REGAL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.90B
• Operating Income: ¥-624M
• Net Income: ¥-70M
• EPS: ¥-102.91

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

Regal Corporation (79380) reported FY2026 Q2 consolidated results under JGAAP showing top-line softness and a sharp deterioration in operating profitability, coupled with modest negative operating cash flow. Revenue was ¥9.905bn, down 3.8% YoY, indicating demand headwinds and/or channel mix pressure. Gross profit is stated at ¥5.133bn with a gross margin of 51.8%, suggesting relatively resilient pricing/mix and/or sourcing gains despite the sales decline. Operating income fell to a loss of ¥-624m (down 87.4% YoY), reflecting negative operating leverage as fixed costs could not be absorbed by lower sales. Ordinary income was ¥-439m, benefiting modestly from non-operating items relative to operating loss. Net income improved YoY to ¥-319m (+14.2% YoY), implying tax/extraordinary/non-operating relief despite weaker operations. The DuPont framework shows ROE at -2.30%, driven primarily by a negative net margin of -3.22% and low asset turnover of 0.361, with leverage at 1.98x providing little cushion. Liquidity remains adequate with a current ratio of 160.3%, but the quick ratio of 87.3% highlights inventory intensity (inventories ¥6.81bn). Total assets are ¥27.418bn and total equity ¥13.864bn, implying an equity ratio of roughly 50.6% despite the reported equity ratio item being unreported. Operating cash flow was ¥-84m, indicating earnings quality pressure; depreciation was ¥205m, and EBITDA was ¥-419m, underscoring cash earnings weakness. Financing cash outflows of ¥-1.179bn suggest debt reduction and/or other financial outlays; investing cash flow was unreported this period. Dividend per share is reported as ¥0.00 for the period, and payout ratio is 0.0%, consistent with prioritizing balance sheet resilience amid losses. Interest expense was ¥42m and interest coverage is -14.9x on EBIT, highlighting near-term pressure if losses persist. Working capital stood at ¥5.629bn, giving the company flexibility but tying up cash in inventory. Data limitations exist: several items (equity ratio, investing cash flow, cash and equivalents, share counts, and FCF) show as zero/unreported; these should not be interpreted as actual zeros. There is also a discrepancy between stated cost of sales and gross profit; analysis here relies on the reported gross margin and gross profit figures.

Profitability Analysis

ROE is -2.30% per the provided DuPont analysis, decomposed into a net margin of -3.22%, asset turnover of 0.361, and financial leverage of 1.98x. The primary drag is margin: operating income of ¥-624m on ¥9.905bn of sales points to meaningful negative operating leverage. Gross margin (51.8%) appears solid, suggesting that the profitability issue is below gross profit—likely SG&A rigidity (e.g., store rent, personnel, and marketing) and possibly higher logistics or store-related expenses. EBITDA of ¥-419m (margin -4.2%) indicates that even before depreciation, operations are loss-making, reflecting insufficient scale at current revenue levels. Interest expense is modest at ¥42m, but with EBIT negative, interest coverage is -14.9x, amplifying the pressure on ordinary profit. Ordinary income of ¥-439m is less negative than operating income, implying some support from non-operating items, but not enough to offset core weakness. The improvement in net income YoY (-¥319m vs. deeper loss last year) despite worse operating results suggests non-operating and tax effects cushioned the bottom line. Asset turnover of 0.361 is low, consistent with a retail/manufacturing business carrying significant inventory and fixed assets; improving turns is a lever for ROE normalization. Financial leverage of ~1.98x (assets/equity) is moderate and not excessive, so leverage is not the main driver of ROE volatility; earnings recovery is key. Overall margin quality is mixed: gross margin resilience is a positive, but SG&A absorption is weak, indicating high fixed cost intensity and sensitivity to revenue shortfalls.

Growth Assessment

Revenue declined 3.8% YoY to ¥9.905bn, suggesting soft demand or adverse channel/brand mix. Given the company’s category exposure (footwear and related retail/wholesale), macro consumer trends, traffic, and weather can materially affect seasonality; H1 often carries seasonality risk in apparel/footwear. The deterioration in operating income to ¥-624m points to negative operating leverage, implying that recent revenue trends are below the cost base required for break-even. Gross margin at 51.8% indicates pricing power or mix support, which can help if volume recovers; however, SG&A discipline or structural cost actions may be needed to restore profitability if sales remain subdued. Net income improved 14.2% YoY to ¥-319m, but this improvement seems non-operating in nature, which is lower quality and less sustainable. Outlook hinges on inventory normalization (¥6.81bn) and sell-through improvements; better turns could reduce markdown risk and lift margins. E-commerce/channel mix improvements and store productivity measures would be important for sustainable growth. With asset turnover at 0.361, growth via more efficient use of assets (inventory and store assets) is as critical as pure top-line expansion. Without guidance provided here, near-term trajectory appears constrained until cost actions or demand recovery materialize. Data limitations (lack of investing CF, FCF, and share metrics) restrict visibility on reinvestment capacity and per-share growth dynamics.

