| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥450.8B | ¥437.9B | +2.9% |
| Operating Income / Operating Profit | ¥14.2B | ¥16.9B | -16.3% |
| Ordinary Income | ¥16.0B | ¥15.8B | +1.0% |
| Net Income / Net Profit | ¥16.3B | ¥8.2B | +97.7% |
| ROE | 10.7% | 6.0% | - |
For the full year ended February 2026 (FY2026), Revenue was ¥450.8B (YoY +¥12.9B +2.9%), Operating Income was ¥14.2B (YoY -¥2.7B -16.3%), Ordinary Income was ¥16.0B (YoY +¥0.2B +1.0%), and Net Income was ¥16.3B (YoY +¥8.0B +97.7%). The company delivered revenue growth but lower operating profit, with a significant increase in final-stage profit. The core Nagasaki Champon (Nagasaki Champon Business) posted Revenue of ¥368.8B (+3.2%) and Operating Income of ¥11.5B (-16.2%), i.e., revenue up but profit down; the Tonkatsu Business recorded Revenue of ¥80.1B (+1.3%) and Operating Income of ¥1.4B (-51.5%), showing marked profit compression. Rising fixed costs such as personnel expenses and rents hindered operating leverage. Operating margin fell 0.8pt to 3.1% from 3.9% a year earlier, but non-operating income, including foreign exchange gains of ¥1.6B, supported the ordinary level, and an effective tax rate of -16.9% (reversal/increase of deferred tax assets) drove Net Income to roughly double the prior year. However, the tax effect is transitory; next fiscal year EPS guidance is 46.31 yen, down from this period’s 66.67 yen, so profit quality depends on improvements at the operating level.
[Revenue] Revenue of ¥450.8B (+2.9%) showed solid growth. The core Nagasaki Champon Business accounted for ¥368.8B (+3.2%, sales composition 81.8%), the Tonkatsu Business ¥80.1B (+1.3%, 17.8%), and the Equipment Maintenance Business ¥2.0B (+13.0%, 0.4%); all segments grew. Nagasaki Champon Business growth appears driven by new store openings and recovery in customer counts at existing stores, though detailed same-store sales were not disclosed. Tonkatsu Business growth slowed to +1.3%, suggesting a tougher competitive environment and difficulty passing through cost increases.
[Profitability] Gross margin remained high at 63.9% (prior year 64.1%, -0.2pt), but SG&A ratio rose to 62.6% (prior year 62.1%, +0.5pt), reducing operating margin to 3.1% (prior year 3.9%, -0.8pt). Major SG&A items were Personnel Expenses ¥116.6B (+3.5%), Rent ¥43.5B (+0.9%), and Depreciation ¥14.9B (+7.3%), with personnel expense growth outpacing revenue growth (+2.9%). Operating Income declined to ¥14.2B (-16.3%), but non-operating income included foreign exchange gains ¥1.6B (prior year ¥0.4B) and dividend income ¥0.2B, while non-operating expenses fell with interest expense ¥1.1B (prior year ¥1.3B), so Ordinary Income was maintained at ¥16.0B (+1.0%). In extraordinary items, there was gain on sale of investment securities ¥0.3B, impairment losses ¥0.7B, and loss on disposal of fixed assets ¥0.4B, totaling extraordinary losses of -¥1.2B. Profit before income taxes was ¥14.8B (prior year ¥13.5B, +9.9%). Income taxes were -¥2.5B (negative; effective tax rate -16.9%) largely due to recording deferred tax assets (increase from ¥5.0B to ¥11.3B). As a result, Net Income rose sharply to ¥16.3B (+97.7%), though the tax contribution is temporary. By segment, Nagasaki Champon Business Operating Income was ¥11.5B (-16.2%, margin 3.1%), Tonkatsu Business ¥1.4B (-51.5%, margin 1.8%), showing notable profitability decline in the two main businesses. Equipment Maintenance Business Operating Income was ¥2.2B (+14.6%, margin 111.5%) and highly profitable but small in scale, limiting corporate contribution. There were intersegment sales of ¥17.9B (prior year ¥16.6B), mainly services from the Equipment Maintenance Business to other segments. Corporate expenses (segment adjustment) were -¥0.9B (prior year -¥1.5B), indicating improved head office cost efficiency. In conclusion, the company experienced revenue growth but operating profit decline, with final profit increase driven by non-recurring tax effects.
