Belc CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥423.43B
• Operating Income: ¥17.90B
• Net Income: ¥12.40B
• EPS: ¥608.69

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 was a solid but margin-dilutive year for Belc: revenue growth was strong, but operating and net margins compressed modestly amid higher store-related costs and one-time losses. Net sales rose 9.2% to 4234.3, driving operating income up 5.2% to 179.0 and ordinary income up 4.5% to 181.7. Net income attributable to owners increased 2.4% to 126.8, with EPS of ¥608.69. Gross margin printed at 26.4%, essentially flat year over year, while the SG&A ratio edged up to 23.9%. Operating margin slipped to 4.23%, down about 16 bps year over year, and net margin was about 3.0%, down roughly 20 bps. Earnings quality was healthy: operating cash flow of 209.4 exceeded net income by 1.65x, despite an inventory build and higher tax payments. Free cash flow was negative 18.4, driven by elevated growth capex of 230.8 (2.7x depreciation), consistent with footprint expansion and store refurbishments. Leverage remained conservative with debt/EBITDA of 1.20x and EBITDA interest coverage of 87.9x; however, liquidity is tight with a current ratio of 0.84 and quick ratio of 0.61. Extraordinary losses of 8.78, including a 7.04 impairment, weighed on bottom-line growth but are non-recurring by nature. ROE was 10.5%, supported by efficient asset turnover (1.91x) and moderate financial leverage (1.84x). Dividend payments were well covered by earnings with a 20.4% payout ratio, though FCF coverage was negative this year due to capex timing. The balance sheet remained asset-heavy in PPE (68.9% of assets), reflecting an owned-store model with stable, low-cost financing. Contract liabilities increased to 37.0, supporting cash generation, and asset retirement obligations stood at 71.2, implying elevated closure/retirement provisioning relative to peers. Looking ahead, sustaining gross margin discipline and managing SG&A amid wage and utility pressures will be key to re-expanding operating margin above 5%. The growth capex pipeline should support top-line durability, but execution must balance liquidity and working capital efficiency to normalize FCF.

Profitability Analysis

ROE of 10.5% decomposes into Net Profit Margin (3.0%) × Asset Turnover (1.913x) × Financial Leverage (1.84x). The most notable movement year over year was net margin compression, as operating margin declined about 16 bps and extraordinary losses increased, modestly diluting bottom-line conversion. Business-wise, higher store operating costs and impairment charges reduced profit conversion despite healthy sales growth; non-operating items remained small and interest burden light, so the pressure was predominantly operating and one-off. The margin impact from one-time impairment is non-recurring, while underlying SG&A inflation is more structural and requires ongoing efficiency gains and pricing/mix management to offset. Operating leverage was modestly negative this year (SG&A growth tracked revenue), limiting incremental margin capture from higher sales. Cost discipline and private-label mix can stabilize gross margin, but sustained wage and utility cost inflation could cap near-term upside unless productivity offsets strengthen.

Growth Assessment

Revenue expanded 9.2%, outpacing operating income growth of 5.2% and net income growth of 2.4%, indicating growth with some margin dilution. Gross profit rose to 1119.7, while SG&A increased to 1009.9, resulting in a largely flat contribution margin. EBITDA increased to 264.5 and EBITDA margin was 6.2%, consistent with a volume-oriented supermarket model. The investment pace accelerated (capex 230.8 vs depreciation 85.5), supporting store network growth and remodels, which should sustain top-line momentum. Ordinary income growth (4.5%) and a low interest burden underpin steady core profitability. Extraordinary losses (8.78) depressed net growth but should not repeat at the same level, supporting a more normalized earnings trajectory absent new impairments. Overall, growth quality is supported by cash-generative operations, though operating efficiency improvements are needed to translate sales growth into stronger margin accretion.

