Just to make sure: are you converting the folder to ctpk.lz format beforehand? The process should go something like edit the png -> convert the folder with the png and the tex.xml to ctpk -> compress to .lz -> all all ctpk.lz to a folder and convert to arc.
There's a tutorial on how to convert to ctpk.lz by
DeathChaos here. It says it's for Fate's myroom models, but it is the exact same process for Awakening files (I've done so myself, replacing the default Olivia sprite with a short hair edit and messing with the UI.) The only major difference is that it extracts to the same folder it's in instead of some obscure location on your computer.
Afterwards, you can convert it to .arc format by putting all the ctpk.lz files in a folder, then using the arc repacker. Depending on what version of the repacker you use, it might not support Japanese text for the folder (the ctpk.lz files are fine), so you might have to temporarily name it to something in English for it to convert.