Takashimaya Company,Limited FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥353.82B
• Operating Income: ¥37.27B
• Net Income: ¥30.62B
• EPS: ¥99.00

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

AI Financial Analysis

Executive Summary

Verdict: Solid bottom-line delivery despite softer operations, with healthy cash generation but tight liquidity and subpar capital efficiency. Revenue for the nine-month period was 3,538.21 (100M JPY), with operating income of 372.67 (-10.3% YoY) and ordinary income of 359.49 (-14.1% YoY). Net income rose to 297.22 (+14.0% YoY), aided by lower non-operating drag and a manageable tax burden (effective tax rate 31.4%). Operating margin compressed 94 bps to 10.5% (from ~11.5%), while net margin expanded 119 bps to 8.4% (from ~7.2%), indicating improved below-the-line outcomes offsetting weaker operating leverage. Gross margin is robust at 42.9%, consistent with department store merchandising/tenant mix. Earnings quality is solid: OCF of 437.31 implies OCF/NI of 1.47x and a slightly negative accruals ratio (-1.1%), though cash conversion versus EBITDA sits at the threshold (0.70x). Free cash flow was 189.82, sufficient to cover the indicated dividend (payout ~38.2%) and most of the 150 in share buybacks. Balance sheet shows active liability management: short-term loans reduced 63% while long-term loans rose 39%, extending duration and lowering refinancing risk. Liquidity is tight (current ratio 0.88, quick 0.79) with negative working capital (-501.6), a structural feature in retail but still a watchpoint. Leverage on a total-liability basis is high (D/E 1.65x), though interest-bearing debt is moderate (Debt/Capital 20.5%, Debt/EBITDA 2.1x, coverage 6.4x). ROE stands at 5.9%—below 8% benchmark—with ROIC at 4.6%, reflecting a heavy fixed-asset base and modest asset turnover (0.265x). Notably, accounts receivable increased 30% YoY, pressuring cash conversion and elevating collection risk. The company prioritized shareholder returns with buybacks (150), while maintaining investment discipline (Investing CF -247.5). Forward-looking, margin defense and receivable normalization are key to sustaining cash generation, while improving capital efficiency (ROIC) remains a strategic priority.

Profitability Analysis

ROE is 5.9%, decomposed as Net Profit Margin (8.4%) × Asset Turnover (0.265) × Financial Leverage (2.65x). Net margin improved YoY (from ~7.2% to 8.4%), while asset turnover remains modest given the large asset base; leverage is elevated on a total liabilities basis. The largest driver of change versus prior period results is margin mix—operating margin fell 94 bps to ~10.5%, but net margin expanded 119 bps on lower non-operating drag and manageable tax. Business-wise, the combination of tenant/commission income and cost controls supported gross margin, while SG&A pressure and lower revenue (3,538 vs 3,617) limited operating leverage. The improvement in net margin appears partially sustainable if financing costs remain stable and there are no large non-operating losses; however, the operating margin compression is a risk if sales do not re-accelerate. Watch for SG&A discipline: with operating income down 10.3% on lower revenue, any SG&A growth outpacing revenue will further pressure OPM. Overall, capital efficiency is constrained mainly by low asset turnover characteristic of department stores with substantial PPE and investment properties.

Growth Assessment

Top line declined modestly YoY (3,538 vs 3,617), implying negative growth through Q3. Profit mix shifted: operating income fell 10.3% while net income rose 14%, indicating reliance on below-the-line improvements rather than core operating expansion. Gross margin at 42.9% suggests stable merchandise/tenant mix, but operating deleverage from SG&A weighed on OPM. Retail KPIs like same-store sales, traffic, ticket size, and e-commerce contribution are not disclosed; absent these, the durability of sales is uncertain. Receivables jumped 30% YoY, consistent with higher credit and tenant receivables, which may reflect timing, a mix shift to tenant/real estate-related rent, or collection delays—monitor normalization into Q4. EBITDA margin of 17.5% is healthy for the format, but OCF/EBITDA at 0.70x signals working capital friction. Outlook hinges on holiday/Q4 demand, promotional intensity, and cost control; any rebound in comps would quickly lift OPM given fixed-cost structure. Near-term growth catalysts include store portfolio optimization and real estate monetization, while risks include consumer softness and competition from e-commerce.

