OHSHO FOOD SERVICE CORP. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter reported lower revenue and lower earnings, with increased SG&A expenses amid declining revenue being the primary cause of the significant earnings decline. Revenue was ¥28.21B (-4.9% YoY), Operating Income was ¥1.42B (-52.8%), Ordinary Income was ¥1.61B (-48.4%), and Net Income attributable to owners of the parent was ¥0.99B (-53.7%). While Revenue declined, SG&A expenses increased to ¥17.51B (+2.5% YoY), and the SG&A ratio rose to 62.1% (57.6% in the same period last year), which was the primary factor driving the Operating Income margin down to 5.0% (10.1% in the same period last year).

Factors Affecting Performance

【Revenue】Revenue was ¥28.21B, representing a 4.9% YoY decline. As the Company operates a single segment (Chinese Cuisine Business), segment-specific factors behind the change have not been disclosed. However, since Cost of Sales declined less than Revenue, at ¥9.29B (-3.2% YoY), the gross profit margin decreased slightly to 67.1% (67.7% in the same period last year).

【Profit and Loss】As SG&A expenses increased to ¥17.51B (+2.5% YoY) despite the decline in Revenue, the SG&A ratio rose by +450bp to 62.1% (57.6% in the same period last year), while Operating Income declined by 52.8% to ¥1.42B and the Operating Income margin fell by -510bp to 5.0% (10.1% in the same period last year). Ordinary Income of ¥1.61B was supported to a certain extent by Non-operating Income of ¥0.26B, including Dividend Income of ¥0.09B. The decline from Ordinary Income to Net Income was primarily attributable to Income Taxes and Other Taxes of ¥0.59B. The effective tax rate was relatively high at 37.3%, and the tax burden on Profit Before Tax of ¥1.58B further suppressed Net Income growth. Extraordinary Losses consisted solely of Loss on Disposal of Fixed Assets of ¥0.03B, an immaterial amount with limited impact on performance. Accordingly, the first quarter resulted in lower revenue and lower earnings.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.0%, down -510bp from 10.1% in the same period last year, while the Net Income margin also declined to 3.5% (7.2% in the same period last year). The primary causes of the decline in profitability were increased SG&A expenses and a slight deterioration in the gross profit margin.【Cash Quality】Operating Cash Flow (OCF) was ¥1.53B, or 1.55 times Net Income of ¥0.99B, indicating sound earnings backing. However, OCF/EBITDA was only 0.67 times, as payments of Income Taxes and Other Taxes of ¥1.48B and changes in working capital constrained cash conversion.【Investment Efficiency】ROE was 1.5%, with the decline in the Net Income margin directly leading to lower capital efficiency.【Financial Soundness】The Equity Ratio improved slightly to 77.0% (76.5% in the same period last year), while the Current Ratio remained high at 182.9%. Against Cash and Deposits of ¥22.81B, total Interest-bearing Debt was limited to ¥2.50B (Long-term Borrowings of ¥0.50B and Current Portion of Long-term Borrowings of ¥2.00B), maintaining a conservative financial base close to a net debt-free position.

Cash Flow Analysis

Operating Cash Flow was ¥1.53B (-48.8% YoY), or 1.55 times Net Income of ¥0.99B, maintaining cash generation that supports earnings quality. In terms of working capital, the ¥0.70B decrease in trade receivables made a positive contribution, while the ¥0.20B decrease in trade payables and the ¥0.09B increase in inventories had negative effects. Payments of Income Taxes and Other Taxes of ¥1.48B also compressed OCF. Investing Cash Flow was -¥1.28B, including Capital Expenditures of ¥0.84B, which remained approximately in line with Depreciation and Amortization of ¥0.86B, suggesting an allocation focused mainly on replacement investments. Free Cash Flow was positive at ¥0.25B, while Financing Cash Flow was -¥1.97B, primarily due to Dividend Payments of ¥1.47B. In the same period last year, the Company conducted Share Repurchases of ¥14.49B, resulting in Financing Cash Flow of -¥16.57B and a substantial cash outflow. In contrast, no Share Repurchases were conducted in the current first quarter, significantly reducing cash outflows from financing activities.

