SEKICHU CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥23.81B
• Operating Income: ¥517M
• Net Income: ¥370M
• EPS: ¥67.49

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

Verdict: FY2026 Q3 results for Sekichu (9976, standalone, JGAAP) show modest topline growth but weaker profitability, with thin margins and subdued capital efficiency. Revenue rose to 238.13 (100M JPY), up about 0.9% YoY versus 235.92, while operating income declined 6.4% YoY to 5.17 and net income fell 18.8% to 3.70. Gross profit was 66.07 and SG&A was 67.22, implying operating income was supported by other operating items, as typical for retail (exact breakdown not disclosed). Operating margin softened to 2.2% from roughly 2.35% a year ago, a contraction of about 18 bps. Net margin compressed to 1.6% from 1.9%, a decline of roughly 38 bps, largely on a higher effective tax burden (30.5%) and slight operating deleverage. DuPont analysis yields ROE of 3.1% (= 1.6% net margin × 0.976 asset turnover × 2.06x leverage), well below the 8% threshold. The 5-factor decomposition shows a borderline tax burden (0.695) and a favorable interest burden (>1.0) driven by small non-operating gains (dividends/interest) exceeding interest expense. Equity ratio is a healthy ~48.6%, and interest coverage of 13.8x indicates low near-term solvency risk. Liquidity is mixed: current ratio of 131% is adequate for retail, but quick ratio of 34% is low, reflecting inventory-heavy working capital. The reported quality alerts—EBIT margin 2.2% and ROIC 2.5%—underscore structural efficiency headwinds. Cash flow statements are unreported, so earnings quality (OCF vs NI, FCF coverage of dividends) cannot be verified. Dividend policy centers on a year-end DPS of ¥40 with no interim, implying a payout ratio of ~60%, at the upper bound of sustainability given low ROE and margin pressure. Forward-looking, the key will be SG&A discipline, merchandise mix, shrink/markdown control, and inventory turnover improvement to stabilize margins and lift ROIC.

Profitability Analysis

ROE decomposition: ROE 3.1% = Net Profit Margin 1.6% × Asset Turnover 0.976 × Financial Leverage 2.06x. The most material change YoY is the net profit margin, which slipped from ~1.9% to ~1.6% despite slight revenue growth. Business drivers appear to be slight operating margin compression (2.35% to 2.17%) and a higher effective tax load (tax burden 0.695), partially offset by stable non-operating income (dividends/interest). Interest burden of 1.03 (>1) signals non-operating income exceeding interest costs, cushioning EBT. Given the retail context, the EBIT margin softness likely reflects higher SG&A intensity (28.2% of sales), markdowns or mix pressure; we cannot corroborate with SG&A line-item details due to non-disclosure. Sustainability: the low-2% operating margin is typical but leaves little buffer; improvement hinges on better inventory turns, procurement terms, and store productivity. Concerning trend flags: ROE and ROIC remain below cost of capital proxies; SG&A growth vs revenue growth cannot be assessed from disclosed data, but the current SG&A ratio is at the higher end for home-improvement retail, suggesting limited operating leverage.

Growth Assessment

Topline grew ~0.9% YoY, indicating stable demand but no breakout growth. Profit growth is negative: operating income -6.4% YoY and net income -18.8% reflect deleverage on thin margins. Without same-store sales, traffic/ticket data, or store count changes, we cannot parse whether growth is organic, price-driven, or footprint-related. Gross margin of 27.7% is reasonable for a home center, but the EBIT margin at 2.2% highlights cost intensity. Non-operating income (dividends/interest: 0.26) aided ordinary income, but this is small and non-core. Outlook: absent evidence of merchandising mix upgrades or cost take-out, profit growth likely trails sales growth. Key levers are inventory efficiency, SG&A discipline, and improved vendor terms. Any deterioration in consumer sentiment or adverse weather could pressure comps and margins in Q4.

