4%, Debt/EBITDA 1.92x; end cash 3.29.
• Non-operating losses reduced PBT below OI (1.98 vs 2.94), increasing earnings volatility.
• Structural capital efficiency is weak: ROIC 3.0%, ROE 2.9%, with goodwill at ~46% of assets.

Metrics to Watch:

• Operating margin trajectory and SG&A ratio vs revenue growth.
• Non-operating items bridging OI to PBT/NI (drivers and recurrence).
• ROIC improvement and capital allocation discipline (capex vs returns).
• Leverage and liquidity: Debt/EBITDA, short-term debt coverage, and any disclosed current liabilities.
• Working capital trends (AR, AP, inventory turns) sustaining OCF.

Relative Positioning: Within domestic consumer services peers, the company exhibits solid FCF generation and moderate leverage but lags on capital efficiency (ROIC/ROE). Near-term earnings quality is strong due to cash conversion, yet medium-term valuation support may depend on visible ROIC uplift and mitigation of non-operating volatility.

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