HASEGAWA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.04B
• Operating Income: ¥303M
• Net Income: ¥135M
• Earnings per Unit (EPU): ¥7.47

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Top-line growth but sharp profit compression; margins eroded and ROE/ROIC remain weak despite healthy liquidity and solid cash conversion in FY2026 Q2. Revenue rose 7.4% YoY to 110.45, but operating income fell 41.9% YoY to 3.03, indicating negative operating leverage. Ordinary income declined 47.0% to 2.83, and net income fell 58.0% to 1.35, with an unusually high effective tax rate of 51.9% amplifying the drop in bottom-line earnings. Gross margin printed at a high 63.3%, but SG&A of 66.83 (60.5% of sales) absorbed most of the gross profit, leaving only a 2.7% operating margin. Operating margin compressed by roughly 234 bps YoY (from ~5.1% to ~2.7%), driven by SG&A deleverage rather than gross margin deterioration. Non-operating items were a mild net drag (income 0.26 vs expenses 0.46), with interest expense of 0.24 comprising over half of non-operating costs. Cash generation was a bright spot: operating cash flow of 3.31 exceeded net income (1.35), yielding an OCF/NI ratio of 2.45x, which signals high earnings quality this quarter. Free cash flow was approximately 2.96 (OCF 3.31 minus capex 0.35), comfortably positive. The balance sheet is conservative: current ratio 194.7%, quick ratio 194.7%, and debt-to-equity 0.65x, with interest coverage at a strong 12.62x. However, capital efficiency remains weak: ROE was 1.1% and ROIC just 1.2% (below the 5% warning threshold), reflecting low margins and modest asset turnover (0.532x). Working capital is ample at 40.66, and there is no sign of short-term liquidity stress. The reported payout ratio of 207.2% (basis not disclosed) suggests a potential mismatch between dividends and earnings if applied to first-half results, warranting scrutiny of full-year guidance and dividend policy. The high tax burden depressed net income and may normalize, offering some upside to the effective bottom line if one-off factors were involved. With non-operating income modest (dividends 0.11) and non-operating expenses persistent, sustainable profit recovery will hinge on SG&A discipline and leveraging the sales base. Overall, the quarter shows resilient sales and cash generation but disappointing profitability and capital returns, putting the onus on cost control, store productivity, and mix improvements in 2H.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.1% = Net profit margin 1.2% × Asset turnover 0.532 × Financial leverage 1.65x. The largest negative driver QoQ/YoY is the net profit margin, given the ~234 bps operating margin compression and a 58% drop in net income despite 7.4% sales growth. Business drivers: SG&A grew faster than gross profit, pushing the SG&A-to-sales ratio to 60.5%, which erased operating leverage benefits from revenue growth; additionally, a high 51.9% effective tax rate further cut into net profit. Sustainability: The elevated tax rate may be partly one-off and could normalize; however, the SG&A burden looks structural unless management executes cost rationalization and improves store/online productivity. Asset turnover at 0.532 is modest and appears relatively stable; major changes would require faster revenue growth than asset growth or a lighter asset model. Leverage at 1.65x is moderate and unlikely to be the primary lever for ROE improvement given management’s conservative balance sheet. Concerning trends: SG&A/Revenue at 60.5% is high for a specialty retailer and appears to have outpaced sales growth, a clear flag that opex discipline is needed. Non-operating expense (notably interest) outweighed non-operating income, diluting ordinary income.

Growth Assessment

Top line rose 7.4% YoY to 110.45, likely reflecting steady demand recovery and/or pricing/mix tailwinds, but profitability deteriorated due to opex deleverage. Operating income fell 41.9% to 3.03 and ordinary income by 47.0% to 2.83, indicating that growth was not accretive to margins. Net income declined 58.0% to 1.35, additionally pressured by a high tax rate. Gross profit of 69.86 showcases strong product margins, but SG&A absorption negated most of the gains. Non-operating items were a net negative this quarter, and non-operating income remains a small contributor to profit. Revenue momentum looks sustainable near term, but profit recovery requires SG&A containment, productivity improvements, and potentially better mix. Absent cost control, incremental sales are unlikely to translate into earnings growth, and ROIC will remain below the cost of capital. Watch for 2H actions on store optimization, rent/utility control, and labor efficiency to restore operating leverage.

