CHARLE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.13B
• Operating Income: ¥-515M
• Net Income: ¥-308M
• EPS: ¥-24.44

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

Charlotte (9885) posted FY2026 Q2 consolidated results showing top-line recovery but persistent operating losses. Revenue rose 7.3% YoY to ¥6.13bn, indicating demand stabilization or successful commercial initiatives, yet operating income remained a loss of ¥0.52bn (flat YoY), underscoring limited operating leverage. Gross profit was ¥2.58bn on cost of sales of ¥3.13bn, implying a healthy gross margin of 42.1%, but SG&A intensity absorbed the gross profit gain. Ordinary loss narrowed slightly to ¥0.49bn, while net loss was ¥0.38bn (EPS −¥24.44). DuPont decomposition yields ROE of −2.32%, driven by a −6.18% net margin, modest asset turnover of 0.307x, and low financial leverage of 1.22x. The balance sheet is conservative: equity of ¥16.33bn against total assets of ¥19.94bn implies an equity ratio of ~81.9% (the reported 0.0% is undisclosed, not zero), with total liabilities of only ¥2.41bn (D/E ~0.15x). Liquidity appears strong, with a current ratio of 7.7x and quick ratio of 5.7x, supported by sizeable current assets (¥12.23bn) and moderate inventories (¥3.21bn). Operating cash flow was negative at ¥0.75bn, pointing to cash burn in the period, likely from working-capital build or loss absorption; investing cash flow was undisclosed, and financing cash outflow was ¥0.50bn. Despite the negative OCF, the company’s low leverage and ample working capital (¥10.65bn) provide a near-term buffer. Inventory levels imply slow-to-moderate turns for an apparel/innerwear model, making merchandising and sell-through critical to margin defense. Dividend payments are suspended (DPS ¥0), consistent with losses and cash outflow; capital returns in the period, if any, likely came via financing cash movements whose composition was not disclosed. The key challenge is converting revenue growth into operating profit by tightening SG&A and improving inventory velocity. While the capital structure is robust, sustained negative OCF would gradually erode cash reserves (cash balance is undisclosed) unless profitability improves. Outlook hinges on pricing, mix upgrades, and expense discipline to unlock operating leverage. Data limitations (notably D&A, cash balance, investing CF, share counts) constrain precision, but the core message is clear: balance sheet strength contrasts with weak earnings quality and cash conversion.

Profitability Analysis

ROE_decomposition: ROE −2.32% = Net margin (−6.18%) × Asset turnover (0.307x) × Financial leverage (1.22x). Weak ROE is almost entirely driven by negative net margin; leverage is low and asset turnover modest. margin_quality: Gross margin of 42.1% is solid for innerwear/apparel, suggesting reasonable pricing/mix and sourcing efficiency. Operating margin is −8.4% (−¥515m/¥6,131m), indicating SG&A overhang. Ordinary margin is −8.0%, and net margin −6.2%, reflecting limited non-operating burden and a small tax charge (¥8m). operating_leverage: Revenue grew 7.3% YoY but operating loss was flat YoY, implying that incremental gross profit was offset by higher SG&A (marketing, logistics, or personnel). To realize leverage, SG&A ratio must fall and inventory-related costs be contained.

Growth Assessment

revenue_sustainability: Top-line growth of 7.3% suggests recovering demand and/or improved commercial execution. Absent segment data, sustainability is uncertain; growth durability will depend on repeat purchase rates, consultant/channel productivity, and product refresh. profit_quality: Despite a healthy gross margin, profits remain negative; the gap points to elevated fixed costs and potentially higher promotional intensity. Ordinary loss close to operating loss suggests minimal reliance on non-operating items. outlook: If the company can preserve gross margin while moderating SG&A, earnings inflection is plausible. Key drivers include pricing discipline, SKU rationalization, and inventory turnover improvement; otherwise, growth could remain dilutive to profit.

