Yoshinoya HD / 9861
COVERAGE INITIATED ON: 2018.11.14 LAST UPDATE: 2020.07.06
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.
Research Coverage Report by Shared Research Inc.
Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.
Executive summary ------3 Key financial data ------5 Recent updates ------7 Highlights ------7 Trends and outlook ------9 Quarterly trends and results ------9 Past initial forecasts versus results ------20 Business ------25 Business description ------25 Group strategy ------40 Group structure ------42 Profitability snapshot ------43 Strengths and weaknesses ------46 Market and value chain------48 Restaurant market trends ------48 Competition ------49 Historical performance and financial statements ------52 Income statement ------52 Balance sheet ------53 Cash flow statement ------55 Historical performance ------56 Other information ------68 History ------68 News and topics ------70 Corporate governance and top management ------72 Dividend policy ------72 Major shareholders ------73 Employees ------73 By the way ------74 Profile ------74
02/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Executive summary
Business overview
◤ Yoshinoya HD operates major restaurant chains in Japan and overseas. Its core business is Yoshinoya, which invented gyudon (beef bowl) and marked its 120th anniversary in 2019. In FY02/19, the company posted sales of JPY202.4bn (placing it fifth among 94 listed restaurant companies in sales) and operating profit of JPY104mn. The company began actively acquiring businesses from around 1995, and has grown to operate a diverse portfolio of restaurants. Main brands include Yoshinoya (gyudon), Hanamaru Udon (udon noodles), Volks (steak)*, Steak-no-Don (steaks)*, Kyotaru (take-out sushi), and Kaisen Misakiko (conveyor belt sushi). As of end February-2020, it had a total of 3,477 restaurants, 2,483 in Japan and 994 overseas. The majority of its restaurants in Japan are directly managed, whereas overseas (mainly Yoshinoya and Hanamaru restaurants) most are operated by franchisees. (*Shares in operator, consolidated subsidiary Arcmeal, sold in February 2020.)
◤ In the Yoshinoya segment, which accounts for 50% of total sales and 70% of operating profit, the company operated 1,214 restaurants in Japan (as of end-February 2020), ranking the chain second among the three companies that dominate the domestic beef bowl market. Annual sales per restaurant were JPY92mn. Over the past five years, Yoshinoya restaurants in Japan have increased by 26 outlets (net) as the company continued to scrap and build its domestic suburban stores. While Yoshinoya is a strong brand, the overall earnings environment for the company is challenging, because gyudon has a large sales weighting and beef prices remain high. Yoshinoya’s segment profit margin (before adjustments) driven by beef prices is generally low (5.3% in FY02/20). Consequently, companywide OPM over the past five years only averaged 1.2%, placing Yoshinoya HD near the bottom of the food-service sector, although profit levels have recovered somewhat from the post-BSE slump.
◤ Growth drivers are the Hanamaru segment (14.3% of total sales in FY02/20) and the Overseas segment (10.2%). The Hanamaru business comprised 522 restaurants around the country (mostly directly operated), making it the second-largest udon chain in Japan. Annual sales per restaurant were JPY59mn. The company targets a total of 800 locations. The Overseas segment mostly involves Yoshinoya (954 locations) and Hanamaru (40) restaurants in the US, China, and the ASEAN region (as of end-FY02/20). The company is also focusing on opening directly operated restaurants abroad and expects the number of overseas restaurants to exceed that of Yoshinoya restaurants in Japan by 2025. In addition, although details have not been disclosed, it also considers Kaisen Misakiko (Kyotaru segment) to be a growth business that is highly profitable. The strategy for Kaisen Misakiko is to continue opening restaurants in urban commercial buildings.
Trends and outlook
◤ In FY02/20, the company reported consolidated sales of JPY216.2bn (+6.8% YoY), operating profit of JPY3.9bn (+3,675.0% YoY), recurring profit of JPY3.4bn (+865.3% YoY), and net income attributable to owners of the parent of JPY713mn (versus a net loss of JPY6.0bn in FY02/19). Sales expanded on the back of enhanced sales in the Hanamaru and Overseas segments as well as aggressive sales campaigns and the ongoing introduction of new products contributing to firm performance in the mainstay Yoshinoya segment. While impacted by higher food prices, including for seafood products, and an increase in personnel expenses on an uptick in hourly wages for part-time workers, operating profit increased thanks to the improvement in sales more than offsetting the increase in costs.
◤ The company refrained from issuing FY02/21 forecast when announcing full-year FY02/20 results on April 14, 2020. As the novel coronavirus disease (COVID-19) continues to spread, sales are being affected by commercial outlets temporarily closing or offering shorter operating hours and consumer sentiment cooling as more and more people stay indoors at home. The company determined that earnings could vary substantially depending on when infections taper off and has accordingly elected to forego disclosing forecasts at the start of FY02/21. That said, the company’s policy is to announce its targets once a reasonable estimate of the impact from the COVID-19 outbreak on earnings can be made.
◤ Yoshinoya HD positioned the three years ending in FY02/19—the first stage of its long-term vision NEW BEGINNINGS 2025—as a period for sowing the seeds of growth, and pressed on with initiatives to restructure its stores. FY02/20 marks the start of the second stage of growth, during which the company will seek to “redefine the restaurant business” by finding unprecedented new ways to create value. To this end, it plans to develop new markets and new customers both in Japan and overseas, and
03/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
introduce measures aimed at countering the impact of Japan’s declining population and aging society on its businesses. The company has temporarily withdrew numerical targets until it can assess the impact of the COVID-19 pandemic, but intends to maintain its strategic direction.
Strengths and weaknesses
◤ Yoshinoya HD’s strengths are its brand power, wealth of knowledge and experience in overseas restaurant operation, and enterprising culture that drives new initiatives.
◤ The company’s weaknesses are selling points of mainstay products also causing constraints, structural risk in procuring main ingredient beef, and a saturated market and insufficient synergies among brands.
04/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Key financial data
Income statement FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 FY02/21 (JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est. Sales 165,883 164,599 173,418 180,032 185,738 188,623 198,503 202,385 216,201 - YoY -3.2%-0.8%5.4%3.8%3.2%1.6%5.2%2.0%6.8% Gross profit 109,358 105,613 108,758 112,491 114,830 120,237 128,912 129,581 139,949 - YoY -1.6%-3.4%3.0%3.4%2.1%4.7%7.2%0.5%8.0%- Gross profit margin 65.9% 64.2% 62.7% 62.5% 61.8% 63.7% 64.9% 64.0% 64.7%- Operating profit 4,801 1,877 2,179 3,515 1,613 1,865 4,019 104 3,926 - YoY -6.2% -60.9% 16.1% 61.3% -54.1% 15.6% 115.5% -97.4% 3675.0% Operating profit margin 2.9%1.1%1.3%2.0%0.9%1.0%2.0%0.1%1.8% Recurring profit 5,311 2,460 3,270 3,993 2,345 2,750 4,604 349 3,369 - YoY -3.6% -53.7% 32.9% 22.1% -41.3% 17.3% 67.4% -92.4% 865.3% Recurring profit margin 3.2% 1.5% 1.9% 2.2% 1.3% 1.5% 2.3% 0.2% 1.6% Net income 1,310 -364 698 941 837 1,248 1,491 -6,000 713 - YoY 242.9% - -291.8% 34.8% -11.1% 49.1% 19.5% - - - Net margin 0.8% - 0.4% 0.5% 0.5% 0.7% 0.8% - 0.3% Per share data (JPY) Shares issued (year-end; '000) 662 662 66,241 63,941 65,130 65,130 65,130 65,130 65,130 - EPS 25.8 -7.1 13.6 16.2 13.1 19.4 23.1 -92.9 11.0 - EPS (fully diluted) ------Dividend per share 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 Book value per share 858.4 831.1 831.8 921.0 891.0 879.5 887.1 765.7 739.8 - Balance sheet (JPYmn) Cash and cash equivalents 17,299 14,244 18,174 27,087 21,287 25,474 21,913 16,971 22,604 - Total current assets 26,805 24,242 30,079 39,503 36,984 38,600 37,124 33,424 41,303 - Tangible fixed assets 38,851 38,737 38,236 39,857 44,521 45,178 46,611 46,234 51,595 - Investments and other assets 25,693 24,282 23,710 26,200 26,717 27,292 27,775 28,870 28,034 - Intangible fixed assets 3,020 4,076 3,497 3,096 3,067 3,875 4,102 4,155 5,233 - Total assets 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 126,167 - Accounts payable 3,865 4,116 4,776 6,753 5,741 5,053 5,985 5,607 6,313 - Short-term debt 20,158 17,665 22,918 10,416 13,752 14,493 13,307 11,118 12,058 - Total current liabilities 34,032 31,115 38,673 31,533 31,563 32,530 33,681 31,255 37,963 - Long-term debt 9,036 11,375 8,571 13,824 17,577 20,807 19,754 27,057 35,373 - Total fixed liabilities 14,754 16,832 13,438 18,186 21,994 25,207 24,124 31,404 39,818 - Total liabilities 48,787 47,948 52,112 49,719 53,558 57,737 57,805 62,659 77,782 - Net assets 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 126,167 - Total interest-bearing debt 29,194 29,040 31,489 24,240 31,329 35,300 33,061 38,175 47,431 - Cash flow statement (JPYmn) Cash flows from operating activities 8,109 6,212 7,570 11,833 433 10,104 9,374 2,830 14,038 - Cash flows from investing activities -3,218 -6,937 -4,258 -9,201 -12,365 -6,526 -8,379 -9,034 -8,453 - Cash flows from financing activities -3,199 -2,473 481 5,595 3,843 1,085 -4,200 2,461 288 - Financial ratios ROA (RP-based) 5.5% 2.6% 3.5% 3.9% 2.1% 2.4% 4.0% 0.3% 2.8% - ROE 3.0% -0.8% 1.6% 1.9% 1.4% 2.2% 2.6% -11.2% 1.5% - Equity ratio 46.7% 46.8% 44.8% 53.7% 51.7% 49.4% 49.5% 43.9% 37.9% - Source: Shared Research based on company data. Per-share data adjusted for stock split. Note: Figures may differ from company materials due to differences in rounding methods.
05/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Breakdown of store data by segment Comparable-store sales YoY FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Yoshinoya -6.8% -4.9% -2.3% 7.3% 1.2% 0.8% 0.1% 1.4% 0.8% 6.7% Hanamaru -5.6% -7.3% -0.7% 0.2% 0.0% 1.5% -1.3% 2.9% -1.8% 1.5% Arcmeal -6.5% -6.7% 1.2% 6.0% 6.7% 1.8% -6.1% -1.2% -8.7% 3.9% Kyotaru -4.6% -4.3% 1.3% -0.7% 1.3% 0.8% 0.1% -0.4% 0.3% 0.5% Store count FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Yoshinoya 1,154 1,189 1,193 1,191 1,190 1,188 1,207 1,204 1,211 1,214 Openings 41 36 26 27 31 37 36 28 33 29 Closures 72 21 22 29 32 30 17 31 26 25 Hanamaru 308 312 327 341 371 390 432 479 512 522 Openings 34 27 28 30 29 44 52 59 48 30 Closures 8 8 13 16 14 13 10 10 15 20 Arcmeal 170 172 172 175 179 186 184 178 171 154 Openings 0355650010 Closures 251522326716 Kyotaru 360 350 330 328 329 315 329 330 333 335 Openings 9221921141225192117 Closures 15 32 39 23 13 26 11 18 18 15 Overseas 439 490 577 636 635 675 733 821 923 994 Openings 54 64 109 82 49 68 94 107 135 131 Closures 14 13 22 23 50 40 36 19 33 60 Other 262 195 191 179 178 169 189 171 253 258 Openings 155151817149 92013 Closures 88 67 19 30 3 26 17 33 19 20 Consolidated total 2,693 2,708 2,790 2,850 2,882 2,923 3,074 3,179 3,403 3,477 Openings 153 157 202 183 146 180 216 222 258 220 Closures 222 142 120 123 114 138 93 117 118 156 Per-store data (FY average; JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Sales Yoshinoya 78.04 74.83 72.67 78.02 80.07 80.41 81.24 83.85 85.80 92.11 Hanamaru 49.83 50.24 60.34 56.55 54.83 56.53 58.10 59.40 58.54 59.75 Arcmeal 121.00 120.85 121.24 127.67 134.42 133.46 124.21 124.21 116.03 122.52 Kyotaru 70.75 77.85 71.19 72.11 74.69 77.57 79.76 81.02 82.42 85.46 Operating profit Yoshinoya 3.80 3.88 1.61 2.41 3.41 2.57 3.20 4.20 2.92 4.89 Hanamaru 2.56 2.53 2.84 2.33 2.79 3.04 2.28 2.80 1.26 2.42 Arcmeal 3.76 3.35 2.28 2.39 1.62 1.40 0.73 1.15 -4.82 -1.90 Kyotaru 0.37 -1.71 -0.40 0.07 0.78 0.90 0.22 0.96 0.49 1.37 Source: Shared Research based on company data Notes: Eighty Withlink Holdings stores included under Other from Q2 FY02/19 Figures may differ from company materials due to differences in rounding methods. Figures from FY02/11 provided for continuity of segments.
06/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Recent updates Highlights
On July 6, 2020, Yoshinoya Holdings Co., Ltd. released monthly store sales data for June 2020.
On June 5, 2020, the company released monthly store sales data for May 2020.
On May 26, 2020, the company announced the disposal of treasury stock as restricted stock compensation.
The company announced that, at the board meeting held on the same day, it had resolved to undertake the disposal of treasury stock.
The purpose of the disposal is to provide a new compensation scheme for directors, corporate auditors and executive officers of the company and directors of the company's subsidiaries, granting incentives and enabling them to participate in improvements in shareholder value over the medium to long term, in accordance with the resolution of the board meeting held on April 11, 2017. This scheme will be introduced as a restricted stock compensation plan.
In addition, at the 60th Ordinary General Meeting of Shareholders held on May 25, 2017, approval was obtained to provide to the directors and corporate auditors monetary compensation for assets contributed to acquire restricted stock as per the plan. In summary, the details of the disposition of treasury stock are as follows:
▷ Disposal date: June 20, 2020 ▷ Number of shares to be disposed: 31,667 shares of the company's common stock (JPY2,454 per share) ▷ Total disposal value: JPY78mn yen
The transfer restriction period is three years to provide an incentive for the enhancement of enterprise value over the medium to long term. Please see the press release for further details.
On May 25, 2020, the company announced the increase of capital at a subsidiary company (making it a specified subsidiary).
The company announced that its subsidiary Hanamaru Food Management (Shanghai) Co., Ltd., wholly owned through its subsidiary Yoshinoya China Holdings Co., Ltd., had become a specified subsidiary.
The company has a 100% stake in Hanamaru Food Management (Shanghai) through its regional headquarters, Yoshinoya China Holdings. At a meeting of its board of directors held on November 4, 2019, Hanamaru Food Management (Shanghai) resolved to increase its capital in order to strengthen its financial structure. On December 18, 2019, Hanamaru Food Management (Shanghai)’s capital rose to more than 10% of the company’s own capital amount as a result of the capital increase. Accordingly, Hanamaru Food Management (Shanghai) became a specified subsidiary of the company.
In FY12/19, Hanamaru Food Management (Shanghai) recorded sales of JPY789mn (-10.3% YoY), operating loss of JPY131mn (operating loss of JPY115 in FY12/18), recurring loss of JPY144mn (recurring loss of JPY132mn in FY12/18), and net loss of JPY157mn (net loss of JPY137mn in FY12/18). According to the company, the effect of the capital increase on its consolidated results will be minor.
On the same day, Shared Research updated the report following interviews with the company.
07/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
On May 7, 2020, the company released monthly store sales data for April 2020.
On April 14, 2020, the company announced earnings results for FY02/20; see the results section for details.
On the same day, the company announced the continuation of anti-takeover measures in response to the large-scale purchase of the company’s shares.
On the same day, the company announced its response to the government’s state of emergency declaration.
On April 10, 2020, the company announced revisions to its consolidated FY02/20 forecasts and the booking of non-operating expenses and extraordinary losses.
Revisions to full year consolidated FY02/20 earnings forecasts
▷ Sales JPY216.2bn (previous forecast: JPY215.0bn) ▷ Operating profit: JPY3.9bn (JPY3.6bn) ▷ Recurring profit: JPY3.4bn (JPY4.0bn) ▷ Net income*: JPY713mn (JPY100mn) ▷ EPS: JPY11.04 (JPY1.55)
*Net income attributable to owners of the parent
Reasons for revisions Versus previous forecast, the company raised its sales forecast by JPY1.2bn as new menu introductions and promotions in Q4 contributed to domestic Yoshinoya segment growth to the tune of 6.7% YoY comparable store sales growth. The sales growth also pulled the operational profit forecast up by JPY326mn.
The recurring profit estimate, however, was decreased by JPY630mn as a JPY1.0bn equity-method investment loss was booked in non-operating expenses. Still, despite booking JPY2.5bn in extraordinary losses including impairment losses, the robust growth in sales helped the net income forecast to be increased by JPY613mn.
For previous releases and developments, please refer to the “News and topics” section.
08/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Trends and outlook
Quarterly trends and results
Cumulative FY02/19 FY02/20 FY02/20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4% of FYFY Est. Sales 49,794 100,339 150,016 202,385 52,799 107,066 159,876 216,201 100.0% 216,201 YoY 2.7%2.7%2.4%2.0%6.0%6.7%6.6%6.8% 6.8% Gross profit 31,977 64,416 96,311 129,581 34,387 69,524 103,697 139,949 YoY 1.0%1.1%1.1%0.5%7.5%7.9%7.7%8.0% Gross profit margin 64.2% 64.2% 64.2% 64.0% 65.1% 64.9% 64.9% 64.7% SG&A expenses 32,156 64,361 96,873 129,476 33,343 66,588 100,807 136,023 YoY 4.1%4.5%4.5%3.7%3.7%3.5%4.1%5.1% SG&A ratio 64.6% 64.1% 64.6% 64.0% 63.2% 62.2% 63.1% 62.9% Operating profit -178 55 -562 104 1,044 2,936 2,890 3,926 100.0% 3,926 YoY - -97.4% - -97.4% - 5238.2% - 3675.0% 3675.0% Operating profit margin-0.4%0.1%-0.4%0.1%2.0%2.7%1.8%1.8% 1.8% Recurring profit -44 332 -129 349 1,254 3,023 3,351 3,369 100.0% 3,369 YoY - -86.4% - -92.4% - 810.5% - 865.3% 865.3% Recurring profit margin-0.1%0.3%-0.1%0.2%2.4%2.8%2.1%1.6% 1.6% Net income -388 -850 -1,558 -6,000 1,097 1,879 1,774 713 100.0% 713 YoY ------Net margin -0.8% -0.8% - - 2.1% 1.8% 1.1% 0.3% 0.3%
09/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Quarterly FY 02/ 19 FY02/20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4 Sales 49,794 50,545 49,677 52,369 52,799 54,267 52,810 56,325 Yoshinoya 24,909 25,933 25,490 27,275 26,656 28,057 27,406 29,566 Hanamaru 7,355 7,466 7,107 7,077 7,783 8,112 7,402 7,596 Arcmeal 5,346 4,990 4,730 5,181 5,291 4,967 4,570 5,082 Kyotaru 6,958 6,727 6,634 7,004 7,275 7,034 6,743 7,492 Overseas 5,005 5,207 5,558 5,392 5,283 5,521 5,710 5,431 YoY 2.7% 2.7% 1.9% 0.6% 6.0% 7.4% 6.3% 7.6% Yoshinoya 3.8% 5.5% 2.0% -0.9% 7.0% 8.2% 7.5% 8.4% Hanamaru 9.8% 8.1% 4.9% 6.0% 5.8% 8.7% 4.2% 7.3% Arcmeal -7.1% -13.1% -10.3% -9.2% -1.0% -0.5% -3.4% -1.9% Kyotaru 2.2% 2.5% 3.9% 0.9% 4.6% 4.6% 1.6% 7.0% Overseas 8.4% 6.1% 7.0% 7.6% 5.6% 6.0% 2.7% 0.7% Gross profit 31,977 32,439 31,895 33,270 34,387 35,137 34,173 36,252 YoY 1.0% 1.2% 1.0% -1.0% 7.5% 8.3% 7.1% 9.0% Gross profit margin 64.2% 64.2% 64.2% 63.5% 65.1% 64.7% 64.7% 64.4% SG&A expenses 32,156 32,205 32,512 32,603 33,343 33,245 34,219 35,216 YoY 4.1% 5.0% 4.5% 1.3% 3.7% 3.2% 5.3% 8.0% SG&A ratio 64.6% 63.7% 65.4% 62.3% 63.2% 61.3% 64.8% 62.5% Operating profit -178 233 -617 666 1,044 1,892 -46 1,036 Yoshinoya 511 732 910 1,369 1,445 1,844 1,113 1,533 Hanamaru 392 377 -93 -52 517 691 78 -34 Arcmeal -86 -257 -397 -101 -147 -92 -243 173 Kyotaru 206 -16 -57 29 283 48 -79 205 Overseas 114 200 272 220 284 255 332 101 YoY - -83.2% - -53.3% - 712.0% - 55.6% Yoshinoya -44.2% -30.3% -24.4% -27.8% 182.8% 151.9% 22.3% 12.0% Hanamaru -15.5% -31.6% - - 31.9% 83.3% - - Arcmeal ------Kyotaru -15.6% - - -81.6% 37.4% - - 606.9% Overseas -63.7% -44.1% -34.6% 41.9% 149.1% 27.5% 22.1% -54.1% Operating profit margin -0.4% 0.5% -1.2% 1.3% 2.0% 3.5% -0.1% 1.8% Yoshinoya 2.1% 2.8% 3.6% 5.0% 5.4% 6.6% 4.1% 5.2% Hanamaru 5.3% 5.0% -1.3% -0.7% 6.6% 8.5% 1.1% -0.4% Arcmeal -1.6% -5.2% -8.4% -1.9% -2.8% -1.9% -5.3% 3.4% Kyotaru 3.0% -0.2% -0.9% 0.4% 3.9% 0.7% -1.2% 2.7% Overseas 2.3% 3.8% 4.9% 4.1% 5.4% 4.6% 5.8% 1.9% Recurring profit -44 376 -461 478 1,254 1,769 328 18 YoY - -76.7% - -70.3% - 370.5% - -96.2% Recurring profit margin -0.1% 0.7% - 0.9% 2.4% 3.3% 0.6% 0.0% Net income -388 -462 -708 -4,442 1,097 782 -105 -1,061 YoY ------
Net margin -0.8% - - - 2.1% 1.4% - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
10/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Yoshinoya monthly data
(YoY) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 FY02/21 FY02/22 FY02/23 Comparable Sales -6.8% -4.9% -2.3% 7.3% 1.2% 0.8% 0.1% 1.4% 0.8% 6.7% stores Customer count 1.0% -3.9% -6.8% 13.4% -6.4% -11.5% 1.7% 0.2% -0.2% 2.0% Customer spend -7.2% -1.1% 4.8% -5.3% 8.2% 13.9% -1.6% 1.3% 1.1% 4.6% All Sales -3.8%-3.3%1.7%11.2%5.3%3.9%3.8%4.8%3.7%9.4% stores Customer count 3.9% -2.4% -3.1% 17.4% -2.6% -9.0% 5.3% 3.5% 3.0% 4.8% Customer spend -7.0% -0.9% 4.9% -5.3% 8.2% 14.2% -1.5% 1.3% 0.7% 4.4%
FY02/21 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY ComparableSales -1.8%-4.0%-7.3%-12.3% -6.3% storesCustomer count0.1%-1.0%-9.2%-18.9% -7.3% Customer spend-2.0%-3.0%2.1%8.1% 1.0% AllSales 0.0%-2.4%-6.0%-11.0% -4.8% storesCustomer count2.1%0.6%-7.9%-17.7% -5.8% Customer spend-2.0%-3.0%2.1%8.1% 1.0% FY02/20 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY Comparable Sales 8.1% 4.8% 5.2% 7.1% 2.6% 13.9% 4.6% 8.2% 7.3% 11.3% 9.5% -2.1% 6.7% stores Customer count 2.3% -0.9% -0.6% 5.4% -0.7% 10.3% 0.2% 4.0% 4.7% 10.8% 6.2% -14.5% 2.0% Customer spend 5.6% 5.8% 5.8% 1.6% 3.4% 3.2% 4.3% 4.1% 2.5% 0.4% 3.1% 14.5% 4.6% All Sales 11.0% 7.8% 8.1% 10.6% 5.8% 17.3% 7.3% 10.4% 9.9% 13.6% 11.7% 0.1% 9.4% stores Customer count 5.6% 2.4% 2.6% 8.9% 2.3% 13.6% 2.8% 6.1% 7.3% 13.1% 8.4% -12.6% 4.8% Customer spend 5.1% 5.3% 5.4% 1.6% 3.4% 3.2% 4.3% 4.1% 2.5% 0.4% 3.1% 14.5% 4.4% FY02/19 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY ComparableSales 3.3%7.0%2.1%6.3%3.3%2.1%4.7%-0.7%-3.0%-1.2%-3.3%-7.4% 0.8% stores Customer count 3.6% 4.4% 2.9% 7.5% 2.9% 3.7% 3.0% -0.8% -5.4% -2.9% -4.5% -10.0% -0.2% Customer spend-0.3%2.5%-0.8%-1.2%0.4%0.3%1.6%0.1%2.5%1.8%1.3%3.0% 1.1% All Sales 6.6% 10.4% 5.3% 8.9% 6.3% 4.8% 7.5% 2.6% -0.4% 1.5% -0.8% -4.7% 3.7% stores Customer count 7.3% 8.1% 6.6% 10.7% 6.3% 4.4% 6.2% 2.8% -2.4% 0.1% -1.6% -7.1% 3.0% Customer spend -0.7% 2.1% -1.2% -1.6% 0.0% 0.4% 1.3% -0.3% 2.1% 1.4% 0.8% 2.6% 0.7% FY02/18 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY Comparable Sales 1.1% -8.4% 0.6% -5.5% -1.2% 0.2% 1.6% -15.1% 5.7% 4.5% 6.3% 36.3% 1.4% stores Customer count 0.4% -12.2% -0.7% -7.1% -2.5% -0.9% 0.9% -21.6% 3.1% 2.3% 5.1% 54.0% 0.2% Customer spend 0.8% 4.4% 3.5% 1.7% 1.3% 1.1% 0.8% 8.2% 2.6% 2.1% 1.2% -11.5%1.3% All Sales 4.6% -5.6% 3.6% -2.1% 1.9% 3.3% 4.5% -12.6% 8.3% 7.1% 9.3% 39.6% 4.8% stores Customer count 4.2% -9.3% 0.4% -3.6% 0.9% 2.6% 4.0% -19.0% 6.0% 5.3% 8.5% 58.3% 3.5% Customer spend 0.4% 4.1% 3.2% 1.5% 1.0% 0.7% 0.4% 7.9% 2.2% 1.8% 0.8% -11.8%1.3% FY02/17 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY Comparable Sales -3.0% 6.7% 0.1% 4.7% 2.3% -13.1% -2.8% 15.1% 0.8% -1.1% -2.3% -4.6% 0.1% stores Customer count -4.6% 14.1% 3.2% 6.2% 3.5% -12.2% -1.3% 21.8% 0.9% -1.6% -2.8% -5.9% 1.7% Customer spend 1.6% -6.5% -3.0% -1.4% -1.1% -1.0% -1.4% -5.5% -0.1% 0.5% 0.6% 1.5% -1.6% All Sales -0.2% 10.1% 3.6% 8.6% 5.8% -10.0% 0.6% 19.2% 4.9% 2.7% 1.2% -1.3% 3.8% stores Customer count -1.8% 17.7% 6.7% 10.1% 7.0% -9.3% 2.4% 26.5% 5.4% 2.5% 0.9% -2.5% 5.3% Customer spend 1.6% -6.4% -2.9% -1.4% -1.2% -0.8% -1.8% -5.8% -0.5% 0.2% 0.2% 1.2% -1.5% Source: Shared Research, based on company data
11/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
FY02/20 results
Consolidated results for FY02/20 (March 2019–February 2020)
▷ Sales: JPY216.2bn (+6.8% YoY) ▷ Gross profit: JPY139.9bn (+8.0% YoY) ▷ Operating profit: JPY3.9bn (+3,675.0% YoY) ▷ Recurring profit: JPY3.4bn (+865.3% YoY) ▷ Net income*: JPY713mn (versus a net loss of JPY6.0bn in FY02/19)
*Net income attributable to owners of the parent
▷ Factors behind sales growth: The mainstay Yoshinoya segment drove results with strong sales as it launched a series of products including Rizap beef salad and a special sukiyaki plate and ran campaigns such as a summer kids’ discount and Pokemori, a collaboration with Pokémon. An aggressive store roll-out in the Hanamaru, Kyotaru, and Overseas segments also boosted sales. ▷ Factors behind profit growth: Sales growth at Yoshinoya and all other segments offset the sharp increases in costs since FY02/19 stemming from (1) seafood and other ingredients and (2) personnel expenses on the back of labor shortage and
higher wages of part-time employees (+6.5% YoY), resulting in operating profit growth.
