ASICS (7936) FY2026 Q1 Earnings Report

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Executive Summary

The Company delivered strong results, with higher revenue and earnings accompanied by improved margins, driven by revenue growth across all regions. Revenue was ¥270.27B (+29.7% YoY), Operating Income was ¥60.76B (+36.5%), Ordinary Income was ¥58.78B (+35.5%), and Net Income attributable to owners of the parent was ¥46.67B (+47.1%). The Operating Income margin improved by approximately 1.1pt YoY to 22.5%. Earnings growth outpaced revenue growth, supported by more efficient SG&A expenses and growth in highly profitable regions, particularly Europe and Greater China.

Factors Affecting Performance

【Revenue】Revenue increased 29.7% YoY to ¥270.27B, with all reported segments posting revenue growth. Europe was the largest revenue region at ¥84.57B (+43.8%), while Greater China also recorded strong growth at ¥37.19B (+28.2%), and Southeast and South Asia reached ¥16.87B (+34.6%). Japan at ¥59.27B (+17.2%) and North America at ¥48.15B (+23.0%) posted relatively lower growth rates.

【Profit and Loss】Operating Income increased 36.5% YoY to ¥60.76B, exceeding the revenue growth rate. By region, Greater China recorded the highest profit margin at 29.7% and made a significant contribution to earnings, with profit increasing 62.9% YoY. In North America, profit increased only 10.6% against revenue growth of +23.0%, resulting in a 13.3% profit margin, the lowest among the major regions. Ordinary Income was below Operating Income due to non-operating expenses, including ¥1.35B in interest expenses and ¥0.48B in foreign exchange losses, but still increased 35.5% YoY. Net Income increased 47.1%, partly due to the one-time gain on the sale of fixed assets of ¥3.11B. Overall, the Company achieved higher revenue and earnings, with earnings growth outpacing revenue growth.

Segment Analysis

Europe was the largest contributor to earnings, with revenue of ¥84.57B and Operating Income of ¥18.21B, representing a 21.5% profit margin, while maintaining high growth with profit increasing 53.5% YoY. Greater China generated revenue of ¥37.19B but recorded the highest profit margin across all regions at 29.7%, with profit increasing 62.9% YoY. Japan showed a stable earnings base, with revenue of ¥59.27B and a 24.5% profit margin. By contrast, North America had the lowest profit margin among the major regions at 13.3%, with revenue of ¥48.15B and slower profit growth relative to revenue growth: profit increased 10.6% against revenue growth of +23.0%. Oceania also showed limited profit growth relative to revenue growth, with revenue increasing 27.5% but profit increasing only 7.0%, indicating widening profitability disparities among regions.

Key Financial Metrics

【Profitability】Operating Income margin of 22.5% (21.4% in the same period of the previous year) and Net Income margin of 17.2% (15.2% in the previous year) both improved YoY. The high gross margin of 54.6% provides the foundation for profitability. ROE was 14.7%, driven primarily by the high Net Income margin, and can be decomposed into total asset turnover of 0.42x and financial leverage of 2.01x. 【Cash Quality】Operating Cash Flow (OCF) was negative at ¥11.13B, resulting in a negative OCF-to-Net Income ratio, indicating that earnings had not been converted into cash during the quarter. The primary factors were increases of ¥44.89B in trade receivables and ¥9.78B in inventories, a ¥6.84B decrease in trade payables, and ¥23.62B in income taxes paid. 【Investment Efficiency】Capital expenditures of ¥3.60B were below depreciation and amortization expense of ¥7.63B, indicating a restrained level of investment. Basic EPS was ¥65.71 (¥44.26 in the previous year, +48.5% YoY). 【Financial Soundness】The Equity Ratio was 49.7%. Current assets of ¥462.22B compared with current liabilities of ¥255.62B indicate ample liquidity, while cash and deposits of ¥119.39B exceeded short-term interest-bearing debt.

