FRIENDLY CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.12B
• Operating Income: ¥-7M
• Net Income: ¥-9M
• EPS: ¥-10.36

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 operationally, with a small operating loss despite 8.1% revenue growth and continued balance sheet stress (negative equity and very low liquidity). Revenue rose to 11.21, but gross profit of 7.97 could not cover SG&A of 8.19, resulting in operating income of -0.07. Ordinary income was nearly breakeven at -0.01 thanks to 0.21 in non-operating income offset by 0.15 in non-operating expenses, but profit before tax fell to -0.21 and net income to -0.09 (EPS -10.36 yen). Gross margin printed at a high 71.1%, but the operating margin was -0.6% and net margin -0.8%, underscoring insufficient operating leverage. We lack prior-year margin data to quantify basis-point changes; however, the current margin profile suggests revenue growth was not enough to offset fixed cost pressure. EBITDA was essentially zero, indicating limited cash earnings capacity at current scale. Cash flow from operations was -0.32 versus net income of -0.09, implying cash burn was larger than the accounting loss; the OCF/NI ratio (3.56x) is mechanically high due to both figures being negative and does not denote healthy quality. Liquidity is a critical concern: current assets of 1.16 versus current liabilities of 3.87 produce a current ratio of 0.30 and working capital of -2.71. Cash and deposits of 0.69 are well below short-term loans of 1.10, highlighting near-term refinancing risk. The balance sheet shows negative equity of -0.49 as liabilities (10.07) exceed assets (9.83), signaling thin solvency buffers. Interest coverage is poor at -6.29x given an operating loss against interest expense of 0.01. The DuPont-based ROE of 18.4% is not economically meaningful due to negative equity; underlying profitability (net margin -0.8%) and asset turnover (1.14x) are the true drivers and remain weak. Forward-looking, the company must either drive further revenue growth with better mix/pricing or execute SG&A reductions to restore positive operating margin and generate positive OCF. Absent improvement, reliance on financing cash flows (0.70 this quarter) may persist, which is not a sustainable long-term capital structure solution. Given numerous unreported detail lines (SG&A breakdown, capex, dividends), our assessment focuses on the directionally clear signals: operational breakeven at best, strained liquidity, and fragile equity.

Profitability Analysis

ROE decomposition (noting negative equity distorts ROE): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-0.8%) × 1.140 × (-20.06x) ≈ +18.4%. The largest driver numerically is the negative financial leverage (assets/equity) stemming from negative equity, which artificially inflates ROE and renders it not decision-useful. Business-wise, the true profitability picture is a -0.8% net margin, with gross margin at 71.1% but SG&A of 8.19 exceeding gross profit by 0.22, pushing operating margin to -0.6%. Asset turnover of 1.14x indicates modest efficiency for a restaurant/retail format, but not enough to overcome fixed costs. This negative-margin outcome likely reflects wage, utility, and rent inflation with insufficient price/mix improvement and scale to absorb fixed costs. Sustainability: current margin profile is not sustainable without cost actions or higher same-store sales; any near-breakeven ordinary income benefited from non-operating items and is not a stable earnings base. Concerning trends: SG&A grew faster than gross profit this quarter (GP 7.97 vs SG&A 8.19), indicating adverse operating leverage; given we only have the current quarter, we cannot confirm YoY SG&A growth vs revenue, but the absolute relationship is unfavorable.

Growth Assessment

Top-line grew 8.1% YoY to 11.21, indicating some demand recovery or store network effects. However, growth did not translate to profit: operating income was -0.07 and net income -0.09. Given the high gross margin (71.1%), the issue lies in overhead absorption, suggesting scale/traffic still below the level needed to cover fixed costs. Non-operating income of 0.21 cushioned ordinary loss, but such items are less controllable and may not recur. Without SG&A breakdown, we cannot isolate labor vs rent vs advertising drivers; still, the magnitude (SG&A > gross profit) implies the need for cost restructuring or further price/mix improvements. Outlook hinges on same-store sales trajectory, menu pricing, and cost relief; a small swing to positive operating margin could leverage through quickly, but the liquidity position may constrain investment to drive growth. Near term, we expect continued emphasis on cash preservation and possibly selective store optimization. Absent evidence of structural cost reductions, profit growth sustainability is low.