Financial Health

Liquidity is strong: current ratio 194.7% and quick ratio 194.7% (no inventory reported in XBRL), with cash and deposits of 23.34 against current liabilities of 42.95. There is no warning on liquidity (Current Ratio well above 1.0). Solvency is conservative: debt-to-equity 0.65x and interest coverage 12.62x. Long-term loans stand at 28.65, while short-term loans were unreported; based on current assets of 83.61 versus current liabilities of 42.95, maturity mismatch risk appears low. Total liabilities are 81.54 versus equity of 125.97, indicating moderate leverage. No off-balance sheet obligations were disclosed in the provided data. Working capital is healthy at 40.66, providing cushion against seasonal swings.

Cash Flow Quality

Earnings quality is high this quarter: OCF/Net Income at 2.45x indicates cash generation more than covered accounting earnings. Free cash flow is approximately 2.96 (OCF 3.31 minus capex 0.35), leaving capacity to fund maintenance investments and some shareholder returns. There is insufficient detail to assess working capital drivers (receivables, payables, inventories) for potential timing effects or manipulation; however, the positive OCF alongside weak net profit suggests non-cash charges and/or favorable working capital. Financing cash inflow of 4.34 suggests net borrowing or other financing activity; details unreported. Overall, cash conversion supports near-term obligations, but sustained FCF depends on restoring operating margins.

Dividend Sustainability

Reported payout ratio of 207.2% (basis not disclosed) signals potential unsustainability if applied to first-half earnings; full-year context is required. On a cash basis, estimated FCF of 2.96 in the half provides some capacity for dividends, but visibility is limited as dividends paid were unreported. With ROE at 1.1% and ROIC at 1.2%, high payout risks underfunding growth or balance sheet resilience unless earnings recover. If the elevated tax rate normalizes and SG&A is contained, dividend coverage could improve; otherwise, maintaining an outsized payout would likely exceed earnings power. Policy outlook should be watched for any shift toward FCF-based or progressive-but-sustainable dividends tied to profit recovery.

Risk Assessment

Business Risks:

• Margin pressure from elevated SG&A (SG&A/Revenue at 60.5%) limiting operating leverage.
• Demand volatility in core categories (memorial/religious goods) amid demographic and consumer-spending shifts.
• Store productivity and fixed-cost absorption risk if traffic underperforms, especially outside peak seasons.
• Execution risk in cost control, store optimization, and mix improvement needed to restore margins.

Financial Risks:

• Low capital efficiency (ROIC 1.2%, ROE 1.1%) risks value dilution if not improved.
• High effective tax rate (51.9%) depressing net income; if persistent, it constrains dividend capacity.
• Non-operating expense (interest 0.24) exceeding non-operating income, pressuring ordinary income.
• Potential dividend-policy mismatch with earnings if payout ratio remains above 100%.

Key Concerns:

• Operating margin compressed ~234 bps YoY to ~2.7%, signaling negative operating leverage.
• OCF is solid, but sustained FCF depends on margin recovery given modest asset turnover (0.532x).
• Limited disclosure on inventories and detailed SG&A components obscures cost structure diagnostics.
• If financing inflows reflect rising leverage without profit recovery, interest burden could increase.

Investment Implications

Key Takeaways:

• Sales growth (+7.4% YoY) did not translate into profit growth due to SG&A deleverage.
• Operating margin ~2.7% and ROIC 1.2% indicate subpar profitability versus typical cost of capital.
• Cash generation is a relative strength (OCF/NI 2.45x; FCF ~2.96), supporting near-term stability.
• Balance sheet is conservative (current ratio ~1.95x; D/E 0.65x; interest coverage 12.6x).
• High effective tax rate inflated net income decline; normalization would aid bottom line.
• Dividend sustainability is uncertain if payout remains >100% of earnings absent profit recovery.

Metrics to Watch:

• SG&A-to-sales ratio (currently ~60.5%) and operating margin trajectory.
• Gross margin stability versus mix and pricing actions.
• OCF/NI ratio and working-capital movements (AR, AP, inventory once disclosed).
• Effective tax rate normalization and its drivers.
• Same-store sales and store productivity KPIs.
• Leverage trend and interest expense versus coverage.

Relative Positioning: Within domestic specialty retail, Hasegawa exhibits healthy liquidity and cash conversion but lags peers on profitability and capital efficiency; improving SG&A discipline and operating leverage is pivotal for closing the ROE/ROIC 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