KISOJI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key point of this earnings report is that fixed costs increased ahead of essentially flat revenue, resulting in wider operating and net losses compared with the previous year. Revenue was ¥119.5B (¥119.9B in the previous year, YoY -0.4%), Operating Income was ¥-2.4B (¥-0.7B in the previous year), Ordinary Income was ¥-2.2B (¥-0.6B in the previous year), and Net Income was ¥-1.3B (¥-0.5B in the previous year). Although the gross margin improved to 69.1% from the previous year, the SG&A ratio rose to 71.1%, indicating that the primary cause of the deterioration in earnings was a cost increase that failed to keep pace with revenue.

Factors Affecting Performance

【Revenue】Revenue was ¥119.5B, essentially flat at -0.4% year on year. As the restaurant business accounts for almost all of the Company’s operations, making it effectively a single-segment business, segment-specific drivers of changes have not been disclosed. However, sluggish growth in customer visits to existing stores is presumed to be a background factor behind the stagnation in revenue.

【Profit and Loss】Cost of sales was ¥36.9B (30.9% of revenue), down year on year, resulting in an improved gross margin of 69.1% (68.6% in the previous year). However, SG&A expenses increased to ¥85.0B (¥83.1B in the previous year, +2.3%), causing the SG&A ratio to rise to 71.1% (69.3% in the previous year). Consequently, the Operating Income loss widened to ¥-2.4B (¥-0.7B in the previous year). Ordinary Income also declined to ¥-2.2B, as non-operating income and expenses—comprising ¥0.6B in non-operating income, including ¥0.5B in dividends received, against ¥0.5B in non-operating expenses, including interest expenses—could not offset the operating loss. Net Income was ¥-1.3B, also reflecting the fact that gains on sales of fixed assets, recorded at ¥1.7B in the previous year, amounted to only ¥0.01B in the current period. This was not a case of higher revenue and lower profit; rather, it was a decline in profit on essentially flat revenue. In conclusion, the Company is in a stagnant phase without earnings growth, more closely resembling a decline in revenue and profit; more precisely, it can be categorized as a decline in revenue and profit, with a slight decrease in revenue and a significant deterioration in profit.

Segment Analysis

The Group is effectively a single-segment business, with the restaurant business accounting for nearly all operations; therefore, segment-specific disclosures have been omitted.

Key Financial Indicators

【Profitability】The Operating Income margin was -2.0% (-0.6% in the previous year), while the Net Income margin was -1.1% (-0.4% in the previous year), with both deteriorating from the previous year. Although the gross margin improved to 69.1% (68.6% in the previous year), this was more than offset by the increase in the SG&A ratio to 71.1% (69.3% in the previous year), resulting in deterioration at the operating level.【Cash Flow Quality】As operating results were negative, current-period earnings did not reflect cash-generation capability; dividends received of ¥0.5B from non-operating activities provided partial support to earnings.【Investment Efficiency】ROE was -0.4% (deteriorating from the previous year’s estimate), primarily due to the decline in the Net Income margin. There were no significant changes in the structure of total asset turnover or financial leverage.【Financial Soundness】The Equity Ratio remained high at 65.9% (65.1% in the previous year), indicating a conservative capital structure. Meanwhile, although cash and deposits amounted to ¥140.2B, short-term borrowings of ¥72.0B accounted for the core of liabilities, resulting in a liability structure biased toward the short term.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, fund flows can be assessed from changes in the balance sheet. Cash and deposits amounted to ¥140.2B, down from ¥152.7B in the previous year, suggesting that continued operating losses may have contributed to the contraction of cash on hand. Current assets of ¥192.4B exceeded current liabilities of ¥130.2B, providing a certain degree of short-term liquidity, although short-term borrowings of ¥72.0B accounted for the majority of liabilities, leaving the funding structure biased toward the short term. Long-term borrowings declined to ¥0.5B, further shortening the maturity profile of liabilities. Given that Operating Income was negative, the Company’s ability to generate funds through its business activities themselves is considered weak.

Earnings Quality

The current-period loss was driven primarily by recurring operating factors, with limited impact from extraordinary gains and losses (extraordinary income of ¥0.01B and extraordinary losses of ¥0.14B). Non-operating income of ¥0.6B mainly consisted of ¥0.5B in dividends received, representing a relatively stable earnings composition. However, between Ordinary Income and Net Income, income taxes and other taxes amounted to ¥-1.1B, indicating a heavy tax burden even despite the recognition of a loss, with the effective tax rate remaining high at 44.5%. The reduction in gains on sales of fixed assets from ¥1.7B in the same period of the previous year to ¥0.01B in the current period was also one factor contributing to the year-on-year deterioration in earnings and can be recognized as the disappearance of a temporary earnings boost.

