COLOWIDE CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥141.47B
• Operating Income: ¥5.12B
• Net Income: ¥1.79B
• EPS: ¥7.13

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 but improving quarter—top-line grew 7% and operating profit turned positive with strong cash generation, yet profitability remains thin and leverage is high. Revenue reached 1,414.67, with gross profit of 840.15 and operating income of 51.21, translating to an operating margin of roughly 3.6%. Net income rose sharply to 13.18 (+242.7% YoY), indicating earnings normalization from a low base. Gross margin stands at 59.4%, EBITDA was 175.03 (12.4% margin), and net margin is 0.9%. SG&A intensity remains heavy at 55.6% of sales (786.09), leaving limited room at the operating line despite improved scale. Margin change in basis points versus prior year cannot be reliably quantified due to missing historical margin breakdowns, but current margins are still modest for the sector. Cash flow quality was strong: operating cash flow of 138.96 far exceeded net income (OCF/NI 10.54x), largely driven by non-cash D&A (123.82) and some working capital benefit. Despite healthy OCF, total free cash flow after all investing activities was negative (-112.94), reflecting sizable investment outflows (Investing CF -251.90) including capex of -65.56 and likely M&A/strategic investments. The balance sheet remains stretched with an equity ratio of 23.1% and D/E of 2.84x, warranting caution amid a still-low ROE of 1.5%. ROIC is 3.2%, below the 5% warning threshold, indicating capital efficiency remains subpar even with recovering profits. Effective tax rate of 46.0% suppressed net earnings and may normalize if one-off items reverse; the absence of detailed tax disclosures limits attribution. Retained earnings remain negative (-226.60), highlighting legacy losses and potential constraints on capital policy flexibility. Goodwill is substantial at 1,185.69 (about 35% of total assets), elevating impairment risk if recovery stalls. Liquidity specifics are limited due to unreported current liabilities and interest-bearing debt details, but cash and equivalents are sizable at 601.25 and current assets total 825.49. Forward-looking, steady demand, cost control, and potential tax normalization could lift margins, but high leverage, goodwill impairment risk, and investment-heavy cash outflows temper the near-term quality of the recovery.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.5% = Net Profit Margin (0.9%) × Asset Turnover (0.420x) × Financial Leverage (3.84x). The dominant contributor is high financial leverage (3.84x) offsetting thin margin and low asset turnover. Net margin is constrained by a high SG&A-to-sales ratio (55.6%) and an elevated effective tax rate (46.0%), while asset turnover of 0.420 reflects a capital-heavy base with substantial goodwill and intangibles. The most material constraint in the quarter is the low net margin; tax and SG&A pressure suppressed flow-through from revenue growth. Business drivers: wage and utility inflation, food input costs, and integration/brand portfolio costs keep SG&A elevated; IFRS 16-related depreciation also weighs on EBIT, though it boosts OCF. Sustainability: leverage-driven ROE is not a durable strategy; margin improvement via scale efficiencies, menu pricing, and mix is necessary for sustained ROE expansion. With ROIC at 3.2% (<5% warning), returns are below cost of capital, indicating limited value creation at current profitability. Flags: SG&A remains high relative to gross profit; we cannot confirm YoY SG&A growth vs revenue due to missing YoY SG&A data.

Growth Assessment

Top-line growth of +7.0% YoY to 1,414.67 suggests steady demand recovery. Operating income of 51.21 indicates operating leverage is beginning to work, but margins are still modest at 3.6%. Net income surged (+242.7% YoY) from a low base, aided by better operations and despite a high effective tax rate. Gross margin at 59.4% is solid for a multi-brand restaurant operator, but conversion to EBIT is constrained by SG&A intensity. EBITDA margin (12.4%) shows underlying cash earnings capacity, supported by D&A add-backs (123.82). Revenue sustainability depends on maintaining same-store sales, successful pricing/mix management, and disciplined new store rollouts. Profit quality is improving at the operating level, with positive OCF and EBITDA, but headline net margin remains <1%. Outlook: further cost normalization (labor scheduling, procurement synergies) and potential tax rate normalization could incrementally lift net margins; however, macro sensitivity (consumer spending, input costs) remains high. Investment outflows suggest ongoing restructuring or portfolio optimization; execution will be key to translate investments into ROIC > WACC.

