KISOJI CO.,LTD. FY2027 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥11.95B
• Operating Income: ¥-238M
• Net Income: ¥-131M
• EPS: ¥-4.66

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2027 Q1 was weak, with a small revenue decline translating into a deeper operating loss as cost discipline lagged. Revenue was 119.46bn JPY, down 0.4% YoY, while operating income deteriorated to -2.38bn JPY from -0.74bn JPY YoY. Gross profit rose slightly to 82.58bn JPY (+0.3% YoY) and the gross margin expanded about 50bps to 69.1% on improved COGS ratio. However, SG&A increased to 84.96bn JPY (+2.3% YoY), pushing the SG&A ratio up by roughly 180bps to 71.1%, which more than offset the gross margin gain. Operating margin compressed by about 137bps to -2.0%, and net margin fell roughly 67bps to -1.1%. Non-operating income improved to 0.61bn JPY (mainly dividend income of 0.50bn JPY), partly cushioning the operating shortfall, while interest expense rose modestly to 0.19bn JPY. Ordinary loss widened to -2.22bn JPY and net loss to -1.31bn JPY. ROE printed at -0.4%, reflecting negative margins despite moderate asset turnover (0.253x) and conservative leverage (1.52x). Liquidity remained sound with a current ratio of 148% and cash/short-term debt of 1.95x; debt/capital stood at 18.9%. Short-term borrowings made up 99% of interest-bearing debt, indicating refinancing concentration despite ample cash. Comprehensive income was -0.31bn JPY, narrower than net loss due to positive securities valuation effects. Goodwill and intangibles are small (GW/Equity 3%, Intangibles/Assets 3.6%), limiting impairment risk. Management maintained the full-year forecast (sales 550bn JPY, OP 32bn JPY, NP 21bn JPY, DPS 30 JPY). Q1 progress in sales was 21.7%, below a typical 25% seasonal run-rate, and profits are behind, implying a required back-half recovery via better operating leverage. The key near-term task is SG&A control and traffic/ticket recovery to convert the sturdy gross margin into operating profit.

Profitability Analysis

ROE decomposition: -0.4% ROE = (-1.1% net margin) × (0.253x asset turnover) × (1.52x equity multiplier. The primary driver of deterioration YoY was net margin, as operating margin fell ~137bps to -2.0% on higher SG&A ratio (+180bps), despite a ~50bps gross margin expansion. Business reason: cost inflation (labor, utilities) and fixed-cost deleverage outpaced modest revenue decline, overwhelming gross margin improvements. Sustainability: gross margin gains from better COGS are encouraging and likely repeatable if procurement and mix hold; however, the elevated SG&A ratio appears cyclical/operational and should normalize only with higher volumes and tighter cost control. Concerning trend: SG&A grew 2.3% YoY while revenue fell 0.4%, signaling negative operating leverage that must reverse to meet the full-year guidance.

Growth Assessment

Top-line was essentially flat (-0.4% YoY), indicating demand softness or limited pricing power in the quarter. Gross profit edged up (+0.3% YoY) on improved COGS ratio, showing some procurement/mix tailwinds. Operating profit weakened sharply due to higher SG&A, highlighting near-term execution headwinds. Guidance implies FY sales of 550bn JPY; Q1 sales progress is 21.7% versus a typical 25%, a shortfall of ~3.3pp that will require acceleration in subsequent quarters. Full-year operating income guidance (32bn JPY) versus a Q1 operating loss suggests a back-end loaded recovery through seasonality, cost control, and traffic/ticket improvement. Dividend income growth (+0.18bn YoY) and non-operating line support were positives but not sufficient to offset operating headwinds. Focus near term: traffic restoration, menu engineering to sustain gross margin, and SG&A discipline to re-establish positive operating leverage. If cost pressure moderates and demand normalizes, earnings can inflect, but execution risk remains elevated.

Financial Health

Liquidity is solid: current ratio 147.7% and quick ratio 147.5% indicate ample short-term coverage. Interest-bearing debt is 72.5bn JPY (short-term 72.0bn), with debt/capital at 18.9% and D/E at 0.52x, a conservative capital structure. Cash and deposits of 140.2bn JPY cover short-term loans 1.95x, providing a buffer despite the concentration in short-term borrowings (99.3% of total debt), which elevates refinancing concentration risk. Interest coverage is negative due to operating loss, underscoring the importance of restoring operating profitability. Maturity mismatch risk is mitigated by high cash and working capital of 62.14bn JPY, though reliance on short-term funding persists. Asset retirement obligations are 13.21bn JPY (8.2% of liabilities), consistent with a leased store footprint and representing a structural obligation to monitor.

Notable B/S Changes

Inventories: +0.16bn (+94.1%) - Higher stocking from a low base; monitor turnover and markdown risk. Long-term loans: -0.17bn (-25.4%) - Reduced long-term leverage; increases reliance on short-term funding. Accounts receivable: -4.05bn (-20.8%) - Tighter receivables or sales mix shift; supportive for working capital. Income taxes payable: -4.43bn (-78.4%) - Reflects losses and deferred tax movements in the period.

Cash Flow Quality

Operating fundamentals indicate cost-driven earnings pressure rather than revenue collapse, as gross margin improved while SG&A rose. Working capital mix is stable with substantial cash; accounts receivable declined materially YoY while inventories increased from a low base, which may reflect normalization of procurement. Dividend income provides ancillary cash inflow, and cash/short-term debt of 1.95x suggests adequate liquidity to bridge near-term losses while execution improves.

Dividend Sustainability

Full-year DPS guidance is 30 JPY with forecast EPS 74.58, implying a payout ratio of roughly 40%, consistent with sustainable policy. On a cash basis, the annual dividend outlay is approximately 8.4bn JPY, comfortably covered by the current cash balance of 140.2bn JPY and the earnings outlook. Near-term losses in Q1 do not, by themselves, jeopardize dividends if the guided profit trajectory materializes.

Risk Assessment

Business risks include Cost inflation (labor, utilities) pressuring SG&A ratio and eroding operating leverage, Demand volatility impacting traffic and ticket size in core restaurant format, Execution risk in delivering back-half recovery implied by guidance.

Financial risks include Negative interest coverage (approximately -12.5x) until operating profit normalizes, Refinancing concentration due to 99% short-term debt, partly offset by 1.95x cash coverage, Asset retirement obligations at 8.2% of liabilities increasing long-term closure/relocation costs.

Key concerns include Low operating efficiency (EBIT margin -2.0%) against a target >5%, Long cash conversion cycle (201 days) and high DIO (272 days) pointing to inventory/working capital drag if sustained, Capital efficiency below par (ROIC -0.5%) until margins recover.

Investment Implications

Key takeaways include Gross margin tailwind (+50bps YoY) is intact, but SG&A deleverage drove losses, Liquidity is strong and leverage conservative, providing time to execute, Full-year guidance requires meaningful margin recovery; Q1 progress behind seasonal norms, Limited goodwill/intangibles reduce impairment tail risk.

Metrics to watch include Same-store sales and traffic/ticket trends to re-establish positive operating leverage, SG&A ratio trajectory and labor cost intensity, Operating margin inflection and interest coverage recovery, Inventory turnover and cash conversion cycle normalization, Short-term debt rollover profile vs cash balance.

Regarding relative positioning, Balance sheet strength and modest intangible intensity compare favorably within Japan F&B peers, but current operating efficiency and capital returns lag benchmark levels; the investment case hinges on restoring operating leverage while maintaining gross margin gains.