FOOD & LIFE COMPANIES LTD. FY2026 Q3 Earnings Report

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Executive Summary

Driven by the rapid expansion of its overseas business, the company delivered a high-quality earnings result characterized by higher revenue and profits, with profit growth exceeding revenue growth. Revenue was ¥3,904.2B (+24.7% YoY), Operating Income was ¥420.2B (+43.9%), Profit Before Tax was ¥404.9B (+47.5%), and Net Income attributable to owners of the parent was ¥265.8B (+47.1%). The Operating Income margin was 10.8%; an improvement in the SG&A ratio more than offset a slight decline in the gross profit margin, resulting in profit growth substantially exceeding revenue growth.

Factors Affecting Performance

【Revenue】Revenue was ¥3,904.2B, up +24.7% YoY. Domestic Sushiro remained the largest segment at ¥2,169.3B (+10.7%, 55.6% of total revenue), while Overseas Sushiro expanded rapidly to ¥1,506.4B (+61.8%), becoming the primary growth driver. Kyotaru reported lower revenue of ¥162.8B (-8.5%), while Domestic Sugidama posted modest revenue growth of ¥64.8B (+9.2%).

【Profit and Loss】Operating Income was ¥420.2B (+43.9%), and the Operating Income margin of 10.8% improved from the previous year. Although the gross profit margin of 56.9% declined slightly from the previous year, the improvement in the SG&A ratio to 46.3% more than offset the decline. Against financial expenses of ¥23.9B, financial income was ¥8.6B, resulting in Profit Before Tax of ¥404.9B (+47.5%). After income taxes of ¥122.2B (an effective tax rate of approximately 30.2%), consolidated Net Income was ¥282.7B (+46.7%), while Net Income attributable to owners of the parent was ¥265.8B (+47.1%). The company achieved both revenue and profit growth, with profitability improving as profit growth exceeded revenue growth.

Segment Analysis

Overseas Sushiro became the largest contributor to company-wide Operating Income, generating ¥203.7B (+83.2%, 13.5% margin). Domestic Sushiro accounted for the largest share of revenue at 55.6%, but its profit margin of 7.9% was lower than that of the overseas business, indicating that overseas operations continued to outperform domestic operations in terms of profitability. Despite lower revenue, Kyotaru generated Operating Income of ¥4.4B (+138.4%), while Domestic Sugidama generated ¥2.4B (+731.0%), demonstrating progress in improving the profitability of non-core businesses. Across the company, the higher margins of the overseas business have been a key factor driving the improvement in the Operating Income margin.

Key Financial Indicators

【Profitability】The Operating Income margin was 10.8%, while the Net Income margin attributable to owners of the parent was 6.8%. The Operating Income margin improved from the previous year due to higher margins in the overseas business and an improved SG&A ratio of 46.3%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥622.5B, or 2.3 times Net Income attributable to owners of the parent of ¥265.8B, indicating strong cash support for reported earnings. 【Investment Efficiency】ROE was 21.8%, and basic EPS was ¥117.09 (¥79.87 in the previous year, +46.6% YoY). 【Financial Soundness】The Equity Ratio was 27.5%, improving from 24.0% in the previous year, and cash and cash equivalents were ¥644.6B. Interest-bearing debt, comprising bonds and borrowings, was approximately ¥774.8B, reaching approximately ¥2,281.4B when lease liabilities are included. Attention is therefore warranted regarding the apparently high leverage resulting from the application of IFRS 16.

Cash Flow Analysis

Operating Cash Flow was ¥622.5B, a substantial increase of +37.8% YoY, representing 2.3 times Net Income attributable to owners of the parent of ¥265.8B and demonstrating strong cash-generation capacity. Investing Cash Flow was -¥334.5B, of which capital expenditures accounted for ¥234.4B, indicating continued investment in store openings and expansion, including overseas. Financing Cash Flow was -¥250.5B, primarily comprising ¥183.8B in repayments of lease liabilities and ¥39.6B in dividend payments. Free Cash Flow after these items was ¥288.0B, sufficient to cover capital expenditures and dividends, indicating the financial capacity to fund both growth investments and shareholder returns through internally generated funds. Inventories increased by ¥27.4B and trade receivables increased by ¥25.7B, respectively, putting downward pressure on cash flow from operations before subtotal, but these increases can be viewed as growth in working capital associated with business expansion.

