BARCOS Co., Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥3.89B
• Operating Income: ¥38M
• Net Income: ¥67M
• EPS: ¥20.62

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: Top-line growth failed to translate into earnings, with pronounced margin compression and heavy reliance on below-the-line items resulting in weak core profitability in FY2025 Q3. Revenue rose 10.8% YoY to 38.94, but operating income plunged 75.0% YoY to 0.38 and ordinary income fell 67.4% YoY to 0.47. Net income declined 63.1% YoY to 0.24, implying a slim net margin of 0.6%. Gross profit was 24.37 (gross margin 62.6%), but SG&A of 22.83 (58.7% of sales) left a very narrow operating profit pool. Operating margin compressed to roughly 1.0% from about 4.3% a year ago, a deterioration of roughly 335 bps. Net margin compressed by an estimated ~123 bps YoY (from ~1.85% to 0.62%). Ordinary margin also contracted by an estimated ~289 bps (from ~4.10% to ~1.21%). Earnings quality looks weak: profit before tax (1.73) far exceeds ordinary income (0.47), indicating material extraordinary items, while the effective tax rate was unusually high at 61.2%, depressing bottom-line conversion. Non-operating and extraordinary items were influential: investment securities gain (0.25) and dividend/interest income (0.04) contributed, while interest expense (0.19) and other non-operating expenses (0.22) offset part of the support. Core profitability appears pressured by elevated operating costs or other operating charges not detailed in SG&A. Leverage is high (D/E 4.35x) and interest coverage is thin at 1.96x, constraining financial flexibility. Liquidity is acceptable but not strong (current ratio 143.9%); cash on hand (2.96) is modest against short-term loans (6.00). ROE is low at 3.2%, driven by thin margins and offset by high financial leverage, while ROIC is only 0.7%, well below a healthy hurdle. With cash flow data unreported, we cannot validate earnings with OCF; this is a key limitation. Forward-looking, sustaining revenue growth will require better operating leverage and cost discipline, as the current mix of non-recurring gains and high taxes is unlikely to underpin a durable earnings recovery. Watch for normalization of extraordinary items, cost actions, and any refinancing or rate-related pressure given leverage.

Profitability Analysis

ROE decomposition: ROE (3.2%) = Net profit margin (0.6%) × Asset turnover (0.969x) × Financial leverage (5.35x). The component that deteriorated the most YoY is net profit margin, given operating income fell 75% despite +10.8% sales growth, while asset turnover likely improved modestly on higher sales and leverage appears elevated but not quantified YoY. Business reason: SG&A intensity (58.7% of sales) and/or other operating charges materially eroded operating margin to ~1.0% from ~4.3% a year ago; additional reliance on non-operating/extraordinary items and a 61.2% effective tax rate further compressed net margin. Sustainability: The margin compression looks partly cyclical/operational (cost inflation, promotion, channel mix) and partly one-off (extraordinary items, high tax rate); normalization of extraordinary items could reduce reported volatility, but core margin recovery requires cost control and pricing power. Concerning trends: SG&A grew faster than operating profit (implied), indicating negative operating leverage; ordinary profit depends meaningfully on non-core items (e.g., securities gains) while interest expense remains sizeable.

Growth Assessment

Revenue growth of +10.8% indicates demand resilience or channel expansion, but profit conversion was poor, with operating income down 75% and net down 63%. Current gross margin is high (62.6%), yet cost-to-serve and/or other operating expenses consumed the bulk of gross profit, limiting operating leverage. The gap between ordinary income (0.47) and profit before tax (1.73) suggests one-off/extraordinary gains, making growth in PBT non-recurring. Absent operating CF data, the quality of growth is uncertain; working capital intensity is unknown due to unreported inventories. Outlook hinges on restoring operating margin via SG&A control, pricing/mix, and lowering reliance on securities-related gains. Effective tax rate normalization could aid EPS, but interest burden constrains upside. Short-term, expect earnings sensitivity to cost actions and any extraordinary gain/loss volatility; medium-term, deleveraging and ROIC improvement are required to underpin sustainable growth.

