HURXLEY CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥25.52B
• Operating Income: ¥1.04B
• Net Income: ¥617M
• EPS: ¥28.13

Income Statement

Balance Sheet

Cash Flow Statement

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

Hurxley Co., Ltd. (TSE 7561) posted FY2026 Q2 consolidated results under JGAAP showing strong top-line momentum but muted profit conversion. Revenue rose 20.9% YoY to ¥25.525bn, supported by demand recovery and likely price/mix effects, yet operating income grew only 1.0% YoY to ¥1.038bn, indicating material cost and/or SG&A pressure. Gross profit was ¥6.905bn with a margin of 27.1%, while the operating margin settled at roughly 4.1%, underscoring compression versus the growth in sales. Ordinary income was ¥1.115bn and net income declined 15.8% YoY to ¥520m, pulling net margin to 2.04%. DuPont decomposition yields ROE of 2.08% driven by a low net margin (2.04%), modest asset turnover (0.353x), and higher financial leverage (2.90x). EBITDA reached ¥1.659bn with a 6.5% margin, and interest coverage appears comfortable at 14.0x, indicating manageable interest burden. Liquidity looks solid with a current ratio of 175% and quick ratio of 111.5%, supported by ¥12.671bn in working capital. Inventories are sizeable at ¥10.727bn, implying inventory intensity consistent with a fresh food/ready‑meal business, but also raising working capital sensitivity. Operating cash flow of ¥437m was below net income (OCF/NI 0.84), suggesting working capital outflows or non-cash items affecting cash conversion in the period. The effective tax rate shown in the “calculated metrics” is unreported (0.0% placeholder); using available figures (income tax expense ¥488m and ordinary income ¥1.115bn as a proxy for pretax) implies a high tax burden in the period. Balance sheet leverage measured as total liabilities to equity is 1.95x, in line with the 2.90x assets-to-equity financial leverage used in DuPont. While annual DPS and FCF are shown as zero in the feed, these appear to be unreported items rather than true zeros; therefore, dividend and FCF coverage assessments rely on qualitative inference from OCF and leverage. Overall, the story is one of strong sales growth offset by cost inflation and operating deleverage, dampening earnings and ROE. With positive but modest cash generation and adequate liquidity, financial risk is contained, but margin recovery is needed to lift returns. Key watchpoints include cost-of-goods and labor trends, same‑store sales momentum, and capex cadence (not disclosed). Data gaps (cash balance, investing cash flows, DPS, share count) limit precision on per‑share valuation and cash return capacity. Our assessment focuses on the disclosed non‑zero data and reasonable approximations where appropriate.

Profitability Analysis

ROE of 2.08% decomposes to Net Margin 2.04% × Asset Turnover 0.353× × Financial Leverage 2.90×, indicating returns are primarily constrained by slim net margins. Gross margin is 27.1% (¥6.905bn/¥25.525bn), but operating margin is ~4.1% (¥1.038bn/¥25.525bn), highlighting a meaningful SG&A burden. Ordinary income margin is ~4.4% and net margin is 2.04%, confirming cost and tax headwinds. EBITDA margin of 6.5% provides some cushion above operating margin, but the spread (EBITDA–EBIT of ¥621m) suggests ongoing depreciation intensity typical of multi‑unit food retail/production. Operating leverage was negative in the period: revenue grew +20.9% YoY while operating income grew only +1.0% YoY, implying either higher input costs (raw materials, utilities), wage pressures, or stepped‑up sales promotion/logistics costs. Interest expense was ¥74m; interest coverage of 14.0x (operating income/interest) shows limited financial drag at current rates. The implied effective tax burden based on income tax expense (¥488m) versus ordinary income (¥1.115bn) looks elevated, further diluting net margins, though exact pretax profit under JGAAP is not disclosed here. Overall profitability is currently volume-led with margin compression; sustained pricing discipline and cost control will be necessary to translate top-line growth into improved ROE.

Growth Assessment

Revenue expanded 20.9% YoY to ¥25.525bn, indicating strong demand and/or successful pricing/mix initiatives. However, operating income grew only 1.0% YoY to ¥1.038bn, which points to growth headwinds on the cost side and limited operating leverage. Ordinary income of ¥1.115bn improved less than sales, and net income fell 15.8% YoY to ¥520m, evidencing profit quality pressure from costs and taxes. The sales growth appears operationally sustainable near term given category demand, but the quality of growth is mixed due to erosion in conversion to profit. Inventory levels (¥10.727bn) suggest support for expanded sales activity but raise execution risk if demand normalizes. With EBITDA margin at 6.5% and OCF at ¥437m, cash earnings are positive but not scaling with sales at the same pace. Outlook hinges on management’s ability to mitigate food input inflation, optimize labor scheduling, and manage store economics; without margin recapture, incremental sales may continue to produce modest incremental profit. Absent disclosed guidance, we view near-term growth as intact but margin-sensitive.

