CHIMNEY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.76B
• Operating Income: ¥55M
• Net Income: ¥102M
• EPS: ¥5.27

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was a weak profitability quarter for Chimney, with operating income collapsing despite flat revenue. Revenue was 127.63, essentially flat YoY (+0.0%), while operating income fell 82.5% YoY to 0.55, and ordinary income declined 75.8% to 0.87. Gross profit was 87.59 (gross margin 68.6%), but SG&A of 87.04 absorbed nearly all of the gross profit, leaving a razor-thin operating margin of 0.4–0.5%. Non-operating items provided a modest lift (net +0.32), supporting profit before tax of 1.01 and net income of 1.01 (−42.5% YoY), aided by a slightly negative effective tax rate (−0.9%). EBITDA was 2.11 (margin 1.7%), highlighting very limited earnings capacity relative to the sales base. ROE computed via DuPont was 1.6% (NPM 0.8% × asset turnover 0.794 × leverage 2.63x), underscoring subdued returns primarily due to margin compression. Operating cash flow was solid at 6.74, exceeding net income by 6.7x, indicating favorable working capital movements this quarter, but sustainability is uncertain without detail. Liquidity is adequate but tight: current ratio 110% and quick ratio 110%, with short-term loans of 27.00 versus cash of 59.92 providing some cushion. Leverage is elevated for the earnings profile: D/E 1.63x, interest coverage 1.54x (warning), and Debt/EBITDA 19.6x (high). Balance sheet shows meaningful intangibles (goodwill 19.98; intangibles 20.41), implying potential impairment risk if earnings remain weak. The effective tax benefit and the non-operating income contribution (0.69) supported bottom line; these are not substitutes for structural operating profit improvement. With revenue stagnant and SG&A nearly equal to gross profit, cost control and store-level productivity improvements are pivotal near term. Cash generation this quarter enables some deleveraging (financing CF −6.53), but debt service capacity remains tight until operating profit recovers. Forward-looking, management will need to expand operating margins by several tens of basis points to normalize interest coverage and ROE; absent that, dividend capacity (payout ratio estimate 191.5%) appears stretched. Data gaps (capex, dividend cash out, inventories) limit precision, but the directional read is clear: stabilize sales, rebase costs, and fortify the balance sheet.

Profitability Analysis

ROE (1.6%) = Net Profit Margin (0.8%) × Asset Turnover (0.794) × Financial Leverage (2.63x). The dominant drag is net margin, given operating income fell 82.5% YoY while revenue was flat, compressing operating margin to ~0.43%. Asset turnover at 0.794 is modest for food service but not the prime issue; leverage is elevated and helped keep ROE slightly positive. Business driver: SG&A (87.04) nearly matched gross profit (87.59), erasing operating earnings despite a high gross margin (68.6%); this points to wage, utilities, and fixed occupancy pressure outpacing any sales uplift. The change appears largely operational (cost inflation and likely lack of operating leverage from flat sales) rather than one-off. Sustainability: absent pricing, mix, or traffic recovery, current profitability is not sustainable and leaves little buffer for shocks. Concerning trend: the SG&A burden effectively consumed gross profit; with revenue +0.0% and OI −82.5%, operating deleverage is severe.

Growth Assessment

Top-line growth was flat YoY at 127.63, suggesting either plateauing same-store sales or offsetting store openings/closures. Profit quality is weak at the operating level, with EBITDA margin 1.7% and OPM ~0.4%, indicating minimal operating leverage. Non-operating income (0.69) and a near-zero tax burden masked even weaker underlying operations; these are not durable drivers. With ROIC at 1.3% (well below cost of capital benchmarks), reinvestment returns appear poor. Near-term outlook hinges on cost normalization (labor scheduling, menu pricing, procurement) and traffic recovery; even 50–100 bps OPM expansion would materially improve interest coverage. Risks to growth include consumer demand softness, input cost inflation, and competitive discounting in the izakaya/casual dining segment. No guidance or segment detail provided; thus, sustainability of revenue and margins cannot be confirmed.

