EAT&HOLDINGS Co.,Ltd FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended February 2026, Revenue was ¥404.6B (YoY +¥31.2B +8.4%), Operating Income was ¥11.4B (YoY +¥0.5B +4.7%), Ordinary Income was ¥11.0B (YoY +¥1.1B +11.6%), and Net Income attributable to owners of the parent was ¥3.5B (YoY -¥5.0B -59.2%). Revenue growth was driven by both the Food Business and the Restaurant Business, and Operating Income increased. However, recognition of special losses of ¥3.5B including impairment losses of ¥1.9B and loss on retirement of fixed assets of ¥0.7B, together with a persistently high effective tax rate of 55.2%, resulted in a significant decline in Net Income.

Factors Driving Performance

[Revenue] Revenue expanded steadily to ¥404.6B (YoY +8.4%). By segment, the Food Business recorded ¥242.6B (+8.1%) and the Restaurant Business ¥173.2B (+9.0%), both achieving revenue growth. The Food Business benefited from expanded sales to consumer cooperatives and mass retailers and strong sales of "Osaka Ohsho" brand frozen foods via EC channels. The Restaurant Business grew revenue through network expansion and improved traffic at existing stores. Gross Profit was ¥171.0B (gross margin 42.3%), improving by 0.6pt from 41.7% in the prior year and remaining above the healthy range for the food & beverage industry (30–40%).

[Profitability] Operating Income increased to ¥11.4B (YoY +4.7%), but SG&A expenses were ¥159.6B (SG&A ratio 39.5%), rising by +10.3% YoY and outpacing Revenue growth, causing the SG&A ratio to increase by 0.7pt from 38.8% a year earlier. As a result, the Operating Margin narrowed by 0.1pt to 2.8% from 2.9% a year earlier. By segment, the Food Business drove profit growth with Operating Income of ¥12.9B (+14.4%, margin 5.3%), while the Restaurant Business posted Operating Income of ¥4.2B (-17.1%, margin 2.4%) and suffered a large decline due to higher labor and raw material costs. Ordinary Income was ¥11.0B (+11.6%); despite improvements in non-operating items, additions such as interest expense of ¥0.8B limited the uplift from Operating Income. Special losses, including impairment losses of ¥1.9B and loss on retirement of fixed assets of ¥0.7B, compressed Income Before Income Taxes to ¥7.8B. Corporate taxes of ¥4.3B (effective tax rate 55.2%) resulted in a substantial decline in Net Income to ¥3.5B (-59.2%). In conclusion, the company recorded revenue growth but profit decline: while revenue and gross margin improved, higher SG&A, one-time losses, and heavy tax burden substantially weighed on profits.

Segment Analysis

The Food Business achieved Revenue of ¥242.6B (YoY +8.1%) and Operating Income of ¥12.9B (YoY +14.4%), with a margin of 5.3% (improving 0.4pt from 4.9% the prior year), delivering both revenue and profit growth. Expansion of sales channels to mass retailers and co-ops and strong brand product sales through EC improved the mix toward higher gross margin items. The Restaurant Business secured Revenue of ¥173.2B (+9.0%) but saw Operating Income decline to ¥4.2B (-17.1%), with margin deteriorating to 2.4% (down 0.8pt from 3.2%). Rising labor, raw material, and energy costs, along with increased fixed costs from store expansion, pressured margins.

Key Financial Metrics

[Profitability] Operating Margin was 2.8% (down 0.1pt from 2.9% prior year), and Net Margin was 0.9% (worsened 1.5pt from 2.4% prior year), indicating deterioration in profitability. Gross Margin remained high at 42.3%, but the rise in SG&A and special losses plus high tax burden significantly compressed profitability at the Net Income level. ROE was 3.0% (prior year 8.4%), a substantial decline indicating issues in capital efficiency. [Cash Quality] Operating Cash Flow (OCF) of ¥47.3B was approximately 13.5x Net Income (¥3.5B), indicating very high quality, aided by non-cash charges including depreciation of ¥17.0B and impairment of ¥1.9B and improvements in working capital (Accounts Payable +¥11.4B, Accounts Receivable decrease ¥6.3B). OCF/EBITDA was 1.66x, showing good cash conversion efficiency. [Investment Efficiency] Capital expenditures of ¥52.3B were 3.1x depreciation, reflecting an active growth investment phase. Construction in progress was ¥37.6B, representing 21.4% of tangible fixed assets, indicating large projects underway. Free Cash Flow was -¥11.3B, an outflow driven by upfront investment, but the robustness of OCF supports investment capacity. [Balance Sheet Health] Equity Ratio was 35.3% (down 2.2pt from 37.5% prior year), and D/E ratio was 1.83x, showing increased reliance on interest-bearing debt. Current Ratio was 76.5% and Quick Ratio 64.3%, levels that warrant caution for short-term liquidity: cash and cash equivalents were ¥23.2B versus short-term interest-bearing debt (short-term borrowings + current portion of long-term debt) of ¥41.1B, indicating a maturity mismatch. Interest Coverage was 13.6x, suggesting adequate interest payment capacity.

Cash Flow Analysis

OCF increased sharply to ¥47.3B (YoY +25.7%), supported by depreciation of ¥17.0B, impairment of ¥1.9B and working capital improvements. Decreases in Accounts Receivable of ¥6.3B and increases in Accounts Payable of ¥11.4B contributed to cash generation, while Inventories increased by ¥4.8B as inventories were built up in anticipation of rising demand and commissioning of new equipment. Investing Cash Flow was -¥58.6B, primarily for acquisition of tangible fixed assets of ¥52.3B and intangible assets of ¥1.5B. Construction in progress rose sharply to ¥37.6B (from ¥2.0B prior year, +¥35.7B), confirming ongoing production capacity expansion investments. Free Cash Flow was negative at -¥11.3B, a temporary outflow in a growth investment phase. Financing Cash Flow was a net inflow of ¥5.1B, with long-term borrowings of ¥16.7B funding investments, offset by long-term debt repayments of ¥10.4B and dividend payments of ¥1.8B. Cash and cash equivalents ended at ¥23.2B (period-end balance), a slight increase, reflecting measures to meet investment funding needs.

Quality of Earnings

Against Ordinary Income of ¥11.0B, special items totaled -¥3.2B, compressing Income Before Income Taxes to ¥7.8B. Main components of special losses were impairment losses of ¥1.9B (loss-making stores in the Restaurant Business) and loss on retirement of fixed assets of ¥0.7B, considered one-time costs associated with asset turnover in a growth investment phase. Corporate taxes of ¥4.3B (effective tax rate 55.2%) rose by 8.7pt from 46.5% in the prior year, likely due to write-downs of deferred tax assets and nondeductible items for tax purposes. Non-operating income was small at ¥0.8B, comprised of interest income ¥0.1B and subsidy income ¥0.1B. Non-operating expenses totaled ¥1.2B, including interest expense ¥0.8B and fees ¥0.2B, reflecting visible interest burdens from higher interest-bearing debt. Comprehensive income was ¥3.8B (owners of the parent ¥4.0B), slightly higher than Net Income of ¥3.7B, driven by ¥0.3B in foreign currency translation adjustments and ¥0.1B in unrealized gains on securities. While the company maintains a sustainable earnings structure up to the Ordinary Income level, one-off losses and a high tax rate have weakened Net Income quality.