Sales by quarter Operating profit by quarter
(JPYmn) (JPYmn) 250,000 4,500 4,019 3,926 216,201 202,385 198,503 3,500 1,036 200,000 1,425 56,325 52,060 52,369 2,500 458 150,000 1,892 52,810 48,754 49,677 1,500 1,388 104 100,000
54,267 500 666 1,044 49,196 50,545 748 233 50,000 -178 -46 -500 -617 48,493 49,794 52,799
0 -1,500 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data
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Segment profit growth
(JPYmn)
5,000
4,500 191 165 295 3,926 4,000 532 -222
3,500 627
3,000
2,413 2,500
2,000
1,500
1,000
500 104
0 Full-year Yoshinoya Hanamaru Arcmeal Kyotaru Overseas Other Eliminations Full-year FY02/19 FY02/20 Source: Shared Research based on company data
Segment results for FY02/20 Yoshinoya
▷ Segment sales: JPY111.7bn (+7.8% YoY) ▷ Segment profit: JPY5.9bn (+68.5% YoY)
Segment sales were up on successive introductions of beef-based products and successful campaigns, which led to higher same store sales. Same store sales were up 6.9% YoY. On a monthly basis, same store sales were up 8.1% YoY in March, up 4.8% YoY in April, up 5.2% YoY in May, up 7.1% YoY in June, up 2.6% YoY in July, up 13.9% YoY in August, up 4.6% YoY in September, up 8.2% YoY in October, up 7.3% YoY in November, up 11.3% YoY in December, up 9.5% YoY in January 2020, and down 2.1% YoY in February.
Customer traffic was up 2.3% YoY in March, down 0.9% YoY in April, down 0.6% YoY in May, up 5.4% YoY in June, down 0.7% YoY in July, up 10.3% YoY in August, up 0.2% YoY in September, up 4.0% YoY in October, up 4.7% YoY in November, up 10.8% YoY in December, up 6.2% YoY in January 2020, and down 14.5% YoY in February. Average spending per customer was up 5.6% YoY in March, up 5.8% YoY in April, up 5.8% YoY in May, up 1.6% YoY in June, up 3.4% YoY in July, up 3.2% YoY in August, up 4.3% YoY in September, up 4.1% YoY in October, up 2.5% YoY in November, up 0.4% YoY in December, up 3.1% YoY in January 2020, and up 14.5% YoY in February. While average spending increased in Q1 and customer traffic in Q2, both were up in Q3 and Q4. The Yoshinoya segment had a total of 1,214 stores in operation at end-FY02/20, having opened 29 new stores while closing 25.
Major initiatives: Core & More strategy aimed at boosting frequency of visits by its core customers (current beef bowl fans) and attracting new customers continued. In conjunction with the company’s 120-year anniversary, the company regularly introduced new beef-based items to increase the frequency of store visits by its beef bowl fans. On the menu front, in March the company
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introduced two new sizes of its signature beef bowl (an extra-large size and a small size); in May it rolled out a new menu item that has been developed in collaboration with another company (Rizap beef salad); in August it introduced a special sukiyaki plate made with beef sirloin; in September it introduced Tsukimi Gyutoji-gozen (beef and fluffy egg set with another raw egg on top); in October it introduced the Gyu Suki Nabe-zen (beef sukiyaki hotpot) and Mara Gyu Nabe-zen, supervised by Iron Chef Chinese Kenichi Chen; and in February 2020 it introduced W Teishoku as part of its effort to bolster sales in the evening hours.
On the sales promotion front, in April the company ran a special JPY80 discount coupon offer for its Yoshinoya chain in conjunction with its Hanamaru Udon chain; in June it offered a JPY80 discount on takeout orders; in July it offered a special summer vacation discount for kids; in October it offered 10% off all beef bowl and beef plate items; in December it launched its Pokemori campaign in a collaborative effort with the Pokemon brand; and in February 2020 it participated in the PayPay 40% rebate campaign (in which users receive 40% of the purchase price as a PayPay bonus). With the aim of developing demand for its food delivery service, the company increased stores providing home delivery services to 416 locations. The company converted 112 stores to its new “Cooking and Comfort” service format, largely in line with planned numbers.
Yoshinoya: Sales by quarter Yoshinoya: Segment profit by quarter
(JPYmn) (JPYmn) 111,685 5,935 120,000 6,000
101,082 103,607 5,064 1,533 100,000 5,000 29,566 27,528 27,275 80,000 4,000 1,896 3,522 1,113 27,406 25,490 60,000 24,980 3,000 1,369 1,203 1,844 40,000 25,933 28,057 2,000 24,573 910 1,050 20,000 1,000 732 24,909 26,656 1,445 24,001 915 511 0 0 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Yoshinoya: Sales YoY Yoshinoya: Segment profit margin
13.4% 8.0% 15.0% 6.9% 6.6%
12.0% 5.4% 5.2% 8.4% 6.0% 4.8% 5.0% 8.2% 7.5% 9.0% 7.0% 4.3% 4.1% 5.5% 3.8% 3.6% 6.0% 4.0% 2.8% 2.0% 3.0% 1.0% 1.5% 3.8% 2.0% 0.0% 2.1% -0.3% -0.9% -3.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Yoshinoya: Existing store monthly sales
(%) Sales Customer count Customer spend 60 50 40 30 20 10 0 -10 -20 -30 Jul Jul Jul Jul Jul Jul Oct Jan Oct Jan Oct Jan Oct Jan Oct Jan Oct Jan Apr Apr Apr Apr Apr Apr Jun Jun Jun Jun Jun Jun Feb Feb Feb Feb Feb Feb Sep Sep Sep Sep Sep Sep Mar Mar Mar Mar Mar Mar Dec Dec Dec Dec Dec Dec Nov Nov Nov Nov Nov Nov Aug Aug Aug Aug Aug Aug May May May May May May FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20
Source: Shared Research based on company data
Hanamaru
▷ Segment sales: JPY30.9bn (+6.5% YoY)
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▷ Segment profit: JPY1.3bn (+100.5% YoY)
Sales growth was driven by new store openings and solid gains in comparable store sales (stemming from price revisions and new menu items). Quarterly YoY comparable store sales were up 1.4% in Q1 (March–May 2019), up 2.1% in Q2 (June–August 2019), down 0.4% in Q3 (September–November 2019), and up 2.7% in Q4 (December 2019–February 2020). The Hanamaru segment had 522 stores in operation as of end-FY02/20, having opened 30 new stores and closed 20 stores during the period.
Major initiatives during the period included its “tempura season ticket” in collaboration with Yoshinoya (in April), “500 stores– Thank You” campaign (in June and September), its discount campaign for kids (in August), the launch of the “Udon Ticket” campaign (in December), and its participation in the PayPay 40% rebate campaign (in February 2020), all of which were aimed at bringing in new customers and increasing the frequency of visits by existing customers. New menu item additions were largely seasonal dishes, with customers proving receptive to Noko Tonyu Tantan Udon (udon noodles in thick, spicy, soy milk-based soup), put on its menu in April, Toro-dama Bukkake (udon noodles made with fatty tuna broth), put on its menu in June, Hiyashi Goma Tantan Udon (chilled Szechuan-style udon noodles covered with a spicy sauce), put on its menu in August, and Hamaguri Udon (udon noodles served with clams), put on its menu in February 2020. The company said customer feedback was favorable.
Hanamaru: Sales by quarter Hanamaru: Segment profit by quarter
(JPYmn) (JPYmn)
35,000 1,500 30,893 1,274 1,252 29,005 30,000 60 78 27,057 199 7,596 1,000 25,000 7,077 6,674 624 691 551 20,000 7,402 7,107 377 6,773 500 15,000 517 464 392 7,466 8,112 10,000 6,909 0 -93 -52 -34 5,000 6,701 7,355 7,783 0 -500 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Hanamaru: Sales YoY Hanamaru: Segment profit margin
20.0% 10.0% 8.1% 8.5% 14.4% 14.2% 8.0% 6.7% 6.6% 15.0% 13.3% 11.3% 5.3% 9.8% 6.0% 8.1% 8.7% 10.0% 7.3% 4.0% 6.0% 5.8% 1.9% 4.9% 4.2% 2.0% 5.0% 3.0% -1.3% 1.1% -0.4% 0.0% 0.8% -0.7% 0.0% -2.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Source: Shared Research based on company data
Arcmeal
▷ Segment sales: JPY19.9bn (-1.7% YoY) ▷ Segment loss: JPY309mn (versus loss of JPY841mn in FY02/19)
The Arcmeal business had a total of 154 stores in operation at end-FY02/20, having opened no new stores and closed 16. The drop in sales reflected the net decline in the number of stores in operation.
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Major sales promotions during the period were aimed at reviving customer traffic at existing stores. Toward this end, the company distributed various coupons (such as “lunch time season passes” and the “step-up” and “one-two” coupons) in addition to offering special prices on “beef day.” In April, the Steak-no-Don chain coordinated the launch of a new dish with the showing of a new movie featuring the popular animated character Crayon Shin-chan. In July, the company made changes in menus at the various chains under the Arcmeal segment, including the launch of a super-sized Extreme Atsu Steak at the Steak-no-Don chain and additions to lunch menus and the creation of special seasonal food menus at its Shabu Shabu Don-tei and Volks chains. On February 29, 2020, the company transferred all of its Arcmeal shares to Anrakutei (TSE2: 7562).
Arcmeal: Sales by quarter Arcmeal: Segment profit by quarter
(JPYmn) (JPYmn)
25,000 22,482 400 209 20,247 19,910 97 20,000 200 5,708 142 173 5,181 5,082 0 68 -98 -86 15,000 -147 5,275 -200 -92 4,730 4,570 -257
10,000 -400 -243 5,744 4,990 4,967 -397 -600 -309 5,000 -800 -101 5,755 5,346 5,291 -841 0 -1,000 FY02/18 FY02/19 FY02/20 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Arcmeal: Sales YoY Arcmeal: Segment profit margin
3.4% 5.0% 4.0% 2.5% 1.2% 1.7% 0.5% -0.5% 2.0% -1.9% 0.0% -3.0% -2.7% -3.4% 0.0% -1.9% -1.9% -1.0% -1.6% -2.0% -5.0% -7.1% -3.4% -5.2% -5.3% -4.0% -1.9% -2.8% -10.0% -9.2% -6.0% -10.3% -8.0% -13.1% -8.4% -15.0% -10.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Source: Shared Research based on company data
Kyotaru
▷ Segment sales: JPY28.5bn (+4.5% YoY) ▷ Segment profit: JPY457mn (+181.6% YoY)
Sales growth was driven by a combination of openings of new Kaisen Misakiko restaurants (conveyor belt sushi restaurants) in the Tokyo metropolitan area and solid increases in sales at existing restaurants. Quarterly YoY comparable store sales were up 0.7% in Q1 (March–May 2019), down 0.6% in Q2 (June–August 2019), down 0.6% in Q3 (September–November 2019), and up 2.6% in Q4 (December 2019–February 2020). The Q3 drop in comparable store sales was due to damage from Typhoon Hagibis, mainly in Kanto, in October 2019. The damage was exacerbated as the restaurants handle fresh ingredients and are concentrated in the Kanto area. The Kyotaru segment had a total of 335 stores in operation at end-FY02/20, having opened 17 new stores and closed 15 during the period.
Major sales initiatives during the period included promotions featuring discounts on favorites such as sushi rolls and purchases for special event celebrations at the take-out business; and “bluefin tuna festival” and “JPY99 Sale" (for red plates usually priced at JPY110) at the restaurant business. In February 2020, the company received positive reception to its sales campaign conducted in collaboration with a popular TV program. On the menu front, changes included the rollout of a seasonal menu across all
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restaurant formats featuring seasonal ingredients particular to certain regions, including mackerel from Kagoshima Prefecture and Bungo amberjack. It also expanded sales of cooked rice and online sales of bento (boxed lunches).
Kyotaru: Sales by quarter Kyotaru: Segment profit by quarter
(JPYmn) (JPYmn) 28,544 30,000 600 457 26,695 27,323 316 25,000 7,492 205 6,943 7,004 158 20,000 300 162 48 33 6,743 29 6,382 6,634 15,000 283 244 206 7,034 10,000 6,560 6,727 0 -16 -119 -57 -79 5,000 6,810 6,958 7,275
0 -300 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Kyotaru: Sales YoY Kyotaru: Segment profit margin
8.0% 7.0% 6.0% 6.4% 3.6% 3.9% 3.0% 6.0% 5.1% 4.0% 2.7% 4.6% 4.6% 2.3% 3.9% 2.0% 4.0% 0.4% 0.5% 2.6% 2.5% 0.7% 2.2% 0.0% -0.2% 2.0% 1.6% -2.0% -0.9% 1.7% -1.2% 0.9% -1.9% 0.0% -4.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Source: Shared Research based on company data
Overseas
▷ Segment sales: JPY21.9bn (+3.7% YoY) ▷ Segment profit: JPY972mn (+20.5% YoY)
Sales gains were driven by robust sales in the US coupled with an aggressive store opening program for both directly managed and franchise outlets. Store count rose by 71 YoY as the company continued its scrap-and-build strategy depending on market circumstances in the regions it operates in and local business partners. The total overseas store count at end-FY02/20 was 994, the company having opened 131 new stores while closing 60. The company noted that in some areas the boost to sales from new store openings offset the rising cost of ingredients.
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Overseas: Sales by quarter Overseas: Segment profit by quarter
(JPYmn) (JPYmn)
25,000 1,500 21,945 21,162 1,243 19,734 20,000 5,431 155 5,392 972 5,013 1,000 101 15,000 416 806 5,710 5,558 5,196 220 332 10,000 500 358 5,207 5,521 272 4,908 255 5,000 200 4,617 5,005 5,283 314 284 114 0 0 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Overseas: Sales YoY Overseas: Segment profit margin
30.0% 10.0% 8.0% 22.9% 22.4% 7.3% 8.0% 6.8% 5.8% 17.5% 5.4% 20.0% 6.0% 4.9% 4.6% 3.8% 12.6% 4.0% 3.1% 8.4% 1.9% 7.0% 7.6% 4.1% 10.0% 6.1% 5.6% 6.0% 2.0% 2.7% 2.3% 0.7% 0.0%
0.0% -2.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY02/18 FY02/19 FY02/20 FY02/18 FY02/19 FY02/20
Source: Shared Research based on company data
For details on previous quarterly and annual results, please refer to the “Historical performance and financial statements” section.
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Full-year company forecasts
Results outlook
FY02/18 FY02/19 FY02/20 FY02/21 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY A ct . FY Est . Sales 97,689 100,814 198,503 100,339 102,046 202,385 107,066 109,135 216,201 - YoY 4.5% 6.0% 5.2% 2.7% 1.2% 2.0% 6.7% 6.9% 6.8% - Cost of sales 33,976 35,615 69,591 35,922 36,881 72,804 37,542 38,710 76,252 - Gross profit 63,713 65,199 128,912 64,416 65,165 129,581 69,524 70,425 139,949 - Gross profit margin 65.2% 64.7% 64.9% 64.2% 63.9% 64.0% 64.9% 64.5% 64.7%- SG&A expenses 61,577 63,316 124,893 64,361 65,115 129,476 66,588 69,435 136,023 - SG&A ratio 63.0% 62.8% 62.9% 64.1% 63.8% 64.0% 62.2% 63.6% 62.9% - Operating profit 2,136 1,883 4,019 55 49 104 2,936 990 3,926 - YoY 126.0% 104.7% 115.5% -97.4% -97.4% -97.4% 5238.2% 1920.4% 3675.0% - Operating profit margin 2.2% 1.9% 2.0% 0.1% 0.0% 0.1% 2.7% 0.9% 1.8% - Recurring profit 2,448 2,156 4,604 332 17 349 3,023 346 3,369 - YoY 107.8% 37.2% 67.4% -86.4% -99.2% -92.4% 810.5% 1935.3% 865.3% - Recurring profit margin 2.5% 2.1% 2.3% 0.3% 0.0% 0.2% 2.8% 0.3% 1.6% - Net income 1,290 201 1,491 -850 -5,150 -6,000 1,879 -1,166 713 - YoY -18.0%-161.7%19.5% ------Net margin 1.3% 0.2% 0.8% -0.8% -5.0% -3.0% 1.8% -1.1% 0.3% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Company refrains from issuing FY02/21 forecast when announcing FY02/20 results on April 14, 2020 The company elected to forego offering the initial FY02/21 forecast at the beginning of the new fiscal term, as the ongoing spread of COVID-19, which has significantly impacted the global economy, has also had a lasting impact on the company’s business. While most of the company’s stores in China have re-opened, stores in the US and the ASEAN community have been forced to operate on a take-out only basis. Sales in Japan are continuing to decline as people refrain from eating out following the nationwide closure of schools on March 2, 2020 and the government’s recommendation that people avoid going out and subsequent declaration of a state of emergency. The company thinks that the extent of the impact on earnings depends on when infections taper off and has determined that it is too difficult at this point to make a reasonable estimate as to the COVID-19 impact on earnings. That said, the company’s policy is to announce its earnings forecast as soon as a reasonable calculation of the impact from the COVID-19 outbreak on earnings can be made.
