SANKO MARKETING FOODS CO.,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥2.44B
• Operating Income: ¥-174M
• Net Income: ¥-145M
• EPS: ¥-5.26

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: Weak quarter with operating loss despite modest top-line growth, highlighting cost pressure and thin equity base. Revenue grew 3.6% YoY to 24.45, but gross profit of 7.84 could not cover SG&A of 9.59, resulting in operating loss of -1.74. Non-operating income of 0.36 and non-operating expense of 0.02 partially cushioned losses at the ordinary level, but ordinary income still posted -1.83. Profit before tax was -1.40 and net income was -1.93, translating to a net margin of -7.9%. EPS was -5.26 JPY, consistent with the loss. Gross margin stood at 32.1%, while the operating margin was -7.1% and ordinary margin -7.5%. YoY margin expansion/compression cannot be quantified due to lack of prior-period margin disclosures; absolute margin levels remain negative. Operating leverage worked against the company as SG&A ratio (39.2% of revenue) exceeded gross margin, a structural profitability issue. ROE was deeply negative at -36.6%, driven by a negative net margin and high financial leverage (5.09x). The balance sheet is thin with total equity of 5.27 against total liabilities of 21.52, implying an equity ratio of about 19.7% and a high D/E of 4.08x. Liquidity is adequate in the near term with a current ratio of 128.7% and cash of 7.61 nearly covering short-term loans (1.30) and a large portion of current liabilities when combined with receivables. Notably, interest-bearing debt totals 4.62 (short-term 1.30, long-term 3.32) versus cash of 7.61, implying a net cash position of roughly 2.99, which offsets some refinancing risk. However, interest coverage is negative (-174x), reflecting operating losses rather than cash strain on interest. Operating cash flow information was not disclosed, creating uncertainty around earnings quality and working capital dynamics. Forward-looking, the company must narrow the SG&A gap to gross profit via cost controls or better sales mix/pricing to return to operating breakeven, while protecting liquidity and rebuilding retained earnings (-3.52). Without improvement in unit economics and cost structure, capital efficiency (ROIC -76.3%) and equity fragility will constrain strategic options.

Profitability Analysis

ROE decomposition: ROE (-36.6%) = Net Profit Margin (-7.9%) × Asset Turnover (0.912) × Financial Leverage (5.09x). The dominant driver of the negative ROE is the net profit margin, as both operating and ordinary income were negative due to SG&A exceeding gross profit. Asset turnover at 0.912 (for the quarter versus period-end assets) is moderate for a restaurant operator, and leverage is high, which amplifies the negative margin into a larger negative ROE. The business reason for margin weakness appears to be elevated operating costs (labor, utilities, and rent) and possibly insufficient pricing/mix to offset input inflation; SG&A ratio at 39.2% outstrips gross margin of 32.1%, structurally ensuring operating losses at current sales levels. This margin shortfall is unlikely to be sustainable long term; either costs must be reduced or revenue per store must increase meaningfully to restore operating leverage. With revenue up 3.6% YoY but operating profit negative, expense growth likely exceeded revenue growth, signaling adverse operating leverage. Without prior-period detail, we cannot isolate which SG&A line items accelerated, but the aggregate suggests store-level labor and occupancy pressures. In summary, the net margin deterioration is the largest contributor to ROE change; leverage magnifies outcomes and will continue to do so until profitability recovers.

Growth Assessment

Top-line growth was modest at +3.6% YoY to 24.45, but it did not translate into profit due to cost pressure. Gross margin at 32.1% indicates some value-add, yet it is insufficient against SG&A at 39.2% of sales. Non-operating income (0.36) provided limited support; core operating momentum remains negative. The implied extraordinary gains (difference between reported ordinary income -1.83 and profit before tax -1.40) suggest one-off effects that are not a reliable earnings driver. Sustainability of revenue growth is uncertain absent visibility on same-store sales, store count, and pricing/mix; without operating leverage, incremental sales are not accretive. Near-term outlook requires either higher ticket/traffic or cost rationalization to regain breakeven; otherwise, losses may persist even with modest sales growth. Key swing factors include food input costs, wage inflation, and occupancy expenses. Given negative ROIC (-76.3%), capital deployment should be disciplined until unit economics improve.