Earnings Quality

In addition to OCF exceeding Net Income (1.55 times), Extraordinary Gains and Losses in the first quarter consisted solely of Loss on Disposal of Fixed Assets of ¥0.03B, with an immaterial net impact, indicating only a limited temporary divergence from the recurring earnings structure. The ¥0.62B difference between Ordinary Income of ¥1.61B and Net Income of ¥0.99B was primarily attributable to Income Taxes and Other Taxes of ¥0.59B. The effective tax rate of 37.3% represented a relatively heavy burden against Profit Before Tax of ¥1.58B. Non-operating Income of ¥0.26B included Dividend Income of ¥0.09B, meaning that non-operating income supported a certain portion of Ordinary Income. Comprehensive Income was ¥0.58B, below Net Income of ¥0.99B, due in part to mark-to-market fluctuations related to other securities and pensions, including a Valuation Difference on Available-for-Sale Securities of -¥0.30B and Adjustments Related to Retirement Benefits of -¥0.10B.

Earnings Forecasts and Guidance

Progress toward the Full-Year plan in Q1 was 23.2% for Revenue, 13.0% for Operating Income, 14.6% for Ordinary Income, and 13.9% for Net Income, all below the simple progress benchmark of 25%. The delay was particularly pronounced for the profit figures, and achieving the Full-Year plan (Revenue of ¥121.36B, +3.9% YoY, and Operating Income of ¥10.95B, +5.2% YoY) will require improved profitability from Q2 onward. As of the end of the quarter, no revisions had been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Full-Year dividend forecast is ¥56 per share, implying a Payout Ratio of approximately 41.5%, calculated using the Full-Year Net Income forecast of ¥7.096B. Dividend payments during the first quarter amounted to ¥1.47B, a level covered within OCF of ¥1.53B. Although Share Repurchases of ¥14.49B were conducted in the same period last year, no Share Repurchases were conducted in the current first quarter, resulting in a substantial year-on-year reduction in total returns combining dividends and share repurchases.

Risk Factors

1. Profitability risk from a higher SG&A ratio: The SG&A ratio rose by +450bp to 62.1% (57.6% in the same period last year), while the Operating Income margin declined by -510bp to 5.0% (10.1% in the same period last year). The fixed-cost characteristics of expenses have become apparent amid declining revenue, and continued sluggish revenue growth could result in continued earnings pressure.

2. Risk of future cash outflows from asset retirement obligations: Asset Retirement Obligations were ¥2.62B, accounting for 13.6% of Total Liabilities of ¥19.16B. Future cash outflows associated with facility renewals and other activities will occur, requiring monitoring in financial planning.

3. Dependence on non-operating income at the Ordinary Income level: Non-operating Income of ¥0.26B included Dividend Income of ¥0.09B, with non-core income supporting a certain proportion of Ordinary Income of ¥1.61B. As the Operating Income margin of the core business declines, the sustainability of this composition will depend on the recovery of the core business margin.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

In terms of profitability, the Company is above the industry median, although attention should be paid to the declining trend from the previous year.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, with the Company experiencing declining revenue while the industry is on a growth trajectory.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Income margin declined significantly to 5.0% from 10.1% in the same period last year, and Q1 progress toward the Full-Year plan was also below the standard 25%, with Operating Income at 13.0%. The scope for profitability improvement from Q2 onward will be key to achieving the Full-Year plan.

2. OCF was maintained at 1.55 times Net Income, indicating that earnings quality itself remained sound. However, OCF/EBITDA was only 0.67 times, as tax payments and working capital movements slowed cash conversion.

3. The Company maintains a financial base close to a net debt-free position, with an Equity Ratio of 77.0%, a Current Ratio of 182.9%, Interest-bearing Debt of ¥2.50B, and Cash and Deposits of ¥22.81B. Its financial condition leaves room for flexible capital policies such as the ¥14.49B Share Repurchase conducted in the previous year.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,246–¥1,318 at Cost of Equity ±1%, and ¥1,280–¥1,283 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag relative to the Full-Year forecast).
• As Net Assets include Non-controlling Interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific issue. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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