Earnings Forecasts and Guidance

The full-year plan calls for Revenue of ¥550.0B (+0.8% year on year), Operating Income of ¥32.0B (+9.8%), and Ordinary Income of ¥32.5B (+11.0%). Q1 progress was limited to 21.7% for Revenue (3.3pt below the simple progress benchmark of 25%), while progress toward the full-year plan was significantly delayed on the profit side because both operating and ordinary results started the year in the red. The Company has not revised its earnings forecasts; however, based on Q1 results, a recovery in profitability in the second half is a prerequisite for achieving the full-year plan.

Shareholder Returns

The annual dividend forecast is ¥30.00, and no revisions were made to the dividend forecast during Q1. Based on the Company’s forecast EPS of ¥74.58, the Payout Ratio is approximately 40%, a level premised on achieving the full-year plan. As the Company recorded a net loss in Q1, the Payout Ratio based on actual interim-period earnings cannot be calculated, and recovery in full-year operating results is a prerequisite for maintaining the dividend. No disclosure has been made regarding share buybacks, and the current shareholder return policy appears to center on dividends.

Risk Factors

1. Deterioration in profitability due to rising fixed costs: The SG&A ratio rose to 71.1% (69.3% in the previous year), causing the Operating Income margin to deteriorate to -2.0% (-0.6% in the previous year). If the increase in fixed costs, including personnel expenses, rent, and utility costs, continues to exceed revenue growth, it could hinder achievement of the full-year plan.

2. Refinancing risk due to the concentration of liabilities in the short term: Long-term borrowings amounted to only ¥0.5B against short-term borrowings of ¥72.0B, resulting in a significantly short-term-biased liability structure. Cash and deposits of ¥140.2B provide a certain degree of coverage, but funding costs could rise if the interest-rate environment changes.

3. Delayed progress against the full-year plan: Revenue progress was 21.7%, while the profit items started the quarter in the red, resulting in a significant gap from the full-year plan, including Operating Income of ¥32.0B. Recovery in demand and cost improvements in the second half are prerequisites for achieving the plan.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (retail)

Profitability and Returns

The Company’s profitability metrics are significantly below the industry median and rank toward the bottom of the industry.

Growth and Capital Efficiency

The Revenue growth rate is also significantly below the industry median, highlighting the Company’s sluggish top-line growth relative to its industry peers.

※Source: Based on Company research

Key Points from the Earnings Report

1. Although the gross margin improved to 69.1% (68.6% in the previous year), the increase in the SG&A ratio to 71.1% (69.3% in the previous year) more than offset the improvement, causing operating results to deteriorate from the previous year. The pace of absorbing cost increases is a key issue that will determine future performance.

2. The liability structure is centered on short-term borrowings of ¥72.0B, while long-term borrowings amount to only ¥0.5B. Although the capital structure is conservative, with an Equity Ratio of 65.9%, the change in the maturity structure of liabilities requires continued monitoring.

3. Q1 progress against the full-year plan was 21.7% for Revenue, while profit started in the red. The disappearance of gains on sales of fixed assets (¥1.7B) recorded in the previous year was also one factor worsening the YoY comparison. The recovery trend in operating results in the second half will be a key point in assessing the degree to which the full-year plan can be achieved.

Theoretical Share Price (Reference Value)

