ROYAL HOLDINGS Co., Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥122.05B
• Operating Income: ¥5.46B
• Net Income: ¥4.34B
• EPS: ¥70.59

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Royal Holdings Co., Ltd. reported FY2025 Q3 consolidated results under JGAAP with steady top-line growth but profit pressure. Revenue rose 8.6% YoY to ¥122.0bn, reflecting demand recovery and likely stronger traffic across restaurant and contract foodservice channels. Despite higher sales, operating income declined 2.8% YoY to ¥5.47bn, indicating margin compression from cost inflation (food, utilities, and labor) and/or mix effects. Net income fell 21.2% YoY to ¥3.48bn, implying additional non-operating headwinds, higher financing costs, or extraordinary items. The operating margin stood at 4.5%, while the net margin was 2.85%, both consistent with an environment of rising input costs and ongoing normalization post-pandemic. DuPont analysis shows ROE at 6.58%, driven by a modest net margin (2.85%), asset turnover of 0.898x, and financial leverage of 2.57x. Cash generation was solid: operating cash flow reached ¥7.85bn, more than 2.2x net income, indicating robust earnings quality and favorable working capital dynamics. EBITDA was ¥10.05bn (8.2% margin), providing a reasonable cushion against interest expense, with interest coverage at 6.4x. Liquidity appears adequate with a current ratio of 120% and quick ratio of 110%, supported by positive working capital of ¥6.06bn. The balance sheet shows total assets of ¥136.0bn and total equity of ¥52.83bn, implying moderate leverage; the provided debt-to-equity ratio is 1.46x, suggesting meaningful, but manageable, financial obligations. Revenue growth outpacing operating profit hints at cost pressures or operating deleverage, which management will need to address via pricing, mix optimization, and productivity measures. Ordinary income (¥5.61bn) modestly exceeded operating income, indicating net non-operating gains more than offset interest cost, though the gap to net income suggests tax and/or minority interest and extraordinary factors weighed on the bottom line. The effective tax rate shown as 0.0% is clearly not reflective of the reported tax charge and should be treated as not available. Several items are not disclosed in the dataset (e.g., investing cash flows, cash and equivalents, dividend per share, share count), so some ratios and per-share analyses are constrained. Overall, the company demonstrates improving scale and cash flow resilience, but profitability remains sensitive to cost inflation, wage hikes, and interest burden. Sustaining ROE above the mid-single-digit level will depend on restoring operating margins and maintaining asset efficiency.

Profitability Analysis

ROE_decomposition: ROE 6.58% = Net margin 2.85% × Asset turnover 0.898 × Leverage 2.57. The modest net margin is the primary governor of ROE, while asset turnover is reasonable for a multi-format foodservice operator and leverage provides a meaningful boost. margin_quality: Gross profit margin is reported at 64.5% (GP ¥78.67bn on revenue ¥122.05bn), which in restaurant accounting reflects relatively low cost of sales but excludes significant labor and occupancy in SG&A; the operating margin is 4.5% (¥5.47bn/¥122.05bn), down YoY despite revenue growth, indicating pressure from labor, utilities, or store-level overhead. Net margin fell to 2.85% due to interest expense (¥853m) and other below-OP items. operating_leverage: Revenue +8.6% YoY with operating income -2.8% YoY signals negative operating leverage in the period, likely from cost inflation outpacing price/mix improvements and possibly higher maintenance, advertising, or head-office costs. EBITDA margin of 8.2% vs operating margin of 4.5% implies D&A (¥4.59bn) is a material cost; managing capex intensity and asset utilization will be key to restoring operating leverage.

Growth Assessment

revenue_sustainability: Top-line growth of 8.6% appears underpinned by ongoing demand recovery, inbound tourism normalization, and possibly unit growth or reopening benefits in airport/contract segments. Sustainability will hinge on same-store sales momentum, travel flows, and pricing power amid consumer sensitivity. profit_quality: Ordinary income (¥5.61bn) slightly above operating income suggests some non-operating gains offset interest; however, the 21.2% YoY decline in net income points to less favorable below-OP items and/or higher tax/minority/extraordinary impacts. Cash conversion is strong (OCF/NI 2.26x), implying earnings are backed by cash, not accruals. outlook: If cost pressures stabilize and pricing/mix stick, operating margin should recover from the current 4–5% range. Key swing factors include food and energy costs, minimum wage increases, and airport traffic. Continued efficiency gains and portfolio optimization (store mix, format rationalization) would support mid-single-digit ROE or better.