Financial Health

Liquidity: Current ratio 128.7% (above 1.0 but below the 1.5 comfort benchmark); quick ratio 128.7% supported by cash 7.61 and receivables 4.85 against current liabilities 12.47. Solvency: D/E 4.08x is high (warning), equity ratio roughly 19.7% (equity 5.27 / assets 26.80). Interest coverage is -174x due to operating losses, though absolute interest burden is small (interest expense 0.01). Maturity mismatch: Current assets 16.05 cover current liabilities 12.47; cash plus receivables (12.46) nearly match current liabilities, limiting short-term rollover risk. Interest-bearing debt totals 4.62 (short 1.30; long 3.32) versus cash 7.61, implying net cash of ~2.99, which mitigates immediate debt pressure. However, large non-interest-bearing liabilities and thin equity increase sensitivity to losses and potential covenant constraints. No off-balance sheet obligations were disclosed; data limitations prevent assessment of leases/guarantees.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed; therefore, OCF/Net Income and FCF coverage cannot be assessed. In the absence of OCF, we cannot confirm whether losses are cash or accrual-driven, nor can we detect working capital release/absorption. Receivables are 4.85 against quarterly revenue of 24.45; without prior periods, we cannot infer collection stretch or manipulation. Capex was not reported; thus, maintenance versus growth capex and FCF sustainability remain unknown. Given negative operating profits, internal cash generation is likely weak; reliance on cash reserves is probable until profitability recovers.

Dividend Sustainability

Dividend data were not reported. Retained earnings are negative (-3.52), and net income is -1.93 this quarter, suggesting limited capacity to distribute. With OCF unreported and operating loss, sustainable dividends appear constrained by earnings and the need to rebuild equity. Any payout would likely require drawing on cash (7.61) or reducing investments, which would not be prudent given high leverage and negative ROE. Policy outlook cannot be inferred without management guidance; base case is preservation of liquidity over distributions.

Risk Assessment

Business Risks:

• Cost inflation in food ingredients, labor, and utilities compressing margins
• Inability to pass through price increases due to competitive casual dining market
• Execution risk in store productivity improvement and cost restructuring
• Potential one-off reliance (implied extraordinary gains) masking core weakness

Financial Risks:

• High leverage: D/E 4.08x with thin equity base (equity ratio ~19.7%)
• Negative interest coverage (-174x) due to operating losses
• Potential covenant/refinancing risk if losses persist despite current net cash
• Equity erosion risk given accumulated deficit (retained earnings -3.52)

Key Concerns:

• SG&A ratio (39.2%) exceeding gross margin (32.1%), guaranteeing operating losses at current sales mix
• Lack of disclosed operating cash flow impedes assessment of liquidity burn rate
• Profitability dependent on non-core items (non-operating/extraordinary) rather than operations
• Sensitivity to macro factors affecting dining-out demand and wage costs

Investment Implications

Key Takeaways:

• Revenue growth (+3.6% YoY) did not translate into profit; operating margin -7.1%
• ROE -36.6% driven by negative margins and high leverage (5.09x)
• Liquidity adequate short term (current ratio 128.7%; net cash ~2.99 vs interest-bearing debt 4.62)
• Balance sheet thin (equity ratio ~19.7%); sustained losses could trigger capital stress
• Core fix is cost control and/or sales mix improvement to close the SG&A–gross profit gap

Metrics to Watch:

• Monthly same-store sales, traffic, and average check
• Store count and closure/rationalization progress
• Gross margin and SG&A ratio trajectory (bps changes)
• Operating cash flow and free cash flow once disclosed
• Net debt and covenant headroom, if disclosed
• Labor cost ratio and rent/occupancy costs

Relative Positioning: Compared with domestic casual dining/izakaya peers, profitability is weaker (negative operating margin) and leverage higher (D/E 4.08x), though near-term liquidity is buffered by net cash; recovery depends on restoring unit economics amid cost inflation.

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