Nitori Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥439.11B
• Operating Income: ¥59.86B
• Net Income: ¥41.74B
• EPS: ¥73.87

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: A soft quarter with margin compression and lower earnings, but balance sheet remains strong. Revenue declined 1.8% YoY to 4,391.11, while operating income fell 6.9% YoY to 598.59, indicating negative operating leverage. Gross profit was 2,331.48 with a gross margin of 53.1%, a solid level for a vertically integrated retailer, though prior-year gross margin is not available for comparison. Operating margin slipped to 13.6% from approximately 14.4% a year ago, a compression of roughly 74 bps. Net income decreased 8.1% YoY to 417.41, taking net margin down to 9.5% from about 10.2% in the prior year, a compression of about 66 bps. Profit before tax was 603.60, implying modest net non-operating contribution after interest and equity-method effects. Equity-method income was 20.45 and accounted for 3.4% of profits, a small portion relative to core operations. Despite softer top line, cost control did not fully offset deleveraging, and SG&A at 1,744.33 weighed on margins. Effective tax rate was 30.8%, broadly stable and not a driver of the decline. ROE printed at 4.4% with ROIC at 3.7%, signaling subdued capital efficiency below internal return hurdles. The balance sheet is conservative with an equity ratio of 62.1% and D/E of 0.61x; cash and equivalents of 1,435.78 against total debt of 1,700 indicate modest net debt. Inventory stands at 1,080.54; based on period COGS, implied inventory days are roughly mid-90s for the half, warranting close monitoring given the revenue dip. Cash flow metrics were not disclosed this quarter, limiting assessment of earnings quality and dividend coverage. The reported payout ratio of 208.4% suggests the dividend trajectory is ahead of earnings capacity absent stronger H2 or use of balance sheet cash. Looking ahead, sustaining margins will likely hinge on sales recovery, mix improvements, and SG&A discipline. With ROIC at 3.7%, management focus on productivity, inventory turnover, and store-level economics will be critical to re-accelerate capital returns.

Profitability Analysis

Step 1 (DuPont): ROE 4.4% = Net Profit Margin 9.5% × Asset Turnover 0.290 × Financial Leverage 1.61x. Step 2: The most notable drag this quarter is the margin component, as both operating and net margins compressed YoY (approximately -74 bps and -66 bps, respectively), while leverage remained conservative and asset turnover is subdued. Step 3: Margin pressure stemmed from negative operating leverage (revenue -1.8% YoY vs operating income -6.9% YoY), indicating SG&A did not flex down proportionately; possible drivers include wage inflation, logistics and utility costs, and promotional intensity to support traffic. Step 4: Sustainability: If the revenue softness is cyclical and cost normalization continues, some margin recovery is possible; however, structural cost inflation or a more promotional environment would make the compression more persistent. Step 5: Concerning trends include SG&A growth outpacing revenue (implied by deleverage), ROIC at 3.7% below a typical 7–8% retail target, and asset turnover at 0.290 suggesting slower capital cycling, which together suppress overall ROE.

Growth Assessment

Revenue contracted 1.8% YoY, indicating softer demand or store traffic versus the prior year. Operating profit fell 6.9% YoY, reflecting negative operating leverage as fixed and semi-fixed costs weighed on profitability. Net income declined 8.1% YoY to 417.41, with an effective tax rate of 30.8% not materially changing the trend. Operating margin slipped to 13.6% and net margin to 9.5%, pointing to both gross-to-operating cost pressures and mix/promotion headwinds. Equity-method income contributed 20.45 and was not a primary growth driver. With ROIC at 3.7% and asset turnover 0.290, incremental growth requires better capital intensity and turnover, or stronger like-for-like sales. Outlook hinges on demand stabilization, product mix upgrades, cost controls (logistics, labor), and inventory normalization. Absent a sales rebound, profit growth will be difficult, as further cost cuts may risk brand equity or service levels.

