T.KAWABE & CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.13B
• Operating Income: ¥70M
• Net Income: ¥79M
• EPS: ¥43.15

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was a mixed quarter: topline grew solidly, but core profitability weakened and ordinary profit relied heavily on non-operating items. Revenue rose 9.6% YoY to 61.33, while operating income fell 25.4% YoY to 0.70, indicating margin pressure despite higher sales. Gross profit was 27.68 with a gross margin of 45.1%, but SG&A of 26.98 absorbed most of the gross profit, leaving a thin operating margin of roughly 1.1%. Non-operating income of 1.22 versus non-operating expenses of 0.65 added a net 0.57, lifting ordinary income to 1.27 (down 9.1% YoY). Net income improved sharply to 0.78 (+517.4% YoY) from a very low base last year, translating to a net margin of about 1.3%. Operating margin compressed by approximately 54 bps YoY (from ~1.68% to ~1.14%) as SG&A growth appears to have outpaced operating profit growth. Ordinary income margin also compressed by about 43 bps YoY (from ~2.50% to ~2.07%). Conversely, the net margin expanded by roughly 105 bps YoY due to the extremely weak prior-year net profit, not because of stronger core earnings. Earnings quality appears mixed: operating cash flow was strong at 6.95 (OCF/NI = 8.91x), but core operating profit was weak and the profit structure leaned on non-operating gains. Liquidity is adequate with a current ratio of 157.7%, though the quick ratio at 89.5% underscores reliance on inventories (29.45) to support working capital. Leverage is moderate with D/E of 0.74x and interest coverage of 4.53x, but below the 5x comfort benchmark. Capital efficiency is a key concern, with ROE at 1.1% and ROIC at 0.6%, both well below desirable levels. Profit composition quality is a watch point as non-operating contributions materially exceeded operating income (non-operating income ratio ~157%). Forward-looking, sustaining growth will require improving operating margin through tighter SG&A control and better gross margin mix. Cash generation looks supportive near term, but profitability must catch up to underpin dividends and reinvestment. Inventory management and working capital discipline will be important to sustain OCF if sales growth normalizes. Overall, the quarter shows resilient cash conversion but soft core profitability and low capital returns, implying a need for margin repair to improve shareholder value.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 1.3% × Asset Turnover (AT) 0.484 × Financial Leverage (FL) 1.74x = ROE ~1.1%, consistent with the reported 1.1%. The largest change driver appears to be NPM: operating margin fell ~54 bps YoY and ordinary margin contracted ~43 bps, while the net margin rose ~105 bps off a depressed base—driven more by non-operating effects than core operations. Asset turnover at 0.484 suggests modest efficiency for a wholesaler/brand business, with no evidence here of meaningful YoY improvement. Financial leverage at 1.74x is moderate and not the key driver. Business drivers: SG&A absorption remained high (SG&A 26.98 vs gross profit 27.68), compressing operating margin despite 9.6% sales growth. Non-operating net gains (+0.57) buffered ordinary income versus operating income, indicating reliance on dividends/other income and lower-quality earnings sources. Sustainability: the margin compression at the operating level is a concern and not inherently one-off unless costs were temporarily elevated; the non-operating boost is inherently more volatile and not a reliable earnings engine. Concerning trend: SG&A appears to have grown faster than operating profit, and operating leverage was negative this quarter despite revenue growth. Monitoring needs to focus on restoring operating margin, reducing SG&A intensity, and improving product mix to protect gross margin.

Growth Assessment

Revenue growth of +9.6% YoY to 61.33 demonstrates healthy demand or better sell-through, likely supported by product/category momentum. However, operating income fell 25.4% YoY to 0.70, indicating negative operating leverage—costs grew faster than gross profit. Gross profit margin at 45.1% is solid for a branded goods/apparel wholesaler, but the near one-to-one offset against SG&A (26.98) left minimal operating profit headroom. Ordinary income declined 9.1% YoY to 1.27, cushioned by non-operating net gains (+0.57). Net income surged +517.4% YoY to 0.78, reflecting a very low comparison period rather than an underlying structural improvement. EBITDA of 1.59 (margin 2.6%) remains thin, limiting buffer against cost inflation. The revenue trend appears sustainable near term, but margin repair is required to translate sales growth into profit growth. Outlook hinges on tightening SG&A control, improved sales mix, and keeping non-operating contributions additive rather than essential to meet earnings targets.