Forecasts & Guidance

Full Year guidance projects Revenue ¥430.0B (YoY +6.3%), Operating Income ¥12.5B (+9.4%), Ordinary Income ¥11.1B (+0.7%), and Net Income attributable to owners of the parent ¥4.6B (+30.6%). The cumulative results for the first half were Revenue ¥404.6B (progress ratio 94.1%) and Operating Income ¥11.4B (progress ratio 91.2%), indicating pace is ahead of plan for both Revenue and Operating Income. In the second half, the company expects margin improvement from productivity gains due to full-scale operation of new equipment, absorption of fixed costs, and cost corrections in the Restaurant Business. Normalization of special items and the tax rate is projected to turn Net Income to year-on-year growth. EPS is forecast at ¥40.08, implying approximately 22% growth from the current period EPS of ¥32.88.

Shareholder Returns

Dividends are planned at ¥15 per share annually (interim ¥7.5, year-end forecast ¥7.5), including a commemorative interim dividend of ¥2.5 for the 55th anniversary and a commemorative year-end dividend forecast of ¥3.0. The payout ratio relative to Net Income of ¥3.5B (EPS ¥32.88) is 45.6%, a prudent level. The prior year dividend was also ¥15 (EPS ¥78.37, payout ratio 19.1%), maintaining dividend level including commemorative dividends. With Free Cash Flow negative at -¥11.3B, dividend funding depends on OCF and borrowings, but the robustness of OCF and an appropriate payout ratio suggest dividends are sustainable. No share buybacks were conducted; Total Return Ratio is equivalent to the payout ratio at 45.6%.

Risk Factors

1. Short-term liquidity risk: Current Ratio 76.5% and Quick Ratio 64.3% indicate low short-term liquidity; cash of ¥23.2B versus short-term interest-bearing debt of ¥41.1B reveals a maturity mismatch. Refinancing of short-term borrowings of ¥30.7B (19.7% of current liabilities) and turnover efficiency of Inventories ¥19.0B and Accounts Receivable ¥63.1B will be key to cash management.

2. Construction in progress ramp-up risk: Construction in progress of ¥37.6B (21.4% of tangible fixed assets) has accumulated, and large investment projects are underway. Delays in commissioning, yield deterioration, or additional costs could lead to impairment risk and reduced capital efficiency. On-schedule commissioning and productivity improvements are prerequisites for EBITDA margin expansion.

3. Profitability deterioration in the Restaurant Business: The Restaurant segment margin deteriorated to 2.4% from 3.2% prior year (down 0.8pt), and Operating Income decreased by 17.1%. Rising labor, raw material, and energy costs are the main drivers; if price pass-through or business model restructuring does not proceed, the dilution of consolidated margins could continue.

Industry Benchmark (Reference – Company Data)

Profitability & Returns

Profitability metrics are below industry medians; special losses and high tax rates are compressing Net Margin.

Growth & Capital Efficiency

Revenue growth outperformed the industry median, driven by expansion in both Food and Restaurant businesses.

※ Source: Company compilation

Key Points in the Financial Results

1. Balance of strong OCF and investment phase: OCF of ¥47.3B is about 13.5x Net Income and of very high quality, supported by non-cash charges such as depreciation and impairment and improvements in working capital. If productivity improvement and fixed-cost absorption from the ¥37.6B in construction in progress materialize, it could be a turning point toward EBITDA margin expansion and Free Cash Flow turning positive.

2. Room to improve short-term liquidity and capital efficiency: Current Ratio 76.5% and D/E ratio 1.83x warrant caution on short-term liquidity and leverage, but Interest Coverage of 13.6x indicates interest payment capacity is secured. Improvement in Restaurant Business profitability and commissioning of new equipment to raise ROE/ROIC are key to restoring capital efficiency.

3. Dividend sustainability and stability of total returns: Payout Ratio of 45.6% is at a sound level, and OCF supports dividend funding. Free Cash Flow is temporarily negative due to front-loaded investments, but on-schedule equipment commissioning and recovery in the Restaurant Business would increase the likelihood of sustaining dividends.

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This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the company based on public financial statement data and are for reference only. Investment decisions are your responsibility; please consult a professional advisor as needed.