FOOD & LIFE COMPANIES LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥429.57B
• Operating Income: ¥36.09B
• Net Income: ¥24.61B
• EPS: ¥202.71

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

Verdict: Strong quarter with double-digit top-line growth translating into outsized profit expansion and robust cash generation. Revenue rose 19.0% YoY to 4295.74, while operating income climbed 54.4% YoY to 360.93 and net income increased 56.7% YoY to 229.37. Operating margin improved to 8.4%, and net margin reached 5.3%, both supported by scale benefits and better cost control. Based on back-solved prior-year figures, operating margin expanded by roughly 190 bps and net margin by about 130 bps. Gross margin stands at a healthy 57.0%, indicating favorable product mix and pricing discipline despite input cost pressures. Cash flow quality was excellent: operating cash flow of 644.29 was 2.81x net income, and free cash flow was a strong 389.93 after 251.77 of capex. EBITDA was 718.69 (16.7% margin), showing ample capacity to self-fund growth and dividends. The balance sheet remains leveraged (D/E 2.95x; equity ratio 24.0%), likely reflecting lease liabilities under IFRS 16 and growth funding, which elevates financial risk despite solid cash generation. ROE (DuPont) is a robust 22.7% driven by improved net margin and high financial leverage; the reported ROE of 0.3% appears to be an XBRL definitional or period mismatch and does not reflect underlying performance. Effective tax rate was 27.1%, consistent with normalized levels. Dividend affordability is strong with a calculated payout ratio of 15.2% and FCF coverage of 11.2x, indicating headroom for incremental returns while prioritizing reinvestment. Working capital appears well-managed with accounts payable of 420.91 and modest inventories of 102.42, though full current liability disclosure is missing. Earnings quality is high, with cash conversion far exceeding net income and limited signs of working-capital pulling forward cash. Forward-looking, continued store openings, pricing/mix optimization, and inbound demand should support growth; risks include seafood input cost volatility, FX (yen weakness), and wage inflation. Bottom line: momentum is solid with improving profitability and cash generation, but leverage constrains flexibility and must be watched.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 5.3% × Asset Turnover 1.078 × Financial Leverage 3.95x = ROE 22.7%. The largest change driver YoY is net margin expansion, inferred from operating income growth (+54.4%) far outpacing revenue growth (+19.0%), yielding an estimated ~190 bps operating margin expansion and ~130 bps net margin expansion. Business drivers likely include improved operating leverage (labor and overhead absorption with higher volumes), pricing/mix benefits per customer, and procurement efficiencies that sustained a 57.0% gross margin despite food cost inflation. Asset turnover at 1.078 looks stable to slightly improved as higher sales were supported without commensurate asset growth. Financial leverage at 3.95x significantly amplifies ROE; under IFRS, lease liabilities are likely included and are a major contributor to leverage. Sustainability: margin gains are partly structural (scale) but may normalize if food inflation re-accelerates or if promotions return; asset turnover should hold around current levels; leverage-driven ROE is vulnerable if rates rise or cash flows soften. Watch for SG&A growth vs revenue: while SG&A details are unreported, operating leverage suggests SG&A grew materially slower than revenue this period—any re-acceleration ahead would pressure margins.

Growth Assessment

Top-line growth of 19.0% YoY indicates strong demand, likely driven by store openings, increased traffic including inbound recovery, and pricing/mix. Operating income growth of 54.4% and net income growth of 56.7% show healthy operating leverage and improved unit economics. Gross margin at 57.0% demonstrates ability to pass through or offset input cost pressure; sustainability hinges on seafood procurement and FX. EBITDA margin of 16.7% suggests capacity for continued reinvestment in openings and refurbishments. ROIC of 26.1% (reported) materially exceeds typical cost of capital and implies value-accretive growth, though we note potential definitional differences. Outlook: mid-teens revenue growth is plausible near term if store rollout and same-store sales hold, but margin progression may moderate as cost inflation and wage pressures persist. Mix, pricing power, and procurement discipline are key to sustaining current profitability.

