HOUSE OF ROSE Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.65B
• Operating Income: ¥-116M
• Net Income: ¥-98M
• EPS: ¥-20.86

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

House of Rose (75060) reported FY2026 Q2 standalone results showing modest top-line resilience but ongoing losses, alongside a very strong balance sheet and ample liquidity. Revenue was ¥5,653 million, down 1.0% YoY, indicating relatively stable demand despite likely soft store traffic or channel mix shifts. Gross profit was ¥4,049 million with a very high gross margin of 71.6%, consistent with a premium cosmetics/beauty retail model and controlled procurement. Operating income improved materially to a loss of ¥116 million (+61.8% YoY improvement), suggesting tangible SG&A discipline even on slightly lower sales. Ordinary income and net income were also negative at ¥113 million and ¥98 million respectively, with a net margin of -1.73%. DuPont decomposition indicates ROE of -1.78% driven primarily by the negative margin; asset turnover of 0.66x and modest leverage of 1.56x otherwise support returns if profitability normalizes. The company’s cost structure remains heavy: implied SG&A is about ¥4,165 million (gross profit minus operating income), or roughly 73.7% of sales, exceeding the gross margin and keeping operating income in the red. Liquidity is a clear strength: the current ratio is 421% and the quick ratio is 308%, with working capital of ¥4,105 million, providing a substantial buffer in a volatile environment. The balance sheet is conservative, with total liabilities of ¥2,761 million versus equity of ¥5,509 million (liabilities-to-equity ~0.50x), and an implied equity-to-asset ratio of roughly 64% (equity ratio shown as 0.0% is unreported). Operating cash flow was a modest outflow (¥53 million), better than the net loss would suggest (OCF/NI ~0.54), hinting at acceptable earnings-to-cash conversion given the loss-making status. Financing cash outflow of ¥93 million likely reflects lease, debt, or shareholder-related payments, while investing cash flows were not disclosed. Inventory stands at ¥1,441 million (about 26.8% of current assets), which warrants monitoring for turnover and obsolescence risk. Interest expense is negligible at ¥1.0 million, and interest coverage on EBIT is negative but not a solvency concern due to low absolute interest costs and strong liquidity. Dividend information is not disclosed (zeros indicate unreported), and with a half-year net loss and negative OCF, dividend capacity is likely constrained near term. Overall, the company appears financially sound with substantial cushions, but achieving sustainable profitability hinges on further SG&A optimization and revenue stabilization or growth, especially in owned retail and direct channels. Data limitations include unreported equity ratio, cash balance, investing cash flows, share count, and dividends, so the assessment focuses on available figures.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -1.73%, asset turnover 0.66x, financial leverage 1.56x, yielding ROE of -1.78%. Operating margin is -2.05% (¥-116m/¥5,653m), and ordinary margin is -2.0% (¥-113m/¥5,653m). Gross margin is a strong 71.6%, indicating solid product economics; however, implied SG&A of ~¥4,165m is 73.7% of sales, exceeding gross margin and driving operating losses. EBITDA is ¥-81.8m (margin -1.4%), supported by low D&A (¥34.2m) relative to sales; the small D&A base suggests limited depreciation burden but also limited non-cash cushion. Interest expense is very small (¥1.0m), and interest coverage on EBIT is -119.7x purely due to the operating loss, not leverage pressure. Margin quality: high gross margin stability appears intact; the primary issue is expense intensity (store operations, personnel, and possibly promotion). Operating leverage: despite a 1.0% sales decline, operating loss narrowed 61.8% YoY, implying meaningful fixed-cost reductions or better expense control; further leverage benefits may materialize if sales recover modestly.

Growth Assessment

Revenue declined 1.0% YoY to ¥5,653m, indicating relatively stable demand but no clear growth inflection in the half. Given the gross margin profile, mix likely remains oriented toward higher-margin own-brand or premium SKUs; however, topline softness suggests traffic or conversion challenges in certain channels. Profit quality improved at the operating level as cost discipline drove a significant YoY improvement in operating losses despite slightly lower sales. With asset turnover at 0.66x, utilization is reasonable for a retail/brand business but not high; incremental sales growth would help restore ROE given modest leverage. Outlook considerations: sustaining gross margin while rationalizing SG&A (store footprint productivity, labor scheduling, marketing ROI) is pivotal. Inventory at ¥1,441m (25.5% of half-year sales) appears manageable but warrants turnover vigilance to avoid markdown risk. Absent disclosed guidance, near-term growth visibility is limited; stabilization in same-store sales and continued opex control would be the most immediate catalysts for earnings normalization.

