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

Barcos Co., Ltd. (TSE: 7790) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥3,894m, up 10.8% YoY, indicating solid top-line momentum despite a difficult consumer environment. Gross profit reached ¥2,437m, translating to a high gross margin of 62.6%, which suggests resilient pricing power and/or a favorable mix shift toward higher-margin channels or products. Operating income declined sharply to ¥38m (-75.0% YoY), compressing operating margin to roughly 1.0%, as operating expenses outpaced revenue growth. Ordinary income of ¥47m implies net non-operating income of around ¥9m, partially offsetting weak operating leverage. Net income was ¥24m (-63.1% YoY), resulting in a slim net margin of 0.62%, consistent with the provided DuPont decomposition. The DuPont metrics show an asset turnover of 0.969 and financial leverage of 5.35x (assets/equity of ¥4,017m/¥751m), yielding a calculated ROE of 3.20%, in line with the reported figure. The equity ratio printed as 0.0% in the feed appears to be a placeholder; based on the balance sheet, equity/asset ratio is approximately 18.7%, highlighting a leveraged capital structure. Liquidity looks adequate with a current ratio of 120.8% and working capital of about ¥386m, though the quick ratio equals the current ratio because inventories are unreported, limiting precision. Interest expense was ¥19.36m, and interest coverage is thin at approximately 2.0x using operating income, leaving limited cushion if earnings soften. The effective tax rate shown as 0.0% conflicts with a disclosed income tax line of ¥105.6m and a positive net income; this likely reflects interim timing, classification differences, or data mapping issues, so care is warranted in interpreting tax charges. Cash flow statements are not disclosed in this dataset (zeros indicate unreported), constraining our assessment of earnings-to-cash conversion and working capital dynamics. Dividend data show DPS at 0 with a 0% payout ratio for the period, offering no read-through on policy changes or distribution capacity. Overall, the company is demonstrating healthy gross profitability but experiencing significant pressure below gross profit, pointing to elevated SG&A or strategic investments that have not yet scaled. Leverage is meaningful, and with profits compressed, sensitivity to interest rates and earnings volatility rises. Growth at the top line appears sustainable near term if product and channel strategies hold, but profitability restoration is the critical variable for value creation in the medium term. We base our conclusions on the reported non-zero items and standard ratio constructions while acknowledging missing cash flow and certain account details.

Profitability Analysis

ROE_decomposition: Net profit margin 0.62% × Asset turnover 0.969 × Financial leverage 5.35 = ROE ≈ 3.20%. The modest ROE is primarily constrained by a very low net margin, despite reasonable asset utilization and high leverage. margin_quality: Gross margin is strong at 62.6% (gross profit ¥2,437m on revenue ¥3,894m), indicative of brand strength, DTC mix, or favorable sourcing. Operating margin fell to ~1.0% (operating income ¥38m), signaling elevated SG&A, marketing, logistics, or store-related costs. Net margin of 0.62% reflects additional non-operating items and interest burden. The divergence between high gross margin and low operating margin suggests expense discipline or scale efficiency is the key profitability lever. operating_leverage: Despite revenue growth of +10.8% YoY, operating income declined 75% YoY, implying negative operating leverage in the period. Fixed costs (e.g., personnel, rent, marketing) likely grew faster than gross profit, or one-offs weighed on OI. Interest coverage at ~2.0x underscores sensitivity to further earnings compression.

Growth Assessment

revenue_sustainability: Revenue growth of +10.8% YoY to ¥3,894m indicates demand resilience, potentially driven by product launches, channel expansion, or pricing. With asset turnover at 0.969, utilization appears reasonable, but sustainability will depend on maintaining mix and repeat purchasing in a cautious consumer backdrop. profit_quality: Gross profit expanded with revenue, but operating and net profits deteriorated sharply, indicating current growth is not translating to earnings. The margin structure points to either transitory investments (which could normalize) or structurally higher cost base; clarity is limited without OCF and detailed SG&A disclosure. outlook: Near-term outlook hinges on cost normalization and converting gross margin strength into operating profit. If revenue growth persists and SG&A growth moderates, operating leverage could turn positive. Conversely, continued cost inflation or promotional intensity would keep ROE low despite leverage.

