K'S HOLDINGS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥376.66B
• Operating Income: ¥13.03B
• Net Income: ¥10.50B
• EPS: ¥66.15

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 solid Q2 with modest top-line growth translating into outsized profit gains, supported by margin expansion and strong cash generation. Revenue rose 1.4% YoY to 3,766.6, while operating income increased 9.9% YoY to 130.3 and net income grew 18.3% YoY to 105.0. Operating margin improved to 3.46%, up an estimated 27 bps from approximately 3.19% a year ago, as operating income growth outpaced revenue. Net margin expanded to 2.79%, up roughly 40 bps from an estimated 2.39% in the prior year, aided by positive non-operating contributions. Gross profit of 1,043.9 implies a gross margin of 27.7%, consistent with a disciplined pricing/mix environment in a competitive CE retail market. SG&A was 913.6 (24.25% of sales), indicating improved operating leverage versus sales growth. Ordinary income increased 6.1% to 145.7, with net non-operating income of about 15.5 supporting bottom-line growth. Cash generation was strong: operating CF reached 235.5, equating to 2.24x net income, signaling high earnings quality. With capex of 48.1, implied free cash flow approximates 187.4, comfortably funding both dividends (implied ~77–78 based on a 73.3% payout ratio on NI) and share buybacks (80.3). The balance sheet remains conservative: current ratio 221%, interest coverage 31.7x, and equity ratio (calculated) around 61%, with long-term loans of 400 and short-term loans of 23. ROE stands at 4.2% via DuPont (NPM 2.8%, AT 0.92x, leverage 1.64x) — adequate but still below retail peers’ mid-cycle targets. ROIC at 3.3% is below the 5% warning threshold, highlighting a capital efficiency challenge despite sound liquidity. The quarter’s beat on profitability was driven primarily by cost discipline and non-operating tailwinds rather than strong top-line momentum. Forward-looking, the company appears well-positioned for year-end seasonal demand, but sustaining profit growth will require continued gross margin defense and SG&A control amid price competition and FX-driven procurement pressures. Overall, quality of earnings is high this quarter, but structurally low ROIC and thin margins keep medium-term returns constrained.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 2.8% × 0.920 × 1.64 ≈ 4.2%. The largest positive change driver this quarter was Net Profit Margin, inferred from net income growth (+18.3% YoY) outpacing revenue (+1.4% YoY), lifting net margin by roughly 40 bps to 2.79%. Operating margin also expanded (estimated +27 bps to 3.46%) as SG&A discipline delivered operating leverage. Asset turnover at 0.92x reflects a mid-year balance sheet and a large equity base; without inventory disclosure, further granularity on turns is limited. Financial leverage at 1.64x remains modest, suggesting returns depend primarily on margin management and turnover, not leverage. Business drivers: better cost control (SG&A at 24.25% of sales), stable gross margin, and net non-operating income (+15.5) supported the bottom line. Sustainability: SG&A efficiency gains can be sticky if tied to store productivity and process improvements; however, the non-operating tailwind may normalize. Watch for SG&A growth outpacing revenue — currently, revenue growth (1.4%) is low, so any re-acceleration in personnel or store costs could compress margins. Concerning trends: ROIC at 3.3% flags capital efficiency pressure despite healthy profitability momentum; thin operating margin keeps earnings sensitive to demand or pricing shocks.

Growth Assessment

Top-line growth was modest at +1.4% YoY to 3,766.6, consistent with a stable but competitive consumer electronics market. Profit growth significantly outpaced sales: operating income +9.9% and net income +18.3%, indicating effective cost control and small non-operating support. Operating margin improved to 3.46% and net margin to 2.79%, highlighting positive operating leverage. Recurrence vs one-off: non-operating income of 23.9 and low non-operating expenses (8.45) contributed, but these may fluctuate; the core operating uplift appears primarily from SG&A ratio improvement. With EBITDA of 196.5 (5.2% margin), the company retains some buffer against input cost volatility, but the margin structure remains thin. Outlook: year-end seasonal demand and potential energy-efficient appliance demand could support H2, but price competition, FX-driven procurement costs, and consumer sentiment are key variables. Sustaining growth will require stable gross margin, continued SG&A discipline, and store productivity gains. Absent stronger revenue acceleration, profit growth is likely to converge toward low-to-mid single digits unless further efficiency gains are realized.

