EAT&HOLDINGS Co.,Ltd FY2027 Q1 Earnings Report

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Executive Summary

For the Q1 of the fiscal year ending March 2027, the company achieved revenue of ¥103.8B (YoY +¥2.7B +2.6%), Operating Income of ¥5.7B (YoY +¥3.3B +137.6%), Ordinary Income of ¥5.6B (YoY +¥3.2B +128.4%), and Net Income of ¥3.0B (YoY +¥1.7B +127.5%), recording both revenue and profit increases. Gross margin was 44.3%, slightly up from 44.2% a year earlier. SG&A ratio improved to 38.8% (from 39.5%, -0.7pt), and Operating Margin expanded significantly to 5.5% (from 2.4%, +3.1pt). Both the Food Business and the Restaurant Business achieved revenue and profit growth; in the Restaurant Business Operating Income increased by 99.4%, showing a marked improvement in profitability. Progress against full-year guidance was: Revenue 24.1%, Operating Income 45.6%, Ordinary Income 50.5%, Net Income 67.3%, indicating a strong front-loaded start on the profit side.

Drivers of Performance

[Revenue] Revenue was ¥103.8B (YoY +2.6%), maintaining a solid trend. The Food Business led growth with ¥62.7B (YoY +3.7%), while the Restaurant Business was ¥44.4B (YoY +0.2%), a marginal increase. Revenue composition was Food 58.6% and Restaurant 41.4%, indicating a high concentration in the Food Business. Goodwill of ¥3.2B was recognized due to the new consolidation of Opus Co., Ltd., and future revenue contribution is expected. Although regional and product-level disclosures are not provided, the growth pace from the prior year appears moderate, likely driven by price revisions and deepening of the existing customer base.

[Profitability] Cost of sales was ¥57.8B, resulting in Gross Profit of ¥46.0B (Gross Margin 44.3%), a 0.1pt improvement from 44.2% a year ago. SG&A was ¥40.3B (SG&A ratio 38.8%), increasing by only ¥0.3B YoY, which was restrained relative to the revenue growth rate (+2.6%), thereby producing operating leverage. Operating Income of ¥5.7B (Operating Margin 5.5%) rose significantly by ¥3.3B from ¥2.4B a year earlier, supported by SG&A control and gross margin maintenance. Non-operating income was ¥0.3B versus non-operating expenses of ¥0.4B; interest expense of ¥0.2B and fees of ¥0.1B were recorded but had minor impact. Extraordinary losses of ¥0.2B were mainly due to store closure losses of ¥0.2B and were treated as one-time expenses. Profit before tax was ¥5.4B, with corporate taxes and others of ¥2.4B (effective tax rate 44.4%), resulting in a high tax burden; the tax burden coefficient of 0.569 constrained net income growth. Consequently, Net Income was ¥3.0B (Net Margin 2.9%), up +127.5% from ¥1.3B a year earlier. In conclusion, the company is on a revenue- and profit-increasing trend.

Segment Analysis

The Food Business recorded Revenue of ¥62.7B (YoY +3.7%), Operating Income of ¥4.0B (YoY +66.1%), and margin of 6.4%, serving as the main earnings source. The Restaurant Business saw Revenue of ¥44.4B (YoY +0.2%), a slight increase, but Operating Income of ¥3.2B (YoY +99.4%) and margin of 7.3%, indicating a substantial improvement in profitability. The high profit margin in the Restaurant Business is presumed to result from recovery from the COVID-19 period and absorption of fixed costs. Segment total profit of ¥7.3B less corporate expenses of ¥1.6B yields consolidated Operating Income of ¥5.7B. The profit margin improvement in the Restaurant Business is notable, and its sustainability will be a focus.