Financial Health

Liquidity is weak: current ratio 0.30 and quick ratio 0.30 (both <1.0) warrant explicit warning. Working capital is -2.71 with current assets 1.16 vs current liabilities 3.87, indicating dependence on short-term funding and supplier credit. Cash and deposits of 0.69 are below short-term loans of 1.10, implying maturity mismatch risk and a need to refinance or generate cash quickly. Solvency is fragile: total equity is negative at -0.49 as liabilities (10.07) exceed assets (9.83). The reported D/E ratio is not meaningful due to negative equity; nonetheless, leverage is effectively high. Interest coverage is poor at -6.29x, reflecting operating losses against interest expense (0.01). Noncurrent liabilities of 6.21 are sizable relative to total assets, but long-term loan details are unreported, limiting detailed maturity analysis. No off-balance sheet obligations are disclosed in the dataset; however, restaurant leases (often significant) may exist but are unreported here under JGAAP presentation.

Cash Flow Quality

OCF was -0.32 versus net income of -0.09, so cash burn exceeded accounting loss by 0.23. The OCF/NI ratio of 3.56x is not indicative of high quality because both are negative; we focus on direction and magnitude instead. With investing CF unreported, we cannot derive FCF, but financing CF of +0.70 funded the OCF deficit and likely increased dependence on lenders. With EBITDA approximately zero and depreciation at 0.07, internal cash generation is minimal, raising concerns about the ability to fund maintenance capex (unreported) without external financing. Working capital movements are not disclosed, but the combination of negative OCF and negative working capital suggests potential pressure from payables timing and short-term borrowings. There are no obvious signs of aggressive working capital management from the limited data, yet the low liquidity heightens the risk of timing-driven volatility in cash flows.

Dividend Sustainability

Dividend data are unreported; given negative equity (-0.49), negative OCF (-0.32), and net loss (-0.09), room for dividends appears highly constrained. Payout ratios and FCF coverage are not calculable without dividends and capex disclosures. Policy-wise, under JGAAP and with current financial stress, maintaining or initiating cash dividends would be difficult without external funding or a swift turnaround to positive OCF. We will treat dividends as unlikely until profitability and liquidity improve.

Risk Assessment

Business Risks:

• Cost inflation (labor, utilities, ingredients, rent) pressuring SG&A and operating margin
• Demand volatility and traffic sensitivity for dining/retail formats
• Operational leverage risk: small sales shortfalls drive disproportional profit swings

Financial Risks:

• Very low liquidity: current ratio 0.30 and working capital -2.71
• Negative equity (-0.49) indicating thin solvency buffer
• Refinancing risk: cash (0.69) below short-term loans (1.10)
• Interest coverage negative (-6.29x), limiting debt capacity
• Dependence on financing CF (+0.70) to cover operating cash burn

Key Concerns:

• Sustained operating losses despite revenue growth
• Limited transparency (unreported SG&A breakdown, capex, dividend data)
• Potential lease obligations not captured in the provided balance sheet (common in restaurants)
• Tax expense despite pre-tax loss, implying recurring non-deductible taxes

Investment Implications

Key Takeaways:

• Revenue growth (+8.1% YoY) did not translate to profit; operating margin -0.6%
• SG&A (8.19) exceeded gross profit (7.97), indicating poor overhead absorption
• OCF (-0.32) weaker than net income (-0.09); financing cash inflow (+0.70) bridged the gap
• Liquidity and solvency are stressed: current ratio 0.30, negative equity -0.49
• Near-term performance hinges on cost control and same-store sales/pricing execution

Metrics to Watch:

• Same-store sales growth and average ticket (price/mix) to assess operating leverage
• Operating margin and SG&A-to-sales ratio for cost discipline
• OCF trend and cash balance versus short-term loans for liquidity runway
• Working capital movements (payables, accruals) for cash timing risk
• Any disclosure on lease liabilities and capex to gauge obligations and maintenance needs

Relative Positioning: Within the restaurant/retail peer set, the company is currently subscale on profitability with negative operating margin and weaker liquidity than typical peers (healthy current ratio >1.0). The high gross margin suggests brand/menu pricing has some strength, but fixed cost intensity and negative equity place it at a disadvantage versus better-capitalized operators.

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