19/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Past initial forecasts versus results
Past initial forecasts versus results
Results vs. Initial Est. FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 175,000 168,000 170,000 173,000 175,000 185,000 193,000 202,000 211,000 208,000 Sales (Results) 171,314 165,883 164,599 173,418 180,032 185,738 188,623 198,503 202,385 216,201 Results vs. Initial Est. -2.1% -1.3% -3.2% 0.2% 2.9% 0.4% -2.3% -1.7% -4.1% 3.9% Operating profit (Initial Est.) 2,500 5,200 5,500 3,000 3,300 3,000 3,400 4,400 4,100 1,000 Operating profit (Results) 5,116 4,801 1,877 2,179 3,515 1,613 1,865 4,019 104 3,926 Results vs. Initial Est. 104.6% -7.7% -65.9% -27.4% 6.5% -46.2% -45.1% -8.7% -97.5% 292.6% Recurring profit (Initial Est.) 2,700 5,600 5,500 3,100 3,700 3,400 3,800 5,100 4,700 1,500 Recurring profit (Results) 5,509 5,311 2,460 3,270 3,993 2,345 2,750 4,604 349 3,369 Results vs. Initial Est. 104.0% -5.2% -55.3% 5.5% 7.9% -31.0% -27.6% -9.7% -92.6% 124.6% Net income (Initial Est.) 100 1,000 1,900 1,000 1,000 800 1,900 2,100 1,700 100 Net income (Results) 382 1,310 -364 698 941 837 1,248 1,491 -6,000 713 Results vs. Initial Est. 282.0% 31.0% -119.2% -30.2% -5.9% 4.6% -34.3% -29.0% - 613.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
The company’s OPM trends low at 1–2%, owing to a cost structure based on a cost ratio of around 35% and an SG&A expense ratio ranging between 62—63%. Costs to sustain stores are high, with personnel expenses accounting for over 40% of SG&A expenses and rent around 15%. Cost increases can have a major impact on profit, as do sales performance versus target. (Taking FY02/18 as an example, a 1.0pp difference in the cost ratio had a JPY2.0bn impact on profit, which is almost half the JPY4.4bn operating profit forecast.) For net income, changes at the OP level and the difference between estimated and actual impairment values at stores (including taxes) also have an impact. (Estimates factor in about the same level of extraordinary losses including impairment as the preceding financial year; the company recorded a net loss in FY02/19 from booking impairment losses totaling JPY5.1bn.)
FY02/14: Sales exceeded the initial company forecast by 0.2%, but operating profit fell far short of target because the cost ratio was 0.6pp higher than expected. Recurring profit was not far off target due to a large non-operating profit of JPY1.1bn, including miscellaneous profit of JPY799mn. Net income was far below the company forecast, because of extraordinary losses that reached JPY1.1bn versus the expected JPY866mn, as well as tax liabilities.
FY02/15: Operating profit and recurring profit exceeded the initial company forecasts because sales were ahead of target due to brisk comparable store sales that absorbed a higher cost ratio (+0.5pp vs. forecast) and a small SG&A expense overshoot. Net income narrowly missed the initial forecast, as the company booked extraordinary gains of JPY340mn and extraordinary losses of JPY1.6bn (including a JPY1.5bn impairment loss) versus its forecast of JPY1.2bn in extraordinary losses. The tax effect also impacted the bottom line.
FY02/16: Sales were more or less on target and the cost ratio was 0.5pp lower than expected. However, SG&A expenses were sharply higher than forecast (SG&A expense ratio worsened by 1.3pp), causing operating profit and recurring profit to fall far short of initial forecasts.
FY02/17: Sales were 2.3% lower than expected largely due to weak comparable store sales and a cost ratio 1.0pp higher than expected. As a result, profits were sharply below forecast.
FY02/18: Although sales were slightly below the initial forecast, the cost ratio was on track and SG&A expenses were lower than expected. As a result, operating profit missed the initial forecast by a relatively narrow margin. However, net income fell far short due to a larger-than-expected impairment loss.
FY02/19: Operating profit undershot the initial forecast by a large margin owing to price hikes of main ingredients such as beef and rice and increased personnel expenses for hiring part-time workers to counter the labor shortage. The company booked a net loss for posting JPY5.1bn in impairment losses accompanying store closures.
20/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
FY02/20: Coinciding with its 120-year anniversary, the company in its mainstay Yoshinoya segment continued to introduce new beef-based products as part of its successful effort to attract customers. Other segments also showed growth, resulting in the company repeatedly lifting its earnings forecasts from Q2. Profit significantly exceeded initial forecast thanks to the improvement in sales more than offsetting the increase in costs.
Performance assumptions versus results FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Yoshinoya 8.0% 0.8% -7.2pp 4.5% 0.1% -4.4pp 2.4% 1.4% -1.0pp 2.6% 0.8% -1.8pp 0.4% 6.7% +6.3pp Comparable Hanamaru 0.0% 1.5% +1.5pp 0.3% -1.3% -1.6pp 0.2% 2.9% +2.7pp 1.0% -1.8% -2.8pp 2.5% 1.5% -1.0pp store sales YoY Arcmeal 1.2% 1.8% +0.6pp -0.3% -6.1% -5.8pp 1.5% -1.2% -2.7pp -0.2% -8.7% -8.5pp 2.2% 3.9% +1.7pp Kyotaru 1.2% 0.8% -0.4pp 0.4% 0.1% -0.3pp 1.0% -0.4% -1.4pp 3.6% 0.3% -3.3pp 2.1% 0.5% -1.6pp Yoshinoya Year-end 1,197 1,188 -9 1,208 1,207 -1 1,219 1,200 -19 1,232 1,211 -21 1,232 1,214 -18 Openings 37 37 +0 50 36 -14 40 28 -12 50 33 -17 38 29 -9 Closures 30 30 +0 30 17 -13 28 31 +3 18 26 +8 16 25 +9 Net increase 7 7 +0 20 19 -1 12 -3 -15 32 7 -25 22 4 -18 Hanamaru Year-end 412 390 -22 439 432 -7 478 479 +1 524 512 -12 531 522 -9 Openings 41 44 +3 50 52 +2 50 59 +9 49 48 -1 35 30 -5 Closures 0 13 +13 1 10 +9 4 10 +6 4 15 +11 16 20 +4 Net increase 41 31 -10 49 42 -7 46 49 +3 45 33 -12 19 10 -9 Arcmeal Year-end 182 186 +4 187 184 -3 182 178 -4 178 171 -7 170 154 -16 Openings 3 5 +2 1 0 -1 2 0 -2 4 1 -3 0 +0 Closures 0 3 +3 0 2 +2 4 6 +2 4 7 +3 1 16 +15 Net increase 3 2 -1 1 -2 -3 -2 -6 -4 0 -6 -6 -1 -16 -15 Kyotaru Year-end 346 315 -31 327 329 +2 340 330 -10 336 333 -3 339 335 -4 Store count Openings 26 12 -14 20 25 +5 20 19 -1 22 21 -1 16 17 +1 Closures 9 26 +17 8 11 +3 9 18 +9 16 18 +2 10 15 +5 Net increase 17 -14 -31 12 14 +2 11 1 -10 6 3 -3 6 2 -4 Overseas Year-end 697 675 -22 780 733 -47 838 821 -17 960 923 -37 1,603 994 -609 Openings 75 68 -7 115 94 -21 112 107 -5 147 135 -12 162 131 -31 Closures 13 40 +27 10 36 +26 7 19 +12 8 33 +25 22 60 +38 Net increase 62 28 -34 105 58 -47 105 88 -17 139 102 -37 140 71 -69 Other Year-end 190 169 -21 173 189 +16 164 171 +7 176 253 +77 285 253 -32 Openings 22 14 -8 6 9 +3 4 9 +5 8 20 +12 36 13 -23 Closures 4 26 +22 2 17 +15 29 33 +4 3 19 +16 5 20 +15 Net increase 18 -12 -30 4 20 +16 -25 -24 +1 5 1 -4 31 -7 -38 Consolidated Year-end 3,024 2,923 -101 3,114 3,074 -40 3,221 3,179 -42 3,406 3,403 -3 4,160 3,477 -683 total Openings 204 180 -24 242 216 -26 228 222 -6 280 258 -22 287 220 -67 Closures 56 138 +82 51 93 +42 81 117 +36 53 118 +65 70 156 +86 Net increase 148 42 -106 191 151 -40 147 105 -42 227 140 -87 217 64 -153 Cost ratio 38.7% 38.2% -0.5pp 35.3% 36.3% +1.0pp 35.0% 35.1% +0.1pp 36.1% 36.0% -0.1pp 35.5% 35.3% -0.2pp Costs SG&A ratio 59.7% 61.0% +1.3pp 62.9% 62.8% -0.1pp 62.9% 62.9% +0.0pp 62.0% 64.0% +2.0pp 64.0% 62.9% -1.1pp Source: Shared Research based on company data Notes: The number of store openings/closures does not match data in “Other” (result) for FY02/17, because a total of 28 Setaga-ya and FRJ stores have been added. Notes: Eighty Withlink Holdings stores included under Other from Q2 FY02/19
Impairment losses Impairment losses FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Extraordinary losses 3,400 1,470 1,103 1,612 980 1,537 1,607 5,210 2,526 Impairment losses 1,579 1,397 1,030 1,494 933 1,409 1,298 5,107 2,479 Yoshinoya 292 593 390 496 383 246 370 1,064 917 Hanamaru 160 180 283 304 153 213 296 1,419 380 Arcmeal 132 161 69 85 102 404 414 944 46 Kyotaru 440 270 166 205 110 69 121 385 44 Overseas 45 106 92 206 101 70 50 793 805 Other 77 84 27 174 67 403 43 99 111 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
21/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Medium-term plan: seeking to revamp existing business model
In FY02/20, the restaurant industry was severely buffeted by city shutdowns and stay-at-home orders overseas and the emergency declaration in Japan due to COVID-19. In view of the pandemic, the company put off announcing the second stage of its plan starting in FY02/21 when it released FY02/20 results. Still, it aims to maintain the broad approach outlined in its medium-term plan and the details/direction of its long-term vision. It also intends to respond swiftly and flexibly to changes in the restaurant operating environment once the pandemic has abated.
As discussed below, the company previously released its long-term vision dubbed NEW BEGINNINGS 2025, outlining its aspirations for the next ten years. The long-term vision consists of three stages with medium-term plans designed for each stage. The three years to FY02/19 was the first stage—a period for sowing the seeds of growth. The company positions the second stage from FY02/21 as the expansion phase to produce results from the experiments and verification of the first stage. The final, third stage is the harvesting phase, a time to reap the rewards of the work in the first and second stages. FY02/20 laid the foundation for knowledge acquired in the first stage through trial and error to be applied in the next stage.
Basic approach under long-term vision The fundamental concepts that make up the long-term vision are as follows. Shared Research understands that the company intends to maintain its approach to running its businesses notwithstanding the impact COVID-19.
▷ Understand that achievement of growth through a traditional restaurant business model (i.e., opening fixed-format stores to ensure an efficient customer turnover) is difficult ▷ Aspire to build a business model that could potentially expand into the service industry by utilizing various tools including technology ▷ Create value-added by investing in people (see increasing personnel expenses as an opportunity rather than a cost burden)
Long-term vision
Source: Company materials
In the past, each Yoshinoya HD group company had its own business model and achieved growth by putting its model into action while making constant improvements. The company has felt, however, that it became increasingly difficult to sustain robust growth in this way since the turn of the millennium, and a new business model that could be used over the longer term has been in need to replace existing business models and turn the situation around. The company plans on creating such a model, which will require around three years. Additionally, it sees the need to enforce reforms that significantly surpass previous efforts and to create innovation to attain dramatic progress. The company refers to such innovation as “redefining the restaurant business” and has made it one of the themes of its long-term vision, which it will address as a group as it seeks to develop markets and provide value beyond the scope of existing restaurant businesses.
22/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Results of the first stage of long-term vision (FY02/17–19)
A comparison of the forecasts with the actual results during the first stage indicate that both sales and profit fell short of initial targets for each of the three years, particularly due to significant impairment losses in FY02/19 accompanying store closures. At the time the company formulated the first stage plan, it intended to engage in the initiatives outlined below. While the plan was in progress, it upheld the slogan “Try first, think next” and aimed to attain goals without becoming overly conservative from fear of failure.
▷ Provide new values to improve the profitability of existing businesses: New menus, improved store operations, and introduction of new marketing methods ▷ Achieve growth and scale expansion by opening stores in Japan and overseas: New formats and locations and accelerated opening of new stores overseas, mainly in Asia ▷ Create new businesses and build a foundation for operating new businesses: Use of existing management resources and technologies, creation of strategic business alliances
During the first stage, the company rolled out a new format, Cooking and Comfort, and a series of new menus at its mainstay Yoshinoya business, advanced store openings for Hanamaru, Kyotaru, and the overseas markets, and tested measures to streamline store operations. That said, Shared Research understands that several issues surrounding the company’s earnings structure remained unresolved. For example, amid intensifying labor shortage and promotion of workstyle reform, personnel-related costs (from in-store operation to distribution) finished higher than expected, and prioritization of store expansions at Hanamaru resulted in the lowering of store opening standards in some instances.
Medium-term plan (first stage)—initial forecasts versus results
Progress FY02/17 FY02/18 FY02/19 Progress FY02/17 FY02/18 FY02/19 (JPYmn) (stores, JPYmn) Initial Est. Sales 193,000 202,000 210,000 Initial Est. Store count 3,114 3,300 3,500 (A) Japan 175,400 180,000 185,000 (A) Japan 2,330 2,400 2,500 Overseas 17,600 22,000 25,000 Overseas 784 900 1,000 Act. (Est.) Sales 188,623 198,503 202,385 Act. (Est.) Store count 3,074 3,179 3,455 (B) Japan 172,017 178,769 181,223 (B) Japan 2,341 2,358 2,532 Overseas 16,606 19,734 21,162 Overseas 733 821 923 Difference Sales -4,377 -3,497 -7,615 Difference Store count -40 -121 -45 (B-A) Japan -3,383 -1,231 -3,777 (B-A) Japan 11 -42 32 Overseas -994 -2,266 -3,838 Overseas -51 -79 -77 Initial Est. Operating profit 3,400 4,300 6,000 Initial Est. Capex 16,800 16,000 19,000 (A) OPM 1.8% 2.1% 2.9% (A) Japan 11,300 10,500 12,200 Act. (Est.) Operating profit 1,865 4,019 104 Overseas 5,500 5,500 6,800 (B) OPM 1.0% 2.0% 0.1% Act. (Est.) Capex 11,373 10,749 13,279 Difference Operating profit -1,535 -281 -5,896 (B) Japan 8,698 8,940 8,103 (B-A) OPM -0.8pp -0.1pp -2.8pp Overseas 2,675 1,809 5,176 Initial Est. ROE - - 4.7% Difference Capex -5,427 -5,251 -5,721 Act. 2.2% 2.6% -11.1% (B-A) Japan -2,602 -1,560 -4,097 Difference --- Overseas -2,825 -3,691 -1,624 Source: Shared Research based on company data. Notes: Initial estimates are targets at the time the plan was announced. Figures may differ from company materials due to differences in rounding methods.
FY02/20: a year to improve management foundation for the second stage The second stage of the long-term vision was originally slated to begin in FY02/20 when first announced. However, deterred by the impact of major changes in the business environment during the first stage and the amount of time the company had to spend implementing and assessing a wide range of initiatives, the results for FY02/19 (the final year of the first stage) fell short of initial targets by a large margin. Consequently, the company repositioned FY02/20 as a period to improve its management foundation focusing on a smooth transition into the next stage, and will implement associated measures including initiatives left undone from the first stage. Once its goal for FY02/20 is within reach, we believe the company will release the medium-term plan for the second stage, which is positioned as the growth phase of the long-term vision.
23/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
There are unresolved issues with some of the targets set out in the long-term vision, such as establishing new formats. However, renewed earnings power will help the move onto the second stage. Shared Research thinks that the company is ready for the next phase as Yoshinoya and all other segments staged an earnings recovery in FY02/20. Results included the transformation of restaurant formats through the trial run of the Cooking and Comfort concept in the first stage, which boosted sales per store. Also on the plus side were strengthened engagement of beef bowl fans and capturing new customers though the launch of a series of menus under the Core & More strategy, improvements to in-store operations, and earnings based store opening/closing policy.
The novel coronavirus pandemic rocked the foundations of the restaurant industry from around the end of FY02/20. The company has no choice but to rethink its initial medium-term plan. In the short-term it is focusing its management energies on cash flow in response to sales decline. Once the pandemic abates, it intends to manage in line with its long-term vision, and is looking for the growth strategy best suited to the transformed restaurant landscape. The second stage is meant to deliver growth under the long-term vision. Shared Research thinks that under the second stage medium-term plan the company will respond flexibly to the post-pandemic changes to the operating environment (for example, growth in take-out business), while addressing outstanding issues and growing the success stories among its experiments.
24/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Business Business description
Major restaurant operator whose core business is Japan’s best-known gyudon beef bowl chain
Yoshinoya HD operates major restaurant chains in Japan and overseas. Its portfolio includes the mainstay Yoshinoya gyudon chain that boasts a 120-year history since the opening of its first store, and a wide variety of other restaurants*, which the company began acquiring from the late 1990s. As the creator of gyudon beef bowl, Yoshinoya is a household brand immediately associated with the dish. The company posted sales of JPY216.2bn in FY02/20, and ranks fifth out of 94 listed food-service companies in Japan (as of FY02/19). Yoshinoya HD also stands out for running more than 1,000 restaurants overseas.
Apart from the founding beef bowl business, current formats range from udon noodles to steak, sushi (take-out and conveyor belt sushi), and ramen. Brands other than Yoshinoya include Hanamaru Udon, Steak-no-Don, Volks, Shabu Shabu Don-tei, Kyotaru, Kaisen Misakiko, and Setaga-ya.
Segment breakdown Segment Format Store names Store count Yoshinoya Gyudon Yoshinoya, Sobadokoro 1,214 Hanamaru Udon Self-service Hanamaru Udon 506 Curry udon Senkichi 16 Kyotaru Take-out sushi Mainly Kansai-style sushi Kyotaru 168 Edomae-style sushi Sushi Misakiko 8 Eat-in sushi Conveyor belt sushi Kaisen Misakiko 94 Sushi Misakimaru 38 Dalian, Nihonbashi Sui, other 27 Overseas Gyudon Yoshinoya 954 Udon Hanamaru 40 Other Ramen Setaga-ya, Hirugao, Bari-uma, Torinosuke, other 258 Source: Shared Research based on company data and website (as of February 2020)
The total number of restaurants (all formats, including take-out only stores) was 3,477 as of end-FY02/20, breaking down into 2,483 in Japan and 994 overseas (ratio of 71:29). The number of directly operated restaurants stood at 2,467. Additionally, the company has a total of 936 franchisees operating Yoshinoya (Japan and overseas) and Hanamaru (Japan only) brand restaurants. (Ratio of directly managed restaurants to franchises is 72 to 28; franchise revenue and other financial details are undisclosed.)
* Hanamaru, Arcmeal, and Kyotaru became part of the group through M&A from the late 1990s onward (Yoshinoya HD acquired Kyotaru in 1999, Hanamaru in 2004, and Arcmeal in 2008. The Kyotaru and Arcmeal acquisitions were essentially rescue operations. The company acquired, but later sold or withdrew from businesses including Shanghai Express, R1, and Ishiyaki Bibimbap. In March 2019, it announced the acquisition of shares in Withlink Holdings (unlisted) to make it a wholly owned subsidiary. Withlink operates ramen restaurants in Japan and overseas, mainly under the brands Bariuma and Torinosuke.
Business portfolio overview
Yoshinoya, the earnings pillar of the group Two segments are growing well. The Hanamaru segment is recording solid growth, and the Overseas segment revamped in earnest under the current management team has started to contribute to earnings, but the Yoshinoya segment still dominates with the bulk of profit. In fact, the majority of restaurants in the fast-growing Overseas segment are in the Yoshinoya format as well (Yoshinoya + Overseas combined account for 77.8% of profit), so the company remains highly dependent on its core brand.
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Sales breakdown by segment (FY02/20) Profit breakdown by segment (before adjustments; FY02/20)
Source: Shared Research based on company data Source: Shared Research based on company data
Profitability relatively low for Kyotaru segment; varies year to year for Yoshinoya The Yoshinoya, Hanamaru, and Overseas segments were relatively profitable in FY02/20, whereas Arcmeal (through FY02/20) and Kyotaru were weak, even though these segments did not finish in the red.
Segment profitability Segment OPM Asset turnover ROA (OP-based) Yoshinoya 5.3% 2.1 11.1% Hanamaru 4.1% 2.3 9.4% Arcmeal -1.6% 2.4 -3.7% Kyotaru 1.6% 2.6 4.1% Overseas 4.4% 1.2 5.4% Consolidated total 1.8% 1.7 3.1%
Source: Shared Research based on company data (FY02/20 results)
Over time, Kyotaru’s segment profit has moved out of temporary losses but remained low subsequently (note: Arcmeal consolidated until FY02/20; see segment information for details). In contrast, Yoshinoya’s segment profit tends to fluctuate significantly from year to year, so Yoshinoya’s performance essentially determines the performance of the group as a whole. We note that a look at segment profit over time shows that centralizing shared company-wide business processes under the holding company structure has had a positive impact on individual segment profit as adjustments have increased.
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Sales by segment Operating profit by segment
Sales (JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 OP (JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Yoshinoya 91,272 87,667 86,553 92,997 95,318 95,607 97,281 101,082 103,607 111,685 Yoshinoya 4,440 4,551 1,916 2,873 4,061 3,054 3,835 5,064 3,522 5,935 Hanamaru 14,700 15,573 19,279 18,887 19,521 21,510 23,880 27,057 29,005 30,892 Hanamaru 754 783 907 777 994 1,158 937 1,274 624 1,252 Arcmeal 22,082 20,666 20,853 22,150 23,793 24,357 22,979 22,482 20,247 19,910 Arcmeal 686 573 392 415 286 256 135 209 -841 -309 Kyotaru 25,681 27,638 24,205 23,725 24,537 24,976 25,682 26,695 27,323 28,544 Kyotaru 134 -606 -137 24 255 289 72 316 162 457 Overseas 10,869 10,307 9,880 12,469 14,955 17,510 16,606 19,734 21,162 21,945 Overseas -43 -118 -210 286 568 557 913 1,243 806 972 Other 9,232 6,479 5,882 4,737 3,420 3,492 4,180 3,508 3,061 5,652 Other -134 43 -43 57 -148 -158 -56 -6 -53 138 Adjustments -2,522 -2,449 -2,057 -1,549 -1,514 -1,716 -1,987 -2,058 -2,024 -2,431
Adjustments -721 -424 -948 -2,254 -2,502 -3,544 -3,973 -4,082 -4,117 -4,521
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Challenges faced by the Yoshinoya segment The Yoshinoya segment underpins the company’s earnings through business scale and the strength of its brand recognition as a gyudon restaurant operator. However, it is faced with several challenges that make earnings improvement difficult, such as factors leading to cost increases (higher personnel expenses and ingredient prices) and the business climate, which does not give room for the upward repricing of mainstay dishes.
Looking at its historical earnings results, a turning point for the Yoshinoya business came in 2003 with the BSE1 outbreak, when the company had to suspend sales of gyudon beef bowls for 949 days (from February 2004 to September 2006). Earnings levels continued to fall sharply thereafter.
The business environment also changed dramatically during this time. Remaining true to the brand image as a beef bowl chain, the company continued to position gyudon as its core product. Meanwhile, there were structural factors the company had to consider anew, such as increased demand for beef in China and other Asian countries, which had kept beef prices high after the BSE crisis. Rising personnel expenses and price hikes for ingredients other than beef also added to the challenge.
Faced with cost-related pressure on one hand, it has also been difficult for the company to raise product prices for complex reasons, including strategic moves of competitors Sukiya and Matsuya and the effects of a price hike in the past2. Further, the scope for opening new restaurants has been limited in the saturated domestic gyudon market, making earnings outlook even more unstable for the company, which markets beef bowls as its mainstay. (see “Yoshinoya segment” section following for details).