Cash Flow Analysis

OCF was negative at ¥11.13B, deteriorating significantly from positive OCF of ¥3.45B in the same period of the previous year. Although the subtotal for working capital was positive at ¥12.95B, the ¥44.89B increase in trade receivables and ¥6.84B decrease in trade payables placed pressure on cash flow, while ¥23.62B in income taxes paid ultimately caused OCF to turn negative. Investing CF was negative at ¥3.12B, primarily due to capital expenditures of ¥3.60B. As a result, free cash flow was negative at ¥14.25B, indicating that investment and dividends could not be funded through operating activities alone. Financing CF was positive at ¥21.88B, with a net increase in short-term borrowings of ¥37.50B offsetting the cash shortfall. Despite higher revenue and earnings, the expansion of working capital exceeded cash generation. Going forward, the collection and management of trade receivables and inventories will be key cash management issues.

Quality of Earnings

The difference between Ordinary Income and Net Income was primarily attributable to the extraordinary gain of ¥3.11B from the sale of fixed assets. Pretax income of ¥61.87B exceeded Ordinary Income of ¥58.78B. The gain on the sale of fixed assets represented approximately 6.7% of Net Income of ¥46.67B and was one reason why Net Income growth of +47.1% exceeded Operating Income growth of +36.5%. Non-operating results were a net expense, with non-operating income of ¥1.02B versus non-operating expenses of ¥3.01B. The main expenses were ¥1.35B in interest expenses and ¥0.48B in foreign exchange losses. Comprehensive income was ¥54.84B, exceeding Net Income of ¥46.67B, with deferred hedge gains of ¥6.10B serving as a positive factor. While OCF was negative at ¥11.13B, accounting profit increased substantially. Since the earnings growth was accompanied by increases in trade receivables and inventories, attention should be paid to the cash conversion of earnings in the quarter.

Earnings Forecast and Guidance

The full-year forecast remains unchanged, with Revenue of ¥950.00B (+17.2% YoY), Operating Income of ¥171.00B (+20.0%), and Ordinary Income of ¥165.00B (+18.5%). Neither the earnings forecast nor the dividend forecast has been revised. Q1 progress rates were 28.4% for Revenue, 35.5% for Operating Income, and 35.6% for Ordinary Income, all exceeding the simple 25% run rate. The full-year Operating Income margin forecast is equivalent to 18.0%, implying normalization toward the second half of the fiscal year from the Q1 result of 22.5%. The key focus will be whether the high Q1 profit margin can be maintained throughout the full year or normalize due to seasonality and the timing of expense recognition.

Shareholder Returns

The full-year dividend forecast is ¥38.00 per share, implying a Payout Ratio of approximately 24.7% based on forecast full-year EPS of ¥153.91. Share repurchases amounted to only ¥0.001B in Q1 and had a negligible impact on the Total Return Ratio. Dividend payments in Q1 amounted to ¥11.35B and could not be funded by free cash flow for the quarter, which was negative at ¥14.25B. However, cash and deposits of ¥119.39B and the low level of interest-bearing debt support the dividend.

Risk Factors

1. Expansion of the inventory and collection cycle: Product inventories reached ¥166.05B, while trade receivables increased significantly YoY (the change in trade receivables was negative ¥44.89B). Inventory buildup accompanying revenue growth could lead to risks of inventory write-downs or discount sales.

2. Deterioration in operating cash flow: OCF was negative at ¥11.13B, creating a significant divergence from Net Income of ¥46.67B. If working capital expansion continues, dependence on short-term borrowings may increase.

3. Regional variations in profitability: In North America, profit increased 10.6% against revenue growth of +23.0%, and the 13.3% profit margin was the lowest among the major regions. Profit growth in Oceania was also slow relative to revenue growth, and regional profitability disparities may affect overall earnings.

Industry Benchmark (For Reference; Based on Company Research)

Profitability and Returns

Profitability significantly exceeds the manufacturing industry median and is positioned at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate also significantly exceeds the industry median, positioning the Company among the industry’s high-growth companies.

※Source: Based on Company research

Key Takeaways from the Earnings Results

1. Revenue growth of +29.7% and Operating Income growth of +36.5% were accompanied by geographically diversified demand expansion and margin improvement, led by highly profitable growth in Europe and Greater China.