Key Financial Metrics

[Profitability] Operating Margin of 5.5% improved by +3.1pt from 2.4% last year, driven by maintaining a Gross Margin of 44.3% and containing the SG&A ratio to 38.8% (-0.7pt). ROE of 2.5% is composed of Net Margin 2.9% × Total Asset Turnover 0.31 × Financial Leverage 2.88x; margin improvement contributed, but the absolute level remains low. The effective tax rate is high at 44.4%, which suppresses net income growth. [Cash Quality] Days Sales Outstanding (DSO) 175 days and Days Inventory Outstanding (DIO) 130 days show significant working capital retention, delaying the conversion of profits to cash. Working capital is -¥53.2B, reflecting a cash structure reliant on accounts payable. [Investment Efficiency] Total Asset Turnover 0.31x/year is flat from 0.31x a year ago, and Construction in Progress of ¥47.7B (14.1% of total assets) has accumulated, reducing asset efficiency. ROIC of 2.1% may be below the cost of capital, indicating the need to improve invested capital efficiency. [Financial Soundness] Equity Ratio is 34.7%, slightly down from 35.3% a year earlier, and D/E ratio is 1.88x, indicating somewhat high leverage. Current Ratio 0.70 and Quick Ratio 0.58 are low, raising short-term liquidity concerns. Short-term debt ratio is 55.9%, indicating a shift toward shorter-term borrowings and increasing refinancing risk.

Cash Flow Analysis

Since cash flow statement data is not disclosed, funding trends were analyzed from balance sheet movements. Cash and deposits increased to ¥37.9B (+¥14.7B, +63.3%), strengthening liquidity. Meanwhile, long-term borrowings decreased to ¥30.2B (-¥10.5B, -25.8%), and short-term borrowings increased to ¥38.2B (+¥7.6B), indicating a shortening of the borrowing profile. With a Current Ratio of 0.70 and Cash/Short-term Debt of 0.99x, short-term coverage is limited, and prolonged DSO of 175 days and DIO of 167 days may pressure liquidity. Construction in Progress of ¥47.7B (14.1% of total assets) could lead to increased depreciation expense and a lengthened investment payback period upon capitalization. Although Accounts Payable of ¥36.1B keeps working capital at -¥53.2B, there is reverse-turn risk from changes in procurement terms or inventory stagnation. The cash increase is presumed to result from refinancing adjustments and increased Net Income for the period, but disclosure of actual Operating Cash Flow amounts is necessary to verify operating cash generation.

Quality of Earnings

Non-operating income of ¥0.3B and non-operating expenses of ¥0.4B had minor impact, indicating most profits originate from core operations. Non-operating income included subsidies of ¥0.1B and dividend income ¥0.0B, supporting the quality of recurring earnings. Extraordinary losses of ¥0.2B were mainly due to store closure losses of ¥0.2B and were treated as one-time costs. The transition from Operating Income ¥5.7B to Ordinary Income ¥5.6B was smooth, and the impact of financial costs was limited. Profit before tax ¥5.4B versus corporate taxes ¥2.4B (effective tax rate 44.4%) shows a heavy tax burden, reducing operating-derived earnings. Comprehensive Income was ¥3.1B and Net Income ¥3.0B; the ¥0.1B difference was due to foreign currency translation adjustments and was minor, indicating limited off-balance-sheet gains or losses through Other Comprehensive Income. However, with DSO 175 days and DIO 167 days, working capital retention is significant, suggesting potential accrual overstatement and a divergence between profit recognition and cash collection. Revenue recognition appears to be handled appropriately on a contract basis with customers, but verification of Operating Cash Flow amounts is essential for future quality assessment.

Forecasts & Guidance

Full-year guidance is Revenue ¥430.0B (YoY +6.3%), Operating Income ¥12.5B (YoY +9.4%), Ordinary Income ¥11.1B (YoY +0.7%), Net Income ¥4.6B, EPS ¥40.08, Dividend ¥7.50 per share. Q1 progress ratios were Revenue 24.1% (103.8 ÷ 430.0), aligning with standard seasonal pace (about 25%), while Operating Income 45.6% (5.7 ÷ 12.5), Ordinary Income 50.5% (5.6 ÷ 11.1), and Net Income 67.3% (3.0 ÷ 4.6) show significant front-loading on the profit side. The guidance was revised in Q1, presumably because profitability improvements and cost control exceeded expectations. The high progress ratios suggest either revenue concentration in the first half or conservative full-year planning; monitoring will focus on profit sustainability in Q2 and potential upside to the full-year guidance. If Restaurant profitability improvement and Food gross margin maintenance continue, there is upside risk to full-year Operating Income; conversely, working capital retention and short-term liquidity constraints could be downside risks.