Financial Health

Liquidity is strong: current ratio 421.1%, quick ratio 308.4%, and working capital ¥4,105m, indicating ample capacity to meet near-term obligations. Solvency is sound: total liabilities ¥2,761m vs total equity ¥5,509m (liabilities-to-equity 0.50x); implied equity-to-asset ratio is roughly 64.3% (equity ratio field is unreported). Interest burden is minimal (¥1.0m in 1H), reducing refinancing risk. Capital structure appears conservative with limited financial leverage; negative EBIT is not a balance sheet threat in the short term given liquidity. Cash and equivalents are not disclosed; however, the quick ratio suggests substantial liquid assets beyond inventory. Lease and other obligations (if embedded in liabilities) appear manageable relative to equity; maturity profile is not disclosed. Overall, the company has significant balance sheet resilience to support operational adjustments.

Cash Flow Quality

Operating cash flow was ¥-53m versus net income of ¥-98m, yielding OCF/NI of ~0.54; while negative, this indicates partial cash earnings support and limited non-cash tailwinds. Free cash flow is not disclosed due to absent investing cash flow/capex data; hence, true FCF cannot be assessed. D&A is modest at ¥34m, implying limited depreciation add-back and a closer alignment of EBIT and OCF. Working capital: inventories are ¥1,441m (26.8% of current assets), highlighting the importance of inventory turns for cash generation; receivables and payables data are not provided, limiting a full working capital analysis. Financing cash outflow of ¥-93m suggests ongoing commitments (debt/lease repayments or shareholder returns), but specifics are unreported. Overall earnings quality appears mixed: the loss is small relative to sales, and cash burn is limited; sustained cost control and inventory management are key to restoring positive OCF.

Dividend Sustainability

Dividend data (annual DPS, payout ratio, and FCF coverage) are shown as zero, which indicates items are unreported rather than actual zero. With a half-year net loss (¥-98m) and negative OCF (¥-53m), distributable capacity appears constrained in the near term absent offsetting cash balances or non-operating inflows. Payout ratio is not meaningful due to negative earnings. FCF coverage cannot be evaluated without capex disclosure. Policy outlook is unclear as dividend policy is not provided; if the company historically targeted stable dividends, near-term sustainability would depend on cash reserves and the trajectory of operating recovery. Given strong liquidity and low leverage, the balance sheet could support modest payouts if policy dictates, but from fundamentals alone, prioritizing earnings normalization and cash generation would be prudent.

Risk Assessment

Business Risks:

• Top-line softness (-1.0% YoY) amid competitive beauty/cosmetics retail environment
• High SG&A intensity (73.7% of sales) constraining operating leverage
• Inventory management risk (¥1,441m; ~25.5% of half-year sales) with potential markdowns if demand weakens
• Channel mix and store productivity uncertainty impacting margins
• Potential demand volatility due to consumer sentiment and seasonality

Financial Risks:

• Negative operating income and EBITDA, requiring continued cost control
• Negative OCF in the half-year (¥-53m), albeit modest
• Limited disclosure on cash balance and capex, creating uncertainty around FCF
• Unreported dividend metrics and share data, limiting capital allocation visibility

Key Concerns:

• Sustained operating losses despite high gross margin
• Expense base exceeding gross profit, implying need for further SG&A optimization
• Visibility on inventory turnover and cash conversion is limited due to partial disclosures

Investment Implications

Key Takeaways:

• Revenue declined slightly but operating loss narrowed significantly, evidencing cost control progress
• High gross margin (71.6%) supports potential profitability if SG&A is right-sized
• Balance sheet is strong: current ratio 4.21x, liabilities-to-equity 0.50x, ample working capital
• Cash generation remains the swing factor; OCF was modestly negative and FCF unreported
• Data gaps (cash, capex, dividend policy, share count) constrain precision of valuation and payout analysis

Metrics to Watch:

• Same-store sales and total revenue growth
• SG&A-to-sales ratio and operating margin trajectory
• Inventory turnover and markdown rates
• Operating cash flow and OCF/NI ratio
• Capex and resulting free cash flow
• Ordinary income stability and non-operating items
• Quick ratio and payables/receivables trends
• Any updates on dividend policy and share count

Relative Positioning: Within Japan’s specialty beauty/cosmetics retail space, House of Rose shows strong gross margins and a notably conservative balance sheet versus many smaller peers, but lags on profitability due to elevated SG&A; near-term positioning hinges on executing cost rationalization while stabilizing sales.

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