OKUWA CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥186.44B
• Operating Income: ¥625M
• Net Income: ¥210M
• EPS: ¥4.61

Income Statement

Balance Sheet

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

Verdict: A marginal but genuine turnaround quarter, with positive operating and net profit, yet profitability and liquidity remain weak for FY2026 Q3. Revenue increased to 1,864.4, up about 1.5% from 1,837.3 in the prior period, indicating modest topline momentum. Operating income improved sharply to 6.25 (+389% YoY), driven mainly by SG&A discipline versus revenue growth, though the absolute level remains thin. Net income swung to a profit of 1.89 from a loss of 1.14, translating to a net margin of just 0.10%, underscoring fragile earnings power. Gross margin was 26.1%, while SG&A ratio was 31.0%, implying that overheads still exceed gross profit and leave minimal room for operating earnings. Operating margin expanded by roughly 26–27 bps YoY (to 0.34%), and net margin improved by about 16 bps, but both remain well below retail benchmarks. DuPont shows ROE at 0.3%, with net margin the primary drag; asset turnover at 1.435x is reasonable for a grocer, and leverage is moderate at 1.78x. The effective tax rate is elevated at 60.5% (tax burden 0.354), dampening net profitability and suggesting structural tax items (e.g., valuation allowances or non-deductible expenses). Liquidity is a key concern: current ratio is 0.85 and quick ratio 0.53, with negative working capital of -57.1, raising short-term funding and supplier-payment risk. Debt load is manageable (D/E 0.78x, Debt/Capital 20.2%), and cash covers short-term loans by 2.15x, partly mitigating liquidity stress. Interest coverage is 4.66x, adequate but below the 5x comfort threshold. Dividend policy appears aggressive relative to earnings: calculated payout ratio is about 577%, implying reliance on balance sheet strength rather than earnings or FCF. Cash flow data are unreported, limiting quality-of-earnings verification and dividend coverage assessment. Forward-looking, incremental operating leverage is possible if SG&A productivity improves and tax normalization occurs, but current margins and ROIC (0.4%) indicate subdued returns. Overall, the quarter shows stabilization, yet sustained improvement requires mix optimization, stricter cost control, and working capital discipline.

Profitability Analysis

ROE decomposition (FY26 Q3 YTD): Net Profit Margin 0.10% × Asset Turnover 1.435 × Financial Leverage 1.78x ≈ ROE 0.3%. The biggest constraint is net profit margin, given an EBIT margin of 0.3% and a high effective tax rate of 60.5%. Business drivers: gross margin at 26.1% is typical for a supermarket, but SG&A at 31.0% consumes all gross profit, leaving minimal operating profit; non-operating items net add modestly (ordinary income margin ≈ 0.38%). YoY, operating margin improved from ~0.07% to ~0.34% (+~27 bps) largely due to better expense discipline relative to sales. Sustainability: incremental gains are possible via mix (private label, perishables management) and store productivity, but tax headwinds and structurally high SG&A limit near-term ROE upsides. Watchpoints: SG&A growth must be held below revenue growth; with current SG&A > gross profit, any gross margin slippage would quickly erase operating profit.

Growth Assessment

Topline: Revenue grew ~1.5% YoY, indicating modest demand resilience; same-store and traffic/ticket data are not disclosed, limiting attribution. Profit growth: Operating income up +389% YoY off a low base; net income positive versus loss, but absolute profitability remains marginal. Drivers: Gross margin steady at 26.1%; leverage from SG&A containment generated the profit swing. Outlook: Near-term growth depends on merchandising mix, shrink/markdown control, and labor productivity. Structural uplift requires better unit economics (store-level profitability and rent/labor efficiency) and potentially portfolio pruning or remodels. Tax rate normalization would materially improve net margin if underlying EBIT can be sustained.

