MOS FOOD SERVICES,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥50.76B
• Operating Income: ¥4.04B
• Net Income: ¥2.84B
• Earnings per Unit (EPU): ¥91.86

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 strong FY2026 Q2 with double‑digit profit growth and clear margin recovery, underpinned by solid cash generation and a healthy balance sheet. Revenue rose 6.7% YoY to 507.6, while operating income surged 49.1% to 40.4, and net income climbed 59.0% to 28.3. Operating margin expanded to 8.0% (40.41/507.58), up materially from the prior year based on the growth gap between revenue and operating income. Using the reported YoY rates, we estimate operating margin expanded by roughly 227 bps (from ~5.7% to ~8.0%), and net margin by about 183 bps (from ~3.8% to ~5.6%). Gross profit margin printed at 47.7%, and the SG&A ratio was 39.8%, supporting the step-up in operating leverage. Ordinary income increased 50.4% to 42.8, aided by positive net non‑operating income (4.91 in income vs 2.47 in expenses). Cash generation quality was strong with operating cash flow (40.8) exceeding net income (28.3), giving an OCF/NI of 1.44x. Liquidity remains robust: current ratio 237.6%, quick ratio 214.6%, and interest coverage 42.1x. Leverage is low with a liabilities-to-equity D/E of 0.47x and ample cash (267.2) relative to short-term loans (6.8) and current liabilities (199.0). ROE stands at 5.0%, driven mainly by improved net profit margin with modest asset turnover (0.605x) and conservative leverage (1.47x financial leverage). While free cash flow was not fully disclosed, a proxy (OCF minus capex) suggests healthy headroom to fund dividends and selective buybacks. Effective tax rate was 30.6%, broadly in line with statutory ranges. Forward-looking, sustaining margin gains will likely hinge on continued mix/pricing discipline and SG&A control amid food and labor cost pressures. The company’s resilient balance sheet and strong cash conversion lower downside risk and provide optionality for investment and shareholder returns. Key watch items are gross margin durability, labor cost trajectory, and same-store traffic, given the consumer backdrop. Data gaps exist (e.g., detailed SG&A breakdown, full investing CF, dividend cash out), but available metrics point to a high-quality quarter with improving profitability and robust liquidity.

Profitability Analysis

ROE decomposition: ROE (5.0%) = Net Profit Margin (5.6%) × Asset Turnover (0.605x) × Financial Leverage (1.47x). The largest positive change appears in the net profit margin: net income grew 59.0% vs revenue +6.7%, implying a ~183 bps margin expansion to 5.6% (from ~3.8% a year ago). Asset turnover at 0.605x reflects revenue of 507.6 against assets of 838.5; turnover likely increased only modestly given the smaller delta in revenue vs the asset base. Financial leverage remains conservative at 1.47x, a stable support rather than a driver of ROE. Business drivers: the widening spread between gross margin (47.7%) and SG&A ratio (39.8%) lifted operating margin to 8.0%, reflecting operating leverage from revenue growth, product mix/pricing, and cost control. Non‑operating line also contributed positively (net +2.44), but the core step-up is operational. Sustainability: improvements tied to mix/pricing and SG&A efficiency are partially sustainable if the company maintains traffic and cost discipline; however, food and labor inflation could cap further margin expansion. Watch for SG&A growth vs revenue: current SG&A is 201.8 (39.8% of sales), and while YoY SG&A growth is undisclosed, the sharp operating income delta suggests SG&A grew below sales and/or gross margin expanded—favorable but requires monitoring. Overall, ROE uplift is margin-led with low leverage, implying scope to further improve returns via continued efficiency rather than balance sheet risk.

Growth Assessment

Top-line growth was solid at +6.7% YoY (507.6), outpacing typical mature casual dining growth in Japan. Profit growth was outsized: operating income +49.1% and net income +59.0%, indicating material operating leverage and/or gross margin improvement. Operating margin reached 8.0% and net margin 5.6%, both above the implied prior-year levels. Non‑operating items modestly helped (net +2.44), but growth quality is primarily operational. Revenue sustainability hinges on same-store sales momentum, menu innovation, and store network execution; no segment disclosure provided. With EBITDA at 59.9 (11.8% margin) and depreciation 19.5, the business is generating expanding cash EBITDA to reinvest. Outlook: management can likely sustain healthier margins if input inflation remains manageable and if pricing/mix holds, but the pace of profit growth should normalize as the base rises. Key watch: gross margin trajectory, SG&A ratio discipline, and any commentary on store openings/closures and franchisee health (not disclosed).

