UKAI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.68B
• Operating Income: ¥17M
• Net Income: ¥-227M
• Earnings per Unit (EPU): ¥-40.62

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

Verdict: FY2026 Q2 was weak on earnings quality and profitability despite modest topline growth, with a sharp collapse in operating profit and a net loss. Revenue grew 3.1% YoY to 66.77, but operating income plunged 93.0% YoY to 0.17, and ordinary income fell 93.4% YoY to 0.15. Gross profit was 36.21, implying a solid gross margin of 54.2%, but heavy SG&A of 33.65 (50.4% of sales) compressed operating margin to 0.25%. Based on the YoY decline, operating margin likely compressed by roughly 350–360 bps from around 3.7–3.8% in the prior year period. EBITDA was 2.20 (3.3% margin), inadequate relative to the interest burden (interest expense 0.20) with interest coverage at 0.85x (warning threshold <2x). Non-operating items netted a small loss (0.13 income vs 0.26 expenses), offering no buffer. Profit before tax is shown at 1.99 and tax expense at 1.05 (effective tax rate 52.9%), yet net income was -2.27, implying significant special/extraordinary losses or non-recurring charges not detailed in the provided line items. ROE deteriorated to -5.1% (DuPont: NPM -3.4%, asset turnover 0.651, leverage 2.29x), driven primarily by margin weakness. On cash flow, operating cash flow was positive at 4.85, diverging favorably from the net loss (OCF/NI -2.14x), which suggests strong add-backs and/or working capital inflows this quarter. Liquidity is sound (current ratio 225.5%, quick ratio 219.5%) with ample cash (54.14) versus short-term loans (7.50). However, leverage versus earnings capacity is tight: Debt/EBITDA approximates 10.2x and interest coverage is sub-1x, highlighting near-term earnings execution risk. ROIC is very low at 0.6%, well below the 5% warning threshold, indicating limited value creation at present. Capex was modest (0.85), suggesting maintenance-focused investment and supporting near-term FCF despite weak earnings. Forward-looking, the company needs to restore operating leverage through SG&A control and demand recovery, and to eliminate extraordinary losses, to normalize margins and improve interest coverage. Monitoring the trajectory of labor and rent costs versus sales, and the presence (or absence) of further special losses, will be critical for 2H recovery.

Profitability Analysis

ROE decomposition: ROE (-5.1%) = Net Profit Margin (-3.4%) × Asset Turnover (0.651) × Financial Leverage (2.29x). The dominant swing factor is Net Profit Margin, which turned negative due to compressed operating margin (0.25%) and likely extraordinary losses below operating/ordinary lines. Asset turnover at 0.651 is typical for a restaurant/food-service operator with meaningful cash balances and fixed assets; leverage at 2.29x is moderate. Business drivers: SG&A intensity (50.4% of sales) weighed heavily on EBIT, with labor (11.16; 16.7% of sales) and rent (4.20; 6.3% of sales) key drags amid only +3.1% sales growth. Non-operating expenses (interest 0.20) further pressured pre-tax profit, and high effective tax rate plus special losses likely deepened the bottom-line loss. Sustainability: Gross margin of 54.2% appears stable, but the current SG&A-to-sales run-rate is not; margin repair hinges on either price/mix and volume acceleration or cost discipline, both uncertain near term. Concerning trends: Operating income fell far more than revenue, indicating negative operating leverage; SG&A likely outgrew revenue given the 93% decline in operating income despite +3% sales. Interest coverage at 0.85x underscores that current profitability is insufficient to comfortably service debt from operations.

Growth Assessment

Revenue grew 3.1% YoY to 66.77, a modest uptick that was insufficient to absorb cost inflation in labor and occupancy. Gross profit of 36.21 indicates healthy unit economics at the gross level, but SG&A expansion offset gains, leading to EBITDA margin of only 3.3% and operating margin of 0.25%. Ordinary income deterioration (-93.4% YoY) suggests core earnings pressure beyond one-off factors, although the net loss points to additional extraordinary charges this quarter. With interest coverage below 1x, incremental growth must translate into margin expansion to be meaningful for equity holders. Near-term outlook depends on same-store sales growth, banquet/event recovery, and pricing power to offset wage and rent inflation. Absent a stronger demand environment or cost actions, growth in sales alone is unlikely to restore prior-year operating margins. Capex at 0.85 suggests a cautious stance focused on maintenance rather than aggressive expansion, which may limit growth acceleration but preserves cash.