Financial Health

liquidity: Current ratio 770.9% and quick ratio 568.6% indicate ample short-term coverage. Working capital stands at ¥10.65bn (CA ¥12.23bn − CL ¥1.59bn). Cash and equivalents are undisclosed; however, liquidity appears strong given low current liabilities. solvency: Total liabilities are ¥2.41bn vs equity of ¥16.33bn, implying D/E ~0.15x and an implied equity ratio of ~81.9%. Interest expense is undisclosed, but leverage is low, limiting solvency risk. capital_structure: Low leverage and large equity base provide flexibility to absorb losses, though persistent cash burn would eventually pressure resources if not countered by profit recovery.

Cash Flow Quality

earnings_quality: OCF of −¥748m vs net loss of −¥379m indicates weaker cash earnings than accrual earnings. The OCF/Net Income ratio of 1.97 is mechanically inflated by both figures being negative; underlying cash conversion is weak. FCF_analysis: Investing CF is undisclosed; with negative OCF, underlying FCF is likely negative for the period even if capex were minimal. Financing CF outflow of ¥502m indicates cash used for repayments or shareholder returns, but details are not disclosed. working_capital: Inventories of ¥3.21bn relative to half-year COGS of ¥3.13bn suggest roughly ~1.0x turns over six months (annualized ~2x), consistent with slow-moving categories; improving sell-through and reducing obsolescence risk are priorities.

Dividend Sustainability

payout_ratio_assessment: With net loss (EPS −¥24.44) and DPS ¥0, the payout ratio is 0%. Given negative OCF and operating losses, sustaining or reinstating dividends would be imprudent without a turnaround. FCF_coverage: FCF coverage is reported as 0.00x; with negative OCF and unknown capex, coverage of any cash distributions is effectively insufficient. policy_outlook: Dividend resumption likely contingent on restoring positive operating income and OCF. The strong equity base provides capacity over the medium term, but near-term policy will likely prioritize reinvestment and balance-sheet preservation.

Risk Assessment

Business Risks:

• Demand variability in apparel/innerwear and potential channel stagnation
• Inventory obsolescence and markdown risk affecting gross margins
• Higher SG&A intensity (marketing, logistics) diluting operating leverage
• Sourcing and FX exposure (import costs) pressuring COGS
• Competitive pricing from fast-fashion and e-commerce players
• Aging sales consultant network (if applicable) and channel productivity risks

Financial Risks:

• Negative operating cash flow leading to gradual liquidity erosion
• Potential working-capital build (inventory, receivables) tying up cash
• Limited visibility on cash balance, capex, and interest costs due to undisclosed items
• Concentration risk if reliant on a narrow product mix

Key Concerns:

• Persistent operating losses despite revenue growth
• Weak cash conversion with OCF below accrual earnings
• Inventory turns around ~2x annualized, elevating markdown risk if demand softens

Investment Implications

Key Takeaways:

• Top-line up 7.3% YoY, but operating margin remains −8.4%; operating leverage not yet evident
• Gross margin healthy at 42.1%, indicating pricing/mix resilience
• Balance sheet conservative with implied equity ratio ~81.9% and D/E ~0.15x
• OCF −¥748m signals cash burn; underlying FCF likely negative
• Financing cash outflow of ¥502m despite losses warrants monitoring of capital allocation
• Inventory intensity and sell-through are pivotal to margin and cash recovery

Metrics to Watch:

• SG&A ratio to sales and progress on cost containment
• Gross margin stability (price/mix vs input costs and FX)
• Operating cash flow and free cash flow trend
• Inventory level and turnover/days inventory on hand
• Revenue growth by channel and repeat purchase metrics
• Ordinary income trajectory as a cleaner profitability gauge under JGAAP

Relative Positioning: Within Japanese small-cap apparel/innerwear, Charlotte exhibits stronger-than-peer balance sheet resilience (low leverage, high equity ratio) but weaker profitability (negative operating margins) and cash conversion; turnaround hinges on SG&A discipline and inventory efficiency.

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
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