Wagokoro co.,ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.02B
• Operating Income: ¥449M
• Net Income: ¥319M
• EPS: ¥72.68

Income Statement

Balance Sheet

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 strong Q3 with double-digit top-line growth and outsized profit expansion, but quality indicators are hard to validate due to missing cash flow data and unusual below-the-line movements. Revenue rose 27.5% YoY to 20.23, while operating income grew 41.4% YoY to 4.49, indicating clear operating leverage. Ordinary income increased 50.3% YoY to 4.53, outpacing operating profit growth and signaling support from non-operating items despite some non-operating expenses. Net income climbed 47.2% YoY to 4.66, resulting in a high net margin of 23.0%. Operating margin stands at approximately 22.2% (4.49/20.23). Using derived prior-year figures, operating margin appears to have expanded by about 230 bps YoY (from ~19.9% to ~22.2%). Net margin similarly expanded by roughly 300 bps YoY (from ~20.0% to 23.0%) given profit growth outpaced sales. Gross margin is a robust 53.0%, highlighting improved mix and/or pricing versus cost of sales at 5.15. Liquidity is strong: current ratio 219%, quick ratio 219%, and working capital of 5.42. Leverage is conservative with D/E at 0.61x and very strong interest coverage at 92.18x. However, earnings quality cannot be validated because operating cash flow is unreported; this is a key limitation. There are also unusual below-the-line dynamics: profit before tax (3.34) trails ordinary income (4.53), implying extraordinary items, yet net income (4.66) exceeds PBT due to a very low effective tax rate (4.6%) and/or post-tax adjustments. Equity quality is skewed toward paid-in capital (capital surplus 9.67) while retained earnings remain slightly negative (-0.18), which may constrain dividend policy flexibility. ROE is very high at 45.4%, primarily driven by elevated net margin and moderate leverage, and ROIC of 51.8% indicates excellent capital efficiency this period. Forward-looking, sustaining these margins will hinge on core demand durability, normalization of the tax rate, and the absence of adverse extraordinary items. Given missing cash flow disclosures and unreported inventory data, monitoring working capital discipline and OCF conversion is essential into Q4.

Profitability Analysis

ROE decomposition: ROE (45.4%) = Net Profit Margin (23.0%) × Asset Turnover (1.227) × Financial Leverage (1.61x). The largest contribution and change driver is the Net Profit Margin, which rose as net income grew +47.2% vs revenue +27.5%, implying margin expansion of roughly 300 bps YoY (from ~20.0% to 23.0%). Business drivers likely include improved gross spread (current GM 53.0%), operating leverage from SG&A (7.55) growing slower than revenue implied by margin expansion, and supportive non-operating balance despite some expenses. The step-down from ordinary income (4.53) to profit before tax (3.34) suggests extraordinary items; the subsequent step-up to net income (4.66) with a 4.6% effective tax rate indicates tax credits/benefits or one-off adjustments, amplifying NPM. Sustainability: gross margin and operating leverage gains can be partly sustainable if mix/pricing and cost control persist; however, the unusually low tax rate and extraordinary items are unlikely to be recurring at the same magnitude. Watch for SG&A growth vs revenue in Q4; current period signals positive operating leverage, but any acceleration of store costs or personnel could reverse margin gains. Asset turnover at 1.227 is healthy for a specialty retailer; without inventory data, we cannot confirm whether higher turnover reflects lean inventory or timing. Leverage at 1.61x supports ROE without implying excessive balance sheet risk. Flags: lack of OCF data to corroborate earnings quality; potential reliance on one-offs (extraordinary/tax effects) to lift NPM; and any future SG&A growth outpacing revenue could compress margins.

Growth Assessment

Revenue growth of +27.5% YoY to 20.23 indicates strong demand or footprint expansion. Operating income grew +41.4% to 4.49, showing operating leverage and better cost absorption. Ordinary income +50.3% and net income +47.2% confirm profit outperformance relative to sales. Operating margin rose from an estimated ~19.9% to 22.2% (approx. +230 bps), and net margin from ~20.0% to 23.0% (approx. +300 bps). Growth quality: recurring operating improvement appears solid (GM 53.0%), but below-the-line volatility (ordinary-to-PBT step-down, low tax rate) contributed to elevated bottom line; hence headline NI growth likely exceeds core run-rate. Outlook: sustaining double-digit growth depends on consumer demand resilience and inbound/event-related spend, with potential normalization of taxes and fewer extraordinary items likely trimming NI margin toward operating margin. Near-term catalysts/risks include seasonality into year-end, store productivity, pricing power on core products, and any cost inflation in materials or rent.

