AB&Company Co.,Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥19.38B
• Operating Income: ¥1.63B
• Net Income: ¥893M
• EPS: ¥62.91

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: Solid topline growth with margin compression and resilient cash generation; leverage remains elevated and tax burden high. Revenue rose 6.6% YoY to 193.78, while operating income declined 6.3% YoY to 16.30, implying negative operating leverage. Gross profit was 91.54, yielding a gross margin of 47.2%, broadly stable by our read. Operating margin compressed to 8.4% (16.30/193.78) from an estimated 9.6% last year, a decline of roughly 116 bps. Net income fell 17.0% YoY to 8.93, driving net margin down to 4.6% from an estimated 5.9% last year, compressing by about 131 bps. Profit before tax of 14.89 was below operating income by 1.41, indicating net non-operating costs (likely interest and other items). The effective tax rate was elevated at roughly 40.0%, further depressing bottom-line conversion. Cash flow quality was strong: operating cash flow reached 28.79, which is 3.22x net income, supported by sizable non-cash D&A (23.30). Free cash flow was robust at 16.35, easily covering dividends (FCF coverage 3.82x). Leverage remains a watchpoint: liabilities-to-equity (reported D/E) is 2.01x, and asset-to-equity (financial leverage in DuPont) is 3.01x. Liquidity snapshot shows current assets of 43.70 versus known short-term loans of 21.38 and accounts payable of 11.69, which appears manageable, though full current liabilities were not disclosed. EBITDA was 39.60 (20.4% margin), providing a cushion against fixed charges, but interest coverage cannot be calculated due to missing interest expense details. Book value per share is about 631 JPY, and calculated ROE is 9.9% based on DuPont inputs, versus an anomalous 0.1% reported ROE in XBRL. Overall, the quarter reflects healthy cash generation and controlled capex but a need to address SG&A efficiency, financing costs, and tax rate to restore margin trajectory. Going forward, the company has capacity to fund dividends and modest investment from internal cash while managing elevated leverage.

Profitability Analysis

DuPont decomposition (FY2025): ROE ≈ Net Profit Margin (4.6%) × Asset Turnover (0.716x) × Financial Leverage (3.01x) = ~9.9%. The largest driver of YoY change appears to be Net Profit Margin, which compressed by ~131 bps (from ~5.9% to 4.6%) as operating margin fell ~116 bps (from ~9.6% to 8.4%). Business rationale: revenue grew 6.6% but operating income declined 6.3%, implying SG&A deleverage; the gross margin held at ~47%, so higher SG&A (or other operating costs) relative to sales likely drove the margin squeeze. Non-operating headwinds (net -1.41 vs operating income) and a high effective tax rate (~40%) further weighed on net margin. Asset turnover at 0.716x is consistent with a salon/platform model with sizable non-current assets; we lack prior-year assets, but turnover likely did not improve materially given modest growth. Sustainability: the gross margin looks stable; if SG&A growth can be realigned to sales and non-operating costs optimized, some operating margin recovery is feasible. However, the high tax rate and financing costs may persist absent structural changes. Flag: SG&A growth likely exceeded revenue growth (inferred from operating deleverage), a negative trend that should be monitored.

Growth Assessment

Topline expanded 6.6% YoY to 193.78, indicating steady demand or network expansion. Operating income decreased 6.3% YoY to 16.30, reflecting negative operating leverage as costs outpaced sales. Net income declined 17.0% to 8.93 due to margin compression and a high ~40% tax rate. EBITDA of 39.60 (20.4% margin) remains healthy, suggesting the core unit economics are intact, but overhead and/or other operating costs pressured EBIT. With D&A at 23.30 exceeding capex (4.07), the asset base may include amortizing intangibles; this can support cash flow but not necessarily earnings growth. Outlook: revenue growth appears sustainable near-term if store count, stylist supply, and utilization continue to expand, but profitability hinges on SG&A discipline, optimizing financing costs, and tax planning. Near-term growth quality is mixed—cash conversion is strong, but earnings growth is constrained by cost structure and a high effective tax burden.

