KOZO Holdings Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥14.10B
• Operating Income: ¥-260M
• Net Income: ¥-352M
• EPS: ¥-1.12

Income Statement

Balance Sheet

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

FY2025 Q3 was weak for KOZO Holdings, with revenue growth failing to translate into profits and all headline earnings lines in the red. Revenue rose 7.9% YoY to 141.02, but operating income turned to a loss of -2.60, ordinary income was -2.39, and net income was -2.92. Gross profit was 48.69 (gross margin 34.5%), but SG&A of 51.96 (36.9% of sales) exceeded gross profit, driving the operating loss. Operating margin was -1.8% and net margin -2.1%, reflecting insufficient cost absorption despite top-line growth. Non-operating income/expenses netted to a small loss (0.56 vs 0.41), with interest income of 0.09 partly offsetting interest expense of 0.25, but not enough to improve ordinary loss. Interest coverage was deeply negative at -10.6x, underscoring challenged debt service capacity from operations. Liquidity tightened, with current ratio at 0.99 and quick ratio at 0.79, pointing to near-term funding stress, especially given accounts payable of 14.62 versus cash of 5.27. Balance sheet leverage is high (D/E 5.27x; financial leverage 6.27x), magnifying the impact of operating losses on equity. Equity is thin at 8.25, with retained earnings of -14.25 and goodwill of 5.77 (about 70% of equity), raising impairment risk and balance sheet fragility concerns. DuPont analysis shows ROE at -35.4%, driven primarily by negative net margin and amplified by high leverage; asset turnover is relatively strong at 2.73x. ROIC is deeply negative at -28.2%, indicating destruction of value at the invested capital level. Cash flow statements were not disclosed, limiting assessment of earnings quality and working capital dynamics, but weak liquidity metrics suggest operating cash generation is under pressure. Margin change versus prior periods cannot be quantified due to absent YoY margin data; however, the current SG&A burden relative to gross profit is the core driver of losses. The effective tax rate appears distorted (-10.9%) due to tax expense recorded against a pre-tax loss, which depresses bottom-line further. Forward-looking, the company must reduce SG&A intensity and improve gross margin or mix to restore operating profitability, and it may need to bolster liquidity to navigate payables and short-term obligations. Absent visible free cash flow and with high leverage, near-term risk management and cost discipline will likely dominate management focus.

Profitability Analysis

ROE decomposition: ROE (-35.4%) = Net Profit Margin (-2.1%) × Asset Turnover (2.73x) × Financial Leverage (6.27x). The largest driver is the negative net margin, as SG&A (36.9% of sales) exceeded gross margin (34.5%), pushing operating margin to -1.8% and net margin to -2.1%. Asset turnover is comparatively solid at 2.73x, indicating efficient use of assets to generate sales, but this cannot offset the margin shortfall. High financial leverage (6.27x) substantially amplifies the negative impact of losses on equity, worsening ROE. Business reason: elevated operating cost base versus gross profit, likely stemming from fixed cost stickiness and insufficient pricing/mix to cover SG&A, with non-operating interest expense adding pressure. Sustainability: the negative margin is not sustainable; improvements depend on cost reductions, pricing/mix enhancements, or volume leverage; leverage will continue to amplify outcomes in either direction. Concerning trend flag: SG&A as a percentage of sales (36.9%) exceeds gross margin (34.5%), indicating negative operating leverage at current scale; while SG&A growth YoY is not disclosed, the current ratio implies cost base misalignment with revenue.

Growth Assessment

Top-line growth was healthy at +7.9% YoY to 141.02, but it did not translate to profit due to higher operating cost intensity. With gross margin at 34.5% and SG&A at 36.9% of sales, revenue growth currently dilutes earnings. Non-operating results were modestly negative net of interest, adding limited buffer. Without segment data or order backlog, revenue sustainability cannot be fully assessed; however, the solid asset turnover suggests active operations and utilization. To restore earnings leverage, management likely needs to reduce fixed SG&A, improve procurement/pricing to lift gross margin, or drive higher-margin mix. Given negative ROIC (-28.2%), current growth appears value-destructive; future growth must be margin-accretive to be attractive. Outlook hinges on cost actions and liquidity management; absent these, continued losses could force a defensive stance that may weigh on growth.

