TSUTSUMI JEWELRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.67B
• Operating Income: ¥1.15B
• Net Income: ¥768M
• Earnings per Unit (EPU): ¥49.16

Income Statement

Balance Sheet

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: Solid top-line growth with resilient operating profit but a sharp decline in net income due to below-the-line items, leaving capital efficiency subdued. Revenue rose 20.8% YoY to 136.67, with operating income up 16.9% to 11.49 and ordinary income up 19.5% to 12.23. Gross profit reached 52.80, implying a gross margin of 38.6%. SG&A expenses were 42.97, representing 31.5% of sales, indicating decent cost control alongside expansion. Operating margin stands at 8.4% this period. Based on revenue and operating income growth rates, operating margin likely compressed by about 28 bps YoY (from roughly 8.69% to 8.41%). Net income fell 26.2% YoY to 7.68, pulling the net margin down to 5.6% and implying a net margin compression of roughly 358 bps YoY (from ~9.2% to ~5.6%). The divergence between strong ordinary profit and weak net profit points to non-recurring or below-the-line losses; the effective tax rate reported at 0.1% reinforces that tax was not the driver, and special losses are the likely cause. Earnings quality cannot be assessed robustly because operating cash flow and capex are unreported, but the balance sheet is extremely cash-rich. Liquidity is exceptionally strong with current assets of 564.15 and current liabilities of only 17.14, producing a current ratio of 3291%. Equity accounts for approximately 97.1% of total assets, and the company is effectively debt-free, limiting financial risk. However, capital efficiency remains weak: ROE is 1.1% and ROIC is 3.4%, both below typical cost of capital benchmarks for retailers. Inventory is sizable at 150.41 versus accounts payable of 2.90, indicating working capital intensity and potential markdown risk if demand softens. The indicated payout ratio of 162.8% suggests dividends exceeded earnings during the period, which is manageable short term with the cash balance (336.40) but not a long-term solution without stronger free cash flow. Looking forward, sustaining the top-line trajectory while improving margin quality and clarifying the nature of special losses will be critical for a recovery in ROE/ROIC.

Profitability Analysis

ROE (1.1%) = Net Profit Margin (5.6%) × Asset Turnover (0.195) × Financial Leverage (1.03x). The component that changed the most is Net Profit Margin, which fell sharply due to below-the-line losses despite solid operating and ordinary income. Business drivers likely include special losses (e.g., asset valuation, investment losses, or store-related extraordinary items) rather than tax, given the 0.1% effective tax rate. This appears one-time in nature, but without a breakdown we cannot conclude sustainability; if non-recurring, net margin could normalize closer to ordinary income levels. Operating leverage is modestly negative this quarter: operating income growth (+16.9%) trailed revenue growth (+20.8%), suggesting slight margin pressure of about 28 bps. SG&A grew, but the lack of a breakdown hides line-item pressure; the SG&A-to-sales ratio is 31.5%, broadly reasonable for specialty retail, though any acceleration ahead of revenue would be a concern in subsequent quarters.

Growth Assessment

Revenue growth of +20.8% YoY indicates strong demand recovery or better average selling prices and mix, consistent with jewelry retail tailwinds (e.g., precious metal price pass-through or improved traffic). Operating income growth of +16.9% shows healthy scalability but slightly weaker than sales, implying mild margin compression. Ordinary income grew +19.5%, corroborating underlying business strength excluding special factors. Net income declined 26.2% due to below-the-line items; absent detail, sustainability of the drag is unclear. The gross margin of 38.6% is solid for the category; maintaining this while controlling SG&A (31.5% ratio) will be key to defend operating margin around the mid-8% range. With asset turnover at 0.195 and leverage at 1.03x, capital intensity remains a headwind to ROE; improving inventory turns and store productivity are essential for medium-term growth in returns. Outlook hinges on: demand resilience for discretionary jewelry, ability to manage inventory against commodity price volatility, and absence of further special losses.

