CHIMNEY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.76B
• Operating Income: ¥55M
• Net Income: ¥177M
• 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

Chimney Co., Ltd. (3178) reported FY2026 Q2 consolidated results under JGAAP showing flat top-line with significant compression in profitability and weak cash conversion. Revenue was ¥12.763bn (+0.0% YoY), while operating income fell sharply to ¥55m (-82.5% YoY), highlighting substantial operating deleverage. Net income was ¥101m (-42.5% YoY), supported by net non-operating gains that offset interest expense of ¥32m, as ordinary income reached ¥87m. Gross profit was ¥8.765bn, implying a high gross margin of 68.7%, but elevated SG&A and fixed costs constrained EBITDA to ¥205m (EBITDA margin 1.6%). DuPont analysis indicates a low ROE of 1.65%, driven by a very thin net margin of 0.79%, moderate asset turnover of 0.794x, and financial leverage of 2.63x. Operating cash flow was slightly negative at -¥11.5m despite positive net income, indicating weak cash flow quality likely driven by working capital movements or non-cash items; investing cash flow was unreported (0), and financing outflows of ¥508m point to debt or lease repayments. Liquidity appears adequate with a current ratio of 132% and working capital of approximately ¥1.996bn, though solvency is tighter with a debt-to-equity ratio of 1.74x and asset/equity leverage of 2.63x. Calculated equity ratio is about 38.1% (¥6.118bn equity/¥16.069bn assets), noting the reported 0.0% equity ratio is an unpopulated field. Interest coverage of 1.7x is thin, leaving limited buffer against further earnings volatility or interest rate increases. The effective tax rate is effectively zero, likely reflecting loss carryforwards or tax credits; this aided bottom-line resilience in the quarter but is not a structural improvement in core profitability. Dividend remains suspended (DPS ¥0; payout 0%), appropriately conservative given weak profitability and negative OCF. With revenue flat and profit under pressure, near-term performance depends on cost normalization (labor, utilities, rents) and traffic recovery in the izakaya/casual dining segment. The company’s high fixed-cost base and low current margins suggest high operating leverage, making small revenue or cost changes pivotal for earnings. Data completeness is limited in areas such as inventories, cash balance, investing cash flows, and share count, which constrains precision in certain metrics. Overall, the quarter underscores fragile profitability, constrained coverage, and cautious financial policy, with stabilization contingent on operating efficiencies and demand recovery.

Profitability Analysis

ROE of 1.65% is decomposed as: net margin 0.79% × asset turnover 0.794 × financial leverage 2.63. The very low net margin is the primary drag on ROE, while leverage modestly amplifies returns. Gross margin is high at 68.7%, consistent with food-service models where cost of sales is relatively contained but SG&A (labor, utilities, rents, advertising) is heavy. Operating income of ¥55m on ¥12.763bn revenue implies a near-breakeven operating margin (~0.4%), down sharply YoY (-82.5%), evidencing significant operating deleverage from a largely fixed cost base. EBITDA of ¥205m (1.6% margin) indicates limited buffer to absorb shocks; depreciation/amortization of ¥150m consumes most of EBITDA, leaving minimal operating profit. Ordinary income of ¥87m above operating income suggests net non-operating gains (e.g., subsidies, miscellaneous income) partially offsetting ¥32m of interest expense. Interest coverage of 1.7x is thin; a modest further decline in EBITDA or rise in interest rates would pressure earnings. The effective tax rate is near 0%, implying use of loss carryforwards or tax credits; this supports net income but does not enhance core operating strength. Overall margin quality is weak: profits depend on cost control and non-operating items, with limited structural profitability at current sales levels.

Growth Assessment

Revenue was flat YoY at ¥12.763bn (+0.0%), indicating stabilization but no visible growth momentum in the period. The steep decline in operating income (-82.5% YoY) despite stable revenue signals adverse cost trends (labor, utilities, rent) and/or fading COVID-related subsidies, rather than demand softness alone. Net income decreased 42.5% YoY to ¥101m, cushioned by non-operating items and a low tax burden. Sustainability of revenue appears moderate: flat sales could reflect mixed same-store trends offset by store openings/closures; without disclosed store metrics, visibility is limited. Profit quality is weak given reliance on non-operating income and a negligible operating margin. Outlook hinges on: (1) traffic and average ticket recovery, (2) labor productivity and scheduling improvements, (3) procurement and energy cost normalization, and (4) rent renegotiations and portfolio optimization. Given high operating leverage, even low-single-digit revenue growth or modest cost relief could materially lift operating profit; conversely, small adverse moves could push results into loss.