Financial Health

liquidity: Current ratio 120.1% and quick ratio 110.4% indicate adequate short-term liquidity. Working capital of ¥6.06bn provides a buffer for seasonality and volatility in payables/receivables. solvency: Total liabilities are ¥77.26bn against equity of ¥52.83bn; leverage is moderate with a reported debt-to-equity ratio of 1.46x and interest coverage of 6.4x, suggesting manageable debt service capacity. capital_structure: Financial leverage (Assets/Equity) is 2.57x, supporting ROE but increasing sensitivity to earnings volatility and rates. The reported Equity Ratio of 0.0% is not disclosed and should not be interpreted as zero; based on assets and equity provided, the implied equity ratio would be roughly 38.9% (52.83/135.97), though this is a simplified approximation.

Cash Flow Quality

earnings_quality: OCF of ¥7.85bn versus net income of ¥3.48bn (OCF/NI 2.26x) indicates strong cash realization, likely aided by favorable working capital (payables discipline and/or inventory turns). EBITDA-to-OCF conversion also appears healthy. FCF_analysis: Investing cash flow is not disclosed in the dataset, preventing a reliable free cash flow calculation. Given D&A of ¥4.59bn, maintenance capex is likely material; absent capex data, we cannot assess true FCF or reinvestment needs. working_capital: Current assets of ¥36.15bn and current liabilities of ¥30.10bn reflect a positive working capital position. Inventories of ¥2.92bn look lean for the revenue base, consistent with the foodservice model; continued discipline here supports cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0.0%, which should be treated as not disclosed rather than actual zero. Based on net income of ¥3.48bn and solid OCF, the capacity exists for dividends, but policy and actual distributions are not available in the provided data. FCF_coverage: Free cash flow and FCF coverage of dividends cannot be evaluated because investing cash flows (capex) are not disclosed. Any assessment of sustainability must await capex and DPS information. policy_outlook: Given mid-single-digit ROE and leverage, a balanced policy between debt reduction, reinvestment, and shareholder returns would be prudent; clarity on capital allocation and dividend policy will be important catalysts.

Risk Assessment

Business Risks:

• Input cost inflation (food commodities, utilities) pressuring margins
• Labor cost increases from minimum wage hikes and tight labor market
• Demand sensitivity to macro conditions and consumer sentiment
• Exposure to travel/inbound demand cycles, particularly in airport and contract businesses
• Competitive intensity in casual dining and quick-service segments affecting pricing power
• Store portfolio performance dispersion requiring ongoing format optimization

Financial Risks:

• Interest rate risk given meaningful interest expense (¥853m) and leverage
• Potential volatility in below-OP items and extraordinary gains/losses affecting net income
• Refinancing and covenant headroom not disclosed; reliance on operating cash to service debt
• Lease obligations (not detailed here) that function as quasi-debt under restaurant economics

Key Concerns:

• Negative operating leverage in FY2025 Q3 despite strong revenue growth
• Net income down 21.2% YoY, indicating pressure below operating line
• Limited disclosure on investing cash flows and cash balance, constraining FCF visibility

Investment Implications

Key Takeaways:

• Top-line recovery (+8.6% YoY) but margin compression led to lower operating and net profit
• ROE at 6.58% supported by leverage; margin improvement is the primary lever for higher returns
• Strong cash conversion (OCF/NI 2.26x) underscores resilient earnings quality
• Liquidity is adequate; leverage and interest burden are manageable but notable
• Data gaps (capex, cash, DPS) limit conclusions on FCF and capital returns

Metrics to Watch:

• Same-store sales growth and ticket/traffic mix
• Food and labor cost ratios, energy costs, and resulting operating margin trajectory
• Capex and store portfolio actions (openings/closures/renovations) to gauge FCF
• Interest expense trend and debt profile (maturities, rates)
• Working capital turns (inventory days, payables and receivables cycles)
• Ordinary-to-net income bridge (taxes, minorities, extraordinary items)

Relative Positioning: Within Japan’s listed foodservice peers, Royal Holdings exhibits solid revenue momentum and cash conversion but lags on margin consistency, leaving ROE in the mid-single digits; execution on cost containment and portfolio optimization is key for closing the profitability gap.

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
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