HOTLAND HOLDINGS Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥37.52B
• Operating Income: ¥1.49B
• Net Income: ¥1.40B
• EPS: ¥12.52

Income Statement

Balance Sheet

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

FY2025 Q3 was a mixed quarter: solid top-line growth but a sharp compression in profitability culminating in a steep decline in bottom-line earnings. Revenue rose 10.9% YoY to 375.2, evidencing healthy demand and continued store network momentum. Gross profit reached 189.8 with a gross margin of 50.6%, indicating that product-level economics remain intact. However, SG&A of 168.7 (45.0% of sales) absorbed most of the gross profit, pulling operating income down 29.1% YoY to 14.9. Operating margin fell to 3.97%; based on the reported growth rates, we estimate a YoY operating margin compression of about 224 bps (from ~6.21% to 3.97%). Ordinary income declined 42.3% YoY to 13.6, implying an ordinary margin contraction of roughly 335 bps (from ~6.98% to 3.63%). Net income plunged 78.8% YoY to 2.7, taking net margin down to 0.7%, an estimated 300 bps compression YoY (from ~3.7% to 0.7%). The income statement suggests additional non-operating/other adjustments not fully disclosed in the breakdown: ordinary income is below the mechanical sum of operating income plus net non-operating income, and profit before tax (21.5) exceeds ordinary income, implying material extraordinary gains and a large allocation to non-controlling interests post-tax. Total comprehensive income turned negative (-0.84), indicating OCI losses (e.g., FX valuation or securities) despite the reported PBT gain. Liquidity remains adequate with a current ratio of 131% and quick ratio of 102%, supported by 68.0 in cash and deposits. Leverage is moderate-to-elevated: D/E is 1.71x (above our conservative benchmark of 1.5x but below the 2.0x warning threshold), with interest coverage healthy at 32.3x. ROE is a weak 2.2% (Net margin 0.7% × Asset turnover 1.136 × Leverage 2.71x), highlighting that profitability, not balance sheet efficiency, is the principal drag. ROIC is 6.1%, below the 7–8% management target range often cited in consumer F&B retail, implying value creation is marginal after capital costs. Earnings quality cannot be confirmed due to unreported cash flow data; the large gap between PBT and NI and negative OCI elevate quality concerns. Forward-looking, management will need to curb SG&A intensity and stabilize below-the-line items to restore margins; otherwise, elevated payout (calculated payout ratio 105.8%) looks stretched against earnings.

Profitability Analysis

ROE decomposition: 2.2% = 0.7% net profit margin × 1.136 asset turnover × 2.71x financial leverage. The largest delta versus last year stems from net profit margin, given revenue rose 10.9% while operating, ordinary, and net profits fell 29.1%, 42.3%, and 78.8%, respectively. Business drivers likely include cost inflation (labor, utilities, raw materials), high store operating costs (rent/outsourcing), and heavier SG&A (marketing, expansion overhead), alongside unfavorable below-the-line items (extraordinary items and/or larger non-controlling interests). Operating margin appears to have compressed about 224 bps YoY to 3.97%, and net margin by ~300 bps to 0.7%, pointing to deleveraging. This change is partly cyclical (input cost and wage inflation) but also executional (SG&A discipline and mix), and is only partially reversible without targeted cost actions and pricing/mix improvements. SG&A at 45.0% of sales is high for the format and likely grew faster than revenue, a concerning trend that erodes operating leverage.

Growth Assessment

Top-line growth of 10.9% YoY to 375.2 is healthy and likely driven by store openings, price/mix, and recovering foot traffic. However, profit growth is negative across all lines: operating income -29.1%, ordinary income -42.3%, and net income -78.8% YoY, evidencing growth without margin capture. Gross margin at 50.6% suggests product-level profitability is intact, but SG&A intensity (45.0% of sales) offset the gains. Ordinary and net results were further pressured by below-the-line items, as implied by the gap between ordinary income and PBT and the sharp fall in net. Near-term outlook depends on cost normalization (labor/energy), disciplined opex control, and the ability to pass through costs without impairing traffic. With ROIC at 6.1% (below the 7–8% target range), incremental growth needs higher capital efficiency or better margins to create value. The negative total comprehensive income flags additional volatility from OCI items that could continue to swing reported equity. Overall, revenue momentum appears sustainable, but profit quality and conversion are the key swing factors.