Financial Health

Liquidity: Current ratio 143.9% (>1.0, but below the 1.5 comfort threshold); quick ratio shown equal to current ratio due to unreported inventories (treat with caution). Cash and deposits (2.96) plus receivables (3.79) cover only ~50% of current liabilities (13.57), indicating modest immediate liquidity. Solvency: D/E 4.35x is high (warning threshold >2.0). Interest coverage is 1.96x, near the warning boundary (<2x), implying tight debt service capacity. Maturity profile: Short-term loans 6.00 against current assets 19.52 suggests manageable near-term refinancing, but long-term loans are sizable at 16.82, keeping leverage elevated. No off-balance sheet obligations are disclosed in the data provided. Explicit warning: High leverage (D/E 4.35x) and borderline interest coverage (1.96x) increase refinancing and interest rate risk.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed and is a key limitation. With net income at 0.24 and interest expense at 0.19, internal cash generation may be thin relative to financing costs if working capital is not a source of cash. Free cash flow and capex are unreported; dividend and buyback cash commitments are also unreported, preventing coverage analysis. Potential red flags: heavy reliance on non-operating/extraordinary items to lift PBT suggests lower quality of earnings; absent OCF we cannot confirm cash conversion or identify working capital stretch. No explicit signs of working capital manipulation can be assessed from the provided data.

Dividend Sustainability

Dividend data are unreported; therefore payout and FCF coverage cannot be calculated. With EPS of 20.62 JPY and BVPS of 621.53 JPY, any material dividend would need to be supported by OCF, which is unavailable. Given high leverage and thin interest coverage, preserving cash for debt service may be prudent until operating margins recover. The sustainability of any dividend policy will hinge on stabilizing core earnings, reducing reliance on extraordinary items, and improving ROIC above the cost of capital.

Risk Assessment

Business Risks:

• Margin pressure from SG&A intensity and/or other operating costs limiting operating leverage
• Execution risk in pricing and product mix in a fashion/accessories market (category-specific demand volatility and seasonality)
• Dependence on non-operating/extraordinary gains to support PBT, increasing earnings volatility
• Potential channel concentration and promotional activity raising cost-to-serve

Financial Risks:

• High leverage (D/E 4.35x) with thin interest coverage (1.96x)
• Refinancing and interest rate risk given 6.00 short-term loans and 16.82 long-term loans
• Tax rate volatility (effective tax rate 61.2%) affecting net earnings visibility
• Limited immediate liquidity buffer (cash 2.96 vs current liabilities 13.57)

Key Concerns:

• Material basis between ordinary income (0.47) and profit before tax (1.73) implies reliance on extraordinary items
• Non-operating items (e.g., securities gains of 0.25) materially impacting results while interest expense remains high (0.19)
• ROIC at 0.7% is well below a healthy hurdle, indicating capital inefficiency
• Absence of operating cash flow data obscures earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Revenue grew 10.8% YoY but operating profit collapsed 75%, signaling negative operating leverage
• Operating margin compressed ~335 bps YoY to ~1.0%; net margin to 0.6%
• Earnings quality is low due to heavy contribution from non-recurring items and high taxes
• Balance sheet leverage is elevated (D/E 4.35x) with borderline interest coverage (1.96x)
• ROE of 3.2% is supported largely by high leverage rather than strong profitability; ROIC is only 0.7%

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory
• Ordinary income vs profit before tax (size of extraordinary items)
• Interest coverage and effective tax rate normalization
• Operating cash flow and free cash flow once disclosed
• Leverage metrics (D/E, net debt) and refinancing schedule

Relative Positioning: Versus small-cap consumer discretionary peers, the company shows better-than-average gross margin but weaker operating margin resilience, higher financial leverage, and lower ROIC, leaving it more sensitive to cost inflation and financing conditions.

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