AIGAN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.00B
• Operating Income: ¥206M
• Net Income: ¥-61M
• EPS: ¥8.29

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

Aigan Co., Ltd. (TSE:9854) reported FY2026 Q2 (cumulative) revenue of ¥7.999bn, up 4.7% YoY, indicating moderate top-line momentum despite a challenging consumer environment. Gross profit reached ¥5.195bn with a high gross margin of 64.9%, reflecting a merchandise mix that supports pricing power and/or a high proportion of services, but this is offset by heavy SG&A. Operating income was ¥206m, essentially flat YoY, implying operating margin of 2.6% and limited operating leverage in H1. Ordinary income of ¥238m exceeded operating income by ¥32m, suggesting positive non-operating contributions. Net income was ¥160m (flat YoY), for a net margin of 2.0% and EPS of ¥8.29. DuPont decomposition yields ROE of 1.31% = 2.00% net margin × 0.561x asset turnover × 1.16x financial leverage, highlighting that low profitability, not leverage or asset utilization, is the main ROE constraint. The balance sheet is conservative with total liabilities of ¥1.843bn versus equity of ¥12.240bn, implying D/E of 0.15x and an estimated equity ratio of ~85.9% (equity/total assets), despite the equity ratio field being unreported. Liquidity is ample: current ratio 553% and quick ratio 398%, with working capital of ¥6.057bn. Cash conversion was weak: operating cash flow of -¥104m against net income of ¥160m implies OCF/NI of -0.65, likely driven by a working capital build. Depreciation was modest at ¥79m, and EBITDA was ¥285m (3.6% margin), underscoring that SG&A intensity is the key margin headwind. Dividends were not paid (DPS ¥0, payout 0%), consistent with cautious cash management amid negative OCF in the period. Inventory stood at ¥2.073bn; relative to H1 cost of sales, this implies elevated inventory days on a half-year basis, requiring close monitoring to avoid markdown pressure. Interest expense is reported as zero (unreported), consistent with the low-leverage structure; interest coverage thus appears comfortable though not quantifiable from the disclosed data. Overall, Aigan exhibits solid revenue growth and a fortress balance sheet, but profitability remains thin and cash conversion in H1 was negative, making SG&A discipline and working capital normalization the key levers for 2H performance. Data limitations include unreported cash, investing/financing cash flows, equity ratio, and share counts; nonetheless, core income statement and major balance sheet items enable a reasonable assessment of earnings quality and financial health.

Profitability Analysis

ROE stands at 1.31% based on DuPont: net margin 2.00% × asset turnover 0.561 × financial leverage 1.16. Operating margin is 2.6% (¥206m/¥7,999m), ordinary margin 3.0% (¥238m/¥7,999m), and net margin 2.0%. Gross margin is high at 64.9%, but SG&A is heavy at ~¥4,989m (gross profit ¥5,195m minus operating income ¥206m), equating to an SG&A-to-sales ratio of ~62.4%, which largely suppresses operating leverage. EBITDA margin is 3.6% (¥285m/¥7,999m), implying low operating cash earnings relative to sales. D&A is modest at ¥79m (~1.0% of sales), so margin pressure stems from opex rather than depreciation intensity. Ordinary income exceeding operating income by ¥32m suggests non-operating gains (e.g., subsidies/financial income), cushioning thin core margins; sustainability of these gains should be monitored. With leverage low (assets/equity ~1.16x), ROE improvement must come from better margins and/or higher asset turnover. Asset turnover of 0.561x (sales/period-end assets proxy) is moderate for retail; improving store productivity and inventory turns would support profitability. Overall margin quality is constrained by fixed/semi-fixed costs; achieving operating leverage will require stronger like-for-like sales growth or SG&A rationalization.

Growth Assessment

Revenue grew 4.7% YoY to ¥7.999bn, indicating steady demand recovery. However, operating income was flat YoY at ¥206m, signaling that incremental gross profit was largely absorbed by SG&A, limiting operating leverage in H1. The mix-driven 64.9% gross margin remains a strength, but the high SG&A ratio implies limited scalability without cost efficiencies. Ordinary income benefitted from non-operating items (+¥32m vs operating income), which may not recur at the same magnitude. Net income was flat at ¥160m; net margin held at 2.0%, suggesting stable but thin profitability. Profit quality appears mixed: core operations delivered modest growth, but cash conversion was negative (OCF -¥104m) due to working capital outflows, suggesting the accounting profits have not yet translated into cash in H1. Looking ahead to 2H, sustainability of revenue growth will depend on consumer spending, competitive pricing dynamics in eyewear retail, and store productivity. Margin outlook hinges on SG&A control (labor, rent, advertising) and inventory discipline to avoid markdowns. If working capital normalizes and non-operating gains persist, full-year ordinary profit could track slightly above operating profit; however, reliance on non-operating items is not a robust growth driver. Structural initiatives such as product mix optimization, private label penetration, and service differentiation would support gross margin resilience while enabling cost leverage. Data limitations (lack of capex/cash detail) constrain visibility into store renovation cadence and growth capex, tempering conviction on medium-term earnings trajectory.