Restaurants are all experiencing tough operating conditions, with new companies entering a market that is shrinking due to population decline and facing tough competition from other food-service sectors such as convenience stores. Although the Yoshinoya segment has steadily increased earnings after the BSE crisis, we believe the company faces formidable challenges due to the limitations it shoulders in connection with gyudon and beef.
1 Bovine Spongiform Encephalopathy (BSE), commonly called mad cow disease, causes sponge-like cavities in the brains of bovines. US beef imports to Japan were banned for some time, because the disease can be passed to humans if they eat infected animals. Yoshinoya HD had to stop selling gyudon, because the company uses US beef. 2 A price hike in 2014 resulted in a double-digit drop in customer traffic.
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Yoshinoya: Long-term earnings trends
(JPYmn) Sales Operating profit OPM 120,000 20.0%
100,000 16.7% 15.7% 15.0% 80,000 13.0%
60,000 10.0% 6.9% 40,000 6.2% 4.9% 5.2% 5.0% 5.3%5.0% 4.3% 3.9% 3.4% 3.7% 3.1% 3.2% 20,000 2.8% 2.4% 2.2% 0.0% 0 -1.9%
-20,000 -5.0%
Source: Shared Research based on company data Note: Figures through FY02/10 are for the Gyudon-related business segment. Figures for FY02/11–FY02/13 are for the Domestic Yoshinoya segment. Figures from FY02/14 are for the Yoshinoya segment.
Domestic sales price of US frozen short plate
Short plate wholesale price Cost ratio (RHS) (JPY/kg)
1,200 39.0% 38.2%
1,000 37.5% 38.0% 37.3% 784 763 37.0% 800 724 922 673 584 36.3% 36.0% 559 559 600 36.0% 35.8% 607 584 35.0% 35.3% 35.1% 35.1% 400 34.0% 34.1% 200 33.0%
0 32.0% FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Source: Shared Research based on materials provided by the Agriculture & Livestock Industries Corporation Note: Prices are domestic sales prices, not Yoshinoya’s purchase prices (see “Earnings structure” section).
Yoshinoya segment
Yoshinoya FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Sales 95,607 97,281 101,081 103,607 111,685 YoY 0.3% 1.8% 3.9% 2.5% 7.8% Segment profit 3,054 3,835 5,064 3,522 5,935 YoY -24.8% 25.6% 32.0% -30.5% 68.5% Segment profit margin 3.2% 3.9% 5.0% 3.4% 5.3% Source: Shared Research based on company data
Business model In the Yoshinoya segment, FY02/20 sales grew 7.8% YoY to JPY111.7bn and segment profit was up 68.5% YoY to JPY5.9bn before adjustments. As of end-February 2020, there were 1,214 Yoshinoya restaurants in Japan, located in all prefectures. Yoshinoya ranks second among the top three beef bowl companies by restaurant count, following Zensho Holdings (TSE1: 7550) that operates 1,931 Sukiya restaurants (as of FY03/19). Matsuya Foods Holdings (TSE1: 9887) ranks third with 1,181 Matsuya restaurants (as of FY03/19, total restaurant numbers).
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Yoshinoya restaurant formats
Cooking and Comfort format Suburban drive-thru format Yoshinoya franchise agreement
Yoshinoya Contract Five years period Renewal Sign a new contract at renewal; otherwise, contract is terminated automatically Affiliation fee JPY1.5mn Renewal fee JPY750,000 Guarantee JPY750,000 deposit Royalty Monthly fee equivalent to 3% of total payment sales Advertising Monthly fee equivalent to 1% of total charges sales Administrative JPY38,000/month per set of equipment charges JPY6,000/month per POS register, other Source: Shared Research based on Source: Shared Research based on company data Source: Shared Research based on company data company data
Mainly directly operated restaurants Although some Yoshinoya restaurants are franchises, they only represent about 6% (71 outlets as of end-February 2020) of the total. Franchises are no longer particularly attractive to owners, because they require a relatively large investment (JPY40–50mn) and are not as profitable as they used to be. The company does not actively seek franchisees and takes a cautious approach to applicants. There are no new franchise openings in the pipeline. Yoshinoya HD receives in aggregate 4% of monthly sales as royalties and advertising costs from franchisees and sells them ingredients, but does not disclose franchise-related earnings. The chain’s average annual sales per restaurant exceed JPY80mn.
Core products Yoshinoya’s menu is diverse. The main ingredient is not limited to beef, but includes pork, chicken, and fish, and Yoshinoya restaurants also offer meal sets with side dishes in addition to its rice bowl dishes with various toppings. That being said, gyudon beef bowl remains the core product accounting for around 50% of sales.
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Yoshinoya’s main menu (as of April 2020) Category Main menu (price in JPY excluding tax) Gyudon (Beef Bowl) Gyudon Extra Beef Bowl Extra Onion Beef Bowl Beef Bowl with Toppings of Green (352) (491) (454) Onion and Raw Egg (480) Butadon (Pork Bowl) New Pork Bowl Pork Bowl with Kimchi Pork Bowl with Toppings of Pork and Cheese Bowl (338) (440) Green Onion and Raw Egg (440) (440) Gyu-nabe (Beef Hot Pot) Gyu-nabe Meal Gyu-nabe Meal with Side Dishes Gyu-nabe (598) (648) (498)
Grilled Beef Rib Bowl Grilled Beef Rib Bowl Grilled Beef Rib & Ginger Bowl Grilled Rib Bowl with Kimchi Grilled Rib Bowl with Soft-boiled Egg (548) (548) (650) (623)
Curry and Rice Chicken Spicy Curry and Rice Beef Spicy Curry and Rice Spicy Curry and Rice Beef and Cheese Spicy Curry and Rice (514) (514) (328) (430)
Broiled Eel Broiled Eel and Rice Box Broiled Eel and Rice Box Set with Broiled Eel and Rice Box Set Broiled Eel and Rice Box Set, with and Rice Box (788) Beef (Small Bowl) (863) Miso Soup and Beef (Small Bowl) (936) (1,001)
Fried Chicken Fried Chicken Bowl Fried Chicken and Beef Bowl Fried Chicken Spicy Curry and Fried Chicken Bowl with TarTar (458) (558) Rice Sauce (616) (458) One Soup and Three Ham and Egg Meal with Natto Natto Meal with Grilled Salted Mackerel Meal Grilled Salmon Meal with Dishes Breakfast (fermented soybeans) Beef (Small Bowl) with Natto Beef (Small Bowl) (368) (368) (458) (548) Grilled Salted Mackerel Meal Grilled Salmon Meal Grilled Salmon Meal with Egg, Spicy Pollack Roe Meal (428) (428) Natto, and Roasted Laver (368) (528) Fried Combo Fried Combo and Beef Fried Combo and Ground Beef Fried Breaded Horse Croquette Meal Cutlet Meal Mackerel Meal (648) (648) (548) Meal set Beef Plate Meal Grilled Beef Rib Meal Beef and Salmon Meal Grilled Pork & Ginger Meal (498) (598) (548) (598)
Children, family Mini Beef Bowl Set Mini Curry Set (334) (278) Source: Shared Research based on company website
Customer base Yoshinoya’s main customers are men in their 40s and 50s. The male to female ratio is 8:2. The ratio of men is higher than at rival chains. The take-out weighting trended at over 30%, contributing to sales. From FY02/20 onward, the company plans to widen its customer base by increasing the number of outlets providing home delivery (offered at 99 outlets as of end FY02/19), and has rapidly rolled out the service to 461 restaurants (113 use the Demae-can delivery service and 133 use UBER EATS [215 use both]) as of end-February 2020.
Average customer spend The average customer spend at Yoshinoya restaurants has trended up in the past 10 years accompanying the introduction of new menu items. The price settings are similar to those of rival chains. For a regular beef bowl (the standard dish), Yoshinoya, Sukiya1, and Matsuya (both regular and premium beef bowl) 2 all charge slightly less than JPY400. Pork bowls are also priced slightly less than JPY400 at Yoshinoya and Sukiya. Meal sets with a beef main dish cost between JPY500—600 at all three chains.
The limitations Yoshinoya faces on pricing are noted previously in the overview. The price of a standard size beef bowl rose from JPY300 to JPY350 in 1980, to JPY370 in 1985, and to JPY400 in 1990. The price was cut to JPY280 in 2001 before sales were suspended following the BSE crisis. When sales resumed, the price was JPY380. The price was cut to JPY280 again in 2013, but has returned to JPY380 since 2014.
1 Sukiya raised the prices of non-standard size beef bowls in November 2017 because of ingredient price increases (for beef and others) and rising labor costs. It hiked the price of the medium beef bowls by JPY10 and extra-large and mega beef bowls by JPY50.
2 Matsuya raised its prices on April 3, 2018, due to higher ingredient prices and labor costs. However, the price hike varied from region to region. While increasing the price of some items at all stores, the price of large premium beef bowls went up from JPY520 to JPY530 in Tokyo only, and the price of standard beef bowls from JPY290 to JPY320 outside Tokyo.
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Store development The network of Yoshinoya restaurants covers all regions in Japan. Although some restaurants have been opened and others closed at a pace of 20–30 per year, the total number has been stable at around 1,200. The company has been working to change its style of service by converting the traditional U-shaped-counter-format stores to the Cooking and Comfort format, rolling out in stages a remodeling program for around 500 restaurants starting FY02/19. According to the company, it has verified sales growth of about 10% and an increase in take-out by about 30% at pilot stores that have been converted. These stores also saw an increase in female customers, a drop in average customer age by around two years, and reduced labor for the store staff. The company had remodeled 26 stores to the Cooking and Comfort format by the end of FY02/19, and 112 by the end of FY02/20. The company has also been introducing zigzag-shaped counters to offer better comfort at stores that are busy during lunchtime or are difficult to convert to the Cooking and Comfort format. It had switched seven stores to this format by end-FY02/19 and 12 by end-FY02/20.
Yoshinoya HD follows a set rule to determine the closure of its restaurants (applies to all segments). The process begins with the recognition of a potential risk of impairment when a restaurant records negative operating cash flows after its second year of operation. The company will then estimate such a restaurant’s future cash flows, factoring in the variables considered during the budgeting process, and determine its present value. If this value falls far below the book value, the company will post an impairment loss, alleviating the restaurant’s cost burden. If the restaurant still sees no prospect of an earnings recovery, it will be closed.
Sourcing ingredients The company does not disclose specifics of how it sources beef, its main ingredient. (See “Profitability snapshot” section for details on Yoshinoya HD’s policies regarding procurement and inventory).
Strengths and challenges Brand power The company created the gyudon beef bowl, and most people are quick to associate the two. Yoshinoya is an iconic gyudon chain, often called by its nickname Yoshigyu, popularized by its catchphrase “Tasty, cheap, and fast.” It has been the subject of many stories, including Yoshinoya’s commitment to flavor and quality proven by the decision to suspend sales after the BSE outbreak that made sourcing US beef difficult, rather than resorting to other beef. With a core fan base (a solid 50% of its orders being for gyudon versus 30–50% for rival chains), Yoshinoya’s brand power is a key differentiating factor. A 2019 brand perception survey by Nikkei Research Inc.1 ranked Yoshinoya 288th among 600 Japanese companies, and seventh in the food service business after Starbucks Coffee Japan (138th), MOS Food Services (158th), Kentucky Fried Chicken Japan (171st), Mister Donut (183rd), McDonald’s Japan (190th), and Doutor Coffee (266th).
Flavor Although flavor perception is individual, we can say that Yoshinoya’s food is generally considered tasty and, more importantly, the company is committed to getting it right. The cut of beef used in its dishes is short plate2 and the company is well known for using only US beef, but the crucial ingredient is in fact the sauce. Yoshinoya’s traditional sauce is fermented, using liberal quantities of white wine, which only works well with grain-fed beef3 as using other beef would result in a slightly unpleasant odor. The company explains that it can only use US beef4, because it needs to ensure taste consistency at all of its restaurants and no other country can supply grain-fed beef in sufficient quantities. Yoshinoya is committed to its traditional recipe, including the selection of ingredients other than beef such as onions, rice, and ginger.
Like all Yoshinoya HD group companies, Yoshinoya prioritizes quality in developing new products and does not succumb to a policy of sacrificing quality to cut costs and achieve a lower sales price, because it believes once that decision is made, it would produce a substandard dish. Put another way, the company’s priority is excellent quality while keeping meals tasty and inexpensive, rather than focusing on where ingredients are produced. At the same time, it will upgrade mainstay products when costs go down, sparing no effort to improve flavor and quality.
1 Nikkei Research brand perception survey: A survey that evaluated and analyzed in multiple ways the brand power of major Japanese companies from the viewpoints of the consumer and business person. Each company was given five category scores, which were totaled to produce an overall rating
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score. Consumers rated companies on originality, premium (how much more they are prepared to pay for the company’s product or service than those of other companies), recommendation (likelihood of recommending the company’s products and services to others), their own need for the product/service, and attachment to the product/service. Business people rated the company for originality, premium, recommendation, usefulness (how useful the company’s product/service is to their business), and attractiveness as business (whether or not they would like to work for the company).
2 Short plate: The best beef for gyudon has a 60:40 red meat to fat ratio. This part of beef used to be sold as a cheap cut in the US, but after Yoshinoya started buying it, it was cut into the size specified by the company and named “Japan spec.”
3 Grain-fed beef: Grass-fed beef is reared on pasture, while grain-fed beef is fed grain after being reared on pasture. Grass-fed beef has a large proportion of red meat and tastes more “meaty.” Meanwhile, the longer the period of grain feeding, the higher the fat content and richer the flavor.
4 US beef: Yoshinoya considered using Australian beef one or two years before the BSE outbreak to avoid the risk of depending only on the US as a supplier, but abandoned the idea for various reasons. The company concluded that gyudon made from grass-fed Australian beef could not bring out the signature taste of Yoshinoya beef bowl, and there was not enough grain-fed Australian beef to satisfy its needs. See the “Profitability snapshot” section for the company’s thoughts on the cost of Australian beef.
US beef cuts
Source: Shared Research based on US Meat Export Federation data
Challenge: Overdependence on gyudon Yoshinoya’s strength is also its main weakness. The business is highly dependent on gyudon, and therefore the earnings structure is easily affected by beef prices.
Basic strategy Expand customer base The company plans to continue revamping restaurants and menu items to expand its customer base and reduce the impact of beef prices on earnings. Given that men represent a larger share of customers than at its competitors, the company expects a proportional positive effect from measures to expand its customer base.
Regarding restaurants, Yoshinoya traditionally adopted a store layout with a U-shaped counter in the center of the floor to achieve maximum efficiency of in-store operations. However, in order to expand its customer base with women, families, and customers who order to go, the company has been introducing self-service-format restaurants, which it thinks also lead to operational efficiency and easier working conditions. It increased the number of stores adopting this new style of service (Cooking and Comfort) to 112 outlets by the end of FY02/20. Regarding menus, the company plans to build on efforts to diversify menu items by stepping up its health-focused approach. Yoshinoya offers Salacia Gyudon (a beef bowl containing salacinol that suppresses elevation of blood glucose levels) at its restaurants. It also sells frozen Pep Gyu (a gyudon topping containing peptides that inhibit triglycerides) and GABA Gyu (containing GABA, which regulates the autonomic nervous system and lowers blood pressure) by mail order. The company also plans to attract more families by running a “half price for children” campaign.
Strengthening services Another focus is strengthening the quality of its services. Traditionally, as expressed in the catchphrase “Tasty, cheap, and fast,” Yoshinoya’s priority was providing a quick service. However, the company believes that in today’s environment, there is less
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pressure from customers to be quick. Busy people do not eat in restaurants. Assuming that customers who go to restaurants are seeking something more than satisfying their hunger, the company is training and deploying employees to provide a thoughtful and energetic service, prioritizing customer comfort and ambience. It also plans to apportion savings from the use of technology to improving customer service.
Appropriate pricing In Yoshinoya’s case, the central topic of interest is always whether the company will raise the price of its mainstay product, standard-size gyudon. While the price of the standard-size beef bowl has not changed in recent years, the company has managed to increase the overall spending by raising prices of other menu items and introducing new items. The company’s policy on pricing is to make a comprehensive decision based on a market-oriented approach, while also taking factors such as ingredient prices into consideration. It plans to increase prices as appropriate for products with more added value and new products.
Hanamaru segment
Hanamaru FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Sales 21,510 23,880 27,057 29,005 30,893 YoY 10.2% 11.0% 13.3% 7.2% 6.5% Segment profit 1,158 937 1,274 624 1,252 YoY 16.5% -19.1% 36.0% -51.0% 100.6% Segment profit margin 5.4% 3.9% 4.7% 2.2% 4.1% Source: Shared Research based on company data
Business model In the Hanamaru segment, FY02/20 sales were up 6.5% YoY to JPY30.9bn while segment profit rose 100.6% YoY to JPY1.3bn. The Hanamaru business operated 522 domestic restaurants as of end-FY02/20, breaking down into 506 Hanamaru Udon (self-service udon noodle restaurants) and 16 Senkichi (subsidiary business specializing in curry udon) restaurants. There are Hanamaru Udon restaurants in all prefectures except Saga and Miyazaki. Some restaurants have names other than Hanamaru Udon, because they are located in shopping centers and named according to the shopping center’s preference.
According to the Hanamaru website, sales per restaurant stood at JPY65.0mn in FY02/19. Sales figures disclosed on the website include both segment sales and those of the franchises.
Mainly directly operated restaurants Of the 522 restaurants accounted for in the segment as of end-FY02/20, 427 were directly operated restaurants and 95 were franchises (18.2% of total). Like Yoshinoya, the number of franchises is in a downtrend because the company is not actively seeking franchisees. The company receives a royalty and other payments and sells ingredients to franchisees, but does not disclose these franchise-related sales. The company had been opening 50 Hanamaru restaurants annually in the past three years, but is moderating the pace to around 30 a year from FY02/21, aiming at a balance of stable growth and management capability.
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Hanamaru franchise agreement Hanamaru restaurant
Hanamaru Contract Five years period Renewal Sign a new contract at renewal by mutual agreement within three months before termination Affiliation fee JPY3.5mn (JPY2.5mn for six+ stores) Renewal fee First renewal: no charge All other renewals: JPY500,000 Paperwork charge of JPY50,000 Store opening JPY1.5mn charge Guarantee JPY2.5mn deposit Royalty Monthly JPY180,000 per store payment Source: Shared Research based on company data Advertising Monthly fee equivalent to 0.5% of total and sales sales promotion charges Administrative JPY21,000/month charges Source: Shared Research based on company data Core products The basic ordering style is adding toppings such as tempura to udon noodles. Noodles can be ordered in small, medium, and large portions. The mainstay product is Kake (plain noodles in broth), accounting for 20% of total orders in the summer and 30% in the winter. Prices are JPY162 for small, JPY270 for medium, and JPY378 for large (prices included tax; prices revised upward on March 19, 2019). Menu items in the next price range of around JPY300–500 (depending on the amount of noodles) include cold udon noodles with broth with or without a soft-boiled egg, noodles with hot dipping sauce, and cold plain noodles. Noodles that come with toppings such as pork or beef are generally priced in the range of JPY500–700.
Customer base Hanamaru does not have a core customer base. Customers range from office workers to young families (shopping center locations). The male to female ratio is close to 50:50.
Average customer spend The average customer spend at Hanamaru restaurants is trending up, but many customers only order a small portion of plain noodles in soup (the lowest priced item on the main menu), which keeps overall spending down.
Store development About half of Hanamaru restaurants are in shopping centers and the other half are roadside restaurants. Of the latter, 60% are in suburban locations and 40% are in mixed-use buildings, mostly occupying basement and second floor properties, which are relatively low in rent.
Five noodle factories in Japan Hanamaru has noodle factories in Hokkaido, Chiba, Shizuoka, Takamatsu, and Okinawa.
Strengths and challenges Hanamaru is working on health-conscious menu development and offers Salad Udon, which contains brightly colored vegetables.
The company raised price settings in March 2019 to address the issue of average customer spend, which had remained low because of the price of small portion plain noodles in soup, showcased for its reasonable pricing at the time the Hanamaru brand was launched. The company continues to be faced with other issues, however, such as the difficulty of expanding store network in central Tokyo due to limitations (the kitchens cannot be made any smaller under the current format, and sales are not high enough to justify higher rent).
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Basic strategy Continue aggressive expansion plan The domestic market for soba and udon noodle restaurants exceeds JPY1tn, and yet the top two companies—Hanamaru and industry leader Marugame Seimen (operated by Toridoll Holdings [TSE1: 3397])—combined account for only a 10% share. The company sees considerable scope for expansion, because many noodle restaurants are family businesses that could close due to causes such as succession-related issues. Hanamaru will continue to open new outlets mainly in suburban areas (including those in shopping centers) targeting a total of 1,000.
Arcmeal segment
Arcmeal FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Sales 24,356 22,979 22,482 20,247 19,910 YoY 2.4% -5.7% -2.2% -9.9% -1.7% Segment profit 256 135 209 -841 -309 YoY -10.5% -47.3% 54.8% -502.4% -63.3% Segment profit margin 1.1% 0.6% 0.9% -4.2% -1.6% Source: Shared Research based on company data
Business model In FY02/20, the Arcmeal segment recorded sales of JPY19.9bn (-1.7% YoY) and a segment loss of JPY309mn (segment profit of JPY841mn in FY02/19). The Arcmeal business comprises four restaurant brands: Steak-no-Don (steaks), Volks (steaks), Shabu Shabu Don-tei (shabu shabu*), and Don Italiano (Italian). All restaurants fall into the roadside family restaurant category. Most restaurants are in Tokyo and neighboring prefectures (Saitama has the largest number), although locations vary according to brand.
*Shabu shabu: Japanese hotpot dish of thinly sliced meat and vegetables cooked together in boiling broth.
Sales at all brands have hit a ceiling and restaurant counts have trended flat since 2010. All restaurants are directly managed. Average annual sales per store in this segment were around JPY130mn in FY02/20. The business returned to operating profit in Q4 FY02/20 by revamping its menu and rationalizing its restaurants. However, the company sold all shares in the segment’s operator, consolidated subsidiary Arcmeal Co., Ltd., to yakiniku (grilled meat) chain operator Anrakutei Co., Ltd. (TSE2: 7562) in February 2020. From FY02/21, the segment’s sales of about JPY20bn and operating loss of around JPY300mn will disappear from consolidated earnings.
Kyotaru segment
Kyotaru FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Sales 24,976 25,681 26,695 27,323 28,544 YoY 1.8% 2.8% 3.9% 2.4% 4.5% Segment profit 289 72 316 162 457 YoY 13.3% -75.1% 338.9% -48.7% 182.1% Segment profit margin 1.2% 0.3% 1.2% 0.6% 1.6% Source: Shared Research based on company data
Business model In the Kyotaru segment, FY02/20 sales finished at JPY28.5bn, up 4.5% YoY, and segment profit rose 182.1% YoY to JPY457mn. The Kyotaru segment comprises take-out sushi, and eat-in (conveyer belt) sushi restaurants, with sales split about even, according to the company. All stores/restaurants are in Tokyo and its three neighboring prefectures, with the majority in Tokyo. Annual sales per store/restaurant (simple segment average) are JPY85mn. The company does not disclose annual sales of individual brands. The company is focusing on opening Kaisen Misakiko conveyor belt sushi restaurants.