Financial Health

Liquidity: Current ratio 0.85 (warning), quick ratio 0.53 (below healthy). Working capital is -57.1, signaling reliance on payables and rapid inventory turnover to fund operations. Maturity profile: Short-term loans 48.5 with cash and deposits of 104.4 (cash/STD 2.15x), reducing immediate refinancing risk, but current liabilities (371.1) exceed current assets (314.0), indicating a maturity mismatch. Solvency: D/E 0.78x (conservative), Debt/Capital 20.2% (investment-grade territory), interest-bearing debt 184.8 with long-term loans 136.3 provides duration. Interest coverage 4.66x is acceptable but below the >5x strong benchmark. Off-balance sheet: Not disclosed; retail typically carries operating lease commitments, but no data provided.

Cash Flow Quality

Operating cash flow is unreported, preventing OCF/NI assessment; thus, earnings quality cannot be validated via cash conversion metrics. Given minimal EBIT margin and negative working capital, OCF is likely sensitive to inventory and payables swings; any inventory build or payables compression could pressure cash. Free cash flow and CapEx are unreported; dividend coverage by FCF cannot be assessed. No direct signs of working-capital manipulation can be inferred, but reliance on trade payables (142.6) alongside low current ratio warrants monitoring of DPO/DSI trends when available.

Dividend Sustainability

Disclosed DPS indicates interim 13 yen and year-end 13 yen, implying 26 yen annual. Calculated payout ratio is ~577% due to very low net income, which is a warning under the <60% sustainable benchmark. With unreported OCF/FCF, coverage cannot be confirmed; given low profitability, the dividend likely depends on retained earnings (435.7) and cash (104.4). Unless earnings recover and cash generation improves, maintaining the current DPS poses medium-to-high risk over time. Policy may be anchored to stability, but revisions are possible if cash flows tighten.

Risk Assessment

Business Risks:

• Thin operating margin (0.34%) leaves little buffer against gross margin compression or SG&A inflation.
• Merchandise mix and shrink/markdown risk typical to supermarkets; any uptick directly impacts gross profit.
• Labor cost pressures in a tight market could lift SG&A further.
• Competitive pricing pressure from discount and e-commerce channels.

Financial Risks:

• Low liquidity: current ratio 0.85 and negative working capital (-57.1) create short-term cash pressure.
• High effective tax rate (60.5%) depresses net profitability.
• Interest coverage 4.66x is only moderate, leaving some sensitivity to rate increases.
• Dividend outpaces earnings (payout ~577%), potentially straining cash if FCF is weak.

Key Concerns:

• Capital efficiency: ROIC ~0.4% far below cost of capital.
• Maturity mismatch: current liabilities (371.1) exceed current assets (314.0).
• Data gaps: lack of cash flow and SG&A breakdown obscures underlying drivers and cash coverage.
• Sustaining SG&A discipline is critical; SG&A (31.0% of sales) exceeds gross profit (26.1%).

Investment Implications

Key Takeaways:

• Turn to positive net profit, but earnings power remains very weak.
• Operating margin improved ~27 bps YoY to 0.34%, still below comfort thresholds.
• Liquidity is the primary near-term risk: sub-1.0 current ratio and negative working capital.
• Balance sheet leverage is moderate (D/E 0.78x; Debt/Capital 20.2%).
• Tax rate is unusually high, materially depressing net margins.
• Dividend appears aggressive relative to earnings; sustainability depends on cash generation.

Metrics to Watch:

• Same-store sales growth and gross margin mix (private label, perishables).
• SG&A ratio trajectory vs sales growth, labor cost as % of sales.
• Inventory days and payables days to gauge working capital health.
• Effective tax rate and any disclosures on deferred tax valuation allowances.
• OCF and FCF once disclosed; dividend coverage by FCF.
• Store network actions: closures, remodels, and rent renegotiations.

Relative Positioning: Within Japanese grocery retail, asset turnover is acceptable, leverage is moderate, but profitability and ROIC are subpar, placing the company below peers on returns and margin resilience while carrying higher liquidity risk.

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
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