KING Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.77B
• Operating Income: ¥320M
• Net Income: ¥355M
• EPS: ¥16.97

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

KING (8118) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥3,771 million, down 2.7% YoY, indicating a modest top-line slowdown. Gross profit was ¥2,244 million, yielding a robust gross margin of 59.5%, suggesting stable product mix and pricing resilience despite softer sales. Operating income declined 5.9% YoY to ¥320 million, pointing to some operating deleverage as fixed costs did not fall in line with revenue. Ordinary income of ¥413 million exceeded operating income, implying positive non-operating contributions in the period. Net income fell 23.7% YoY to ¥270 million, a sharper contraction than operating income, indicating additional pressure below the operating line and/or tax effects. EPS was ¥16.97. EBITDA was ¥518 million (13.7% margin), with depreciation and amortization of ¥198 million (about 5.3% of sales), underscoring a relatively asset-light profile for an apparel business. The DuPont breakdown shows ROE of about 1.19%, driven by a 7.16% net margin, low asset turnover of 0.144x (on the period base), and modest financial leverage of 1.16x. Liquidity is very strong: current assets of ¥12,818 million versus current liabilities of ¥1,539 million translate to a current ratio of roughly 833% and working capital of ¥11,279 million. Total liabilities of ¥3,242 million against equity of ¥22,695 million imply low balance sheet risk; the implied equity ratio based on provided assets and equity is approximately 86%, although the reported equity ratio line is unreported. Operating cash flow was ¥138 million, about 0.51x of net income, signaling weaker cash conversion in the half, likely due to working capital movements; exact drivers cannot be confirmed due to limited disclosures. Financing cash flow was an outflow of ¥287 million, potentially reflecting dividends, share repurchases, or debt changes, but details are not disclosed here. Investing cash flow and cash and equivalents are shown as zero, which should be interpreted as undisclosed rather than actual zero. Dividend information shows DPS as 0.00 and payout ratio 0.0%; without disclosure we cannot infer a policy change. Overall, KING maintains a conservative capital structure and strong liquidity, while facing near-term margin and cash conversion headwinds. Data gaps (inventories, cash balance, investing CF, per-share equity metrics) limit precision in certain diagnostics, so conclusions are based on available non-zero figures and standard assumptions for the apparel sector.

Profitability Analysis

ROE_decomposition: ROE ~1.19% = Net margin (7.16%) × Asset turnover (0.144x) × Financial leverage (1.16x). The low asset turnover and modest leverage cap ROE despite a solid net margin. margin_quality: Gross margin at 59.5% is strong for apparel/brand licensing distribution, suggesting resilient pricing/mix and manageable input costs. Operating margin is ~8.5% (¥320m/¥3,771m), showing contraction vs. revenue trend as operating income fell faster than sales (-5.9% vs. -2.7% YoY). Ordinary margin of ~10.9% reflects supportive non-operating items. Net margin at 7.16% is healthy but declined YoY, consistent with the sharper fall in net income. operating_leverage: With revenue down 2.7% and operating income down 5.9%, implied operating leverage is >2x, indicating fixed cost pressure and/or increased SG&A intensity. D&A at 5.3% of sales is moderate, and EBITDA margin of 13.7% provides buffer, but incremental margins appear compressed in this half.

Growth Assessment

revenue_sustainability: Top-line declined 2.7% YoY to ¥3,771m, suggesting softer demand or channel weakness. No segment or geographic splits are provided to attribute mix effects. profit_quality: Operating income fell more than sales, pointing to deleverage or higher operating costs (marketing/logistics). Ordinary income exceeds operating income by ¥93m, supporting bottom line via non-operating gains; sustainability of this contribution is uncertain. outlook: Absent guidance here, a cautious near-term outlook is warranted given modest sales contraction and weaker operating leverage. If fixed costs can be flexed and non-operating gains normalize, profitability could stabilize. Seasonal recovery in H2 is common in apparel, but visibility is limited due to data gaps.

