KAPPA・CREATE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥37.05B
• Operating Income: ¥832M
• Net Income: ¥731M
• EPS: ¥14.97

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: A solid profitability recovery quarter with disciplined cost control delivering outsized profit growth on flat sales. Revenue rose 0.2% YoY to 370.49, while operating income climbed 54.4% to 8.32 and net income increased 56.8% to 7.38, indicating strong operating leverage. Gross profit was 194.40 (gross margin 52.5%), and SG&A was 186.07, leaving a slimmer but improving operating profit base. Operating margin expanded to roughly 2.2%, up about 79 bps YoY based on implied prior-period margins. Net margin improved to about 2.0%, up roughly 72 bps YoY, supported by a low effective tax rate of 12.2% and near-neutral net non-operating items. Non-operating income (1.91) and expenses (1.84) largely offset, with interest expense at 0.95 covered strongly by EBITDA (interest coverage 8.76x). Cash generation was healthy: operating cash flow of 15.33 was 2.08x net income, signaling high earnings quality. Capex of 11.35 broadly matched D&A (11.35), implying maintenance-heavy spend and a modest OCF minus capex surplus. Liquidity is adequate with a current ratio of 117.5% and quick ratio of 113.9%, though below the 1.5x comfort benchmark. Leverage is somewhat elevated with D/E at 1.78x, but manageable given cash on hand (80.98) and positive operating trends. ROE of 6.5% is mid-single digit, supported by improved margins and 2.78x financial leverage; asset turnover stands at 1.171x. The reported effective tax rate appears unusually low and may not be sustainable, representing a possible tailwind that could normalize. Dividend details are unreported, but a calculated payout ratio of 33.5% suggests headroom, with OCF comfortably covering capex in the period. Overall, profitability is moving in the right direction on flat topline, highlighting execution on costs and mix. Forward-looking, sustaining this margin trajectory requires continued food cost management, labor efficiency, and stable traffic, as thin margins and leverage leave less room for exogenous shocks. Key watch items include same-store sales trends, food inflation pass-through, labor costs, and the sustainability of the low tax rate.

Profitability Analysis

ROE (6.5%) decomposes into Net Profit Margin (2.0%) × Asset Turnover (1.171x) × Financial Leverage (2.78x). The biggest positive delta YoY is from margin expansion: operating income grew 54.4% on 0.2% revenue growth, lifting both operating and net margins. Business drivers likely include tighter SG&A control relative to sales and improved mix/food cost management, while non-operating items netted out and tax rate support amplified net income. The improvement appears partially sustainable if cost discipline and pricing/mix continue; however, the unusually low effective tax rate (12.2%) may normalize, tempering net margin. Operating leverage remains favorable, but SG&A remains high versus gross profit (SG&A/GP ~95.7%), leaving limited cushion if sales soften. No signs of equity method or one-off gains driving results; recurring operations appear to be the main contributor. Monitor for risk that SG&A growth could outpace revenue if inflation re-accelerates or traffic weakens.

Growth Assessment

Topline growth was muted at +0.2% YoY, implying most profit growth was efficiency-driven rather than volume-driven. Operating income rose 54.4% and net income rose 56.8%, reflecting strong operating leverage and cost control. Gross margin stands at 52.5%; while prior-period gross margin is not disclosed, the scale of operating income growth on flat sales implies improved operating margin. Non-operating items were near neutral and not a major driver. Revenue sustainability hinges on traffic and ticket growth; with flat sales, momentum depends on maintaining mix/pricing and avoiding traffic declines. Profit quality appears strong this quarter given OCF/NI of 2.08x and EBITDA margin of 5.3%, though overall margins remain thin for the category. Outlook: if same-store sales stabilize or modestly grow and food/labor costs remain controlled, mid-single-digit ROE can be sustained with scope for incremental improvement; conversely, cost inflation or demand softness could quickly compress margins.

