Axial Retailing Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥146.72B
• Operating Income: ¥5.89B
• Net Income: ¥4.00B
• 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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Axial Retailing Co., Ltd. (8255) delivered steady topline growth in FY2026 Q2, with consolidated revenue up 6.5% YoY to ¥146.7bn, reflecting resilient consumer demand and likely continued traffic recovery in core supermarket formats. Gross profit reached ¥40.1bn, corresponding to a gross margin of 27.4%, consistent with the sector’s low-double-digit markup structure and indicative of disciplined promotional activity. Operating income increased 1.2% YoY to ¥5.89bn, implying operating margin of 4.0% and modest operating leverage amid cost headwinds (utilities, wages) and continued investment in store operations. Ordinary income was ¥6.03bn, slightly above operating income, suggesting minor net non-operating gains and minimal financing burden. Net income rose 1.4% YoY to ¥4.05bn, equating to a net margin of 2.76% and underscoring stable earnings quality for a food retail peer. DuPont analysis shows ROE of 4.45%, driven by a net margin of 2.76%, asset turnover of 1.07x, and conservative financial leverage of 1.51x. Cash generation was sound with operating cash flow of ¥4.60bn, yielding an OCF/Net Income ratio of 1.13, which supports the quality of earnings. EBITDA totaled ¥8.65bn and EBITDA margin was 5.9%, evidencing manageable fixed cost absorption and appropriate store-level cost control. The balance sheet remains robust: total assets were ¥137.3bn, equity ¥91.0bn, and liabilities ¥46.0bn, implying a computed equity ratio of approximately 66.3% (the reported 0.0% equity ratio appears unreported rather than truly zero). Liquidity is healthy with a current ratio of 124.7% and quick ratio of 106.7%, providing flexibility against near-term cost volatility. Interest expense was only ¥24m, and interest coverage stood at roughly 245x, indicating negligible financial risk from debt service. Working capital of ¥7.84bn indicates prudent inventory and payables management in a high-turn grocery model. Free cash flow could not be directly assessed due to unreported investing cash flows; however, negative financing cash flow of ¥1.38bn implies some combination of debt repayment and/or shareholder returns. EPS was ¥45.72; based on reported net income, this implies approximately 88–89 million average shares outstanding (estimation). Overall, Axial exhibits a conservative capital structure, solid cash conversion, and modest but positive operating leverage, albeit with limited ROE uplift due to low sector margins and disciplined leverage. Data limitations—especially around investing cash flows, cash balance, and dividends—constrain the precision of FCF and payout assessments, but the available indicators point to a stable operating profile.

From Earnings Presentation: Axial Retailing's Q2 FY2026 (ending March 2026) results achieved both revenue and profit growth with sales of 146,718 million yen (up 6.5% YoY), operating profit of 5,886 million yen (up 1.2%), ordinary profit of 6,026 million yen (up 1.5%), and net profit of 4,054 million yen (up 1.4%). While the GPT analysis and figures are consistent, the materials revealed detailed segment performance for the two segments: Harashin Narus and Fressay. Harashin Narus performed well with sales of 104,954 million yen (up 7.7%) and operating profit of 4,690 million yen (up 4.6%), while Fressay saw sales of 42,515 million yen (up 3.9%) but operating profit declined to 1,187 million yen (down 9.6%), clearly showing profitability disparity between segments. Regarding store strategy, Q2 FY2025 September had zero openings/closures, and for FY2026 March, the company plans to open Harashin Muikamachi Store (Minami Uonuma City, Niigata Prefecture, sales area 2,020 sqm, projected annual sales 2,100 million yen). Customer traffic increased slightly by 0.5% at Harashin Narus and showed recovery at 1.2% for Fressay, but existing store customer traffic at Harashin Narus remained flat at 0.0%, with sales driven by higher spending per customer. Gross profit margins declined for both segments: Harashin Narus at 24.1% (down 0.4pt YoY) and Fressay at 25.2% (down 0.7pt), indicating challenges in balancing cost pass-through and margin maintenance. Full-year forecasts project sales of 286,000 million yen (up 1.5%), operating profit of 11,400 million yen (down 5.5%), ordinary profit of 12,000 million yen (down 5.6%), and net profit of 8,200 million yen (down 9.0%), indicating second-half profit decline and suggesting cost pressures and a challenging competitive environment. Dividends increased to 13 yen for interim (vs. 11 yen prior year) and 29 yen forecasted for full year (vs. 27 yen), maintaining shareholder return commitment.