Financial Health

liquidity: Current assets ¥2,241m vs current liabilities ¥1,855m yields a current ratio of 120.8% and working capital of ~¥386m. Quick ratio also shows 120.8% because inventories are unreported; true quick liquidity may be lower if inventories are material. solvency: Total liabilities ¥3,816m and equity ¥751m imply a debt-to-equity (liability-to-equity) of ~5.08x and an equity ratio of ~18.7%. This leverage elevates financial risk, particularly with compressed operating earnings. capital_structure: Financial leverage (assets/equity) is 5.35x, boosting ROE mathematically but increasing sensitivity to earnings volatility and interest rates. Interest expense ¥19.36m with ~2.0x coverage offers limited headroom.

Cash Flow Quality

earnings_quality: OCF data is unreported; therefore, we cannot triangulate earnings with cash generation. The OCF/Net income ratio and FCF are not meaningful given disclosure gaps. FCF_analysis: Investing and financing cash flows are unreported; free cash flow cannot be assessed. Capex intensity and working capital consumption are unknown for the period. working_capital: Inventories are unreported, limiting analysis of the operating cycle. Working capital of ~¥386m suggests a modest cushion, but without receivables/payables detail, cash conversion risk cannot be quantified.

Dividend Sustainability

payout_ratio_assessment: DPS is reported as ¥0 with a payout ratio of 0%. With limited profits (net income ¥24m) and elevated leverage, a conservative stance is understandable, though the actual dividend policy is not discernible from this dataset. FCF_coverage: FCF is unreported, so dividend coverage cannot be analyzed quantitatively. In principle, thin earnings and higher leverage argue for prioritizing balance sheet resilience. policy_outlook: Given low ROE (3.20%) and subdued net margin, a cautious or opportunistic dividend approach appears likely until profitability normalizes; explicit guidance would be required for confirmation.

Risk Assessment

Business Risks:

• Margin compression from higher SG&A, logistics, and marketing spend
• Demand volatility in discretionary categories amid macro uncertainty
• Channel mix risks (e.g., wholesale vs DTC) affecting pricing and returns
• Product and inventory risks (style obsolescence, markdowns) though inventories are not disclosed
• Execution risk in scaling operations while maintaining brand positioning

Financial Risks:

• High leverage: liabilities/equity ~5.08x and equity ratio ~18.7%
• Thin interest coverage at ~2.0x, exposing earnings to rate and profit shocks
• Limited visibility on cash generation due to unreported OCF/FCF
• Potential tax volatility or classification inconsistencies in interim periods

Key Concerns:

• Negative operating leverage despite double-digit revenue growth
• Sustainability of high gross margin without accompanying OPEX control
• Balance sheet leverage amplifying downside if profitability does not recover

Investment Implications

Key Takeaways:

• Top-line growth is robust (+10.8% YoY), but operating profit fell 75% YoY, signaling cost pressure.
• Gross margin is strong at 62.6%, yet operating margin is only ~1.0%, highlighting expense drag.
• ROE of 3.20% is constrained by low net margin despite leverage (5.35x assets/equity).
• Liquidity is adequate (current ratio 1.21x), but solvency is stretched (equity ratio ~18.7%).
• Interest coverage (~2.0x) leaves limited buffer; improving operating income is critical.
• Cash flow assessment is not possible with current disclosure; monitor for forthcoming filings.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory
• Interest coverage and ordinary income versus operating income gap
• Equity ratio and net debt/EBITDA (once EBITDA is disclosed)
• OCF, FCF, and inventory turnover when cash flow and working capital details are available
• Like-for-like sales or channel mix indicators affecting gross margin durability

Relative Positioning: Within Japan’s discretionary softgoods/leather goods space, Barcos shows above-average gross margins consistent with brand-led or DTC-oriented models, but trails on operating margin and ROE due to elevated overhead and leverage. Profit normalization and cash conversion disclosure are needed to close the gap with more efficient peers.

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