ZETT CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥29.15B
• Operating Income: ¥516M
• Net Income: ¥466M
• EPS: ¥19.66

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

Zett Co., Ltd. (8135) reported FY2026 Q2 (cumulative) consolidated results showing resilient top-line growth but deteriorating operating profitability. Revenue rose 7.0% YoY to ¥29.1bn, while operating income declined 11.2% YoY to ¥0.52bn, indicating negative operating leverage as SG&A growth outpaced gross profit expansion. Gross profit reached ¥4.69bn with a gross margin of 16.1%, consistent with a low-margin, distribution-heavy model. Operating margin compressed to approximately 1.77%, and net income declined 17.6% YoY to ¥0.38bn, yielding a net margin of 1.32%. DuPont analysis yields ROE of 2.62%, driven by thin net margin, moderate asset turnover of 0.916, and financial leverage of 2.17x. Ordinary income (¥0.63bn) exceeded operating income, implying positive non-operating contributions of roughly ¥0.11bn. The reported effective tax rate field shows 0.0%, but based on income tax expense of ¥0.24bn against ordinary income of ¥0.63bn, the implied tax rate is about 38%, which is within a normal range for Japan. Liquidity appears sound, with a current ratio of 158% and quick ratio of 134%, supported by sizeable working capital of ¥9.72bn. Balance sheet leverage, as presented, shows debt-to-equity of 1.24x (likely based on total liabilities), while equity accounts for ¥14.64bn of ¥31.82bn in assets (financial leverage 2.17x). Cash flow quality is a relative bright spot: operating cash flow of ¥1.40bn is 3.64x net income, suggesting earnings are backed by cash conversion this period. However, investing cash flow and cash & equivalents are not disclosed (shown as zero, treated as unreported), preventing a clean view of free cash flow and liquidity buffers. The company’s depreciation is low (¥0.06bn), indicating an asset-light model and limited non-cash support to EBITDA; EBITDA margin stands at 2.0%. Inventory stands at ¥4.05bn; using period COGS, implied inventory turns are solid for a distributor, though full working capital dynamics cannot be assessed without receivables and payables. Dividend information is not disclosed (DPS and payout show zero placeholders), and financing cash outflows of ¥0.27bn likely reflect debt changes or potential shareholder returns, though the split is unclear. Overall, the quarter reflects durable sales but cost pressure and mix effects weighing on margins, with solid operating cash generation partly offsetting weaker earnings. Data limitations (notably several items shown as zero) constrain precision in dividend and cash position assessment.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 1.32%
• asset_turnover: 0.916
• financial_leverage: 2.17
• calculated_ROE: 2.62%
• commentary: ROE of 2.62% is primarily constrained by thin margins; asset turnover is reasonable for a distributor, while leverage is moderate. margin_quality:
• gross_margin: 16.1%
• operating_margin: 1.77%
• EBITDA_margin: 2.0%
• net_margin: 1.32%
• drivers: ['Negative operating leverage: revenue +7.0% YoY vs operating income -11.2% YoY.', 'SG&A estimated at ¥4.17bn (14.3% of sales), indicating cost pressure and/or mix dilution.', 'Ordinary > operating income suggests supportive non-operating items (¥0.11bn).', 'Implied effective tax rate ~38% based on ¥240m tax on ¥627m pre-tax; the 0.0% field is undisclosed, not actual.'] operating_leverage:
• assessment: Negative in the period
• evidence: Operating income declined despite 7% revenue growth, indicating SG&A inflation or gross margin pressure.
• implications: Sustained cost discipline or pricing/mix improvement is needed to restore margin scalability.

Growth Assessment

revenue_sustainability: Top-line grew 7.0% YoY to ¥29.15bn, consistent with steady demand in core channels. Without segment disclosure, sustainability depends on SKU/mix and channel performance; the distributor model suggests exposure to consumer demand and retail inventory cycles. profit_quality: Ordinary income support and strong OCF-to-NI (3.64x) are positives, but shrinking operating margin and low EBITDA margin (2.0%) highlight fragile earnings quality if costs persist. outlook: Near-term growth will hinge on gross margin stability (vendor pricing, FX on imports) and SG&A control. If demand moderates or FX/import costs rise, operating leverage could remain negative. Conversely, mix improvements or cost optimization could re-expand operating margin toward historical levels.

