Japan Foods Holding Ltd’s Latest Earnings

Japan Foods Holding Ltd  (SGX: 5OI) reported its fiscal third-quarter earnings report for the financial year ending 31 March 2016 (FY2016) last Friday. The reporting period was for 1 October 2015 to 31 December 2015.

As a purveyor of Japanese cuisine, Japan Foods serves up affordable Japanese fare like ramen (through its Ajisen and Menya Musashi outlets) and gyoza (through its Osaka Ohsho outlets). All told, Japan Foods currently has a portfolio of 12 food & beverage brands.

You can read more about the company in here and here. You can also catch the results from its previous quarter here.

Financial highlights

The following’s a rundown on the latest financial figures from Japan Foods:

  1. Japan Foods’ fiscal third-quarter revenue fell by 7.5% year-on-year to $15.4 million.
  2. Subsequently, net profit for the period fell by 38.3% to $0.9 million.
  3. This brought earnings per share (EPS) down by 38.8% from 0.85 cents in the third-quarter of FY2015 to 0.52 cents in the reporting quarter.
  4. Cash flow from operations came in at $782,000 while capital expenditure was $851,000. This puts Japan Foods in negative free cash flow territory to the tune of $69,000 for the reporting quarter. It’s a step backward from a year ago when cash flow from operations was $1.67 million and capex was just $1.07 million.
  5. As of 31 December 2015, Japan Foods had $16.3 million in cash and equivalents with no debt. This is a slight improvement from the end of March 2015 when there was S$15.9 million in cash and no debt.

Both revenue and net profit had fallen, in addition to free cash flow becoming negative. On the other hand, Japan Foods still maintains a clean balance sheet. This cash war chest may be important for the company in its attempt to reinvigorate its top-line growth.

Operational highlights

Japan Foods has undergone much change in 2015. Since the end of 2014, it has closed two Ajisen Ramen outletstwo Menya Musashi outlets, and one outlet each for Fruit Paradise and Osaka Ohsho. In their places are three new concepts – namely, Hanamidori, Keika Ramen, and New ManLee. The latter is a bak kut teh shop, which represents a departure from the company’s typical Japanese-themed food & beverage outlets.

Takahashi Kenichi, Japan Foods’ executive chairman and chief executive, had made the following comment on the reporting quarter’s performance in the earnings release:

“The third quarter is usually a strong period for us because of school holidays and the festive season. The decline in our earnings during this quarter was a reflection of consumers tightening their belts amidst fears of a downturn. In response, we have also become more vigilant in monitoring market trends and keeping costs in check.”

Additionally, comments on Japan Foods’ near-term outlook were, “operating environment in the local food and beverage industry is expected to remain challenging in the next 12 months due to intense competition, tight labour supply, rising business costs and uncertain economic outlook.”

To help stave off the challenges, Japan Foods will continue working on the control of its raw material costs and improving its operational efficiency. The company added that its New ManLee bak kut teh store has “received very encouraging response” and it will be looking to expand the concept if opportunities arise.

Japan Foods ended 2015 with an overseas network of 22 restaurants (via sub-franchisees and associated companies). The company expects its associated companies to grow the Menya Musashi network in Hong Kong and China “when opportunity arises.” Japan Foods’ associated companies currently run 10 Menya Musashi stores in Hong Kong and five in China.

Foolish summary

At its closing price of $0.39 last Friday, Japan Foods traded at 13 times trailing earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.