Hiramatsu Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.47B
• Operating Income: ¥-66M
• Net Income: ¥-29M
• EPS: ¥-0.40

Income Statement

Balance Sheet

Cash Flow Statement

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: FY2026 Q2 was weak with a return to operating loss and heavy operating cash burn despite ample liquidity on the balance sheet. Revenue fell 19.6% YoY to 44.66, with gross profit of 24.40, implying a solid gross margin of 54.6% but insufficient to cover fixed SG&A of 25.06. Operating income deteriorated to -0.66 (YoY -27.1%), ordinary income to -0.67, and net income to -0.28 (YoY -86.2%), underscoring demand softness and unfavorable operating leverage. Operating margin was -1.5% (vs roughly -0.9% a year ago based on implied prior results), indicating ~50–60 bps margin compression. SG&A intensity remains elevated at 56.1% of sales, outpacing revenue and pressuring profitability. Non-operating items were net -0.01 (income 0.30 vs expenses 0.31), providing no meaningful buffer; interest expense of 0.20 outweighed paltry EBITDA of 0.37, driving an interest coverage of -3.24x (quality alert). Cash and deposits are a strong 52.79, supporting a healthy current ratio of 229%, but operating CF was -8.58, which is materially worse than the net loss and indicates poor earnings-to-cash conversion this quarter. The reported OCF/NI ratio of 30.63x is mechanically distorted by both figures being negative; the economic message is cash burn, not strength. Leverage by book (D/E 0.96x) is moderate, and net cash appears positive when comparing cash (52.79) to reported loans (34.82), mitigating near-term liquidity risk. ROE calculated at -0.5% stems from a combination of negative margin, low asset turnover (0.389x), and modest financial leverage (1.96x). ROIC at -0.8% is below the 5% warning threshold, signaling value dilution absent a turnaround. The effective tax rate of 57.5% is non-meaningful due to losses and likely reflects valuation allowance/timing impacts. EPS basic was -0.40 JPY while diluted EPS showed 22.62 JPY, a sign of technical accounting effects rather than true dilution-driven profitability; this anomaly warrants management clarification. Forward-looking, the company must right-size SG&A, rebuild traffic/mix, and restore positive operating leverage; while liquidity is adequate, sustained cash burn would erode flexibility and could pressure capex/dividend optionality. Overall, near-term focus should be on cost discipline, revenue recovery levers (pricing, banquet/wedding pipeline, inbound), and stabilizing cash flows.

Profitability Analysis

ROE decomposition (DuPont): ROE (-0.5%) = Net profit margin (-0.6%) × Asset turnover (0.389x) × Financial leverage (1.96x). The largest adverse change versus last year is likely the asset turnover, given a 19.6% revenue decline on a balance sheet that appears relatively stable, which compresses operating leverage and pushes margins further negative. Net margin also weakened as SG&A (56.1% of sales) could not flex down with revenue. Business drivers: softer demand in core restaurant/banquet operations and likely higher input and labor costs versus revenue mix shifts. Sustainability: the gross margin at 54.6% suggests pricing/mix or cost control at the gross level remains reasonable, but fixed-cost absorption is the issue; improvement depends on traffic recovery and SG&A resizing—otherwise margin pressure persists. Concerning trends: SG&A growth outpaced revenue performance (relative intensity rose), EBITDA margin was only 0.8%, and operating margin fell to -1.5% (~50–60 bps YoY compression).

Growth Assessment

Top-line contracted 19.6% YoY to 44.66, pointing to weak demand and/or normalization after prior one-offs. With gross margin still healthy at 54.6%, the revenue decline is the primary driver of operating loss via negative operating leverage. Profit quality is weak: ordinary income (-0.67) and net income (-0.28) were loss-making, and the effective tax rate is distorted by losses. Absent explicit segment disclosures, we assume restaurant/banquet softness and possibly lower wedding/event volumes weighed on revenue. The quarter lacks evidence of one-time gains; non-operating was essentially flat, suggesting the loss is operational. Outlook: stabilization hinges on demand recovery (banquet/wedding pipeline, inbound tourism), cost control (labor/productivity, rent renegotiations), and pricing/mix optimization. Near-term, risks skew to the downside given interest coverage weakness and negative OCF, but ample cash provides time to execute a turnaround. Watch for seasonality effects into H2 and any management actions on SG&A flexibility and store portfolio optimization.

