WATAMI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥44.72B
• Operating Income: ¥2.14B
• Net Income: ¥1.47B
• EPS: ¥36.85

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

Watami Co., Ltd. reported FY2026 Q2 consolidated results under JGAAP showing steady top-line growth with mixed margin trends and improving bottom-line outcomes. Revenue rose 3.1% year on year to ¥44.7bn, supported by ongoing demand recovery and pricing/mix resilience. Gross profit was ¥24.6bn, implying a solid gross margin of 55.1%, which provides headroom to absorb operating cost inflation. Operating income declined 4.1% YoY to ¥2.14bn, compressing the operating margin to 4.8%, signaling cost pressure in SG&A (labor, utilities, and store-related expenses). Ordinary income reached ¥2.24bn, exceeding operating income by ¥0.10bn, indicating a net positive balance of non-operating items despite interest expense of ¥0.24bn. Net income increased a robust 17.9% YoY to ¥1.72bn, helped by non-operating gains and/or a lower effective tax burden compared with the prior year. DuPont analysis points to a calculated ROE of 6.55%, driven by a 3.84% net margin, 0.66x asset turnover, and 2.59x financial leverage. On this basis, ROA approximates 2.5%, indicating moderate capital efficiency for a restaurant/operator-heavy asset base. Liquidity appears strong with a current ratio of about 2.97x and a quick ratio of about 2.90x, underpinned by ¥56.4bn in current assets and ¥19.0bn in current liabilities. The balance sheet shows total assets of ¥67.8bn and total liabilities of ¥44.4bn, yielding a debt-to-equity ratio of 1.69x, which is manageable given a 9.0x interest coverage. Operating cash flow was ¥2.20bn, exceeding net income (OCF/NI of 1.28), a positive indicator of earnings quality. Free cash flow is not derivable from the disclosed data as investing cash flows were not reported in this snapshot; therefore, capex intensity and FCF conversion cannot be assessed this quarter. Dividend payout is currently nil, consistent with a balance-sheet-first stance and reinvestment focus amid recovery. Reported zero values for items such as equity ratio, cash and equivalents, investing cash flow, shares outstanding, and others indicate non-disclosure in this dataset rather than actual zeros, so interpretations rely on available non-zero figures. Overall, Watami is progressing through a margin normalization phase: revenues are growing, cost headwinds are pressuring operating leverage, but bottom-line resilience is supported by non-operating balance and cash conversion.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.84%
• asset_turnover: 0.660x
• financial_leverage: 2.59x
• calculated_ROE: 6.55%
• implied_ROA: ≈2.5% (3.84% × 0.660) margin_quality:
• gross_margin: 55.1% (¥24.6bn GP on ¥44.7bn revenue)
• operating_margin: 4.8% (¥2.14bn OI)
• EBITDA_margin: 7.3% (¥3.29bn EBITDA)
• commentary: High gross margin supports reinvestment capacity, but SG&A inflation compressed operating margin YoY. Non-operating gains offset interest expense, lifting ordinary income above operating income. operating_leverage: Revenue +3.1% YoY contrasted with operating income -4.1% YoY indicates negative operating leverage this half, likely due to labor/utilities/store costs outpacing sales growth. Interest coverage at 9.0x remains comfortable, supporting ongoing operations despite leverage.

Growth Assessment

revenue_sustainability: Top-line growth of 3.1% suggests steady demand recovery and/or price/mix gains; sustainability depends on same-store traffic, menu pricing, and store network optimization. profit_quality: Net income +17.9% YoY versus operating income -4.1% YoY implies bottom-line support from non-operating items and/or lower taxes. Core profit quality is mixed until operating margin stabilizes. outlook: With gross margin robust and OCF outpacing net income, the base is in place for margin repair if cost pressures ease and productivity initiatives gain traction. Normalization of non-operating items or tax rate could temper net income growth unless operating improvements materialize.

