McDonald's Holdings Company(Japan),Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥312.32B
• Operating Income: ¥42.90B
• Net Income: ¥24.25B
• EPS: ¥203.01

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: A solid quarter with double-digit profit growth outpacing modest sales, driven by margin expansion and disciplined cost control. Revenue rose 2.9% year over year to 3,123.25, while operating income increased 15.5% to 429.01 and net income grew 11.3% to 269.92. Operating margin improved to approximately 13.7%, up about 150 bps from roughly 12.2% a year ago (back-solved from growth rates). Net margin expanded to about 8.6%, up roughly 65 bps from about 8.0% last year. Gross profit reached 617.13, implying a gross margin of 19.8%, though the YoY change in gross margin is not derivable from disclosed data. Ordinary income was 424.30 (+12.6% YoY), indicating limited reliance on non-operating items; net non-operating impact was modest at around +5.2 (13.04 income minus 7.85 expenses). Interest expense remained negligible at 0.07, reflected in a very high interest coverage ratio of 6,128.7x. Financial leverage is low, with debt-to-equity at 0.24x and current ratio at a healthy 182.5%. ROE is a solid 9.9% (DuPont-calculated), supported primarily by improved net margin and steady asset turnover of 0.924. ROIC is reported at 14.5%, comfortably above common 7–8% benchmarks, underscoring efficient capital deployment in the store network and systems. Earnings quality cannot be fully assessed due to unreported operating cash flow; thus, OCF vs. NI divergence is unknown this quarter. Cash on hand is strong at 661.36, and retained earnings of 2,114.07 support continued investment and shareholder returns. The payout ratio is a conservative 24.1%, suggesting ample headroom even without FCF disclosure. The balance sheet shows no liquidity stress; current assets exceed current liabilities by 469.99, reducing maturity mismatch concerns. Forward-looking, the widened operating margin suggests pricing, mix, and/or procurement discipline are offsetting input and wage inflation, but sustainability will hinge on traffic resilience and cost normalization. Key watchpoints include same-store traffic versus average check dynamics, food and labor cost ratios, and any forthcoming commentary on capex and lease commitments.

Profitability Analysis

ROE decomposition (DuPont): ROE 9.9% = Net Profit Margin (8.6%) × Asset Turnover (0.924) × Financial Leverage (1.24x). The most significant change driver versus last year is the net profit margin, which expanded about 65 bps (from ~8.0% to 8.6%), while operating margin expanded about 150 bps, indicating improved operating efficiency and/or favorable price/mix. Business rationale: double-digit operating income growth against low-single-digit sales suggests better menu pricing, mix optimization, delivery/digital contribution, and disciplined SG&A containment despite inflationary inputs. Non-operating effects were small; net non-operating contribution (+5.2) did not drive the quarter. Sustainability: Pricing/mix and cost initiatives can sustain if consumer traffic holds and procurement normalizes; however, commodity and wage inflation could pressure margins, so the full 150 bps gain may not be recurring. No evidence that SG&A growth exceeded revenue growth (SG&A YoY not disclosed), but operating leverage points to opex growing slower than sales this period.

Growth Assessment

Top-line growth was modest (+2.9% YoY), consistent with a mature footprint but likely supported by price/mix and delivery. Profit growth was strong: operating income +15.5% and net income +11.3%, indicating healthy operating leverage. Profit quality appears anchored in core operations: ordinary income closely tracks operating income, and non-operating items are limited in scale. With ROIC at 14.5%, incremental investments (remodels, digital/order channels) likely exceed cost of capital. Sustainability depends on maintaining guest traffic as price levels normalize and on continued cost discipline in food and labor. Outlook watchpoints: same-store sales split between traffic and average check, input cost trajectory (beef, chicken, potatoes, packaging), wage inflation, and marketing effectiveness.