Financial Health

Liquidity is strong: current ratio 229.1% and quick ratio 229.1%; cash 52.79 comfortably exceeds short-term loans of 17.00 and total current liabilities of 36.21. No warning on current ratio (<1.0) or D/E; D/E of 0.96x is within a moderate range. Interest-bearing debt reported as short-term 17.00 and long-term 17.82 (total 34.82) versus equity 58.56 suggests a manageable capital structure and likely net cash position on a simple cash-vs-debt basis. Maturity mismatch risk appears low given cash exceeds short-term debt; refinancing risk is mitigated near term but could rise if cash burn persists. Interest coverage is a clear stress point at -3.24x (warning threshold <2x), indicating earnings cannot currently service interest from operations. Off-balance sheet obligations are not disclosed in the provided data; lease commitments could be significant for a restaurant operator and would effectively increase leverage if recognized.

Cash Flow Quality

Operating CF was -8.58, significantly worse than net income of -0.28, indicating poor cash conversion this quarter and potential working capital outflows or prepayments (details unreported). The OCF/NI ratio provided (30.63x) is not economically meaningful due to both figures being negative; qualitatively, cash generation is weak. Investing and capex data are unreported, so FCF cannot be calculated; dividend and buyback cash flows are also unreported. Sustainability: with EBITDA at 0.37 and interest expense at 0.20, pre-working-capital cash generation is thin, leaving little buffer for interest, maintenance capex, and rent. Signs of manipulation are not observable from the limited working capital breakdown; however, the severity of OCF shortfall versus NI suggests either significant seasonal working capital needs or structural cash burn.

Dividend Sustainability

Dividend data (DPS, total dividends paid) were unreported, and net income is negative for the quarter, making payout ratio and FCF coverage not calculable. Given negative OCF and weak EBITDA, internally funded dividends would not be sustainably covered this quarter without drawing on the cash balance. Policy outlook is unclear from disclosures; prudence would suggest preserving cash until operating cash flow normalizes.

Risk Assessment

Business Risks:

• Demand softness in core restaurant/banquet operations leading to negative operating leverage
• Inflation in food and labor costs compressing margins despite stable gross margin
• Event/wedding pipeline volatility impacting quarterly revenue
• Brand and location concentration risk within Japan hospitality market
• Execution risk in SG&A right-sizing and productivity initiatives

Financial Risks:

• Negative operating cash flow (-8.58) despite modest net loss, implying cash burn
• Interest coverage -3.24x indicating inability to service interest from operations
• Potential lease liabilities (not disclosed) increasing effective leverage
• Refinancing risk if cash burn persists and credit conditions tighten
• ROIC at -0.8% signaling value dilution absent turnaround

Key Concerns:

• Revenue decline (-19.6% YoY) with high SG&A intensity (56.1% of sales)
• Operating margin deterioration to -1.5% (~50–60 bps YoY compression)
• OCF materially worse than NI, pointing to weak earnings quality
• Anomalous diluted EPS (22.62 JPY) despite a net loss requires clarification
• Data gaps in investing CF, capex, dividends, and inventory trends limit visibility

Investment Implications

Key Takeaways:

• Top-line contraction drove operating loss; cost structure remains too fixed for current volume
• Liquidity is ample (cash 52.79; current ratio 229%) providing runway despite cash burn
• Leverage moderate (D/E 0.96x) but interest coverage is below warning thresholds
• ROE (-0.5%) and ROIC (-0.8%) are below acceptable levels, necessitating turnaround actions
• Non-operating items are neutral; results reflect core operations rather than one-offs

Metrics to Watch:

• Same-store sales/traffic and banquet/wedding bookings (volume recovery)
• SG&A as a percent of sales and headcount/productivity metrics
• Operating cash flow and working capital movements (receivables, deposits, payables)
• EBITDA and interest coverage trajectory
• Capex and any lease/commitment disclosures affecting cash needs

Relative Positioning: Versus domestic restaurant/hospitality peers, profitability and cash generation are currently weaker with negative operating margin and OCF; however, balance sheet liquidity is comparatively strong, offering more time to execute cost and revenue recovery measures.

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
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