Financial Health

liquidity:

• current_assets: ¥56.4bn
• current_liabilities: ¥19.0bn
• current_ratio: 2.97x
• quick_ratio: 2.90x (inventories ¥1.42bn are modest)
• working_capital: ¥37.44bn solvency_and_capital_structure:
• total_assets: ¥67.79bn
• total_liabilities: ¥44.36bn
• total_equity: ¥26.20bn
• debt_to_equity: 1.69x (total liabilities / equity)
• interest_coverage: 9.0x (operating income / interest expense)
• commentary: Leverage is moderate-to-elevated for the sector but presently supported by earnings and liquidity. The reported equity ratio field was not disclosed in this dataset; use liabilities/equity and coverage as primary solvency gauges.

Cash Flow Quality

earnings_quality: OCF of ¥2.20bn vs. NI of ¥1.72bn (OCF/NI 1.28) indicates good cash conversion, suggesting limited accrual risk in the period. FCF_analysis: Investing cash flow was not disclosed in this dataset; therefore, capex and free cash flow cannot be reliably computed. Given the store-based model, capex needs can be material; FCF should be reassessed when investing cash flows are available. working_capital: Inventories are modest at ¥1.42bn, supporting low inventory risk. The scale of current assets vs. current liabilities indicates a supportive working capital position aiding OCF.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is disclosed as 0 and payout ratio as 0%; this reflects a conservative stance rather than capacity, given positive earnings and OCF. FCF_coverage: FCF coverage cannot be evaluated this quarter because investing cash flows and capex are not disclosed in the dataset. policy_outlook: Priority appears to be balance sheet strengthening and operational reinvestment. Any resumption or increase in dividends likely hinges on sustained operating margin recovery and visible FCF after capex.

Risk Assessment

Business Risks:

• Input cost inflation (food commodities) pressuring margins despite high gross margin.
• Labor and utility cost increases impacting SG&A and operating leverage.
• Traffic volatility and same-store sales sensitivity in casual dining/izakaya format.
• Execution risk in store optimization, format refresh, and pricing strategy.
• Dependency on non-operating gains; normalization may reduce ordinary income.
• Brand perception and competitive intensity in Japan’s dining market.

Financial Risks:

• Moderate-to-elevated leverage (D/E 1.69x) increases sensitivity to earnings swings.
• Interest rate/refinancing risk, though current coverage is comfortable at 9.0x.
• Potential lease obligations (common in the sector) not fully visible in this snapshot.
• Tax rate normalization risk (effective tax rate field not reliably disclosed here).

Key Concerns:

• Negative operating leverage this half despite revenue growth.
• Limited visibility on capex and free cash flow due to non-disclosure of investing cash flows.
• Earnings reliance on non-operating items to bridge from operating to ordinary income.

Investment Implications

Key Takeaways:

• Revenue growth is positive (+3.1% YoY), but operating margin compressed (OI -4.1% YoY).
• DuPont ROE of 6.55% reflects modest profitability leveraged by 2.59x financial gearing.
• OCF exceeded net income (1.28x), indicating decent cash earnings quality.
• Liquidity is strong (current ratio 2.97x); solvency acceptable with 9.0x interest coverage.
• Visibility into FCF and capex is limited this quarter due to undisclosed investing CF.
• Dividend remains suspended (DPS 0), consistent with reinvestment and balance sheet focus.

Metrics to Watch:

• Same-store sales growth and traffic vs. pricing/mix contribution.
• Operating margin and SG&A ratio (labor and utilities).
• EBITDA margin and interest coverage trend.
• Capex and investing cash flows to assess FCF and reinvestment pace.
• Non-operating income/expense components and tax rate normalization.
• Asset turnover and working capital efficiency.

Relative Positioning: Within Japan’s casual dining/izakaya peer set, Watami shows ongoing top-line recovery with lower operating margin resilience and moderate leverage; cash conversion is improving, but sustained margin repair and clearer FCF generation are needed to close the gap with stronger-margin peers.

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