2. The Operating Income progress rate against the full-year forecast was 35.5%, above the standard run rate. However, the Net Income progress rate of 42.3% includes the ¥3.11B gain on the sale of fixed assets and therefore should be viewed separately from underlying operating performance.

3. Both OCF and free cash flow were negative. Since earnings growth was accompanied by increases in trade receivables and inventories, future trends in working capital and cash conversion will be important factors in assessing earnings quality.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥912–¥971 at Cost of Equity ±1%, and ¥925–¥965 at ω±0.1.

Notes:

• Goodwill amortization of ¥1.1 per share is added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Since Net Income progress against the full-year forecast is 42%, exceeding the standard 25%, forecast EPS is adjusted upward within a maximum range of +10% (because companies ahead of forecast progress tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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AI Financial Analysis

Executive Summary

ASICS delivered an exceptionally strong FY2026 Q1 earnings result, with broad-based regional growth and further operating-margin expansion. Revenue increased 29.7% year on year to ¥270.3bn. Operating income rose faster than sales, increasing 36.5% to ¥60.8bn. Operating margin improved by approximately 110bp year on year to 22.5%, from approximately 21.4% in the prior-year quarter. Gross profit increased 26.8% to ¥147.5bn, although gross margin declined by approximately 120bp to 54.6%. The gross-margin dilution was more than offset by favorable operating leverage, as SG&A increased 20.8%, materially below revenue growth. Net income attributable to owners increased 47.2% to ¥46.6bn, and net margin expanded by approximately 200bp to 17.2%. Net income was also assisted by a ¥3.1bn gain on sale of non-current assets, equivalent to 6.7% of quarterly net income. Europe was the core business by segment profit contribution, generating ¥18.2bn of segment profit, or about 30% of consolidated operating income. China also produced particularly strong growth, with segment profit up 62.9% year on year. The principal earnings-quality weakness was operating cash flow of negative ¥11.1bn despite ¥46.6bn of net income. Cash conversion was negative because trade receivables increased ¥44.9bn, inventories increased ¥9.8bn, and trade payables declined ¥6.8bn. Financing cash flow of ¥21.9bn, including a ¥37.5bn increase in short-term loans, more than offset the operating cash outflow and supported a ¥7.1bn increase in cash. Liquidity remains adequate, with a 180.8% current ratio, a 115.9% quick ratio, and cash equal to 2.98x short-term debt. However, the 100% short-term-debt ratio makes refinancing discipline and working-capital normalization important near-term monitoring items. Q1 progress against full-year guidance is ahead of a standard 25% run rate, especially for operating income and net income, but the strong first-quarter outcome must be assessed alongside the conversion of elevated receivables and finished-goods inventory into cash. The full-year dividend forecast of ¥38 per share implies a moderate and supportable 24.7% payout ratio based on forecast EPS of ¥153.91.

Profitability Analysis

Annualized DuPont ROE is 58.6%, decomposed into a 17.2% net profit margin, 1.689x annualized asset turnover, and 2.01x financial leverage. The primary strength in the current earnings profile is the net profit margin: 17.2% is well above the 10% level generally considered excellent and reflects a 22.5% EBIT margin. The annualized asset-turnover component is also robust for a branded sporting-goods company, supported by rapid sales growth across major regions. Financial leverage is meaningful but not excessive in the context of the balance sheet, while debt/capital remains low at 11.2%. Gross margin declined to 54.6% from approximately 55.8% a year earlier, a contraction of about 120bp, indicating that product, channel, geographic, currency, or input-cost mix was less favorable at the gross-profit level. Nonetheless, SG&A grew only 20.8%, versus 29.7% revenue growth, producing approximately 110bp operating-margin expansion to 22.5%. Advertising expense increased 34.5% to ¥18.0bn, broadly in line with the commercial growth agenda, while commission fees increased 22.7% to ¥15.2bn and logistics-related packing and transportation expense increased 17.4% to ¥9.0bn. This favorable SG&A scaling was the key operating-leverage driver. EBITDA increased to ¥68.4bn and EBITDA margin reached 25.3%. Under JGAAP, goodwill amortization was only ¥0.2bn, or less than 1% of EBITDA, so JGAAP goodwill amortization has no material effect on comparability with IFRS peers. Below operating income, interest expense of ¥1.3bn was readily covered, with EBIT interest coverage of 45.14x and EBITDA interest coverage of 50.81x. The effective tax rate was 24.6%, and the 0.753 tax burden is normal. Profit before tax exceeded ordinary income because of the ¥3.1bn asset-sale gain; excluding this item, pre-tax profitability still showed strong operational momentum.