Financial Health

Liquidity is strong: current ratio 237.6% and quick ratio 214.6%, with cash and deposits of 267.2 comfortably covering current liabilities of 198.9. No warning flags for current ratio (<1.0) or D/E (>2.0). Capital structure is conservative: total liabilities-to-equity D/E at 0.47x; interest-bearing loans are modest (short-term 6.75, long-term 18.00). Interest coverage is robust at 42.1x. Maturity mismatch risk is minimal: current assets (472.6) far exceed current liabilities (198.9), and cash alone covers short-term loans multiple times. Off-balance sheet obligations are not reported; no evidence of guarantees/leases beyond typical operating commitments (data not provided). Equity base is healthy at 571.7 with retained earnings of 307.8, supporting resilience.

Cash Flow Quality

Earnings quality is high: OCF/Net Income is 1.44x (40.8/28.3), indicating good conversion. Working capital appears well managed: receivables ~30 days, inventories ~31 days, payables ~41 days, implying a cash conversion cycle of about 19 days—efficient for the format. Free cash flow was not fully disclosed; however, a proxy FCF of ~28.2 (OCF 40.8 minus capex 12.6) suggests ample coverage for dividends and modest buybacks. Financing CF of -11.7 includes share repurchases of -0.83 and likely dividend/debt movements (dividends paid not disclosed). No signs of working capital manipulation in the period based on the balanced days metrics and positive OCF relative to NI.

Dividend Sustainability

The calculated payout ratio is 33.9%, comfortably below the 60% prudence threshold. While total dividends paid were not disclosed, the payout ratio implies dividends of roughly 9.6 against net income of 28.3 (100M JPY units). Proxy FCF (~28.2) appears to cover the implied dividend and buybacks (-0.83) with headroom, suggesting sustainability under current conditions. With low leverage and strong liquidity, the company has flexibility to maintain or modestly grow dividends, subject to profitability and capex needs. Policy details and DPS are unreported; monitor guidance updates for any policy shifts.

Risk Assessment

Business Risks:

• Input cost inflation (beef, vegetables, oils) could compress the 47.7% gross margin.
• Labor cost pressure in Japan could lift the SG&A ratio from the current 39.8%.
• Same-store traffic volatility amid consumer sentiment changes may slow revenue growth (+6.7% YoY in the quarter).
• Food safety and supply chain disruptions could impact brand trust and sales.
• Franchisee health and unit economics variability can affect consolidated performance.

Financial Risks:

• Operating leverage: margin gains may reverse if sales growth slows.
• Currency exposure on imported ingredients can affect COGS and margins.
• Limited non-operating income contribution could turn negative if interest rates or other items shift (current net +2.44).
• Data gaps on investing cash flows limit full FCF visibility.

Key Concerns:

• Sustainability of margin expansion given historical mid-single-digit industry growth.
• Potential re-acceleration of food inflation and wage hikes pressuring margins.
• Lack of detailed SG&A breakdown and capex program limits assessment of structural cost changes.

Investment Implications

Key Takeaways:

• Clear margin inflection: operating margin up to ~8.0% with estimated ~+227 bps YoY expansion.
• High-quality cash earnings: OCF/NI at 1.44x with efficient working capital and a ~19-day CCC.
• Balance sheet strength: current ratio 238%, liabilities-to-equity 0.47x, interest coverage 42x.
• ROE at 5.0% is improving but still modest; further gains hinge on sustaining margin improvements.
• Proxy FCF (~28.2) likely covers implied dividends (~9.6) and small buybacks (~0.83).

Metrics to Watch:

• Gross margin trajectory vs input cost trends
• SG&A ratio and labor cost inflation
• Same-store sales and traffic mix
• OCF/NI and working capital days (AR, inventory, AP)
• Capex intensity and store network changes
• Operating margin sustainability around ~8%

Relative Positioning: Within Japan’s restaurant/QSR peers, the company exhibits above-peer margin momentum and superior liquidity with conservative leverage. Returns (ROE 5%) are mid-pack but improving, underpinned by sound cash conversion and a prudent balance sheet.

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