NEW ART HOLDINGS Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.91B
• Operating Income: ¥1.96B
• Net Income: ¥978M
• EPS: ¥57.35

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

Verdict: Strong quarter with double-digit top-line growth and outsized bottom-line expansion, underpinned by margin improvement and solid cash conversion. Revenue rose 27.4% YoY to 149.07, with gross profit at 89.09 and operating income up 40.4% to 19.59. Ordinary income increased 57.9% to 18.46, and net income surged 127.4% to 9.86, reflecting significant operating leverage and improved profitability. Operating margin expanded to roughly 13.2%, and net margin reached 6.6%. Based on YoY growth rates, we estimate prior-period revenue of about 117.1 and operating income of about 13.95, implying operating margin expansion of approximately 125 bps YoY. Similarly, net margin likely expanded by roughly 291 bps YoY (from ~3.7% to 6.6%). Gross margin stands at a healthy 59.8%, indicating strong pricing/mix and cost control. Earnings quality is robust: operating cash flow of 14.44 exceeded net income by 1.46x, suggesting profits are well-supported by cash generation. Non-operating impact was modestly negative (non-op income 0.16 vs non-op expenses 1.30), so the earnings improvement is primarily operational. The effective tax rate was high at 46.4%, which constrained net profit conversion despite strong pre-tax performance. Liquidity is mixed: current ratio is healthy at 151%, but the quick ratio of 78% highlights reliance on inventories (92.28) to support current liabilities. Leverage is moderate with D/E at 1.57x and strong interest coverage (16.5x), though short-term loans (52.08) present some refinancing needs. Free cash generation appears solid; proxy FCF (OCF minus capex) approximates 13.52, supporting reinvestment and shareholder returns. The calculated ROE of 8.8% reflects improved margins and stable asset utilization, but ROIC at 6.3% sits below the 7–8% target range, indicating room to enhance capital efficiency. Shareholder returns look conservative with a calculated payout ratio of 17.6%, likely well-covered by OCF. Forward-looking, sustaining margins amid inventory-heavy operations and managing the elevated tax rate will be key. Overall, the quarter demonstrates healthy operational momentum, good cash conversion, and manageable financial risk, with focus areas around inventory discipline, tax optimization, and funding mix.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.8% = Net Profit Margin 6.6% × Asset Turnover 0.521 × Financial Leverage 2.57x. The largest positive change appears to be in net profit margin, inferred from net income growth (+127% YoY) significantly outpacing revenue growth (+27% YoY), and operating income growth (+40% YoY) outpacing sales, implying operating margin expansion. Business drivers likely include improved sales mix/pricing and operating leverage on SG&A, as SG&A growth was contained relative to revenue (SG&A at 69.49 vs revenue 149.07). Non-operating results were slightly negative net, so core operating performance was the key driver. The margin gains look partly sustainable if sales momentum and mix hold; however, the very high effective tax rate (46.4%) may cap net margin unless optimized. Asset turnover at 0.521 suggests moderate capital intensity with significant inventory; without historical asset data, we assume limited change QoQ/YoY, making margin the primary driver of ROE improvement. Financial leverage at 2.57x supports ROE but increases sensitivity to funding and interest rate conditions; interest coverage of 16.5x mitigates near-term risk. Watch for SG&A discipline: with SG&A/revenue at ~46.6%, any acceleration in fixed costs ahead of sales could compress operating margin. Overall, ROE improvement is chiefly margin-driven and potentially sustainable if inventory turns and pricing hold, but sensitive to demand variability and tax rate normalization.

Growth Assessment

Revenue growth of 27.4% YoY indicates strong demand and/or footprint expansion. Operating income growth of 40.4% signals positive operating leverage and better cost absorption. Ordinary income rose 57.9% despite net non-operating expenses, underscoring operational strength. Net income jumped 127.4% aided by margin expansion and possibly favorable below-the-line mix versus the weak prior base; this level of bottom-line growth may normalize. Gross margin at 59.8% suggests healthy mix/pricing; operating margin at ~13.2% is solid for the business model and up YoY. Non-operating items were a net drag (0.16 income vs 1.30 expenses), so the profit improvement is high quality and repeatable if operations stay strong. The high effective tax rate (46.4%) is a headwind to net growth and represents a lever for upside if optimized. Asset turnover at 0.521 reflects meaningful inventory deployment; sustaining revenue growth will require careful inventory management and turn improvements. Outlook: with cash conversion strong (OCF 1.46x NI) and manageable leverage, the company appears positioned to fund growth; key sensitivities include consumer demand for jewelry/bridal-related categories, FX on sourced materials, and promotional intensity. Near-term growth sustainability hinges on maintaining sales momentum while keeping SG&A growth below revenue growth.