Financial Health

Liquidity: Current ratio 131.2% is acceptable, but quick ratio 34.4% is weak, typical of inventory-heavy retail; watch seasonal inventory peaks. No warning trigger for current ratio (<1.0). Working capital of 25.66 provides a cushion, with inventories 79.64 and payables 50.33 indicating reliance on trade credit. Solvency: Total liabilities/equity (D/E) is 1.06x (within tolerance; explicit warning threshold >2.0 not breached). Interest-bearing debt is modest at 34.71 with Debt/Capital 22.7% and interest coverage 13.8x, suggesting low refinancing stress. Equity/asset ratio ~48.6% supports resilience. Maturity mismatch: Short-term loans 8.0 vs cash 11.58 (cash/STD 1.45x) reduces near-term risk; however, low quick ratio means liquidity depends on inventory monetization. Off-balance sheet obligations are not disclosed; leasing commitments for retail locations may exist but are unreported here.

Cash Flow Quality

Operating cash flow, investing, and financing cash flows are unreported; thus OCF/Net Income and FCF cannot be assessed. We cannot test OCF/NI >1.0 or FCF coverage of dividends/capex. Earnings quality signals: interest coverage is strong and non-operating income stable, but margin thinness raises sensitivity to working capital swings. Potential working capital risks include elevated inventories (79.64) versus cash (11.58), increasing the need for clean sell-through and markdown control; supplier payables (50.33) provide funding but create risk if terms tighten. No evidence of working capital manipulation can be concluded due to missing cash flow detail.

Dividend Sustainability

Declared year-end DPS is ¥40 with no interim (Q2 ¥0), implying a payout ratio of ~60.4% based on current net income. This sits at the upper bound of generally sustainable levels, especially given low ROE (3.1%) and ROIC (2.5%). FCF coverage is unreported; therefore, sustainability cannot be validated from cash data. Interest coverage is strong and leverage low, which supports basic dividend capacity, but any further margin compression would quickly push payout above comfortable levels. Policy implication: maintaining ¥40 likely requires at least stable earnings and disciplined capex; a downside in FY-end results could necessitate revisiting payout or leaning on balance sheet.

Risk Assessment

Business Risks:

• Margin compression risk from higher SG&A intensity and markdowns given 2.2% EBIT margin.
• Inventory risk: elevated inventories relative to cash require strong sell-through to avoid markdowns.
• Competitive pressure from e-commerce and home improvement peers, potentially impacting pricing power.
• Demand cyclicality tied to consumer sentiment, housing and renovation activity, and weather.
• Execution risk in merchandising mix and private-brand development to lift gross margin.

Financial Risks:

• Low ROIC (2.5%) below 5% benchmark, signaling weak capital efficiency.
• Low quick ratio (34.4%) exposes near-term liquidity to inventory conversion.
• Tax burden at 0.695 suggests limited room to improve net margin via tax optimization.
• Dependence on trade payables (50.33) for working capital; adverse changes in supplier terms could strain liquidity.

Key Concerns:

• Sustained operating margin below 3% leaves little buffer against shocks.
• Dividend payout near 60% may become stretched if earnings weaken further.
• Data limitations (no cash flow, no SG&A breakdown) obscure earnings quality and cost drivers.

Investment Implications

Key Takeaways:

• Topline growth modest (+0.9% YoY) but profit declined, highlighting operating deleverage.
• ROE 3.1% and ROIC 2.5% are below acceptable thresholds, pointing to structural efficiency issues.
• Liquidity is adequate on a current basis but reliant on inventory; quick ratio is weak.
• Interest coverage strong and balance sheet conservative on an interest-bearing basis (Debt/Capital 22.7%).
• Dividend policy (~60% payout) appears just sustainable but vulnerable to further margin pressure.

Metrics to Watch:

• Same-store sales and traffic/ticket split (not disclosed) to gauge underlying demand.
• Gross margin trajectory and markdown rates, especially post-season clearance.
• SG&A ratio and labor/rent components to identify cost control progress.
• Inventory turnover and days inventory on hand; payables days vs receivables days.
• Operating cash flow and FCF once disclosed; OCF/NI ratio as a quality check.
• EBIT margin progress toward >3–4% as a near-term milestone.

Relative Positioning: Within Japanese home improvement retail, Sekichu exhibits typical inventory-heavy working capital and low-single-digit operating margins, but its ROE/ROIC are on the low side. Balance sheet strength (equity ratio ~49%, strong interest coverage) is a positive, yet operational efficiency lags peers targeting higher ROIC via scale, private-label mix, and omnichannel productivity.

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