Financial Health

Liquidity is adequate with current assets of ¥8.228bn and current liabilities of ¥6.232bn, yielding a current ratio of 132% and working capital of ~¥1.996bn. Quick ratio matches current ratio (132%) because inventories are unreported; true quick liquidity could be slightly lower if inventories are material. Total assets are ¥16.069bn and equity is ¥6.118bn, implying a computed equity ratio of ~38.1% (reported equity ratio 0.0% is an unpopulated field). Financial leverage is 2.63x (assets/equity), and debt-to-equity is 1.74x, indicating a moderately levered balance sheet for a restaurant operator. Interest coverage at 1.7x is tight, limiting cushion against rate increases or profit shortfalls. Financing cash outflow of ¥508m suggests debt or lease repayments, which improve leverage over time but reduce liquidity in the short term. Overall solvency is acceptable but sensitive to earnings volatility given low margins.

Cash Flow Quality

Operating cash flow was -¥11.5m against net income of ¥101m, yielding an OCF/NI of -0.11, which flags weak earnings-to-cash conversion this period. The gap likely stems from working capital movements (e.g., receivables build, payables reduction) and non-cash/non-recurring items affecting earnings; detailed drivers are not disclosed. Depreciation/amortization of ¥150m supports accrual earnings, but the cash shortfall indicates timing effects or lower cash generation from operations. Investing cash flow is unreported (0), limiting visibility into maintenance capex; hence, reported free cash flow is 0 by data definition and not indicative of true FCF. Financing cash flow outflow of ¥508m likely reflects net debt/lease repayments, consistent with a deleveraging stance but also a drain on cash. With negative OCF and unclear capex, underlying FCF likely negative to slightly negative in the quarter absent sizable asset sales or subsidies.

Dividend Sustainability

The company paid no dividend (DPS ¥0; payout ratio 0%). Given thin profitability, negative OCF, and financing outflows, the suspension aligns with balance sheet preservation. FCF coverage is reported as 0.00x due to unreported investing cash flows; true coverage cannot be determined but is likely insufficient given negative OCF. Until operating margin and cash generation recover, reinstating dividends would be challenging. Dividend policy outlook appears conservative, prioritizing liquidity and deleveraging over distributions.

Risk Assessment

Business Risks:

• High operating leverage: small revenue or cost changes drive large swings in operating profit
• Labor cost inflation and staffing shortages impacting SG&A
• Energy and utility cost volatility affecting occupancy/other expenses
• Consumer demand sensitivity for izakaya/casual dining formats
• Competitive intensity and promotional pressure in the food-service sector
• Potential store closures/impairments and one-off restructuring costs
• Supply chain and procurement price volatility for food/beverage inputs

Financial Risks:

• Thin interest coverage (1.7x) and moderate leverage (D/E 1.74x)
• Negative operating cash flow in the period; reliance on working capital timing
• Refinancing risk and interest rate exposure in a rising or persistent high-rate environment
• Limited buffer for covenant headroom if profitability weakens
• Uncertainty around true liquidity due to unreported cash and inventories

Key Concerns:

• Operating margin near breakeven (~0.4%) with sharp YoY deterioration
• Dependence on non-operating income to sustain net profit
• OCF/Net income negative (-0.11), indicating weak cash conversion
• Financing outflows (¥508m) tightening liquidity while profitability is fragile

Investment Implications

Key Takeaways:

• Revenue stabilized at ¥12.763bn but profitability compressed sharply
• ROE is low at 1.65%, constrained primarily by a 0.79% net margin
• EBITDA margin of 1.6% and interest coverage of 1.7x indicate limited buffer
• Liquidity adequate (current ratio 132%), solvency moderate (equity ratio ~38.1% computed)
• OCF was negative despite positive net income, highlighting weak earnings quality
• Dividend remains suspended; cash preservation takes priority
• High fixed-cost base implies significant operating leverage to sales recovery or cost relief

Metrics to Watch:

• Same-store sales growth and customer traffic/average ticket
• Labor cost ratio and productivity (sales per employee/hour)
• Utility and occupancy cost ratios within SG&A
• Operating margin and EBITDA margin progression
• Working capital changes and OCF/NI conversion
• Net debt/EBITDA and interest coverage
• Store count, closures, and impairment charges

Relative Positioning: Within domestic izakaya/casual dining peers, Chimney currently shows weaker operating margins and thinner coverage, with moderate leverage. Recovery appears to lag peers showing stronger post-pandemic traffic and cost normalization, making execution on cost control and demand recovery particularly critical.

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