Shareholder Returns

Full-year dividend guidance is ¥7.50 per share. Based on 11,358 thousand shares outstanding, total dividends amount to approximately ¥0.85B. The payout ratio against full-year Net Income guidance of ¥4.6B is about 18.6%, a reasonable level, and no share buyback has been announced. Last year’s dividend was also ¥7.50, indicating a continued stable dividend policy. With cash of ¥37.9B, there is no immediate concern over dividend funding, but given a Current Ratio of 0.70 and prolonged DSO/DIO, Operating Cash Flow volatility is possible. Considering Construction in Progress of ¥47.7B and associated capitalization, investment payback and increased depreciation may affect sustainability of dividends; thus, dividend sustainability depends on improving Operating Cash Flow generation (normalization of DSO/DIO). For the near term, prioritizing internal reserves while maintaining stable dividends is a reasonable policy.

Risk Factors

1. Short-term liquidity risk: Current Ratio 0.70 and Quick Ratio 0.58 indicate low short-term liquidity, and Short-term Debt Ratio 55.9% shows a shift toward short-term borrowings. Cash/Short-term Debt 0.99x provides limited coverage, so unexpected demand fluctuations or worsening procurement terms could tighten liquidity. Reduction in long-term borrowings to ¥30.2B (-25.8%) alongside an increase in short-term borrowings to ¥38.2B has widened maturity mismatch, heightening refinancing risk.

2. Working capital retention risk constraining Operating Cash Flow: DSO 175 days, DIO 167 days, and inventory turnover days 130 days indicate prolonged working capital metrics, delaying cash conversion of profits. While Accounts Payable of ¥36.1B keeps working capital at -¥53.2B, receivable collection delays or inventory stagnation could lead to bad debt costs, discount pressure, or impairment losses, amplifying Operating Cash Flow volatility. Construction in Progress of ¥47.7B (14.1% of total assets) could, upon capitalization, increase depreciation expense and create uncertainty around investment payback, restricting cash generation.

3. Business and financial compound risks: With upward pressures on logistics, labor, and raw material costs across both the Food and Restaurant businesses, limits to price pass-through and increased competition could make maintaining a 44.3% gross margin difficult. A high effective tax rate of 44.4% suppresses Net Income growth, and low capital efficiency (ROE 2.5%, ROIC 2.1%) means generating returns commensurate with invested capital is a challenge. Delays in realizing synergies from the new consolidation (Opus) or brand damage from food safety incidents or recalls could be downside factors.

Industry Benchmark (reference; company analysis)

Profitability & Returns

Operating Margin slightly exceeds the industry median, but Net Margin is below the median due to a high tax burden, indicating room to improve tax efficiency.

Growth & Capital Efficiency

Revenue growth lags the industry median by 3.9pt, indicating a slower growth pace relative to peers.

※Source: Company compilation

Points of Attention in the Results

1. Improvement in Gross Margin to 44.3% and SG&A ratio to 38.8% expanded Operating Margin to 5.5% (from 2.4%, +3.1pt), revealing operating leverage. Q1 profit progress versus full-year guidance is 45–67%, indicating front-loading and suggesting either first-half concentration or conservative full-year planning. The improvement in Restaurant Operating Margin to 7.3% (from 3.7%, +3.6pt) is notable, driven by fixed cost absorption and price/mix improvements. Monitoring will focus on profit sustainability in Q2 and potential upward revisions to the full-year guidance.

2. Conversely, Current Ratio 0.70 and Quick Ratio 0.58 point to low short-term liquidity, and Short-term Debt Ratio 55.9% indicates increasing maturity mismatch from shorter-dated borrowings. DSO 175 days and DIO 167 days show significant working capital retention, which can delay cash conversion. Construction in Progress of ¥47.7B (14.1% of total assets) may cause increased depreciation and extend investment payback upon capitalization. ROE 2.5% and ROIC 2.1% indicate persistently low capital efficiency; improving Operating Cash Flow generation and normalizing working capital are prerequisites for sustainable growth.

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