Earnings Quality

The scale of non-operating income and expenses was modest relative to revenue. Financial income was ¥8.6B, financial expenses were ¥23.9B, other income was ¥11.3B, and other expenses were ¥6.2B. Accordingly, the impact of one-time factors was limited, and earnings can be regarded as being based on recurring business activities. The difference between the Operating Income margin of 10.8% and the Net Income margin attributable to owners of the parent of 6.8% reflects the effective tax rate of approximately 30.2% and the burden of financial expenses, and is not at an unusual level. Operating Cash Flow of ¥622.5B substantially exceeded Net Income, indicating favorable accrual quality—the difference between accounting earnings and cash—and high earnings quality. Comprehensive income was ¥317.9B, including ¥299.3B attributable to owners of the parent. Its excess over Net Income of ¥265.8B was driven by a ¥35.2B increase from translation differences of foreign operations, with a temporary factor related to foreign exchange translation contributing to the result.

Earnings Forecast and Guidance

Progress against the full-year forecast was 77.3% for Revenue (¥3,904.2B/¥5,050.0B), 83.2% for Operating Income (¥420.2B/¥505.0B), and 84.4% for Net Income attributable to owners of the parent (¥265.8B/¥315.0B). Profit progress exceeded the standard Q3 cumulative progress rate of approximately 75%, confirming that profits are ahead of schedule relative to the full-year plan. The higher margins of the overseas business and improved SG&A efficiency are believed to have contributed to the stronger progress.

Shareholder Returns

The full-year dividend forecast is ¥20.00 per share, with no interim dividend planned. Based on forecast EPS of ¥138.73, the Payout Ratio is approximately 14.4%, representing a conservative level. No share repurchases were conducted during the current period, and shareholder returns currently center on dividends. Dividend payments of ¥39.6B are small relative to the scale of Operating Cash Flow and Free Cash Flow of ¥288.0B, indicating substantial overall capacity for shareholder returns.

Risk Factors

1. Rising dependence on the overseas business: Overseas Sushiro accounts for 38.6% of revenue and the largest share of Operating Income at 48.5%, increasing the impact of same-store sales trends and the quality of local operations on company-wide performance.

2. Increase in inventory and working capital: Inventories were ¥131.4B, up +28.3% from the previous year, with accumulation progressing at a pace slightly exceeding revenue growth of +24.7%. Trends in inventory turnover efficiency will be an important monitoring point.

3. Financial leverage including lease liabilities: The combined total of interest-bearing debt and lease liabilities reached approximately ¥2,281.4B, while the Equity Ratio was somewhat low at 27.5%. Financial expenses increased +24.0% YoY, warranting attention to changes in the burden in response to the interest-rate environment and the pace of store expansion.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

Profitability is substantially above the industry median and ranks among the higher levels within the industry.

Growth and Capital Efficiency

The growth rate is nearly eight times the industry median, with overseas expansion standing out as a key growth driver within the industry.

※Source: Company analysis

Key Earnings Highlights

1. Overseas Sushiro became the largest contributor to Operating Income and secured a 13.5% profit margin, making it the primary driver of the company-wide improvement in the Operating Income margin to 10.8%.

2. The improvement in the SG&A ratio to 46.3% offset a slight decline in the gross profit margin, confirming a structure in which profit growth of +43.9% exceeded revenue growth of +24.7%.

3. Full-year progress is ahead on the profit side, with 83.2% for Operating Income and 84.4% for Net Income compared with 77.3% for Revenue. Operating Cash Flow also expanded +37.8% YoY, indicating good quality in the conversion of earnings into cash.

Implied Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥839–¥892 at ±1% for the cost of equity, and ¥856–¥879 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: residual income model / Interest rate reference month: 2026-07 / This figure is neither a forecast nor a guarantee of future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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