Nagasaki Champon Business: Revenue ¥368.8B (+3.2%), Operating Income ¥11.5B (-16.2%), Operating Margin 3.1% (prior year 3.8%, -0.7pt). Sales growth was likely due to new store openings and recovery in existing store traffic, but rising personnel and rent costs squeezed profits and operating leverage did not materialize. Tonkatsu Business: Revenue ¥80.1B (+1.3%), Operating Income ¥1.4B (-51.5%), Operating Margin 1.8% (prior year 3.7%, -1.9pt), with fixed cost increases halving profits amid slower sales growth. Equipment Maintenance Business: Revenue ¥2.0B (+13.0%), Operating Income ¥2.2B (+14.6%), Operating Margin 111.5%—very high profitability but scale is only 0.4% of the company. Intersegment sales amounted to ¥17.9B (prior year ¥16.6B), primarily services from Equipment Maintenance to other segments. Corporate-wide costs (segment adjustments) compressed to -¥0.9B (prior year -¥1.5B), reflecting improved corporate overhead efficiency.
[Profitability] Operating margin 3.1% (prior year 3.9%, -0.8pt), Net Margin 3.6% (prior year 1.9%, +1.7pt): operating margin declined but final margin improved due to tax effects. ROE was 11.3% (prior year 7.3%, +4.0pt), supported by improved net margin and slight decline in financial leverage to 2.04x (prior year 2.14x). Gross margin 63.9% (prior year 64.1%, -0.2pt) remains high, but rising SG&A ratio 62.6% (prior year 62.1%, +0.5pt) compressed operating margin. [Cash Quality] Operating Cash Flow (OCF) ¥29.4B is 1.80x Net Income ¥16.3B, indicating good cash backing. OCF/EBITDA ratio is 0.84x (EBITDA ¥34.9B = Operating Income ¥14.2B + Depreciation ¥20.8B), slightly below the 0.9x guideline, with increases in accounts receivable +¥2.3B and inventories +¥0.6B delaying cash conversion. [Investment Efficiency] Total asset turnover 1.45x (Revenue ¥450.8B ÷ average total assets ¥310.6B), and ROIC (Return on Invested Capital) was 5.6% (NOPAT ¥11.2B ÷ Invested Capital ¥200.4B; Invested Capital = Net Assets ¥152.3B + Interest-bearing Debt ¥59.2B - Cash ¥23.8B), below the industry median of 8%. Capital expenditures ¥19.1B were 0.92x Depreciation ¥20.8B, focused on renewal/maintenance. [Financial Soundness] Equity Ratio 48.9% (prior year 46.7%, +2.2pt), D/E ratio 38.9% (Interest-bearing Debt ¥59.2B ÷ Net Assets ¥152.3B), Debt/EBITDA 1.70x (Interest-bearing Debt ¥59.2B ÷ EBITDA ¥34.9B), indicating a conservative capital structure. Current ratio 86.7% (Current Assets ¥61.5B ÷ Current Liabilities ¥71.0B) is below 100%, but cash ¥23.8B versus short-term borrowings ¥2.0B and Interest Coverage 12.35x (EBITDA ¥34.9B ÷ Interest ¥1.1B) show low interest burden and secured short-term payment capacity.
