Horiifoodservice Co.,Ltd. FY2025 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.38B
• Operating Income: ¥103M
• Net Income: ¥77M
• EPS: ¥12.46

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

FY2025 Q2 was a modestly positive quarter for Horii Food Service, with top-line growth translating into a return to profitability at both operating and net levels. Revenue rose 9.6% YoY to 23.78, and operating income reached 1.03, yielding an operating margin of approximately 4.3%. Gross profit was 17.68, implying a high gross margin of 74.4%, consistent with restaurant operators where cost of food and beverages are a minority of the total cost stack. SG&A totaled 16.64, keeping operating leverage positive but indicating a still-heavy overhead burden. Ordinary income came in at 1.01 and net income at 0.75, equating to a net margin of about 3.1%. Non-operating items were a small net negative (income 0.11 vs expenses 0.14), so earnings quality was driven primarily by core operations. Interest expense of 0.10 was well covered, with interest coverage at 10.63x, supported by the quarter’s operating profit. The company’s DuPont ROE calculates to 8.5% (net margin 3.1% × asset turnover 0.752 × leverage 3.57x), showing that leverage meaningfully amplifies modest operating returns. Liquidity is adequate but tight (current ratio 117%), underpinned by a large cash balance of 18.42 roughly matching current liabilities of 18.64. Balance sheet leverage is high (D/E 2.57x), and short-term loans of 14.0 dominate funding, raising refinancing and interest rate sensitivity risks. The effective tax rate was low at 8.0%, which boosted net profit; sustainability of this rate is uncertain. Margin trend comparisons in basis points are not available due to missing prior-period margin disclosures, but the mix suggests incremental operating leverage from revenue growth against a largely fixed SG&A base. Cash flow data were not disclosed, preventing assessment of the alignment between operating cash flow and net income—an important gap for a leveraged operator. ROIC is reported at 17.8%, implying efficient deployment of invested capital this period, although the definition and drivers are not disclosed. Forward-looking, revenue momentum appears constructive, but maintaining operating margin will hinge on labor, food input, and utility cost control and the company’s ability to pass through price increases. Given the high proportion of short-term borrowings, continued access to low-cost refinancing will be pivotal for earnings durability and equity value protection.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (≈3.1%) × Asset Turnover (0.752) × Financial Leverage (3.57x) = ROE ≈ 8.5%. The largest driver of ROE at present is financial leverage (3.57x), which amplifies modest margins and mid-0.7x asset turnover. Business context suggests operating margin formation is constrained by SG&A intensity (16.64 vs gross profit 17.68), with rent, labor, and utilities likely comprising the bulk of overhead, while non-operating items were a small net headwind (−0.03). Without YoY component data, we infer the improvement in ROE vs a low base is primarily from positive operating profit on higher sales (operating leverage) rather than from non-operating gains. The sustainability of leverage-driven ROE is lower-quality than margin- or turnover-driven ROE; margin gains via mix optimization, pricing, and labor productivity would be higher quality. Asset turnover at 0.752 is typical for restaurants with sizeable cash balances; further turnover improvement would require higher same-store sales or better utilization of assets (hours, seat turns) rather than balance sheet expansion. Concerning trend flags: SG&A details are unreported, and we cannot confirm whether SG&A growth exceeded revenue growth; however, SG&A consumes ~94% of gross profit, leaving a thin operating margin cushion. Low effective tax rate (8%) inflates net margin and could normalize upward, pressuring ROE if operating margin does not improve.

Growth Assessment

Revenue grew 9.6% YoY to 23.78, indicating solid demand recovery or contribution from network optimization/pricing. Operating income of 1.03 and net income of 0.75 suggest operating leverage is beginning to materialize despite a heavy SG&A base. Profit composition is predominantly operating; non-operating income (0.11) was more than offset by non-operating expenses (0.14), so recurring operations drove results. With an operating margin of ~4.3% and ordinary margin of ~4.25%, incremental sales growth remains important to expand margins through fixed-cost absorption. Reported ROIC of 17.8% is attractive for the sector, implying disciplined invested capital, though definitions and sustainability are unclear. Outlook hinges on maintaining traffic, price/mix uplift, and controlling labor and utility costs; any minimum wage increases or energy price volatility could compress margins. Given the high cash balance and limited disclosure on capex, growth appears to be pursued prudently, but verification via OCF/capex is not possible due to unreported cash flows. No evidence of one-time gains materially inflating profit this quarter.

