Axial Retailing Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥146.72B
• Operating Income: ¥5.89B
• Net Income: ¥4.05B
• EPS: ¥45.72

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 steady but margin-constrained quarter, with solid topline growth and robust cash generation offset by mild margin compression and middling ROIC. Revenue rose 6.5% YoY to 1,467.2, while operating income increased 1.2% YoY to 58.9, indicating growth largely driven by volume and price pass-through rather than operating leverage. Gross profit reached 418.1 with a gross margin of 28.5%, and operating margin stood at 4.0%. Net income was 40.5 (+1.4% YoY), implying a net margin of 2.8%. Operating margin compressed by about 21 bps YoY (from ~4.22% to 4.01%), reflecting cost pressures (utilities, wages, procurement) and investment in operations. Net margin also compressed by ~14 bps (from ~2.90% to ~2.76%), as revenue outpaced bottom-line growth. Non-operating items were small (net +1.4), and interest burden remained de minimis (interest expense 0.24; coverage 245x), keeping financing impacts negligible. Operating cash flow was strong at 81.8, more than 2.0x net income, underscoring high earnings quality and good working capital discipline typical for food retailers. Capex was 25.8, implying an estimated FCF of ~56.1, comfortably funding ordinary shareholder returns and store refurbishments. Liquidity is adequate (current ratio 129.5%, quick ratio 110.7%), and solvency is strong with an estimated equity ratio of ~66% (910.4/1,372.9). ROE calculated via DuPont is 4.5%, constrained by low net margins and moderate asset turnover (1.07x) despite low financial leverage (1.51x). ROIC of 6.0% trails the 7–8% target range, suggesting continued focus on mix improvement, private-brand expansion, and productivity gains is needed. Dividend payout ratio is estimated at 62.3%, slightly above our 60% benchmark, but covered by cash flow based on the quarter-to-date run rate. Forward-looking, maintaining price competitiveness while defending SG&A efficiency will be key as cost inflation normalizes unevenly. Risks include continued wage and utility cost inflation and competitive pricing pressure in core regions. Overall, the company demonstrates resilient cash generation and balance sheet strength, but profitability improvements are required to re-accelerate ROE and ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.5% = Net Profit Margin (2.8%) × Asset Turnover (1.069x) × Financial Leverage (1.51x). The most material change YoY appears in the margin leg: operating income grew +1.2% versus revenue +6.5%, implying operating margin compression of ~21 bps (to 4.01%), with net margin down ~14 bps to 2.76%. Business drivers likely include persistent cost inflation (procurement, energy), higher labor-related expenses, and increased store-level operating costs outpacing sales productivity gains. Non-operating items were small and stable, so margin dynamics are predominantly operating. Asset turnover at 1.07x is reasonable for a supermarket format and likely stable YoY given similar store footprint characteristics, while leverage remains conservative at ~1.51x and thus contributes modestly to ROE. The margin compression is partly cyclical (input cost timing, promotional intensity) and could normalize if procurement costs and utilities continue to ease; sustainability of improvement depends on SG&A discipline, shrink reduction, and mix (private label, fresh). SG&A ratio is 24.5% of sales; without YoY detail, we cannot confirm if SG&A grew faster than revenue, but operating deleverage suggests SG&A and/or COGS pressure outpaced sales growth. Overall, the margin leg is the primary drag on ROE, with turnover and leverage relatively steady.

Growth Assessment

Topline growth of +6.5% YoY indicates healthy demand and likely a mix of price pass-through and volume recovery. Operating income growth of +1.2% trails sales, signaling limited operating leverage due to cost pressure. Ordinary income (+1.5% YoY) and net income (+1.4% YoY) track operating trends, with minimal contribution from non-operating items. Gross margin stands at 28.5%, consistent with a full-line supermarket; scope exists to improve via private-brand penetration and category management. EBITDA of 88.0 implies an EBITDA margin of 6.0%, adequate but compressed for the period. With ROIC at 6.0%, returns are below the typical management target range (7–8%), suggesting incremental improvement in store productivity and capital allocation discipline is needed. Near-term sustainability of growth hinges on maintaining traffic and basket size amid competitive pricing and potential normalization of inflation. Medium term, growth levers include store refurbishments, fresh/frozen assortment optimization, and digital/loyalty initiatives to lift frequency and ticket. Absent significant non-operating gains, earnings growth will depend on restoring operating margin via cost control and mix.