Financial Health

Liquidity is strong: current ratio 182.5% and quick ratio 182.5%, with cash and deposits of 661.36 against current liabilities of 569.48. Solvency is conservative: debt-to-equity at 0.24x and negligible interest expense, yielding a very high interest coverage of 6,128.7x. No explicit short-term borrowing disclosed; maturity mismatch risk is low given current assets exceed current liabilities by 469.99. Total equity of 2,735.01 provides a substantial buffer against shocks. No off-balance sheet obligations are disclosed in the data provided; however, restaurant lease commitments are typically material in this business model and may not be fully reflected under JGAAP in the same way as IFRS 16—this should be monitored in notes. Explicit warnings: none—Current Ratio > 1.0 and D/E < 2.0.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed this quarter (data limitation). Free cash flow and capex are also unreported, preventing a full assessment of cash conversion and reinvestment requirements. Working capital appears conservative with substantial cash; no signs of manipulation can be inferred or ruled out due to missing OCF and working capital detail (inventories and payables largely unreported). Given the low payout ratio and cash balance, near-term cash coverage for ordinary dividends appears comfortable, but confirmation awaits OCF/FCF disclosure.

Dividend Sustainability

The calculated payout ratio is 24.1%, comfortably below the <60% benchmark, suggesting headroom. FCF coverage is not calculable due to missing OCF and capex data. Balance-sheet support is strong: cash of 661.36 and retained earnings of 2,114.07. With ROE at 9.9% and ROIC at 14.5%, the company has capacity both for reinvestment and shareholder returns, subject to cash generation remaining robust. Policy outlook cannot be inferred from disclosures here; monitor guidance, DPS announcements, and any stated payout or DOE targets.

Risk Assessment

Business Risks:

• Input cost inflation and volatility (beef, chicken, potatoes, packaging) impacting gross margin
• Wage inflation and labor availability pressures on store-level profitability
• Traffic sensitivity to pricing actions; risk of negative mix if consumer sentiment weakens
• Competitive intensity in QSR/fast casual and convenience store food offerings
• Food safety and supply chain disruption risk (e.g., import logistics, weather events)

Financial Risks:

• Potentially material off-balance sheet lease commitments under JGAAP affecting fixed-cost leverage
• FX exposure on imported ingredients (USD/JPY), with limited natural hedge if pricing power wanes
• Concentration of cash balances and interest rate risk on deposits (minor relative to operations)
• Tax rate variability (implied ~29% effective rate based on PBT vs NI) affecting after-tax earnings

Key Concerns:

• Sustainability of the ~150 bps operating margin expansion amid ongoing cost inflation
• Lack of OCF and capex disclosure this quarter limits assessment of earnings-to-cash conversion
• Dependence on price/mix to drive profit growth; traffic elasticity risk
• Lease intensity increases operating leverage in downturns even with low financial leverage

Investment Implications

Key Takeaways:

• Profit growth materially outpaced sales on margin expansion; operating margin ~13.7% (+~150 bps YoY).
• Net margin improved to ~8.6% (+~65 bps YoY), with limited contribution from non-operating items.
• Balance sheet is very strong (current ratio 182.5%, D/E 0.24x, cash 661.36).
• ROE 9.9% and ROIC 14.5% indicate efficient capital use and healthy returns.
• Data gaps on OCF/FCF and capex defer full judgment on cash conversion and dividend cover.

Metrics to Watch:

• Same-store sales decomposition (traffic vs average check)
• Food and paper cost ratio; labor cost ratio
• Capex for remodels/digital and resulting FCF
• OCF/Net income ratio (target >1.0)
• Effective tax rate and any changes in lease disclosures
• Delivery/digital sales mix and its margin impact

Relative Positioning: Within the Japanese QSR space, the company exhibits superior balance-sheet strength and above-benchmark ROIC with disciplined cost control, positioning it favorably on profitability and resilience; the key differentiator versus peers is the magnitude and sustainability of recent margin expansion amid industry-wide input cost pressures.

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
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