Financial Health

Liquidity is adequate with a current ratio of 157.7% (>1.5 benchmark) though the quick ratio of 89.5% (<1.0) suggests dependence on inventories (29.45) to cover short-term obligations. No explicit red flag: Current Ratio is not below 1.0, and D/E at 0.74x is below the 2.0 warning threshold. Maturity mismatch risk appears manageable: current assets (68.12) exceed current liabilities (43.19) by 24.92, with cash (19.66) and receivables (13.88) totaling 33.54 versus short-term loans of 18.00 and accounts payable of 17.50. Noncurrent liabilities are modest at 10.81 versus total equity of 72.64. Interest coverage of 4.53x is fair but below the 5x strong benchmark, implying some sensitivity to higher interest rates. Off-balance sheet obligations were not disclosed; no information on lease liabilities beyond rent expenses (unreported) limits assessment of hidden leverage.

Cash Flow Quality

Operating cash flow of 6.95 far exceeds net income of 0.78 (OCF/NI = 8.91x), indicating high cash conversion and suggesting favorable working capital movements and/or non-cash charges (D&A 0.89). With capex at 0.39, derived free cash flow is approximately 6.56, comfortably positive even after financing outflows (-0.07). The strong OCF mitigates concerns from thin operating margins, but sustainability depends on continued discipline in inventories and receivables. Potential working capital signals: given the quick ratio below 1.0, inventory levels are a key driver; if sales growth slows, cash conversion could normalize lower. No signs of working capital manipulation are evident from available data, but limited disclosure of payables/inventory turnover constrains deeper analysis.

Dividend Sustainability

Reported payout ratio (calculated) is 119.3%, which is above the <60% benchmark and would be unsustainably high if persistent; however, DPS and total dividends paid are unreported, and the payout calculation basis is unclear. On a cash basis, derived FCF of ~6.56 provides ample capacity versus current period earnings, implying room to fund dividends if they align with historical levels. Given low ROE (1.1%) and ROIC (0.6%), prioritizing margin improvement and selective reinvestment may be warranted to enhance capital efficiency. Dividend policy outlook is uncertain due to disclosure gaps; sustainability hinges on restoring operating margin and maintaining positive FCF.

Risk Assessment

Business Risks:

• Operating margin compression despite revenue growth (operating margin ~1.1%, -54 bps YoY).
• High SG&A intensity (SG&A 26.98 vs gross profit 27.68) limiting operating leverage.
• Dependence on non-operating income to support ordinary profit (net +0.57).
• Inventory reliance (quick ratio 89.5%), potential for markdown risk in a demand slowdown.

Financial Risks:

• Interest coverage at 4.53x below 5x benchmark, some sensitivity to rate increases.
• Moderate leverage (D/E 0.74x) with short-term loans of 18.00 requiring refinancing discipline.
• Low capital efficiency (ROE 1.1%, ROIC 0.6%), raising hurdle for value creation.

Key Concerns:

• Quality of earnings skewed by non-operating items (non-operating income ratio ~157%).
• Sustained SG&A control required to convert sales growth into profit growth.
• Limited disclosure (SG&A breakdown, investing CF, DPS) restricts visibility into cost structure and capital allocation.

Investment Implications

Key Takeaways:

• Solid topline growth (+9.6% YoY) but negative operating leverage pressured profitability.
• Ordinary income relied on non-operating gains; core earnings remain thin.
• Cash conversion was strong (OCF/NI 8.91x), with derived FCF ~6.56 supporting near-term flexibility.
• Liquidity adequate (current ratio 157.7%), but quick ratio below 1.0 indicates inventory dependence.
• Capital efficiency is weak (ROE 1.1%, ROIC 0.6%), requiring margin and asset-turn improvement.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory.
• Gross margin mix and inventory turnover.
• Non-operating income/expenses contribution to ordinary profit.
• Interest coverage and refinancing of short-term loans.
• OCF sustainability and working capital movements (AR and inventory).

Relative Positioning: Within small-cap Japanese apparel/accessories wholesalers, Kawabe shows healthy sales momentum but below-peer operating margins and capital returns; reliance on non-operating income and inventory-heavy working capital place it at a disadvantage versus leaner, higher-ROIC peers until cost discipline and margin restoration are demonstrated.

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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