COACH A Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.56B
• Operating Income: ¥142M
• Net Income: ¥75M
• EPS: ¥25.35

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: Solid operating execution with margin expansion despite a revenue dip, but bottom-line was pressured by higher non-operating costs and an elevated tax rate. Revenue declined 5.8% YoY to 25.62, yet operating income rose 7.2% YoY to 1.42, evidencing cost discipline and better operating efficiency. Gross profit was 13.04, yielding a gross margin of 50.9%, which is healthy for a human capital/coaching services model. Operating margin improved to 5.5% (1.42/25.62), up roughly 67 bps from an implied 4.9% a year ago. Ordinary income fell 7.3% YoY to 1.29, reflecting a swing to net non-operating expenses (0.07 income vs 0.19 expenses). Profit before tax was 1.40, suggesting some below-ordinary items supported PBT relative to ordinary income. Net income declined 19.9% YoY to 0.59, primarily due to a high effective tax rate of 46.7%. EPS came in at 25.35 JPY on average shares of 2.354 million. DuPont-calculated ROE is 1.9%, driven by a slim net margin (2.3%), low asset turnover (0.554x), and modest leverage (1.49x). Liquidity is strong: current ratio 259%, quick ratio 259%, with cash and deposits of 35.62 comprising the bulk of current assets. Leverage is conservative with D/E of 0.49x, and interest-bearing debt was not disclosed, implying low financial risk. Working capital is ample at 23.61, indicating low near-term refinancing or maturity mismatch risk. Dividend payout ratio is indicated at 80.2%, which is high relative to earnings and could constrain reinvestment if maintained, though cash reserves cushion near-term payouts. Cash flow data are unreported, preventing validation of earnings quality via OCF; this is a key data gap. Forward-looking, sustaining operating margin gains while stabilizing revenue and normalizing the tax rate would be the most impactful levers for ROE uplift. Overall, quality of operating performance improved, but net profit compression and limited cash flow visibility temper the outlook.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 2.3% × 0.554 × 1.49 ≈ 1.9%. The most notable component change this quarter versus last year appears to be margin improvement: operating income grew 7.2% despite a 5.8% revenue decline, implying operating margin expansion of about 67 bps (from ~4.9% to ~5.5%). Asset turnover likely weakened modestly due to lower revenue and a large cash balance inflating assets, which mechanically drags ATO. Financial leverage remains modest at 1.49x, consistent with a cash-rich, low-debt structure. Business drivers: tighter SG&A control relative to revenue, improved utilization/pricing in coaching services, and a stable gross margin supported the operating margin lift; however, higher non-operating expenses and an elevated tax rate diluted net margin. Sustainability: operating margin gains from efficiency are partly sustainable if utilization and pricing discipline hold, but non-operating cost normalization and tax rate management are needed to translate operating gains into ROE. Concerning trends: revenue contraction (-5.8% YoY) alongside higher non-operating expenses pushed ordinary income down (-7.3%), and the effective tax rate at 46.7% significantly compressed net margin; without revenue stabilization, operating leverage may reverse.

Growth Assessment

Top-line declined 5.8% YoY to 25.62, signaling softer demand or timing shifts in enterprise coaching engagements. Operating income growth (+7.2% YoY) indicates execution-led gains (mix, utilization, cost control) rather than volume growth. Ordinary income fell (-7.3% YoY) on increased non-operating expenses, showing that below-the-line items offset operating improvements. Net income dropped 19.9% YoY to 0.59 due to a high tax burden, highlighting sensitivity of net profit to tax rate swings. With a gross margin of 50.9% and operating margin of 5.5%, the business can scale profitably if revenue stabilizes; however, current ATO of 0.554x and low ROE (1.9%) suggest underutilized assets, largely cash. Outlook hinges on booking momentum, enterprise client retention, and tax normalization; absent revenue reacceleration, further margin gains may be harder to harvest. One-time factors are not explicitly disclosed; the increase from ordinary income to PBT suggests some non-recurring items may have supported PBT this quarter.

