FUJIO FOOD GROUP (2752) FY2026 Q1 Earnings Report

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Executive Summary

The current period was characterized by higher revenue but lower earnings, with the inability to convert revenue growth into profit being the most significant feature. Revenue increased to ¥8.11B (+2.2% YoY), while Operating Income declined to ¥0.28B (-26.0%), Ordinary Income to ¥0.27B (-17.5%), and Net Income to ¥0.20B (-8.4%). The primary factors were a decline in the gross margin (63.9%, versus 64.2% in the previous year) and an increase in SG&A expenses (+3.7%) exceeding the 2.2% revenue growth rate, which reduced fixed-cost absorption and narrowed the Operating Income margin from 4.7% to 3.4%. The smaller decline in Net Income than in Operating Income was due to a temporary easing effect resulting from the absence in the current period of the ¥0.07B impairment loss recognized in the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥8.11B, up +2.2% YoY. The Directly Operated Business led growth, increasing to ¥7.74B (+2.8% YoY). By brand, Kagura Shokudo Kushiya Monogatari (+10.3%) and Maido Ookini Shokudo (+5.3%) performed well, while Tempura Ebinoya (-14.7%) and Men-no-Sho Tsurumaru (-2.8%) recorded revenue declines, indicating variation in performance across brands. Franchise Business revenue was ¥0.37B (-9.6% YoY), as declines in franchise fees, initial fees, and recurring fees offset a slight increase in royalty revenue.

【Profit and Loss】Gross profit was ¥5.18B, with the gross margin declining to 63.9% from 64.2% in the previous year. SG&A expenses were ¥4.90B (+3.7% YoY), exceeding the revenue growth rate, and Operating Income contracted to ¥0.28B (-26.0% YoY). Segment profit from the Directly Operated Business was ¥0.73B (-7.1% YoY), while Franchise Business segment profit was ¥0.27B (-5.6% YoY); both businesses reported lower earnings. Corporate expenses also increased to ¥0.72B (+3.6% YoY), placing pressure on consolidated profit. Ordinary Income was ¥0.27B (-17.5% YoY), with the decline in Operating Income slightly mitigated by lower interest expenses (¥0.05B → ¥0.03B). As the ¥0.07B impairment loss recognized in the previous year did not recur, extraordinary losses decreased to ¥0.01B, allowing Net Income to remain relatively resilient at ¥0.20B (-8.4% YoY). In conclusion, the Company achieved higher revenue but lower earnings.

Segment Analysis

The Directly Operated Business recorded revenue of ¥7.74B (+2.8% YoY), segment profit of ¥0.73B (-7.1% YoY), and a profit margin of 9.5%. The Franchise Business recorded revenue of ¥0.37B (-9.6% YoY), segment profit of ¥0.27B (-5.6% YoY), and a high profit margin of 73.4%. Franchise fees, initial fees, and recurring fees continued to decline, and the contraction of this high-margin business is a factor worsening the consolidated profit mix. Segment profit declined in both businesses, while the increase in corporate expenses to ¥0.72B (+3.6% YoY) placed additional pressure on consolidated Operating Income.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.4%, approximately 1.3pt lower than 4.7% in the same period of the previous year, while the Net Income margin remained at 2.4%. A slight decline in the gross margin to 63.9% from 64.2% and a simultaneous increase in the SG&A ratio to 60.4% from 59.5% caused operating leverage to work in the opposite direction. 【Cash Quality】Cash and deposits were ¥7.28B, accounting for 30.4% of total assets, indicating ample on-hand liquidity. 【Investment Efficiency】Annualized ROE was 9.0%, formed by a combination of a 2.4% Net Income margin, approximately 1.36x total asset turnover, and approximately 2.7x financial leverage; leverage is supplementing the low profit margin. 【Financial Soundness】The Equity Ratio improved to 36.6% from 35.5% in the same period of the previous year. The Current Ratio and Quick Ratio remained at sound levels of approximately 153% and approximately 151%, respectively, while interest expenses declined from ¥0.052B in the previous year to ¥0.032B.

Cash Flow Analysis

Although individual disclosure in the statement of cash flows is limited, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits were ¥7.28B, down ¥0.70B from ¥7.98B in the same period of the previous year. Meanwhile, long-term borrowings, including the ¥3.49B portion due for repayment within 1 year, were reduced to ¥4.75B. The decline in cash appears to have been driven by ongoing investment activity, as indicated by increases in property, plant and equipment and construction in progress (+¥0.059B, +102% YoY), together with cash outflows from debt repayments. Cash and deposits still account for 30.4% of total assets and stand at approximately 2.1 times the ¥3.49B in long-term borrowings due for repayment within 1 year, limiting concerns regarding short-term funding.