Financial Health

Leverage is high: D/E 2.84x (warning) and equity ratio 23.1%, leaving limited shock absorption. Total assets 3,365.65 vs total equity 875.63 indicate elevated balance sheet gearing. Current ratio is not calculable due to unreported current liabilities; we cannot conclusively assess short-term liquidity, though current assets are 825.49 (including cash & equivalents 601.25) and accounts receivable 129.75 plus inventories 52.93. Maturity mismatch risk cannot be fully evaluated given missing short-term vs long-term debt breakdown; accounts payable of 259.49 is covered by current assets, but lease liabilities (likely sizable under IFRS 16) and debt maturities are undisclosed in the data. Goodwill is 1,185.69 (~35% of assets), raising impairment sensitivity if performance weakens. No off-balance sheet obligations are disclosed in the provided data; however, typical industry exposure may include franchise/operating commitments and purchase contracts not detailed here.

Cash Flow Quality

OCF/Net Income is 10.54x, indicating strong cash conversion driven primarily by non-cash D&A (123.82) and likely some working capital tailwinds; earnings quality is high this quarter. Free cash flow defined as OCF - capex is positive at 73.40, showing core operations can fund maintenance and moderate growth capex. However, total FCF after all investing activities (including M&A/portfolio investments) is negative at -112.94, as Investing CF was -251.90. Financing CF was minimal (-0.35), implying investments were funded largely by existing liquidity/working capital rather than new financing in the quarter. No clear signs of working capital manipulation are evident from available data; the OCF strength aligns with EBITDA and D&A add-backs. Sustainability: if investment intensity moderates, OCF should cover capex and dividends; if acquisitions continue, external funding or equity cushion becomes more relevant given leverage.

Dividend Sustainability

Calculated payout ratio is 40.4%, within a broadly sustainable range on an earnings basis. Operating cash flow of 138.96 comfortably covers dividends paid (-10.55) multiple times. On a total FCF basis (after all investing), coverage is negative (-21.22x), but this reflects strategic investment outflows rather than a structural cash burn. Given high leverage (D/E 2.84x) and equity ratio of 23.1%, management flexibility to raise payouts is limited until ROIC and leverage improve. Retained earnings remain negative (-226.60), underscoring a cautious stance on aggressive shareholder returns. Policy outlook: stable to cautious dividend policy appears most plausible near term, contingent on sustaining OCF and moderating investment outflows.

Risk Assessment

Business Risks:

• Cost inflation (food inputs, wages, utilities) compressing margins
• Execution risk on menu pricing and mix to offset cost pressures
• Goodwill impairment risk given 1,185.69 of goodwill (~35% of assets)
• Consumer demand volatility impacting same-store sales
• Integration/portfolio management risk across multiple brands and formats

Financial Risks:

• High leverage (D/E 2.84x) and low equity ratio (23.1%) increasing refinancing and covenant risk
• Potential interest rate and credit spread increases elevating finance costs (interest coverage not available)
• Liquidity visibility limited due to unreported current liabilities and debt maturity profile
• Negative total FCF after investments if M&A intensity persists

Key Concerns:

• ROIC at 3.2% (<5% warning), signaling weak capital efficiency
• Thin net margin (0.9%) and elevated effective tax rate (46.0%) suppressing ROE (1.5%)
• Retained earnings deficit (-226.60) constraining capital policy flexibility
• Large investment cash outflows (-251.90) increasing dependence on existing liquidity

Investment Implications

Key Takeaways:

• Revenue growth of +7.0% YoY with positive operating leverage: operating margin ~3.6%
• Strong cash earnings: OCF 138.96 and EBITDA 175.03 (12.4% margin)
• High leverage (D/E 2.84x) and low equity ratio (23.1%) remain the primary balance-sheet constraints
• ROIC 3.2% indicates returns below cost of capital; profitability needs to improve
• Goodwill-heavy balance sheet elevates impairment sensitivity
• Total FCF negative due to investments; core FCF (OCF - capex) positive

Metrics to Watch:

• Same-store sales growth and monthly traffic/ticket trends
• SG&A-to-sales ratio and labor cost per sales trajectory
• Effective tax rate normalization vs one-off items
• ROIC progression toward >5% and ultimately ~8%
• Net leverage and interest coverage once interest expense is disclosed
• Size and nature of investing cash flows (M&A vs maintenance capex)
• Goodwill impairment testing outcomes and segment profitability

Relative Positioning: Within Japan’s restaurant operators, Colowide shows improving operations and robust OCF, but it remains more leveraged and goodwill-heavy than many peers, with weaker ROIC and thinner net margins; the recovery path is evident yet vulnerable to cost inflation and macro softness.

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