Financial Health

Liquidity is strong: current ratio 219.4% and quick ratio 219.4% (inventory unreported). There is no warning on current ratio (<1.0) or debt metrics (D/E 0.61x well below 2.0). Cash and deposits of 5.72 comfortably exceed short-term loans of 2.13, mitigating near-term refinancing risk. Total current assets (9.96) cover current liabilities (4.54) by 2.2x, suggesting limited maturity mismatch. Long-term loans are 1.59, and overall leverage is modest relative to equity (10.27). Interest coverage is very strong at 92.18x, indicating ample capacity to service debt. No off-balance sheet obligations are disclosed in the data provided; absence of disclosure prevents full assessment of lease commitments or guarantees. Equity composition is skewed to paid-in capital (capital surplus 9.67) with retained earnings at -0.18; while not a solvency issue, it could influence dividend policy flexibility under corporate law if retained losses persist.

Cash Flow Quality

OCF is unreported, so we cannot compute OCF/Net Income or validate earnings conversion; this is a primary limitation. With strong profit growth and margin expansion, high-quality earnings would typically be evidenced by positive OCF > NI and stable working capital; however, inventory and payables data granularity is insufficient to assess. Free cash flow and capex are unreported, preventing evaluation of coverage for dividends or growth initiatives. No clear signs of working capital manipulation can be inferred from available data; accounts receivable (0.94) appear modest versus revenue scale, but without inventory and payables turnover, conclusions are limited. Action items: obtain cash flow statement to verify OCF/NI (>1.0 target), monitor inventory build vs sales trajectory, and assess capex needs for store expansion and IT.

Dividend Sustainability

Dividend information is unreported for FY2025 Q3. With retained earnings at -0.18 and equity largely from capital surplus (9.67), distributable amounts may be constrained under JGAAP/Companies Act unless dividends are sourced from capital surplus following requisite procedures. Without OCF and FCF data, payout coverage cannot be assessed. Given the strong profits this period but limited retained earnings, management may prioritize balance sheet reinforcement; any dividend resumption or increase would require confirming recurring OCF and visibility on extraordinary/tax normalization. Policy outlook: watch for year-end guidance on payout policy and any steps to restore retained earnings to positive territory.

Risk Assessment

Business Risks:

• Demand volatility in specialty apparel/traditional goods tied to seasonality and event cycles
• Dependence on store traffic and potential sensitivity to inbound tourism flows
• Pricing and mix risks affecting gross margin sustainability (current GM 53.0%)
• Execution risk on cost control as SG&A scales with growth

Financial Risks:

• Earnings quality uncertainty due to unreported operating cash flow
• Extraordinary item volatility evidenced by ordinary income to PBT gap
• Very low effective tax rate (4.6%) unlikely to be sustainable, posing downside to NI
• Small retained earnings balance (-0.18) limiting dividend flexibility
• Refinancing and interest rate risk on short-term loans (2.13), though currently cushioned by cash

Key Concerns:

• Mismatch between ordinary income (4.53), PBT (3.34), and NI (4.66) indicating non-recurring effects
• Lack of inventory disclosure limits assessment of working capital health and margin risk
• Absence of cash flow data prevents verification of FCF and payout capacity

Investment Implications

Key Takeaways:

• Strong Q3 with revenue +27.5% YoY and operating income +41.4% YoY shows clear operating leverage
• Operating margin expanded ~230 bps YoY to ~22.2%; net margin improved ~300 bps to 23.0%
• ROE of 45.4% and ROIC of 51.8% are excellent, primarily margin-driven with moderate leverage (1.61x)
• Liquidity and solvency are solid (CR 219%, D/E 0.61x, interest coverage 92x)
• Earnings quality unverified due to missing OCF; below-the-line items and low taxes boosted NI
• Equity quality leans on paid-in capital; retained earnings negative, potentially constraining dividends

Metrics to Watch:

• Operating cash flow to net income ratio (target >1.0)
• Effective tax rate normalization and its impact on net margin
• Extraordinary gains/losses and reconciliation from operating to net income
• SG&A growth vs revenue to gauge ongoing operating leverage
• Inventory and receivables turnover once disclosed
• Net debt trajectory (cash 5.72 vs ST loans 2.13, LT loans 1.59)

Relative Positioning: Versus small-cap specialty retail peers, the company exhibits stronger current-period margins and returns with conservative leverage and ample liquidity, but faces higher uncertainty on earnings quality (missing OCF) and dividend flexibility given negative retained earnings and notable below-the-line volatility.

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