WORKMAN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥47.17B
• Operating Income: ¥14.44B
• Net Income: ¥9.23B
• EPS: ¥113.06

Income Statement

Balance Sheet

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

Verdict: Solid profitability with double-digit earnings growth and a fortress balance sheet, albeit with limited visibility on cash flow quality due to unreported CF data. Operating income rose 21.1% YoY to 144.44, and ordinary income increased 22.1% YoY to 148.74, underscoring robust core earnings momentum. Net income reached 92.27, up 22.5% YoY, implying healthy bottom-line leverage despite a relatively high effective tax rate of 38.1%. Revenue for the period was 471.75, while cost of sales came in at 410.22, implying a derived gross profit of 61.53; the gap to operating income suggests sizable other operating income consistent with a franchise/royalty-heavy model under JGAAP. Operating margin for the reported revenue base is approximately 30.6%, and net margin is 19.6%, highlighting strong unit economics. We cannot quantify YoY margin expansion in basis points due to lack of prior-period revenue disclosure, but the 21%+ operating income growth indicates underlying margin resilience or mix improvement. Ordinary income exceeded profit before tax by 27.0, indicating the presence of extraordinary losses or adjustments that curtailed PBT; still, bottom-line growth remained strong. Interest coverage is exceptionally high at 902.8x, reflecting minimal financial risk from leverage. Liquidity is outstanding: current ratio 546.7%, quick ratio 546.7%, and cash and deposits of 803.81 provide significant flexibility. Balance sheet conservatism is further supported by low debt (D/E 0.19x) and large retained earnings (1,328.84). ROE calculates to 6.6% on the reported inputs, with a light leverage profile (financial leverage 1.22x) and modest asset turnover (0.277x). A key earnings quality limitation is the absence of operating cash flow disclosure, preventing validation of OCF-to-NI conversion. The calculated payout ratio is 64.8%, slightly above the typical 60% sustainability benchmark, but the net cash position provides coverage flexibility near term. Forward-looking, the strong cash cushion and franchise-centric economics position Workman to weather input cost volatility and consumer softness while funding steady store expansion and product initiatives. However, the high tax burden and the PBT gap suggest some non-recurring costs in the period that bear monitoring. Overall, the quarter reflects strong execution with ample balance sheet resilience, tempered by limited transparency on cash flows and extraordinary items.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.6% = Net Profit Margin (19.6%) × Asset Turnover (0.277) × Financial Leverage (1.22x). The ROE profile is driven primarily by high net margin, with modest asset intensity and low leverage. Relative changes: operating income grew 21.1% YoY and ordinary income 22.1% YoY, implying margin-driven improvement rather than leverage or asset base changes (we lack revenue YoY, but leverage and asset turnover likely moved little given balance sheet conservatism). Business driver: franchise/royalty-heavy income likely elevated other operating income, supporting operating margin even with SG&A of 128.45; product mix and private-brand strength could be contributing. Sustainability: high margins appear supported by structural elements (franchise fees, disciplined cost base), but they are sensitive to demand, markdowns, and seasonal weather effects; tax rate at 38.1% tempers net margin. Watchpoints: SG&A ratio versus revenue is opaque without full revenue mix, but absolute SG&A growth versus revenue growth cannot be assessed; ensure SG&A does not outpace top-line when disclosed. Extraordinary items (ordinary income 148.74 vs PBT 121.71) suggest one-time costs impacted PBT; core profitability remains strong. Overall operating leverage appears positive given profit growth outpacing what is likely modest asset growth, but confirmation awaits full revenue and CF disclosure.

Growth Assessment

Revenue sustainability: With operating income +21.1% YoY and ordinary income +22.1% YoY, growth appears quality-driven rather than financial leverage-driven. Mix: The large inferred other operating income indicates that non-merchandise income (franchise fees/royalties) is an important earnings pillar, typically more stable than discretionary goods sales but still sensitive to franchise store performance. Profit quality: Net margin at 19.6% is robust, but the 38.1% tax rate and extraordinary losses reducing PBT introduce volatility risk to bottom-line growth. Outlook: Assuming stable franchise openings, controlled procurement costs, and continued private-brand traction, mid-teens profit growth is achievable; risks include weather-driven demand swings and potential markdown pressure. Without YoY sales detail, we cannot assess same-store trends; the outlook will hinge on winter seasonal sell-through and inventory discipline.