Financial Health

Total assets are ¥72.39bn, liabilities ¥48.765bn, and equity ¥24.995bn, implying assets-to-equity leverage of 2.90x and a debt-to-equity proxy (total liabilities/equity) of 1.95x. Liquidity is sound: current ratio 175%, quick ratio 111.5%, and working capital of ¥12.671bn indicate ample short-term coverage. Inventories represent a large share of current assets (¥10.727bn out of ¥29.557bn), which supports operations but can heighten liquidity sensitivity if turnover slows. Interest expense is modest at ¥74m with 14.0x coverage on operating income, suggesting manageable solvency risk under current conditions. Equity ratio is shown as 0.0% in the data feed (unreported), but directly computed equity/asset ratio is ~34.5% (¥24.995bn/¥72.39bn), indicating a balanced capital structure. Overall, the company exhibits acceptable solvency and strong liquidity, though working capital management remains a key lever.

Cash Flow Quality

Operating cash flow was ¥437m versus net income of ¥520m, for an OCF/NI ratio of 0.84, indicating weaker cash conversion likely due to working capital investment (e.g., inventories or receivables) or timing of payables. Depreciation and amortization were ¥621m, signaling a capital-intensive footprint consistent with multi-site operations; absent investing cash flow disclosure, maintenance vs. growth capex cannot be assessed. Free cash flow is shown as zero in the feed but should be treated as unreported pending capex data; therefore, true FCF cannot be determined from the provided figures. The positive OCF provides some internal funding for reinvestment and potential returns, but the gap to NI suggests a focus on working capital discipline is warranted. Given inventory intensity, monitoring inventory turnover and shrinkage is important for cash realization. Overall earnings quality is moderate: profits translate into cash but not at a 1:1 rate this half, constrained by operating capital needs.

Dividend Sustainability

Annual DPS and payout ratio are shown as zero but appear to be unreported; thus, we cannot confirm actual dividends for the period. EPS is ¥28.13 for the half, and OCF totals ¥437m; without capex data and actual DPS, FCF coverage of dividends cannot be calculated. From a capacity standpoint, liquidity metrics are strong and interest burden is low, but weaker cash conversion and margin compression temper near-term headroom for higher distributions. Dividend policy under JGAAP often targets stable or progressively increasing dividends balanced with reinvestment; given data gaps, we assume a conservative stance until margin recovery clarifies cash generation. The sustainability outlook hinges on restoration of operating margin and normalization of working capital.

Risk Assessment

Business Risks:

• Food input cost inflation (grains, proteins, packaging) pressuring gross margin
• Rising labor costs and staffing constraints affecting store-level profitability
• Competitive intensity in ready‑to‑eat and take‑out formats impacting pricing power
• Demand normalization after rebound, risking negative operating leverage
• Inventory management and potential obsolescence/waste in fresh categories
• Supply chain and logistics disruptions increasing costs and lead times
• Energy and utility cost volatility impacting production and store operations
• Regulatory and food safety compliance risks in manufacturing and retailing

Financial Risks:

• Margin compression reducing interest coverage headroom if rates rise
• Working capital absorption (notably inventories) weakening cash conversion
• Potential need for higher capex (undisclosed) to refresh stores or capacity
• Tax rate volatility impacting net margins and ROE
• Exposure to lease liabilities (not disclosed here) affecting fixed cost base

Key Concerns:

• Operating income growth (+1.0% YoY) lagging revenue (+20.9% YoY)
• OCF/NI below 1.0 (0.84) indicating weaker cash conversion
• High apparent tax burden based on disclosed tax expense
• Large inventory balance raising execution and cash risk if sales slow

Investment Implications

Key Takeaways:

• Strong sales momentum (+20.9% YoY) but limited operating leverage with OPM ~4.1%
• ROE at 2.08% constrained by low net margin despite moderate asset turnover and leverage
• Liquidity solid (current ratio 175%, quick ratio 111.5%), supporting near-term flexibility
• Cash conversion moderate (OCF/NI 0.84); FCF indeterminable due to missing capex data
• Interest coverage robust at 14.0x; solvency risk currently contained
• Margin recovery (COGS and labor) is key to improving earnings quality and returns

Metrics to Watch:

• Same-store sales growth and ticket/traffic mix
• Gross margin (food cost ratio) and labor cost ratio trends
• SG&A as a percent of sales and operating margin trajectory
• Inventory turnover and days on hand
• OCF/NI and working capital movements
• Capex (maintenance vs. growth) and resulting FCF
• Effective tax rate and any one-off tax items
• Interest coverage and liabilities-to-equity leverage

Relative Positioning: Within Japan’s prepared food and take‑out ecosystem, the company exhibits above-peer near-term revenue growth but lags on margin scalability this half; balance sheet liquidity is comparatively strong, while returns (ROE) trail peers with higher operating margins.

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