FRANCE BED HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥29.26B
• Operating Income: ¥1.78B
• Net Income: ¥1.05B
• EPS: ¥31.20

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: FY2026 Q2 was a soft quarter with flat revenue but noticeable profit compression, as operating and net income declined double digits despite strong cash conversion. Revenue was 292.59 (100M JPY), essentially flat YoY (+0.0%), while operating income fell to 17.82 (-16.0% YoY) and ordinary income to 17.65 (-17.7% YoY). Net income declined to 10.47 (-20.9% YoY), translating into a net margin of 3.6%. Gross profit was 164.52, implying a robust gross margin of 56.2%, but SG&A at 146.70 absorbed most of the gross profit. Operating margin compressed to 6.1% from roughly 7.3% a year ago (about 116 bps of compression, given flat revenue and a -16% decline in operating income). Net margin contracted to 3.6% from approximately 4.5% YoY (about 94 bps compression), reflecting weaker operating leverage and a high effective tax rate of 40.6%. Earnings quality was strong: operating cash flow of 25.41 exceeded net income (OCF/NI = 2.43x), indicating cash-backed earnings. EBITDA was 43.04 (14.7% margin), with depreciation and amortization of 25.22, highlighting significant non-cash charges supporting cash flow. The balance sheet remains conservative: current ratio 260%, quick ratio 214%, and interest coverage 49.5x; cash (62.36) slightly exceeds total interest-bearing loans implied by disclosed short-term (15.40) and long-term (40.75), signaling a net cash posture. However, capital efficiency is weak: ROE is 2.7% and ROIC 2.7%, both below typical cost of capital thresholds, triggering a capital efficiency warning. Profit declines appear driven by SG&A pressure amid flat top line rather than gross margin deterioration (gross margin remains high), suggesting cost discipline and operating leverage are key levers. Financing cash flow was negative (-21.61), reflecting share repurchases of -15.02 and likely dividends (unreported), indicating ongoing shareholder returns despite earnings softness. A calculated payout ratio of 132.8% appears elevated relative to earnings; near-term coverage relies on existing cash and OCF, but sustained over-100% payouts would be risky without profit recovery. Forward-looking, stabilization of SG&A growth versus revenue, normalization of the tax rate, and improved asset turnover are required to lift ROE/ROIC above warning levels. In the interim, liquidity and solvency are solid, giving the company time to execute on cost and growth initiatives. Overall, the quarter underscores resilient cash generation and a strong balance sheet but weaker operating leverage and subdued capital efficiency.

Profitability Analysis

ROE decomposition: ROE (2.7%) = Net Profit Margin (3.6%) × Asset Turnover (0.436) × Financial Leverage (1.71x). The biggest drag this quarter was the net profit margin, which declined as operating margin compressed about 116 bps with flat revenue, and the effective tax rate was high at 40.6%. Asset turnover at 0.436 is low, indicating a relatively asset-heavy or slow-turning model (not unusual for manufacturers/distributors in beds/furnishings/medical equipment) and remains a structural headwind to ROE. Leverage is modest at 1.71x, providing little amplification to returns—positive for risk, but limiting ROE. Business driver: SG&A intensity (SG&A/revenue ~50.1%) rose versus revenue, eroding operating leverage; non-operating impact was small (net -0.16), so the profit drop is predominantly operating. Sustainability: The margin pressure looks largely operational and potentially reversible with cost control and mix improvement; the elevated tax rate may normalize, offering upside to net margin. Watchpoints: SG&A growth outpacing revenue is a concern; without revenue acceleration or cost containment, ROE will likely remain below the cost of capital.

Growth Assessment

Top-line growth stalled at +0.0% YoY, suggesting a pause in demand growth or pricing momentum. Profitability declined disproportionately (OP -16%, NI -21%), indicating negative operating leverage. Gross margin held strong at 56.2%, implying product/service mix and pricing are intact; the pressure is below gross profit. EBITDA margin at 14.7% indicates healthy underlying profitability before D&A, but depreciation (not small at 25.22) limits EBIT. The high effective tax rate amplified the drop in net profits; if tax rate normalizes, NI could recover faster than EBIT. Outlook hinges on re-accelerating revenue in core segments (bedding, medical/nursing care equipment) and aligning SG&A growth to sales. Capex of 27.53 suggests ongoing investments; near-term, this weighs on FCF but may support medium-term growth and efficiency. With ROIC at 2.7%, returns on these investments need to improve to create value; prioritizing projects with clear payback and asset turnover benefits will be key.