Financial Health

Liquidity is exceptionally strong: current ratio 546.7% and quick ratio 546.7% indicate ample coverage; no warning triggers (both are far above benchmarks). Solvency is conservative: total liabilities 269.28 vs equity 1,394.71 (D/E 0.19x). Interest-bearing debt is modest (short-term loans 13.50) and fully covered by cash and deposits of 803.81; maturity mismatch risk is negligible given cash exceeds current liabilities (221.45) by over 3.6x. Accounts payable stand at 62.55 and are also easily covered by cash on hand. No off-balance sheet obligations are disclosed in the provided data. Equity ratio cannot be confirmed from XBRL but assets/equity suggests approximately 81.9% equity-to-assets, consistent with a net cash, low-leverage profile.

Cash Flow Quality

Operating cash flow was not disclosed; therefore, OCF/Net Income and free cash flow cannot be assessed (cannot validate earnings-to-cash conversion). Inferences: The franchise-heavy model typically exhibits light capex and strong working capital characteristics (low receivables, manageable inventory), which can support steady FCF, but we cannot confirm for this period. Potential red flags to monitor when data becomes available: a divergence with OCF/NI < 0.8 would be a concern; large inventory builds post-season or a sharp reduction in payables could pressure OCF. With cash and deposits at 803.81 and minimal debt, near-term cash needs for dividends and maintenance capex appear well covered even without FCF disclosure.

Dividend Sustainability

The calculated payout ratio is 64.8%, slightly above the <60% benchmark for comfortable sustainability. Cash balance (803.81) provides significant headroom to maintain dividends through cycles, and the business model’s typical light capex needs are supportive, but we lack FCF data to confirm coverage. Absent OCF/FCF disclosure, we assume maintenance capex and franchise support costs remain manageable; any acceleration in new format rollouts or DC investments could temporarily raise cash needs. Policy outlook: With strong net cash and earnings growth, steady to modestly rising dividends appear plausible; however, management’s stance on balancing growth investments versus payout will be the key determinant. FCF coverage cannot be calculated; monitor FCF after working capital for confirmation.

Risk Assessment

Business Risks:

• Seasonality and weather sensitivity impacting apparel/footwear sell-through and markdowns
• Franchise network performance risk affecting royalty and fee income
• Input cost inflation (materials, logistics) pressuring merchandise margins
• Product and inventory risk (fashion/functional assortment misalignment leading to markdowns)

Financial Risks:

• High effective tax rate (38.1%) depressing net margin and cash earnings
• Extraordinary losses implied by ordinary income exceeding PBT by 27.0
• Limited disclosure on operating cash flows obscures earnings quality assessment
• Potential working capital swings (inventory build or payables normalization) impacting OCF

Key Concerns:

• Absence of OCF/FCF data to verify cash conversion
• Payout ratio at 64.8% marginally above benchmark without FCF visibility
• Dependence on other operating income classifications under JGAAP complicates margin comparisons across periods
• Consumer demand softness and price elasticity in a deflationary/discount-driven retail environment

Investment Implications

Key Takeaways:

• Double-digit profit growth with operating income +21.1% and net income +22.5% YoY
• Robust profitability: net margin 19.6% and interest coverage ~903x
• Ultra-strong balance sheet: cash 803.81, D/E 0.19x, current ratio 546.7%
• ROE 6.6% driven by high margins, restrained by low leverage and modest asset turnover
• Extraordinary items reduced PBT by ~27, but core ordinary income remained strong
• Cash-rich profile provides dividend and investment flexibility despite limited CF disclosure

Metrics to Watch:

• Operating cash flow and FCF (OCF/NI > 1.0 target)
• Same-store sales and inventory turnover heading into peak seasons
• SG&A growth versus revenue growth to ensure operating leverage
• Tax rate normalization and any recurrence of extraordinary losses
• Payout ratio versus FCF coverage and any announced capex for expansion/DCs

Relative Positioning: Within Japanese specialty retail, Workman stands out for its net cash fortress balance sheet, high net margins, and minimal leverage; however, reported revenue/cost classifications and absent cash flow data limit cross-peer comparability and require closer monitoring of cash conversion and extraordinary items.

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