PEPPER FOOD SERVICE CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥10.74B
• Operating Income: ¥-91M
• Net Income: ¥-186M
• EPS: ¥-3.09

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Pepper Food Service (single-entity, JGAAP) posted FY2025 Q3 year‑to‑date revenue of ¥10.739bn, up 2.9% YoY, but profitability deteriorated sharply with operating income at ¥-91m (−85.1% YoY) and net income at ¥-186m. The gross margin is a high 57.5% (gross profit ¥6.171bn), indicating solid unit economics at the gross level, but SG&A/other operating costs fully offset gross profit, pushing operating margin to −0.85%. Ordinary loss (¥-90m) is close to operating loss, suggesting limited impact from non‑operating items; interest burden is modest at ¥2m. Net margin is −1.73%, and DuPont analysis yields ROE of −5.58% driven by negative margin despite healthy asset turnover of 1.88x and moderate leverage of 1.71x. Liquidity appears adequate with a current ratio of 203% and positive working capital of ¥1.774bn, though cash and cash flow details are unreported, limiting visibility on near‑term funding flexibility. The equity base is ¥3.332bn against total assets of ¥5.711bn (D/E ~0.75x), indicating moderate leverage for a restaurant operator. Reported income tax expense (¥55m) alongside a pre‑tax loss implies tax items unrelated to current period profits (e.g., valuation changes or non‑deductible items), rendering the effective tax rate metric not meaningful. EBITDA is unreported (0 indicates not disclosed), so operating cash earnings cannot be inferred from the provided data. No dividends were paid (DPS ¥0), consistent with negative earnings and a likely preservation of liquidity. Operating leverage remains high: with operating margin near breakeven, small changes in sales or SG&A efficiency will materially swing earnings. The slight revenue increase juxtaposed with a steep drop in operating income implies cost inflation and/or weaker same‑store productivity offsetting top‑line gains. Balance sheet solvency looks acceptable on book metrics, but the absence of cash flow disclosures and possible off‑balance lease obligations (typical under JGAAP) temper comfort. Overall, the quarter reflects fragile profitability with adequate book liquidity and leverage, but limited visibility on cash conversion. Data limitations are material: depreciation, cash flows, inventories, and equity ratio are unreported, requiring caution in interpretation.

Profitability Analysis

ROE decomposes to −5.58% = (Net margin −1.73%) × (Asset turnover 1.88x) × (Leverage 1.71x). The negative net margin is the principal driver of weak ROE, as both turnover and leverage are within a normal range for a domestic restaurant operator. Gross margin is 57.5% (¥6.171bn/¥10.739bn), but operating margin is −0.85% (¥-91m/¥10.739bn), indicating SG&A and other operating costs of roughly ¥6.262bn, which fully absorb gross profit. Ordinary margin is similarly weak at −0.84%, showing minimal non‑operating relief. Interest burden is small (¥2m), but with negative EBIT, interest coverage is mathematically −45.5x and not economically meaningful; the key issue is operating losses, not financing cost. Margin quality: the strong gross margin suggests pricing and product mix support at the store level, but cost inflation (food, labor, utilities) and/or inefficiencies appear to have outpaced revenue growth. Operating leverage is high: with margins near zero, modest improvements in traffic, average ticket, or SG&A discipline could return operating profit to positive territory, but the reverse also applies if costs rise or sales soften. Depreciation is unreported; thus, we cannot assess the cash vs accrual component of operating profit (EBITDA is not available from disclosed data).

Growth Assessment

Revenue grew 2.9% YoY to ¥10.739bn, a modest pace that did not translate into earnings growth, as operating income fell 85.1% YoY to ¥-91m. This divergence suggests that unit growth or pricing gains were insufficient to offset cost pressures or negative mix/traffic trends. Profit quality weakened: net margin fell to −1.73%, and ordinary loss mirrors operating loss, indicating the deterioration is operational rather than financial. Sustainability of revenue growth will depend on same‑store sales (traffic and average ticket) and store network optimization; neither metric is disclosed here. With operating margin near breakeven, the earnings outlook is highly sensitive to incremental sales and cost control. Near‑term outlook hinges on stabilizing food cost ratios, labor scheduling efficiency, and energy costs, as well as menu pricing power without sacrificing traffic. Given unreported cash flows and depreciation, we cannot judge the underlying cash earnings momentum, which constrains confidence in growth durability.

