FUJIO FOOD GROUP INC. FY2026 Q2 Earnings Report

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Executive Summary

The key takeaway from the current earnings results is that, despite higher revenue, profits declined sharply, as persistently high fixed costs (rent and labor costs) significantly compressed earnings and resulted in a net loss. Revenue increased slightly to ¥159.3B (+1.6% year on year), while Operating Income declined substantially to ¥0.6B (-76.5%) and Ordinary Income to ¥0.4B (-73.1%). Net Income (net income attributable to owners of the parent) fell into the red at ¥-1.1B (¥0.1B in the previous year), while the recognition of ¥0.8B in extraordinary losses, including ¥0.6B in impairment losses, further deteriorated earnings. The SG&A expense ratio rose to 63.9% from 62.7%, and the Operating Income margin contracted by 1.2pt to 0.4% from 1.6%, which was the primary reason that profits declined despite higher revenue.

Factors Affecting Performance

【Revenue】Revenue increased to ¥159.3B, up +1.6% year on year. The directly operated business generated ¥151.9B (+2.1%), accounting for 95.4% of total revenue, with major brands such as Kagura Shokudo, Kushiya Monogatari, and Sachifukuya showing growth. Meanwhile, the franchise business contracted to ¥7.4B (-7.6%) due to declines in franchise fees and royalty income. The gross margin was maintained at 64.3%, roughly in line with the previous year, indicating that deterioration in the product mix was limited.

【Profit and Loss】Operating Income declined substantially to ¥0.6B (-76.5% year on year), while Ordinary Income fell to ¥0.4B (-73.1%). Although the gross margin was maintained, SG&A expenses rose to ¥101.8B, including ¥38.1B in salaries and allowances and ¥22.1B in rent expenses, resulting in an SG&A expense ratio of 63.9%. Cost increases exceeding revenue growth weighed on profits. The recognition of ¥0.8B in extraordinary losses, including ¥0.6B in impairment losses on stores, together with ¥0.7B in interest expenses, resulted in a net loss of ¥-1.1B. In conclusion, the Company reported higher revenue but lower profits.

Segment Analysis

The directly operated business recorded revenue of ¥151.9B (+2.1%), segment profit of ¥13.9B (-3.2%), and a profit margin of 9.1%. The franchise business generated revenue of ¥7.4B (-7.6%) and segment profit of ¥5.4B (-7.0%), with a high profit margin of 72.5% but a small scale. Corporate expenses of ¥18.6B, which cannot be allocated to either segment, were deducted from the combined segment profit of ¥19.2B, compressing Operating Income to ¥0.6B. Under a concentrated structure in which the directly operated business accounts for 95.4% of revenue, the burden of corporate expenses is the primary factor weighing on performance.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 0.4% from 1.6% in the previous year, a decrease of 1.2pt, while the net profit margin deteriorated to -0.7% from 0.1%. ROE was -1.3% (approximately 0% in the previous year), indicating lower capital efficiency due to the net loss. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥6.6B, exceeding Net Income (¥-1.1B), with non-cash items such as ¥2.8B in depreciation and amortization and ¥0.5B in amortization of goodwill contributing to cash generation; however, the weakness of reported earnings remains. 【Investment Efficiency】Capital expenditures were ¥5.3B, approximately 1.9 times depreciation and amortization, indicating an active investment phase, while Free Cash Flow was ¥-3.1B, reflecting investment spending in excess of cash generation. 【Financial Soundness】The Equity Ratio improved slightly to 37.4% from 35.5% in the previous year. However, interest-bearing debt, including ¥43.2B in long-term borrowings, remains substantial. The burden of interest expenses is notable, with ¥0.7B in interest expenses compared with Profit Before Tax of ¥-0.4B.

Cash Flow Analysis

Operating Cash Flow was positive at ¥6.6B, increasing +34.5% year on year. However, the substantial gap from the net loss of ¥-1.1B indicates that depreciation and amortization of ¥2.8B and changes in working capital, including a ¥2.3B decrease in accounts payable, supported cash generation. Investing Cash Flow was ¥-9.7B, reflecting the continuation of proactive investment, primarily capital expenditures of ¥5.3B. Financing Cash Flow was ¥-12.1B, as cash outflows from debt repayments and dividend payments continued. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was ¥-3.1B, indicating that the Company was unable to sufficiently cover current-period investment and shareholder returns solely through operating activities.