Financial Health

• Liquidity: Current ratio 0.84 and quick ratio 0.61 indicate tight liquidity; working capital stood at -86.9. This warrants caution, especially given seasonal inventory needs.
• Solvency: Debt-to-equity of 0.84x, debt/capital 20.8%, and debt/EBITDA 1.20x reflect a conservative capital structure. Interest coverage is very strong (EBITDA/interest 87.9x; EBIT/interest ~59.5x).
• Maturity profile: Current liabilities (532.6) exceed current assets (445.7), and the current portion of long-term loans (101.5) contributes to the near-term burden. Cash (198.5) and robust operating cash flow mitigate near-term refinancing risk; short-term loans are minimal (2.0), and cash/short-term debt is ~99x.
• Asset base: PPE represents 68.9% of total assets, consistent with an owned-store model. Asset retirement obligations are 71.2, implying elevated store-closure/retirement provisioning relative to total liabilities.
• Quality Alerts addressed: • LOW_LIQUIDITY (Current ratio 0.84): Root cause—inventory- and payables-heavy retail working capital plus current maturities of long-term debt; Context—below industry comfort levels; Impact—constrains flexibility and heightens rollover/working-capital risk during seasonal peaks. • LOW_OPERATING_EFFICIENCY (EBIT margin 4.2%): Root cause—thin supermarket margins and SG&A inflation; Context—typical for discount grocers but below the 5% benchmark; Impact—limits shock-absorption capacity and reduces operating leverage from sales growth. • HIGH_ARO_RATIO (ARO/liabilities 7.1%): Root cause—store leasehold restoration and closure obligations; Context—elevated for retailers with significant owned/long-term sites; Impact—adds non-cash liabilities and potential future cash outflows upon closures, slightly increasing long-term obligation risk.

Notable B/S Changes

Treasury Stock: -1.14 → -2.21 (93.9% larger contra-equity) - Minor increase in treasury stock balance; negligible capital impact but consistent with small buybacks. Investment Securities: 1.57 → 2.67 (+70.1%) - Increased financial investments; small base effect with limited P/L or liquidity impact.

Cash Flow Quality

• OCF/Net Income of 1.65x indicates high earnings quality, supported by solid cash generation from operations. Accruals ratio of -3.7% is benign.
• Cash conversion (OCF/EBITDA) of 0.79x trails the 0.9 benchmark, reflecting working-capital absorption: inventories increased (-15.3 in OCF), receivables rose slightly, partly offset by higher contract liabilities.
• Free cash flow was -18.4 due to capex of 230.8 (2.7x depreciation), consistent with growth investment rather than cash earnings weakness. With debt/EBITDA at 1.20x and ample interest coverage, capex is financeable, but sustained negative FCF would tighten liquidity if not offset by incremental OCF or financing.
• No indications of aggressive working-capital manipulation: payables increased moderately, and contract liabilities rose, supporting cash generation; extraordinary items were cash-adjusted within OCF.

Dividend Sustainability

• DPS totaled ¥124 (¥62 interim + ¥62 year-end); payout ratio was 20.4%, comfortably below the <60% sustainability threshold.
• FCF coverage was -0.71x this year because of elevated capex; however, coverage by earnings is strong and leverage headroom is ample, suggesting dividends are sustainable on a through-cycle basis if capex normalizes or OCF grows with the footprint.
• DOE approximated 2.4%, consistent with a stable dividend stance; limited buybacks (1.06) indicate priority to growth capex.

Risk Assessment

Business risks include Price competition and deflationary pressure in supermarket formats compress gross margin, Wage and utility cost inflation elevates SG&A, pressuring operating margin, Execution risk from accelerated store openings and remodels (capex 2.7x depreciation), Impairment risk on underperforming stores following expansion, Supply chain disruptions and weather events impacting traffic and fresh categories.

Financial risks include Tight liquidity (current ratio 0.84, quick ratio 0.61) and negative working capital, Sustained negative FCF if capex remains elevated without proportional OCF growth, Future cash needs from asset retirement obligations, Interest rate normalization modestly increasing finance costs (offset by strong coverage).

Key concerns include Operating margin at 4.2% below the 5% benchmark limits resilience, High ARO/liabilities (7.1%) increases long-term obligation intensity, Maturity concentration from current portion of long-term loans against limited current assets.

Investment Implications

Key takeaways include Top-line momentum is strong (+9.2% YoY) with resilient cash generation (OCF/NI 1.65x), Operating and net margins compressed modestly due to SG&A inflation and one-time impairment, Balance sheet leverage is conservative (Debt/EBITDA 1.20x), but liquidity is a watchpoint, Capex intensity is high (2.7x depreciation), positioning for growth but weighing on FCF, Dividend payout is conservative (20.4%) and sustainable on earnings, though FCF coverage was negative this year.

Metrics to watch include Operating margin trajectory toward/above 5%, Same-store sales and ticket vs traffic mix, Gross margin discipline and private-brand penetration, SG&A ratio vs revenue growth (labor and utilities), OCF/EBITDA cash conversion and inventory turns, Capex pipeline vs store productivity and FCF normalization, Current ratio and refinancing of current maturities.

Regarding relative positioning, Within Japan’s supermarket peer set, Belc exhibits healthy top-line growth and conservative leverage with typical thin grocery margins; operating efficiency is slightly below the 5% EBIT benchmark, and liquidity is tighter than peers with larger loyalty float or higher cash balances, but cash earnings quality is solid and supports ongoing controlled expansion.