AOKI Holdings Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥84.03B
• Operating Income: ¥3.94B
• Net Income: ¥1.89B
• EPS: ¥22.45

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

Verdict: a mixed FY2026 Q2—top-line growth was modestly positive, but margin compression and a high tax burden dragged net income sharply lower. Revenue rose 1.3% YoY to 840.28, while operating income declined 5.6% YoY to 39.37, pushing the operating margin down to 4.7%. We estimate prior-year Q2 revenue around 829.5 and operating income around 41.7, implying operating margin fell by about 34 bps YoY (from ~5.0% to 4.7%). Gross profit came in at 342.77 with a gross margin of 40.8%, but SG&A of 303.40 (36.1% of sales) absorbed most of the gross profit, limiting operating leverage. Ordinary income decreased to 37.60 (-1.7% YoY), pressured by a negative non-operating balance of -1.78 (non-op expenses 2.97 exceeded non-op income 1.19). Net income dropped 32.4% YoY to 18.88, as the effective tax rate rose to a high 39.9% and below-the-line items turned more adverse. EBITDA was 89.87 (margin 10.7%), indicating healthy coverage of interest expense (interest coverage 31.75x) despite the weaker operating profit. Cash flow quality was solid this quarter with OCF of 27.47 at 1.45x net income, signaling earnings were largely cash-backed. However, capex of 59.72 exceeded OCF, resulting in negative implied FCF of roughly -32.25, with financing outflows of -129.75 suggesting debt repayment and/or shareholder returns. The balance sheet remains conservative: current ratio 154.2%, quick ratio 90.2% (inventory-dependent), and D/E 0.52x. Asset efficiency remains a structural headwind with asset turnover at 0.399x and ROE at 1.4% (DuPont: 2.2% net margin × 0.399× turnover × 1.52× leverage). Capital efficiency is weak (ROIC 1.7%), well below a 5% warning threshold, underscoring the need for higher returns or asset rationalization. The sharp divergence between modest operating softness and a steep net income decline highlights the sensitivity to non-operating items and tax rate. With inventory of 235.68 and quick ratio under 1.0, ongoing inventory management will be critical to preserve cash. Forward-looking, stabilization hinges on SG&A discipline, normalization of the effective tax rate, improving inventory turns, and ensuring capex intensity aligns with cash generation in H2.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.4% = Net Profit Margin (2.2%) × Asset Turnover (0.399x) × Financial Leverage (1.52x). The most constraining components are the low net margin and low asset turnover; leverage is modest and not a major driver. Net margin fell disproportionately relative to operating trends due to a higher effective tax rate (39.9%) and a negative non-operating balance (-1.78), despite only a 5.6% decline in operating income. Business drivers likely include tighter pricing and mix in apparel/bridal, SG&A that grew roughly in line with sales (SG&A ratio 36.1%), and higher below-the-line costs. The deterioration in non-operating items and tax rate appears partly non-structural and could normalize, while operating margin pressure reflects ongoing cost inflation and competitive dynamics—only partially reversible without stronger same-store sales and mix improvements. Watch for SG&A growth vs revenue: with revenue +1.3% YoY and operating income -5.6% YoY, fixed-cost absorption likely weakened; sustained SG&A control is needed to avoid further margin erosion.

Growth Assessment

Revenue growth of 1.3% YoY suggests a modest recovery but lacks operating leverage, as operating income declined 5.6% YoY. Gross margin held at 40.8%, but SG&A at 36.1% of sales left limited operating margin at 4.7%. Ordinary income (-1.7% YoY) outperformed net income (-32.4% YoY) due to a high tax rate and adverse non-operating balance. Near-term growth sustainability depends on demand in core apparel and the pace of recovery in event/bridal-related services; current run-rate does not indicate strong momentum. With asset turnover at 0.399x and ROIC at 1.7%, incremental growth needs to be capital-light or accompanied by asset rationalization to improve returns. Outlook hinges on improving inventory turns and pricing discipline, as well as potential normalization of the effective tax rate and non-operating expenses in H2.

