Horiifoodservice Co.,Ltd. FY2025 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.38B
• Operating Income: ¥103M
• Net Income: ¥-41M
• 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

Horii Food Service Co., Ltd. (TSE: 3077) reported FY2025 Q2 consolidated results under JGAAP with revenue of ¥2,378m, up 9.6% year on year, while operating income remained flat at ¥103m, indicating margin compression despite top-line growth. Gross profit was ¥1,561.9m, implying a high gross margin of 65.7%, but operating margin narrowed to 4.3% as SG&A and other operating costs absorbed most of the incremental sales. Ordinary income was ¥101m and net income ¥75m, both essentially flat YoY, underscoring limited operating leverage in the period. The net margin stood at 3.15%, modest for the restaurant sector, and suggests continued cost pressures (labor, utilities, and food inputs) or a changing sales mix. DuPont decomposition shows ROE of 8.47% driven by modest profitability (NPM 3.15%), moderate asset turnover (0.752x), and relatively high financial leverage (3.57x). Based on the balance sheet, we calculate an equity ratio of roughly 28.0% (¥886m equity / ¥3,162m assets), despite a reported 0.0% figure that reflects non-disclosure in XBRL rather than an actual zero. Liquidity appears tight with a current ratio of 104.3% and working capital of about ¥89m, leaving limited buffer against short-term shocks. Debt-to-equity of 2.82x indicates a leveraged capital structure, though interest coverage of roughly 13x provides some near-term debt service comfort. The effective tax rate shown as 0.0% in the summary is a data artifact; using disclosed figures, income tax expense of ¥2.75m versus ordinary income of ¥101m implies an effective tax rate near 2.7%, and the lower net income suggests additional non-operating or special items. Cash flow data, depreciation and amortization, cash and equivalents, and share counts are not disclosed in the XBRL snapshot, limiting assessment of earnings quality, free cash flow, and dividend capacity; zeros reflect non-reporting rather than true zero values. The absence of depreciation data distorts EBITDA and operating cash proxy analysis; EBITDA shown as 0 is not meaningful. With annual DPS at ¥0 and a reported payout ratio of 0%, the company is retaining earnings—appropriate given thin liquidity and leverage. Overall, sales recovery is evident, but monetization into profits remains constrained, and balance sheet flexibility is only moderate. Key monitoring points include same-store sales momentum, SG&A discipline, cost inflation management, and non-operating/extraordinary items impacting bottom line. Given data gaps, conclusions are drawn primarily from income statement and balance sheet metrics and should be revisited once full cash flow and notes are available.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 3.15% × asset turnover 0.752 × financial leverage 3.57 = ROE ~8.47%, consistent with the reported figure. Operating margin sits at 4.3% (¥103m / ¥2,378m), reflecting limited pass-through of higher sales into operating profit. The gap between the high gross margin (65.7%) and the low operating margin indicates heavy SG&A burden and/or store-level cost pressures (labor, utilities, rents) typical for the restaurant sector. Ordinary income (¥101m) is slightly below operating income due to net interest expense (¥7.9m) and minor non-operating items, implying limited financial drag given current coverage. Net margin of 3.15% shows additional dilution from taxes and non-operating/special items between ordinary and net income. Margin quality appears fragile: revenue grew 9.6% YoY but operating income was flat, signaling negative operating leverage in the period. This suggests either rising unit costs, promotional intensity, or an unfavorable mix (e.g., lower-margin formats/channels). Without depreciation data, EBITDA metrics cannot be reliably assessed; the reported EBITDA of 0 reflects non-disclosure. Overall profitability is adequate but vulnerable to further cost inflation and traffic volatility.

Growth Assessment

Top-line growth of 9.6% YoY to ¥2,378m indicates continued demand recovery or footprint optimization, possibly aided by normalization in dining-out trends. However, the lack of operating income growth despite higher sales points to weaker incremental margins and suggests that current growth is not translating into stronger earnings. Net income remained flat at ¥75m, reinforcing concerns about profit quality and the durability of earnings expansion. The ordinary income line (¥101m) implies the core business remains the main driver, with limited contribution from non-operating gains. The low implied tax burden (c. 2.7% using available numbers) and the gap to net income suggest the presence of non-recurring or below-ordinary items that weighed on the bottom line. Sustainability of revenue growth will depend on same-store sales, price/mix, and store network productivity; without store count or segment detail, we cannot attribute growth between price and volume. Cost normalization (especially labor and energy) and SG&A discipline are prerequisites for translating revenue growth into earnings. Near-term outlook is cautiously constructive for sales but guarded for margins, given the observed negative operating leverage.