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Kyotaru/Sushi Misakiko (take-out sushi) store Kaisen Misakiko conveyer belt sushi restaurant
Source: Shared Research based on company data Source: Shared Research based on company data
Take-out sushi The company has around 180 take-out sushi stores operating under two brands: Kyotaru (known for the Kansai-style pressed sushi), and Sushi Misakiko (selling the hand-shaped, Edomae-style sushi). All stores are near railway stations or in department stores and supermarkets. Kyotaru’s main products include chakin (egg-wrapped sushi; JPY400 for two pieces), battera (mackerel sushi; JPY490), anago (saltwater eel sushi; JPY490) and tsuru (assorted pressed sushi; JPY590). The take-out sushi market is contracting amid the growing popularity of conveyor belt sushi restaurants, and the number of stores continues to decline after peaking at 800. That said, the Kyotaru brand stores showed relatively strong performance since including Edomae-style sushi in their menus, and this has pushed the company to continue exploring new ways to make the take-out sushi business more profitable.
Sushi restaurants The company operates a total of 143 eat-in sushi restaurants. Main brands are urban conveyor belt sushi restaurant Kaisen Misakiko (94 restaurants at end-FY02/20) and conventional sushi restaurant Sushi Misakimaru (38). The company launched its first conveyor belt sushi restaurant about 20 years ago. It withdrew from roadside locations 10 years ago and now only has restaurants in city center locations. There are two types of Kaisen Misakiko restaurants—one with sushi chefs (30 restaurants) and the other where customers place orders using a touch panel.
Prices vary widely (around JPY100–600 for a two-piece plate) at Kaisen Misakiko, which is categorized as a gourmet conveyor belt sushi restaurant. Due to their city center locations, these restaurants enjoy a diverse customer base (the lunch trade, homemakers who eat two or three plates of sushi as a snack, office workers, etc.). Restaurants with touch panel ordering attract many foreigners as well. The male to female ratio is 55:45.
Out-of-store sales In addition to selling traditional New Year cuisine and offering catering, the company supplies cooked rice to bento (box lunch) shops and supermarkets. The Funabashi factory–the production facility for this business–makes take-out sushi, cooked sushi rice for sushi restaurants, and rice balls for Hanamaru. The company plans to strengthen out-of-store sales of cooked rice and expand the business of supplying bento to offices, and has started sales through Gochikuru, a bento and catering service run by Star Festival Inc.
Strengths and challenges Kaisen Misakiko has had restaurants in city center locations for 20 years and has built up the experience and expertise of operating in small spaces. Although it is a conveyor belt sushi restaurant, its concept is to offer a menu with a wide range of prices to a broad customer base (versus major roadside conveyor belt chains that target families and have uniform prices). As a result, the company says that Kaisen Misakiko is highly profitable, although the company does not disclose earnings by division.
That said, the company is aware that still-low brand awareness of Kaisen Misakiko in the Kansai region is a challenge for the business. There is also a need to improve the utilization rate of the Funabashi factory as the take-out sushi business is contracting, and the company is exploring options such as strengthening out-of-store sales of cooked rice and sharing the plant with other segments.
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Basic strategy To continue opening Kaisen Misakiko restaurants The company believes it is difficult for the roadside conveyor belt sushi chains to quickly develop urban-format restaurants. As such, it plans to continue aggressive expansion in city center locations ahead of the competition. Within the group, the company plans to prioritize allocation of potential restaurant locations to Kaisen Misakiko, including conversions from Yoshinoya restaurants. As it appears that expanding into Kansai will take some time, the company will aim to develop its market mainly in the Kanto region where it has high brand recognition, and increase station-front stores to differentiate itself from the rivals.
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Overseas segment
Overseas FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Sales 17,510 16,606 19,734 21,162 21,945 YoY 17.1% -5.2% 18.8% 7.2% 3.7% Segment profit 557 913 1,243 806 972 YoY -1.9% 63.9% 36.1% -35.2% 20.6% Segment profit margin 3.2% 5.5% 6.3% 3.8% 4.4% Source: Shared Research based on company data
Business model In the Overseas segment, FY02/20 sales grew 3.7% YoY to JPY21.9bn while segment profit was up 20.6% YoY to JPY972mn. The overseas business consists of Yoshinoya and Hanamaru restaurants.
Overseas restaurants Store count (year-end) Format 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 US Direct/FC 97 95 96 102 105 102 103 101 101 103 Taiwan Direct 55 53 55 51 48 52 58 64 68 80 Shanghai Direct 18 21 24 22 14 9 8 9 10 14 Qingdao Direct 3 8 10 16 19 23 Shenzhen Direct 11 12 15 18 18 18 28 37 50 50 Fujian Direct 4 3 3 5 5 11 12 15 17 12 Wuhan Direct 1 4 9 17 22 28 Sichuan Direct 1 4 8 Chongqing Direct 4 6 Jiangxi Direct 1 5 Henan Direct 2 5 Beijing FC 134 166 202 226 207 211 214 219 236 258 Yoshinoya Liaoning FC 41 44 56 62 67 69 73 81 89 92 Heilongjiang and Jilin FC 1 8 11 12 12 10 18 24 27 Inner Mongolia FC 6 6 8 9 10 10 12 12 14 13 Hong Kong FC 47 52 57 60 60 56 58 61 62 61 Qinghai FC 1 2 2 Anhui FC 1 Singapore Direct 18 18 18 21 19 16 12 17 16 13 Philippines FC 6 5 7 6 7 7 12 11 12 9 Indonesia FC 2 11 19 24 35 48 57 73 94 115 Thailand FC 3 9 18 20 16 15 15 20 19 Cambodia FC 1 4 2 3 3 2 2 Malaysia Direct 4 9 12 10 8 Total 439 490 577 636 635 655 703 783 879 954 Shanghai Direct 11 11 12 16 23 24 20 Qingdao Direct 1 3 3 3 Fujian Direct 1 1 4 3 Wuhan Direct 1 3 3 2 2 2 Hanamaru Shenzhen Direct 2 3 Malaysia Direct 4 9 9 7 8 Indonesia Direct 2 1 Total 0 0 0 11 12 19 30 38 44 40 Source: Shared Research based on company data Yoshinoya business Yoshinoya has a long history of overseas restaurant operation—40 years in the US, 30 years in Taiwan, and 25 years in China. As of end-FY02/19, the company had 923 restaurants in ten countries. Of these, 103 outlets were in the US (of which 26 were franchises) and 454 franchises and 231 directly operated restaurants were located in China, where the management structure varies from region to region. The ASEAN region had a total of 166 restaurants: eight directly managed restaurants in Malaysia and 13 in Singapore, and the restaurants in other countries operated as franchises.
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An overseas restaurant (US) An overseas restaurant (Shanghai)
Source: Shared Research based on company data Source: Shared Research based on company data
Yoshinoya’s management policy for overseas restaurants (including franchises) used to differ depending on the region or the business partner1, but going forward, the company will follow a clearly defined policy: existing franchises will continue to operate as franchises and other restaurants will be directly operated if they are in countries where business growth to about 100 restaurants can be anticipated, or if not, operated via joint ventures or simple franchises (the company will prioritize brand penetration, while also taking its own resources and partners’ strengths and wishes into consideration). Malaysia is an exception to this rule because the company is running its own restaurants to advance its Halal compliance strategy. It also converted franchise restaurants in Singapore to directly operated restaurants in 2017, because it could not gain sufficient reinvestment from franchisees. In China, management structures differ by province, but the company has established a management company in Shanghai to oversee overall operations.
Franchise agreements vary, but the company generally charges similar fees as in Japan (4% of sales in the form of royalty payment + advertising charges). Yoshinoya does not disclose a breakdown of overseas sales (overseas chains2, directly operated restaurants, or franchise-related revenue3).
1 Yoshinoya previously granted franchises on request from overseas applicants (excluding the US). The company expanded its business to the US initially to source ingredients, not to run restaurants. This passive stance on the overseas business was due to having limited management resources to spare, because the domestic business was growing quickly at the time.
2 Restaurants in North China are run by franchisee Hop Hing Group Holdings Ltd (HKG: 0047). According to Hop Hing Group materials, the Yoshinoya business posted sales of CNY1.8bn (approximately JPY27bn) in 2019.
3 Yoshinoya HD non-consolidated earnings include franchise revenue (JPY2.9bn in FY02/20), but this refers to Yoshinoya brand usage fees from domestic and overseas subsidiaries, not the total consolidated franchise revenue from other companies.
Hanamaru business The company opened its first overseas Hanamaru restaurant in 2013 and now has directly operated restaurants in China, Malaysia, and Indonesia.
Strengths and challenges Being a well-established brand in Japan is the company’s greatest selling point abroad. Another strength is its 40-year history of doing business overseas*, establishing relationships with leading local partners and fostering experienced local employees. Yoshinoya HD is steadily devolving authority to local management and preparing to accelerate the opening of more restaurants. Meanwhile, the menus at its overseas restaurants vary widely from region to region, but, as in Japan, gyudon beef bowls account for 50% of sales. The company says leveraging its strength in regions with low brand awareness is difficult, and customer footfall and overall performance suffer as a result.
* Yoshinoya HD ranks among the top Japanese restaurant operators in number of overseas restaurants. Among listed companies, Toridoll (mainstay brand: Marugame Seimen) operates in Japan and overseas. It expanded outside Japan after setting up a US subsidiary in 2009. At end-March 2019, overseas restaurants accounted for 575 of the group total of 1,678. Saizeriya opened its first overseas outlet in 2003. It had 411 outlets overseas in FY08/19.
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Basic strategy Aggressive expansion Although the company has a long history of overseas restaurants, its stance on the business was somewhat passive in the past. However, its policy changed from around 2010 to one of aggressive expansion. The food-service market is expected to continue expanding in the ASEAN and Chinese markets amid the increase in purchasing power fueled by population and economic growth and by changing lifestyles. Yoshinoya HD plans to invest resources proactively in these markets. In the US, its restaurant openings have hit a ceiling in California (majority of US outlets are near Los Angeles), but the company plans to expand into other states. According to the company, the number of Yoshinoya restaurants overseas is due to exceed the number in Japan (around 1,200) in three to five years.
Commitment to localization Since Yasutaka Kawamura took over as president of Yoshinoya HD, the company has consistently advanced localization. Establishing management companies to oversee operations in China and Malaysia is part of this strategy. The company previously provided guidance to overseas businesses from Japan. However, seeing that local resources have gained sufficient experience, the company has now devolved all functions from investment decisions to franchisee training to the local companies, with the exception of research into new business areas. The new policy is “You can do whatever you like, provided you don’t change the signage and recipes.”
Other
In the Other segment, the company posted FY02/20 sales of JPY5.7bn (+84.7% YoY) and segment profit of JPY138mn (segment loss of JPY53mn in FY02/19). The company does not disclose a sales breakdown by business category or brand. Green’s Planet Co., Ltd., a snack manufacturer, was split off in FY02/18 via an MBO. Although stores’ tenancy agreements are still in place, the company plans to make changes in stages. The other business in this segment is Setaga-ya, which operates a number of brands of restaurants serving authentic cuisine made by highly trained chefs. As of end-February 2020, Setaga-ya had 25 restaurants (directly operated and franchise), including four overseas. In addition, equity-method company FRJ runs five Niku-ankake Chahan Chao restaurants. The company also made Withlink Holdings, which operates 86 ramen restaurants (mainly franchises), a consolidated subsidiary in FY02/20. Yoshinoya HD will continue to invest and form alliances in business categories with growth potential.
Setaga-ya restaurant Bariuma restaurant (operated by Withlink Holdings)
Source: Shared Research based on company data and website information.
Group strategy
Diversification and business model reform Broad strategies are as follows:
▷ Put into action measures to maintain and increase the scale and earnings of the Yoshinoya segment ▷ Promote growth of other segments among other initiatives to reduce the impact of the Yoshinoya business (and ultimately beef prices) on overall earnings ▷ Reform and innovate business models beyond the existing restaurant business, which is limited in growth potential
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Concrete examples can be found in menu diversification (offering pork, chicken, and fish dishes as well as beef), and the acceleration of Overseas segment growth (delegating authority overseas and advancing localization). Additionally, “redefining the restaurant business” was a major theme outlined in the company’s long-term vision. The company has implemented a slew of initiatives toward this goal, such as the use of technology with a view to not only saving labor but obtaining a new revenue source (as a service provider)1. It is also working to develop products and services that respond to consumers’ health consciousness among other latest trends (see “Medium-term plan” and “FY02/19 company forecast” sections for details).
Making the most of people: continued focus on directly operated restaurants in the domestic businesses The company has a tradition of valuing people (all stakeholders) as expressed in its management principle “for the people.” Yoshinoya HD is confident that it offers equal employment opportunities to all and actively offers education programs to employees, thereby making a positive difference to society. Under the current medium-term plan, the company positions personnel expenses as an investment to improve the quality of customer service for added value, rather than as simple cost. The company believes that, in the event it decides to diversify into the service sector, its human resources around the country would prove to be a strong asset.
As a company that values its people, Yoshinoya HD says it does not take the easy option of raising profit margins by converting directly operated restaurants into franchises, splitting off restaurants and employees.
Acquiring growth businesses The company plans to actively seek acquisition opportunities. The strategy is to target companies with a big growth potential (e.g., from ten stores to 100), and bring these businesses to the organization along with the entrepreneurs who launched them. It does not plan on acquiring existing large businesses that will make a quick earnings impact or rescuing businesses in need of a turnaround, as it has done in the past. Recent examples are investments in Setaga-ya (ramen business)2, in which the company took a 66.5% stake in June 2016; consolidated subsidiary FRJ, which runs the Niku-ankake Chahan Chao chain (fried rice restaurants); and Withlink (ramen business; became an equity-method company in Q2 FY02/19 and a consolidated subsidiary in FY02/20).
No immediate plans to restructure segments The current businesses each have their challenges, but the company has no plans to make major changes (including divestiture) at present3.
Hanamaru continues to grow, has a high profit margin, and benefits from various synergies with Yoshinoya in terms of restaurant format and operations. At the same time, the product offerings of Hanamaru and Yoshinoya are complementary, because they are totally different genres.
Kyotaru’s sushi is a representative Japanese cuisine, which could play a part in the company’s plans to accelerate overseas expansion. The high-margin Kaisen Misakiko business—although still small in scale—has room for more store openings.
1 For example, Yoshinoya HD thinks employee scheduling software and automated dishwashing lines that utilize voice recognition systems and AI could be a new revenue source, because of potential demand among other food-service and retail companies. In the past, the company has developed—jointly with manufacturers—rice dispensing robots and specialized refrigerators for eggs, but did not turn a profit on these ideas.
2 The company regards ramen restaurants as an effective category for overseas expansion.
3 After withdrawing from the Dunkin Donuts business in 1998, the company has frequently reviewed its business portfolio by selling or liquidating smaller acquisitions such as ramen and yakiniku (grilled meat) chains.
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Group structure
The Yoshinoya HD group comprises the holding company, 43 consolidated subsidiaries, and five equity-method companies (as of FY02/20). The main domestic segments are Yoshinoya, Hanamaru, and Kyotaru. The company has multiple businesses in different regions and locations overseas, and they collectively fall under the Overseas segment.
The Yoshinoya segment is made up of Yoshinoya Co., Ltd. and five regional companies that oversee restaurant operations in each region (Okinawa Yoshinoya, Nishinihon Yoshinoya, Kansai Yoshinoya, Nakanihon Yoshinoya, and Kitanihon Yoshinoya; all consolidated subsidiaries). The regional companies were established initially to accommodate the different business formats, some companies operating as a joint venture and others running franchises, and to enable swift operational and management decisions (including personnel matters) factoring in region-specific elements.
In the Overseas segment, Yoshinoya America, Inc. (wholly owned) oversees the US business, Taiwan Yoshinoya (around 85% owned) oversees the Taiwanese business, and Yoshinoya China Holdings (wholly owned) oversees the Chinese business, which consists of business corporations in each province. Asia Yoshinoya International Sdn. Bhd., also wholly owned, oversees Yoshinoya’s business in the ASEAN region.
In other segments, Hanamaru Inc. and Kyotaru Co., Ltd., run their respective businesses.
Yoshinoya HD is centralizing management of its domestic businesses. The holding company oversees the whole group, as well as performing group infrastructure functions such as general administration, purchase of most ingredients, raw material development, R&D, and system development and operation.
Yoshinoya Holdings group structure
Japan
Cons. subs: 8 Hanamaru Arcmeal Kyotaru Non-cons. subs: 4 Equity-method affiliates: 2 Affiliates not account ed for by Consolidated Cons. subs: 2 Yoshinoya Consolidated equity method: 2 subsidiary: 1 Affiliates not Consolidated subsidiaries: 2 subsidiaries: 5 accounted for by equity method: 1 Real estate leasing,
Royalt ies Product Product support, Product support, Product support, Product support, support, other other other other other
Yoshinoya Holdings
Royalt ies Royalt ies Royalt ies Royalt ies
Yoshinoya F&B Yoshinoya Hanamaru Management (Shanghai) Malaysia Consolidated subsidiaries: 8 Consolidated subsidiaries: 2 Equity-method affiliate: 1 Equity-method affiliate: 1
Yoshinoya Asia Yoshinoya Taiwan Yoshinoya (China) America International Yoshinoya
Overseas
Source: Shared Research based on company data The company sold all shares in consolidated subsidiary Arcmeal Co., Ltd. in February 2020
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Profitability snapshot Sales Yoshinoya HD does not disclose a sales breakdown of directly operated restaurants/stores and franchise-related revenue, but we think franchise-related revenue is limited, because there are few franchises in Japan (fewer than 200 in total for Yoshinoya and Hanamaru) and overseas sales are still on a small scale1.
Domestic sales are more or less determined by growth of comparable store sales, because the number of new restaurant openings is limited in Japan (excluding Hanamaru and Kaisen Misakiko). For the overseas business, it is difficult to estimate growth, because the company does not disclose earnings breakdowns (the same applies to Kaisen Misakiko in Japan, which the company describes as a growing business). The company’s definition of an existing restaurant is one opened two financial years ago or earlier. Using Yoshinoya as an example, restaurants in their first year are “new restaurants,” those in their second year are “new existing restaurants,” and those in their third year or older are existing restaurants. Only existing restaurants are used to calculate comparable store sales2.
1 Royalty revenues recorded in Yoshinoya HD’s non-consolidated sales are usage fees for the Yoshinoya brand charged to domestic and overseas subsidiaries.
2 Restaurants that were remodeled in the current financial year are excluded from the scope of “existing restaurants” for the Arcmeal and Kyotaru segments but are included in the scope for the Yoshinoya and Hanamaru segments.
Cost of sales The company’s cost ratio is approximately 35–38%. Although undisclosed, we understand that the figures vary between brands, being low for Hanamaru and high for Yoshinoya. The overall cost ratio remains high versus rival chains, because beef bowls make up a large share of sales and the company has not made big revisions to their unit prices. CoS includes labor costs and depreciation of food processing facilities, but considering processing-related expenses as part of ingredient costs, we can say that almost 100% of CoS comes from ingredients.
Yoshinoya HD has a history of being strongly impacted by beef market prices. Its main ingredient is frozen US short plate1. Specific purchasing routes or pricing methods are not disclosed, because this information could affect market prices, but it appears the company holds two to five months’ inventory depending on market conditions. According to the company, it can estimate ingredient costs for up to a year ahead2.
As such, while the cost ratio varies from year to year, the difference between forecast and actual cost ratio is relatively moderate compared to actual market price fluctuations. Meanwhile, sales and SG&A expense estimates are derived based on the ingredient cost assumptions, and the disparity between these projections and actual figures could lead to the differences in the company’s earnings forecasts and performance (see the “Past initial forecasts versus results” section for details)3.
1 At present, sourcing ingredients from other countries would not lead to cost reduction. The price of Australian beef is similar to that of US beef, and buying Australian beef can actually increase costs, because it is not usually sold in small cuts like US beef, which means the company would have to find other uses for cuts that it does not use.
2 For this reason, the domestic trade price released by the Agriculture & Livestock Industry Corporation and the cost ratio disclosed by the company generally follow the same trend, but the domestic trade price does not necessarily equal the company’s purchase price (see below). Overseas restaurants purchase at spot prices, which means they are directly affected by beef market prices.
3 The company uses the weighted average cost method or final purchase cost method in accounting for inventory assets. If prices have fallen sharply between the beginning and end of a financial year, a valuation loss (write-down of book value) occurs. The company recorded write-downs of book value of JPY547mn in FY02/16 and JPY542mn in FY02/17.
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Domestic wholesale prices and Yoshinoya HD’s cost ratio
Short plate wholesale price Cost ratio (RHS) (JPY/kg)
1,200 39.0% 38.2%
1,000 37.5% 38.0% 37.3% 784 763 37.0% 800 724 922 673 584 36.3% 36.0% 559 559 600 36.0% 35.8% 607 584 35.0% 35.3% 35.1% 35.1% 400 34.0% 34.1% 200 33.0%
0 32.0% FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
Source: Shared Research based on company and Agriculture & Livestock Industry Corporation data
SG&A expenses The SG&A expense ratio remains at a high level of 60–63%. Although most items are fixed expenses in nature, the company is continuing to open new restaurants and basic salaries are trending up, resulting in higher expenses.
In FY02/20, personnel expenses accounted for 45.5% of SG&A expenses, followed by restaurant costs such as rents and utilities (20.9%). These two cost items amounted to 44% of sales. Other main expenses are depreciation and amortization (depreciation and goodwill amortization) and advertising and promotions.
Looking at expense trends over time, hiring and training costs are increasing amid the labor shortage, including the cost of hiring part-time workers and efforts to improve retention rates. Personnel expenses as a share of sales, which trended around 28% between FY02/14 and FY02/20, sometimes rise to almost 30%. Depreciation has also increased in the past few years due to investments, although its share of sales has not changed much.
As a result, the company’s OPM has been a weak 1–2% in the past few years.
SG&A expenses
SG&A expenses FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Personnel expenses 48,345 47,543 47,345 48,332 49,964 51,004 53,652 56,929 60,035 61,851 Rents and utilities 24,507 24,020 24,739 25,579 26,164 26,157 26,525 27,972 29,255 28,439 Advertising expenses 3,099 3,604 3,159 3,460 3,081 3,442 4,247 4,609 4,292 5,235 Depreciation and goodwill amortization 5,858 5,659 5,819 5,501 5,252 5,697 6,244 6,584 7,044 8,024 Other 24,218 23,730 22,674 23,707 24,515 26,917 27,703 28,799 28,851 32,474 Total 106,027 104,556 103,736 106,579 108,976 113,217 118,371 124,893 129,477 136,023 % of sales Personnel expenses 28.2% 28.7% 28.8% 27.9% 27.8% 27.5% 28.4% 28.7% 29.7% 28.6% Rents and utilities 14.3% 14.5% 15.0% 14.7% 14.5% 14.1% 14.1% 14.1% 14.5% 13.2% Advertising expenses 1.8% 2.2% 1.9% 2.0% 1.7% 1.9% 2.3% 2.3% 2.1% 2.4% Depreciation and goodwill amortization3.4%3.4%3.5%3.2%2.9%3.1%3.3% 3.3% 3.5% 3.7% Other 14.1% 14.3% 13.8% 13.7% 13.6% 14.5% 14.7% 14.5% 14.3% 15.0% Total 61.9% 63.0% 63.0% 61.5% 60.5% 61.0% 62.8% 62.9% 64.0% 62.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Capital expenditures and depreciation
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Includes figures from FY02/10 onward for which the company discloses a breakdown of capital expenditures
Extraordinary gains/losses The company records impairment losses (including retirement losses) regularly. At just over 1% of total assets, they do not stand out among companies that operate multiple stores, but have a large impact on net income (including tax effects) because of the company’s relatively low level of recurring profit.
