REVOLUTION CO.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥34.57B
• Operating Income: ¥-4.15B
• Net Income: ¥-17.07B
• EPS: ¥-148.53

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 revenue-driven quarter failed to translate into profitability, culminating in a deep net loss and extreme leverage that materially heighten financial risk. Revenue surged to 345.7, up 521.1% YoY, but gross profit was only 8.6 and operating loss reached -41.5 as SG&A (50.11) overwhelmed a very thin gross margin. Gross margin was 2.5% (8.6/345.7), and operating margin was approximately -12.0% (-41.5/345.7), underscoring poor pricing and/or mix. Ordinary loss was -34.34, but profit before tax deteriorated sharply to -174.51, implying sizable extraordinary losses (~-140), likely non-cash (e.g., impairments) under JGAAP. Net loss came in at -172.32, with basic EPS at -148.53 yen, while diluted EPS showed 3.35 yen, an anomaly likely due to instrument definitions rather than economic profitability. Operating cash flow was modestly positive at 1.97 despite the large net loss, indicating a major NI–OCF divergence driven by non-cash charges. Free cash flow was -85.50, as investing outflows of -87.47 (including capex -1.43) were largely debt-funded by financing inflows of 80.15. The balance sheet is highly stressed: total equity is only 15.11 against liabilities of 452.91 (D/E 29.97x), with a goodwill-heavy asset base (goodwill 161.42) and inventories of 244.91. Liquidity is thin: current ratio is 103.4%, but the quick ratio is just 32.3% due to inventory concentration, widening refinancing and liquidity risk. Interest coverage is -12.13x, signaling inadequate earnings to service interest. Margins: YoY expansion/compression in basis points cannot be reliably quantified due to missing prior-period margin disclosures, but absolute margins are weak (gross 2.5%, operating -1,200 bps). Earnings quality is a concern: OCF/NI is -0.01x, driven by large non-cash extraordinary losses and an inventory-heavy working capital profile. Forward-looking, the company must improve sell-through at acceptable margins, reduce inventory, address goodwill impairment risk, and de-lever—potentially requiring equity measures—while managing short-term debt rollover.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-49.9%) × 0.739 × 30.97x ≈ -1,140.4%. The dominant driver of the extremely negative ROE is the net profit margin at -49.9%, amplified by very high financial leverage (30.97x), while asset turnover (0.739) is secondary. Business drivers: revenue surged, but gross margin was only 2.5%, and SG&A (50.11) exceeded gross profit (8.6), producing an operating margin of about -12.0%. Additionally, a large extraordinary loss (~-140 between ordinary and pretax) likely from non-cash items (e.g., impairment under JGAAP) further depressed net margin. Sustainability: the operating loss and thin gross margin reflect core profitability weakness and are not merely one-time; however, the extraordinary losses appear one-off and could normalize, partially improving net margin if operations stabilize. Concerning trends: cost structure rigidity is evident—SG&A magnitude relative to gross profit is unsustainably high; absent detailed SG&A breakdown, the risk of fixed-cost drag remains. Also, EBITDA was -40.57 (margin -11.7%), indicating negative operating leverage despite the revenue spike.

Growth Assessment

Top-line growth was strong (+521.1% YoY to 345.7), but quality is poor given a gross margin of only 2.5%, suggesting low-margin bulk sales and/or price discounts to move inventory. Operating profit did not benefit from scale; negative operating leverage persisted as SG&A (50.11) dwarfed gross profit (8.6). Ordinary loss (-34.34) turning into a much larger pretax loss (-174.51) implies growth was accompanied by balance-sheet clean-up or impairment, not sustainable earnings expansion. With inventories at 244.91, future revenue may be available, but margin recovery is the swing factor for sustainable growth. Outlook hinges on inventory monetization at improved margins, cost control, and avoidance of further extraordinary losses. Without evidence of pricing power or cost reductions, sustaining profitable growth is uncertain.

