DREAMBED CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.62B
• Operating Income: ¥347M
• Net Income: ¥221M
• Earnings per Unit (EPU): ¥54.09

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 modest top-line beat with solid operating leverage, but weak cash conversion and tight liquidity temper the quality of FY2026 Q2 results. Revenue rose 4.5% YoY to 56.20, while operating income grew 19.6% YoY to 3.47, indicating positive operating leverage. Ordinary income increased 19.3% YoY to 3.32 and net income rose 19.3% YoY to 2.21, translating to EPS of 54.09 JPY. Gross profit reached 28.59 with a gross margin of 50.9%, underscoring healthy pricing/mix or procurement discipline. Operating margin expanded to 6.2% (3.47/56.20), and ordinary margin stood at 5.9% (3.32/56.20). We estimate operating margin expanded by about 78 bps YoY (from ~5.4% to 6.2%), as operating income grew faster than sales. Net margin improved to 3.9%, supported by contained non-operating costs and a 33.0% effective tax rate. However, operating cash flow was only 0.31 versus net income of 2.21 (OCF/NI 0.14x), flagging earnings quality concerns likely tied to working capital. Free cash flow was likely negative (-1.0) given capex of 1.31 and modest OCF. Liquidity is tight: current ratio at 0.95 and quick ratio at 0.78 are below comfort levels, with short-term loans of 20.96 materially high relative to cash of 7.97. Leverage is moderate to elevated with D/E of 1.44x and net debt/EBITDA around 5.6x, though interest coverage is strong at ~20x. ROE is modest at 4.7%, driven by low asset turnover (0.503) and only mid-single-digit margins, while ROIC at 3.1% is below cost-of-capital benchmarks. Dividend payout ratio is calculated at 62.0%, slightly above the 60% benchmark, and looks stretched against negative implied FCF and weak OCF. Non-operating items were small (dividend income 0.02, interest expense 0.17), so core operations drove the upside. Forward-looking, sustaining margin gains will require disciplined SG&A and stable gross margins, but deleveraging and working capital normalization are critical to improve cash generation and protect liquidity.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.7% = Net margin 3.9% × Asset turnover 0.503 × Financial leverage 2.38x. The most notable change this quarter appears to be net margin expansion, inferred from operating income growth (+19.6% YoY) outpacing revenue (+4.5% YoY), which lifted operating margin by an estimated ~78 bps. Business drivers likely include favorable mix/pricing sustaining a 50.9% gross margin and better SG&A discipline, with SG&A at 45.7% of sales. Asset turnover remains low at 0.503, reflecting a relatively asset-heavy structure versus sales scale. Financial leverage at 2.38x supports ROE but increases sensitivity to cash flow and refinancing conditions. The margin expansion could be sustainable if gross margin resilience and SG&A control persist, but it is vulnerable to input cost inflation or demand softness. Concerning trend to watch: leverage-assisted ROE amid weak cash conversion (OCF/NI 0.14x) suggests earnings quality risk; also, if SG&A growth re-accelerates relative to sales, the operating leverage benefit could reverse.

Growth Assessment

Revenue grew 4.5% YoY to 56.20, indicating steady demand in the bedding/furniture channel. Operating income rose 19.6% to 3.47, implying positive operating leverage and improved efficiency. Ordinary income (+19.3%) and net income (+19.3%) tracked operating trends, with non-operating items small and not a material driver. Growth quality is mixed: margins improved, but cash conversion lagged sharply (OCF 0.31 vs NI 2.21). With EBITDA at 5.16 (9.2% margin), operational profitability is reasonable for the category, but asset efficiency (asset turnover 0.503) remains a drag on returns. Outlook hinges on maintaining a ~51% gross margin and containing SG&A at ~46% of sales; any input cost or FX headwinds could compress margins. Given tight liquidity and elevated short-term borrowings, growth constrained by balance sheet flexibility is a risk if working capital does not normalize.