Financial Health

Liquidity is strong: current assets 38.45 vs current liabilities 14.83 yields a current ratio of 259.2% and quick ratio of 258.8%. No warning: current ratio is well above 1.0. Solvency is conservative: total liabilities 15.23 vs equity 31.03 gives a D/E of 0.49x, well below the 2.0 warning threshold. Cash and deposits of 35.62 far exceed current liabilities, minimizing maturity mismatch risk; near-term obligations (accounts payable 0.88) are small relative to cash. Interest-bearing debt is unreported, suggesting limited financial leverage; interest coverage cannot be assessed due to missing interest expense, but overall risk appears low. Noncurrent liabilities are minimal at 0.39, and balance sheet is dominated by cash and intangibles (intangible assets 4.75). No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; this is a key limitation for earnings quality analysis. Free cash flow is also unreported, preventing validation of dividend coverage by FCF. Working capital appears ample (23.61), and receivables are modest (1.36) relative to revenue scale, reducing concern about aggressive revenue recognition; however, without OCF we cannot rule out working capital-driven earnings. No signs of working capital manipulation are evident from the limited balance sheet snapshot, but cash flow disclosure will be necessary to confirm quality.

Dividend Sustainability

The calculated payout ratio is 80.2%, which is high versus the <60% benchmark for sustainability. With FCF unreported, we cannot confirm coverage; near-term dividends are likely supportable by the sizable cash balance (35.62), but sustained high payouts could constrain reinvestment and limit balance sheet optionality if earnings remain subdued. Policy outlook likely prioritizes stable dividends, but management may need to balance payout with growth investments to lift ROE and ROIC. Monitoring FCF and tax normalization is essential for assessing ongoing coverage.

Risk Assessment

Business Risks:

• Revenue contraction (-5.8% YoY) indicating demand softness or timing slippage in enterprise engagements
• Utilization risk for coaches and potential pricing pressure in a competitive HR development market
• Client concentration risk typical for B2B enterprise services (not disclosed but common for the segment)
• Execution risk in scaling services while preserving margin (maintaining 50%+ gross margin)
• Intangible asset impairment risk (intangible assets 4.75) if growth underperforms

Financial Risks:

• High effective tax rate (46.7%) compresses net margin and ROE
• Negative swing in non-operating items (net expense) reduced ordinary income
• Low ROE (1.9%) and flagged ROIC (-16.5%) indicate weak capital efficiency
• Cash concentration risk (large idle cash lowers asset turnover and returns)

Key Concerns:

• Ordinary income down 7.3% YoY despite operating income growth, due to non-operating expenses
• Net income down 19.9% YoY; earnings sensitive to tax rate and below-the-line items
• Limited cash flow disclosure (OCF/FCF unreported) hinders validation of earnings quality and dividend coverage
• Revenue decline could cap further operating margin expansion

Investment Implications

Key Takeaways:

• Operational execution improved: operating margin expanded ~67 bps despite a 5.8% revenue decline
• Bottom-line pressure stems from elevated tax rate (46.7%) and higher non-operating expenses
• Balance sheet is very liquid (current ratio 259%) with conservative leverage (D/E 0.49x)
• ROE remains low at 1.9% due to a thin net margin and low asset turnover
• Dividend payout ratio at 80.2% looks high versus earnings; cash provides near-term buffer but sustainability depends on FCF

Metrics to Watch:

• Order intake/backlog and revenue trajectory into FY2025 Q4
• Operating margin and SG&A efficiency versus revenue trend
• Effective tax rate normalization and drivers
• Operating cash flow and free cash flow to confirm earnings quality
• Asset turnover improvement (cash deployment, working capital efficiency)

Relative Positioning: Within domestic human capital and corporate training peers, Coach-A exhibits healthy gross margins and a very strong liquidity profile, but trails on capital efficiency (low ROE/flagged ROIC) and currently faces top-line softness; improving utilization and stabilizing demand, alongside tax rate normalization, would be needed to move closer to best-in-class returns.

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