Financial Health

Total assets are ¥5.711bn, equity is ¥3.332bn, and liabilities are ¥2.489bn, yielding a book D/E of ~0.75x and leverage (A/E) of 1.71x—moderate for the sector. Liquidity appears solid on reported metrics: current assets ¥3.493bn vs current liabilities ¥1.719bn, current/quick ratio 203%, and working capital of ¥1.774bn. However, cash and equivalents are unreported, so the liquid portion of current assets is unknown, limiting assessment of immediate liquidity. Inventories are unreported; thus, the quick ratio equaling the current ratio reflects disclosure gaps, not necessarily low inventories. The reported equity ratio is unreported (0 in the feed), but implied equity/asset ratio is ~58.3% (¥3.332bn/¥5.711bn), indicating a sizable equity cushion. Interest expense is minimal at ¥2m, suggesting limited interest‑bearing debt at the parent‑only level; however, lease obligations typical for restaurants may be off‑balance under JGAAP single‑entity reporting, representing an unreported fixed‑charge burden. Overall solvency appears acceptable on book values, but true fixed obligations and liquidity headroom cannot be fully assessed without cash and lease disclosures.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported (all 0 in the feed), preventing evaluation of cash conversion or free cash flow. With depreciation unreported, we cannot reconcile accrual earnings to cash. The OCF/Net Income ratio shown as 0.00 and FCF as 0 reflect missing disclosure rather than economic reality. Working capital appears positive (¥1.774bn), but without period‑to‑period movements in receivables, payables, and inventories, we cannot determine whether working capital is a source or use of cash. Key unknowns include: cash balance, lease payments, and maintenance capex, all of which are crucial for a restaurant operator’s cash profile. Given negative operating income, cash generation likely depends on non‑cash charges and working capital dynamics, which are not disclosed here.

Dividend Sustainability

DPS is ¥0.00 with a payout ratio of 0%, appropriate given negative earnings (EPS −¥3.09). With unreported OCF and capex, we cannot assess FCF coverage; reported FCF coverage of 0.00x reflects missing data. The current financial profile—operating loss and preservation of working capital—suggests a conservative stance on shareholder returns is prudent until operating profitability and cash generation stabilize. Under JGAAP single‑entity reporting, dividend capacity also depends on retained earnings at the parent; the net loss reduces distributable amounts. Policy outlook likely remains cautious, prioritizing reinvestment and balance sheet stability over distributions.

Risk Assessment

Business Risks:

• Same-store sales volatility (traffic and average ticket) amid competitive casual dining environment
• Food cost inflation (notably beef prices) compressing margins
• Labor cost and staffing constraints impacting service levels and store profitability
• Energy and utility cost volatility affecting operating expenses
• Brand perception and menu relevance affecting customer retention
• Execution risk in store footprint optimization (closures/renovations) and pricing actions
• Supply chain disruptions impacting product availability and cost

Financial Risks:

• Limited visibility on cash balances and operating cash flow due to unreported cash flow statements
• Potential off-balance lease obligations under JGAAP increasing fixed-charge coverage risk
• Narrow operating margin near breakeven magnifying downside from small sales declines
• Tax expense recorded despite losses complicating earnings predictability
• Refinancing or liquidity risk cannot be fully assessed without cash/loan maturity details

Key Concerns:

• Operating loss despite revenue growth indicates cost pressure and/or weak operating efficiency
• High operating leverage with margins near zero makes earnings highly sensitive
• Unreported depreciation and cash flows hinder assessment of earnings quality and FCF

Investment Implications

Key Takeaways:

• Top-line grew 2.9% YoY to ¥10.739bn, but operating income fell to ¥-91m, highlighting margin compression
• Gross margin is strong at 57.5%, but SG&A/other costs fully offset gross profit
• ROE of −5.58% is driven by negative net margin; asset turnover (1.88x) and leverage (1.71x) are reasonable
• Liquidity looks adequate on book metrics (current ratio 203%), but cash is undisclosed
• Leverage moderate (D/E ~0.75x), yet lease obligations may be off-balance under JGAAP
• No dividend, aligned with negative earnings and focus on stabilization

Metrics to Watch:

• Same-store sales growth (traffic and average ticket)
• Food and labor cost ratios (COGS and personnel as % of sales)
• SG&A to sales and operating margin progression back to positive territory
• Cash and operating cash flow, including lease and interest outflows
• Capex vs maintenance needs; store closures/openings and productivity per store
• Net debt and fixed-charge coverage including leases

Relative Positioning: Within the domestic restaurant peer set, Pepper Food Service shows respectable gross margins but subpar operating profitability and higher earnings volatility due to operating leverage. Balance sheet leverage is moderate, but disclosure gaps (cash, leases, depreciation) reduce visibility compared with peers providing fuller IFRS or consolidated reporting.

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