Financial Health

Liquidity: Current ratio 129.5% (above 1.0 threshold, below the >150% comfort benchmark); quick ratio 110.7% is healthy. No explicit short-term loan data, but cash and deposits are 245.7 versus current liabilities 323.1, indicating solid coverage when combined with receivables and inventory. Solvency: Total equity 910.4 and total assets 1,372.9 imply an estimated equity ratio of ~66.3% (despite XBRL N/A), signaling a strong capital base. Debt metrics are partly unreported (interest-bearing debt N/A), but negligible interest expense (0.24) and very high interest coverage (245x) suggest low leverage. The reported D/E of 0.51x should be interpreted cautiously given missing debt detail (may reflect liabilities/equity rather than interest-bearing debt). Maturity mismatch risk appears low: current assets (418.4) exceed current liabilities (323.1) by 95.3, and a large accounts payable balance (194.9) aligns with the supermarket model of vendor financing. No off-balance sheet obligations were disclosed in the dataset.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income is 2.02x (>1.0 benchmark), indicating solid cash conversion and favorable working capital dynamics. Estimated free cash flow is ~56.1 (OCF 81.8 – Capex 25.8), comfortably positive despite ongoing investment. Financing CF of -28.5 reflects outflows for shareholder returns (repurchases -12.8) and potentially debt service; dividends paid were unreported. Working capital appears well-managed, consistent with the sector’s negative net working capital model driven by payables; no signs of aggressive working capital manipulation are evident from the limited data. Cash generation should be sufficient to fund maintenance capex and ordinary dividends barring a sharp downturn.

Dividend Sustainability

Payout ratio is estimated at 62.3%, slightly above our 60% benchmark but broadly manageable given cash generation. On an estimated basis, dividends would be ~25.2 (62.3% × net income 40.5). With estimated FCF of ~56.1, dividend coverage is about 2.2x, suggesting sustainability assuming stable operations. Share repurchases of 12.8 were executed, further utilizing cash but still within FCF capacity this period. Policy outlook likely remains focused on stable dividends with opportunistic buybacks, contingent on maintaining OCF strength and capex discipline. Note: DPS and total dividends paid were unreported; payout and coverage are inferred from the calculated ratio and may differ from actual cash distributions.

Risk Assessment

Business Risks:

• Cost inflation risk: labor, utilities, and procurement continue to pressure margins
• Competitive pricing pressure in core regions potentially compressing gross margin
• Execution risk on store refurbishments and assortment/mix optimization
• Demand normalization risk as inflation cools and real consumption fluctuates

Financial Risks:

• Partial opacity around interest-bearing debt due to unreported loan line items
• Potential increase in capex for modernization could pressure near-term FCF
• Dividend payout above 60% benchmark could constrain flexibility if cash flow weakens

Key Concerns:

• Operating and net margin compression despite healthy sales growth
• ROIC at 6.0% below 7–8% target range indicates room for capital efficiency improvement
• Dependence on vendor financing (large payables) inherent to the model—any supply terms tightening would impact cash conversion

Investment Implications

Key Takeaways:

• Solid topline (+6.5% YoY) but limited operating leverage (+1.2% YoY OP) led to ~21 bps operating margin compression
• Cash conversion is strong (OCF/NI 2.0x), supporting an estimated FCF of ~56.1
• Balance sheet is robust with an estimated equity ratio ~66% and minimal interest burden
• ROE 4.5% and ROIC 6.0% point to profitability constraints; margin repair is the key lever
• Payout ratio ~62% is manageable given FCF, but leaves less buffer if margins tighten further

Metrics to Watch:

• Operating margin trajectory and SG&A ratio versus sales
• OCF/NI and inventory turns (to validate sustained cash conversion)
• Electricity and labor cost trends and their pass-through to pricing
• Capex intensity versus store productivity (ROIC uplift)
• Shareholder return mix (dividends vs buybacks) relative to FCF

Relative Positioning: Within Japan’s supermarket peer set, Axial shows healthy cash generation and conservative balance sheet strength but trails best-in-class operators on ROIC and margin resilience; focus on cost discipline and mix/pricing execution will be pivotal 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