TOWA FOOD SERVICE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.53B
• Operating Income: ¥383M
• Net Income: ¥275M
• EPS: ¥34.16

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

For FY2026 Q2 (JGAAP, non-consolidated), Towa Food Service Co., Ltd. delivered steady topline growth but weaker operating profitability. Revenue rose 3.8% YoY to ¥6.53bn, underscoring resilient demand. Gross profit of ¥4.59bn implies a high gross margin of 70.4%, consistent with a service/food-service model where cost of sales is relatively modest versus value-added sales. Despite the strong gross margin, operating income declined 16.8% YoY to ¥383m, compressing the operating margin to 5.9%, likely reflecting higher personnel, utilities, and other SG&A pressures. Ordinary income of ¥453m exceeded operating income, suggesting positive non-operating contributions (e.g., subsidies, other income), which partially offset operating margin pressure. Net income was ¥275m, nearly flat YoY (-0.2%), indicating that below-the-line items and a normalizing tax rate cushioned the impact of weaker operating profit. The DuPont profile shows a net margin of 4.21%, asset turnover of 0.691x, and financial leverage of 1.28x, resulting in a reported ROE of 3.73%—modest by industry standards. Liquidity is very strong: current assets of ¥5.27bn versus current liabilities of ¥1.28bn drive a 411% current ratio and ample working capital of ¥3.99bn. The balance sheet is conservatively structured, with total liabilities of ¥1.998bn vs. equity of ¥7.371bn, implying low leverage (D/E ~0.27x) and an equity ratio near 78% by calculation, despite the reported equity ratio field being unreported. Operating cash flow was ¥280m, broadly in line with net income (OCF/NI ~1.02x), suggesting acceptable earnings-to-cash conversion for the half-year. EBITDA was ¥542m, with an 8.3% margin, indicating reasonable cash earnings capacity even as operating margin tightened. No dividend was reported for the period and payout ratio is shown as 0%—consistent with no distribution; FCF could not be assessed because investing cash flows were unreported. Overall, the company appears liquid and conservatively financed, with stable demand but some operating cost headwinds. The key to improving ROE will be restoring operating margins and/or improving asset turnover while maintaining the strong balance sheet. Data limitations exist (several zero placeholders reflect unreported items), so conclusions focus on disclosed figures. Near-term outlook depends on SG&A cost control, pricing power, and traffic resilience in core store formats. Monitoring same-store sales and cost ratios will be crucial for assessing margin recovery through the remainder of the fiscal year.

Profitability Analysis

roe_decomposition: ROE 3.73% = Net margin 4.21% × Asset turnover 0.691x × Financial leverage 1.28x. The low-to-mid single-digit ROE is primarily constrained by modest asset turnover and margin compression at the operating line, with limited contribution from leverage given a conservative balance sheet. margin_quality: Gross margin is high at 70.4% (gross profit ¥4,594m on sales ¥6,526m), pointing to strong value-add and pricing relative to cost of sales. Operating margin is 5.9% (¥383m/¥6,526m), down YoY in line with the -16.8% operating income change versus +3.8% revenue growth, implying SG&A inflation (labor, utilities, rents, promotions) outpaced revenue growth. Ordinary income margin is 6.9% (¥453m/¥6,526m), indicating supportive non-operating items. Net margin is 4.21% (¥275m/¥6,526m), consistent with a normalized tax burden. operating_leverage: Revenue grew +3.8% YoY while operating income fell -16.8% YoY, evidencing negative operating leverage in the half. This suggests fixed/semi-fixed cost pressures (notably labor and energy typical for food service) and possibly higher store-level expenses or corporate overheads that were not fully offset by pricing or mix. EBITDA margin at 8.3% vs. operating margin at 5.9% indicates D&A is moderate; profit sensitivity is currently more driven by SG&A than by cost of sales.

Growth Assessment

revenue_sustainability: Topline growth of +3.8% YoY to ¥6.53bn suggests steady demand. Given the sector profile, sustainability will hinge on same-store sales momentum, traffic recovery, and pricing power. The low inventory balance (¥53m) versus sales indicates rapid inventory turns and a service-heavy mix, supportive of ongoing revenue flow if footfall holds. profit_quality: Net income was stable (-0.2% YoY) despite lower operating profit, aided by non-operating income and a standard tax burden. The ordinary income above operating income indicates some reliance on non-operating factors in this period; core profit quality would improve with SG&A normalization. outlook: Near-term growth will depend on managing wage and utility inflation, optimizing labor scheduling, and maintaining ticket sizes without sacrificing traffic. If cost pressures ease or price/mix improves, operating leverage could turn positive. Conversely, a softer consumer environment or renewed cost inflation could keep margins under pressure through the remainder of the fiscal year.