Financial Health

Liquidity: Current ratio 0.95 and quick ratio 0.78 are below healthy thresholds; explicit warning warranted. Working capital is negative at -2.45, reflecting current liabilities (47.02) exceeding current assets (44.57). Short-term loans (20.96) are sizable relative to cash (7.97) and receivables (14.22), implying maturity mismatch risk and a reliance on refinancing or swift collections. Solvency: Debt-to-equity 1.44x is on the higher side for a small-cap manufacturer/marketer; total loans are 36.96 (short 20.96, long 16.00). Interest coverage is strong at ~20x, mitigating immediate interest burden risk. Net debt/EBITDA is approximately 5.6x, which is elevated and adds sensitivity to earnings volatility. Off-balance sheet obligations: none reported in the provided data.

Cash Flow Quality

OCF/Net income is 0.14x, well below the 0.8 threshold, indicating weak earnings-to-cash conversion—likely driven by working capital (e.g., receivables or inventory build), though detailed drivers are unreported. With capex of 1.31 and OCF of 0.31, implied FCF is approximately -1.00, suggesting the period’s cash needs were funded by financing (financing CF +0.51) and cash balances. Sustained dividends plus capex would not be covered by current OCF; improvement requires working capital normalization or capex moderation. No clear signs of deliberate working capital manipulation can be concluded from the snapshot, but the combination of low OCF and higher short-term debt warrants scrutiny of collections, inventory turns, and payables terms.

Dividend Sustainability

The calculated payout ratio is 62.0%, slightly above the <60% benchmark. With implied negative FCF (~-1.0) and OCF of only 0.31, dividend coverage from internal cash generation looks weak this period. Financing CF was +0.51 and share repurchases were -0.24, indicating some cash return despite tight liquidity. Without reported total dividends paid, precise cash coverage cannot be computed, but qualitatively the dividend appears reliant on future OCF improvement and/or balance sheet capacity. Policy outlook should prioritize liquidity preservation until OCF/NI recovers toward 1.0x and FCF turns positive.

Risk Assessment

Business Risks:

• Demand cyclicality in housing/furniture and retail channels impacting sales growth
• Input cost inflation (foam, textiles, metal components) compressing gross margins
• FX exposure on imported materials affecting cost base and pricing
• Customer concentration or OEM dependency (not disclosed) potentially elevating revenue volatility
• Execution risk in SG&A control to sustain recent operating leverage

Financial Risks:

• Liquidity risk: current ratio 0.95 and quick ratio 0.78 below thresholds
• Refinancing/maturity mismatch: short-term loans 20.96 vs cash 7.97 and overall current liabilities 47.02
• Elevated leverage: D/E 1.44x and net debt/EBITDA ~5.6x heighten sensitivity to earnings dips
• Weak cash conversion: OCF/NI 0.14x raises earnings quality concerns
• ROIC at 3.1% below cost-of-capital benchmarks, risking value dilution if sustained

Key Concerns:

• Sustaining >50% gross margin amid cost and FX volatility
• Working capital normalization to restore positive FCF
• Potential pressure on dividend sustainability given cash flow profile
• Interest rate risk impacting borrowing costs on sizable short-term loans

Investment Implications

Key Takeaways:

• Solid operating leverage: operating income +19.6% on revenue +4.5%; operating margin ~6.2%
• Earnings quality weak: OCF/NI 0.14x and implied negative FCF
• Liquidity tight: current ratio 0.95, quick ratio 0.78; working capital negative
• Leverage moderate-high: D/E 1.44x; net debt/EBITDA ~5.6x but interest coverage ~20x
• ROE 4.7% and ROIC 3.1% remain below attractive return thresholds
• Dividend payout at ~62% looks stretched against current cash generation

Metrics to Watch:

• OCF/Net income ratio and free cash flow
• Inventory days and receivable days (turnover/aging)
• Gross margin trajectory vs input costs and FX
• SG&A as a % of sales and operating margin
• Current ratio and short-term loan rollover profile
• Net debt/EBITDA and interest coverage
• Capex intensity and timing

Relative Positioning: Within Japan’s bedding/furniture peers, Dream Bed shows respectable gross and operating margins but lags on ROE/ROIC due to low asset turnover and elevated leverage; liquidity is weaker than typical peers with larger balance sheets, making near-term performance more sensitive to working capital swings.

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