HANDSMAN CO.,LTD FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥8.25B
• Operating Income: ¥129M
• Net Income: ¥126M
• EPS: ¥9.22

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: A soft FY2026 Q1 with margin compression and heavier reliance on non-operating income, despite a solid liquidity position. Revenue declined 4.5% YoY to 82.53, and operating income fell 43.5% YoY to 1.29, pulling ordinary income down 33.6% to 1.92 and net income down 33.5% to 1.26. Gross margin printed at 33.4%, while the operating margin was 1.56% (1.29/82.53). Based on last year’s implied levels, operating margin compressed by roughly 108 bps YoY (from about 2.64% to 1.56%). SG&A consumed 30.6% of sales (25.30/82.53), leaving limited operating leverage at lower sales volumes. Non-operating income of 0.76 (about 60% of operating income) propped up ordinary income, underscoring dependence on non-core items in a weak quarter. Effective tax rate was 34.3%, consistent with a normalized burden. ROE was a muted 0.7%, reflecting a 1.5% net margin, low quarterly asset turnover (0.326x), and modest leverage (assets/equity 1.42x). ROIC at 0.4% is well below the 5% warning threshold, highlighting subpar capital efficiency this quarter. Liquidity remains healthy with a current ratio of 185.8% and working capital of 46.33, offsetting some near-term risk despite short-term borrowings of 18.99. Interest coverage is strong at ~43x, suggesting low near-term financial stress. The payout ratio shown (345.5%) appears distorted for a quarterly period and cannot be validated given unreported dividend cash flows; dividend sustainability cannot be concluded from Q1 alone. Cash flow data (OCF/FCF) are unreported, limiting the assessment of earnings quality and the ability to fund capex and dividends internally. Forward-looking, management will need to restore gross margin and restrain SG&A to improve ROIC and ROE, while reducing reliance on non-operating items. Near-term earnings trajectory will hinge on demand recovery, price/mix, and expense control, with liquidity providing a cushion in the interim.

Profitability Analysis

DuPont decomposition: ROE (0.7%) = Net Profit Margin (1.5%) × Asset Turnover (0.326) × Financial Leverage (1.42x). The most material change YoY is the compression in the profit margin, as operating income declined 43.5% on a 4.5% sales drop, driving operating margin down by roughly 108 bps to 1.56%. Business drivers likely include weaker sales throughput (seasonality/traffic softness), gross margin pressure, and/or higher fixed-cost absorption in SG&A. Non-operating income of 0.76 cushioned ordinary income but does not reflect core operating improvement. Sustainability: the margin compression is likely cyclical/operational rather than structural, but recovery requires improving sales density, optimizing pricing/promotion, and moderating SG&A growth; reliance on non-operating gains is not a durable driver. Watch for any trend where SG&A growth outpaces revenue; with revenue down 4.5% and SG&A level unreported YoY, the high SG&A-to-sales ratio (30.6%) suggests limited operating leverage at current volumes.

Growth Assessment

Top-line declined 4.5% to 82.53, indicating softer demand or weaker traffic/average ticket. Operating income fell 43.5% to 1.29, reflecting negative operating leverage on a largely fixed SG&A base. Ordinary income benefited from 0.76 in non-operating income, limiting the YoY decline to 33.6%, but this mix weakens quality of growth. Net income margin at 1.5% is low for a retailer and reduces reinvestment capacity. With ROIC at 0.4%, returns on incremental capital appear below cost of capital in the quarter; a recovery in sales and margin is necessary to lift ROIC back toward a 5%+ threshold. Outlook hinges on restoring gross margin (category mix, procurement, shrink control) and SG&A productivity (labor scheduling, utilities, logistics). Any store openings or refurbishments would need careful phasing given low near-term returns. Non-operating tailwinds are unlikely to be a repeatable growth driver.

