UNITED ARROWS LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥73.71B
• Operating Income: ¥2.38B
• Net Income: ¥1.90B
• EPS: ¥40.84

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

United Arrows (consolidated, JGAAP) delivered FY2026 Q2 year-to-date revenue of ¥73.7bn, up 8.0% YoY, but profitability contracted materially, with operating income down 19.5% to ¥2.38bn and net income down 40.6% to ¥1.13bn. The DuPont framework indicates ROE of 2.99%, driven by a thin net margin of 1.53%, solid asset turnover of 1.02x, and moderate financial leverage of 1.91x. Gross profit was ¥36.0bn with a gross margin of 48.8%, consistent with a premium/select-shop model, yet SG&A intensity rose to 45.5% of sales, compressing the operating margin to roughly 3.2%. EBITDA of ¥2.94bn implies an EBITDA margin of 4.0%, highlighting limited operating leverage despite healthy top-line growth. Ordinary income exceeded operating income (¥2.51bn vs. ¥2.38bn), reflecting net non-operating gains, while interest burden was negligible (¥5m), resulting in an exceptionally high interest coverage ratio of about 476x. OCF of ¥3.31bn was robust relative to net income (OCF/NI of 2.94x), indicating high earnings-to-cash conversion in the period. Liquidity appears comfortable with a current ratio of 161% and working capital of ¥17.0bn, and total liabilities to equity of 0.86x suggests a conservative balance sheet. Asset turnover of ~1.0x points to reasonable capital efficiency for apparel retail, but the weak margin profile curtails ROE. The reported effective tax rate metric shows as 0.0%, which is not reflective of the period’s actual tax expense (¥1.11bn was recognized); tax rate analysis is limited by missing pre-tax profit detail. Inventory, cash and equivalents, investing cash flow, and certain per-share balance metrics were not disclosed in the dataset, constraining deeper assessments of inventory health, net cash position, and free cash flow. Despite these data gaps, the available figures suggest demand resilience but heightened cost pressures (labor, rents, logistics, promotions) and/or markdowns that diluted operating leverage. Without investing cash flow or capex disclosure, free cash flow cannot be determined even though OCF was solid. Dividend fields are zero in the dataset, which likely indicates non-disclosure at this stage rather than an actual DPS of zero; therefore, payout conclusions should be treated as provisional. Overall, the company’s near-term earnings quality looks decent from a cash conversion standpoint, but structural profitability remains the key challenge for ROE and valuation framework. Monitoring gross margin discipline, SG&A productivity, and inventory turns (when disclosed) will be pivotal for margin recovery and improved ROE.

Profitability Analysis

ROE of 2.99% decomposes into a 1.53% net margin, 1.024x asset turnover, and 1.91x financial leverage, underscoring that thin margins are the primary constraint. Operating margin is approximately 3.2% (¥2.38bn OI / ¥73.71bn sales), pressured by SG&A at 45.5% of sales (implied SG&A ¥33.58bn). Gross margin at 48.8% is healthy for a select-shop model, but the spread between gross and operating margin (about 15.6pp vs. 3.2%) indicates elevated operating costs. EBITDA margin of 4.0% points to limited operating leverage; D&A (¥0.57bn) is modest, so cost pressure is mainly in cash operating expenses (personnel, rent, logistics, marketing). Ordinary income (¥2.51bn) exceeded operating income due to net non-operating income; interest costs are immaterial (¥5m), hence financing does not impair margins. Net margin fell to 1.53%, contributing to the YoY decline in ROE despite revenue growth. The interest coverage ratio of ~476x evidences ample cushion, but the core issue remains operating cost control and markdown management. Margin quality is mixed: high gross margin signals product positioning strength, but cost discipline and sell-through require attention. Absent inventory data, we cannot assess markdown intensity or inventory valuation impacts; this is a key limitation.

Growth Assessment

Revenue grew 8.0% YoY to ¥73.71bn, indicating solid traffic and/or ticket growth across channels and categories. However, operating income declined 19.5% YoY to ¥2.38bn, implying negative operating leverage as SG&A rose faster than gross profit. Net income fell 40.6% to ¥1.13bn, reflecting both the operating shortfall and likely higher below-the-line charges and taxes. The gross margin of 48.8% suggests product and brand strength, but the drop in operating profit indicates rising expenses and/or higher promotional activity. Sustainability of revenue growth will hinge on full-price sell-through, mix of private label vs. third-party brands, and digital channel momentum. Profit quality is supported by strong cash conversion (OCF/NI 2.94x), mitigating concerns about accrual-driven earnings. Near-term outlook depends on cost normalization (labor, rents), supply chain efficiency, and inventory discipline during peak seasonal periods; without inventory disclosure, forecasting markdown risk is constrained. If cost growth can be contained and sell-through remains healthy, incremental margin recovery is plausible; otherwise, continued revenue growth may not translate into earnings. Management’s guidance and Q3–Q4 seasonal dynamics (holiday sales, winter assortment) will be decisive for FY progress toward full-year targets (not provided).

