SRS HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The quarter saw revenue growth but a significant decline in earnings, with the deterioration in profitability caused by the increased burden of SG&A expenses being the most important point. Revenue expanded to ¥190.3B (+6.5% YoY), while Operating Income declined significantly to ¥2.7B (-53.7% YoY), Ordinary Income to ¥2.3B (-58.9% YoY), and Net Income to ¥1.6B (-47.6% YoY). Although the gross margin improved from the previous year to 66.2%, the SG&A ratio rose to 64.8%, causing operating leverage to reverse and representing the primary reason for the deterioration in earnings.

Factors Affecting Performance

【Revenue】Revenue maintained growth at ¥190.3B (¥178.7B in the previous year, +6.5%). The Company operates as a single segment in the Food Service Business and does not disclose a segment breakdown; however, trends in customer traffic and average spending per customer at existing stores, as well as the effects of price revisions, appear to have contributed to top-line expansion.

【Profit and Loss】Operating Income was ¥2.7B (¥5.8B in the previous year, -53.7%), and the Operating Income margin contracted significantly to 1.4% from 3.2% in the previous year. The cost of sales ratio improved, with the gross margin rising to 66.2% (+0.4pt YoY), indicating that cost management is functioning. However, SG&A expenses increased to ¥123.3B (+10.1% YoY), exceeding the +6.5% revenue growth rate, and the SG&A ratio rose to 64.8% (+2.2pt YoY). The inability to absorb fixed-cost inflation, including labor and energy costs, appears to have been the primary cause of the deterioration in profitability. Non-operating expenses totaled ¥0.9B, including ¥0.4B in interest expense, exceeding non-operating income of ¥0.6B and making a net negative contribution. Extraordinary items were nearly offset, with extraordinary income of ¥0.1B against a ¥0.1B loss on disposal of fixed assets, and temporary factors explaining the deterioration in earnings below the Ordinary Income level were limited. In conclusion, the Company achieved revenue growth but experienced a decline in earnings.

Segment Analysis

The Group operates as a single segment in the Food Service Business and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Operating Income margin declined significantly to 1.4% (3.2% in the previous year), while the Net Income margin fell to 0.8% (1.5% in the previous year). Although the gross margin improved to 66.2% from the previous year, the SG&A ratio rose to 64.8%, representing the primary cause of the deterioration in profitability.【Cash Quality】The net non-operating balance was negative at ¥0.4B, while the gap between Ordinary Income and Net Income remained within the range explained by the tax burden (corporate income taxes, etc., of ¥0.8B and an effective tax burden of approximately 34%) and Net Income attributable to non-controlling interests of ¥0.1B; no dependence on structural temporary factors was observed.【Investment Efficiency】ROE remained low at 0.9%, primarily due to the decline in the Net Income margin. Basic EPS was ¥3.56 (¥6.66 in the previous year, -46.5%), while diluted EPS was ¥3.20.【Financial Soundness】The Equity Ratio remained at a sound level of 40.3% (improving from 37.8% in the previous year), while cash and deposits of ¥112.7B exceeded current liabilities of ¥111.6B, securing short-term funding capacity.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, an analysis of funding trends based on balance sheet changes shows that cash and deposits declined by ¥20.2B to ¥112.7B from ¥132.9B in the previous year. Accounts payable and notes payable decreased to ¥19.4B from ¥24.8B in the previous year, while income taxes payable also declined significantly, suggesting that cash outflows on the payment side contributed to the decrease in the cash balance. Meanwhile, property, plant and equipment increased by +4.8% YoY, indicating that investments in new store openings and renovations have continued. Cash levels remain above current liabilities, and resilience in short-term liquidity management has been maintained.