Sensitivity: ¥991–¥1,048 at Cost of Equity ±1%; ¥1,016–¥1,021 at ω±0.1.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used; there is a timing difference from the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings-release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was weak, with a modest revenue decline accompanied by a materially wider operating loss. Revenue was ¥11.946bn, down 0.4% YoY, while operating loss widened to ¥0.238bn from ¥0.074bn. The operating-margin deficit expanded by approximately 1.4 percentage points to -2.0% from -0.6% in the prior-year quarter. Gross profit increased slightly to ¥8.258bn despite lower sales. Gross margin improved by approximately 0.5 percentage points to 69.1%, indicating that the core food-cost relationship was not the principal driver of the earnings decline. However, SG&A increased 2.3% YoY to ¥8.496bn. As a result, the SG&A ratio rose by roughly 1.8 percentage points to 71.1% of revenue, more than offsetting gross-margin improvement. This points to unfavorable operating leverage in a high-service restaurant model where labor, occupancy and other fixed operating costs are significant. Ordinary loss widened to ¥0.222bn from ¥0.059bn, although non-operating income increased to ¥0.061bn, led by ¥0.050bn of dividend income. Net loss was ¥0.131bn, compared with a ¥0.051bn loss a year earlier. The YoY deterioration in profit before tax was amplified by the absence of the prior-year gain on disposal of fixed assets, while the current quarter included ¥0.014bn of asset disposal and retirement losses. The loss generated a tax benefit of ¥0.105bn, but the implied effective tax rate of 44.5% remains elevated in absolute terms. Annualized ROE was -1.7%, reflecting negative margin performance rather than excessive financial leverage. Liquidity remains adequate, with ¥14.020bn of cash and deposits against ¥7.200bn of short-term loans. Nevertheless, nearly all interest-bearing debt is short term, making refinancing execution an important monitoring point despite the strong cash coverage. Management maintained its full-year forecast of ¥55.0bn in revenue, ¥3.2bn in operating income and ¥2.1bn in profit attributable to owners. Achieving that outlook requires a substantial earnings recovery after Q1, with operating profitability needing to move from a ¥0.238bn loss to a full-year ¥3.2bn profit. The central investment issue is therefore whether sales recovery and cost containment can restore restaurant-level operating leverage over the remaining three quarters.

Profitability Analysis

The annualized DuPont decomposition shows ROE of -1.7%, comprising a -1.1% net profit margin, 1.012x asset turnover and 1.52x financial leverage. The negative net margin is the decisive cause of negative ROE; asset turnover is reasonable for the asset base and leverage is moderate rather than aggressive. Revenue declined 0.4% YoY, but gross profit rose 0.3% to ¥8.258bn because gross margin improved to 69.1% from approximately 68.6%. The primary adverse movement was below gross profit: SG&A rose by ¥0.190bn, or 2.3%, despite the sales decline. Accordingly, the SG&A ratio increased to 71.1% from approximately 69.3%, creating a 1.4-percentage-point operating-margin deterioration to -2.0%. This unfavorable operating leverage is consistent with a restaurant operator facing relatively inflexible personnel, store and administrative expenses. The annualized asset turnover of 1.012x suggests that the Q1 loss is not principally attributable to balance-sheet inefficiency, but rather to insufficient revenue and gross profit absorption of the fixed cost base. Financial leverage of 1.52x and D/E of 0.52x do not indicate that leverage is magnifying returns to an unusual degree. EBIT was negative at ¥0.238bn, and the reported ROIC of -2.2% is below the 5% minimum benchmark, indicating that operating assets are currently not earning their cost of capital. Interest burden was 0.992, as interest expense was modest relative to the operating loss; however, the negative interest coverage ratio of -12.53x means operating earnings do not cover interest expense. The Q1 result therefore requires SG&A discipline and improved sales productivity to restore profitability. The single-segment structure means earnings improvement must come largely from the core restaurant operation rather than a separately disclosed higher-margin business.

Growth Assessment

Q1 revenue of ¥11.946bn represented 21.7% progress against the unchanged full-year revenue forecast of ¥55.0bn. This is below the standard 25% first-quarter progress rate by 3.3 percentage points, although restaurant demand and profitability can be seasonally weighted toward later quarters. The revenue shortfall is modest in absolute terms, but it is significant because the cost base expanded while sales declined. Full-year guidance assumes 0.8% revenue growth, implying that the company expects sales to turn positive over the remaining nine months. Operating income was negative ¥0.238bn in Q1 versus a full-year target of ¥3.2bn, materially behind the normal 25% run-rate. Profit attributable to owners was also negative ¥0.131bn versus the ¥2.1bn full-year target. The earnings recovery required in Q2-Q4 is substantial: the company must generate approximately ¥3.438bn of operating income during the remaining three quarters to meet guidance. The improved gross margin provides some evidence that menu pricing, product mix or procurement conditions may be supportive. However, the SG&A increase despite flat sales indicates that revenue growth alone may not be sufficient without better labor and other fixed-cost absorption. The prior-year quarter also contained a ¥0.174bn gain on sale of fixed assets, so the YoY decline in pre-tax income overstates the deterioration in underlying recurring earnings relative to the operating-income change. Still, recurring operating performance deteriorated materially, as shown by the ¥0.164bn wider operating loss. Guidance credibility will depend on sustained sales recovery and a reversal of the Q1 SG&A ratio increase.

