KADOKAWA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥133.93B
• Operating Income: ¥5.55B
• Net Income: ¥4.65B
• EPS: ¥10.17

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

Kadokawa’s FY2026 Q2 consolidated results under JGAAP show a sharp profitability contraction amid relatively resilient top-line performance. Revenue declined modestly by 1.8% year over year to ¥133.9 billion, but operating income fell 47.8% to ¥5.55 billion, indicating meaningful margin compression. Gross profit of ¥50.3 billion implies a solid gross margin of 37.5%, yet the operating margin dropped to 4.1%, highlighting elevated operating costs and/or increased content amortization and selling expenses. Ordinary income was ¥6.78 billion, benefiting from non-operating items relative to operating income, while net income declined 51.8% to ¥1.49 billion, yielding a slim net margin of 1.11%. DuPont analysis points to a low calculated ROE of 0.54%, driven primarily by the weak net margin; asset turnover of 0.348 and financial leverage of 1.39 are stable but insufficient to offset margin pressure. EBITDA was ¥9.03 billion (6.7% margin), suggesting limited operating leverage in the period relative to the prior year. Liquidity appears strong with a current ratio of 232.8% and quick ratio of 203.1%, and working capital of ¥155.4 billion, indicating ample short-term coverage. The balance sheet remains conservative with total liabilities of ¥132.6 billion against equity of ¥276.4 billion (debt-to-equity 0.48x). Interest coverage is very high at 146x, reflecting low interest burden and adequate EBIT. Operating cash flow was negative at ¥-2.77 billion, materially below reported net income (OCF/NI = -1.85), implying earnings did not convert to cash in the half due to working capital usage or timing factors. Investing cash flow is unreported (presented as zero), and therefore free cash flow cannot be reliably computed; the presented FCF of zero should be treated as unreported rather than truly zero. Financing cash flow was an outflow of ¥-4.85 billion, likely reflecting debt service or other financing actions; dividend per share is reported as ¥0. The equity ratio is shown as 0.0% in the data feed, but this is unreported—based on the balance sheet, equity is ¥276.4 billion versus total assets of ¥384.5 billion, implying a healthy equity ratio in economic terms. Share-related items (outstanding shares, treasury shares, BVPS) are unreported; EPS is ¥10.17, so the payout ratio of 0% reflects a temporary suspension or deferral of dividends in this period. Overall, Kadokawa remains liquid and modestly levered, but faces near-term profitability and cash conversion headwinds. Sustained recovery will likely depend on normalization of operating margins, improved working capital discipline, and stable content performance across publishing, anime, games, and digital platforms. Data limitations around cash balances, investing cash flows, and share metrics constrain precision, but the available figures clearly point to pressure on earnings quality in FY2026 Q2.

Profitability Analysis

ROE decomposition indicates margin-led weakness: Net profit margin 1.11% × Asset turnover 0.348 × Financial leverage 1.39 = ROE 0.54%. The primary drag is net margin, with operating margin at 4.1% (¥5.55b/¥133.93b) well below historical norms for the company’s content mix. Gross margin is robust at 37.5%, suggesting cost of sales remained controlled; the squeeze likely stems from higher SG&A/content amortization, promotional costs, or unfavorable mix. EBITDA margin of 6.7% versus operating margin of 4.1% implies D&A of ¥3.48b; limited operating leverage is visible given revenue declined only 1.8% while operating income fell 47.8%. Ordinary income at ¥6.78b exceeds operating income, indicating non-operating gains/interest income buffered results; interest expense is minimal at ¥38m, with interest coverage of 146x, so financing costs are not a profitability risk. The implied effective tax burden based on reported income tax (¥4.58b) versus ordinary income suggests a high tax incidence in the period, which further compressed net margin; note the reported “effective tax rate 0.0%” metric is not reflective of the actual tax charge. Overall, profitability is most challenged at the operating level, with weak flow-through from gross to operating profit, indicating cost pressure and/or revenue mix headwinds.

Growth Assessment

Top line contracted 1.8% YoY to ¥133.9b, a relatively mild decline given the operating profit shock, implying demand remained broadly stable but monetization and cost control were weaker. The deterioration in operating income (-47.8% YoY) despite modest revenue decline points to unfavorable mix (e.g., lower-margin titles, delayed releases) or elevated fixed costs. Net income fell 51.8% to ¥1.49b, reflecting both the operating shortfall and a heavy tax charge in the period. On sustainability, gross margin at 37.5% remains supportive if the company can moderate SG&A and content amortization; however, negative OCF suggests working capital outflows (e.g., content production advances, inventory build, receivables timing) are pressuring near-term cash generation. Given Kadokawa’s exposure to publishing, anime production committees, games, and digital services, recovery will likely hinge on the release slate, licensing momentum, and platform normalization. Revenue outlook near term appears dependent on content pipeline execution and stabilization in digital user engagement; any delays in key titles or production schedules could weigh on 2H. Profit quality is currently low due to weak cash conversion (OCF/NI -1.85). A return to growth would require improved sell-through, digital mix recovery, and tighter expense control.

