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

Friendly Co., Ltd. (82090) reported FY2026 Q2 standalone results under JGAAP with revenue of ¥1,121.0 million, up 8.1% year on year, signaling a modest demand recovery. Despite the topline growth, operating income remained a small loss at ¥-7.0 million, indicating that incremental sales did not translate into operating leverage this period. Ordinary income was near break-even at ¥-1.0 million, with interest expense of ¥1.1 million modest but meaningful given the narrow margin structure. Net income was ¥-9.0 million, with an EPS of -10.36 (share count data not disclosed), reflecting continued bottom-line pressure. Gross profit was reported at ¥796.7 million, producing a high gross margin of 71.1%, which suggests either a revenue mix with substantial service/other income or that cost-of-sales classification under JGAAP is narrow relative to total operating costs. EBITDA was essentially flat at approximately ¥0.02 million, underscoring minimal cash earnings before non-cash charges. On the balance sheet, total assets were ¥983.0 million while total liabilities were ¥1,007.3 million, resulting in negative equity of ¥-49.0 million and an equity ratio shown as 0.0%. Liquidity is tight with current assets at ¥116.1 million versus current liabilities of ¥386.6 million, yielding a current ratio of 30% and working capital of ¥-270.6 million. Operating cash flow was negative at ¥-32.0 million, while financing inflows of ¥70.0 million helped bridge the funding gap; investing cash flow was not disclosed (reported as zero). The DuPont framework shows a net margin of -0.80%, asset turnover of 1.14x, and a large negative financial leverage factor, producing a mathematically positive ROE of 18.37%; however, this is not economically meaningful due to negative equity. Interest coverage was -6.3x, reflecting insufficient operating profit to service interest from internal generation. Dividend payments were nil, which is appropriate given losses and balance sheet constraints. Overall, the company is exhibiting revenue growth but remains sub-scale with fragile profitability, negative equity, and dependency on external financing. Cash conversion is weak as OCF is more negative than net income, pointing to working capital outflows or cash restructuring items. Data gaps (e.g., cash balance, investing flows, inventories, share count) limit depth of analysis, but available figures suggest that restoring sustained operating profit and rebuilding equity should be near-term priorities.

Profitability Analysis

ROE decomposition (DuPont): net profit margin at -0.80%, asset turnover at 1.14x, and a negative equity base implies a mechanically positive ROE of 18.37% that is not decision-useful. Operating profitability remains fragile: operating income of ¥-7.0 million on ¥1,121.0 million revenue implies an operating margin of approximately -0.6%. The reported gross margin of 71.1% is high for typical food-service cost structures, suggesting that cost of sales may exclude a large share of store operating costs (e.g., labor and occupancy) which are captured in SG&A, compressing operating margin. EBITDA is essentially zero (¥0.02 million), indicating minimal buffer for interest, taxes, and capex. Ordinary income at ¥-1.0 million demonstrates limited non-operating offsets. Interest expense of ¥1.1 million is small in absolute terms but meaningful against negative EBIT, driving interest coverage to -6.3x. Operating leverage did not manifest in the quarter despite 8.1% revenue growth; fixed cost absorption appears insufficient, implying elevated SG&A intensity or inflationary pressure in labor and utilities. The tax line shows ¥7.4 million despite a loss, which may reflect non-deductible items or fixed statutory taxes; the effective tax rate metric is shown as 0.0%, and should be interpreted cautiously. Overall margin quality is weak at the operating level, and profitability remains highly sensitive to same-store sales and cost containment.

Growth Assessment

Revenue grew 8.1% YoY to ¥1,121.0 million, indicating healthier traffic or pricing initiatives. Gross profit growth outpaced cost of sales, but the benefit did not translate into operating profit due to high SG&A. Ordinary and net income remained slightly negative, indicating that the growth is not yet yielding scalable earnings. With asset turnover at 1.14x, the company demonstrates reasonable utilization of its asset base for a mid-sized operator, but negative equity undermines balance sheet resilience for growth investment. The quality of growth is mixed: topline is clearly improving, but cash flow from operations is negative, which raises questions on sustainability without continued financing support. Near-term outlook hinges on controlling store operating costs (labor, utilities, rent) and maintaining price/traffic balance to convert gross margin into operating income. If sales trends persist, the breakeven threshold could be within reach, but evidence this quarter is inconclusive given the flat operating loss. Absence of disclosed capex makes it difficult to assess reinvestment cadence or refurbishment cycles, which are important for sustaining comps and brand health. Overall, growth is present but profit conversion is lagging; operational execution will determine momentum.