Financial Health

Liquidity is adequate: current ratio 131.1% and quick ratio 102.1% exceed minimum comfort thresholds, though the current ratio is below the 1.5x healthy benchmark. Working capital stands at 34.0, with cash and deposits of 68.0 covering short-term loans of 27.0, limiting near-term refinancing pressure. No explicit warning triggers: Current Ratio is above 1.0 and D/E is 1.71x (below the 2.0x red flag, but above conservative norms). Total liabilities are 208.6 against equity of 121.7; interest-bearing debt totals at least 105.6 (short 27.0, long 78.6). Maturity mismatch risk appears moderate: current assets of 143.1 exceed current liabilities of 109.1, and cash alone covers one-fourth of total liabilities. Interest coverage is strong at 32.3x, indicating manageable interest burden. Off-balance-sheet obligations are not disclosed; lease liabilities may be embedded in SG&A under JGAAP and should be monitored.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed. Given NI of only 2.66 and the sizeable depreciation/lease-like obligations typical for the format, cash conversion risk is elevated if working capital builds (inventories 31.7, receivables 19.2) or if expansion capex is high. Without OCF/NI, we cannot confirm earnings quality; we flag potential quality issues due to the large gap between PBT (21.5) and NI (2.7), negative OCI, and possible higher allocation to non-controlling interests. FCF sustainability for dividends and store investments cannot be concluded from the data; coverage analysis is not possible.

Dividend Sustainability

Reported DPS is unreported, but the calculated payout ratio is 105.8%, implying dividends exceed current earnings. With NI down 78.8% YoY and ROE at 2.2%, maintaining an over-earnings payout would likely require drawing on cash balances or incremental debt. FCF coverage cannot be assessed due to missing OCF and capex data. Policy-wise, management may prioritize stability, but with ROIC at 6.1% and margins compressed, upward dividend flexibility appears limited until profitability normalizes. We classify current dividend sustainability as strained on earnings coverage, pending confirmation from cash flow.

Risk Assessment

Business Risks:

• Input cost inflation (seafood, flour, oils) and wage pressure compressing store-level margins
• Execution risk in SG&A control with SG&A at 45.0% of sales
• Demand elasticity risk if further price increases are required to offset costs
• Store expansion risk (site selection, cannibalization, pre-opening costs) impacting ROIC

Financial Risks:

• Moderate leverage with D/E at 1.71x and reliance on interest-bearing debt (~105.6)
• Dividend coverage risk given a 105.8% payout ratio against weak earnings
• Volatility below the line: large gap between PBT and NI and negative OCI affecting equity
• Potential maturity mismatch if current assets tighten relative to short-term loans (27.0)

Key Concerns:

• Estimated YoY operating margin compression of ~224 bps to 3.97%
• Net margin down ~300 bps to 0.7%, driving low ROE (2.2%) and sub-target ROIC (6.1%)
• Ordinary–PBT–NI inconsistencies indicate one-off items and/or higher minority interests
• Limited visibility on cash generation due to unreported OCF and capex

Investment Implications

Key Takeaways:

• Revenue growth robust (+10.9% YoY) but profit conversion weak; NI -78.8% YoY
• Operating margin compressed to 3.97% (~-224 bps YoY est.), SG&A intensity at 45.0%
• ROE 2.2% and ROIC 6.1% indicate limited value creation pending margin recovery
• Balance sheet liquidity is adequate; leverage moderate with strong interest coverage
• Dividend coverage looks stretched with a 105.8% payout ratio on depressed earnings

Metrics to Watch:

• OCF and FCF trends once disclosed (OCF/NI target >1.0)
• SG&A as % of sales and labor cost inflation trajectory
• Store productivity (sales per store) and pricing/mix effects on gross margin
• Extraordinary items, non-controlling interests, and OCI impacts on equity
• Net debt/EBITDA once EBITDA is disclosed, and trajectory of ROIC vs 7–8% benchmark

Relative Positioning: Versus domestic casual F&B peers, the company shows healthy top-line growth but weaker margin resilience and lower ROIC, with dividend coverage more strained than typical sector averages.

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