Financial Health

The balance sheet remains conservatively capitalized at the aggregate level, with total equity of ¥31.132bn representing a 65.9% equity ratio. Total liabilities were ¥16.097bn, equivalent to 34.1% of total assets. The current ratio was 147.7% and the quick ratio was 147.5%, indicating adequate short-term asset coverage, although the current ratio is marginally below the 1.5x healthy benchmark. Working capital was positive at ¥6.214bn. Interest-bearing debt totaled ¥7.250bn and D/E was 0.52x, well below the 2.0x level associated with aggressive leverage. Debt-to-capital was also moderate at 18.9%. The principal financial-structure concern is maturity concentration: ¥7.200bn, or 99.3% of interest-bearing debt, is classified as short-term. This creates refinancing risk because the short-term debt ratio is substantially above the 40% alert threshold. Mitigating this risk, cash and deposits of ¥14.020bn covered short-term loans by 1.95x and exceeded total interest-bearing debt. Current assets of ¥19.239bn also exceeded current liabilities of ¥13.025bn. Property, plant and equipment amounted to ¥16.735bn, or 35.4% of assets, reflecting a meaningful fixed-asset commitment typical of a restaurant network. Asset retirement obligations were ¥1.321bn, equal to 8.2% of total liabilities, and represent a material future store-restoration and lease-exit obligation. Net defined benefit liability was ¥1.328bn, adding another long-duration obligation. Goodwill was limited at ¥0.944bn, only 3.0% of equity and 2.0% of assets, so the balance sheet is not meaningfully dependent on acquired goodwill values. Inventory rose 94.1% YoY to ¥0.330bn, but remains only 0.1% of total assets and is not currently a material liquidity constraint.

Notable B/S Changes

Inventories: +¥0.160bn (+94.1%) to ¥0.330bn - percentage growth is high, but the balance remains immaterial at 0.1% of total assets; monitor for procurement buildup or slower food inventory turnover. Long-term loans: -¥0.017bn (-25.4%) to ¥0.050bn - debt maturity remains overwhelmingly short term, reinforcing the importance of refinancing management. Provision for bonuses: -¥0.329bn (-52.0%) to ¥0.304bn - lower accrued bonus obligations reduced current liabilities, but may also reflect timing of compensation accruals. Trade payables: -¥0.349bn (-22.6%) to ¥1.195bn - lower supplier payables may modestly increase working-capital cash needs if the trend continues.

Cash Flow Quality

No operating, investing or financing cash-flow figures were reported for the quarter, so OCF-to-net-income conversion, free-cash-flow generation and dividend cash coverage cannot be quantified. Earnings quality can nevertheless be assessed from the income statement composition. The Q1 net loss of ¥0.131bn was primarily driven by a recurring operating loss of ¥0.238bn rather than by a large non-recurring charge. Non-operating income of ¥0.061bn was led by ¥0.050bn of dividend income, which partially reduced the ordinary loss but does not replace restaurant operating profitability. The current quarter included ¥0.014bn of extraordinary losses related to asset disposal and retirement, while extraordinary income was only ¥0.001bn. In contrast, the prior-year quarter benefited from a ¥0.174bn gain on sale of fixed assets, making YoY net-income comparisons less representative of underlying recurring performance. The ¥0.105bn tax benefit reduced the net loss from the ¥0.236bn pre-tax loss to ¥0.131bn. The elevated 44.5% effective tax rate reflects the tax effect on a loss position and should not be interpreted as evidence of a normalized cash tax burden. The increase in inventory to ¥0.330bn and decline in trade payables to ¥1.195bn from ¥1.544bn could require cash absorption if sustained, although the absolute inventory balance is small. Cash and deposits declined by ¥1.066bn YoY to ¥14.020bn, while retained earnings declined by ¥0.553bn to ¥5.352bn. Future cash-flow quality should be assessed through operating cash flow versus earnings, store investment requirements, lease and asset-retirement cash obligations, and any working-capital movement associated with food procurement and supplier payment terms.