Financial Health

Liquidity is very strong: current ratio 260% and quick ratio 214%; working capital is 215.37, comfortably covering short-term obligations. Solvency is conservative: debt-to-equity 0.71x, interest coverage 49.5x, and cash (62.36) approximates or exceeds disclosed interest-bearing debt (short-term 15.40 + long-term 40.75). There is no warning for Current Ratio (<1.0) or D/E (>2.0). Maturity mismatch risk appears low: current assets (349.62) far exceed current liabilities (134.25), and cash plus receivables alone (149.91) exceed current liabilities. Off-balance sheet obligations are not reported; no specific contingent liabilities disclosed in the data. Equity base is solid at 391.58 with retained earnings of 356.71, providing loss-absorption capacity.

Cash Flow Quality

Earnings quality is high: OCF/Net Income = 2.43x, indicating profits are well-supported by cash. Despite strong OCF (25.41), capex was sizable at 27.53; a simple proxy FCF (OCF − Capex) would be approximately -2.12, though full investing CF was unreported, so true FCF is uncertain. Financing CF was -21.61, driven by share repurchases (-15.02) and likely dividends (not disclosed), suggesting cash outflows to shareholders exceeded internally generated cash after capex this half. Working capital details (AR 87.55, inventories 62.77, AP 20.83) are solid in absolute terms; without YoY/HoH comparatives, we cannot identify timing-driven working capital boosts or manipulation. No red flags from interest coverage (49.5x) or non-operating items (net -0.16). Overall, cash conversion looks strong, but investment and shareholder return outflows press near-term free cash.

Dividend Sustainability

The calculated payout ratio is 132.8%, which is above the <60% benchmark for comfort and above 100% threshold, implying reliance on balance sheet/OCF for coverage given current earnings. Dividends paid are unreported, but share buybacks totaled -15.02, signaling active shareholder returns. With proxy FCF (OCF − Capex) around -2.12 in the period and financing outflows significant, sustaining both dividends and repurchases at current levels would require improved earnings/OCF or reduced capex. The strong liquidity and net cash position provide near-term headroom; however, medium-term sustainability depends on restoring operating margin and lifting ROIC. Policy outlook likely favors stable dividends, but flexibility around buybacks appears prudent until profit momentum improves.

Risk Assessment

Business Risks:

• Operating leverage risk: SG&A growth outpacing flat revenue compresses margins.
• Demand risk in core bedding and medical/nursing care equipment markets, including institutional order timing.
• Pricing and input cost risk (materials, logistics, wage inflation) affecting gross-to-operating margin translation.
• Tax rate volatility (effective tax at 40.6%) impacting net income sensitivity.
• Execution risk on capex and efficiency projects required to lift ROIC.

Financial Risks:

• Potential negative FCF if capex remains elevated versus OCF, pressuring internal funding for dividends/buybacks.
• Earnings sensitivity to any decline in cash conversion (currently strong but could normalize).
• Concentration in domestic market dynamics (if present), limiting diversification benefits.

Key Concerns:

• Low capital efficiency: ROIC 2.7% and ROE 2.7% below cost-of-capital norms.
• Margin compression: operating margin down ~116 bps YoY with flat sales.
• High SG&A ratio (~50.1% of revenue) leaving limited buffer for shocks.
• Elevated payout ratio (132.8%) versus earnings amid weak profit growth.
• Data gaps (dividends, full investing CF, detailed SG&A breakdown) constrain deeper diagnostics.

Investment Implications

Key Takeaways:

• Flat revenue with disproportionate profit declines highlights negative operating leverage.
• Gross margin resilient at 56.2%—pressure is primarily SG&A and tax-rate related.
• Cash generation strong (OCF/NI 2.43x), but capex and buybacks drove net cash outflows.
• Balance sheet is robust (net cash, high liquidity, low leverage) mitigating near-term risk.
• ROIC at 2.7% flags urgency to improve asset turnover and margin to create value.
• Sustaining shareholder returns above 100% payout will require earnings recovery or reduced outflows.
• Focus areas: cost discipline, utilization of assets, and prioritizing high-return investments.

Metrics to Watch:

• Operating margin trajectory and SG&A/revenue ratio each quarter.
• Effective tax rate normalization path.
• OCF versus capex (proxy FCF) and trend in investing CF once disclosed.
• Inventory and receivables turns (asset turnover improvement).
• Net cash position and pace of shareholder returns (dividends/buybacks).
• ROIC progression toward >5% near-term and >7–8% medium-term.

Relative Positioning: Within Japan-listed consumer/healthcare furnishings peers, the company exhibits strong gross margins and cash conversion with a conservative balance sheet, but lags on capital efficiency (ROIC/ROE) due to low asset turnover and high SG&A intensity; improving operating leverage is key to closing the gap.

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