Financial Health

Liquidity is strong: current ratio 225.5% and quick ratio 219.5%, with cash and deposits (54.14) covering short-term loans (7.50) multiple times. No warning on current ratio (<1.0) or D/E (>2.0), as D/E is approximately 1.37x (moderate but elevated for current earnings power). Total liabilities are 61.32 against equity of 44.86; financial leverage A/E is 2.29x. Maturity profile shows 30.49 in current liabilities vs 68.76 in current assets, indicating limited maturity mismatch risk; cash, receivables, and inventories together comfortably exceed short-term obligations. Long-term loans are 14.93; total loans (ST+LT) sum to 22.43, implying interest-bearing debt is likely around this level (exact total unreported). Interest coverage at 0.85x is a key pressure point and warrants close monitoring. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not preclude leases or guarantees typical for the sector.

Cash Flow Quality

OCF of 4.85 versus net income of -2.27 yields an OCF/NI ratio of -2.14x, which flags a quality concern by the benchmark but, in context, reflects non-cash charges (e.g., D&A 2.03) and likely working capital inflows supporting cash generation despite an accounting loss. Using a proxy FCF = OCF (4.85) – Capex (0.85) suggests about 4.00 of pre-financing free cash flow this period; however, full investing CF is unreported, so this FCF proxy excludes potential investment securities movements or asset disposals/acquisitions. Financing CF was -4.12, implying debt repayment and/or dividends, but dividends paid were unreported. Working capital signs appear supportive (high cash, low inventories at 1.83, receivables 7.23), with no clear indication of aggressive working capital manipulation in the snapshot. Sustainability: If extraordinary losses are one-time and SG&A normalizes seasonally, OCF can remain positive; if not, continued low EBITDA will constrain cash generation, especially with interest costs rising.

Dividend Sustainability

Dividend data are unreported this period; payout ratio is mechanically negative (-37.1%) due to a net loss and is not informative. Cash generation was positive (OCF 4.85) and capex modest (0.85), implying capacity to fund a small dividend from FCF in principle, but weak earnings quality and sub-1x interest coverage reduce prudence for higher distributions. With equity at 44.85 (owners’ equity) and cash at 54.14, balance-sheet capacity exists, yet sustainable dividends should be anchored on recurring FCF, which is uncertain given margin pressure and potential extraordinary losses. Policy outlook cannot be inferred without disclosed DPS or guidance; conservatism is warranted until operating margins recover and interest coverage improves.

Risk Assessment

Business Risks:

• SG&A inflation (labor 16.7% of sales, rent 6.3%) compressing operating margin despite modest sales growth
• Demand sensitivity to consumer discretionary trends and seasonality in dining/banquet segments
• Potential extraordinary losses (impairments, closures, asset write-downs) implied by NI vs PBT gap
• Pricing power risk if cost pass-through is constrained by customer price elasticity

Financial Risks:

• Low interest coverage (0.85x) indicating tight debt service coverage from operations
• High Debt/EBITDA (~10.2x) relative to current earnings capacity
• Moderate leverage (D/E ~1.37x) with risk of covenant pressure if EBITDA remains weak
• Effective tax rate volatility (52.9%) suggesting non-deductible items or timing differences

Key Concerns:

• Operating margin collapse (~350 bps YoY compression estimated) despite revenue growth
• Net loss (-2.27) against positive PBT (1.99) indicates likely material special losses not detailed
• ROIC at 0.6% well below the 5% warning threshold, signaling poor capital efficiency
• Earnings quality flag: OCF/NI -2.14x and reliance on working capital/add-backs

Investment Implications

Key Takeaways:

• Topline grew 3.1% but profitability deteriorated sharply; operating margin fell to 0.25%
• SG&A intensity (50.4% of sales) and interest burden drove sub-1x coverage
• Net loss likely includes extraordinary factors; clarity on one-offs is crucial
• Liquidity is ample, but leverage versus EBITDA is high (~10x), limiting flexibility
• ROE (-5.1%) and ROIC (0.6%) indicate negative value creation this period

Metrics to Watch:

• Same-store sales growth and pricing/mix
• SG&A-to-sales ratio, especially labor and rent as % of sales
• Operating margin and EBITDA margin recovery trajectory
• Interest coverage (EBIT/interest) and Debt/EBITDA
• Occurrence and size of extraordinary gains/losses
• Operating cash flow sustainability and capex discipline

Relative Positioning: Within Japan’s restaurant/experience dining peers, the company shows solid gross margins but weaker operating leverage due to elevated SG&A and low scale, resulting in inferior EBIT margins and coverage metrics this quarter; liquidity is stronger than many small-cap peers, but capital efficiency (ROIC) and earnings resilience lag.

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