Financial Health

Liquidity is strong: current assets ¥272.4b vs current liabilities ¥117.0b (current ratio 232.8%) and quick ratio 203.1%, supported by manageable inventories of ¥34.8b. Solvency is sound with total liabilities of ¥132.6b against equity of ¥276.4b (debt-to-equity 0.48x). Interest burden is negligible (¥38m), and interest coverage is 146x, indicating low refinancing risk. Total assets are ¥384.5b; while the feed shows an equity ratio of 0.0%, this is unreported—economically, equity represents roughly 72% of assets, implying a conservative capital structure. Working capital is ample at ¥155.4b, providing capacity to absorb operational shocks. Key watchpoint is the negative OCF in the period; persistent operating cash deficits could gradually weaken the liquidity profile if not reversed.

Cash Flow Quality

Earnings quality is weak this quarter as OCF of ¥-2.77b compares unfavorably to net income of ¥1.49b (OCF/NI -1.85), indicating poor cash conversion likely driven by working capital swings (e.g., higher inventories/production advances or slower collections). EBITDA of ¥9.03b versus OCF negative suggests non-cash earnings and/or timing effects dominated cash dynamics. Investing CF is unreported (shown as 0), preventing a reliable free cash flow computation; the displayed FCF of 0 should be treated as unavailable. Financing CF outflow of ¥-4.85b suggests debt repayment, lease/service obligations, or other financing uses; with DPS reported at ¥0, outflows were not dividend related in this period. Focus areas: receivables collection, inventory turns in publishing/merchandise, timing of content production cash outs versus revenue recognition, and advances to production committees. A normalization of OCF in 2H will be critical to validate earnings quality.

Dividend Sustainability

Dividend per share is reported at ¥0 with a payout ratio of 0% despite positive EPS of ¥10.17, indicating suspension or deferral to prioritize liquidity and investment. With OCF negative and FCF unreported, cash coverage of dividends cannot be assessed; however, the absence of dividends aligns with the current cash conversion weakness. Balance sheet capacity is ample (low leverage), but management discipline likely favors reinvestment and cash preservation until profitability and OCF stabilize. Outlook: a resumption would require sustained positive OCF, improved operating margin, and visibility on content returns; policy signals may depend on recovery in 2H and clarity on capital allocation needs.

Risk Assessment

Business Risks:

• Content pipeline risk: delays or underperformance of key titles in publishing, anime, and games can pressure revenue and margins.
• Mix risk: higher share of lower-margin products/services or unfavorable licensing terms can compress operating margins.
• Platform and digital engagement volatility affecting monetization in online services.
• Production cost inflation (talent, outsourcing, marketing) and FX impacts on overseas production and licensing.
• Inventory risk in publishing/merchandise leading to write-downs if sell-through weakens.
• Dependence on committee investments and timing of recognition for anime and media adaptations.

Financial Risks:

• Weak cash conversion (OCF/NI -1.85) indicating working capital strain.
• Potential for further OCF pressure if receivables collections lag or inventories build.
• Earnings sensitivity to tax charges; high tax incidence reduced net income in the period.
• Limited visibility on investing cash flows and cash balances due to unreported items.
• Event-driven costs (e.g., remediation, system investments) could weigh on margins and cash.

Key Concerns:

• Operating margin compression to 4.1% despite only a 1.8% revenue decline.
• Negative operating cash flow and poor earnings-to-cash conversion.
• Dividend suspension amid profitability and cash flow headwinds.
• Reliance on non-operating items to bridge from operating to ordinary income.

Investment Implications

Key Takeaways:

• Top line resilient but profitability sharply weaker; operating income down 47.8% YoY.
• ROE at 0.54% is margin-constrained; asset turnover and leverage are stable but not accretive.
• Liquidity and solvency are strong (current ratio 233%, D/E 0.48x), providing buffer.
• Cash conversion is the principal near-term issue (OCF/NI -1.85).
• Dividend at ¥0 indicates capital preservation until earnings quality improves.

Metrics to Watch:

• Operating margin recovery and SG&A/content amortization trends.
• OCF trajectory and working capital components (receivables, inventories, advances).
• EBITDA margin versus release slate timing and mix.
• Ordinary-to-operating income gap and sustainability of non-operating contributions.
• Capital expenditure/content investment cadence (investing CF when disclosed).
• Tax expense normalization and impact on net margin.
• Segment performance in digital platforms, anime, and games.

Relative Positioning: Within Japan’s media/content peers, Kadokawa maintains a conservative balance sheet and strong liquidity but currently lags on operating margin and cash conversion; near-term positioning hinges on execution of the content pipeline and normalization of digital monetization.

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