Financial Health

Total assets are ¥71.99bn and total equity ¥37.63bn, implying financial leverage of 1.91x and a liabilities-to-equity ratio of 0.86x, consistent with a conservative capital structure. Current assets of ¥44.82bn vs. current liabilities of ¥27.77bn produce a current ratio of 161% and working capital of ¥17.05bn, indicating good short-term liquidity. Quick ratio is shown as equal to the current ratio due to inventory not being disclosed; actual quick liquidity may be lower depending on inventory levels. Interest-bearing debt is not separately disclosed; the reported Debt-to-Equity of 0.86x appears to use total liabilities, so true net debt cannot be assessed without cash and debt detail. Interest expense of only ¥5m and an interest coverage ratio near 476x imply minimal financial risk from leverage. Equity ratio is shown as 0% in the dataset but should be interpreted as undisclosed via that field; using available numbers, equity/asset is approximately 52%. Overall solvency appears sound, but the absence of cash and inventory balances limits precision in liquidity stress testing.

Cash Flow Quality

Operating cash flow of ¥3.31bn significantly exceeds net income of ¥1.13bn, yielding an OCF/NI ratio of 2.94x, which supports the quality of earnings. The OCF margin is approximately 4.5% (OCF/sales), better than the operating margin, suggesting favorable working capital movements or non-cash charges. D&A is ¥0.57bn, so the gap between OCF and NI likely reflects working capital release and accrued expenses; without inventory and receivables/payables breakdown, the drivers cannot be pinpointed. Investing cash flow is not disclosed; consequently, free cash flow cannot be reliably calculated despite an indicative positive OCF. Financing cash flow of ¥1.65bn is reported, but without details (dividends, share buybacks, debt flows), we cannot assess capital allocation in the period. Overall, cash generation looks stronger than accounting profit, but the lack of investing CF and cash balance disclosure constrains a full cash flow quality and sustainability assessment.

Dividend Sustainability

The dataset shows Annual DPS and payout ratio as zero, which we treat as non-disclosure rather than an actual zero. EPS for the period is ¥40.84, but without declared interim or full-year DPS and absent free cash flow data (investing CF not disclosed), payout sustainability cannot be quantified. Historically, this company has emphasized shareholder returns, but we cannot infer current policy changes from the provided zeros. OCF was positive and sizable versus earnings, which is supportive for future distributions, but capex and lease/cash commitments are unknown. Until investing cash flows and dividend declarations are disclosed, assessment of payout ratio and FCF coverage remains indeterminate.

Risk Assessment

Business Risks:

• Margin pressure from higher SG&A (labor, rent, logistics, marketing) outpacing gross profit growth
• Markdown and inventory risk in seasonal assortments; inventory balances not disclosed limit visibility
• Demand volatility due to macro conditions and weather-sensitive categories
• Channel mix and e-commerce competition impacting store productivity and pricing power
• Brand and fashion risk inherent to select-shop/curation models
• Supplier and procurement risk, including FX exposure on imported merchandise
• Execution risk in cost control and store portfolio optimization

Financial Risks:

• Low ROE (2.99%) due to thin net margins despite acceptable asset turnover
• Limited operating margin (3.2%) leaves little buffer against negative shocks
• Liquidity assessment constrained by undisclosed cash and inventory balances
• Potential working capital volatility around peak seasons
• Uncertain capex trajectory due to missing investing cash flow data

Key Concerns:

• Operating income down 19.5% YoY despite 8.0% revenue growth, indicating negative operating leverage
• High SG&A ratio at 45.5% of sales compresses operating margin to ~3.2%
• Insufficient disclosure (inventory, cash, investing CF) impedes evaluation of inventory health and FCF
• ROE at 2.99% is below typical apparel retail benchmarks

Investment Implications

Key Takeaways:

• Top-line growth is healthy (+8.0% YoY), but profit contraction highlights cost pressures and/or markdowns
• ROE of 2.99% is primarily constrained by a 1.53% net margin; leverage is moderate and not the bottleneck
• OCF is strong relative to earnings (2.94x), supporting earnings quality despite lower profitability
• Balance sheet appears conservative (liabilities/equity 0.86x; current ratio 161%), though cash and inventory are undisclosed
• Margin recovery depends on SG&A discipline and sell-through improvements

Metrics to Watch:

• Gross margin trend and markdown rate
• SG&A-to-sales ratio and store productivity (sales per square meter, if disclosed)
• Inventory turnover and aged inventory (when disclosed)
• Same-store sales growth and digital channel mix
• OCF/NI ratio and investing cash flow/capex disclosure
• Full-year guidance progress on operating income and ROE

Relative Positioning: Within Japan’s listed apparel/retail peers, United Arrows maintains premium gross margins consistent with a select-shop model but currently trails on operating margin and ROE versus efficiency-focused peers; balance sheet conservatism and cash conversion help mitigate risk, yet cost discipline and inventory execution are key to closing the profitability 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