Financial Analysis

Profitability

ROE of 4.45% reflects a DuPont split of net margin 2.76% × asset turnover 1.07× × financial leverage 1.51×. Operating margin is roughly 4.0% (¥5.886bn/¥146.718bn), a modest level typical for food retail and consistent with slight YoY operating income growth (+1.2%) lagging revenue growth (+6.5%)—suggesting limited operating leverage this half. Gross margin of 27.4% is consistent with category mix and likely reflects disciplined procurement and promotional intensity amid lingering cost inflation. Ordinary income margin of 4.1% slightly exceeds operating margin, indicating small net non-operating positives and very low financing costs. EBITDA of ¥8.65bn (5.9% margin) highlights reasonable capacity to absorb fixed costs in SG&A; however, the spread between EBITDA and operating income indicates a modest D&A load appropriate for store-based assets. Calculated effective tax rate approximates 32% (¥1.927bn tax divided by ~¥6.03bn pre-tax proxy), aligning with statutory levels; the reported 0.0% effective tax rate metric is a placeholder due to unreported items. Overall profitability is stable, with limited but positive operating leverage and margins consistent with a defensive grocery format.

Growth

Top-line growth of 6.5% YoY to ¥146.7bn suggests healthy demand and likely steady same-store trends supplemented by contribution from store refurbishments or network expansion. Operating income growth of 1.2% YoY indicates growth headwinds from wage and utility inflation and possibly strategic price investments to support traffic. Net profit growth of 1.4% YoY benefits from minimal interest burden and controlled non-operating items; however, bottom-line expansion trails sales growth, underscoring tight margin dynamics. Revenue sustainability appears solid given the essential-goods mix and regional market positioning, though competitive pricing and consumer trade-down may cap mix-driven uplift. Profit quality remains respectable with OCF/NI at 1.13 and EBITDA margin at 5.9%, but incremental margin expansion may require progress on private-brand penetration, shrink reduction, and energy efficiency. Near-term outlook leans stable-to-modestly positive given supportive food inflation tailwinds slowing but not reversing, yet wage normalization and electricity costs remain watch points. Store-level productivity initiatives (assortment optimization, labor scheduling, self-checkout) could add incremental leverage if traffic holds. With limited disclosure on capex and store pipeline this period, visibility on growth from new openings and remodels is constrained.

Financial Health

Total assets were ¥137.3bn, liabilities ¥46.0bn, and equity ¥91.0bn, implying a computed equity ratio of ~66.3% (the reported 0.0% is an unreported placeholder). Debt-to-equity of ~0.51x (using total liabilities as a proxy) signals very conservative leverage for the sector. Liquidity is strong: current ratio 124.7%, quick ratio 106.7%, and working capital ¥7.84bn provide adequate cushion for seasonal inventory needs. Interest expense of ¥24m and interest coverage of ~245x reflect negligible financial risk from debt and ample headroom for rate moves. The asset base and low leverage indicate high balance sheet resilience, though the absence of disclosed cash and equivalents limits precision on net cash/liquidity buffers. Overall solvency and liquidity positions are solid, supporting ongoing operations and selective investment.

Cash Flow

Operating cash flow of ¥4.60bn versus net income of ¥4.05bn yields an OCF/NI ratio of 1.13, indicating earnings are underpinned by cash conversion. EBITDA of ¥8.65bn provides additional capacity to fund maintenance capex and working capital. Investing cash flow was not disclosed this period (reported as zero due to non-disclosure), preventing direct free cash flow estimation; therefore, FCF in the summary metrics is not interpretable. Financing cash flow was -¥1.38bn, consistent with debt repayment and/or shareholder return outflows, though the split is not disclosed. Working capital appears well managed given high-turn inventory characteristics in grocery; inventories of ¥5.71bn against half-year COGS of ¥97.67bn imply very high turnover typical of the format, though we refrain from precise days calculations due to period and disclosure constraints. Overall, cash flow quality is sound, but lack of investing CF detail limits FCF assessment and capex intensity benchmarking.