Financial Health

Liquidity is strong: current ratio 221% and quick ratio 221% (inventory unreported), with working capital of 1,172.8. No warning on current ratio (<1.0) or D/E (>2.0); reported D/E is 0.64x, indicating conservative leverage. Calculated equity ratio is approximately 61.1% (2,503.5/4,095.3), underscoring balance sheet strength. Interest coverage is robust at 31.7x, and interest expense is modest at 4.11. Maturity profile appears manageable: short-term loans are 23.0 vs current assets of 2,140.8, and long-term loans are 400.0, limiting refinancing risk. Accounts payable stands at 398.1, supporting vendor financing; with inventories unreported, precise liquidity buffer from inventory is unknown. No off-balance sheet obligations were disclosed in the provided data. Overall solvency and liquidity are ample with low maturity mismatch risk.

Cash Flow Quality

Earnings quality is high: OCF/NI is 2.24x (235.5/105.0), well above the 0.8 threshold, indicating robust cash conversion. Free cash flow, approximated as OCF minus capex, is ~187.4, comfortably positive despite shareholder returns (buybacks 80.3) and an implied dividend outflow of ~77–78 (based on 73.3% payout on NI). Working capital dynamics cannot be fully assessed as inventories are unreported; AR is 234.0 and AP is 398.1, suggesting vendor credit support typical for the sector. No signs of working capital manipulation are evident from the limited data, given strong OCF relative to NI. Financing CF of -184.6 reflects active capital returns and debt service within cash flow capacity. Overall, cash flow quality and coverage are strong this quarter.

Dividend Sustainability

The calculated payout ratio is 73.3%, above the <60% benchmark and thus on the higher side. However, implied FCF (~187.4) covers both the estimated dividend (~77–78) and buybacks (80.3), indicating near-term sustainability. Balance sheet strength (equity ratio ~61%, low net financial costs) provides additional buffer. Medium-term sustainability will depend on maintaining OCF at or above current levels and disciplined capex; structurally low ROIC (3.3%) argues for a prudent stance on incremental distributions unless profitability improves. Policy outlook: if management prioritizes stable dividends, current coverage is adequate, but scope for further hikes may be limited without better ROIC or stronger sales growth.

Risk Assessment

Business Risks:

• Thin operating margin (3.46%) leaves earnings sensitive to pricing and demand swings
• Intense price competition in consumer electronics retail impacting gross margin
• FX-driven procurement cost volatility affecting product costs and pricing
• Inventory obsolescence risk for fast-cycle CE categories (timing, new model launches)
• Seasonality risk around year-end and promotional periods
• Labor and energy cost inflation pressuring SG&A

Financial Risks:

• Low ROIC at 3.3% (<5% threshold) indicating capital efficiency challenges
• High payout ratio (73.3%) reducing flexibility if cash flows soften
• Reliance on non-operating income (net +15.5) which may not be recurring
• Potential working capital swings (inventory levels unreported) could affect OCF

Key Concerns:

• Sustaining SG&A discipline with modest revenue growth (+1.4% YoY)
• Maintaining gross margin at 27.7% amid promotional activity
• Execution risk on store productivity and format optimization
• Data gaps (inventories, full investing CF, dividend cash out) limit visibility

Investment Implications

Key Takeaways:

• Profit outperformance vs sales: OI +9.9% on revenue +1.4% with ~27 bps operating margin expansion
• High-quality earnings: OCF/NI 2.24x and implied FCF ~187.4
• Balance sheet remains conservative: current ratio 221%, interest coverage 31.7x, equity ratio ~61%
• Capital efficiency remains the weak spot: ROE 4.2%, ROIC 3.3%
• Shareholder returns are well-covered near term (dividends + buybacks ≈ 158 vs FCF ~187)

Metrics to Watch:

• Same-store sales and ticket size/mix trends
• Gross margin trajectory and vendor rebate dynamics
• SG&A ratio and personnel cost growth vs sales
• Inventory days and markdowns (when disclosed)
• OCF/NI and free cash flow after capex
• ROIC progression and capital allocation (store openings/closures, buybacks)
• FX impact on procurement costs and pricing power

Relative Positioning: Versus domestic CE retail peers, the company exhibits superior liquidity and cash conversion with comparable thin margins; however, ROIC and ROE are on the low side, suggesting a focus on efficiency and capital discipline remains critical.

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