Quality of Earnings

Although the decline in Net Income (-8.4%) was smaller than the decline in Operating Income (-26.0%), this was not attributable to an improvement in recurring earnings power. Rather, it resulted from the temporary factor that extraordinary losses, including the ¥0.07B impairment loss recognized in the same period of the previous year, decreased from ¥0.076B to ¥0.009B in the current period. Non-operating income and expenses partially mitigated the decline at the Ordinary Income level through lower interest expenses (¥0.052B → ¥0.032B), but this was also a limited factor resulting from the reduction in financial expenses accompanying the contraction of borrowings. The fact that the apparent resilience of Net Income was maintained while the Operating Income margin narrowed to 3.4% indicates the need to distinguish between deteriorating operating profitability and the stability of Net Income when evaluating performance.

Earnings Forecast and Guidance

The Q1 progress rate against the Full-Year earnings forecast was broadly standard for Revenue at 24.8% (Company forecast of ¥32.65B, YoY +2.3%), while progress was high for Operating Income at 54.3% (Full-Year forecast of ¥0.51B, YoY -29.7%) and Ordinary Income at 60.4% (Full-Year forecast of ¥0.45B, YoY -25.2%). In contrast, Q1 Net Income of ¥0.20B exceeded the Full-Year forecast of ¥0.11B, suggesting that additional expenses, extraordinary income and losses, and tax burdens in subsequent quarters may be incorporated into the Full-Year forecast. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥3.00 per share. Based on the Full-Year Net Income forecast of ¥0.11B, the Payout Ratio is approximately 140%, meaning that dividends alone exceed Net Income. Retained earnings were negative ¥2.59B, indicating that the capacity to pay dividends through internal accumulation is not strong. However, Q1 Net Income of ¥0.20B exceeded the Full-Year forecast, and the actual Payout Ratio may fluctuate depending on the achievement of Full-Year earnings. The number of treasury shares was minimal at 74 shares; accordingly, the Company should be evaluated based on the Payout Ratio alone rather than a Total Return Ratio incorporating share repurchases.

Risk Factors

1. Declining cost absorption capacity: SG&A expense growth was 3.7%, compared with revenue growth of 2.2%, while the gross margin also declined to 63.9%. The Operating Income margin of 3.4% is below 5%, leaving significant downside risk to earnings if increases in costs such as food materials, labor, and rent cannot be absorbed through price pass-through or improved store productivity.

2. Contraction of the Franchise Business: Franchise Business revenue was ¥0.37B (-9.6% YoY), with franchise fees, initial fees, and recurring fees declining. Continued contraction of the Franchise Business, which has a high segment profit margin of 73.4%, would worsen the consolidated profit mix.

3. Structural burden of asset retirement obligations and borrowings: Asset retirement obligations of ¥1.09B account for 7.2% of total liabilities, indicating a relatively substantial scale of future expenditures related to store closures and restoration. Borrowings totaled ¥8.24B, and their weight as a fixed repayment burden is increasing as the Operating Income margin contracts.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (retail)

Profitability and Returns

As median data is limited, direct comparison is not possible. However, the Company's Operating Income margin of 3.4% and Net Income margin of 2.4% are relatively low compared with the general benchmark of around 5% for the retail and restaurant industries.

Growth and Capital Efficiency

Revenue growth of 2.2% represents modest revenue growth. Accumulating additional comparative data would be useful for assessing the Company's positioning within the industry.

※Source: Company research

Key Points from the Earnings Results

1. Revenue is expanding in line with the Company's plan, but the simultaneous decline in the gross margin and increase in the SG&A ratio narrowed the Operating Income margin to 3.4%. The core Directly Operated Business recorded higher revenue but lower earnings, making the structural ability to convert increased store sales into profit a key point of focus.

2. The Franchise Business has a high profit margin of 73.4%, but both revenue and profit declined, weakening its contribution to improving the earnings mix. The increase in corporate expenses (+3.6%) also placed pressure on consolidated profit.

3. Although Q1 progress rates toward Full-Year Operating Income and Ordinary Income were high, Q1 Net Income exceeded the Full-Year Net Income forecast. This reversal suggests potential fluctuations in expenses, extraordinary income and losses, and tax burdens in subsequent quarters, making it an important point for understanding the structure of the Full-Year outlook.

Theoretical Share Price (Reference Value)

Sensitivity: ¥130–¥138 for ±1% in the cost of equity, and ¥133–¥135 for ±0.1 in ω.

Notes:

• As Net Income progress against the Full-Year forecast (179%) exceeds the standard level (25%), Forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 22%). This figure reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• As forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings-release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, with consultation with a professional as necessary.

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