Financial Health

Liquidity is comfortable: current ratio 154.2% (healthy), quick ratio 90.2% (below 100%, indicating reliance on inventory conversion). Solvency is conservative with D/E at 0.52x and interest coverage at 31.75x. Long-term loans are 196.75 against total equity of 1,389.91, implying modest leverage; no immediate solvency concerns. Working capital stands at 199.51 with inventories of 235.68 and accounts payable of 110.76; inventory is a key component of current assets and a source of liquidity risk if turns slow. No explicit red flags on maturity mismatch given strong cash and deposits (204.79) versus current liabilities (367.85), though short-term debt is unreported. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 1.45x, which is healthy and suggests earnings were cash-backed. However, OCF of 27.47 did not cover capex of 59.72, implying negative FCF of roughly -32.25 this period. Financing CF of -129.75 indicates outflows (debt repayment and/or shareholder returns), which further reduced cash resources despite a comfortable starting balance (cash and deposits 204.79). Working capital details are limited, but the gap between EBITDA (89.87) and OCF (27.47) points to working capital absorption, likely in inventories. No evident signs of aggressive working capital manipulation in the reported figures, but the quick ratio <1.0 highlights dependence on inventory monetization to sustain cash generation.

Dividend Sustainability

The reported payout ratio of 344.2% is well above sustainable levels (<60% benchmark) and inconsistent with negative implied FCF this quarter, suggesting distributions (if maintained at that rate) are not covered by internally generated cash. DPS and total dividends were unreported, so the payout metric likely references an annualized basis or prior period policy. With OCF below capex and financing outflows significant, dividends would currently require balance sheet support. Sustainability hinges on H2 cash generation, capex pacing, and potential normalization of tax and non-operating items; a policy emphasizing FCF coverage would be prudent.

Risk Assessment

Business Risks:

• Apparel demand softness and price competition could pressure gross margin and sales.
• Inventory obsolescence risk given inventories of 235.68 and a quick ratio below 1.0.
• Cost inflation (labor, logistics, utilities) limiting operating leverage if not passed through.
• Bridal/event-related volatility affecting utilization and profitability.
• High effective tax rate (39.9%) compressing net margin if it persists.

Financial Risks:

• Negative implied FCF this quarter (OCF 27.47 vs capex 59.72) requires funding via cash or financing.
• Potential refinancing or interest rate risk on 196.75 of long-term loans (though current coverage is strong).
• Dependence on inventory conversion to meet short-term obligations (quick ratio 90.2%).
• Below-the-line volatility (non-operating loss of 1.78) impacting ordinary and net income.

Key Concerns:

• Capital efficiency is weak (ROIC 1.7%), far below a 5% warning threshold.
• ROE is low at 1.4%, driven by thin margins and low asset turnover.
• Payout ratio reported at 344.2% appears unsustainably high relative to earnings and FCF.
• Margin compression (~34 bps YoY in operating margin) amid only modest revenue growth.

Investment Implications

Key Takeaways:

• Top-line grew modestly (+1.3% YoY) but operating margin compressed to 4.7% (~34 bps YoY decline).
• Net income fell 32.4% YoY due to a high tax rate and adverse non-operating items.
• OCF quality is acceptable (1.45x NI), but capex outpaced OCF, producing negative implied FCF.
• Balance sheet is conservative (D/E 0.52x; current ratio 154.2%), providing flexibility.
• Capital efficiency (ROIC 1.7%) is a structural weakness requiring margin or asset-turn improvements.

Metrics to Watch:

• SG&A ratio vs sales growth and resulting operating margin trajectory.
• Inventory days/turnover and the quick ratio recovery toward >1.0.
• Effective tax rate normalization and non-operating income/expense balance.
• OCF vs capex to confirm positive FCF in H2.
• ROIC and ROE progression, including asset rationalization or mix shift effects.

Relative Positioning: Within Japanese apparel/consumer discretionary peers, AOKI shows conservative leverage and strong interest coverage, but lags on capital efficiency (ROIC 1.7%, ROE 1.4%) and currently faces tighter operating leverage and below-the-line pressure; improvements in inventory turns, SG&A control, and tax normalization are needed to close the gap.

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