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

Financial Highlights

• Net Sales: ¥6.13B
• Operating Income: ¥70M
• Net Income: ¥13M
• 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

Kawabe Co., Ltd. (TSE: 8123) reported FY2026 Q2 consolidated results under JGAAP showing revenue of ¥6,133m, up 9.6% YoY, indicating solid top-line momentum. Despite higher sales, operating income declined 25.4% YoY to ¥70m, signaling negative operating leverage from higher SG&A/logistics or promotion costs. Gross profit was ¥2,242.7m, implying a 36.6% gross margin that appears resilient for a wholesale/brand-goods business, but conversion to operating profit was weak. Ordinary income of ¥127m exceeded operating income, suggesting meaningful non-operating gains offsetting higher costs and interest. Net income rose sharply to ¥78m (+517% YoY), but this was supported by a negative tax expense (tax benefit) of ¥145.9m; therefore, headline bottom-line growth is not purely operational. DuPont analysis indicates a 1.27% net margin, 0.484x asset turnover, and 1.74x leverage, yielding a modest 1.07% ROE; profitability remains subdued despite higher sales. Liquidity is adequate with a 152% current ratio and ¥2,369.8m of working capital, but the quick ratio of ~90% highlights inventory dependence. Inventories stand at ¥2,837.9m, a large portion of current assets, warranting attention to turnover and potential markdown risk. The balance sheet shows total assets of ¥12,664m and equity of ¥7,264m, implying an equity ratio near 57% (the 0% shown is unreported, not actual), supporting solvency. Operating cash flow was negative at ¥-124.1m for the period, indicating earnings-to-cash conversion pressure, likely from working capital build (particularly inventories and receivables). Financing cash flow was an outflow of ¥-299.1m, consistent with debt reduction or other financing uses; dividend per share is currently reported as zero for the period. Interest coverage is acceptable at 5.6x on operating income, reflecting manageable financial costs. EBITDA was ¥154.4m (2.5% margin), indicating limited buffer to absorb cost inflation. Given the negative OCF and tax-driven earnings uplift, the quality of earnings this half is mixed, and normalization of tax effects could dampen net profit. Data limitations include unreported equity ratio, cash balance, investing cash flow, FCF, and share counts; analysis focuses on available non-zero disclosures.

Profitability Analysis

ROE is 1.07%, decomposed into 1.27% net margin × 0.484x asset turnover × 1.74x financial leverage, highlighting that low margins are the primary constraint on returns. Gross margin of 36.6% is healthy for a distributor/brand wholesaler, but the EBITDA margin of 2.5% and operating margin of ~1.1% (¥70m/¥6,133m) show steep SG&A intensity. Operating income fell 25.4% YoY despite 9.6% revenue growth, evidencing negative operating leverage; incremental gross profit appears absorbed by higher fixed/semi-fixed costs (e.g., personnel, store support, logistics, marketing). Ordinary income exceeded operating income (¥127m vs. ¥70m), indicating reliance on non-operating items (interest income, FX, or investment gains) to supplement earnings; interest expense is modest at ¥12.4m. The tax benefit (¥-145.9m) inflated net income, resulting in a reported effective tax rate near 0% for the period; normalized profitability would be lower. Interest coverage is 5.6x on operating income, comfortable but dependent on maintaining operating profits. Overall, margin quality is mixed: stable gross margin but weak conversion to operating profit and a bottom line aided by tax and non-operating gains.

Growth Assessment

Revenue growth of 9.6% YoY to ¥6,133m suggests solid demand or improved sell-in to channels; sustainability will hinge on inventory sell-through and consumer demand resilience. Profit growth quality is weak: operating income contracted, and net income growth was driven by a tax benefit rather than core operations. The ordinary income uplift vs. operating income points to non-operating support, which may not be recurring. If cost inflation (freight, logistics, personnel) persists, operating leverage could remain negative despite top-line gains. Outlook depends on normalizing SG&A and improving working capital efficiency to convert revenue into cash; inventory turnover is a key swing factor. The stable gross margin provides a base for recovery if cost controls are implemented. Absent recurring tax benefits, near-term net income could track ordinary income trends rather than the elevated net figure reported.

