ANRAKUTEI Co.,Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.24B
• Operating Income: ¥536M
• Net Income: ¥310M
• EPS: ¥67.22

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: A mixed FY2026 Q2—modest top-line growth but sharp margin compression drove a double-digit decline in profits, partly cushioned by solid operating cash flow. Revenue rose 1.7% YoY to 152.4, while operating income fell 28.3% YoY to 5.36 and ordinary income declined 34.1% to 4.75. Net income decreased 41.2% YoY to 3.10, reflecting weaker operating leverage and a heavier non-operating burden. The operating margin contracted to 3.5%, down an estimated 147 bps YoY (from roughly 5.0% a year ago) as SG&A intensity weighed on earnings. Gross profit was 93.86, implying a robust gross margin of 61.6%, but this strength did not translate to bottom-line growth due to elevated overheads and interest costs. Non-operating items were a net drag, with 0.52 of income overshadowed by 1.13 of expenses, including 1.01 of interest expense. Earnings quality was better than earnings levels suggest: OCF of 5.46 exceeded net income by 1.76x, supported by cash conversion and likely working capital discipline. Liquidity is adequate with a current ratio of 147% and quick ratio of 134%, and cash and deposits of 70.89 comfortably cover short-term loans of 20.50. However, leverage is high (D/E 2.19x) and Debt/EBITDA at 9.7x is elevated, limiting balance-sheet flexibility. ROE printed at 4.0%, subdued due to low net margin (2.0%) and modest asset turnover (0.62x) despite meaningful financial leverage (3.19x). ROIC at 3.3% remains below the 5% warning threshold, indicating that current returns do not cover a typical cost of capital. The effective tax rate was high at 42.1%, further pressuring net income and EPS (67.22 JPY). Capex was 3.15; with OCF at 5.46, a proxy FCF of roughly 2.31 appears positive, though full investing cash flows were not disclosed. The calculated payout ratio of 44.7% suggests a moderate dividend stance that looks covered by proxy FCF, albeit with limited cushion under elevated leverage. Forward-looking, margin repair hinges on SG&A control (labor, utilities) and interest cost management, while sustaining the gross margin and traffic will be critical in a cost-inflationary environment. Overall, the quarter shows resilient cash generation but compressed profitability and tight capital efficiency, with balance-sheet leverage the main constraint.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.0% = Net Profit Margin 2.0% × Asset Turnover 0.620 × Financial Leverage 3.19x. The most material adverse change is attributable to net profit margin, inferred from the -28.3% YoY decline in operating income versus +1.7% revenue, implying an estimated 147 bps operating margin compression to 3.5%. Business drivers likely include wage inflation, higher utilities, and other SG&A pressures outweighing a solid 61.6% gross margin. Non-operating headwinds (net interest expense with 1.01 interest cost vs 0.04 interest income) also compressed net margin. Asset turnover appears broadly stable given modest revenue growth and a relatively unchanged asset base; leverage likely steady, leaving margin as the swing factor. Sustainability: margin pressure from labor and energy costs may persist without pricing or productivity gains; interest burden sustains unless deleveraging occurs. Concerning trends: ordinary income (-34.1% YoY) fell faster than sales; while SG&A growth data is not disclosed, the divergence suggests opex grew faster than revenue, reducing operating leverage.

Growth Assessment

Revenue growth of 1.7% suggests subdued same-store growth and/or limited net store adds. Profit contraction (-28.3% operating income, -41.2% net income) indicates inability to fully offset cost inflation with pricing or mix. Gross margin at 61.6% remains healthy, implying procurement and menu mix are supportive; however, SG&A intensity is the bottleneck. Non-operating drag from interest expense exacerbated the profit decline. Outlook: stabilization requires tighter expense control (labor scheduling, energy efficiency), selective price actions, and productivity improvements (digital ordering, kitchen process). With ROIC at 3.3%, incremental growth investments must be higher-return or paired with asset-light initiatives. Near-term growth likely tracks low-single-digit sales with gradual margin repair contingent on cost actions and traffic resilience.