Growth Assessment

Revenue growth of 29.7% was geographically broad-based, reducing reliance on a single market. Europe was the largest revenue and segment-profit contributor, with external sales up 43.8% to ¥84.6bn and segment profit up 53.5% to ¥18.2bn; its segment profit margin on external sales was approximately 21.5%. Japan generated external sales growth of 18.3% to ¥46.5bn and segment profit growth of 35.8% to ¥14.5bn. North America recorded 23.0% external-sales growth to ¥48.2bn, while segment profit increased 10.6% to ¥6.4bn; the profit-growth lag versus sales merits attention relative to other regions. China posted external-sales growth of 28.2% to ¥37.2bn and segment-profit growth of 62.9% to ¥11.1bn, representing the strongest margin-led improvement among the major reporting regions. Oceania sales increased 27.5% to ¥15.9bn, although segment profit grew a more moderate 7.0% to ¥2.4bn. Southeast and South Asia sales increased 34.6% to ¥16.9bn and segment profit rose 45.2% to ¥4.4bn. Other regions produced 23.4% sales growth to ¥15.9bn and 25.7% segment-profit growth to ¥3.0bn. The non-reportable running-services and sports-facilities businesses increased sales 26.2% to ¥5.1bn and improved segment profit to ¥0.3bn. Full-year guidance calls for revenue of ¥950.0bn, operating income of ¥171.0bn, ordinary income of ¥165.0bn, and net income attributable to owners of ¥110.0bn. Q1 revenue represents 28.4% of the full-year revenue target, 3.4 percentage points above the standard 25% first-quarter progress rate. Operating-income progress is 35.5%, 10.5 percentage points above the standard rate, while ordinary-income progress is 35.6%, also 10.6 percentage points ahead. Net-income progress is 42.3%, 17.3 percentage points ahead of the standard run rate, though it includes the asset-sale gain. Guidance has not been revised, so the principal consideration is whether high sales growth and improved SG&A absorption can be sustained while converting working capital into operating cash flow.

Financial Health

Balance-sheet liquidity is sound. Current assets of ¥462.2bn exceed current liabilities of ¥255.6bn by ¥206.6bn, resulting in a healthy 180.8% current ratio. The 115.9% quick ratio indicates that cash and receivables alone exceed current liabilities, limiting dependence on inventory liquidation for routine obligations. Cash and deposits totaled ¥119.4bn, equivalent to 18.7% of total assets. The capital structure is supported by total equity of ¥317.9bn and owners' equity of ¥316.1bn, with an owners' equity ratio of approximately 49.4%. The reported debt-to-equity ratio is 1.01x, below the 2.0x level associated with aggressive balance-sheet leverage. Debt/EBITDA of 0.58x and debt/capital of 11.2% indicate modest debt capacity relative to earnings and capitalization. Interest coverage remains very strong at 45.14x on EBIT and 50.81x on EBITDA. The material funding consideration is maturity concentration: the short-term debt ratio is 100.0%, and short-term loans rose from ¥2.5bn to ¥40.0bn, an increase of ¥37.5bn or 1,500% year on year. Current bonds payable were ¥25.0bn, further emphasizing the need to manage short-dated funding and refinancing execution. Cash covers short-term loans by 2.98x, which materially mitigates this maturity mismatch. Lease obligations totaled ¥59.4bn, comprising ¥15.8bn current and ¥43.6bn non-current obligations, and should be assessed alongside borrowings in evaluating fixed financial commitments. Receivables increased 55.9% year on year to ¥129.4bn, faster than the 29.7% increase in revenue, contributing to the current cash-flow strain. Retained earnings rose ¥35.5bn year on year to ¥281.9bn, reinforcing the equity base. Goodwill was only ¥5.5bn, equal to 1.7% of equity and 0.9% of assets, leaving balance-sheet value largely insulated from goodwill-impairment risk. Intangible assets were ¥103.7bn, or 16.2% of assets, including ¥41.1bn of software; this is a meaningful but still balanced asset concentration.