Financial Health

Total assets were 270.77 and equity 89.97, implying financial leverage (A/E) of 3.01x. Reported D/E of 2.01x (liabilities-to-equity basis) triggers a high leverage warning (>2.0). Interest-bearing debt disclosed totals 79.77 (21.38 short-term, 58.39 long-term). Liquidity: current assets are 43.70; current liabilities are not fully disclosed, so the current ratio is not calculable. Known near-term obligations include short-term loans of 21.38 and accounts payable of 11.69 (sum 33.07), which are largely covered by current assets, though the absence of full current liability disclosure limits certainty. Maturity mismatch risk: some risk exists given meaningful short-term loans (21.38) relative to cash and deposits (not disclosed) and total current assets; refinancing ability and cash on hand (cash & equivalents 22.63) mitigate this partially. No explicit off-balance sheet obligations were reported in the provided data (e.g., leases not detailed), so this remains a data limitation.

Cash Flow Quality

OCF was 28.79 vs net income of 8.93, yielding an OCF/NI of 3.22x, indicating high-quality earnings backed by cash. D&A of 23.30 explains much of the add-back, consistent with EBITDA of 39.60 and OCF of 28.79; working capital appears broadly neutral to modestly negative based on these aggregates. Free cash flow was 16.35, comfortably funding dividends (3.97) with FCF coverage of 3.82x. Capex of 4.07 is well below D&A, implying limited reinvestment needs or a period of digestion after prior investments; sustainability depends on maintenance needs and growth capex for network expansion. No signs of working capital manipulation are evident from the limited data (e.g., OCF comfortably exceeds NI, and there is no divergence suggesting aggressive revenue recognition), but detailed receivable/inventory turns were not provided.

Dividend Sustainability

Calculated payout ratio is 47.9%, within a generally sustainable range (<60%). FCF coverage is strong at 3.82x, indicating the dividend is well supported by internally generated cash after capex. Cash & equivalents of 22.63 also provide a buffer. Leverage is elevated on a liabilities-to-equity basis (2.01x), so maintaining prudent distributions while deleveraging would be sensible. DPS figures were not disclosed, and total dividends paid in the period were 3.97, aligning with a payout below 50%. Policy outlook: stable to modestly progressive dividends appear feasible if OCF remains strong and capex stays disciplined; unexpected expansions or acquisitions could alter coverage.

Risk Assessment

Business Risks:

• Operating deleverage as SG&A grows faster than revenue, compressing margins
• Talent supply and retention (e.g., stylists/technicians) impacting capacity and service quality
• Store network productivity risk (utilization, same-store performance, tenant terms)
• Brand and customer experience risk in a competitive beauty/salon market
• Regulatory/labor law changes affecting contractor models, working hours, or social insurance

Financial Risks:

• High leverage on a liabilities-to-equity basis (2.01x), raising refinancing sensitivity
• Exposure to interest rate/credit spread increases; interest coverage not disclosed
• Maturity concentration with short-term loans of 21.38 vs current assets of 43.70
• High effective tax rate (~40%) suppressing net income and cash available for deleveraging
• Partial disclosure of current liabilities and interest expense complicates liquidity assessment

Key Concerns:

• Margin compression: operating margin down ~116 bps and net margin down ~131 bps YoY
• Non-operating headwinds (PBT below operating income by 1.41), likely interest drag
• Data gaps (non-operating breakdown, cash and deposits detail, current liabilities) limit visibility

Investment Implications

Key Takeaways:

• Topline up 6.6% but negative operating leverage reduced profitability
• Strong cash conversion (OCF/NI 3.22x) and FCF (16.35) provide flexibility
• Leverage elevated (L/E 2.01x); focus on deleveraging or refinancing terms
• Tax burden high (~40%), a lever for potential EPS improvement if optimized
• Capex modest vs D&A, supporting near-term FCF but watch for future growth capex needs

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• OCF/NI and working capital movements
• Interest expense and interest coverage
• Short-term debt levels and refinancing activities
• Effective tax rate and any tax policy changes
• Store count, stylist headcount/supply, and same-store sales/occupancy

Relative Positioning: Within Japan’s salon/platform operators, the company exhibits above-average cash conversion and controlled capex but weaker recent operating leverage and higher reported leverage; execution on SG&A efficiency and balance sheet optimization will be key to closing the profitability 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