Financial Health

Leverage is high with D/E at 2.95x (warning threshold >2.0), and equity ratio is 24.0%, indicating a liability-heavy structure likely inclusive of IFRS 16 lease liabilities. Total assets are 3985.96 against equity of 1009.02. Liquidity assessment is constrained by unreported current liabilities; current ratio is not calculable. Current assets of 883.96 include inventories of 102.42 and accounts receivable of 152.84; cash and deposits breakdown is unreported on the balance sheet but cash & equivalents from cash flow is 588.22, suggesting an adequate cash buffer. Maturity mismatch risk cannot be fully assessed; however, sizable accounts payable (420.91) relative to inventories/receivables indicates reliance on trade credit, typical for food service. Interest coverage is not calculable due to unreported interest expense; nonetheless, EBITDA is solid at 718.69, offering cushion. No off-balance sheet obligations were disclosed in the data; note that leases are likely on-balance under IFRS.

Cash Flow Quality

OCF/Net Income at 2.81x indicates high-quality earnings with robust cash conversion. Free cash flow of 389.93 after 251.77 capex comfortably funds dividends (33.88) and supports growth investments. Working capital appears a source of strength; no signs of aggressive working-capital management are evident given cash generation outpacing earnings. With financing cash outflows of -292.35 (debt service/dividends/others), the company remains FCF-positive, suggesting resilience even with elevated leverage. Absent interest expense disclosure, we cannot quantify interest burden, but current OCF appears sufficient to service obligations.

Dividend Sustainability

Calculated payout ratio is 15.2%, well below the 60% benchmark, indicating ample headroom. FCF coverage of dividends is 11.2x, underscoring sustainability even under moderate earnings stress. Total dividends paid were 33.88, which is manageable relative to OCF (644.29). Given high ROIC (26.1%) and strong growth opportunities, capital allocation likely prioritizes reinvestment with measured dividend growth rather than aggressive payout expansion. Watch for any change in policy tied to leverage normalization and cash flow visibility.

Risk Assessment

Business Risks:

• Seafood input cost volatility (salmon, tuna) impacting gross margin
• FX risk (yen depreciation) increasing import costs
• Labor cost inflation and staffing constraints affecting SG&A and service levels
• Execution risk in new store openings and overseas expansion
• Food safety/brand trust incidents impacting traffic
• Competitive intensity in conveyor-belt sushi and casual dining

Financial Risks:

• High leverage (D/E 2.95x) likely including lease liabilities, reducing flexibility
• Interest rate risk on floating-rate debt/leases (interest coverage unreported)
• Liquidity visibility limited due to unreported current liabilities
• Potential goodwill/intangible impairment risk (goodwill 303.71; intangibles 570.02)

Key Concerns:

• Reported ROE (0.3%) appears inconsistent with fundamentals; XBRL definitional/period mismatch complicates KPI tracking
• Margin sustainability if promotional activity returns or input inflation re-accelerates
• Supply chain concentration or disruptions for key seafood items

Investment Implications

Key Takeaways:

• Strong revenue growth (+19%) translated into outsized operating profit growth (+54%) and margin expansion (~+190 bps operating margin YoY).
• Cash generation is excellent (OCF 2.81x net income; FCF 389.93), easily covering growth and dividends.
• Leverage is elevated (D/E 2.95x), a constraint that needs monitoring despite solid EBITDA.
• ROE is high at 22.7% via improved margins and leverage; reported ROE is likely a data artifact.
• ROIC of 26.1% suggests reinvestment remains value accretive assuming unit economics hold.

Metrics to Watch:

• Same-store sales growth and average ticket
• Food cost ratio and gross margin by category
• Labor cost ratio and SG&A growth vs revenue
• Lease-adjusted net debt/EBITDA and interest coverage
• OCF/Net income and working-capital movements
• Capex per new store and payback period

Relative Positioning: Within Japanese casual dining, the company shows above-peer growth and cash conversion, with competitive margins; however, balance sheet leverage is higher than many peers (partly lease-driven), elevating financial sensitivity versus operators with lighter liability structures.

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