Notable B/S Changes

Short-term loans: +¥37.5bn (+1,500.0%) to ¥40.0bn - financing reliance increased sharply during a quarter of negative operating cash flow; cash coverage remains strong, but maturity concentration requires monitoring. Accounts receivable: +¥46.4bn (+55.9%) to ¥129.4bn - growth materially exceeded revenue growth and was the largest contributor to the Q1 operating cash outflow. Total equity: +¥44.5bn (+16.3%) to ¥317.9bn - retained earnings growth and positive comprehensive income strengthened the capital base. Treasury stock: ¥57.0bn, equal to 8.9% of total assets - a meaningful deduction from gross shareholders' equity that remains relevant to per-share capital structure. Intangible assets: ¥103.7bn, equal to 16.2% of total assets - software of ¥41.1bn represents a substantial digital-asset component, though overall intangible concentration remains below the 20% benchmark. Goodwill: ¥5.5bn, equal to 1.7% of equity - low acquisition-accounting exposure and limited goodwill-impairment sensitivity.

Cash Flow Quality

Cash-flow quality was weak in FY2026 Q1 despite strong reported earnings. Operating cash flow was negative ¥11.1bn, compared with net income attributable to owners of ¥46.6bn, resulting in an OCF/net-income ratio of negative 0.24x and triggering an earnings-quality concern. Cash conversion, measured as OCF/EBITDA, was negative 0.16x, well below the 0.7x warning threshold. The core driver was a ¥44.9bn increase in trade receivables, substantially larger than the prior-year-quarter ¥30.4bn increase. Inventories increased ¥9.8bn, while trade payables decreased ¥6.8bn, meaning the company both funded additional inventory and used supplier credit. Income taxes paid were ¥23.6bn, also weighing on first-quarter operating cash flow. The 9.0% accruals ratio is elevated relative to the below-5% high-quality benchmark, although it remains below the 10% level generally associated with a more severe warning. Free cash flow was negative ¥14.3bn after ¥3.6bn of capital expenditures. Investing cash flow was negative ¥3.1bn, including ¥3.5bn of intangible-asset purchases, and was partly offset by ¥5.8bn of proceeds from property, plant and equipment sales. Capital expenditure was only 0.47x depreciation and amortization, below the 0.7x underinvestment warning threshold. This can support short-term cash preservation, but sustained sub-depreciation investment could constrain store, supply-chain, digital, and product-development capacity over time. Finished goods represented essentially all reported inventory at ¥166.1bn. Quality alerts indicate annualized inventory days of approximately 123-127 days and an annualized cash conversion cycle of 121 days, both above relevant warning thresholds. These indicators make sell-through, discounting discipline, wholesale collection, and inventory replenishment central determinants of whether earnings convert to cash in subsequent quarters. Financing cash flow of ¥21.9bn, principally supported by ¥37.5bn of net short-term borrowing, was required to offset the operating and investing outflows.

Dividend Sustainability

The full-year dividend forecast is ¥38 per share, unchanged from the announced outlook. Based on forecast EPS of ¥153.91, the implied dividend payout ratio is approximately 24.7%. This is comfortably below the 60% sustainability benchmark and leaves substantial earnings retention capacity. The implied full-year dividend cash commitment is approximately ¥26.9bn using average shares of 708.7 million. The share-repurchase amount in Q1 was immaterial at ¥0.01bn, so the total return ratio is effectively equivalent to the dividend payout ratio. Earnings coverage of the forecast dividend is strong, given the 17.2% Q1 net margin and the full-year net-income target of ¥110.0bn. However, Q1 free cash flow was negative ¥14.3bn, so near-term dividend funding depends on the existing cash position and subsequent working-capital release rather than first-quarter internally generated free cash flow. Cash and deposits of ¥119.4bn and strong liquidity ratios provide ample immediate coverage. Dividend sustainability therefore appears solid on an earnings and balance-sheet basis, while the trajectory of operating cash flow, inventories, and receivables remains the main factor to monitor.