Financial Health

Liquidity: Current ratio 110.3% and quick ratio 110.3% are above 1.0 but below the 1.5x comfort threshold; caution warranted. Solvency: D/E 1.63x exceeds the 1.5x conservative benchmark; leverage is elevated versus earnings capacity. Interest coverage at 1.54x is below the 2.0x warning line, indicating tight debt service. Maturity profile: Short-term loans of 27.00 are significant relative to current assets (73.83) and especially relative to working capital (6.91), but cash of 59.92 provides near-term coverage; refinancing risk remains if operating recovery stalls. Long-term loans are 14.45, indicating a mix of short and long maturities; a shift toward longer tenor could reduce rollover risk. Off-balance sheet obligations are not disclosed; typical restaurant lease commitments could be material but are unreported here. Equity is 61.18, with notable intangibles (goodwill 19.98; other intangibles 20.41), implying that tangible equity is significantly lower.

Cash Flow Quality

OCF/Net income is 6.68x, a positive indicator, likely reflecting working capital inflows and non-cash D&A (1.56). However, with OPM near breakeven, cash conversion may not be repeatable absent ongoing working capital releases. Free cash flow is unreported; capex data is missing, limiting a definitive FCF view. Financing cash flow of −6.53 suggests net repayments/dividends, consistent with some deleveraging or distributions, but dividends and buybacks are not disclosed. Potential manipulation signs are limited, but given near-zero operating profit, sustained high OCF would warrant scrutiny of payables timing and inventory management (inventories unreported). In sum, cash generation this quarter is better than earnings, but durability is uncertain.

Dividend Sustainability

Dividend data is largely unreported, but the calculated payout ratio is 191.5%, signaling potential unsustainability relative to earnings. With interest coverage at 1.54x and Debt/EBITDA at 19.6x, prioritizing debt service and margin repair over distributions would be prudent. FCF coverage cannot be assessed due to missing capex and dividend cash out, but given slim EBITDA, coverage risk is high if distributions continue at recent levels. Policy outlook likely hinges on restoring operating income; without a clear recovery, dividend flexibility (cuts/pauses) may be required to protect liquidity and covenants.

Risk Assessment

Business Risks:

• Stagnant revenue (+0.0% YoY) limiting operating leverage
• Cost inflation (labor, energy, food) compressing SG&A and operating margins
• Competitive pressure in izakaya/casual dining affecting pricing power and traffic
• Goodwill/intangible impairment risk given weak earnings (goodwill 19.98; intangibles 20.41)
• Operational execution risk in store portfolio optimization and cost control

Financial Risks:

• Interest coverage at 1.54x (below 2.0) indicating tight debt service capacity
• Elevated leverage vs earnings (D/E 1.63x; Debt/EBITDA 19.6x)
• Liquidity buffer thin (current ratio 1.10x) with sizable short-term loans (27.00)
• Refinancing/rollover risk if operating recovery is delayed
• Potential dividend strain (calculated payout ratio 191.5%) on cash resources

Key Concerns:

• Operating margin near breakeven (~0.43%) despite high gross margin
• Dependence on non-operating income (0.69) and low tax to support net profit
• Unreported capex and dividend cash flows obscuring FCF and capital needs
• Sensitivity to consumer demand swings and seasonality in dining-out trends
• Limited headroom for adverse shocks given minimal profit buffer

Investment Implications

Key Takeaways:

• Core profitability deteriorated sharply with OI −82.5% YoY on flat sales, pointing to severe operating deleverage.
• Cash generation outpaced earnings this quarter (OCF/NI 6.7x), but sustainability is uncertain without recurring margin improvements.
• Balance sheet leverage is high relative to EBITDA (Debt/EBITDA ~19.6x) and interest coverage is sub-2x, elevating debt-service risk.
• Dividend capacity appears stretched (calculated payout ratio ~192%); balance sheet preservation likely takes precedence.
• Focus areas: SG&A discipline, pricing/mix, and store-level productivity to reclaim 50–100 bps of OPM near term.

Metrics to Watch:

• Same-store sales and traffic trends
• Operating margin and SG&A as a percentage of sales
• Labor cost ratio and energy/utilities expense trajectory
• Interest coverage (EBIT/interest) and net debt/EBITDA
• Working capital movements (payables and inventory days) and OCF consistency
• Capex and store count changes (openings/closures/renovations)
• Goodwill impairment indicators and intangible asset write-downs

Relative Positioning: Within Japan’s casual dining/izakaya peers, Chimney currently sits on the weaker end in profitability and coverage metrics: revenue is stagnant, OPM is near zero, leverage vs EBITDA is high, and ROIC (1.3%) is well below sector cost of capital. A credible cost reset and sales recovery are required to move closer to mid-pack performance.

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