ESTELLE HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.02B
• Operating Income: ¥-338M
• Net Income: ¥-638M
• EPS: ¥-62.62

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 weak, with a continued operating loss and net loss, though operating results improved year on year and liquidity remains solid. Revenue was 150.24, up 0.6% YoY, indicating essentially flat top-line momentum. Gross profit was 83.23 with a gross margin of 55.4%, but SG&A of 86.61 exceeded gross profit, driving an operating loss of -3.38. Operating margin was -2.3% and ordinary income was -4.16; net income deteriorated to -6.56 with EPS of -62.62 yen. Non-operating income was modest at 0.24 (dividends 0.02, interest income 0.02) versus non-operating expenses of 1.02 (interest expense 0.40), leading to a net non-operating drag. The company posted positive operating cash flow of 2.34 despite the net loss, aided by non-cash D&A of 1.64 and working capital effects. However, the OCF/NI ratio is -0.36x, which flags a quality issue under the screen, though the nuance here is that positive OCF alongside a net loss is directionally supportive rather than deteriorative. Balance sheet liquidity is strong with current ratio 221.3% and quick ratio 119.5%, and cash 46.29 provides a buffer. Leverage is elevated with D/E of 1.59x (slightly above a conservative threshold), and interest coverage is negative (-8.45x) given the operating loss. Inventory is high at 105.31 (about 36% of revenue for the half and 36% of total assets), signaling merchandising and turn risks in a discretionary category. ROE is -5.8% on DuPont (net margin -4.4%, asset turnover 0.511, financial leverage 2.59x), indicating losses amplified by leverage. ROIC is -2.6%, below a 5% warning line, pointing to value dilution if unaddressed. Margin expansion/compression versus prior year cannot be quantified precisely due to missing comparatives, but operating loss narrowed YoY (+122.8% improvement). Forward-looking, stabilizing sales and tighter SG&A control to bring SG&A below gross profit, coupled with inventory normalization, are the key levers to return to breakeven. The cash position and long-term debt structure allow time to execute, but sustained negative operating profit would pressure interest coverage and equity over time.

Profitability Analysis

ROE decomposition (DuPont): ROE (-5.8%) = Net Profit Margin (-4.4%) × Asset Turnover (0.511) × Financial Leverage (2.59x). The margin component is the primary drag; even with moderate turnover, a negative net margin overwhelms returns, and leverage simply magnifies the loss. Business driver: SG&A (86.61) exceeded gross profit (83.23), producing an operating margin of -2.3% despite a solid gross margin of 55.4%; non-operating expenses (notably interest of 0.40) further widened losses. Sustainability: Gross margin level suggests product economics remain acceptable, but the current SG&A burden is unsustainable; restructuring, store optimization, or cost controls would be needed to sustain improvement. Operating leverage: With revenue nearly flat (+0.6% YoY), cost discipline must carry the turnaround; any SG&A growth above sales growth will further compress margins. Concerning trends: SG&A-to-sales is high at 57.7% (86.61/150.24), above gross margin and indicative of structural overhead pressure; interest coverage is negative reflecting insufficient operating earnings.

Growth Assessment

Top line grew 0.6% YoY to 150.24, indicating stable but subdued demand. Mix and pricing appear to keep gross margin at 55.4%, but operating deterioration arises from overhead and fixed costs. Non-operating items remain small relative to sales and are unlikely to alter the earnings trajectory near term. With EBITDA at -1.74 and EBIT at -3.38, the business currently lacks operating leverage; a return to breakeven requires either mid-single-digit sales growth with stable gross margin or a measurable SG&A reduction. Outlook hinges on inventory health (105.31) converting to sales without heavy discounting; success would support margin recovery, while markdowns would compress gross margin. Near-term catalysts include seasonal demand and any announced cost actions; absent these, full-year profitability will be challenging.

Financial Health

Liquidity: Strong. Current ratio 221.3% and quick ratio 119.5% indicate ample short-term coverage; working capital is 125.51. No warning on current ratio (<1.0) as it is well above. Solvency: D/E is 1.59x, modestly above a conservative 1.5x threshold; total liabilities are 180.50 versus equity 113.33 (equity ratio roughly 38.6%). Debt profile: Long-term loans total 60.90; current liabilities are 103.46 against cash 46.29 and receivables 19.67, implying manageable near-term refinancing needs given the liquidity cushion. Maturity mismatch risk appears contained as current assets (228.97) comfortably exceed current liabilities (103.46). Off-balance sheet: Not disclosed; no explicit lease or guarantees provided in the data.

Cash Flow Quality

OCF was positive at 2.34 versus net income of -6.56, producing an OCF/NI ratio of -0.36x (flagged under the screen). Qualitatively, positive OCF despite losses is aided by non-cash D&A (1.64) and likely working capital inflows; this is supportive but needs to be sustained. Free cash flow cannot be assessed due to missing investing CF and capex details. Financing CF was +1.51, suggesting reliance on external funding remains limited but present. Working capital: Elevated inventories (105.31) are a key variable—sales conversion without markdowns will support cash; otherwise, OCF could reverse. No signs of aggressive working capital manipulation are evident from the limited data, but inventory intensity is high for a soft demand environment.

Dividend Sustainability

Dividend disclosures are unavailable; payout ratio calculated at -47.2% is not economically meaningful with negative earnings. With EBITDA negative and operating loss persisting, a sustainable ordinary dividend would require either positive FCF or balance-sheet support; FCF is unreported. Cash (46.29) and strong liquidity provide capacity for minimal shareholder returns, but prudent policy would prioritize operating turnaround and inventory normalization. Outlook: Expect a cautious stance on dividends until operating profitability and FCF visibility improve.

Risk Assessment

Business Risks:

• Demand softness in discretionary jewelry leading to weak same-store sales
• High inventory level (105.31) risking markdowns and gross margin compression
• Operating deleverage as SG&A exceeds gross profit (86.61 vs 83.23)
• Brand and merchandising risk if product mix misses consumer trends

Financial Risks:

• Negative interest coverage (-8.45x) with continued operating losses
• Leverage at D/E 1.59x, slightly above conservative benchmarks
• Potential cash burn if OCF reverts and capex or seasonal working capital needs rise
• Tax volatility (effective tax rate -22.5%) indicating valuation allowance or non-recurring effects

Key Concerns:

• ROE -5.8% and ROIC -2.6% indicate value-dilutive returns
• Reliance on working capital releases to fund operations
• Limited non-operating income to offset core weakness
• Data gaps on capex, dividends, and lease obligations obscure true cash commitments

Investment Implications

Key Takeaways:

• Operating loss persists (-3.38) despite stable revenue (+0.6% YoY)
• SG&A intensity (57.7% of sales) is the main profitability headwind
• Positive OCF (2.34) offers breathing room, but quality flagged due to negative NI
• Liquidity is strong (current ratio 221%), but interest coverage remains negative
• Inventory magnitude (105.31) is pivotal for margin and cash outcomes
• ROE (-5.8%) and ROIC (-2.6%) underscore subpar capital efficiency

Metrics to Watch:

• SG&A-to-sales ratio and absolute SG&A trend
• Inventory turnover and markdown rates
• Gross margin trajectory around seasonal promotions
• OCF sustainability and any FCF disclosure (capex)
• Interest coverage and total debt movement
• Same-store sales growth and store productivity

Relative Positioning: Within specialty retail, the company shows stronger liquidity than many peers but weaker operating profitability and coverage metrics; recovery hinges on SG&A control and inventory normalization.

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