Risk Assessment

Business risks include Inventory and demand risk: annualized inventory days of approximately 123-127 days are above warning thresholds, and finished goods of ¥166.1bn expose the group to sell-through shortfalls, markdowns, product obsolescence, and gross-margin pressure., Sporting-goods industry competition: maintaining premium pricing, product differentiation, athlete-brand relevance, and shelf space against global footwear and apparel peers is necessary to preserve the 22.5% operating margin., Regional execution risk: Europe and China are major growth and profit contributors, while North American and Oceania segment-profit growth lagged their sales growth; changes in channel mix, promotional intensity, or local demand could affect group margin progression., Foreign-exchange risk: foreign-exchange losses were ¥4.9bn in Q1, and the globally diversified revenue base creates continuing translation and transaction exposure., Supply-chain and product-cycle risk: a high finished-goods balance increases exposure to sourcing disruptions, logistics costs, product-launch timing, and consumer demand shifts..

Financial risks include Earnings-to-cash conversion risk: operating cash flow was negative ¥11.1bn versus ¥46.6bn of net income, with an OCF/net-income ratio of negative 0.24x., Working-capital risk: receivables increased ¥44.9bn, inventories increased ¥9.8bn, and payables declined ¥6.8bn, extending the annualized cash conversion cycle to 121 days., Refinancing risk: the short-term debt ratio is 100.0%, while short-term loans increased ¥37.5bn year on year to ¥40.0bn. Strong cash coverage mitigates, but does not eliminate, reliance on short-dated funding., Capital-investment risk: CapEx/depreciation of 0.47x is below the underinvestment threshold and could become strategically restrictive if maintained through a high-growth phase..

Key concerns include Highest priority: conversion of receivables and inventory into operating cash flow without resorting to elevated discounting or further short-term borrowing., High priority: stabilization or reduction of inventory days from the approximately 123-127 day range to protect gross margin and reduce cash tied up in finished goods., High priority: management of short-term borrowings and current maturities while maintaining cash coverage and strong interest coverage., Moderate priority: sustaining SG&A discipline as advertising and brand investment increase, since current operating-margin expansion relies on SG&A growing below revenue., Moderate priority: separating recurring earnings growth from the ¥3.1bn gain on sale of non-current assets included in Q1 pre-tax income..

Investment Implications

Key takeaways include Revenue growth of 29.7% and operating-income growth of 36.5% demonstrate strong operating momentum, with operating margin reaching 22.5%., Europe is the core profit engine, contributing ¥18.2bn of segment profit, while China delivered the strongest major-region segment-profit growth at 62.9%., Q1 operating-income progress of 35.5% versus the full-year target is materially ahead of a standard 25% first-quarter run rate., The principal counterweight to strong income-statement performance is negative operating cash flow, caused by receivables growth, inventory investment, lower payables, and tax payments., Low debt/EBITDA, high interest coverage, healthy current liquidity, and modest goodwill reduce solvency and acquisition-accounting risk., The ¥3.1bn asset-sale gain lifted Q1 net income, but represents only 6.7% of net income and does not alter the underlying strength of operating profitability..

Metrics to watch include Operating cash flow and OCF/net-income conversion, Accounts receivable growth relative to revenue growth, Annualized inventory days, finished-goods sell-through, and markdown intensity, Annualized cash conversion cycle and trade-payables movement, Short-term loan balance, current debt maturities, and cash/short-term-debt coverage, Gross margin versus the 54.6% Q1 level, North America and Oceania segment-profit growth relative to regional sales growth, CapEx/depreciation, currently 0.47x.

Regarding relative positioning, ASICS presents a high-profitability branded sporting-goods profile, with a 22.5% operating margin, 25.3% EBITDA margin, and annualized 58.6% ROE. Its balance sheet is protected by strong liquidity, low debt/EBITDA, and minimal goodwill exposure, but its cash-conversion profile is currently weaker than its reported earnings profile because working capital has absorbed substantial cash. Relative positioning therefore rests on whether premium demand and regional growth can continue while inventory and receivable intensity normalize.