TEN ALLIED Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.01B
• Operating Income: ¥-26M
• Net Income: ¥-67M
• EPS: ¥-1.69

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Verdict: FY2026 Q2 was weak with a small operating loss and negative bottom line despite modest topline growth, with earnings quality and interest coverage flashing caution. Revenue rose 2.6% YoY to 60.08, but operating income was -0.26 and net income was -0.67, resulting in a net margin of -1.1%. Gross profit of 42.40 implies a high gross margin of 70.6%, but SG&A of 42.67 (about 71.0% of sales) fully absorbed gross profit, driving the operating loss. Non-operating items netted near zero (+0.02), leaving ordinary income at -0.24. Cash and deposits were 30.61 against current liabilities of 27.93, lending near-term liquidity comfort. However, operating cash flow was negative at -0.09 and OCF/NI was 0.14x, indicating poor cash conversion. EBITDA was positive at 1.20, but below depreciation (1.46), reinforcing that earnings power remains sub-scale for the current cost structure. Interest coverage was -1.54x (EBIT/interest), underscoring pressure from financing costs versus operating earnings. The balance sheet shows total assets of 73.41 and equity of 30.55 (D/E 1.40x), with short-term loans of 12.08 dominating interest-bearing debt. Retained earnings remain deeply negative at -86.39, limiting distribution capacity and reducing financial flexibility. Effective tax rate appears distorted (-139.1%) due to tax expense despite a pretax loss, likely from non-deductible items or prior-period adjustments. ROE calculated at -2.2% on DuPont shows weak profitability as the main drag, with asset turnover of 0.818 and leverage of 2.40x providing insufficient lift. A proxy FCF (OCF - capex) of about -0.71 indicates no capacity for shareholder returns without balance sheet draw. Margin direction YoY cannot be determined due to missing prior-period margin data, but the current operating margin is -0.4%. Forward-looking, cost discipline (labor and occupancy) and traffic recovery are pivotal; without SG&A reduction or stronger same-store sales, breakeven remains tenuous. Overall, the quarter signals stabilization in sales but insufficient operating leverage, with liquidity adequate but earnings quality and interest servicing metrics requiring close monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-1.1%) × 0.818 × 2.40 ≈ -2.2%. The largest adverse driver is the net profit margin, given operating margin of -0.4% and net margin of -1.1% despite a robust gross margin of 70.6%. Asset turnover at 0.818 is modest and not sufficient to offset weak margins, and leverage at 2.40x provides only limited amplification. Business reason: SG&A of 42.67 (≈71.0% of sales) consumed the entire gross profit (42.40), reflecting cost inflation (labor, utilities, rents) and possibly insufficient scale/utilization, leading to negative operating income. Non-operating results were roughly neutral, so the operating shortfall flows through to net loss; the tax expense in a loss period further depressed net margin. Sustainability: Absent structural SG&A reductions or improved sales mix and utilization, the current margin profile is not sustainable for equity returns; however, EBITDA positivity suggests breakeven is within reach if fixed costs are trimmed or sales lift. Concerning trends: SG&A relative to revenue is elevated; while revenue grew 2.6% YoY, we lack SG&A YoY to confirm, but the absolute ratio indicates operating deleverage. Interest expense (0.17) is meaningful relative to EBIT, driving negative interest coverage. Effective tax behavior is irregular, implying potential non-recurring tax items that may not persist but add volatility.

Growth Assessment

Revenue grew 2.6% YoY to 60.08, signaling modest demand improvement or price/mix support. Gross margin at 70.6% appears healthy for a food service model leaning on beverage/food markup and franchise/other income, but cost structure above gross profit prevented operating leverage. Operating margin of -0.4% and EBITDA margin of 2.0% indicate insufficient scale to absorb fixed costs. Profit quality is weak: non-operating contributions (0.22 income vs 0.20 expense) did not offset operating loss, and tax expense despite losses worsened net results. Outlook hinges on same-store sales growth, menu pricing resilience vs guest traffic, and labor/energy/rent control; even modest sales growth could swing to operating profit given proximity to breakeven. Near-term, the company needs either mid-single-digit sales growth or SG&A reductions of roughly 0.5–1.0 points of sales to restore positive operating margin. No guidance was provided in the data; thus, we assume cautious growth with execution risk on cost containment.