Financial Health

Liquidity is solid: current ratio 185.8% and working capital 46.33 indicate ample short-term coverage. Quick ratio is reported equal to current ratio (185.8%), but inventory is unreported; actual quick liquidity could be lower for a retailer—treat with caution. Leverage is moderate: liabilities/equity at 0.42x; long-term loans 11.35 and short-term loans 18.99 are manageable relative to equity of 178.28. Interest coverage is strong at ~43x, indicating low near-term debt service risk. No explicit warnings triggered (Current Ratio ≥ 1.0, D/E well < 2.0). Maturity profile: short-term loans (18.99) exceed cash (15.42), implying some refinancing or operating cash generation is needed; current assets of 100.33 provide a buffer. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed and no quality flag is applied. Free cash flow and capex are also unreported, limiting our ability to judge internal funding capacity for dividends and growth. With net income at 1.26 and non-operating income sizable (0.76), earnings quality tilts away from core operations in the quarter. Working capital details are incomplete (inventory movement unreported), so we cannot evaluate potential pull-forward/deferral behavior in payables/receivables. Monitoring OCF vs NI (>1.0 preferred) and inventory/payables turnover will be essential in subsequent quarters.

Dividend Sustainability

The calculated payout ratio of 345.5% likely reflects a mismatch between quarterly earnings and an annual dividend assumption; dividend cash amounts are unreported. Without OCF and FCF data, coverage cannot be evaluated. Balance sheet liquidity is adequate, but sustaining dividends prudently requires FCF coverage over a cycle. Until we see full-year earnings and cash generation, any assessment of dividend sustainability would be speculative. Policy signals (not provided) and historical stability would help contextualize the current quarter’s weak earnings.

Risk Assessment

Business Risks:

• Demand softness leading to negative operating leverage (revenue -4.5% YoY, OI -43.5% YoY).
• Gross margin pressure and high SG&A ratio (30.6% of sales) compressing operating margin.
• Execution risk in merchandising, pricing, and promotion to restore traffic and ticket.
• Inventory risk (levels and turnover unreported) including shrink and obsolescence.
• Regional concentration risk if store network is geographically concentrated.

Financial Risks:

• Short-term loans (18.99) exceed cash (15.42), requiring refinancing or operating cash conversion.
• High reliance on non-operating income (0.76 ~60% of operating income) to support ordinary profit.
• Low ROIC (0.4%) indicates weak capital efficiency and potential hurdle in funding growth.
• Limited visibility on OCF/FCF due to unreported cash flow statements.

Key Concerns:

• Operating margin compression of ~108 bps YoY to 1.56%.
• Net margin at 1.5% and ROE at 0.7% signal subdued profitability.
• Potential mismatch between dividend expectations and quarterly earnings capacity (payout ratio reading distorted).
• Data gaps on inventory, OCF, and capex constrain assessment of sustainability.

Investment Implications

Key Takeaways:

• Core profitability weakened materially; operating income down 43.5% on a modest 4.5% sales decline.
• Operating margin compressed ~108 bps YoY to 1.56%, with SG&A at 30.6% of sales.
• Ordinary income supported by sizable non-operating income (0.76), reducing quality of earnings.
• Liquidity is sound (current ratio 185.8%), and interest coverage strong (~43x).
• ROIC at 0.4% and ROE at 0.7% underscore urgent need to lift margins and asset productivity.

Metrics to Watch:

• Same-store sales and total sales growth trajectory.
• Gross margin by category and overall GM% recovery.
• SG&A-to-sales ratio and absolute SG&A growth vs revenue.
• OCF/Net income ratio and free cash flow once disclosed.
• Inventory turnover and days payable outstanding (when available).
• Non-operating income magnitude and recurrence.
• Capex intensity and store productivity metrics.

Relative Positioning: Compared with domestic home center peers (e.g., Komeri, DCM, Nafco), Handsman appears more exposed to operating leverage given a higher SG&A burden and smaller scale, resulting in lower margins and ROIC this quarter; balance sheet leverage is modest, providing resilience but not offsetting the need for operational improvements.

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