Financial Health

Liquidity is exceptionally strong: current ratio 3291% (564.15 current assets vs 17.14 current liabilities) and quick ratio 2414% highlight substantial cash reserves (cash and deposits 336.40). No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.03x. Equity ratio is approximately 97.1% (678.82 equity / 699.38 assets), signaling very low solvency risk. Maturity mismatch risk is minimal given negligible current liabilities against large liquid assets. Interest-bearing debt is unreported, but total liabilities are only 18.37, suggesting de facto net cash. No off-balance sheet obligations are disclosed in the provided data. The principal balance sheet risk is working capital intensity: inventories (150.41) vastly exceed accounts payable (2.90), implying cash tied up in stock and potential markdown exposure if demand weakens.

Cash Flow Quality

Operating cash flow is unreported, so earnings quality cannot be validated via OCF/NI (N/A). With an indicated payout ratio of 162.8% and unknown capex, free cash flow coverage of dividends is not ascertainable. The cash position (336.40) provides a near-term buffer for dividends and store investments, but repeated periods of dividends exceeding earnings would be unsustainable without robust OCF. Working capital signals to monitor include inventory levels versus sales growth and any change in accounts payable terms; current structure (high inventory, low payables) suggests limited supplier financing and potential pressure on cash conversion if sales soften. No clear signs of working capital manipulation can be inferred from the limited snapshot, but inventory management is a key swing factor.

Dividend Sustainability

The calculated payout ratio of 162.8% indicates dividends above earnings for the period, which is not sustainable over the long term absent strong free cash flow. OCF and capex are unreported, precluding FCF coverage analysis. Near-term sustainability is supported by abundant cash (336.40) and negligible debt, but medium-term sustainability depends on normalization of net income (removal of special losses) and disciplined capital spending. If net income reverts closer to ordinary income run-rate, payout metrics should improve; if special losses recur or margins compress further, the payout policy may require recalibration.

Risk Assessment

Business Risks:

• Demand volatility in discretionary jewelry impacting sales and inventory turnover
• Commodity price fluctuations (gold, precious metals) affecting gross margin and inventory valuation
• FX risk on imported materials and finished goods pricing
• Store traffic and mix sensitivity impacting SG&A efficiency and operating leverage

Financial Risks:

• Capital efficiency weakness: ROIC at 3.4% (<5% benchmark) and ROE at 1.1%
• Large inventory (150.41) relative to payables (2.90) increasing markdown and cash conversion risk
• Dividend payout above earnings (162.8%) without OCF visibility
• Potential recurrence of below-the-line losses that depressed NI

Key Concerns:

• Net income down 26.2% YoY despite strong ordinary income implies special losses
• Mild operating margin compression (~28 bps) as OI growth trails revenue
• Lack of cash flow disclosure limits assessment of earnings quality and dividend coverage
• ROIC below target thresholds highlights need for better asset utilization

Investment Implications

Key Takeaways:

• Top-line acceleration (+20.8% YoY) with solid operating profit growth (+16.9%)
• Net profit under pressure from non-recurring items; underlying ordinary earnings remain firm
• Margins: gross 38.6%, operating 8.4%, net 5.6%; slight operating margin compression
• Balance sheet strength is exceptional (equity ratio ~97%, large net cash)
• Capital efficiency is subdued (ROE 1.1%, ROIC 3.4%), requiring improved asset turnover
• Dividend payout exceeds earnings; near-term covered by cash, long-term requires FCF support

Metrics to Watch:

• Disclosure of extraordinary/special losses that reduced NI
• Operating cash flow and free cash flow trends
• Inventory turnover days and markdown incidence
• Gross margin resilience vs. precious metal price movements
• SG&A trajectory vs. revenue growth (operating leverage)
• Same-store sales and average selling price/mix
• ROIC progression toward 5–8% range

Relative Positioning: Within specialty retail, the company stands out for exceptional liquidity and low leverage but lags on capital efficiency and net margin stability due to one-off losses; execution on inventory management and sustaining demand will determine whether strong ordinary earnings translate into improved ROE/ROIC.

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