Financial Health

Liquidity is adequate but tight: current ratio 117.1% (above 1.0 but below the 1.5 comfort benchmark), and quick ratio also 117.1% given limited inventories reported. Cash and deposits of 18.42 nearly cover current liabilities of 18.64, supplemented by accounts receivable of 1.25; thus near-term obligations are covered but with limited buffer. Leverage is high: D/E 2.57x (warning threshold >2.0), and total liabilities are 22.76 against equity of 8.86. Short-term loans of 14.0 dominate the capital structure, introducing refinancing and interest rate reset risk; long-term loans are small at 0.88. Interest coverage is strong at 10.63x, mitigating near-term solvency concerns as long as operating profitability is maintained. No off-balance sheet obligations are disclosed in the dataset; however, operating leases (common in restaurants) are likely but unreported here, which would effectively increase leverage. Maturity mismatch risk exists due to reliance on short-term funding, partially offset by the large cash position.

Cash Flow Quality

Operating cash flow (OCF) is unreported, so OCF/Net Income cannot be assessed and earnings quality cannot be validated. Free cash flow and capex are also unreported, preventing assessment of self-funding capacity for debt service and dividends. Working capital indicators are partial: cash 18.42 and AR 1.25 versus AP 1.06; inventories and other accruals are unreported, limiting analysis of potential working capital-driven earnings management. Given high leverage, sustained positive OCF would be critical; absence of disclosure this quarter is a key limitation. Interest expense of 0.10 appears manageable relative to operating income, but cash interest coverage cannot be confirmed.

Dividend Sustainability

Dividend data (DPS, total dividends paid, payout ratio) are unreported, and FCF is unavailable. As such, payout sustainability cannot be quantified. With high leverage (D/E 2.57x) and reliance on short-term loans, prudent dividend policy would typically depend on consistent positive OCF after maintenance capex; this cannot be verified from available data. If the low effective tax rate normalizes and interest costs rise, distributable profit could be pressured absent further operating margin expansion.

Risk Assessment

Business Risks:

• Input cost inflation (food and beverages) and utility price volatility compressing margins
• Labor cost inflation and staffing shortages impacting service levels and SG&A
• Demand sensitivity to economic conditions and consumer spending
• Store portfolio optimization risk (closures/reopenings) affecting fixed-cost absorption
• Execution risk on pricing/mix initiatives needed to sustain margins

Financial Risks:

• High leverage (D/E 2.57x) with concentration in short-term loans (14.0) elevates refinancing risk
• Interest rate risk from potential rate increases affecting floating-rate/renewed debt
• Tight liquidity buffer (current ratio 1.17x) despite large cash holdings
• Low effective tax rate (8%) may normalize upward, reducing net margins and cash available for debt service
• Potential lease obligations (not disclosed) that would increase effective leverage

Key Concerns:

• Unreported cash flow statement prevents assessment of earnings quality and FCF
• Limited SG&A breakdown obscures visibility on cost drivers and controllability
• Non-operating items slightly negative; sustained operating profit is essential
• Reliance on leverage to achieve 8.5% ROE rather than robust margins or turnover

Investment Implications

Key Takeaways:

• Top-line growth of 9.6% YoY supported a return to modest profitability (operating margin ~4.3%, net margin ~3.1%)
• ROE of 8.5% is achieved primarily via high financial leverage (3.57x) rather than strong margins
• Liquidity is adequate but tight; cash nearly equals current liabilities, with short-term loans dominating
• Interest coverage is healthy at ~10.6x, but sustained operating profit is required to maintain it
• Cash flow disclosure absence is a key gap for assessing dividend capacity and debt paydown

Metrics to Watch:

• Operating cash flow and free cash flow (when disclosed)
• Same-store sales growth and traffic/price mix trends
• Labor cost ratio and utility cost trends within SG&A
• Short-term debt rollover profile and average interest rate
• Operating margin trajectory and effective tax rate normalization
• Capex levels (maintenance vs growth) and store network changes

Relative Positioning: Within Japan’s casual dining sector, the company shows improving topline and acceptable ROE, but its leverage is above conservative peers and liquidity cushion is thin; sustained margin improvement and transparent cash generation will be needed to close quality gaps with stronger-capitalized operators.

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