Financial Health

Total assets are ¥12,664m, equity ¥7,264m, and liabilities ¥5,319.8m; the implied equity ratio is about 57% (the disclosed 0% is unreported), indicating a solid capital base. Debt-to-equity is 0.73x, implying moderate leverage for a trading/distribution model. Liquidity metrics show a current ratio of 152% and a quick ratio of 89.7%, reflecting adequate near-term coverage but dependence on inventory monetization. Working capital is positive at ¥2,369.8m, which should support operations but could tie up cash if sell-through slows. Interest burden is manageable with 5.6x coverage on operating income. The gap between ordinary and operating income suggests some reliance on financial/other income, but not a balance-sheet-driven earnings profile. Overall solvency appears sound, while liquidity quality hinges on inventory and receivable collections.

Cash Flow Quality

Operating cash flow was ¥-124.1m, weaker than net income of ¥78m, yielding an OCF/NI ratio of -1.59 and indicating poor cash conversion this half. The shortfall likely stems from working capital usage (inventory build and/or slower collections) rather than non-cash earnings alone, given modest D&A of ¥84.4m. EBITDA of ¥154.4m provides limited cushion against working capital swings, underscoring sensitivity to inventory and receivables. Investing cash flow is shown as 0 (unreported), so free cash flow cannot be reliably determined from the provided data; the displayed FCF of 0 should be treated as missing, not zero. Financing cash outflow of ¥-299.1m suggests debt repayment or other financing uses; absent cash and share data (both unreported), we cannot reconcile cash movement fully. Overall, earnings quality is mixed: tax-driven net income and negative OCF flag a need for normalization and stronger working capital discipline.

Dividend Sustainability

Annual DPS is reported as 0.00 (unreported for the full year-to-date), and the payout ratio is shown as 0.0%, which may not reflect the company’s full-year policy. With negative OCF in the half and unreported investing cash flow, free cash flow coverage of dividends cannot be assessed; the listed FCF coverage of 0.00x should be treated as missing. Balance sheet strength (implied ~57% equity ratio) would support flexibility, but near-term cash conservation appears prudent given weak cash conversion and declining operating income. Future dividend capacity will depend on restoring positive OCF, stabilizing operating margins, and normalization of tax effects. Policy outlook remains unclear due to limited disclosures in the period.

Risk Assessment

Business Risks:

• Inventory obsolescence and markdown risk given large inventory balance
• Channel risk tied to department stores/specialty retail and consumer demand cyclicality
• Cost inflation in logistics and labor pressuring operating leverage
• Foreign exchange exposure on imported merchandise
• Supplier concentration and product sourcing constraints
• Competitive pricing pressure in branded goods/accessories
• Seasonality around gifting/holiday periods affecting sell-through

Financial Risks:

• Negative operating cash flow and weak cash conversion vs. earnings
• Dependence on non-operating income and tax benefits to support net profit
• Moderate leverage (0.73x D/E) with inventory-heavy working capital needs
• Potential interest rate risk on floating-rate borrowings
• Liquidity reliance on inventory monetization (quick ratio below 100%)

Key Concerns:

• Operating income decline despite revenue growth (negative operating leverage)
• Tax benefit inflated net income; normalized earnings likely lower
• High inventories raise cash flow and margin risk if demand softens

Investment Implications

Key Takeaways:

• Solid top-line growth (+9.6% YoY) but weak operating leverage; operating income fell 25.4% YoY
• Net income uplift driven by significant tax benefit; core earnings are softer than headline
• Liquidity adequate (current ratio ~152%), but quick ratio ~90% underscores inventory dependence
• Negative OCF (¥-124m) contrasts with reported net income, highlighting cash conversion risk
• Ordinary income exceeds operating income, indicating reliance on non-operating gains
• Balance sheet appears sound with an implied equity ratio near 57% and D/E 0.73x

Metrics to Watch:

• SG&A to sales ratio and operating margin trajectory
• Inventory turnover days and obsolescence/markdowns
• OCF/Net income and working capital movements
• Gross margin stability amid cost inflation and FX
• Ordinary vs. operating income mix (recurrence of non-operating gains)
• Interest coverage and leverage
• Normalization of effective tax rate

Relative Positioning: Versus domestic trading/consumer-goods distributors, Kawabe shows healthy gross margin but thinner operating margin and weaker cash conversion this half; balance sheet strength is a relative positive, while inventory intensity and reliance on non-operating/tax effects weigh on earnings quality.

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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