Financial Health

liquidity:

• current_ratio: 158.4%
• quick_ratio: 134.1%
• working_capital: ¥9,717m
• commentary: Ample liquidity headroom for operations; cash balance is undisclosed, so immediate cash coverage cannot be verified. solvency:
• debt_to_equity: 1.24x
• financial_leverage: 2.17x (Assets/Equity)
• equity: ¥14,640m
• commentary: Moderate balance-sheet risk on a total-liability basis; interest burden cannot be assessed as interest expense is undisclosed. capital_structure: Total liabilities of ¥18,205m against assets of ¥31,822m. Composition of interest-bearing debt vs. operating liabilities is not disclosed; financing CF outflow (¥268m) suggests some liability management or shareholder return, but details are unavailable.

Cash Flow Quality

earnings_quality: Strong this period: OCF of ¥1,396m is 3.64x net income (¥384m), indicating robust cash conversion, likely aided by working capital inflows. FCF_analysis: Investing CF is undisclosed (shown as zero). Therefore, free cash flow cannot be reliably computed; the presented FCF of zero should be treated as not available. working_capital: Inventories ¥4,052m; using period COGS (¥22,561m), inventory turns approximate 5.6x for the half, or ~11x annualized (≈33 days), indicative of healthy inventory management. Receivables and payables data are not disclosed, limiting full working capital assessment.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio fields are undisclosed (zeros are placeholders). With limited visibility, payout sustainability cannot be evaluated quantitatively. FCF_coverage: Not assessable due to undisclosed investing cash flows and cash balance; reported FCF coverage of 0.00x is not meaningful. policy_outlook: Given modest ROE (2.62%) and thin margins, a conservative payout stance would be consistent with internal reinvestment and balance-sheet prudence; however, actual policy was not disclosed in the data provided.

Risk Assessment

Business Risks:

• Demand volatility in sporting goods and retail channels, including seasonality.
• FX exposure on imported merchandise affecting gross margins.
• Inventory obsolescence risk due to fashion/seasonal cycles.
• Competitive pricing pressure from global brands and private labels.
• Dependence on key suppliers and OEM production stability in Asia.
• Channel concentration and health of domestic retailers/wholesalers.

Financial Risks:

• Low operating and EBITDA margins heighten sensitivity to revenue shortfalls.
• Negative operating leverage if SG&A continues to grow faster than sales.
• Working capital intensity; potential cash swings tied to receivables/payables (data not disclosed).
• Limited visibility on interest-bearing debt and cash balances due to undisclosed items.
• Tax rate volatility relative to ordinary income given low margins.

Key Concerns:

• Operating margin compression despite revenue growth.
• Sustainability of non-operating income that supports ordinary profits.
• Incomplete disclosure on cash, investing flows, and dividends limiting assessment of distributable capacity.

Investment Implications

Key Takeaways:

• Top-line growth (+7% YoY) but negative operating leverage drove OP -11% YoY.
• ROE at 2.62% is constrained by thin margins; leverage is moderate.
• OCF strength (OCF/NI 3.64x) supports earnings quality this period.
• Liquidity appears comfortable (current ratio 158%, quick 134%).
• Lack of disclosure on cash, investing CF, and dividends limits conclusions on FCF and payout capacity.

Metrics to Watch:

• Gross margin trajectory and FX sensitivity.
• SG&A ratio to sales and efficiency initiatives.
• Operating margin and EBITDA margin recovery.
• Inventory days and OCF/Net income conversion.
• Ordinary income composition (recurring vs. one-offs).
• Tax rate normalization vs. implied ~38% level.

Relative Positioning: Within Japan’s sporting goods distribution ecosystem, Zett exhibits typical low-margin characteristics with reasonable asset turnover and moderate leverage; its current challenge is restoring operating leverage while maintaining strong cash conversion.

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