Operating Cash Flow (OCF) was ¥29.4B (prior year ¥31.2B, -5.7%), showing solid cash generation at 1.80x Net Income ¥16.3B. Changes in working capital included accounts receivable increase -¥2.3B, inventories increase -¥0.6B, and trade payable increase +¥0.1B, with receivables and inventory buildup associated with year-end revenue growth restraining cash conversion. Income taxes paid were ¥4.6B (prior year ¥3.0B), increasing and weighing on OCF. Investing Cash Flow was -¥20.4B (prior year -¥22.7B), driven by capital expenditures -¥19.1B (prior year -¥22.1B). This included intangible asset additions -¥0.4B, investment securities purchases -¥0.02B, and investment securities sales +¥0.5B. Capital expenditures were 0.92x Depreciation ¥20.8B, focused on renewal and maintenance with limited aggressive growth investment. Financing Cash Flow was -¥8.2B (prior year -¥9.4B), consisting of long-term borrowings +¥30.0B, long-term debt repayments -¥27.0B, net decrease in short-term borrowings -¥7.0B, dividend payments -¥3.4B, and lease obligation repayments -¥0.7B. The company reduced short-term borrowings and shifted to longer-term borrowings. Free Cash Flow (FCF) was ¥9.1B (OCF ¥29.4B - Investing CF ¥20.4B), positive and covering dividend payments ¥3.4B by 2.68x, indicating high dividend sustainability. Cash and cash equivalents increased from ¥22.0B to ¥23.0B (+¥1.0B), maintaining liquidity.
Operating Income ¥14.2B versus Ordinary Income ¥16.0B indicates net non-operating contribution of +¥1.8B. Breakdown: Non-operating income ¥3.3B (foreign exchange gains ¥1.6B, dividend income ¥0.2B, other ¥0.2B) and non-operating expenses ¥1.5B (interest expense ¥1.1B, fees paid ¥0.1B, other ¥0.1B). Foreign exchange gains ¥1.6B expanded from ¥0.4B in the prior year, but are highly non-recurring and dependent on exchange movements, so their contribution to sustained cash flow is limited. Profit before taxes ¥14.8B and income taxes -¥2.5B (negative effective tax rate) were driven by recording deferred tax assets (BS deferred tax assets ¥5.8B → ¥11.3B, +¥5.5B), and normalization of tax rate will likely reverse this benefit next fiscal year. OCF was 1.80x Net Income, and while deterioration in working capital (accounts receivable +¥2.3B, inventory +¥0.6B) slightly reduced cash conversion, the addition of non-cash charges such as Depreciation ¥20.8B maintained cash-based earnings quality. Comprehensive income ¥19.2B exceeded Net Income ¥16.3B by ¥2.9B, mainly due to Other Securities valuation gains +¥3.0B (unrealized gains on investment securities), strengthening B/S solvency. Overall, the ordinary level benefited from foreign exchange gains and the bottom line from tax effects; improving Operating Income is key to enhancing earnings quality in the next fiscal year.
For the next fiscal year (FY2027 ending February 2027), the company forecasts Revenue ¥473.0B (+4.9%), Operating Income ¥22.0B (+55.1%), Ordinary Income ¥20.4B (+27.6%), Net Income ¥12.0B (-26.4%), and EPS 46.31 yen (from 66.67 yen this period, -30.5%). Operating margin is expected to recover to 4.7% (from this period’s 3.1%, +1.6pt), assuming SG&A control and improvements in existing stores. Net Income is projected to decline due to the reversal of this period’s tax effect; the guidance is conservative, incorporating normalization of the effective tax rate. Progress ratios: current period Revenue ¥450.8B is 95.3% of the full-year forecast ¥473.0B, while Operating Income ¥14.2B is 64.5% of the full-year forecast ¥22.0B, indicating substantial room for operating profit improvement. Achieving the forecasted Operating Income increase of ¥7.8B will require SG&A ratio improvement of more than 1.6pt, necessitating personnel productivity gains and store operation efficiency. Dividend guidance is annual ¥6 (payout ratio 13.0%), conservative and based on post-tax-benefit profit levels.
This period’s dividend was interim ¥6 and year-end ¥7, totaling ¥13 (prior year total ¥5, +¥8), with a Payout Ratio of 19.6% (prior year 13.4%). With Net Income ¥16.3B and total dividends ¥3.4B, 37.3% of FCF ¥9.1B was allocated to dividends, and FCF coverage of dividends was 2.68x, indicating ample headroom. No share buybacks were conducted (Financing CF -¥0.0B), so shareholder returns were via dividends only. Total Return Ratio is equal to the payout ratio at 19.6%, remaining conservative. Next fiscal year dividend guidance is annual ¥6 (Payout Ratio 13.0%), a cut from this period’s ¥13, reflecting post-tax-benefit profit levels (EPS 46.31 yen) and a policy of stable dividends. With cash ¥23.8B, positive FCF, and Debt/EBITDA 1.70x, financial flexibility is present and dividend sustainability is high, but dividend increases will require sustained Operating Income improvement.
