UMENOHANA GROUP CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.06B
• Operating Income: ¥-126M
• Net Income: ¥-181M
• EPS: ¥-22.89

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

FY2026 Q2 was weak operationally with a narrowed but still negative operating loss and elevated financial risk. Revenue grew modestly by 1.4% year over year to 140.56, but SG&A (91.91) slightly exceeded gross profit (90.57), resulting in operating income of -1.26. The operating margin was approximately -0.9% (operating income/revenue), while gross margin stood high at 64.4%, reflecting the restaurant-heavy cost structure with substantial fixed costs. Ordinary income was -2.52 as non-operating expenses (1.14), including interest expense (0.57), more than offset non-operating income (0.24). Net income came in at -2.02, translating to a basic EPS of -22.89 yen and a calculated ROE of -12.6%, driven by a thin margin and very high leverage (financial leverage 13.95x). EBITDA was 2.78, yielding an EBITDA margin of only 2.0%, underscoring limited operating cushion. On costs, rent expense was significant at 17.61, and depreciation and amortization were 4.04, both detracting from operating leverage in a low-growth quarter. The OCF/Net Income ratio was 0.97x, indicating cash earnings tracked accounting losses reasonably closely, with limited signs of accrual distortion this quarter. However, operating cash flow was negative (-1.96), and a capex outflow of -4.28 implies a likely negative free cash flow on an OCF–capex basis. Liquidity is tight: current ratio 74.2% and quick ratio 54.6% are below healthy thresholds, and working capital stands at -23.85. Leverage is elevated with D/E at 13.13x, and interest coverage is deeply negative (-2.22x), suggesting debt service strain. The ordinary loss narrowed by 38.4% YoY, implying some sequential operational improvement, but absolute profitability remains subpar and highly sensitive to sales mix and store traffic. Margin commentary: with operating income improving 41.4% YoY on low-single-digit revenue growth, the operating margin likely improved modestly (exact basis points not disclosed), but remains negative. Earnings quality is mixed—limited accrual divergence, but reliance on financing cash inflows (financing CF +11.82) to support operations raises concern about sustainability. Looking ahead, deleveraging, rent and labor cost control, and a clearer path to positive operating margins are necessary to stabilize equity and restore financial flexibility.

Profitability Analysis

ROE decomposition (DuPont): ROE (-12.6%) = Net Profit Margin (-1.4%) × Asset Turnover (0.626x) × Financial Leverage (13.95x). The most material driver is the negative net profit margin, reflecting operating losses and non-operating burden (notably interest). Asset turnover at 0.626x is modest for a restaurant/operator with sizable fixed assets, indicating underutilized asset base or soft traffic. Financial leverage is very high, amplifying the negative margin into a larger negative ROE. Business drivers: SG&A of 91.91 exceeded gross profit of 90.57, with rent (17.61) and depreciation (4.04) weighing on operating leverage; non-operating expenses (1.14), including interest (0.57), further pressured ordinary income. Sustainability: margin improvement YoY appears incremental but fragile; without a step-up in sales productivity and SG&A discipline, sustained positive margins are uncertain. Watch for any SG&A growth exceeding revenue growth in subsequent quarters, as that would worsen operating leverage; this quarter, revenue growth (+1.4%) was too low to absorb fixed costs.

Growth Assessment

Top-line growth was +1.4% YoY to 140.56, modest relative to fixed-cost intensity. Mix and traffic details are not disclosed; given high gross margin (64.4%), the bottleneck is SG&A absorption rather than product-level margin. Operating income improved 41.4% YoY but remained negative (-1.26), indicating better cost control or slight operating leverage on a small base, yet still insufficient to cover fixed rents and depreciation. EBITDA margin of 2.0% signals limited buffer against shocks (commodity, labor, rent). Non-operating drag (net -0.90) is notable given interest costs (0.57), constraining ordinary income recovery. Outlook: sustained recovery hinges on comp sales growth and store-level efficiency to lift asset turnover and SG&A-to-sales ratio. Given financing CF reliance and thin EBITDA, growth investments should be selective, focusing on high-ROI refurbishments and closures of underperforming locations. Data gaps (e.g., same-store sales, customer counts, pricing) limit visibility on revenue sustainability.

