3086 · J. Front Retailing

Will it survive?

• Can it pay its interest? 7.8×
  Comfortable
  Operating income ¥49.0B ÷ interest expense ¥6.3B
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? ¥300.6B · 6.1× operating profit
  Heavy net debt
  Cash ¥36.1B − debt ¥336.7B
  What this means

  Netting ¥36.1B of cash and short-term investments against ¥336.7B of debt leaves ¥300.6B owed, about 6.1× a year's operating profit (6.9× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? -129d
  Negative, funded by others
  DSO 127 + DIO 0 − DPO 256 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”), the company grows on other people's money. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 2%
  Below average through the cycle
  10-yr median, range -2%–6%; 5% latest = NOPAT ¥38.7B ÷ invested capital ¥716.2B
  Industry peers: median 16%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 5% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 13%
  Solid through the cycle
  8-yr median margin, range 1%–21%; latest ¥52.8B = operating cash ¥67.0B − maintenance capex ¥14.2B
  Industry peers: median 2%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 12% of revenue this year, a 13% median across 8 years.

• Are earnings backed by cash? 2.37×
  Cash-backed
  Cash from ops ¥67.0B ÷ net income ¥28.3B
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 56%
  Returns about half
  Dividends + buybacks ¥29.4B ÷ Owner Earnings ¥52.8B
  What this means

  Of ¥52.8B Owner Earnings, ¥29.4B (56%) went back to shareholders, ¥14.3B dividends, ¥15.1B buybacks. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 0.32×
  Harvesting
  Capex ¥14.2B ÷ depreciation ¥44.3B
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat, 2017–2026

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 9 of 10
  What this means

  Lost money in 1 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 0 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 4% → 12% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 4% early to 12% lately, median 5% — pricing power intact or improving.

• Reinvestment, incremental ROIC 12%
  What this means

  Reinvested capital came back at only a modest incremental return — near the cost of capital, where extra growth adds little per dollar. The record shows whether it is a soft stretch or a thinning moat.

• Owner earnings growth +15%/yr
  What this means

  Owner earnings grew about 15% a year over the record.

• Worst year 2021 · −7.6% op. margin
  What this means

  Operations went underwater in 2021, understand why before trusting the good years.

• Share count +0.1%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.