Financial Health

Balance sheet strength is notable: total assets ¥14.25bn, equity ¥12.24bn, liabilities ¥1.84bn. Estimated equity ratio is ~85.9% (equity/assets), although the provided equity ratio metric is unreported. Leverage is low (D/E 0.15x; assets/equity ~1.16x), implying ample solvency headroom. Liquidity is strong with current assets ¥7.393bn vs current liabilities ¥1.336bn, yielding a current ratio of 553% and quick ratio of 398%. Working capital of ¥6.057bn provides a sizeable buffer for seasonality and inventory cycles. Interest expense is unreported and likely immaterial given the small liability base, suggesting de facto high interest coverage. Absence of reported cash and financing cash flows limits precision on net cash and liquidity composition, but the conservative capital structure reduces refinancing risk. Overall solvency risk appears low; the main financial health watchpoint is operational cash generation rather than balance sheet resilience.

Cash Flow Quality

Operating cash flow was -¥104m versus net income of ¥160m, producing an OCF/NI ratio of -0.65, indicative of poor cash conversion in H1. Reconciliation suggests a sizeable working capital outflow of roughly ¥343m (NI ¥160m + D&A ¥79m = ¥239m; OCF -¥104m implies -¥343m from WC/other non-cash). Inventory rose to ¥2.073bn; relative to H1 cost of sales (¥2.448bn), this points to elevated inventory days on a half-year basis, which can depress OCF if not normalized. Capex is not disclosed (investing CF unreported), so free cash flow cannot be reliably calculated; the provided FCF figure of 0 should be treated as not available, not zero. EBITDA of ¥285m provides some operating cash earnings capacity, but conversion is currently hindered by working capital. Earnings quality is therefore mixed: accounting profit is positive, but cash realization lags; watch for 2H reversal as seasonal sell-through converts inventory to cash. Without detail on receivables/payables, the specific WC drivers are unclear. Sustained negative OCF would pressure discretionary uses of cash despite the strong balance sheet.

Dividend Sustainability

The company paid no dividend (DPS ¥0; payout ratio 0%), which aligns with negative operating cash flow in the period and a prudent capital preservation stance. Given EPS of ¥8.29 and net income of ¥160m, a distribution would presently rely on balance sheet strength rather than internally generated cash. With investing and financing cash flows unreported, FCF coverage is not assessable; the reported FCF coverage of 0.00x should be treated as not available. The very low leverage and large working capital cushion could support future dividends if cash generation improves, but near-term sustainability hinges on normalizing OCF and demonstrating consistent positive FCF. Policy-wise, the absence of a dividend suggests either a conservative posture or a reinvestment/turnaround focus; clarity from management on capital allocation priorities would be helpful.

Risk Assessment

Business Risks:

• Intense competition in eyewear retail, including price-based promotions and online channels
• Sensitivity to consumer spending and discretionary demand cycles
• Inventory management risk leading to markdowns and gross margin erosion
• Limited operating leverage due to high fixed/semi-fixed SG&A costs (rent, personnel)
• Store productivity and like-for-like growth uncertainty
• Product mix and sourcing risks affecting gross margin sustainability
• Potential overreliance on non-operating income to support ordinary profit

Financial Risks:

• Negative operating cash flow in H1 and dependence on working capital normalization
• Thin margins (operating margin ~2.6%) leave little cushion against shocks
• Earnings volatility from inventory valuation and potential impairments
• Data limitations on cash, capex, and financing obscure visibility into FCF and liquidity composition
• Small scale relative to larger peers limiting bargaining power and economies of scale

Key Concerns:

• OCF/NI at -0.65 indicating weak cash conversion
• Flat operating income despite 4.7% revenue growth, suggesting rising cost intensity
• High SG&A-to-sales ratio (~62%) suppressing profitability
• Ordinary income reliance on non-operating items (+¥32m vs operating income)
• Elevated inventory versus H1 COGS, increasing risk of markdowns

Investment Implications

Key Takeaways:

• Top line grew 4.7% YoY to ¥7.999bn, but operating profit was flat, reflecting limited operating leverage
• High gross margin (64.9%) offset by heavy SG&A (~62% of sales), keeping operating margin at 2.6%
• ROE is low at 1.31%, constrained by thin net margins rather than leverage
• Balance sheet is very strong with estimated equity ratio ~85.9% and D/E 0.15x
• Operating cash flow was negative (-¥104m), pointing to working capital headwinds in H1
• Ordinary income exceeded operating income, aided by non-operating gains of ~¥32m
• Dividend suspended (DPS ¥0), consistent with conserving cash amid weak OCF

Metrics to Watch:

• Like-for-like sales growth and average ticket/unit volumes
• SG&A ratio and cost control (rent, labor, marketing)
• OCF/Net income and working capital movements (inventory days, payables, receivables)
• Gross margin stability and markdown rates
• EBITDA margin progression and operating leverage in 2H
• Non-operating income components and recurrence
• Capex and store refurbishments/openings (once disclosed)

Relative Positioning: Within Japan’s eyewear retail landscape, Aigan remains smaller-scale with lower profitability metrics than leading peers, but it is more conservatively financed with a substantially stronger equity cushion; improvement in SG&A efficiency and cash conversion is needed to narrow the margin 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