Financial Health

liquidity: Current assets ¥12,818m vs. current liabilities ¥1,539m implies a current ratio of ~833% and significant working capital cushion (¥11,279m). Quick ratio matches current ratio because inventories are undisclosed. solvency: Total liabilities ¥3,242m vs. equity ¥22,695m yields a low debt-to-equity ratio of ~0.14x. Implied equity ratio is ~86% (¥22,695m/¥26,269m). Interest expense is minimal (¥1m) with interest coverage ~320x, indicating negligible financial risk. capital_structure: Leverage is conservative (assets/equity ~1.16x). The company appears largely equity financed, providing resilience through cycles.

Cash Flow Quality

earnings_quality: OCF of ¥138m is 0.51x net income (¥270m), indicating weaker cash conversion in the half, likely from working capital outflows (e.g., receivables build or inventory purchases), though line-item details are not disclosed. FCF_analysis: Investing cash flow is undisclosed (shown as 0). As a result, free cash flow cannot be reliably derived from the provided figures; the calculated FCF of 0 should be treated as not reported rather than actual zero. working_capital: Working capital is ample in level (¥11,279m), but period cash conversion suggests a temporary absorption of cash. Inventory levels and turns are not available, limiting diagnostic precision.

Dividend Sustainability

payout_ratio_assessment: EPS is ¥16.97. DPS is shown as 0.00 with a payout ratio of 0.0%; given the disclosure convention, this likely indicates nondisclosure rather than an actual zero payout. Without policy guidance, payout sustainability cannot be assessed. FCF_coverage: OCF-positive but investing cash flows are undisclosed; therefore, FCF coverage of dividends cannot be evaluated from the provided data. policy_outlook: With a strong balance sheet (low leverage, high implied equity ratio), capacity for distributions exists in principle, but actual policy, cadence (interim/final), and special distributions are not provided here.

Risk Assessment

Business Risks:

• Demand volatility in apparel and lifestyle categories; exposure to department store and specialty retail channels
• Seasonality and fashion risk leading to markdowns and margin pressure
• Inventory management risk (obsolescence, write-downs), with inventory levels undisclosed here
• Supply chain and procurement cost variability (materials, logistics)
• Brand/licensing concentration risk if reliant on a limited portfolio
• Macroeconomic sensitivity in Japan consumer spending; FX exposure if sourcing is foreign currency denominated

Financial Risks:

• Cash conversion risk—OCF at 0.51x of net income in the half indicates working capital drag
• Potential reliance on non-operating gains to bridge profitability (ordinary income > operating income)
• Information risk due to undisclosed items (cash balance, inventories, investing CF), which reduces transparency
• Tax rate variability; effective rate appears low for the period, which may normalize upward

Key Concerns:

• Operating deleverage as modest sales declines translate into larger operating profit contractions
• Sustainability of non-operating income contributions to ordinary profit
• Limited visibility on cash, capex, and inventory positioning hampers assessment of FCF durability

Investment Implications

Key Takeaways:

• Top line softened (-2.7% YoY) with operating income down more (-5.9%), evidencing operating leverage pressure
• Gross margin remains strong at 59.5%, supporting overall profitability despite revenue softness
• ROE is low at ~1.19%, constrained by low asset turnover and modest leverage
• Balance sheet strength is notable: implied equity ratio ~86% and debt-to-equity ~0.14x
• Cash conversion is weak this half (OCF/NI ~0.51), pointing to working capital absorption
• Ordinary income exceeded operating income by ~¥93m, a potentially nonrecurring support

Metrics to Watch:

• Revenue trajectory and order backlog in H2
• SG&A ratio and fixed cost flexibility to improve operating leverage
• OCF/NI and working capital components (receivables, payables, inventory turns) when disclosed
• Capex and investing cash flow to assess sustainable FCF
• Composition of non-operating income and its recurrence
• Dividend policy disclosures and payout intentions

Relative Positioning: Financially conservative with strong liquidity and low leverage relative to typical apparel peers, but with lower ROE driven by low asset turnover and recent operating deleverage.

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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