Financial Health

Liquidity is tight: current ratio 0.99 (<1.0 warning) and quick ratio 0.79 (<1.0), with working capital at -0.36. Cash (5.27) plus receivables (11.66) totals 16.93 versus current liabilities of 27.23, implying reliance on inventory turnover and continued supplier credit to meet obligations. Maturity mismatch risk is present: accounts payable (14.62) materially exceed cash on hand; short-term interest-bearing debt is small (0.16), but payables pressure near-term liquidity. Solvency is weak: D/E 5.27x (>2.0 warning), total liabilities 43.50 against equity 8.25, and goodwill (5.77) equals ~70% of equity, increasing impairment risk to capital. Long-term loans are 6.08; debt service capacity from operations is poor (interest coverage -10.6x). No off-balance sheet obligations were disclosed; data limitations prevent assessment of leases or guarantees.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed, so OCF/Net Income and FCF coverage cannot be calculated. Given negative earnings, tight liquidity, and heavy reliance on payables, there is a risk that operating cash flow is also weak. The spread between payables (14.62) and cash (5.27) plus receivables suggests working capital is being used as a funding source; absent OCF data, potential working capital strain cannot be ruled out. Without capex data, sustainability of future FCF is unclear, but negative ROIC indicates current investments are not yielding adequate returns.

Dividend Sustainability

Dividend data were not reported for the period. With net losses (-2.92), negative retained earnings (-14.25), thin equity (8.25), and unknown OCF/FCF, distributable capacity appears constrained. Until operating profit turns positive and free cash flow becomes visible, dividend sustainability cannot be substantiated. Policy outlook is uncertain due to lack of disclosures; preserving liquidity and balance sheet repair would likely take precedence over shareholder distributions.

Risk Assessment

Business Risks:

• Margin pressure: SG&A at 36.9% exceeds gross margin (34.5%), causing operating losses.
• Execution risk in cost reduction and pricing/mix improvements needed to restore profitability.
• Goodwill (5.77) ~70% of equity raises impairment risk if cash-generating units underperform.
• Potential customer/order volatility could destabilize revenue given thin profitability.

Financial Risks:

• Liquidity risk: current ratio 0.99 and quick ratio 0.79 with working capital negative (-0.36).
• High leverage: D/E 5.27x; financial leverage 6.27x amplifies earnings volatility.
• Debt service risk: interest coverage -10.6x indicates inability to cover interest from operations.
• Refinancing/credit risk if supplier terms tighten given payables (14.62) vs cash (5.27).

Key Concerns:

• Negative ROE (-35.4%) and ROIC (-28.2%) indicate value destruction.
• Effective tax burden despite losses (-10.9% rate) further depresses net income.
• Absence of cash flow disclosure limits assessment of earnings quality and FCF.
• Thin equity base (8.25) with accumulated deficits (-14.25) reduces shock absorption capacity.

Investment Implications

Key Takeaways:

• Top-line growth (+7.9% YoY) did not translate into profit; operating and net losses recorded.
• Cost structure misaligned: SG&A (36.9% of sales) exceeds gross margin (34.5%).
• Leverage is high (D/E 5.27x), magnifying losses; liquidity is tight (current ratio 0.99).
• Interest coverage is deeply negative, highlighting debt service strain.
• ROE (-35.4%) and ROIC (-28.2%) point to urgent need for profitability and capital efficiency improvements.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio reductions.
• Gross margin improvements via pricing/mix or procurement efficiencies.
• Operating cash flow and free cash flow once disclosed.
• Liquidity metrics (current and quick ratios) and movements in payables/receivables.
• Goodwill impairment testing outcomes and equity buffer changes.

Relative Positioning: Versus typical small-cap peers, KOZO shows weaker profitability (negative operating and net margins), higher financial leverage, thinner liquidity, and significantly lower capital efficiency (negative ROIC), leaving it comparatively vulnerable to macro or execution shocks until cost and cash flow metrics improve.

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
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