Financial Health

Liquidity: current ratio 103.4% is barely above 1.0, while the quick ratio of 32.3% indicates reliance on inventory to meet short-term obligations—an elevated liquidity risk. Explicit warning: D/E of 29.97x (>2.0) indicates extreme leverage; solvency risk is high. Capital structure: equity is thin at 15.11 versus liabilities of 452.91, amplifying sensitivity to further losses or impairments; book value per share is low (calculated 12.95 yen; XBRL 9.92 yen). Maturity mismatch: current assets 356.32 versus current liabilities 344.53 provides limited cushion; with short-term loans at 29.80 and a large portion of assets in inventories, refinancing and rollover risk are material. Noncurrent liabilities are 108.38, but long-term loans reported are only 0.09, suggesting dependence on short-term funding. Off-balance sheet obligations: none disclosed in the provided data.

Cash Flow Quality

OCF was 1.97 against net income of -172.32, yielding OCF/NI of -0.01x, a red flag for earnings quality and consistent with substantial non-cash extraordinary losses. Free cash flow was -85.50 due to heavy investing outflows (-87.47) relative to limited OCF, implying reliance on financing inflows (80.15) to fund investments. Working capital signs: revenue growth alongside low gross margins and large inventories suggests possible inventory-driven revenue recognition and discounting to move stock; with AR/AP unreported, detailed DSO/DPO analysis is not possible. There is no evidence of aggressive working capital release driving OCF; rather, OCF remains small and fragile versus debt service needs. Sustainability: without a turnaround in core profitability and inventory monetization, self-funded FCF for capex and obligations is not sustainable.

Dividend Sustainability

Dividends are unreported; given the deep net loss, negative operating profitability, and very high leverage, a cash dividend would not be sustainable from internal cash generation. Payout ratio cannot be calculated due to no dividend disclosure, but economic capacity to pay is constrained by negative earnings and negative FCF (-85.50). Policy outlook: priority is likely to preserve liquidity, reduce debt, and rebuild equity rather than distribute cash.

Risk Assessment

Business Risks:

• Margin risk: gross margin at 2.5% and operating margin at -12.0% indicate lack of pricing power and unfavorable mix.
• Execution risk in inventory monetization: inventories of 244.91 must be sold at acceptable margins to avoid further losses.
• Impairment risk: sizable goodwill (161.42) raises the risk of future write-downs under JGAAP if performance lags.
• Industry cycle risk: exposure to real estate/asset trading conditions (price volatility, transaction volumes, appraisal values).
• Cost structure rigidity: SG&A (50.11) overwhelms gross profit, limiting flexibility during downturns.

Financial Risks:

• Leverage/solvency risk: D/E 29.97x and thin equity (15.11) versus liabilities (452.91).
• Liquidity risk: quick ratio 32.3% and reliance on inventories to meet short-term obligations.
• Refinancing risk: significant current liabilities (344.53) and short-term loans (29.80) relative to cash (27.79).
• Interest coverage risk: -12.13x indicates inability to cover interest from operations.
• FCF deficit risk: FCF -85.50, funded by financing inflows (80.15), not internally generated cash.

Key Concerns:

• Large extraordinary losses (~-140) driving pretax loss suggest possible further clean-up items ahead.
• NI–OCF divergence (OCF/NI -0.01x) raises earnings quality concerns.
• Potential need for equity raising or asset disposals to restore balance sheet resilience.
• Sensitivity to asset valuations (inventories and goodwill) under a changing market environment.

Investment Implications

Key Takeaways:

• Revenue surged (+521.1% YoY), but profitability deteriorated with gross margin 2.5% and operating margin about -12.0%.
• Extraordinary losses (~-140) likely non-cash drove net loss (-172.32), distorting NI versus OCF.
• Balance sheet is highly leveraged (D/E 29.97x) with weak liquidity (quick ratio 32.3%).
• FCF is materially negative (-85.50) and funded by financing inflows (80.15), not operations.
• Inventory and goodwill levels (244.91 and 161.42) concentrate risk on asset valuations and impairment.

Metrics to Watch:

• Gross margin and operating margin (bps improvement needed for breakeven).
• Inventory turnover and inventory-to-sales ratio.
• OCF/Net income and working capital movements.
• Interest coverage and refinancing timelines for short-term debt.
• Equity ratio and any indications of capital measures or impairments.

Relative Positioning: Within TSE small-cap, the company appears weaker than peers on profitability, leverage, and liquidity, with elevated execution and refinancing risks offsetting top-line growth.

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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