Seasonality of financial results (difference between 1H and 2H) The company’s financial results display a slight shift in balance between 1H and 2H. In these instances, sales are generally higher in 2H whereas profits are higher in 1H. The main reasons are as follows: Sales peak in Q4 (December–February) at Arcmeal (consolidated through FY02/20) and Kyotaru, as well as the Overseas segment whose financial year ends two months before the domestic segments (January–March sales are consolidated in Yoshinoya HD’s Q1 [March–May] earnings). Meanwhile, profits tend to slump significantly in Q3 (September–November) and Q4 at Hanamaru, in Q3 at Arcmeal, and in Q4 in the Overseas segment. Net income is at a very low level in 2H, because impairment losses are recorded at the end of the financial year. (Depending on market prices, there is also a possibility of booking inventory valuation losses.) The company also records shareholder incentive costs in Q1 and Q3 totaling around JPY700mn per year.
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Strengths and weaknesses
Strengths
◤ Brand power: Core company Yoshinoya created gyudon. 120 years since the opening of the first Yoshinoya restaurant, the brand has become popularized by its nickname “Yoshigyu” and slogan “Tasty, cheap, and fast,” and has grown to be a household name in Japan. Widely known stories include the brand’s commitment to quality during the BSE outbreak and subsequent US beef ban, when the company suspended sales of gyudon after it determined the distinctive Yoshinoya flavor could only be created with US beef. The menu has since diversified, but with a core fan following, 50% of orders are still for gyudon.
◤ Wealth of knowledge and experience in overseas restaurant operation: The company has a 40-year history of doing business overseas and leads the field in overseas store count with a total of over 800 directly managed and franchise restaurants abroad. (The runner up with 528 overseas restaurants is Toridoll, which operates Marugame Seimen.) The challenge for food-service companies expanding overseas is in devising the same business structure (from purchase of ingredients to hiring and training of personnel and opening of new restaurants) as in Japan in a foreign country with different economic conditions and consumer attributes. The company has accumulated expertise through years of experience, and has also nurtured local talent, with employees working since the early days in local management ranks. Amid a saturating domestic market, Japanese restaurant chain operators share a common challenge of ensuring growth by opening restaurants abroad, particularly in China and the ASEAN region, and Yoshinoya HD is at an advantage in terms of experience and personnel.
◤ Enterprising culture that drives new initiatives: The company has always been a step ahead of the times. It created an online network of all its restaurants in the 1970s, introduced drive-thru restaurants before McDonald’s, started opening 24 hours before convenience stores, and developed kitchen equipment with manufacturers. It is currently undertaking business model reforms under the slogan “Redefining the restaurant business,” and is actively developing new software and hardware technologies to solve labor shortage and other problems. If successful, the company is considering making new technologies into money-making businesses through patent usage revenue. Shared Research considers this enterprising culture to be a major strength for the company as it develops strategies to succeed in the maturing restaurant business.
Weaknesses
◤ Selling points of mainstay products also causing constraints: The company faces limitations because of its tradition and the nature of its core products. For example, gyudon that still accounts for over half of all orders at Yoshinoya restaurants works against the progress of menu diversification. The company is also reluctant to change the price of gyudon, because it is such a well-known product. This has a number of negative consequences, including earnings deterioration. When Yoshinoya raised the price of gyudon in the past, customer traffic declined sharply. This experience has made the company cautious about changing its pricing. The existence of the traditional sauce also constrains ingredient purchases. A similar pattern can be found in Hanamaru’s core product, kake udon noodles (small portion), which was originally priced at JPY130 as part of an ambitious launch strategy. Although the company succeeded in making it an iconic dish, today it has become an obstacle to raising average customer spend.
◤ Structural risk in procuring main ingredient beef: Ingredients account for a significant share of the company’s costs. The beef used in Yoshinoya’s gyudon is a cut called short plate. The company cannot use any other cut, nor is it realistic to source it from Australia, which does not sell beef in such small units and would produce considerable wastage. Thus, Yoshinoya’s costs are determined by supply and demand of US short plate. In addition, market prices of short plate remain high because of growing demand in China and other Asian countries. Yoshinoya HD’s OPM (1.9%) is one of the weakest among the top 20 listed restaurant companies (simple average: 4.8%) in Japan because of the cost of beef, which the company must purchase in large quantities.
◤ Saturated market and insufficient synergies among brands: With the exception of Hanamaru and Kaisen Misakiko, the company’s portfolio consists of businesses that are close to the saturation point from competition with prepared meal operators and aggressive restaurant openings by rivals. Although the company is branching out into ramen, it is still small in scale, and lacks the power to drive earnings in Japan. The company says that Yoshinoya, Hanamaru, and Kaisen Misakiko have
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the advantage of common expertise in operating small restaurants, but other businesses are not benefiting from economies of scale because of differences in format (counter service versus table service), ingredients (meat, fish, flour), and even cuts and quantities of beef, despite beef being an ingredient they have in common.
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Market and value chain Restaurant market trends
The restaurant market in which Yoshinoya HD operates contracted to JPY22.8tn in 2011 after peaking in 1997 at JPY29.1tn according to the Japan Foodservice Association (JF). The market recovered somewhat to JPY25.7tn in 2017. Amid a shrinking population, the restaurant business faces tough operating conditions with competition from take-out food businesses such as convenience stores, food supermarkets, home delivery and catering services. Personnel expenses are rising due to the labor shortage, resulting in cost pressure.
Domestic restaurant market Restaurant counts of top three gyudon companies
(JPYtn) Restaurant market YoY (RHS) Sukiya Yoshinoya 2,500 30.0 29.1 12.0%
25.8 10.0% 1,984 1,980 1,969 1,963 1,944 1,931 1,934 25.0 2,000 1,913 8.0%
20.0 6.0% 1,500 4.0% 1,190 1,188 1,207 1,200 1,211 1,214 15.0 1,173 1,174 2.0% 996 975 964 958 963 1,000 950 943 953 10.0 0.0%
-2.0% 5.0 500 -4.0%
0.0 -6.0% 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20
Source: Shared Research based on Japan Food Association data Source: Shared Research based on company financial results Note: Financial years of Sukiya (Zensho Holdings) and Matsuya (Matsuya Foods Holdings) end in March.
By business category, the domestic beef bowl restaurant market, to which the Yoshinoya segment belongs, is saturated. While data showing the size of the market is not available, trends in the number of restaurants of the top three companies (Yoshinoya, Sukiya, and Matsuya) indicate that growth has stalled since FY2013.
Soba and udon restaurant market Sushi restaurant/store market
(JPYtn) Soba and udon (noodels) YoY (RHS) (JPYtn) Sushi YoY (RHS)
1.40 8.0% 1.60 8.0% 1.30 1.55 1.55 1.30 6.0% 6.0% 1.50 1.20 4.0% 4.0% 1.40 1.10 2.0% 2.0% 1.00 1.30 0.0% 0.0% 0.90 -2.0% 1.20 -2.0% 0.80 -4.0% 1.10 0.70 -4.0% -6.0%
0.60 -6.0% 1.00 -8.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Shared Research based on Japan Food Association data Source: Shared Research based on Japan Food Association data
In contrast, the market for soba and udon noodle restaurants, to which Hanamaru belongs, is continuing to grow. According to JF, the market trended at about JPY1.1tn for many years from around 1995, but began growing in 2013 and reached near JPY1.3tn in 2017.
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The sushi restaurant/store market, to which Kyotaru belongs, has yet to return to its 1992 peak, but has been making steady recovery since bottoming in 2010 (based on JF data). We believe the recovery is due in part to the expansion of conveyor belt sushi chains and their low-priced offerings. However, this has had a negative impact on the take-out sushi market, which continues to contract*.
* According to disclosure (source: Fuji Keizai Co., Ltd. “Food Service Industry Marketing Handbook”) by Ride on Express Holdings (TSE1: 6082), the take-out sushi market contracted 26% from JPY74.3bn in 2013 to JPY54.8bn in 2016, at an annual rate of 9.6%.
Competition
Yoshinoya HD ranks fifth out of 95 major listed restaurant companies after Zensho Holdings (TSE1: 7550), Skylark (TSE1: 3197), McDonald’s Holdings Japan (TSE1: 2702), and Colowide (TSE1: 7616).
Companies and brands that compete with Yoshinoya HD’s businesses are as follows. Rival beef bowl chains are Zensho Holdings’ Sukiya and Matsuya Foods’ (TSE1: 9887) Matsuya. For udon noodle chains, Toridoll Holdings’ (TSE1: 3397) operates Marugame Seimen in Japan and overseas. For sushi, major conveyor belt chains mostly operate in suburban locations with few restaurants in city centers, which means there is limited competition for Kaisen Misakiko. The main competitor in the take-out sushi business is an unlisted company, Chiyoda Sushi. Royal Holdings’ (TSE1: 8179) Royal Host and Ikinari Steak (stand-up steak houses with comparable pricing) run by Pepper Food Service (TSE1: 3053) compete with Volks. Skylark’s Gusto and Steak Gusto compete with Steak-no-Don restaurants, while the company sees Skylark’s Shabuyo and KR Food Services’ (unlisted; previously Kinrei Corporation) Kagonoya as the main competitors of Shabu Shabu Don-tei.
Competition
Store (company) Yoshinoya Sukiya (Zensho Holdings), Matsuya (Matsuya Foods) Hanamaru Marugame Seimen (Toridoll Holdings) Arcmeal Volks Royal Host (Royal Holdings), Ikinari Steak (Pepper Food Service) Steak-no-Don Steak Gusto (Skylark Holdings) Shabu Shabu Don-tei Shabuyo (Skylark Holdings), Kagonoya (KR Holdings) Kyotaru Kyotaru Chiyoda Sushi (Chiyoda Sushi) Kaisen Misakiko, other -
Source: Shared Research based on company data Zensho Holdings (TSE1: 7550) The leading restaurant company in Japan was founded in 1982, when it opened a box lunch store and a Sukiya beef bowl restaurant. After acquiring various chains, the company today has a diverse range of restaurants including Sukiya, Coco’s (family restaurant), Big Boy (steak), Jolly Pasta (pasta), Hamazushi (conveyor belt sushi), Hanaya Yohei (Japanese cuisine, mainly shabu shabu), Seto Udon (self-service udon noodles), and Moriva Coffee (café). Zensho also has a retail (food supermarket) business, because it aims to establish a mass merchandising system that plans, designs, and controls all processes from menu development to ingredient purchase, production, processing, distribution, and sales. The company has the largest beef bowl chain in Japan with 1,936 Sukiya restaurants, and another 98 restaurants in China. Sales in the beef bowl business came to JPY214.3bn.
Skylark Holdings (TSE1: 3197) In 1970, this company opened Skylark, a pioneering suburban family restaurant in Japan. It continued to develop new chains such as Jonathan (coffee shop), Barmiyan (Chinese restaurant), Aiya (Japanese restaurant) and Gusto, a new type of budget family restaurant launched in 1992 after the end of the tech bubble. Current brands are Gusto, Jonathan, Bamiyan, Aiya, Steak Gusto, Japanese restaurant Yumean (Japanese restaurant), Italian restaurant Grazie Gardens, seafood and sushi restaurant Totoyamichi, and shabu shabu restaurant Shabuyo.
Matsuya Foods Holdings (TSE1: 9887) Japan’s third-largest beef bowl chain with 1,185 restaurants. The company also has a pork cutlet chain called Matsunoya and conveyor belt sushi chain Sushimatsu. The company operates pork cutlet restaurants overseas.
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Toridoll Holdings (TSE1: 3397) Founded in 1990, Toridoll Holdings opened its first self-service udon restaurant in 1995. The company today runs the following chains: Marugame Seimen (self-service udon), Toridoll (family dining focused on yakitori), and Butaya Tonichi (pork cutlet bowl and sautéed pork). The company ran 792 Marugame Seimen restaurants in Japan and 220 overseas (including franchises) in FY03/18.
Royal Holdings (TSE1: 8179) Royal Holdings was founded in 1951 as a provider of in-flight meals and operator of airport cafés. The company runs 217 Royal Host family restaurants in Japan and 147 Tenya restaurants specializing in tempura on rice (FY12/19).
Chiyoda Sushi (Unlisted) A comprehensive sushi business (restaurants and take-out sushi) founded in 1959, Chiyoda Sushi posted FY03/19 sales of JPY13.8bn. The company runs Chiyoda Sushi take-out sushi stores (180 stores mainly in Tokyo), gourmet conveyor belt sushi restaurants Tsukiji Gin-ikkan, and stand-up sushi restaurants Tachigui Sushidokoro Chiyoda Sushi and Tsukiji Senzushi.
Earnings summary of Yoshinoya HD and its main competitors
Yoshinoya Holdings (9861) Zensho Holdings (7550) Matsuya Foods (9887) (JPYmn) FY02/18 FY02/19 FY02/20 FY03/17 FY03/18 FY03/19 FY03/17 FY03/18 FY03/19 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 198,503 202,385 216,201 544,028 579,108 607,679 89,039 93,006 98,159 Gross profit 128,912 129,581 139,949 312,177 327,622 346,453 60,810 62,721 65,931 SG&A expenses 124,893 129,477 136,023 293,401 310,010 327,619 55,978 58,601 62,046 Operating profit 4,019 104 3,926 18,775 17,611 18,834 4,831 4,120 3,885 Recurring profit 4,604 349 3,369 18,061 17,656 18,211 5,063 4,375 4,183 Net income 1,491 -6,000 713 8,443 8,001 9,924 2,837 2,381 2,198 GPM 64.9% 64.0% 64.7% 57.4% 56.6% 57.0% 68.3% 67.4% 67.2% SG&A ratio 62.9% 64.0% 62.9% 53.9% 53.5% 53.9% 62.9% 63.0% 63.2% OPM 2.0%0.1%1.8%3.5%3.0%3.1%5.4%4.4%4.0% ROE 2.6% -11.1% 1.5% 13.0% 11.8% 14.2% 7.9% 6.2% 5.5% ROA (RP-based) 4.0% -5.4% 2.8% 6.4% 6.0% 5.4% 8.9% 7.6% 6.8% Total assets 115,613 111,849 126,167 288,999 296,769 377,779 57,146 58,308 65,026 Net assets 57,807 50,025 48,385 82,107 82,204 87,083 37,172 39,078 40,808 Equity ratio 49.5% 46.5% 40.0% 23.5% 22.7% 19.1% 65.0% 67.0% 62.8% Operating CF 9,374 2,830 14,038 37,049 37,162 33,129 7,089 6,724 5,085 Investing CF -8,379 -9,034 -8,453 -26,193 -24,663 -52,143 -3,192 -4,239 -6,677 Financing CF -4,200 2,461 288 -9,403 -9,073 50,300 -4,012 -2,507 2,289 Cash and deposits 21,913 16,971 22,604 22,274 26,142 57,240 8,847 8,814 5,624 Interest-bearing debt 33,061 38,175 47,431 148,121 150,319 212,618 9,613 7,824 10,802 Net debt 11,148 21,204 24,827 125,847 124,177 155,378 766 -990 5,179 Toridoll Holdings (3397) Skylark Holdings (3197) Royal Holdings (8179) FY03/17 FY03/18 FY03/19 FY12/17 FY12/18 FY12/19 FY12/17 FY12/18 FY12/19 IFRS Cons. IFRS Cons. IFRS Cons. IFRS Cons. IFRS Cons. IFRS Cons. Cons. Cons. Cons. Sales 101,779 116,504 145,022 359,445 366,360 375,394 132,070 133,896 136,546 Gross profit 75,563 85,644 105,904 251,152 254,959 261,348 93,313 95,116 93,540 SG&A expenses 66,280 77,685 98,634 221,814 230,538 236,930 87,360 89,407 92,922 Operating profit 8,619 7,635 2,302 28,103 22,857 20,562 5,952 5,709 4,648 Recurring profit 8,466 7,175 1,337 25,515 18,596 16,729 6,056 5,765 4,639 Net income 5,631 4,665 221 16,926 11,438 9,487 3,533 2,791 1,923 GPM 74.2% 73.5% 73.0% 69.9% 69.6% 69.6% 68.8% 71.0% 68.5% SG&A ratio 65.1% 66.7% 68.0% 61.7% 62.9% 63.1% 64.4% 66.8% 68.1% OPM 8.5%6.6%1.6%7.8%6.2%5.5%4.4%4.1%3.3% ROE 17.5% 13.2% 0.8% 12.7% 8.9% 7.2% 7.2% 5.5% 3.8% ROA (RP-based) 13.9% 8.2% 8.2% 7.4% 5.7% 4.3% 6.3% 5.9% 4.6% Total assets 64,011 111,525 117,833 318,203 330,671 453,979 97,138 99,528 102,540 Net assets 35,006 37,470 35,003 127,324 130,453 132,817 51,973 51,125 52,028 Equity ratio 53.4% 32.5% 28.8% 40.0% 39.5% 29.3% 52.5% 50.1% 49.6% Operating CF 9,743 9,862 8,416 31,510 31,571 67,825 9,350 8,478 9,849 Investing CF -8,769 -39,860 -14,210 -19,606 -19,667 -20,446 -4,279 -6,121 -5,941 Financing CF 102 35,039 5,534 -13,078 -8,049 -47,350 -2,580 -4,591 -4,774 Cash and deposits 11,183 14,798 14,398 15,094 18,908 18,979 7,552 5,305 4,449 Interest-bearing debt 15,707 53,806 62,674 129,224 133,054 129,318 25,395 27,568 31,500 Net debt 4,524 39,008 48,276 114,130 114,146 110,339 17,843 22,263 27,051 Source: Shared Research based on company data
50/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
The following chart plots sales of the top 20 restaurant companies on the X axis and OPM on the Y axis. We can see that although Yoshinoya is a major company in terms of sales, its OPM is weaker than most of its rivals.
OPM distribution of top 20 restaurant companies in terms of sales
（％）
12.0
Saint Marc 9.8% 10.0 McDonald's 9.2%
Doutor 7.8% 8.0 Ohsho 7.0% Sushiro 6.7% Skylark 6.2% 6.0 Toridoll 6.6% MOS 5.2% Saizeriya 5.6%
Matsuya 4.4% Kura 5.2% 4.0 Royal 4.1% Joyfull 3.3% Zensho 3.0% Create 3.3%
2.0 Colowide 1.7% Kappa Create Watami 0.7% 0.5% Yoshinoya 0.1% 0.0 KFC HD Japan 0.6% 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 (JPYmn) Source: Shared Research based on company data The top 20 restaurant companies in terms of sales are Zensho Holdings (7550), Skylark 3197), McDonald’s Holdings Japan (2702), Colowide (7616), Yoshinoya HD (9861), Sushiro Holdings (3563), Saizeriya (7581), Royal Holdings (8179), Doutor NRS Holdings (3087), Kura Corporation (2695). Create Restaurants Holdings (3387), Toridoll Holdings (3397), Watami (7522), Matsuya Foods (9887), Kappa Create (7421), Ohsho Food Service (9936), Kentucky Fried Chicken Japan (9873), MOS Food Services (8153), Saint Marc Holdings (3395), and Joyfull (9942). Ranked by sales in the most recent financial year.
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Historical performance and financial statements Income statement
Income statement FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 171,314 165,883 164,599 173,418 180,032 185,738 188,623 198,503 202,385 216,201 YoY -4.6% -3.2% -0.8% 5.4% 3.8% 3.2% 1.6% 5.2% 2.0% 6.8% Cost of sales 60,171 56,525 58,985 64,659 67,540 70,907 68,386 69,590 72,804 76,252 Gross profit 111,143 109,358 105,613 108,758 112,491 114,830 120,237 128,912 129,581 139,949 YoY -0.9% -1.6% -3.4% 3.0% 3.4% 2.1% 4.7% 7.2% 0.5% 8.0% Gross profit margin 64.9% 65.9% 64.2% 62.7% 62.5% 61.8% 63.7% 64.9% 64.0%64.7% SG&A expenses 106,027 104,556 103,736 106,579 108,976 113,217 118,371 124,893 129,477 136,023 SG&A ratio 61.9% 63.0% 63.0% 61.5% 60.5% 61.0% 62.8% 62.9% 64.0% 62.9% Operating profit 5,116 4,801 1,877 2,179 3,515 1,613 1,865 4,019 104 3,926 YoY -671.6% -6.2% -60.9% 16.1% 61.3% -54.1% 15.6% 115.5% -97.4% 3675.0% Operating profit margin 3.0% 2.9% 1.1% 1.3% 2.0% 0.9% 1.0% 2.0% 0.1% 1.8% Non-operating income 1,311 1,634 1,459 1,887 1,291 1,509 1,606 1,502 1,350 1,779 Non-operating expenses 917 1,124 876 796 813 777 721 916 1,105 2,335 Recurring profit 5,509 5,311 2,460 3,270 3,993 2,345 2,750 4,604 349 3,369 YoY -1257.4% -3.6% -53.7% 32.9% 22.1% -41.3% 17.3% 67.4% -92.4% 865.3% Recurring profit margin 3.2% 3.2% 1.5% 1.9% 2.2% 1.3% 1.5% 2.3% 0.2% 1.6% Extraordinary gains 399 1,221 0 0 340 4 1,487 23 7 188 Extraordinary losses 2,722 3,400 1,470 1,103 1,612 980 1,537 1,607 5,210 2,526 Impairment losses 1,352 1,579 1,397 1,030 1,494 933 1,409 1,298 5,107 2,479 Income taxes 2,624 1,937 1,315 1,545 1,881 544 1,460 1,544 1,201 310 Implied tax rate 82.4% 61.8% 132.8% 71.3% 69.1% 39.7% 54.1% 51.1% -24.7% 30.1% Net income attributable to non-controlling interests 180 -115 38 -76 -101 -12 -9 -16 -53 8 Net income 382 1,310 -364 698 941 837 1,248 1,491 -6,000 713 YoY - 242.9% - - 34.8% -11.1% 49.1% 19.5% - - Net margin 0.2% 0.8% -0.2% 0.4% 0.5% 0.5% 0.7% 0.8% -3.0% 0.3% EBITDA 11,688 10,849 7,919 7,841 8,847 7,267 8,017 10,522 7,019 11,879 EBITDA margin 6.8% 6.5% 4.8% 4.5% 4.9% 3.9% 4.3% 5.3% 3.5% 5.5% Comparable-store sales YoY FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Yoshinoya -6.8% -4.9% -2.3% 7.3% 1.2% 0.8% 0.1% 1.4% 0.8% 6.7% Hanamaru -5.6% -7.3% -0.7% 0.2% 0.0% 1.5% -1.3% 2.9% -1.8% 1.5% Arcmeal -6.5% -6.7% 1.2% 6.0% 6.7% 1.8% -6.1% -1.2% -8.7% 3.9% Kyotaru -4.6% -4.3% 1.3% -0.7% 1.3% 0.8% 0.1% -0.4% 0.3% 0.5% Store count FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Yoshinoya 1,154 1,189 1,193 1,191 1,190 1,188 1,207 1,204 1,211 1,214 Openings 41 36 26 27 31 37 36 28 33 29 Closures 72 21 22 29 32 30 17 31 26 25 Hanamaru 308 312 327 341 371 390 432 479 512 522 Openings 34 27 28 30 29 44 52 59 48 30 Closures 8 8 13 16 14 13 10 10 15 20 Arcmeal 170 172 172 175 179 186 184 178 171 154 Openings 0355650010 Closures 251522326716 Kyotaru 360 350 330 328 329 315 329 330 333 335 Openings 9221921141225192117 Closures 15 32 39 23 13 26 11 18 18 15 Overseas 439 490 577 636 635 675 733 821 923 994 Openings 54 64 109 82 49 68 94 107 135 131 Closures 14 13 22 23 50 40 36 19 33 60 Other 262 195 191 179 178 169 189 171 253 258 Openings 155151817149 92013 Closures 8867193032617331920 Consolidated total 2,693 2,708 2,790 2,850 2,882 2,923 3,074 3,179 3,403 3,477 Openings 153 157 202 183 146 180 216 222 258 220 Closures 222 142 120 123 114 138 93 117 118 156 Per-store data (FY average; JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Sales Yoshinoya 78.04 74.83 72.67 78.02 80.07 80.41 81.24 83.85 85.80 92.11 Hanamaru 49.83 50.24 60.34 56.55 54.83 56.53 58.10 59.40 58.54 59.75 Arcmeal 121.00 120.85 121.24 127.67 134.42 133.46 124.21 124.21 116.03 122.52 Kyotaru 70.75 77.85 71.19 72.11 74.69 77.57 79.76 81.02 82.42 85.46 Operating profit Yoshinoya 3.80 3.88 1.61 2.41 3.41 2.57 3.20 4.20 2.92 4.89 Hanamaru 2.56 2.53 2.84 2.33 2.79 3.04 2.28 2.80 1.26 2.42 Arcmeal 3.76 3.35 2.28 2.39 1.62 1.40 0.73 1.15 -4.82 -1.90 Kyotaru 0.37 -1.71 -0.40 0.07 0.78 0.90 0.22 0.96 0.49 1.37 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures provided from FY02/11 for continuity of segments.