Financial Health

Liquidity: Current ratio is not disclosed; however, current assets of 3,500.82 exceed short-term loans of 1,550.00 and accounts payable of 627.39, suggesting adequate near-term liquidity coverage. Solvency: Debt-to-equity is 0.61x with an equity ratio of 62.1%, indicating a conservative balance sheet. Capital structure: Total interest-bearing debt of approximately 1,700 (short-term 1,550, long-term 150) versus cash and equivalents of 1,435.78 implies modest net debt around 264. Maturity mismatch: The predominance of short-term borrowings heightens refinancing cadence, but current assets appear ample; detailed current liabilities were not reported, so a full maturity assessment is constrained. Off-balance sheet: No disclosures provided regarding leases or other commitments; note that retail typically has lease obligations that may impact adjusted leverage.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex were not reported, preventing direct assessment of OCF/Net Income, working capital dynamics, and free cash flow. Without OCF, we cannot compute OCF/NI; thus, we cannot confirm cash conversion quality. Inventory is 1,080.54 versus period COGS of 2,059.62, implying roughly mid-90s inventory days for the half-year; any build relative to sales could have weighed on cash conversion, but prior-period levels are not provided. Dividend and buyback cash demands are unreported; therefore, FCF coverage for distributions cannot be evaluated. No clear signs of working capital manipulation can be inferred from the limited data, but the revenue decline alongside stable to elevated inventories would merit monitoring for potential clearance activities in H2.

Dividend Sustainability

The calculated payout ratio of 208.4% is above sustainable levels (<60% benchmark) and suggests reliance on balance sheet cash or expectation of stronger H2 earnings. With OCF and FCF unreported, coverage cannot be validated; therefore, sustainability cannot be confirmed on a cash basis. Given modest net debt and strong equity ratio, the company has capacity to support dividends near term, but long-term sustainability requires earnings and FCF growth or a reset of payout levels. Policy outlook is unclear due to lack of DPS disclosure; if payout remains above 100% and ROIC stays at 3.7%, a recalibration or reliance on cash reserves would be likely unless operating trends improve.

Risk Assessment

Business Risks:

• Demand softness leading to negative operating leverage (revenue -1.8% YoY; OPM -74 bps).
• Promotional intensity and price competition compressing margins.
• Inventory management risk amid slower sales (inventory ~1,080.54; implied mid-90s days for H1).
• Cost inflation (labor, logistics, utilities) pressuring SG&A and gross-to-operating margin.
• Product mix shifts away from higher-margin categories.

Financial Risks:

• High proportion of short-term borrowings (1,550) increases refinancing cadence.
• Capital efficiency risk with ROIC at 3.7% (<5% warning) and asset turnover at 0.290.
• Dividend payout ratio at 208.4% raises funding and sustainability concerns if cash flows lag.
• Limited disclosure of OCF/FCF impedes assessment of cash coverage.

Key Concerns:

• Margin compression at both operating and net levels (-74 bps and -66 bps YoY, respectively).
• ROE at 4.4% and ROIC at 3.7% below typical targets, implying under-earning on capital.
• Potential inventory overhang relative to sales trend.
• Data gaps in cash flow reporting and SG&A breakdown reduce visibility.

Investment Implications

Key Takeaways:

• Soft quarter with revenue -1.8% YoY and operating income -6.9% YoY; negative operating leverage evident.
• Operating margin compressed ~74 bps to 13.6%; net margin down ~66 bps to 9.5%.
• ROIC at 3.7% and ROE at 4.4% highlight subdued capital efficiency.
• Balance sheet remains strong (equity ratio 62.1%, D/E 0.61x) with modest net debt (~264).
• Dividend payout at 208.4% appears unsustainably high without stronger H2 or cash support.

Metrics to Watch:

• Same-store sales growth and average ticket/traffic trends.
• Gross margin trajectory and promotional intensity.
• SG&A run-rate versus sales (operating leverage).
• OCF, FCF and capex once disclosed; OCF/NI >1.0 target.
• Inventory turnover and weeks of supply.
• ROIC improvement toward >7–8% and asset turnover recovery.

Relative Positioning: Within Japanese home furnishing and specialty retail, Nitori retains a balance-sheet advantage and structurally high gross margins from vertical integration, but current-quarter operating deleverage, low ROIC, and elevated payout ratio place it behind peers that are delivering positive comps and higher capital 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