Financial Health

Liquidity is strained: current assets of ¥116.1 million against current liabilities of ¥386.6 million produce a current ratio of 30% and quick ratio of 30%, indicating limited short-term coverage. Working capital stands at ¥-270.6 million, implying reliance on supplier credit and short-term funding. Total liabilities of ¥1,007.3 million exceed total assets of ¥983.0 million, yielding negative equity of ¥-49.0 million. The displayed equity ratio of 0.0% reflects the negative capital position. Debt-to-equity is shown as -20.56x, which is not economically interpretable due to the negative denominator, but it emphasizes high balance sheet risk. Interest expense of ¥1.1 million is manageable in size, but with negative EBIT the capacity to service interest organically is inadequate. Financing cash inflows of ¥70.0 million in the period indicate dependence on external funding to cover operating cash burn. Solvency risk is elevated until profitability is restored and equity is rebuilt via retained earnings or capital measures.

Cash Flow Quality

Earnings quality is weak: operating cash flow of ¥-32.0 million is significantly below net income of ¥-9.0 million, yielding an OCF/NI ratio of 3.56 driven by both negative numerator and denominator; practically, this signals cash burn exceeding accounting losses. Depreciation and amortization of ¥7.0 million is modest, consistent with a largely service-driven asset base, but low EBITDA suggests limited cash earnings before non-cash charges. Free cash flow is shown as zero due to undisclosed investing cash flows; given OCF is negative and investing CF is unreported, true FCF is likely negative but cannot be precisely quantified. Working capital appears to be a drag, inferred from the OCF shortfall versus net income; however, detailed components (inventories, receivables, payables) are not disclosed. Financing inflows (¥70.0 million) are currently bridging the cash deficit, indicating external funding is essential. Absent improvement in operating cash generation, liquidity pressure will intensify.

Dividend Sustainability

Annual DPS is ¥0.00 with a payout ratio of 0.0%, appropriate given negative earnings and negative equity. Free cash flow coverage is displayed as 0.00x, but with FCF not disclosed and OCF negative, internal funding for dividends is not present. Policy-wise, priority should remain on restoring profitability, stabilizing cash flows, and rebuilding equity rather than distributions. Any consideration of dividends would require sustained positive operating income, positive OCF, and a credible path to positive equity.

Risk Assessment

Business Risks:

• Thin operating margins and high SG&A intensity limit shock absorption.
• Cost inflation in labor, food inputs, and utilities can erode margins.
• Traffic volatility and sensitivity to consumer spending in the food-service sector.
• Execution risk in pricing and menu mix necessary to maintain gross margins.
• Brand and store-level performance risks (same-store sales and service quality).

Financial Risks:

• Negative equity (¥-49.0 million) and low equity ratio (displayed 0.0%) increase solvency risk.
• Weak liquidity (current ratio 30%, quick ratio 30%) and negative working capital of ¥-270.6 million.
• Negative operating cash flow (¥-32.0 million) necessitating reliance on financing inflows.
• Negative interest coverage (-6.3x) indicates inability to service interest from operations.
• Potential refinancing risk if access to credit tightens.

Key Concerns:

• Sustained operating losses despite 8.1% revenue growth suggest limited operating leverage.
• Dependence on external financing to fund operations.
• Limited disclosure on investing cash flows and cash balance hampers visibility on runway.
• Mathematically positive ROE is not meaningful due to negative equity, complicating return assessments.

Investment Implications

Key Takeaways:

• Topline recovery (8.1% YoY) has not translated into operating profitability (operating income ¥-7.0 million).
• Balance sheet is over-levered with negative equity and limited liquidity (current ratio 30%).
• Operating cash burn (¥-32.0 million) exceeds accounting loss, heightening funding needs.
• Interest burden is small but coverage is negative given EBIT below zero.
• Dividend capacity is absent; cash should be conserved for operations and stabilization.

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio.
• Same-store sales growth and average check/traffic (not disclosed here).
• Operating cash flow trajectory and working capital movements.
• Access to financing and changes in short-term borrowings.
• Equity rebuilding (retained earnings trend) and interest coverage improvement.

Relative Positioning: Relative to domestic restaurant peers, Friendly appears smaller-scale with thinner operating buffers, negative equity, weaker liquidity, and high sensitivity to cost inflation; near-term positioning is defensive and dependent on external funding until consistent operating profits are achieved.

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