Dividend Sustainability

The full-year dividend forecast is ¥30 per share, unchanged under the disclosed guidance. The forecast EPS is ¥74.58, implying a prospective dividend payout ratio of approximately 40.2%, which is within the stated sustainability benchmark of below 60%. However, Q1 EPS was negative ¥4.66 and the company recorded a ¥0.131bn net loss, so near-term dividend support depends on achieving the full-year earnings recovery embedded in guidance. The company has a substantial liquidity buffer, with ¥14.020bn of cash and deposits, which provides balance-sheet capacity to support ordinary shareholder distributions. At the same time, cash-flow coverage cannot be verified because operating cash flow, capital expenditures and actual dividend payments for the period were not reported. The ¥30 forecast dividend should therefore be evaluated against the company’s ability to restore operating income, fund restaurant maintenance and growth investment, and manage short-term debt refinancing. The prospective payout ratio appears reasonable if the full-year ¥2.1bn profit target is achieved. If the Q1 operating-loss trend persists, the forecast payout ratio would become less meaningful because distributable earnings and internally generated cash would be weaker. No share buyback data was reported, so a total return ratio cannot be calculated.

Risk Assessment

Business risks include Restaurant demand risk: Q1 revenue declined 0.4% YoY, and weak customer traffic or spending would hinder fixed-cost absorption., Cost inflation and labor-cost risk: SG&A increased 2.3% despite lower revenue, lifting the SG&A ratio by approximately 1.8 percentage points and exposing the sensitivity of profits to personnel, occupancy and operating-cost inflation., Operating leverage risk: The -2.0% operating margin and -2.2% ROIC demonstrate that current sales are insufficient to cover the operating asset and cost base., Restaurant-industry competition risk: Competition for discretionary dining spend, labor-market tightness and changes in consumer preferences can pressure both traffic and wage costs., Store obligation risk: Asset retirement obligations of ¥1.321bn represent potential restoration and closure-related cash requirements across the store portfolio..

Financial risks include Refinancing risk: ¥7.200bn of ¥7.250bn in interest-bearing debt is short term, producing a 99.3% short-term debt ratio., Debt-service risk: Interest coverage was -12.53x because EBIT was negative, meaning operations did not cover the ¥0.019bn interest expense in Q1., Liquidity buffer dependence: Cash covers short-term loans by 1.95x, but continued operating losses or large investment requirements would reduce this protection., Tax-rate volatility risk: The 44.5% effective tax rate and 0.555 tax burden show that tax effects can materially influence earnings in loss-making periods., Balance-sheet obligation risk: Asset retirement obligations equal 8.2% of total liabilities, above the 5% quality-alert threshold..

Key concerns include The highest-priority issue is the need to reverse a Q1 operating loss of ¥0.238bn while delivering full-year operating income of ¥3.2bn., The Q1 margin decline was driven by SG&A deleverage rather than gross-margin weakness, making cost control and sales productivity the critical operational indicators., Short-term borrowing concentration is elevated even though absolute leverage and cash coverage remain manageable., The full-year dividend and earnings outlook depend on a substantial improvement in operating performance over Q2-Q4..

Investment Implications

Key takeaways include Revenue was broadly flat, but operating loss widened by ¥0.164bn YoY because SG&A grew faster than sales., Gross margin improved to 69.1%, suggesting that restoring profitability is more dependent on expense absorption and sales productivity than on food-cost pressure alone., The balance sheet has a strong 65.9% equity ratio, D/E of 0.52x and cash exceeding short-term borrowings., Short-term debt concentration at 99.3% is the principal balance-sheet risk and requires monitoring alongside cash balances and refinancing terms., Full-year guidance implies a pronounced Q2-Q4 recovery, with Q1 sales progress at 21.7% of the annual target and operating income currently negative., Goodwill exposure is low at 3.0% of equity, limiting M&A-related impairment risk..

Metrics to watch include Quarterly revenue growth and restaurant sales productivity, SG&A growth relative to revenue growth and the SG&A-to-sales ratio, Operating margin recovery toward the full-year operating-income target, Gross-margin sustainability following the Q1 improvement to 69.1%, Cash and deposits relative to short-term loans, Short-term debt rollover, interest expense and interest coverage, Operating cash flow, capital expenditures and free-cash-flow coverage of dividends, Asset retirement obligation movements and store closure-related charges.

Regarding relative positioning, The company combines a relatively strong equity base, low aggregate leverage and low goodwill exposure with weak near-term earnings efficiency. Its 69.1% gross margin is structurally consistent with a service-intensive dining format, but the 71.1% SG&A ratio leaves insufficient operating leverage at current sales levels. Relative financial resilience is supported by cash coverage of short-term debt, while relative operating performance is constrained by negative EBIT margin, negative ROIC and a high concentration of short-term borrowing.