Quality of Earnings

The deterioration in earnings for the current period was primarily caused by the increase in the SG&A ratio at the operating level, and the degree of dependence on temporary factors is low. Extraordinary items were nearly zero on a net basis (extraordinary income of ¥0.1B and extraordinary loss of ¥0.1B), indicating that the results reflect the underlying recurring earnings power. Non-operating income, including ¥0.1B in dividend income, was approximately 0.3% of revenue, and its impact on total-company earnings was limited. Meanwhile, non-operating expenses totaled ¥0.9B, primarily due to ¥0.4B in interest expense, resulting in a net negative non-operating balance. The gap between Ordinary Income and Net Income can be explained by corporate income taxes, etc., of ¥0.8B and Net Income attributable to non-controlling interests of ¥0.1B, and does not indicate structural deterioration in earnings quality. Comprehensive Income was ¥2.6B, exceeding Net Income of ¥1.6B, primarily due to a ¥1.2B increase in valuation differences on securities; this uplift resulted from factors separate from the earnings power of the core business.

Earnings Forecast and Guidance

Q1 progress against the full-year plan was 22.9% for Revenue (¥190.3B / ¥830.0B), 8.3% for Operating Income (¥2.7B / ¥32.0B), and 7.6% for Ordinary Income (¥2.3B / ¥30.0B). Compared with the 25% benchmark for evenly distributed quarterly progress, Revenue was approximately in line, while earnings were substantially below that level. The full-year plan calls for revenue growth of +8.6%, Operating Income growth of +4.9%, and Ordinary Income growth of +0.2%; improvement in the SG&A ratio toward the second half of the fiscal year is a prerequisite for achieving the plan. As of the end of the quarter, no revisions had been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Company’s annual dividend plan is ¥10.00, with no revisions, including any changes to the interim and year-end dividend allocation. Assuming approximately 41.35M average shares outstanding during the period and full-year Net Income attributable to owners of the parent of ¥1.80B, the Payout Ratio is approximately 23% on a rough calculation, representing a reasonable level. Given the funding capacity reflected by cash and deposits of ¥112.7B, the delay in earnings progress during the quarter is not considered to immediately impair the Company’s ability to maintain its dividend. No disclosure regarding share repurchases has been made.

Risk Factors

1. Pressure on profitability from fixed-cost inflation: The SG&A ratio rose to 64.8% (+2.2pt YoY), and the SG&A growth rate of +10.1% exceeded the revenue growth rate of +6.5%. Absorbing fixed costs such as labor and energy expenses remains a challenge, and improving the profitability of existing stores will be a structural priority.

2. Risk of amortization and impairment of goodwill and intangible assets: Goodwill of ¥52.7B represents 28.8% of net assets of ¥182.9B, while intangible fixed assets of ¥80.8B account for 17.8% of total assets of ¥453.5B. Although the level of M&A-related assets is not particularly excessive, monitoring impairment risk will be necessary if the decline in profitability continues.

3. Risk of second-half concentration due to delayed full-year progress: Full-year progress for Operating Income was 8.3%, substantially below the 25% benchmark for evenly distributed progress. Achieving the full-year plan depends on improving cost efficiency and recovering the top line in the second half, and the extent to which these objectives are achieved will be closely monitored.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

The Company’s profitability is below the industry median, with both the Operating Income margin and Net Income margin positioned in the lower range among peers.

Growth and Capital Efficiency

The revenue growth rate is relatively close to the industry median but remains slightly below it.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite revenue growth, the increase in the SG&A ratio caused the Operating Income margin to contract to 1.4%, with the reversal of operating leverage being the defining feature of the quarter. Although an improvement in the gross margin was confirmed, delays in absorbing fixed costs were reflected in the Company’s earnings structure.

2. Operating Income progress against the full-year plan was 8.3%, substantially below the 25% benchmark for evenly distributed progress. The Company has not revised its earnings or dividend forecasts, and the continued assumption of second-half concentration in the plan will be an item to confirm in future earnings releases.

3. Financial soundness has been maintained, with an Equity Ratio of 40.3% and cash and deposits of ¥112.7B, securing short-term funding capacity. However, ROE remains low at 0.9%, and the efficiency of invested capital remains less competitive even compared with the industry.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥434–¥460 at ±1% for the cost of equity, and ¥446–¥447 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: Residual Income Model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee 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, and you should consult a professional as necessary.

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