[Concentration Risk in Core Business] The Nagasaki Champon Business accounts for 81.8% of Revenue and about 80% of Operating Income, creating high concentration risk; declines in customer traffic or intensified competition in this business would directly impact overall results. Tonkatsu Business margin is languishing at 1.8%, and the company has limited portfolio diversification. [Rising Fixed Costs Risk] Personnel Expenses ¥116.6B (25.9% of Revenue) and Rent ¥43.5B (9.7% of Revenue) show a high proportion of fixed/semi-fixed costs; at an SG&A ratio of 62.6%, even modest sales slowdowns can significantly compress Operating Income. Continued minimum wage increases or rent revisions could outpace price pass-through and cause sustained margin deterioration. [Liquidity Risk] Current ratio 86.7% is below 100%, with Current Assets ¥61.5B versus Current Liabilities ¥71.0B, indicating a short-term maturity mismatch. Cash ¥23.8B versus short-term borrowings ¥2.0B is favorable, but negative working capital of -¥9.5B and trends of increasing receivables/inventory could constrain short-term payment capacity. Asset retirement obligations ¥18.9B (11.9% of liabilities) also warrant attention as future cash outflows.
[Industry Position] (Reference info, company analysis) Compared to the FY2025 industry median for Eating Out / Casual Dining (Retail), the Operating Margin 3.1% is 1.5pt below the industry median 4.6%, placing the company in the lower end on profitability. Net Margin 3.6% is roughly in line with the industry median 3.3%, but this period’s outcome is driven largely by tax effects and operating profitability is below industry average. ROE 11.3% is 5.4pt above the industry median 5.9%, but this reflects financial leverage 2.04x (industry median 1.88x) and temporary net margin uplift; operating capital efficiency is around industry level. Equity Ratio 48.9% is close to industry median 50.2%. Payout Ratio 19.6% is 7.4pt below industry median 27%, signaling conservative shareholder returns. Revenue growth +2.9% trails the industry median +4.3%, indicating below-average top-line growth. Current Ratio 86.7% is far below industry median 184%, placing the company low in short-term liquidity within the industry. Net Debt/EBITDA 1.15x is positive versus industry median -0.59x (net cash), so leverage is somewhat higher than the industry average. Overall, heavy fixed-cost structure and thin margins are relative weaknesses; SG&A efficiency and liquidity management are key improvement areas.
[Potential for Operating Margin Improvement] Management plans a 1.6pt improvement from this period’s 3.1% to next period’s guidance of 4.7%, with SG&A reduction key. Reducing Personnel Expenses/Revenue ratio of 25.9% will require labor productivity improvements and optimized shift scheduling at stores, alongside concurrent improvements in customer traffic and average spend at existing stores. If achieved, operating profitability could approach industry averages, improving ROIC and serving as a catalyst for re-rating. [Dividend Sustainability & Upside] Payout Ratio 19.6% is conservative, with FCF coverage 2.68x and Debt/EBITDA 1.70x supporting continuity of stable dividends. Although a dividend cut is guided for next fiscal year, it assumes normalized tax rates; confirmation of an operating profit improvement trend could open scope for dividend increases. [Phase-out of Non-recurring Factors] This period’s surge in Net Income was driven by tax effect (effective tax rate -16.9%) and foreign exchange gains ¥1.6B, which are not sustainable. Next year’s guidance expects EPS to decline from 66.67 yen to 46.31 yen, reflecting the reversal; earnings quality depends on the extent of operating-level improvement. Monitoring earnings after tax-rate normalization is necessary.
This report is an AI-generated earnings analysis document created by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on publicly disclosed financial statements. Investment decisions are your responsibility; please consult professionals as necessary before making investment decisions.