Financial Health

liquidity: Current ratio 411% (¥5,272m CA / ¥1,282m CL) and quick ratio 407% reflect very strong short-term liquidity. Working capital is robust at ¥3,989m. Cash and equivalents were unreported, but sizeable current assets and minimal inventories imply a healthy liquidity buffer. solvency: Total liabilities of ¥1,997.6m vs equity of ¥7,371m yield D/E ~0.27x and an equity ratio of roughly 78% (calculated from disclosed totals), indicating low balance sheet risk and ample solvency headroom. capital_structure: Financial leverage of 1.28x (Assets/Equity) is modest. Interest expense was unreported (shown as zero), so interest coverage based on EBIT is not meaningful; however, given low leverage and positive operating income, coverage would be ample if any interest costs exist. The company retains flexibility for reinvestment or potential shareholder returns, subject to capex needs and policy considerations.

Cash Flow Quality

earnings_quality: OCF ¥279.7m vs net income ¥275.0m yields OCF/NI ~1.02x, indicating acceptable conversion of earnings into cash for the half-year. This suggests limited accrual build in the period. fcf_analysis: Investing cash flow was unreported (shown as zero). As such, true free cash flow cannot be determined from the provided data. On a proxy basis, if capex were modest, OCF would likely cover maintenance needs, but this cannot be confirmed. working_capital: Inventories are very small at ¥53m relative to sales, consistent with rapid turnover in a food-service model. The strong quick ratio implies receivables and other current assets dominate current assets, but the period-specific changes in receivables/payables are not disclosed; therefore, we cannot quantify working capital drag or release.

Dividend Sustainability

payout_ratio_assessment: No dividend was reported (DPS 0; payout ratio 0%). With net income positive and OCF roughly matching earnings, the capacity for dividends exists in principle, but policy choices and capex plans are the binding constraints. fcf_coverage: FCF coverage cannot be assessed because investing cash flows and capex are unreported. On a purely illustrative basis, if maintenance capex is low, OCF could support a distribution; however, visibility is insufficient. policy_outlook: Given a conservative balance sheet and mid-single-digit operating margins, a stable or opportunistic dividend policy would be plausible once visibility on capex and margins improves. Until investing needs and cash balances are disclosed, we assume a cautious stance on dividend resumption or increases.

Risk Assessment

Business Risks:

• Input cost inflation (food commodities, imported ingredients, utilities) impacting SG&A and gross-to-operating margin conversion
• Labor cost pressures and staffing shortages affecting store-level profitability
• Demand volatility due to consumer sentiment and competition within domestic food-service
• Pricing power and elasticity risk if further price hikes are needed to offset costs
• Operational disruptions (weather events, public health issues) affecting foot traffic and store hours

Financial Risks:

• Limited visibility on cash balances and capex due to unreported cash and investing CF
• Potential non-operating income dependence to sustain ordinary income if operating margin remains pressured
• Interest-rate and currency exposure on procurement if any hedging/currency-linked purchases exist (not disclosed)

Key Concerns:

• Negative operating leverage in the half despite revenue growth
• Low ROE at 3.73% relative to typical investor hurdle rates
• Insufficient disclosure on investing cash flows and cash position complicates FCF and dividend assessments

Investment Implications

Key Takeaways:

• Topline growth of +3.8% YoY with resilient demand
• Operating margin compressed to 5.9%, driving -16.8% YoY decline in operating income
• Ordinary income supported by non-operating items; net income broadly flat
• ROE at 3.73% constrained by modest asset turnover and margin pressure
• Very strong liquidity (current ratio 411%) and low leverage (D/E ~0.27x), calculated equity ratio ~78%
• OCF broadly in line with net income, indicating acceptable earnings quality
• Dividend not paid in the period; FCF indeterminate due to unreported investing cash flows

Metrics to Watch:

• Same-store sales growth and traffic versus pricing/mix
• SG&A ratio (labor and utilities) and operating margin trajectory
• OCF/NI ratio and working capital movements
• Capex and store openings/closures to assess future FCF
• Ordinary-to-operating income gap (dependence on non-operating items)
• Asset turnover and ROE progression

Relative Positioning: Versus domestic food-service peers, the company exhibits stronger liquidity and lower leverage but lower ROE and mid-single-digit operating margins; improving SG&A efficiency and asset turnover would be key to closing the profitability gap.

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