Earnings Quality

Recurring earnings are primarily generated by the operating profits of the directly operated and franchise businesses, while non-operating income, including ¥0.2B in dividend income, was modest at approximately 0.5% of revenue. Meanwhile, the one-time factor of ¥0.8B in extraordinary losses, including ¥0.6B in impairment losses on stores, further reduced net income, resulting in Net Income deteriorating to ¥-1.1B from Ordinary Income of ¥0.4B. Non-operating expenses primarily consisted of ¥0.7B in interest expenses, and the burden of interest costs continues to weigh on reported earnings. The fact that Operating Cash Flow exceeded Net Income indicates a certain degree of resilience in cash-generation capacity; however, the continued occurrence of impairment losses suggests that one-time factors may continue to cause volatility in performance.

Earnings Forecast and Guidance

Progress against the full-year forecast varies significantly by indicator. Revenue was ¥159.3B/¥326.5B, representing progress of 48.8% and generally tracking smoothly. However, Operating Income was ¥0.6B/¥5.1B, representing progress of 11.4%, while Ordinary Income was ¥0.4B/¥4.5B, representing progress of 9.7%; both were significantly below the standard progress level of 50%. Although the first-half result was negative, the full-year forecast calls for positive Net Income of ¥1.1B, making a substantial improvement in profitability in the second half a prerequisite. Given the heavy fixed-cost burden in the first half, progress toward the second half warrants close monitoring.

Shareholder Returns

The Q2 dividend was ¥0, while a year-end dividend of ¥3.0 is forecast. Based on the annual dividend forecast of ¥3.0 and 51,300 thousand shares outstanding, total annual dividends are calculated at approximately ¥1.5B, implying a Payout Ratio of approximately 140% against the full-year Net Income forecast of ¥1.1B. First-half Free Cash Flow was ¥-3.1B and was insufficient to fully cover funding requirements, including dividends. Accordingly, the feasibility of the dividend depends on the progress of improvements in profit and cash flow in the second half.

Risk Factors

1. Negative operating leverage from fixed-cost burdens: Rent expenses are equivalent to 13.8% of revenue, while salaries and allowances are equivalent to 23.9% of revenue, both at high levels and the primary reasons the Operating Income margin declined to 0.4% despite higher revenue.

2. Business concentration risk and continued store impairment losses: While the directly operated business accounts for 95.4% of revenue, the Company recognized ¥0.6B in impairment losses on stores during the current period, indicating an ongoing risk that unprofitable stores may continue to generate extraordinary losses.

3. Balance between interest burden and earnings power: Profit Before Tax was ¥-0.4B against interest expenses of ¥0.7B, indicating that interest costs are heavy relative to the earnings level. The structure of interest-bearing debt, including ¥43.2B in long-term borrowings, requires monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

As industry median data was not provided, it can be confirmed that both the Operating Income margin and net profit margin are low in absolute terms.

Growth and Capital Efficiency

The revenue growth rate was slightly positive, indicating that the trend of higher revenue itself has been maintained.

※Source: Compiled by the Company

Key Points of the Earnings Results

1. Despite higher revenue, the Operating Income margin declined from 1.6% in the previous year to 0.4%. The fact that growth in SG&A expenses, particularly rent and labor costs, exceeded revenue growth and placed pressure on performance is the key structural point of the current earnings results.

2. The gap between Ordinary Income and Net Income widened due to ¥0.8B in extraordinary losses, including ¥0.6B in impairment losses on stores, and interest expenses. One-time factors amplified earnings volatility. Operating Cash Flow remained above Net Income, indicating that cash-generation capacity itself was maintained.

3. First-half progress against the full-year forecast was 48.8% for revenue, while Operating Income and Ordinary Income remained around 10%. Progress in reducing fixed costs and improving store profitability in the second half will be key points to monitor in assessing the achievement of the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥131–¥138 for Cost of Equity ±1%, and ¥134–¥135 for ω ±0.1.

Notes:

• Goodwill amortization of ¥1.9 per share has been added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 22%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Because 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, resulting in a timing difference relative to the full-year forecast.
• Because 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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