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Balance sheet
Balance sheet FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Total current assets 26,358 26,805 24,242 30,079 39,503 36,984 38,600 37,124 33,424 41,303 Cash and deposits 15,576 17,299 14,244 18,174 27,087 21,287 25,474 21,913 16,971 22,604 Notes and accounts receivable 3,679 3,227 2,757 3,412 4,023 3,362 3,727 5,764 5,829 8,005 Inventories 4,100 3,631 5,100 5,749 5,140 8,839 5,771 5,743 6,345 6,985 Other 3,010 2,653 2,146 2,747 3,258 3,498 3,629 3,708 4,283 3,716 Allowance for doubtful accounts -7-5-5-3-5-2-1-4-7-8 Total fixed assets 70,730 67,565 67,095 65,444 69,155 74,307 76,346 78,489 79,260 84,863 Total tangible fixed assets 39,999 38,851 38,737 38,236 39,857 44,521 45,178 46,611 46,234 51,595 Buildings and structures 24,826 25,131 25,354 24,803 25,405 28,008 28,362 29,402 27,220 28,706 Machinery, equipment, and vehicles 688 509 519 460 613 743 1,144 1,669 1,833 2,287 Tools, furniture, and fixtures 2,003 1,564 1,499 1,591 1,623 2,095 2,447 2,755 2,677 2,808 Land 9,063 8,781 8,592 8,621 8,793 8,859 8,173 8,127 8,111 8,066 Lease assets 3,015 2,707 2,603 2,623 3,189 4,273 4,849 4,251 5,607 6,540 Construction in progress 402 157 168 135 232 541 200 404 784 599 Total intangible fixed assets 3,349 3,020 4,076 3,497 3,096 3,067 3,875 4,102 4,155 5,233 Goodwill 267 214 1,685 1,471 1,242 1,055 1,537 1,405 1,244 1,797 Other 3,081 2,806 2,390 2,025 1,854 2,012 2,338 2,696 2,910 3,435 Investments and other assets 27,381 25,693 24,282 23,710 26,200 26,717 27,292 27,775 28,870 28,034 Investment securities 913 877 999 1,087 4,668 4,278 4,335 4,546 5,320 3,666 Long-term loans receivable 640 568 505 546 577 511 477 467 289 346 Other 1,044 858 743 852 539 484 643 667 648 1,186 Allowance for doubtful accounts -349 -212 -202 -181 -212 -167 -222 -202 -76 -45 Total assets 97,088 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 126,167 LIA BILITIES Total current liabilities 34,573 34,032 31,115 38,673 31,533 31,563 32,530 33,681 31,255 37,963 Notes and accounts payable 4,373 3,865 4,116 4,776 6,753 5,741 5,053 5,985 5,607 6,313 Short-term debt 18,614 20,158 17,665 22,918 10,416 13,752 14,493 13,307 11,118 12,058 Short-term borrowings 13,527 14,831 11,630 17,698 5,162 5,224 5,321 5,805 6,087 6,265 Current portion of corporate bonds 750 Current portion of long-term borrowings 4,292 4,454 5,235 4,614 4,526 7,665 7,397 6,465 5,031 5,793 Lease obligations 795 873 800 606 728 863 1,025 1,037 1,352 2,633 Income taxes payable 948 978 382 1,455 1,063 551 463 1,011 517 691 Other 10,638 9,031 8,952 9,524 13,301 11,519 12,521 13,378 10,938 14,521 Total fixed liabilities 16,345 14,754 16,832 13,438 18,186 21,994 25,207 24,124 31,404 39,818 Long-term debt 11,941 9,036 11,375 8,571 13,824 17,577 20,807 19,754 27,057 35,373 Deferred tax liabilities 2776981225860 2 2 2 Other 4,377 5,642 5,359 4,855 4,337 4,331 4,400 4,368 4,345 4,443 Total liabilities 50,918 48,787 47,948 52,112 49,719 53,558 57,737 57,805 62,659 77,782 Net assets Capital stock 10,265 10,265 10,265 10,265 10,265 10,265 10,265 10,265 10,265 10,265 Capital surplus 11,153 11,139 11,139 11,139 11,139 11,560 11,551 11,534 11,497 11,504 Retained earnings 42,780 42,689 41,105 40,776 38,532 38,077 38,035 38,236 30,944 29,332 Treasury stock -20,015 -18,089 -18,089 -18,089 -733 -741 -744 -712 -682 -639 Shareholders' equity 44,183 46,004 44,420 44,091 59,203 59,161 59,107 59,324 52,024 50,462 Valuation differences on securities -4 -11 -4 -3 6 -3 4 7 -6 -10 Foreign currency translation adjustments -1,815 -1,879 -1,701 -1,339 -826 -1,650 -2,353 -2,040 -2,547 -2,631 Remeasurements of defined benefit plans -49 -14 -13 -28 -25 -24 Non-controlling interests 3,806 1,469 675 663 602 240 464 544 579 588 Total net assets 46,169 45,584 43,390 43,412 58,938 57,733 57,209 57,807 50,025 48,385 Total liabilities and net assets 97,088 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 126,167 Working capital 3,406 2,993 3,741 4,385 2,410 6,460 4,445 5,522 6,567 8,677 Total interest-bearing debt 30,555 29,194 29,040 31,489 24,240 31,329 35,300 33,061 38,175 47,431 Net debt 14,979 11,895 14,796 13,315 -2,847 10,042 9,826 11,148 21,204 24,827 Days in accounts receivable 8.1 7.6 6.6 6.5 7.5 7.3 6.9 8.7 10.5 11.7 Days in inventory 38.2 25.0 27.0 30.6 29.4 36.0 39.0 30.2 30.3 31.9 Days in accounts payable 30.9 26.6 24.7 25.1 31.2 32.2 28.8 28.9 29.1 28.5 Cash conversion cycle 15.45 5.96 8.96 12.02 5.81 11.08 17.04 9.97 11.70 15.05 Current ratio 76.2% 78.8% 77.9% 77.8% 125.3% 117.2% 118.7% 110.2% 106.9% 108.8% Fixed ratio 167.0% 153.2% 157.1% 153.1% 118.5% 129.2% 134.5% 137.1% 152.4% 168.2% Net debt / Equity ratio 0.34 0.26 0.34 0.31 -0.04 0.22 0.21 0.23 0.43 0.51 Equity ratio 43.6% 46.7% 46.8% 44.8% 53.7% 51.7% 49.4% 49.5% 43.9% 37.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Leases included in loans Assets Fixed assets, accounting for around 40% of the total assets, trended upward from FY02/14 to FY02/18 as the company continued to open new restaurants. However, in FY02/19 it closed multiple restaurants and booked corresponding impairment losses in an effort to restructure. Other items under assets include cash and deposits (slightly below 20%) and lease and guarantee deposits (10% plus).
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Liabilities Interest-bearing debt including lease obligations is the largest item at over 50% of total. Although this item decreased after disposal (sale) of treasury stock in August 2014, it has continued to increase again from FY02/15. In FY02/19, the company raised over JPY10.0bn in long-term borrowings.
Net assets Thanks to reserves from the past years, net assets accounted for 44% of total assets at end FY02/19, despite a drop in retained earnings. Net assets grew sharply after the sale of treasury stock in FY02/15, but have declined slightly since, because the company has paid dividends in excess of net income through FY02/17 under its stable dividends distribution policy.
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Cash flow statement
Cash flow statement FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 13,798 8,109 6,212 7,570 11,833 433 10,104 9,374 2,830 14,038 Cash flows from investing activities (2) -4,585 -3,218 -6,937 -4,258 -9,201 -12,365 -6,526 -8,379 -9,034 -8,453 Free cash flow (1+2) 9,213 4,891 -725 3,312 2,632 -11,932 3,578 995 -6,204 5,585 Cash flows from financing activities -7,327 -3,199 -2,473 481 5,595 3,843 1,085 -4,200 2,461 288 Depreciation and amortization (A) 6,572 6,048 6,042 5,662 5,332 5,654 6,152 6,503 6,915 7,953 Capital expenditures (B) -5,037 -4,058 -5,823 -4,322 -5,891 -8,656 -7,699 -7,461 -7,371 -7,747 Change in working capital (C) -3,240 -413 748 644 -1,975 4,050 -2,015 1,077 1,045 2,110 Simple FCF (NI + A + B - C) 5,157 3,713 -893 1,394 2,357 -6,215 1,716 -544 -7,501 -1,191 Source: Shared Research based on company data * Note: Figures may differ from company materials due to differences in rounding methods. Cash flows from operating activities The main items under cash flows from operating activities are depreciation, pre-tax profit, impairment losses, and income and other taxes, to which increase/decrease in working capital is added. In the five years spanning FY02/14 through FY02/18, the base cash (profit before extraordinary gains/losses [JPY2.0–4.0bn] + depreciation [JPY5.0–6.0bn] – income taxes [JPY1.5–2.0bn]) trended between JPY5.0bn and JPY8.0bn. Cash flows from operating activities dropped significantly in FY02/19 as the company recorded a pre-tax loss, before improving markedly in FY02/20 on a sharp rise in earnings due to a strong performance from the Yoshinoya segment.
Cash flows from investing activities Acquisition of fixed assets accompanying the opening of new restaurants is the main item. Capital expenditures over the past ten years stood at around JPY4.0–8.6bn. In the five years from FY02/15 to FY02/19, capital expenditure levels trended slightly above depreciation.
Cash flows from financing activities The main items are increase/decrease in borrowings and dividends (approximately JPY1.3bn).
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Historical performance
Q3 FY02/20 results
Consolidated results for cumulative Q3 FY02/20 (March–November 2019)
▷ Sales: JPY159.9bn (+6.6% YoY) ▷ Gross profit: JPY103.7bn (+7.7% YoY) ▷ Operating profit: JPY2.9bn (versus loss of JPY562mn in Q3 FY02/19) ▷ Recurring profit: JPY3.4bn (versus loss of JPY129mn in Q3 FY02/19) ▷ Net income*: JPY1.8bn (versus loss of JPY1.6bn in FY02/19)
*Net income attributable to owners of the parent
▷ Factors behind sales growth: In the mainstay Yoshinoya segment, which is operating its business throughout Japan, a slew of new product introductions and sales campaigns led to solid sales growth. Further contributing factors include price revisions in the Hanamaru segment and active expansion of new stores in the Hanamaru, Kyotaru, and Overseas segments. ▷ Factors behind profit growth: The company’s cost-to-sales ratio improved 0.7pp YoY in cumulative Q3 FY02/20. Primary reasons for this change included curtailment of rice and other ingredient costs, improvement in product mix thanks in part to
strong performance in the Yoshinoya segment, and price revisions in the Hanamaru segment. SG&A expenses have continued to trend upward in FY03/20 due to labor shortages and a rise in part-time employee hourly wages. However, the company secured operating profit thanks to an increase in sales that absorbed higher burdens in terms of expenses related to personnel
and business restructuring, such as these.
Segment results for cumulative Q3 FY02/20 (March–November 2019) Yoshinoya
▷ Segment sales: JPY82.1bn (+7.6% YoY) ▷ Segment profit: JPY4.4bn (+104.5% YoY)
Segment sales were up on successive introductions of beef-based products and successful campaigns, which led to higher same store sales in Japan. According to company surveys, visit frequency from specific customers for whom this value can be measured has increased. It appears safe to say that visit frequency from beef bowl fans, a group targeted by the company at the beginning of FY02/20, has been steady.
Same store sales were up 6.9% YoY in cumulative Q3. On a monthly basis, same store sales were up 8.1% YoY in March, up 4.8% YoY in April, up 5.2% YoY in May, up 7.1% YoY in June, up 2.6% YoY in July, up 13.9% YoY in August, up 4.6% YoY in September, up 8.2% YoY in October, and up 7.3% YoY in November, marking nine consecutive months of YoY sales increases. Customer traffic, one primary factor contributing to segment sale increase, was up 2.3% YoY in March, down 0.9% YoY in April, down 0.6% YoY in May, up 5.4% YoY in June, down 0.7% YoY in July, up 10.3% YoY in August, up 0.2% YoY in September, up 4.0% YoY in October, and up 4.7% YoY in November. Average spending per customer, another primary contributing factor, was up 5.6% YoY in March, up 5.8% YoY in April, up 5.8% YoY in May, up 1.6% YoY in June, up 3.4% YoY in July, up 3.2% YoY in August, up 4.3% YoY in September, up 4.1% YoY in October, and up 2.5% YoY in November. An analysis of these figures suggests that average spending per customer was the main factor contributing to higher sales in Q1, while customer traffic was the main factor in Q2. Both factors contributed in Q3.
The Yoshinoya segment had a total of 1,214 stores in operation at end Q3 FY02/20, having opened 23 new stores while closing 19.
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Major initiatives during the period, which coincides with the company’s 120-year anniversary, included various measures aimed at increasing the frequency of store visits by its beef bowl fans. On the menu front, in March the company introduced two new sizes of its signature beef bowl (an extra-large size and a small size), in May it rolled out a new menu item that has been developed in cooperation with another company (Rizap beef salad), in August it introduced a special sukiyaki plate made with beef sirloin, in September it introduced Tsukimi Gyutoji-gozen (beef and fluffy egg set with another raw egg on top), and in October it introduced the Gyu Suki Nabe-zen (beef sukiyaki hotpot) and Mara Gyu Nabe-zen, supervised by Iron Chef Chinese Kenichi Chen. On the sales promotion front, in April the company ran a special JPY80 discount coupon offer for its Yoshinoya chain in conjunction with its Hanamaru Udon chain, in June it offered a JPY80 discount on takeout orders, in July it offered a special “summer vacation discount” for kids, and in October it offered 10% off all beef bowl and beef plate items. With the goal of cultivating demand for home delivery services, the company actively expanded its number of stores providing these services to 427, more than double the number at end-FY02/19. Including new stores, 88 stores are implementing the company’s new service model. In Q4, the company plans to convert stores to the new service model at a faster pace.
Segment profit was JPY4.4bn (+104.5% YoY). The increase in sales led to higher OPM from Q1–Q3 YoY (+3.3pp YoY in Q1, +3.8pp YoY in Q2, and +0.5pp YoY in Q3).
Hanamaru
▷ Segment sales: JPY23.3bn (+6.2% YoY) ▷ Segment profit: JPY1.3bn (+90.2% YoY)
Existing store sales have been strong, trending 1–2% higher YoY in each quarter from Q1–Q3 due primarily to price revisions. Active store openings brought the total number of stores up, which contributed to the rise in sales. The Hanamaru segment had 524 stores in operation as of end Q3, having opened 22 new stores and closed 10 stores during the period.
Major initiatives during the period included its “tempura season ticket” in collaboration with Yoshinoya (in April), “500 stores– Thank You” campaign (in June), and its child discount campaign (in August), all of which were aimed at bringing in new customers and increasing the frequency of visits by existing customers. New menu item additions were largely seasonal dishes: Noko Tonyu Tantan Udon (udon noodles in thick, spicy, soy milk-based soup), put on its menu in April, Toro-dama Bukkake (udon noodles made with fatty tuna broth), put on its menu in June, Hiyashi Goma Tantan Udon (chilled Szechuan-style udon noodles covered with a spicy sauce), put on its menu in August, and Pokapoka Ankake (warm-me-up clear starchy sauce) Fair, put on its menu in October were especially popular among female customers.
Segment profit was JPY1.3bn (+90.2% YoY). The company was able to improve its earnings through price revisions. The Hanamaru segment was profitable in Q3 (September–November 2019), even though Q3 contributions are small in typical years due to seasonal factors.
Arcmeal
▷ Segment sales: JPY14.8bn (-1.6% YoY) ▷ Segment loss: JPY482mn (versus loss of JPY740mn in Q3 FY02/19)
The Arcmeal business had a total of 158 stores in operation at end Q3, having opened no new stores and closed 12. The drop in sales reflected the net decline in the number of stores in operation.
Major sales promotions during the period were aimed at reviving customer traffic at existing stores. Toward this end, the company distributed various coupons (such as “lunch time season passes” and the “step-up” and “one-two” coupons) in addition to offering special prices on “beef day.” In April, the Steak-no-Don chain coordinated the launch of a new dish with the showing of a new movie featuring the popular animated character Crayon Shin-chan. In July, the company made changes in menus at the various chains under the Arcmeal segment, including the launch of a super-sized Extreme Atsu Steak at the
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Steak-no-Don chain and additions to lunch menus and the creation of special seasonal food menus at its Shabu Shabu Don-tei and Volks chains.
Segment loss was JPY482mn (JPY740mn in Q3 FY02/19), narrowing loss YoY due to recovery in customer traffic caused by menu revisions connected with the Arcmeal strategy of returning to its roots and the restructuring of unprofitable stores. The company expects to eliminate this segment after FY02/20, once it transfers all of its shares in subsidiary Arcmeal Co., Ltd. (announced on December 26, 2019; scheduled for February 29, 2020).
Kyotaru
▷ Segment sales: JPY21.1bn (+3.6% YoY) ▷ Segment profit: JPY252mn (+89.5% YoY)
Top-line growth was driven by a combination of openings of new Kaisen Misakiko restaurants (conveyor belt sushi restaurants) in the Tokyo metropolitan area and solid increases in sales at existing restaurants. However, the rate of sales growth in Q3 (September–November 2019) slowed down, finishing at 1.6% YoY. This was due to a drop in sales in October caused by Typhoon Hagibis, which struck Japan primarily in the Kanto-Koshin region on October 12, 2019 as the company worked to expand its store count predominantly in the Kanto region.
The Kyotaru segment had a total of 333 stores in operation at end Q3, having opened 12 new stores and closed 12 during the period.
Major sales initiatives during the period included promotions featuring discounts on favorites such as sushi rolls and purchases for special event celebrations at the take-out business; and “bluefin tuna festival” and “JPY99 Sale" (for red plates usually priced at JPY110) at the restaurant business. On the menu front, changes included the rollout of a seasonal menu across all restaurant formats featuring seasonal favorites such as saury and cod. It also expanded sales of cooked rice and online sales of bento (boxed lunches).
Segment profit was JPY252mn (+89.5% YoY). The company recorded operating loss in the Kyotaru segment in Q3 alone, due to impact from Typhoon Hagibis. However, it posted operating profit in cumulative Q3 thanks to operating profit recorded in Q2 (versus a loss in Q2 FY02/19) and a YoY increase in operating profit in Q1.
Overseas
▷ Segment sales: JPY16.5bn (+4.7% YoY) ▷ Segment profit: JPY871mn (+48.6% YoY)
The top-line gains were driven by robust sales in the US coupled with an aggressive store opening program (in Indonesia, Taiwan, etc.) for both directly managed and franchise outlets.
The total overseas store count at end Q3 was 983, with the company having opened 100 new stores while closing 40. Store openings were conducted mainly in Beijing and other parts of China (66 of 100 store openings were conducted here) as well as various ASEAN countries.
Segment profit was JPY871mn (+48.6% YoY). The company noted that the boost in sales from new store openings in regions where it is conducting franchise expansion offset the rising cost of ingredients in some areas.
1H FY02/20 results
Consolidated results for 1H FY02/20 (March–August 2019)
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▷ Sales: JPY107.1bn (+6.7% YoY) ▷ Gross profit: JPY69.5bn (+7.9% YoY) ▷ Operating profit: JPY2.9bn (versus year-earlier profit of JPY55mn; x53.4 YoY) ▷ Recurring profit: JPY3.0bn (versus year-earlier profit of JPY332mn; x810.5 YoY) ▷ Net income*: JPY1.9bn (versus year-earlier loss of JPY850mn)
*Net income attributable to owners of the parent
▷ Prior to its release of 1H results the company issued an upward revision to its forecast, but only to its forecast for 1H results. The company made no changes to its full-year forecast, saying there were still too many unknowns, including the impact of the consumption tax hike, trends in raw materials prices in the wake of US-Japan trade negotiations, and geopolitical risks in countries where it has restaurant chain operations (such as China). ▷ Factors behind sales growth: Sales were solid in the mainstay Yoshinoya segment, which ran sales promotion to go along with its slogan “Core & More”. Same store sales were strong across all segments; overall sales were further bolstered by aggressive expansion of new stores in the Hanamaru and Kyotaru segments. The Overseas segment also saw higher sales thanks to a combination of higher menu prices and new store openings. ▷ Factors behind profit growth: Higher sales led to higher earnings at nearly all segment, particularly at its mainstay Yoshinoya segment. Higher menu prices aided the gains, especially with some of the higher priced items on the new menu enjoying strong sales. Lower costs were a big factor behind the sharp jump in operating profit, as the CoS ratio declined 0.7pp YoY to 35.1% (versus initial target of 35.5%) and the SG&A expense ratio declined 1.9pp YoY to 62.2%. Costs were higher in some
areas, though; prices for seafood and some other ingredients were up sharply, for example, and a shortage of workers pushed up wages for part-time workers. Still, overall costs came in lower than expected thanks to stable prices for ingredients such as rice and beef, and fewer hires of part-time workers than initially planned. ▷ Contributions to consolidated sales and operating profit by individual segments are shown in the figure below. As can be seen, the Yoshinoya segment accounted for the bulk of top-line gains. All segments made positive contributions to operating profit, even the Arcmeal segment, which despite a decline in sales was able to shrink its operating losses. ▷ The application of IFRS 16 to the company’s subsidiaries in China, Taiwan, and ASEAN countries starting in FY02/20 resulted in the addition of some JPY3.0bn in right-of-use assets under tangible fixed assets on the company’s balance sheet.
Segment results for 1H FY02/20 (March–August 2019) Yoshinoya
▷ Segment sales: JPY54.7bn (+7.6% YoY) ▷ Segment profit: JPY3.3bn (+164.6% YoY)
▷ The main force driving segment sales was same store sales growth. ▷ Same store sales were up 6.9% YoY in 1H. On a monthly basis, same store sales were up 8.1% YoY in March, up 4.8% YoY in April, up 5.2% YoY in May, up 7.1% YoY in June, up 2.6% YoY in July, and up 13.9% YoY in August. Customer traffic was up 2.3% YoY in March, down 0.9% YoY in April, down 0.6% YoY in May, up 5.4% YoY in June, down 0.7% YoY in July, and up 10.3% YoY in August. Average spending per customer was up 5.6% YoY in March, up 5.8% YoY in April, up 5.8% YoY in May, up 1.6% YoY in June, up 3.4% YoY in July, and up 3.2% YoY in August. The main force driving same store sales growth in Q1 was increases in spending per customer; in Q2 it was increases in customer traffic.
