■Financial Trends of SFP Holdings <3198>

1. Past performance trends

Looking back at the performance before the COVID-19 pandemic (up to the fiscal year ending February 2020), the expansion of the number of stores has been driving the company's growth. In particular, since the full-fledged opening of "Isomaru Suisan" based on its unique revenue model from the fiscal year ending in September 2010, the growth of the business accelerated, and the operating profit margin significantly improved along with the expansion of revenue. The operating profit margin exceeded the target of 8% in the fiscal year ending September 2013, reaching 11.7% by the fiscal year ending in September 2015, and then maintained a high level. In the fiscal year ending in February 2020, with the start of the unique "SFP Food Alliance Concept", both the number of stores and performance expanded. However, from the fiscal year ending in February 2021, due to the impact of the pandemic, revenue significantly declined, leading to efforts to close unprofitable stores. Subsequently, with the recovery of domestic consumption and the capture of inbound demand after the pandemic, current business performance has returned to pre-pandemic levels. Efforts are also being made towards opening stores in regional cities and developing focused business formats for a new growth stage.

On the financial front, with the new listing on the TSE Second Section in December 2014 and the public offering (approximately 12.7 billion yen), the equity ratio at the end of September 2015 increased to 76.8%, and has since remained at a level of about over 70%. In the fiscal year ending February 2021, due to the impact of the pandemic, the company recorded current net losses attributable to the parent company shareholders and implemented borrowing for working capital (approximately 9 billion yen), temporarily lowering the equity ratio. However, by the end of the fiscal year ending February 2022, it recovered to 77.3%, back to pre-pandemic levels. In the fiscal year ending February 2024, the equity ratio decreased to 58.2% due to the acquisition of treasury stock for the purpose of compliance with the listing maintenance criteria (circulating stock ratio), but the return on equity (ROE) significantly improved to 17.1%, and the financial balance can be considered very favorable.

2. Performance for the first half of the fiscal year ending February 2025

The performance for the first half of the fiscal year ending February 2025 saw a 5.3% increase in revenue compared to the same period last year, amounting to 15,037 million yen. Operating profit decreased by 10.1% to 907 million yen, ordinary profit decreased by 7.7% to 1,023 million yen, and quarterly net profit attributable to the parent company shareholders increased by 8.2% to 705 million yen, resulting in an increase in revenue but a decrease in operating profit.

Despite temporary closures at some stores due to the impact of summer typhoons, efforts from the post-COVID period such as extending business hours (late-night hours) and successfully capturing strong inbound demand contributed to securing increased revenue. The same-store sales (average for the first half) increased by 104.8% compared to the previous year, with a particularly increasing trend in sales to visitors from overseas due to the effect of introducing high-priced products. Additionally, the effects of opening stores in regional cities that were worked on since the previous period have been steadily accumulating.

Regarding new store openings and closures, 4 new stores (including 2 franchise stores) were opened and 1 store was opened by changing the business format. On the other hand, 2 stores were closed, resulting in a total of 207 stores (including 18 franchise stores) as of the end of August 2024.

On the profit and loss front, while the increase in dining-using main visitors to Japan was a factor pushing up the cost ratio, the impact of yen depreciation and high prices was limited due to menu revisions, maintaining almost the same cost ratio level as the previous year. However, with regards to selling and administrative expenses, it significantly expanded due to the increase in personnel expenses associated with the expansion of hiring in the previous period, as well as an increase in utility expenses (decline in subsidy effect). In the first quarter, profit increases were secured through absorbing cost increases from increased revenue. However, the second quarter saw a decline in profit due to the impact of typhoons, resulting in a decrease in operating profit for the first half of the year.

There were no major fluctuations in the financial situation, with total assets reaching 13,625 million yen, an increase of 2.4% compared to the end of the previous period. On the other hand, equity increased by 6.0% to 8,210 million yen due to the accumulation of retained earnings, leading to an improved equity ratio of 60.3% (compared to 58.2% at the end of the previous period).

The performance by business segment is as follows:

(1) Toriyoshi Business Division

Revenue increased by 1.5% compared to the same period of the previous year, reaching 2,620 million yen. There were no store openings or closures, and the number of stores as of the end of August 2024 was 35.

(2) Isomaru Business Division

Revenue increased by 5.5% compared to the same period of the previous year, reaching 9,121 million yen. With the opening of 3 new stores and the closure of 1 store, the number of directly managed stores at the end of August 2024 was 99, and franchise stores were 18.

※ In addition to the Isomaru Suisan store in Namba Center Street, new locations for Isomaru Suisan (franchise) in Kanazawa and Isomaru Suisan Shokudo (franchise) in Yokohama World Porters were opened.

(3) qitabankuai sector (including mass tavern business)

Revenue was 2,278 million yen, an increase of 11.6% compared to the same period last year. Due to the opening of one new store and the conversion of one store*, the number of stores at the end of August 2024 reached 31. Among them, the number of stores focused on the mass tavern business ("Go no Go") is 10.

* One new store for "Go no Go" (Tennoji, Osaka) and one store conversion (Yokohama).

(4) Food Alliance Member (consolidated subsidiary)

Revenue was 1,016 million yen, a decrease of 0.4% compared to the same period last year. Due to the closure of one store, the number of stores at the end of August 2024 was 24.

3. Summary of the first half of the fiscal year ending February 2025

Summarizing the first half of the fiscal year ending February 2025, while profits were slightly behind due to 1) increased personnel costs due to expanded hiring and 2) the impact of typhoons in the summer, considering that 1) is a positive expense increase and 2) is a temporary external factor, it is not necessary to view it as a structural negative. On the other hand, it is worth evaluating the steady growth of existing stores along with the extension of operating hours as evidence that the company's business format's advantage remains intact. Furthermore, amidst the continued strong inbound demand, the attractiveness of the "Isomaru Suisan" style attracting foreign visitors and becoming a new revenue driver, as well as the continued success of the expansion into regional cities, including the previous period's new store openings, are all positive factors for the future.

(Written by Fisco Guest Analyst Ikuo Shibata)