FUJIO FOOD GROUP INC. FY2026 Q2 Earnings Report

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Executive Summary

The key features of this earnings report were lower operating income due to higher fixed costs and a shift to a net loss despite higher revenue. Revenue increased to ¥15.93B (+1.6% YoY), but rising SG&A expenses resulted in a substantial decline in operating income to ¥0.06B (-76.5%) and ordinary income to ¥0.04B (-73.1%). The interim net loss attributable to owners of the parent was ¥0.11B, compared with net income of ¥0.01B in the same period of the previous year. The primary driver of revenue growth was the expansion of existing brands in the directly operated business; however, increases in fixed costs such as salaries and rent outpaced revenue growth and pressured earnings.

Factors Affecting Results

【Revenue】Revenue increased to ¥15.93B (+1.6% YoY). Although the trend over three consecutive periods is unclear, the Company achieved revenue growth during the current period. By segment, the directly operated business grew to ¥15.19B (+2.1%), led by Kagura Shokudo Kushiya Monogatari and Maido Ookini Shokudo, while the franchise business declined to ¥0.74B (-7.6%). By brand, Tempura Ebinoya (-15.8%) and Men-no-Sho Tsurumaru (-4.0%) underperformed, indicating that growth remains concentrated in certain brands.

【Profit and Loss】The gross profit margin remained broadly flat year on year at 64.3%, but the SG&A ratio rose to 63.9%, causing the operating margin to decline to 0.4% (1.6% in the same period of the previous year). Salaries and allowances increased by +4.4%, while rent increased by +1.5%; both fixed-cost items expanded at a faster pace than revenue. The segment profit margin of the directly operated business declined to 9.1% (9.6% in the same period of the previous year). The franchise business maintained a high segment profit margin of 72.5%, but segment profit declined as revenue contracted. In non-operating items, interest expense of ¥0.07B exceeded operating income of ¥0.06B, leaving ordinary income at ¥0.04B. The Company recorded extraordinary losses of ¥0.08B, including ¥0.06B in impairment losses on stores, resulting in a net loss of ¥0.11B. The results were characterized by higher revenue but lower earnings.

Segment Analysis

The directly operated business recorded revenue of ¥15.19B (+2.1% YoY) and segment profit of ¥1.39B (-3.2%), resulting in higher revenue but lower earnings. The franchise business recorded revenue of ¥0.74B (-7.6%) and segment profit of ¥0.53B (-7.3%), resulting in both lower revenue and lower earnings; recurring revenue streams such as royalties also weakened. Corporate expenses (adjustments) amounted to ¥1.86B, an increase of +5.9% YoY, offsetting most of the combined segment profit of ¥1.92B generated by the two businesses. The franchise business’ segment profit margin of 72.5% substantially exceeded the directly operated business’ 9.1%, reflecting the difference in their asset-light earnings structures.

Key Financial Indicators

【Profitability】The operating margin declined to 0.4% from 1.6% in the same period of the previous year, primarily because the SG&A ratio rose to 63.9% while the gross profit margin was maintained at 64.3%, broadly unchanged year on year. The net profit margin was -0.7%, indicating that the Company moved into the red on a net income basis during the current period.【Cash Flow Quality】Operating Cash Flow (OCF) was positive at ¥0.66B despite the net loss. The reversal of non-cash items, including depreciation and amortization of ¥0.28B and impairment losses of ¥0.06B, contributed to OCF.【Investment Efficiency】Annualized ROE was -2.7%, mainly reflecting lower profitability. Capital expenditures of ¥0.53B were approximately 1.9 times depreciation and amortization, indicating that investment levels were maintained; however, free cash flow was negative at ¥0.31B.【Financial Soundness】The Equity Ratio improved to 37.4% from 35.5% in the same period of the previous year, although the contraction in total assets also contributed to the improvement. Long-term borrowings declined to ¥4.32B, down -16.9% YoY, but interest expense remains higher than operating income.

Cash Flow Analysis

OCF was positive at ¥0.66B, an increase of +34.5% from ¥0.49B in the same period of the previous year, indicating that the Company maintained cash-generation capacity despite recording a net loss. The reversal of non-cash expenses, including depreciation and amortization of ¥0.28B and impairment losses of ¥0.06B, contributed to OCF. The decrease in accounts payable (-¥0.23B) was instead a cash outflow factor, indicating that the increase was not apparently inflated by delaying working-capital payments. Investing Cash Flow was negative at ¥0.97B, reflecting continued investment centered on capital expenditures of ¥0.53B. Financing Cash Flow was negative at ¥1.21B, primarily due to repayments of long-term borrowings of ¥1.04B and dividend payments of ¥0.15B. As a result, free cash flow, calculated as OCF less capital expenditures, was negative at ¥0.31B, and cash and cash equivalents declined to ¥6.10B at period-end. The Company’s capacity to continue investment and shareholder returns solely through internal funds is currently limited.