Financial Health

Liquidity: Current ratio 117.5% and quick ratio 113.9% indicate adequate short-term coverage, but below the 1.5x healthy benchmark (no warning trigger since both >1.0). Solvency: D/E at 1.78x is above the conservative benchmark (1.5x), warranting attention though interest coverage is strong at 8.76x. Maturity mismatch: Current assets (135.81) exceed current liabilities (115.61), suggesting manageable near-term obligations; cash (80.98) provides an additional buffer. Debt profile: Long-term loans of 51.00 are reported; total interest-bearing debt not fully disclosed, but leverage metrics suggest moderate-to-elevated gearing relative to equity. Off-balance sheet: Not disclosed; no explicit guarantees or lease obligations breakdown provided in the data. Overall, financial health is acceptable but would benefit from deleveraging or further earnings growth to bring D/E closer to the conservative range.

Cash Flow Quality

OCF/Net Income at 2.08x signals high earnings quality, with cash generation exceeding accounting profit. Operating cash flow of 15.33 compares favorably to capex of 11.35, implying an OCF-minus-capex surplus of approximately 3.98 during the period (proxy for pre-financing FCF; full investing CF unreported). With financing cash outflows of -2.04, internal cash generation appears sufficient for ongoing needs in this period. Working capital detail by component is limited; however, the strong OCF relative to NI suggests no obvious aggressive working capital tactics this quarter. The parity between D&A and capex implies capex is largely maintenance; any step-up in store refurbishments or new openings could compress FCF. Absent full investing cash flows, comprehensive FCF sustainability cannot be fully assessed, but current-period indicators are supportive.

Dividend Sustainability

Dividend per share is unreported, but the calculated payout ratio of 33.5% is below the 60% benchmark, indicating room for distributions alongside reinvestment. Given OCF exceeded capex by roughly 3.98 in the period, cash coverage for a modest dividend appears adequate. Lack of reported total dividends paid and DPS limits precision. Medium-term sustainability will depend on maintaining operating margin gains and stable capex; higher capex for growth or normalization of the tax rate would reduce headroom. Policy signals are not provided; monitor for parent group policy influence and payout commitment updates.

Risk Assessment

Business Risks:

• Food input cost volatility (seafood, rice) impacting gross margin
• Labor cost inflation and staffing constraints in the restaurant sector
• Demand sensitivity to consumer sentiment; traffic and ticket variability
• Competitive intensity in conveyor-belt sushi and casual dining
• Food safety and brand reputation risks inherent to fresh food handling

Financial Risks:

• Leverage above conservative benchmark (D/E 1.78x)
• Thin operating margin (~2.2%) magnifies downside if sales soften
• Potential normalization of low effective tax rate (12.2%) reducing net margin
• Interest rate risk on floating-rate debt exposure (details not disclosed)
• Liquidity buffer adequate but below ideal (current ratio 1.18x vs 1.5x benchmark)

Key Concerns:

• Sustainability of cost gains with flat revenue base
• High SG&A versus gross profit limits resilience
• Limited disclosure on investing cash flows and dividend cash outlays
• Non-operating income/expense nearly neutral; less buffer from financial items if operating weakens

Investment Implications

Key Takeaways:

• Profit recovery on flat sales with operating margin expanding ~79 bps YoY
• High cash conversion: OCF/NI 2.08x with OCF exceeding capex
• Leverage is somewhat elevated (D/E 1.78x) but interest coverage is strong (8.76x)
• Low effective tax rate supports net margin but may normalize
• ROE at 6.5% with scope to improve if margin gains persist and leverage trends down

Metrics to Watch:

• Same-store sales (traffic and average ticket)
• Food cost ratio and labor cost ratio
• Operating margin and EBITDA margin progression
• OCF versus capex (maintenance vs growth split)
• Effective tax rate trajectory
• Debt levels, interest rates, and D/E movement

Relative Positioning: Within Japanese casual dining and conveyor-belt sushi peers, profitability is improving but remains below best-in-class operators with higher operating margins; execution on cost control is narrowing the gap, yet sustained margin gains and deleveraging are needed to strengthen competitive standing.

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