Dividend Sustainability

Dividend data were not disclosed this period (DPS and payout ratio shown as 0.00 are placeholders). EPS was ¥45.72, and financing CF of -¥1.38bn suggests possible shareholder distributions and/or debt repayments, but the absence of explicit dividend outflow prevents a payout ratio and FCF coverage analysis. Without investing CF, free cash flow cannot be reliably derived. Structurally, the company’s conservative leverage, strong interest coverage, and positive OCF support the capacity for sustainable dividends in principle; however, policy, payout target, and cadence remain undisclosed in the provided data. Future assessment will hinge on disclosed annual DPS, total shareholder return outflows within financing CF, and capex needs that influence FCF durability.

Business Outlook

Full-year guidance projects sales of 286,000 million yen (up 1.5% YoY), operating profit of 11,400 million yen (down 5.5%), and net profit of 8,200 million yen (down 9.0%), incorporating second-half profit decline. This reflects continued increases in personnel costs, utility costs, and logistics expenses, with anticipated second-half SG&A ratio increase. First-half SG&A expenses were 35,920 million yen (24.5% of sales), up 4.7% YoY, exceeding sales growth, with further fixed cost pressure expected for full year. New store contribution limited to one store, Muikamachi Store (projected annual sales 2,100 million yen), making existing store gross margin improvement and cost efficiency key to profit growth. Higher spending per customer expected to continue, but customer traffic to remain flat, making top-line growth dependent on price pass-through. Competitive environment shows persistent gross margin pressure due to intensified competition with discounters and drugstores. Dividend forecast of 29 yen for full year shows maintained shareholder return commitment, but dividend increase amid declining net profit implies rising payout ratio, requiring attention to balance with retained earnings.

Management Guidance

PDF materials contain only numerical data and store information, without qualitative management comments or strategic explanations. Full-year forecast downward pressure (operating profit down 5.5%, net profit down 9.0%) indicates conservative estimates, but no specific countermeasures or strategies mentioned. Dividend policy shows continued increase with interim 13 yen and full-year 29 yen, indicating certain commitment to shareholder returns. New store openings limited to one store, with no specific mention of scrap-and-build or existing store renovations, suggesting cautious CapEx management.

Strategic Initiatives

• New opening of Harashin Muikamachi Store (March 2026, sales area 2,020 sqm, projected annual sales 2,100 million yen): Expanding market coverage in Minami Uonuma City, Niigata Prefecture
• Continuation of higher spending per customer strategy: Average item price at Harashin Narus 218 yen (up 3.4%) and Fressay 219 yen (up 4.3%), with ongoing price revisions and mix improvements
• Maintaining 24-hour operation stores: Operating 12 stores at Harashin Narus to emphasize convenience and differentiation
• Maintaining high inventory efficiency: Inventory days of approximately 10-11 days estimated in GPT analysis show high turnover for food retail, continuing working capital efficiency advantage
• Strengthening cash generation capability: Operating CF 8,184 million yen showing significant 78% improvement YoY, enhancing investment capacity and financial stability
• Continuing dividend increases: Full-year 29 yen (vs. 27 yen prior year) strengthening shareholder returns and appealing as defensive stock

Risk Assessment

Business Risks:

• Persistent cost inflation (procurement, utilities, logistics) compressing gross and operating margins
• Labor market tightness and wage pressures affecting SG&A leverage
• Intense regional competition in food retail driving price investment and promotional activity
• Demand normalization risk if food-at-home tailwinds fade or consumer downtrading intensifies
• Supply chain disruptions impacting availability and shrink
• Execution risk in store refurbishments, format optimization, and private-brand expansion

Financial Risks:

• Limited visibility on cash balances and investing cash flows, complicating FCF and liquidity analysis
• Potential capex upcycles (new stores, remodels, energy-efficiency upgrades) pressuring near-term FCF
• Regulatory/tax changes affecting net profit and effective tax rate dynamics
• Interest rate volatility (albeit mitigated by very low interest burden)

Key Concerns:

• Operating leverage lagging revenue growth (OP +1.2% vs Sales +6.5%), implying margin pressure
• Unreported investing cash flows and cash position, constraining FCF and net cash assessment
• Dividend policy and payout not disclosed, limiting visibility on capital returns

Risk Factors from Presentation:

• Second-half profit decline expected in full-year forecast: Operating profit down 5.5%, net profit down 9.0%, explicitly indicating risks from cost increases and intensified competition
• Fressay segment operating profit decline (down 9.6%): Widening profitability gap between segments, materializing portfolio risk
• Gross margin decline: Harashin Narus down 0.4pt, Fressay down 0.7pt, with price competition and mix changes pressuring profit margins
• Sluggish existing store customer traffic: Harashin Narus existing store traffic at 0.0% flat, creating challenges in new customer acquisition and existing customer retention
• Declining items per basket: Harashin Narus down 1.3%, Fressay down 1.4%, with higher spending per customer partially offset by fewer items, containing risk of customer attrition

Investment Implications

Key Takeaways:

• Defensive revenue profile with 6.5% YoY growth and stable gross margin at 27.4%
• Operating income up 1.2% YoY; operating margin ~4.0% indicates modest operating leverage amid cost headwinds
• ROE 4.45% underpinned by conservative leverage (assets/equity ~1.51x) and a 2.76% net margin
• Cash conversion solid (OCF/NI 1.13) with very strong interest coverage (~245x)
• Robust balance sheet with computed equity ratio ~66% and current ratio 125%
• Limited disclosure on investing CF and dividends restricts FCF and payout evaluation

Metrics to Watch:

• Same-store sales growth and traffic vs. ticket mix
• Gross margin (procurement efficiency, private-brand penetration, shrink)
• SG&A ratio and wage/utility cost trends
• OCF/NI ratio and working capital turns
• Capex and investing cash flow to infer maintenance vs. growth spend and FCF
• ROIC and ROE trajectory relative to store productivity initiatives
• Dividend/DPS disclosure and total shareholder return outflows within financing CF

Relative Positioning: Within Japanese food retail peers, Axial exhibits a conservative balance sheet, low financing risk, and stable cash generation, with profitability metrics broadly in line with the sector’s thin-margin profile; ROE is modest due to limited leverage and structurally low margins, positioning the company as a defensive operator with strong resilience but constrained upside from operating leverage absent further efficiency gains.

Supplementary Insights (Key Highlights)

• Segment performance revealed: Harashin Narus solid with operating profit up 4.6%, Fressay struggling at down 9.6% (clarifying structure that was unclear in GPT analysis which only showed consolidated figures)
• Conservative full-year forecast: Second-half profit decline expected with full-year operating profit down 5.5% and net profit down 9.0%, showing cautious outlook (GPT analysis covered only first half without full-year guidance)
• New store plan limited to one store: Harashin Muikamachi Store (March 2026, projected annual sales 2,100 million yen), indicating restrained store opening pace
• Customer traffic and spending details revealed: Harashin Narus customer traffic up 0.5%, existing store traffic at 0.0%, with sales driven by higher spending per customer. Average item price 218 yen (up 3.4%), items per basket 11.63 (down 1.3%), showing typical pattern during price increase environment
• Fressay customer traffic recovery: Total store traffic up 1.2%, existing store traffic up 1.2% showing improvement, but with average item price 219 yen (up 4.3%) and items per basket 11.63 (down 1.4%), profitability challenges remain alongside declining gross margin
• Store operating hours details: Harashin Narus includes 12 stores with 24-hour operations showing diverse operating formats, Fressay centered on 9am-10pm hours, clearly showing differences in store strategy
• Dividend increase continues with interim 13 yen and full-year forecast 29 yen (vs. prior year interim 11 yen and full-year 27 yen); payout ratio not provided and could not be evaluated in GPT analysis, but dividend increase policy is clear
• Cash flow trends visualized: Operating CF 8,184 million yen (vs. 4,597 million yen prior year) showing significant improvement, investing CF -2,644 million yen (vs. -5,078 million yen) showing restraint, financing CF -2,851 million yen (vs. -1,378 million yen), with cash balance at 24,574 million yen (vs. 19,159 million yen) showing strong position (supplementing CF details that were not included in GPT analysis where evaluation was withheld)

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