Financial Health

Total assets were ¥3,162m, liabilities ¥2,501m, and equity ¥886m, implying a calculated equity ratio of about 28.0% (despite the reported 0.0% due to non-disclosure). Current assets were ¥2,163m against current liabilities of ¥2,074m, yielding a current ratio of 104.3% and working capital of ¥89m—adequate but thin. The quick ratio equals the current ratio as inventories are not disclosed; true liquidity may be slightly lower if inventories exist. Debt-to-equity of 2.82x indicates a leveraged balance sheet for a small-cap food service operator. Interest expense of ¥7.9m versus operating income of ¥103m results in an interest coverage ratio near 13x, suggesting manageable near-term serviceability. Cash and equivalents were not disclosed, limiting clarity on immediate liquidity buffers. Overall solvency is acceptable but would benefit from deleveraging or equity accretion; liquidity headroom is limited and sensitive to working capital swings.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed in the snapshot (shown as zero due to non-reporting), preventing a conventional OCF-to-net income or free cash flow assessment. The reported OCF/Net Income ratio of 0.00 and FCF of 0 should not be interpreted as true economic values. Without depreciation and amortization, we cannot use EBITDA as a cash proxy, which restricts insight into non-cash earnings components. Working capital adequacy appears marginal (¥89m), implying cash conversion could be volatile in the face of sales seasonality or supplier terms. In the absence of CF data, earnings quality cannot be validated; risks include capitalization policy changes, lease/IFRS16-like effects under JGAAP lease accounting, and potential timing effects in payables/receivables. We will need the full cash flow statement and notes to assess maintenance capex, lease payments, and true free cash flow.

Dividend Sustainability

Annual DPS is reported as ¥0 with a payout ratio of 0%, indicating a conservative stance prioritizing internal funding over distributions. Given limited liquidity (current ratio ~1.04x) and leverage (D/E 2.82x), retention appears prudent. FCF coverage cannot be assessed because cash flows and capex are undisclosed; the reported 0.00x is a data artifact. Policy-wise, a resumption of dividends would likely require clearer visibility on sustainable OCF, maintenance capex, and a stronger working capital buffer. Until free cash flow generation is evidenced, dividend sustainability remains indeterminate but cautious.

Risk Assessment

Business Risks:

• Cost inflation in food inputs and utilities compressing margins
• Labor shortages and rising wage costs impacting SG&A
• Traffic volatility and discretionary demand sensitivity in dining-out
• Store network efficiency and lease renegotiation risks
• Competition from other casual dining and delivery channels
• Potential impact from health/safety incidents or renewed mobility restrictions

Financial Risks:

• Tight liquidity with current ratio near 1.0x and limited working capital
• High leverage (D/E 2.82x) increasing sensitivity to earnings downturns
• Interest rate and refinancing risks despite current 13x coverage
• Cash flow visibility gaps due to non-disclosure of OCF and capex
• Potential non-operating or extraordinary losses affecting bottom line

Key Concerns:

• Negative operating leverage: revenue up 9.6% but operating income flat
• Unusually high gross margin versus low operating margin suggests heavy overhead burden
• Material data limitations (cash flow, D&A, cash balance, shares) constrain analysis
• Low implied effective tax rate contrasted with sizable drop from ordinary to net income, hinting at one-offs
• Liquidity buffer is thin; working capital swings could pressure operations

Investment Implications

Key Takeaways:

• Top-line recovery is evident but not translating into higher operating profits
• ROE of ~8.5% is leverage-aided; improving margins is key to enhancing returns
• Liquidity is adequate but tight; deleveraging or stronger OCF would improve resilience
• Cash flow and D&A non-disclosure limit confidence in earnings quality and FCF
• Dividend remains suspended (¥0 DPS), consistent with balance sheet priorities

Metrics to Watch:

• Same-store sales growth and ticket size/mix
• SG&A-to-sales ratio and labor cost per sales
• Energy and food cost indices and gross-to-operating margin bridge
• Operating cash flow, capex, and lease payments once disclosed
• Net debt/EBITDA (on disclosure) and interest coverage
• Working capital days (receivables, payables, inventory) upon availability

Relative Positioning: Within Japanese small-cap restaurant operators, Horii shows respectable revenue momentum but weaker operating leverage and tighter liquidity than stronger peers; leverage is on the higher side, while interest coverage is acceptable. Disclosure gaps currently place it at a disadvantage for transparency relative to best-in-class peers.

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