Quality of Earnings

The deterioration in earnings during the current period was affected by both higher recurring fixed-cost burdens and the one-time factor of impairment losses on stores. Non-operating expenses of ¥0.10B, including interest expense of ¥0.07B, exceeded non-operating income of ¥0.08B, resulting in ordinary income of ¥0.04B, below operating income. Of the ¥0.08B in extraordinary losses, ¥0.06B represented impairment losses on stores scheduled for closure or experiencing declining profitability and is classified as a one-time factor. As the Company recorded income taxes and other taxes of ¥0.08B against a pretax loss of ¥0.04B, the effective tax rate was at a level different from that under normal taxable conditions, and the net loss expanded to ¥0.11B. Comprehensive income was negative at ¥0.03B, differing from the net loss attributable to owners of the parent of ¥0.11B; a positive ¥0.07B valuation difference on securities partially offset the difference.

Earnings Forecast and Guidance

Against the full-year Company forecasts of revenue of ¥32.65B, operating income of ¥0.51B, and ordinary income of ¥0.45B, the first-half progress rate was 48.8% for revenue, a standard level. However, the progress rates for operating income and ordinary income were 11.4% and 9.7%, respectively, substantially below the normal interim benchmark of 50%. Operating income of approximately ¥0.45B will be required in the second half, representing approximately 7.8 times the first-half result of ¥0.06B; achievement therefore presupposes a significant improvement in profitability. No revisions have been made to the earnings forecasts, and management has maintained its existing guidance.

Shareholder Returns

The Q2 interim dividend was ¥0 per share, while the full-year Company forecast is an annual dividend of ¥3.0 per share. Based on the average number of shares outstanding during the period of 51,274,444 shares, the estimated total annual dividend is approximately ¥0.15B, resulting in a Payout Ratio of approximately 140% against forecast full-year net income of ¥0.11B. First-half free cash flow was negative at ¥0.31B, indicating that dividends are not being funded by operating cash flow after investment. No share repurchases have been confirmed; therefore, the assessment here is based on the Payout Ratio, not the Total Return Ratio.

Risk Factors

1. Fixed-cost burden and earnings-margin vulnerability: The operating margin declined to 0.4%, and interest expense of ¥0.07B exceeded operating income of ¥0.06B, meaning that operating income alone is insufficient to cover financial expenses. Personnel expenses and rent are increasing faster than revenue, creating a structure in which even minor changes in the operating environment could readily lead to another deterioration in earnings.

2. Risk of recurring store impairments: The directly operated business recorded impairment losses of ¥0.06B for stores scheduled for closure or experiencing declining profitability. If improvements at low-profitability stores are delayed, additional closures and impairment losses could affect both extraordinary losses and the revenue base.

3. Financial leverage and liquidity management: While long-term borrowings are being reduced, current liabilities amount to ¥7.91B, including ¥3.41B in long-term borrowings due within one year, compared with major current assets—cash, accounts receivable, and inventories—of ¥7.26B. With EBITDA at a lower level, balancing the management of refinancing and repayment funds with a recovery in earnings power will be a key challenge.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

The Company’s operating margin and net profit margin are both low in terms of profitability, indicating room for improvement within the industry.

Growth and Capital Efficiency

Revenue growth was limited to modest growth, indicating a phase of gradual top-line expansion.

※Source: Company analysis

Key Takeaways from the Earnings Report

1. Despite higher revenue, the operating margin declined from 1.6% in the same period of the previous year to 0.4%. The fact that fixed costs, including personnel expenses and rent, are increasing faster than revenue is a structural point of focus. Both the directly operated and franchise businesses posted lower earnings, while higher head-office expenses also pressured consolidated profit.

2. OCF was positive at ¥0.66B, indicating sound cash conversion, but free cash flow after capital expenditures was negative at ¥0.31B. Based on the annual dividend forecast of ¥3, the Payout Ratio is calculated at approximately 140%, making the sustainability of dividends dependent on future improvement in FCF.

3. The full-year progress rates for operating income and ordinary income were 11.4% and 9.7%, respectively, substantially below the interim benchmark of 50%. Management of fixed costs and progress in restructuring low-profitability stores during the second half will be key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥131–¥138 at Cost of Equity ±1%; ¥134–¥135 at ω±0.1.

Notes:

• Goodwill amortization of ¥1.9 per share is added back to earnings, as it is a non-cash expense and for comparability with IFRS companies.
• 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 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 quarter-end are used, creating a timing difference from the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict 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, after consulting a professional as necessary.

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