Financial Health

Liquidity is weak: current ratio 74.2% (<1.0 warning) and quick ratio 54.6% indicate short-term strain. Working capital is negative at -23.85, and short-term loans (43.33) exceed cash (20.77), raising rollover risk. Maturity mismatch risk is elevated as current liabilities (92.31) exceed current assets (68.46); monitoring short-term debt refinancing capacity is critical. Solvency: D/E at 13.13x (>2.0 warning) reflects a thin equity base (equity 16.11) against significant liabilities (211.25), with long-term loans of 103.58. Interest coverage is -2.22x, indicating insufficient operating earnings to service interest, heightening covenant and refinancing risk. Off-balance sheet obligations are not disclosed, but sizable rent expense (17.61) suggests meaningful lease commitments (often off-balance under JGAAP), effectively increasing fixed-charge leverage. Equity is constrained with retained earnings at -5.64 and BVPS ~181.46 yen.

Cash Flow Quality

OCF was -1.96 versus Net Income of -2.02, yielding OCF/NI of 0.97x, which does not signal significant accrual distortion this quarter. However, absolute cash generation is negative, and financing inflows of 11.82 appear necessary to fund operations and investments. Capex was -4.28; while full investing CF is unreported, an OCF–capex proxy suggests FCF of approximately -6.24, implying external funding needs persist. No clear signs of working capital manipulation are evident from the limited disclosures; inventories (18.03) and receivables (16.32) appear stable relative to revenue scale, but detailed period-on-period movements are not provided. Sustainability: with EBITDA margin at 2.0% and interest expense at 0.57, internal cash generation is insufficient to self-fund capex and debt service without improvement in operating margins.

Dividend Sustainability

Dividend information is unreported, and the calculated payout ratio (-44.7%) is not meaningful due to a net loss. Given negative net income, negative OCF, and high leverage, distributable capacity appears constrained. On an OCF–capex proxy basis, FCF is negative (~-6.24), which would not cover any ordinary dividends. Policy outlook likely skews toward preservation of liquidity and deleveraging until sustained profitability and positive FCF are restored.

Risk Assessment

Business Risks:

• Low operating margin with SG&A exceeding gross profit, leaving minimal buffer for shocks
• Fixed-cost intensity (rent 17.61 and depreciation 4.04) amplifies operational leverage
• Exposure to food inflation, labor shortages/wage inflation, and demand volatility in the restaurant sector
• Potential sales sensitivity to consumer sentiment and regional foot traffic

Financial Risks:

• Liquidity strain: current ratio 0.74 and quick ratio 0.55 indicate short-term funding risk
• High leverage: D/E 13.13x with interest coverage -2.22x implies debt service pressure
• Refinancing/rollover risk with short-term loans of 43.33 exceeding cash on hand
• Potential lease obligations (implied by rent expense) increasing fixed-charge burden

Key Concerns:

• Negative ROE (-12.6%) driven by negative net margin and high financial leverage
• Reliance on financing CF (+11.82) to support operations and investments
• Thin EBITDA margin (2.0%) vs. interest expense (0.57) limits flexibility
• Negative retained earnings (-5.64) constrain equity cushion

Investment Implications

Key Takeaways:

• Revenue growth modest (+1.4%) but insufficient to overcome fixed-cost burden; OPM at -0.9%
• Ordinary loss narrowed (-2.52), yet non-operating drag, especially interest (0.57), remains material
• Liquidity and leverage metrics are weak (CR 0.74, D/E 13.13x), elevating refinancing risk
• OCF tracks NI (0.97x) but is negative; OCF–capex proxy FCF ~-6.24 suggests external funding needs
• ROE -12.6% reflects negative margins magnified by high leverage (13.95x)

Metrics to Watch:

• Same-store sales growth and traffic (not disclosed)
• SG&A to sales ratio and rent-to-sales ratio
• EBITDA margin and interest coverage
• Current ratio and short-term debt rollover progress
• OCF/NI and inventory/receivables turns
• Capex discipline and store portfolio optimization

Relative Positioning: Versus TSE-listed restaurant peers, the company exhibits weaker liquidity, significantly higher leverage, and thinner operating margins, making it more vulnerable to demand or cost shocks until operational turnaround and balance sheet repair progress.

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
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