Financial Health

Liquidity is weak: current ratio 0.88 (<1.0 warning) and quick ratio 0.79 (<1.0), with negative working capital of -501.6. Maturity profile improved as short-term loans fell 63% to 137.8 and long-term loans rose 39% to 1,166.3, reducing near-term refinancing risk; cash covers short-term loans by 5.9x. Total liabilities to equity (D/E) is 1.65x—elevated—but interest-bearing leverage is moderate (Debt/Capital 20.5%, Debt/EBITDA 2.1x). Interest coverage is strong at 6.4x (EBIT/interest), with EBITDA coverage of 10.7x. Maturity mismatch risk exists as current liabilities (4,352.9) exceed current assets (3,851.4), largely due to payables (1,510.1) and other short-term obligations typical in retail; this model can be sustainable but leaves little cushion if sales slow. No off-balance sheet obligations are disclosed in the provided data. Equity increased to 5,044.9 (from 5,003.5), supported by retained earnings despite buybacks. Overall solvency is adequate, but liquidity remains the key constraint.

Notable B/S Changes

Treasury Stock: -125.3 → -275.3 (−119.7%) – Increased buybacks; supportive for EPS/BVPS but reduces liquidity buffer. Short-term Loans: 376.7 → 137.8 (−63.4%) – De-risking of near-term refinancing; lowers rollover risk and improves duration. Long-term Loans: 838.2 → 1,166.3 (+39.1%) – Terming out debt; modestly raises interest cost sensitivity but stabilizes funding. Accounts Receivable: 1,644.0 → 2,141.0 (+30.2%) – Working capital absorption; elevates collection and cash conversion risk.

Cash Flow Quality

Earnings quality is good: OCF/NI at 1.47x and an accruals ratio of -1.1% indicate cash-backed earnings. Cash conversion (OCF/EBITDA) at 0.70x is at the lower acceptable bound, likely reflecting the 30% YoY increase in receivables; monitor collections into Q4. Free cash flow was 189.8 after investing outflows of 247.5, sufficient to fund dividends (payout ~38%) and most of the 150 in buybacks without excessive leverage. Working capital movements appear to be the main swing factor; no clear signs of manipulation, but the receivable build deserves scrutiny for potential aging issues. With Debt/EBITDA at 2.1x and solid interest coverage, the current capital return pace is supportable if OCF remains near current levels. Sustained FCF depends on stabilizing revenue and maintaining SG&A discipline.

Dividend Sustainability

The indicated DPS totals 36 JPY (23 interim + 13 year-end), equating to a payout ratio of ~38.2%, within a sustainable range. FCF coverage of dividends is a comfortable 1.67x based on current cash generation. Balance sheet capacity for incremental returns exists given moderate interest-bearing leverage, but liquidity constraints and the receivable build argue for measured capital returns. Share repurchases of 150 were funded alongside dividends within OCF/FCF, implying prudent allocation. Future payout growth will likely track earnings and FCF; underinvestment risk is not apparent given depreciation (248) and investing CF (-247), but CapEx detail is undisclosed. We expect the company to prioritize stable dividends with flexible buybacks contingent on cash conversion.

Risk Assessment

Business risks include Consumer demand softness impacting department store traffic and ticket size, Competitive pressure from e-commerce and specialty retailers leading to higher promotions, Merchandise mix and tenant performance variability affecting gross margin, Operational deleverage if SG&A growth outpaces revenue.

Financial risks include Low liquidity (current ratio 0.88, quick ratio 0.79) with negative working capital, Receivables up 30% YoY, raising collection timing and credit risk, Elevated total leverage on a liabilities basis (D/E 1.65x), though debt capital is moderate, ROIC at 4.6% below cost-of-capital proxies, indicating capital efficiency risk.

Key concerns include Operating margin compression of 94 bps YoY amid revenue decline, Cash conversion at the threshold (OCF/EBITDA 0.70x), reliant on working capital normalization, Dependence on below-the-line support to deliver YoY NI growth.

Investment Implications

Key takeaways include Net profit resilience (+14% YoY) despite lower operating income demonstrates earnings defensibility., Liquidity is the main near-term constraint; working capital discipline must improve., Capital efficiency (ROIC 4.6%) lags; unlocking asset productivity is a key medium-term lever., FCF supports current dividends and measured buybacks; pace of returns should align with cash conversion., Shift from short- to long-term debt lowers refinancing risk and stabilizes interest burden..

Metrics to watch include Same-store sales, traffic and ticket size (not disclosed this quarter), Operating margin trend and SG&A ratio vs revenue, Receivables turnover and aging; OCF/EBITDA recovery >0.8x, Inventory levels and markdown rates into Q4, ROIC progression toward >5–7% range.

Regarding relative positioning, Within Japanese department store peers, profitability is mid-pack (OPM ~10.5%, NI margin 8.4%) with stronger-than-average cash generation this quarter but weaker liquidity. Capital efficiency trails best-in-class peers focused on real estate monetization and omnichannel, highlighting a need to enhance asset turnover and ROIC.