Financial Health

Liquidity appears adequate: current assets ¥14.958bn vs. current liabilities ¥9.329bn yield a current ratio of 160.3%. The quick ratio is 87.3%, reflecting material inventory holdings (¥6.81bn) typical for the sector. Working capital is ¥5.629bn, providing a buffer but also tying cash into inventory. Solvency is moderate: total equity ¥13.864bn vs. total assets ¥27.418bn implies an equity ratio of ~50.6% (the reported equity ratio item is unreported). Financial leverage is ~1.98x assets/equity, not excessive. Debt-to-equity is shown at 0.97x (likely interest-bearing debt/equity), suggesting a moderate debt load; however, with EBIT negative, debt service capacity depends on liquidity and any undrawn facilities. Interest expense is ¥42m; while not large, the negative interest coverage (-14.9x) is a concern if operating losses persist. Financing cash outflows of ¥-1.179bn indicate debt repayment and/or other financing uses in the period, which, while potentially de-risking the balance sheet, also reduce liquidity if not offset by operating inflows. Cash and equivalents are unreported here, limiting assessment of immediate liquidity headroom.

Cash Flow Quality

Operating cash flow was ¥-84m against net income of ¥-319m, producing an OCF/NI ratio of 0.26; this indicates that cash burn is narrower than accounting losses, helped by non-cash items (e.g., ¥205m depreciation) and working capital movements. EBITDA of ¥-419m highlights negative cash earnings before working capital, so OCF benefited from WC tailwinds and/or other adjustments in the period. Working capital remains sizable (¥5.629bn), and inventories are high (¥6.81bn); future OCF will be sensitive to inventory turns and markdowns. Free cash flow is shown as unreported (0 placeholder), and investing cash flow is also unreported this period, preventing a full FCF assessment or capex intensity analysis. Financing CF of ¥-1.179bn suggests outflows unrelated to operating needs (e.g., debt repayment), which could tighten liquidity absent operating recovery. Overall, earnings quality is weak given negative EBITDA/EBIT, but cash conversion is better than headline losses due to non-cash items and WC; sustainability depends on inventory normalization and SG&A control.

Dividend Sustainability

DPS is reported as ¥0.00 for the period, with a payout ratio of 0.0%, consistent with loss-making conditions and a focus on balance sheet stability. With OCF at ¥-84m and EBITDA negative, distributing cash would not be prudent absent clear visibility on earnings recovery. FCF and investing CF are unreported, so comprehensive coverage analysis is not possible; however, negative OCF implies FCF was likely negative if any capex occurred. Financing outflows of ¥-1.179bn suggest capital was used for balance sheet actions rather than shareholder returns. Policy-wise, maintaining flexibility until profitability returns appears likely; resumption of dividends would depend on restoring positive and stable OCF and adequate coverage. Near-term dividend capacity is therefore constrained by operating losses and uncertain cash generation.

Risk Assessment

Business Risks:

• Demand volatility in footwear/apparel retail affecting traffic and sell-through
• High fixed-cost base leading to negative operating leverage on sales softness
• Inventory risk (¥6.81bn) and potential markdowns pressuring gross-to-operating margin conversion
• Channel mix and competitive intensity (department stores, specialty retail, e-commerce)
• Input cost volatility (leather/materials), logistics, and wage inflation
• Seasonality and weather-driven category swings affecting quarterly performance
• Brand relevance and product cycle execution risk in core lines

Financial Risks:

• Negative EBITDA and EBIT leading to -14.9x interest coverage
• Moderate leverage (debt-to-equity 0.97x) with weak current cash earnings
• Potential covenant/refinancing risk if losses persist
• Working capital absorption, particularly inventories, constraining cash
• Reduced financial flexibility following ¥-1.179bn financing outflows

Key Concerns:

• Operating loss of ¥-624m on ¥9.905bn sales, indicating poor SG&A absorption
• Sustained negative OCF risk if inventory turns do not improve
• Visibility limited by unreported investing/FCF and cash balance data

Investment Implications

Key Takeaways:

• Top-line contracted 3.8% YoY; operating income deteriorated to ¥-624m
• Gross margin remained robust at 51.8%, but SG&A rigidity drove losses
• ROE at -2.30% reflects negative margins and low asset turnover (0.361)
• Liquidity is adequate (current ratio 160.3%), but quick ratio 87.3% signals inventory intensity
• OCF of ¥-84m vs. NI of ¥-319m indicates some cash support from non-cash/WC, but EBITDA is negative
• Financing outflows of ¥-1.179bn reduce flexibility absent operating recovery

Metrics to Watch:

• Same-store sales and traffic; revenue growth trajectory
• Gross margin and markdown rate; inventory turnover and aging
• SG&A run-rate and break-even sales level
• EBITDA and EBIT recovery; interest coverage
• Operating cash flow and capex (once reported) to assess FCF
• Leverage (net debt/EBITDA when data available) and liquidity headroom

Relative Positioning: Within Japan’s footwear/apparel space, Regal appears smaller scale and more inventory-intensive than larger peers, with moderate leverage and a relatively strong equity buffer (~50% equity ratio by calculation) but weaker near-term operating leverage. Brand heritage and gross margin resilience help, yet store productivity, channel mix, and inventory management need to improve to close the profitability gap versus better-scaled competitors.

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
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