Financial Health

Liquidity: Current ratio 134.9% and quick ratio 128.5% indicate acceptable short-term liquidity; no explicit warning as current ratio is above 1.0. Cash and deposits of 30.61 exceed current liabilities of 27.93, providing a liquidity buffer. Solvency: Debt-to-equity is 1.40x, within typical comfort (<1.5x) but elevated for a loss-making profile; no explicit D/E > 2.0 warning. Interest-bearing debt detail shows short-term loans of 12.08 and long-term loans of 0.72, implying reliance on short-term funding. Maturity mismatch risk is moderate: cash plus receivables (33.55) comfortably exceed short-term loans (12.08) and accounts payable (2.65), but sustained losses could erode this buffer. Equity is 30.55 with large capital surplus (112.04) offset by retained losses (-86.39), which constrains distributable resources. No off-balance sheet obligations were disclosed; however, as a restaurant operator, lease liabilities/commitments likely exist but are unreported here, posing potential hidden fixed-cost rigidity.

Cash Flow Quality

OCF was -0.09 versus net income -0.67, yielding OCF/NI of 0.14x, a clear earnings quality concern (threshold <0.8). EBITDA of 1.20 and D&A of 1.46 reconcile to operating loss, suggesting non-cash adds were insufficient to convert to positive OCF, likely due to working capital outflows or cash interest/tax. Proxy FCF (OCF - capex) was approximately -0.71, implying no internal coverage for dividends or buybacks. Financing CF was -1.46, while share repurchases of -10.29 were disclosed separately; the classification/timing suggests data limitations or that buybacks are captured outside the financing CF subtotal in this dataset. Working capital manipulation signs are limited; with accounts receivable (2.94) and inventories (1.80) small relative to sales, the main drivers are likely payables timing and other current items not shown. Overall, cash generation is inadequate relative to operating needs and financing costs.

Dividend Sustainability

Dividend data were unreported, and retained earnings are significantly negative (-86.39), indicating limited legal capacity for dividends under typical corporate law constraints. With proxy FCF at approximately -0.71 in the period and interest coverage negative, any distribution would likely be funded by the balance sheet, which is not sustainable. Policy outlook likely prioritizes balance sheet stability and turnaround investment over cash returns. Until operating cash flow turns sustainably positive and accumulated deficits narrow, dividend capacity appears constrained.

Risk Assessment

Business Risks:

• Same-store sales softness or traffic declines could prevent breakeven, given high SG&A-to-sales ratio (~71%).
• Input cost inflation (food, beverages) and wage pressure may squeeze gross-to-operating spread despite a high reported gross margin.
• Occupancy and utilities costs create fixed-cost rigidity, limiting flexibility in downturns.
• Execution risk on cost restructuring and menu/pricing strategy needed to restore operating margin.

Financial Risks:

• Negative interest coverage (-1.54x) indicates vulnerability to rising interest rates or reduced banking support.
• Short-term debt reliance (12.08) increases refinancing and liquidity rollover risk.
• Earnings quality risk with OCF/NI at 0.14x and proxy FCF negative (~-0.71).
• Large accumulated deficit (-86.39) limits financial flexibility and restricts shareholder returns.

Key Concerns:

• Persistent operating losses near breakeven suggest low margin of safety.
• Tax expense despite pretax loss (effective rate -139.1%) introduces volatility and complicates forecasting.
• Potential off-balance sheet lease commitments (not disclosed here) could increase fixed obligations.
• Data gaps in SG&A breakdown and investing cash flows reduce transparency into cost structure and capital allocation.

Investment Implications

Key Takeaways:

• Topline grew 2.6% YoY, but operating margin was -0.4% due to SG&A fully absorbing gross profit.
• Earnings quality is weak: OCF/NI 0.14x and proxy FCF about -0.71.
• Liquidity is acceptable (cash 30.61 > current liabilities 27.93), but negative interest coverage is a notable red flag.
• Leverage at 1.40x D/E is manageable for now but risky with loss-making operations.
• Capital efficiency is poor (ROE -2.2%, ROIC -2.0%), indicating value creation headwinds.

Metrics to Watch:

• Same-store sales growth and ticket/traffic trend to gauge operating leverage potential.
• SG&A as a percentage of sales, especially labor and occupancy components (not disclosed here).
• Operating margin and EBITDA margin progression toward sustained positive territory.
• OCF and working capital movements; OCF/NI ratio targeting >1.0.
• Interest coverage ratio improvement via EBIT recovery or financing cost reduction.
• Debt mix and tenor (short vs long) to reduce refinancing risk.

Relative Positioning: Within Japan’s casual dining/izakaya peer set, the company shows weaker earnings quality and coverage metrics but holds relatively solid cash liquidity for the size; margin proximity to breakeven suggests higher operating leverage to demand recovery, yet cost rigidity and accumulated deficits place it in the lower tier on profitability and capital efficiency.

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
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis