HEIWADO CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥335.87B
• Operating Income: ¥8.62B
• Net Income: ¥5.97B
• EPS: ¥118.58

Income Statement

Balance Sheet

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 mixed but resilient FY2026 Q3 with modest top-line growth and stable operating profits, offset by margin compression at the net level and weak liquidity metrics. Revenue rose to 3,358.74, up roughly 3.0% year over year from 3,259.84, while operating income edged up 1.8% to 86.16. Ordinary income increased 1.4% to 95.54, aided by net non-operating gains of 9.38, including 1.02 in interest income. Net income declined 10.7% to 59.03, with an effective tax rate of 38.4% weighing on bottom-line performance. Gross margin printed at 27.8%, while the operating margin was 2.6% and net margin 1.8%, both below industry comfort thresholds. Operating margin compressed slightly by about 3 bps year over year (2.57% vs ~2.60%), and net margin compressed by roughly 27 bps (~1.76% vs ~2.03%). SG&A intensity is high at 33.6% of sales, consistent with a labor- and rent-intensive general merchandise/grocery format, leaving limited operating leverage. Liquidity is a key concern: the current ratio is 0.70 and quick ratio 0.46, with negative working capital of -265.57, though this is partly structural for retail. Short-term debt is 92.80, but cash and deposits of 217.48 provide 2.34x coverage of ST loans, somewhat mitigating refinancing risk. Leverage is conservative on a capital basis (Debt/Capital 9.0%, interest coverage 102.6x), but ROE is a low 3.1% given thin margins and modest asset turnover. ROIC is flagged at 2.8%, indicating subpar capital efficiency relative to a 5% warning threshold. Dividend policy appears balanced with a calculated payout ratio around 55%, within a sustainable range absent cash flow stress, but OCF data is unreported, limiting quality-of-earnings assessment. Forward-looking, margin defense through mix, shrink control, and SG&A discipline is crucial as wage and utility inflation persist; earnings stability depends on maintaining traffic and controlling markdowns in a competitive environment.

Profitability Analysis

ROE decomposition (DuPont 3-factor): Net Profit Margin 1.8% × Asset Turnover 1.091 × Financial Leverage 1.60x = ROE 3.1% (matches reported). The largest drag on ROE remains the low net margin (below 3%), rather than leverage or asset turnover. DuPont 5-factor shows a tax burden of 0.609 (heavy tax load), an interest burden above 1.0 (1.125) reflecting positive non-operating income offsetting financing costs, and an EBIT margin of 2.6%. Year over year, operating income rose 1.8% on about 3.0% revenue growth, implying slight operating margin compression (~3 bps), while net income fell 10.7% as a higher effective tax rate and lower non-operating support likely pressured the bottom line. Business drivers: SG&A at 33.6% of sales remains the key headwind; wage inflation and utilities likely offset any procurement or mix benefits. Sustainability: modest operating profit improvement is plausible if SG&A growth is contained below sales growth, but net margin recovery requires either tax normalization (tax burden closer to >0.70) or better merchandise margin. Concerning trend: SG&A intensity is elevated and appears to be growing at or above sales growth, constraining operating leverage.

Growth Assessment

Top-line grew roughly 3.0% YoY to 3,358.74, consistent with steady store traffic or pricing but we lack same-store sales granularity. Operating profit growth of 1.8% lagged revenue growth, highlighting cost pressure. Net income declined 10.7% due to tax burden (38.4% effective rate) and a thinner net margin (1.8%). Mix insights are limited given absent SG&A line breakdowns and gross margin bridges. Sustainability: retail demand in core daily goods is stable, but maintaining growth requires tight inventory and markdown management and selective price/mix strategies. Outlook: expect continued pressure on labor and energy costs; any easing in utilities or improved private-brand mix could support gross margin. Non-operating income (net +9.38) added to ordinary income; this support may be volatile and should not be assumed to persist.

Financial Health

Liquidity is weak: current ratio 0.70 and quick ratio 0.46 are below healthy thresholds, and working capital is -265.57. This is partly structural for retailers with high accounts payable financing (AP 354.51 vs inventory 211.10 and AR 133.47), but it does elevate refinancing and supplier-payment timing risk. Solvency is solid: Debt/Capital is 9.0%, interest-bearing debt 190.61 vs equity 1,920.90 implies conservative leverage, and interest coverage is very strong at 102.6x. Debt-to-Equity (reported) at 0.60x suggests a broader liabilities view; nevertheless, cash of 217.48 covers short-term loans 2.34x. Maturity mismatch: current liabilities 888.99 exceed current assets 623.42, so inventory seasonality or sales softness could pressure liquidity. No off-balance sheet obligations were reported; lease commitments are likely material for a retailer but unreported here.

Cash Flow Quality

OCF is unreported, so OCF/Net Income and free cash flow coverage cannot be assessed. This limits conclusions on earnings quality, accruals, and cash conversion. With net margin at 1.8% and SG&A intensity high, cash generation is likely sensitive to working capital swings (inventory and payables). No signs of working capital manipulation can be inferred from the limited data; AP financing appears typical for retail. Dividend and capex sustainability cannot be assessed without OCF and capex data.

Dividend Sustainability

Declared DPS totals 63 JPY (interim 30, year-end 33). The calculated payout ratio is about 55%, broadly corroborated by EPS 118.58 implying a per-share payout ratio near 53%. This is within the <60% benchmark for sustainability. However, absent OCF and capex data, FCF coverage cannot be confirmed. Balance sheet leverage is conservative, which supports continuity of dividends, but low ROIC (2.8%) and thin margins limit upward flexibility in shareholder returns without operational improvements.

Risk Assessment

Business Risks:

• Thin operating margin of 2.6% leaves limited buffer against cost shocks.
• SG&A intensity at 33.6% suggests ongoing wage and utility cost pressure.
• Potential markdown and shrink risk in a competitive retail environment.
• Tax burden high (0.609), depressing net profitability.
• Execution risk in inventory management given seasonal fluctuations.

Financial Risks:

• Low liquidity: current ratio 0.70 and quick ratio 0.46.
• Refinancing risk with 48.7% short-term debt ratio, despite cash covering ST loans 2.34x.
• Negative working capital (-265.57) heightens reliance on supplier credit.
• ROIC at 2.8% below 5% threshold indicates weak capital efficiency.

Key Concerns:

• Net margin compressed ~27 bps YoY to 1.8%, driving a 10.7% NI decline.
• Dependence on non-operating income to bolster ordinary income (net +9.38).
• Data limitations: OCF/FCF, capex, and detailed SG&A/gross margin drivers are unreported, obscuring cash earnings quality and reinvestment needs.
• Retail-industry specific: consumer demand sensitivity to price levels and competitive pricing by peers; potential e-commerce share gains pressuring store traffic.

Investment Implications

Key Takeaways:

• Top-line growth of about 3% with flat-to-slightly compressed operating margin indicates limited operating leverage.
• Net income decline reflects heavy tax burden and thin net margin; ROE at 3.1% is below cost-of-equity norms.
• Liquidity is the standout weakness (current ratio 0.70), though typical retail negative working capital partially explains it.
• Capital structure is conservative (Debt/Capital 9%, interest coverage 102.6x), containing solvency risk.
• ROIC at 2.8% signals a need for mix upgrades, cost productivity, or asset optimization.

Metrics to Watch:

• Same-store sales growth and traffic vs ticket size (not disclosed).
• Gross margin bridge (procurement, mix, shrink, markdowns).
• SG&A growth vs revenue growth; labor and utilities as % of sales.
• OCF/Net income and FCF after maintenance capex for dividend coverage.
• Effective tax rate normalization and stability of non-operating income.
• Inventory turnover and days payable outstanding to monitor working capital stress.

Relative Positioning: Within Japan’s general merchandise/food retail space, Heiwado exhibits conservative leverage and strong interest coverage but operates with thinner margins and lower ROIC than best-in-class peers; liquidity is weaker than average due to structurally negative working capital and a relatively high short-term debt share.

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
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