Financial Health

Liquidity is adequate: current ratio 147% (just under the 1.5x healthy mark) and quick ratio 134% indicate comfortable short-term coverage; no warning trigger (<1.0) applies. Cash and deposits of 70.89 exceed short-term loans of 20.50, limiting immediate refinancing risk. Working capital is positive at 34.07, and current assets (106.58) exceed current liabilities (72.51), indicating manageable maturity mismatch. Solvency is a concern: D/E at 2.19x exceeds the 2.0 threshold, and Debt/EBITDA at 9.65x is elevated, highlighting leverage risk. Long-term loans of 68.10 reduce near-term rollover needs but entrench interest burden; interest coverage at 5.33x is acceptable but could compress if earnings soften. No off-balance sheet items were disclosed; under JGAAP, operating lease commitments may exist but are not reported here, representing potential hidden leverage.

Cash Flow Quality

OCF/Net Income at 1.76x indicates good earnings quality and cash conversion. OCF of 5.46 covers capex of 3.15, implying a proxy FCF of ~2.31 (noting that other investing cash flows are unreported). Financing CF of -2.80 reflects net debt service and minor buybacks (-0.01). Working capital manipulation signs are limited given OCF strength relative to NI; however, without detailed WC breakdown, we cannot rule out timing effects. Sustainability: if operating margin remains at ~3.5%, cash generation should cover maintenance capex and modest dividends, but deleveraging capacity is limited under current profitability.

Dividend Sustainability

The calculated payout ratio is 44.7%, indicating a moderate policy aligned with typical sustainability thresholds (<60%). With NI at 3.10 and EPS of 67.22 JPY, the implied dividend burden appears manageable. Using shares of ~4.62 million, the implied annualized cash dividend (from the payout ratio) would be roughly 1.3–1.4 in cash terms (hundred million JPY), which is covered by proxy FCF of ~2.31; coverage appears around 1.6–1.8x. However, DPS and total dividend paid are unreported, so this is an inference. Risk factors include high leverage (raising priority for debt reduction) and profit sensitivity to costs; any further margin compression would erode coverage. Policy outlook: stable to cautious, prioritizing balance-sheet resilience over dividend growth until ROIC and margins improve.

Risk Assessment

Business Risks:

• Cost inflation in food inputs and utilities compressing operating margin
• Labor cost escalation amid tight employment conditions
• Traffic volatility and competitive pricing pressure in the casual dining/yakiniku segment
• Execution risk in pricing, menu mix, and productivity initiatives
• Potential tax rate volatility (effective tax rate elevated at 42.1%)

Financial Risks:

• High leverage (D/E 2.19x) and elevated Debt/EBITDA (9.65x)
• Interest rate risk increasing interest expense burden (interest coverage 5.33x)
• Refinancing risk over medium term given 68.10 long-term loans and 20.50 short-term loans
• Possible off-balance sheet lease obligations under JGAAP

Key Concerns:

• ROIC at 3.3% below 5% warning threshold, implying weak capital efficiency
• Operating margin compressed to ~3.5% with profits down sharply despite revenue growth
• Dependence on SG&A control to restore profitability amid persistent cost pressures

Investment Implications

Key Takeaways:

• Top-line resilience (+1.7% YoY) but significant operating margin compression (~147 bps) drove earnings declines
• Cash generation is sound (OCF/NI 1.76x), enabling positive proxy FCF after capex
• Balance sheet leverage is high (D/E 2.19x; Debt/EBITDA 9.65x), constraining flexibility
• ROE 4.0% and ROIC 3.3% indicate sub-par returns; margin/asset efficiency improvement is needed
• Non-operating drag from interest expense remains a headwind for ordinary income

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Same-store sales/traffic and pricing actions
• Interest coverage and average borrowing cost
• OCF and capex to validate sustained FCF
• ROIC progression and store-level unit economics
• Effective tax rate normalization

Relative Positioning: Within Japan’s restaurant peers, Anrakutei shows stable gross margin but weaker operating leverage and higher financial leverage than conservative operators, resulting in lower returns (ROE/ROIC) and a tighter margin of safety despite acceptable liquidity.

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