Financial Health

Liquidity: Current ratio 151.2% is healthy, but quick ratio 77.9% is below the 100% benchmark, indicating reliance on inventories (92.28) to meet short-term obligations. Solvency: Debt-to-equity at 1.57x is slightly above the conservative benchmark (1.5x) but well below high-risk thresholds; interest coverage is strong at 16.52x. Equity ratio (calculated) is approximately 39.0% (111.42 / 285.97), indicating a balanced capital structure. Maturity profile: Short-term loans of 52.08 represent a refinancing consideration; however, current assets of 190.27 comfortably exceed current liabilities of 125.86, limiting near-term maturity mismatch risk. Cash and deposits of 19.33 plus receivables of 25.04 do not fully cover short-term loans, reinforcing the importance of inventory liquidation/turn. Off-balance sheet obligations: none reported in the provided data.

Cash Flow Quality

OCF/Net Income at 1.46x signals good earnings quality with profits converting into cash. Operating cash flow of 14.44 covers interest (1.19) and capex (0.92) comfortably. Proxy free cash flow (OCF minus capex) is approximately 13.52, suggesting capacity to fund dividends and selective growth investments; full FCF cannot be confirmed as total investing cash flows are unreported. Working capital dynamics appear inventory-heavy; while detailed changes are not provided, the low quick ratio implies cash flow could be sensitive to inventory turns—a point to monitor for any end-period build. No clear signs of working capital manipulation are evident from the limited data (e.g., OCF comfortably exceeds NI, and interest coverage is strong). Sustainability looks reasonable provided demand supports inventory sell-through.

Dividend Sustainability

The calculated payout ratio is 17.6%, which is conservative and below common sustainability thresholds (<60%). Dividends paid are unreported, but using the payout ratio and net income (9.86), implied dividends would be roughly 1.74; this would be well-covered by proxy FCF of ~13.52 and by OCF of 14.44. Financing CF was -9.97 including share repurchases of -3.00, indicating room for both shareholder returns and deleveraging if desired. Policy outlook: With moderate leverage and strong cash earnings, the company has flexibility to maintain or moderately increase shareholder returns, contingent on maintaining operating momentum and managing inventory. Note that the high effective tax rate may constrain net distributable profit unless optimized.

Risk Assessment

Business Risks:

• Demand volatility in jewelry/bridal-related discretionary spending impacting sales and margin leverage
• Inventory risk given high inventory balance (92.28), exposing the company to markdowns and working capital strain
• Competitive/pricing pressure requiring promotions that could compress gross margin
• Supply chain and input cost fluctuations (e.g., precious metals/diamonds) affecting cost of sales and margins

Financial Risks:

• Refinancing risk tied to short-term loans (52.08) versus cash and receivables, with a sub-1.0 quick ratio
• Interest rate risk on floating-rate borrowings impacting interest expense
• FX exposure on imported materials potentially affecting COGS and inventory valuation
• High effective tax rate (46.4%) reducing net cash available for reinvestment and dividends

Key Concerns:

• Quick ratio at 77.9% indicates dependence on inventory monetization for liquidity
• Debt-to-equity at 1.57x slightly above conservative range; vigilance needed if growth slows
• Tax burden elevated; if persistent, it dampens net margin and ROE despite strong operations
• Non-operating expenses exceed non-operating income, a modest ongoing drag

Investment Implications

Key Takeaways:

• Strong operational quarter: revenue +27.4% and operating income +40.4% with operating margin ~13.2%
• High-quality earnings: OCF/NI 1.46x and proxy FCF ~13.52
• ROE at 8.8% supported by margin gains; ROIC at 6.3% suggests room to improve capital efficiency
• Liquidity adequate but inventory-dependent (quick ratio 77.9%); short-term loans sizable at 52.08
• Conservative shareholder returns (payout ~17.6%) with capacity for continued buybacks/dividends

Metrics to Watch:

• Gross and operating margin trajectory and SG&A/revenue ratio
• Inventory turns and days inventory outstanding
• Effective tax rate normalization
• Short-term debt rollover profile and average interest cost
• OCF versus NI and maintenance of positive FCF after capex

Relative Positioning: Versus typical consumer discretionary peers, the company shows stronger near-term margin expansion and cash conversion but operates with higher inventory intensity and a slightly elevated leverage profile; capital efficiency (ROIC 6.3%) trails best-in-class benchmarks, indicating scope for improvement through inventory turns and tax optimization.

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