FUJIO FOOD GROUP INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥23.80B
• Operating Income: ¥589M
• Net Income: ¥472M
• EPS: ¥1.12

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: FY2025 Q3 (cumulative) was weak, with sharp profit compression despite modest top-line growth. Revenue grew 1.7% YoY to 237.96, but operating income fell 48.7% YoY to 5.89 and ordinary income dropped 55.4% YoY to 4.56, culminating in net income of just 0.57 (-87.9% YoY). Operating margin deteriorated to 2.47% (from ~4.91% a year ago), implying roughly 244 bps of compression. Net margin slid to 0.24% (from ~2.01% a year earlier), a contraction of about 177 bps. Gross margin is high at 64.2%, but SG&A intensity remained heavy at 59.3% of sales, limiting operating leverage. Non-operating balance was a drag (0.74 income vs 2.00 expense), with interest expense at 0.95; interest coverage is still acceptable at 6.2x given 5.89 in operating income. Liquidity looks solid (current ratio 164%) with cash and deposits at 84.83, but leverage is on the high side (D/E 1.85x) and retained earnings are negative (-26.69), indicating limited internal buffer. ROE is very low at 0.7%, driven by thin net margins despite reasonable asset turnover and elevated financial leverage. The effective tax rate was 27.3%, broadly normal, and profit before tax (6.49) exceeded ordinary income, implying non-recurring items in special gains/losses. Earnings quality can’t be assessed fully as operating cash flow is unreported; this is a key limitation. Dividend capacity appears strained given a calculated payout ratio of ~180% against weak earnings, though actual dividend cash out is unreported. Forward-looking, cost control and SG&A discipline are critical to restore margins; interest burden and potential wage/food cost inflation remain headwinds. Balance sheet cash provides near-term cushion, but the combination of low profitability and relatively high leverage narrows flexibility if trading conditions worsen.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 0.24% × 0.968 × 2.85 ≈ 0.7%. The largest driver of the YoY deterioration is the Net Profit Margin, which fell from ~2.01% to 0.24% (about -177 bps), reflecting operating margin compression and a heavier non-operating drag. Asset turnover at 0.968 is reasonable for a restaurant operator and likely stable YoY given modest revenue growth. Financial leverage is elevated at 2.85x and did not offset margin weakness enough to sustain ROE. Business drivers: SG&A grew faster than revenue (inferred from margin compression with only +1.7% sales), likely due to wage inflation, utilities, and store operating costs; non-operating expenses, notably interest (0.95), further squeezed ordinary income. Sustainability: Absent structural cost actions (labor scheduling, rent renegotiation, purchasing), margin pressure could persist; some cost inflation may moderate, but minimum wage and energy costs pose ongoing risks. Concerning trends: Operating income fell 48.7% against +1.7% revenue—negative operating leverage; SG&A burden at 59.3% of sales leaves little buffer. Watch for any impairment risk given goodwill (11.96) and intangibles (12.52) relative to low earnings.

Growth Assessment

Top-line growth was modest at +1.7% YoY to 237.96, suggesting stable but not accelerating demand. Profit growth is negative across the board: operating income -48.7%, ordinary income -55.4%, and net income -87.9%, indicating cost pressures overwhelming slight sales gains. Operating margin fell to 2.47% from ~4.91% (≈-244 bps), implying material negative mix and/or cost inflation. Non-operating balance deteriorated relative to scale, with interest expense pressuring ordinary income. Revenue sustainability appears modest; with high gross margin (64.2%), the issue is SG&A absorption and store-level efficiency rather than pricing power alone. Outlook hinges on labor and utility cost trajectories, procurement efficiency, and traffic recovery; incremental price actions may help but risk demand elasticity. Near-term, expect cautious earnings trajectory until SG&A discipline and non-operating costs are addressed.

Financial Health

Liquidity is healthy: current assets 135.56 vs current liabilities 82.67 (current ratio 164%, quick ratio 162%). No warning on current ratio (<1.0) or D/E (>2.0); however, D/E at 1.85x is above a conservative threshold (1.5x) and close to the 2.0x caution level. Cash and deposits are sizable at 84.83, providing a buffer. Long-term loans total 56.18; short-term loans are unreported, limiting visibility on the maturity ladder. Maturity mismatch risk appears moderate given positive working capital (52.89), but the lack of short-term debt detail is a constraint. Retained earnings are negative (-26.69), indicating an accumulated deficit and reduced capacity to absorb shocks without external financing. Off-balance sheet obligations are not disclosed; lease liabilities (common in restaurants) may be embedded in rent expense but are unreported here.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed; this is a key limitation. Earnings quality flags typically include OCF/NI <0.8, but we cannot compute this. Given thin operating margin (2.47%) and interest expense (0.95), cash conversion could be tight if working capital needs rise, though high cash on hand mitigates near-term risk. No signs of working capital manipulation are visible from the limited data; receivables (6.18) and inventories (1.49) look modest relative to sales, typical for a restaurant model. Without capex data, FCF sustainability for dividends and growth capex cannot be evaluated.

Dividend Sustainability

Calculated payout ratio is 179.9%, indicating dividends in excess of current earnings; however, actual dividends paid and FCF are unreported. Given low net income (0.57) and operating margin compression, dividend coverage from earnings is weak; coverage from FCF is unknown. With cash balances of 84.83, near-term payment capacity exists, but sustained distributions at current earnings levels would likely be unsustainable without profit recovery. Policy outlook likely hinges on margin restoration and visibility on OCF; prudence would suggest prioritizing balance sheet strength given negative retained earnings.

Risk Assessment

Business Risks:

• Cost inflation in labor and utilities pressuring SG&A and operating margins
• Food input price volatility affecting gross margin despite current high GP margin
• Traffic volatility and demand elasticity to price hikes
• Execution risk on store operations and productivity improvements
• Potential impairment risk given goodwill (11.96) and intangibles (12.52) amid weak profits

Financial Risks:

• Elevated leverage (D/E 1.85x) reduces flexibility
• Interest rate risk on borrowings with interest expense of 0.95 and falling coverage buffer
• Negative retained earnings (-26.69) limiting internal capital
• Dividend coverage risk given ~180% payout vs low earnings
• Maturity profile opacity due to unreported short-term loans and cash flow data

Key Concerns:

• Operating margin compressed by ~244 bps YoY to 2.47%
• Net margin at 0.24% leaves little buffer for shocks
• Ordinary income down 55.4% YoY amid non-operating expense drag
• Limited visibility on OCF/FCF, constraining assessment of earnings quality and dividend safety
• Potential for further margin pressure if wage hikes and energy costs persist

Investment Implications

Key Takeaways:

• Modest revenue growth (+1.7%) overshadowed by significant profit declines across all levels
• Operating margin compressed to 2.47% (≈-244 bps YoY), pointing to negative operating leverage
• ROE at 0.7% is primarily constrained by a very low net margin
• Liquidity is sound (current ratio 164%), but leverage is comparatively high (D/E 1.85x) and retained earnings are negative
• Dividend sustainability is questionable with a ~180% payout ratio against depressed earnings

Metrics to Watch:

• OCF and FCF once disclosed; OCF/NI ratio for earnings quality
• SG&A as a percent of sales and store-level labor productivity
• Interest coverage trend and borrowing costs
• Same-store sales/traffic and pricing actions
• Impairment tests on goodwill/intangibles and any extraordinary items

Relative Positioning: Within domestic casual dining peers, the company exhibits adequate liquidity but weaker profitability and efficiency (operating margin 2.5%, ROE 0.7%) and relatively high leverage; near-term performance trails peers emphasizing tight SG&A control and higher store-level 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