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▷ The Yoshinoya segment had a total of 1,211 stores in operation at end 1H FY02/20, having opened 19 new stores while closing 18. ▷ Major initiatives during the period included the introduction of new beef-based menu items under the company’s “Core & More” strategy aimed at increasing visits by existing customer; together with the expansion of its takeout service and the introduction of deep-fried foods and other new menu items, this helped bolster sales by attracting new customers. As this fiscal year coincides with the company’s 120-year anniversary, the company is also taking additional steps aimed at increasing the frequency of store visits by its beef bowl fans. On the menu front, in March the company introduced two new sizes of its signature beef bowl (an extra-large size and a small size), in May it rolled out a new menu item that has been developed in cooperation with another company (Rizap beef salad), and in August it introduced a special sukiyaki plate made with beef sirloin and, at Yoshinoya, expanded its signature dish menu with the addition of other beef-based dishes. In this relation, the company noted that the introduction of these new menu items brought in an even wider range of new customers than it had expected. On the sales promotion front, in April the company ran a special JPY80 discount coupon offer for its Yoshinoya chain in conjunction with its Hanamaru Udon chain, in June it offered a JPY80 discount on takeout orders, and in July it offered a special “summer vacation discount” for kids. On other fronts, the company also increased the number of stores providing home delivery services to develop demand for its food delivery service. The month-to-month swings in same store sales (detailed above) were due in part to the timing of the various sales initiatives described above; the steady rise in spending per customer can be attributed to the favorable reception of its higher-priced new menu items. During the period the company
converted a total of 57 stores into its new “Cooking & Comfort” format, reporting an average jump in sales of 10.1% at these stores in the second month following conversion. Given the strong showing by the new format during the test phase, the company says it plans to step up its efforts to reflect the positive impacts in converted stores through more close cooperation
between individual stores and its corporate headquarters from 2H.
Hanamaru
▷ Segment sales: JPY15.9bn (+7.3% YoY) ▷ Segment profit: JPY1.2bn (+57.2% YoY)
▷ The strong sales growth during the six-month period (March–August 2019) was underpinned by steady in sales at existing stores, where by menu price increases for certain menu items left the higher priced menu items looking cheap by comparison, prompting many customers to trade up. ▷ Sales at existing stores during the six-month period were up 1.8% YoY, reflecting a 1.4% YoY rise in Q1 (March–May) followed by 2.1% YoY increase in Q2 (June–August). While most of Hanamaru’s menu is still priced below Yoshinoya, the price hikes did impact customer traffic to some extent. The drop in customer traffic was offset by increases in average spending per customer, however, and same store sales came in above year-ago levels in both Q1 and Q2.
▷ The Hanamaru segment had 512 stores in operation as of end 1H, having opened six new stores and closed six stores during the period. Major initiatives during the period included its “tempura season ticket” in collaboration with Yoshinoya (in April), “500 stores–Thank You” campaign (in June), and its child discount campaign (in August), all of which were aimed at bringing in new customers and increasing the frequency of visits by existing customers. New menu item additions were largely seasonal dishes: Noko Tonyu Tantan Udon (udon noodles in thick, spicy, soy milk-based soup), put on its menu in April, Toro-dama Bukkake (udon noodles made with fatty tuna broth), put on its menu in June, and Hiyashi Goma Tantan Udon (chilled
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Szechuan-style udon noodles covered with a spicy sauce), put on its menu in August, were especially popular among female customers. ▷ Overall sales growth at the Hanamaru segment outpaced same store sales growth by a wide margin. Shared Research believes this is largely the result of new store openings during the period, as the company indicated that it is no longer opening up stores just to meet its new store opening numerical targets, but is instead opening up store only at those locations where it can achieve the efficiencies needed for profitable operations. Following its success with this strategy in the first half of this year, the company says it intends to continue emphasizing operating efficiency when opening new stores going forward.
Arcmeal
▷ Segment sales: JPY10.3bn (-0.7% YoY) ▷ Segment loss: JPY239mn (versus segment loss of JPY343mn in 1H FY02/19) ▷ The drop in sales reflected store closures, as the company opened no new stores while closing eight, bringing its store count at the end of 1H to 163. ▷ Sales at existing stores logged solid gains after declining in the same six-month period last year, rising 4.9% YoY in Q1 and 7.0% YoY in Q2 for an average increase of 6.0% during the six-month period. The company attributed the rebound in sales at existing stores to the successful efforts including reshuffle of its new management team, freshening up menus, and other
measures aimed at bringing back former customers now that closures of unprofitable stores is largely finished. ▷ Major sales promotions during the period were aimed at reviving customer traffic at existing stores. Toward this end, the company worked to “get back to its roots” by freshening up its menu and bringing up the level of service. In terms of sales
promotions, the company distributed various coupons (such as “lunch time season passes” and “step-up coupons”) in addition to offering special prices on “beef day.” In April, the Steak-no-Don chain coordinated the launch of a new dish with the showing of a new movie featuring the popular animated character Crayon Shin-chan. In July, the company made changes
in menus at the various chains under the Arcmeal segment, including the launch of a super-sized Extreme Atsu Steak at the Steak-no-Don chain and additions to lunch menus and the creation of special seasonal food menus at its Shabu Shabu Don-tei and Volks chains. The company noted that it main focus at the Arcmeal segment during the period was on reviving customer
traffic rather than improving margins, and thus most of its efforts here were directed towards focusing on menus and sales promotion. Going forward, the company said it will be examining customer trends in greater detail to gain insights into how it might to further refine its menus and run more effective sales promotions.
Kyotaru
▷ Segment sales: JPY14.3bn (+4.6% YoY) ▷ Segment profit: JPY331mn (+74.6% YoY) ▷ Top-line growth was driven by a combination of openings of new Kaisen Misakiko restaurants (conveyor belt sushi restaurants) in the Tokyo metropolitan area and solid increases in sales at existing Kaisen Misakiko restaurants, which saw some drop in customer traffic after raising menu prices but was able to offset the decline in traffic with higher average spending per customer. ▷ The Kyotaru segment as a whole had a total of 332 stores in operation at end 1H, having opened seven new stores and closed eight during the period. ▷ Sales at existing stores were up 0.7% YoY in Q1 but down 0.6% YoY in Q2, hurt by a downturn in sales of fresh fish in June and July. This left same store sales during the six-month period up a modest 0.1% YoY, or basically flat, with the drop in customer traffic effectively offset by higher menu prices.
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▷ Major sales initiatives during the period included promotions featuring discounts on favorites such as sushi rolls and purchases for special event celebrations at the take-out business; and “bluefin tuna festival” and “JPY99 Sale" (for red plates usually priced at JPY110) at the restaurant business. On the menu front, changes included the rollout of a seasonal menu across all restaurant formats featuring seasonal favorites such as bonito and eel. It also expanded sales of cooked rice and online sales of bento (boxed lunches).
Overseas
▷ Segment sales: JPY10.8bn (+5.8% YoY) ▷ Segment profit: JPY539mn (+71.4% YoY) ▷ The top-line gains were driven by robust sales in the US coupled with an aggressive store opening program for both directly managed and franchise outlets. During the period the company opened its 100th store in Indonesia, where most of its outlets are run by franchisees, reaching the 100-store milestone in less than ten years after opening its first store in Indonesia. ▷ The total overseas store count at end 1H was 968, the company having opened 66 new stores while closing 21 during the period. While the 1,000-store milestone is now within the reach at its overseas operations, the company says it plans to continue its transition to more profitable expansion in China and ASEAN countries, where it has already built up a substantial presence. ▷ The company noted that the boost to segment profit from new store openings offset the rising cost of ingredients in Asia.
Others
▷ Segment sales: JPY2.3bn (+58.7% YoY) ▷ Segment profit: JPY60mn (versus year-earlier profit of JPY10mn) ▷ The Others segment includes a total of 14 consolidated subsidiaries. ▷ Adding to its existing ramen restaurant business run under the Setaga-ya, the company acquired Withlink Holdings as a wholly owned subsidiary during the six-month period. Withlink Holdings operates several ramen chains under names including Bariuma and Torinosuke. The company has not disclosed exactly how much its ramen restaurant chain business is adding to consolidated sales and earnings, but this business bears close attention going forward as one of the new business areas where
the company is looking to expand. (For further details on the acquisition of Withlink Holdings, see discussion under the “News and topics” section of this report.)
Q1 FY02/20 results
For Q1 FY02/20 (March–May 2019), the company reported consolidated results as follows:
▷ Sales: JPY52.8bn (+6.0% YoY) ▷ Gross profit: JPY34.4bn (+7.5% YoY) ▷ Operating profit: JPY1.0bn (vs. an operating loss of JPY178mn in Q1 FY02/19) ▷ Recurring profit: JPY1.3bn (vs. a recurring loss of JPY44mn in Q1 FY02/19) ▷ Net income*: JPY1.1bn (vs. a net loss of JPY388mn in Q1 FY02/19)
*Net income attributable to owners of the parent
▷ Factors behind sales growth: Sales were solid in the mainstay Yoshinoya segment, which has been implementing a shift to a new service model; comparable store sales were robust in all segments; and aggressive expansion of new stores in the Hanamaru, Kyotaru, and Overseas segments also boosted sales.
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▷ Factors behind profit growth: Sales growth outpaced the sharp increases in costs since FY02/19 stemming from (1) rice and other ingredients and (2) personnel expenses on the back of labor shortage and higher wages of part-time employees. As of end Q1, operating profit has already exceeded the 1H target of JPY300mn.
Segment results for Q1 FY02/20 (March–May 2019) Yoshinoya
▷ Segment sales: JPY26.7bn (+7.0 YoY) ▷ Segment profit: JPY1.5bn (+182.8% YoY) ▷ Q1 FY02/20 sales of JPY26.7bn were up 7.0% YoY, driven by solid growth in comparable store sales (+6.1% YoY). ▷ On a monthly basis (March–May; all percentages represent YoY figures), comparable store sales were +8.1%, +4.8%, and +5.2%. This was largely due to an increase in average spend per customer (+5.6%, +5.8%, and +5.8%), offsetting modest customer traffic (+2.3%, -0.9%, and -0.6%). After the start of the new financial year, the company conducted marketing analysis of the food-service market, and in particular about beef bowls, and enhanced its product development. Initial sales of relatively high-price products resulting from this initiative have been favorable. This is one of the reasons average spend per customer increased. ▷ Total store count as of end Q1 FY02/20 was 1,216 (14 stores opened; eight stores closed). ▷ Major initiatives during Q1 FY02/19 included (1) expanding the lineup of beef products, centered on beef bowls, to increase the frequency of visits by beef bowl fans (the Core & More strategy) to mark the brand’s 120th anniversary; (2) introducing new sizes of beef bowl (S and XL) in March 2019 for the first time in 28 years; and (3) collaborating with other companies in
April and May to put new dishes on the menu. Yoshinoya also raised the prices of side menu items in May. New additions to the menu have been performing fairly much in line with plan, or even better in some cases. The extra-large beef bowls (with high unit price, at JPY780) in particular have significantly exceeded the company’s initial expectations. In addition, the
company increased stores providing home delivery services to tap demand for food delivery services, and also converted 41 stores to a new service model. ▷ Segment profit rose 182.8% YoY to JPY1.5bn. Not only was the top line strong, but the price of ingredients such as beef dropped, pushing OPM up 3.3pp YoY to 5.4% in Q1.
Hanamaru
▷ Segment sales: JPY7.8bn (+5.8% YoY) ▷ Segment profit: JPY517mn (+31.9% YoY) ▷ Q1 FY02/20 sales of JPY7.8bn were up 5.8% YoY, boosted by aggressive store openings resulting in a net increase in stores and robust comparable store sales underpinned by price revisions and product strategies. ▷ Total store count as of end Q1 FY02/20 was 513 stores (four stores opened; three stores closed). ▷ Major initiatives during Q1 FY02/20 included collaborating with Yoshinoya to introduce a “tempura season ticket” in April 2019, which was intended to attract new customers and increase the frequency of visits by existing customers. In terms of product strategy, Hanamaru introduced the Noko Tonyu Tantan Udon (noodles in thick, spicy, soy milk-based soup) in April, which had gained popularity particularly among female customers. ▷ Average customer spend was up 1.4% in Q1. Hanamaru revised its prices (small kake udon noodles: from JPY130 to JPY162) on March 19, which helped to push segment sales higher.
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Arcmeal
▷ Segment sales: JPY5.3bn (-1.0% YoY) ▷ Segment loss: JPY147mn (vs. a segment loss of JPY86mn in Q1 FY02/19) ▷ Q1 FY02/20 segment sales of JPY5.3bn were down 1.0% YoY, affected by a net decrease in stores accompany store closures. Total store count as of end Q1 FY02/20 was 165 (no stores opened; six stores closed). Major initiatives during Q1 FY02/20 in terms of sales strategies included distributing “lunch time season passes” and “step-up coupons,” which were aimed at increasing regular customers by offering special prices on “beef day”. Additionally, Arcmeal collaborated with the movie “Crayon Shin-chan: Honeymoon Hurricane” to introduce new dishes at Steak-no-Don in April. As for product strategies, it revised lunch menu prices across all restaurant formats and launched a Spring Fair menu. From Q1, advertising targeting dormant customers has been proving effective and comparable store sales have recovered even more than in FY02/19, but segment sales were still down due to store closures. Segment loss also expanded YoY, but the company aims to raise the customer count with a basic strategy that focuses on store format and gives priority to product quality. A revision of the store development plan for Volks appears to have all but run its course, and recovery is proceeding comparatively well. On the other hand, recovery at Steak-no-Don seems slightly behind schedule. From Q1, the company is aiming to give a boost to the Steak-no-Don chain through renovations and other measures.
Kyotaru
▷ Segment sales: JPY7.3bn (+4.6% YoY) ▷ Segment profit: JPY283mn (+37.4% YoY) ▷ Q1 FY02/20 sales of JPY7.3bn were up 4.6% YoY, supported by new store openings of Kaisen Misakiko restaurants (conveyor belt sushi restaurants), under an aggressive store opening program focused on the Tokyo metropolitan area, and solid gains in
sales at existing restaurants. ▷ Total store count as of end Q1 FY02/20 was 336 (four stores opened; no stores closed). ▷ Performance was robust overall during the spring holiday season. The company revised plate prices in Q1, and comparable store sales rose 0.7% YoY. Major initiatives during Q1 FY02/20 included sales campaigns featuring discounts on favorites such as sushi rolls, and various sales events for “hare-no-hi” celebration day at its take-out business; and sales initiatives such as its “bluefin tuna festival” and “JPY99 Sale” (for red plates usually priced at JPY110) at its restaurant business. Product strategies
included the rollout of a Spring menu across all restaurant formats using seasonal ingredients such as bonito and sakura shrimp. It also expanded sales of cooked rice and online sales of bento (box lunch). The company aims to open more urban Kaisen Misakiko restaurants, which it expects to drive growth hereafter, and plans to open more take-out stores as a preferred tenant.
Overseas
▷ Segment sales: JPY5.3bn (+5.6% YoY) ▷ Segment profit: JPY284mn (+149.1% YoY) ▷ Q1 FY02/20 sales were up YoY, aided by robust sales in the US, coupled with an aggressive store opening program including both directly managed and franchise outlets. ▷ Total store count as of end Q1 FY02/20 was 940 (26 stores opened; nine stores closed). ▷ Segment profit rose 149.1% YoY to JPY284mn, as higher ingredient costs in some areas were more than offset by the increase in stores. Real estate costs are also settling down and North America and Taiwan have been performing favorably, but there is some disparity between stores in China.
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Full-year FY02/19 results
For the full year, the company reported consolidated results as follows;
▷ Sales: JPY202.4bn (+2.0% YoY) ▷ Gross profit: JPY129.6bn (+0.5% YoY) ▷ Operating profit: JPY104mn (-97.4% YoY) ▷ Recurring profit: JPY349mn (-92.4% YoY) ▷ Net loss: JPY6.0bn (versus profit of JPY1.5bn in FY02/18)
▷ Business environment: Natural disasters and severe weather during 2018, including torrential rains in Western Japan in July, the typhoon in September, and the earthquake in the Eastern Iburi area of Hokkaido (also in September), led to shorter operating hours for some restaurants and also forced some restaurants to temporarily close. ▷ Sales growth was driven by solid gains at the mainstay Yoshinoya segment, particularly at existing restaurants, and higher sales at other segments (except Arcmeal). Meanwhile, operating profit fell on higher cost ratio (increase from 35.1% in FY02/18 to 36.0% in FY02/19) and SG&A expense ratio (62.9% to 64.0%) driven by rising prices for beef, rice, and other ingredients that
continued since the start of the financial year. The jump in personnel-related costs amid labor shortages and increased reliance on part-time workers also contributed to lower OP. ▷ The net loss reflected a total of JPY5.1bn in impairment losses booked in connection with the closure of stores and write-off of other assets (this compares with JPY1.3bn in impairment losses booked in FY02/18). ▷ Positioning under the long-term vision NEW BEGINNINGS 2025: With the close of FY02/19, the first three-year stage under the company’s long-term vision has come to an end. The company is now entering the second stage, during which it is looking to
expand its businesses with plans calling for Yoshinoya restaurants to be changed over to a new service model at the rate of 100 restaurants a year over the next five years, continued expansion of the restaurant base of its Hanamaru and Kyotaru chains, and more restaurant openings overseas.
Segment results Yoshinoya
▷ FY02/19: Full-year sales of JPY103.6bn were up 2.5% YoY. ▷ Sales growth was underpinned by a number of successful initiatives that led to steady growth in sales at existing restaurants. ▷ Exiting restaurant sales: For the full year, sales at existing restaurants were up 0.8% YoY, with customer traffic down 0.2% YoY and average spending per customer up 1.1% YoY. In Q4, existing restaurant sales were down, falling 1.2% YoY in December, 3.3% YoY in January, and 7.4% YoY in February. Customer traffic was the problem, falling 2.9% YoY in December, 4.5% YoY in January, and 10.0% YoY in February. Average spending per customer was up, rising 1.8% YoY in December, 1.3% YoY in January, and 3.0% YoY in February. ▷ At the end of FY02/19 the Yoshinoya segment had 1,211 restaurants in operation, having opened 33 new restaurants and closed 26 during the year. ▷ Segment profit: Segment profit of JPY3.5bn was down 30.5% YoY, hurt by sharp increases in the price of major ingredients and rising personnel costs. ▷ Major initiatives: In September 2018 Yoshinoya crossed corporate boundaries and launched a campaign issuing a three-company season ticket usable at Gusto, Hanamaru, and Yoshinoya restaurants, a first of such program in the domestic restaurant industry. This was followed in February 2019 with another large-scale, collaborative effort known as “Super Friday.” On the product front, new product launches included Shin Aji-butadon (new pork bowl) in March and Torisukidon (chicken
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and egg bowl) in April. Popular seasonal specials were also introduced such as Mugitoro Gyusara Gozen (grated yam, steamed barley, and beef meal) in June, Unaju (broiled eel and rice), and Oroshi Gyukarubi-don (grilled rib bowl with grated radish) in July, and the winter standard Gyusuki Nabezen (beef sukiyaki set) in November. On other fronts, the installation of new point-of-sale cash registers starting in August allowed the company to increase the convenience of its dining services to customers by accepting payment in some forms of digital money starting in December, including the e-money cards offered by public transportation companies as well as its own Yoshinoya Preca cards.
Hanamaru
▷ Full-year sales of JPY29.0bn were up 7.2% YoY. ▷ Sales growth was driven by a large number of new restaurant openings and increase in the number of restaurants in operation. ▷ At the end of FY02/19 the Hanamaru segment had a total of 512 restaurants in operation, having opened 48 new restaurants and closed 15 during the year as it continued to focus on expanding its restaurant base during the first stage of the company’s long-term plan. ▷ Segment profit: Segment profit of JPY624mn was down 51.0% YoY. The drop in segment profit reflected opening costs from an aggressive store opening program, a decline in comparable store sales, and higher SG&A expenses including rising personnel costs (hiring and training costs) and a rise in distribution costs. ▷ Major initiatives: In April, Hanamaru collaborated with Yoshinoya on a tempura season ticket campaign and in September, launched sales of a three-company season-ticket in an effort to attract new customers in the Kinki region and increase the frequency of restaurant visits by existing customers. In May, Hanamaru began selling a seasonal specialty Udonken no Somen
(cold somen noodles). In June, it began selling Torotama Mekabu Bukkake noodles (grated yam, raw egg, and seaweed noodles) as a high-nutrition menu to combat the summer heat, and in August launched Gattsuri Niku-bukkake noodles (meat noodles) and Pirikara Niku-zaru (cold noodles with spicy meat); in September it introduced Gu-Takusan Tonjiru Udon (noodles
in pork broth loaded with ingredients), in November, Shisenfu Mabo Ankake udon (Sichuan mapo sauce noodles), and in February it rolled out Hamaguri udon.
Arcmeal
▷ Full-year sales of JPY20.2bn were down 9.9% YoY. ▷ Sluggish comparable store sales from increased competition in the steak and shabu shabu business and a decline in the store count caused sales to drop. ▷ At the end of FY02/19 the Arcmeal segment had 171 restaurants in operation, having open one new restaurant and closed seven during the year. ▷ Segment loss: The Arcmeal segment reported a loss of JPY841mn versus a profit of JPY209mn in FY02/18. ▷ Major initiatives: To recover customer traffic, the company introduced an existing “fair menu” at all restaurant formats operated by Arcmeal. In September, Arcmeal increased the serving size of hamburger of the day by 30% at Steak-no-Don without changing the price in an attempt to provide greater value. In November, it shifted “meat day” from the second and ninth of each month to a four-day event including the 29th and a weekend, making it a family-friendly event. The company also conducted campaigns to increase serving sizes after completely changing the meat used in its steaks in response to customers’ wish to eat their fill of delicious steak. Steak-no-Don introduced aged rib loin steak and Volks offered sirloin steak.
Kyotaru
▷ Full-year sales of JPY27.3bn were up 2.4% YoY.
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▷ The rise in sales reflected a combination of openings of new Kaisen Misakiko restaurants (conveyor belt sushi restaurants), under an aggressive store opening program focused on the Tokyo metropolitan area, solid gains in sales at existing restaurants, and increased sales at its takeout business after enhancing its menu of Edomae-style sushi at its Kyotaru-Sushi Misakiko combination stores. ▷ At the end of FY02/19 the Kyotaru segment had 333 restaurants in operation, having opened 21 new restaurants and closed 18 during the year. ▷ Segment profit: Segment profit of JPY162mn was down 48.6% YoY, hurt by increases in hiring costs necessitated by aggressive new store openings and a sharp jump in the price of major ingredients. ▷ Major initiatives: Sales campaigns for take-out sushi business (featuring discounts on favorites such as sushi rolls, and various sales events for “hare-no-hi” celebration day), a switch to the use of red vinegar for flavoring the rice used to make Edomae-style sushi to appeal to health-conscious consumers and, at its restaurant business, successful sales initiatives such as its “bluefin tuna festival” and “Manager’s Special JPY99 Sale.”
Overseas
▷ Overseas sales of JPY21.2bn were up 7.2% YoY. ▷ Sales growth was driven by strong increase in the US and Taiwan, and an aggressive store opening program including both directly managed and franchise outlets. ▷ At the end of FY02/19 the company had a total of 923 restaurants in operation overseas, having opened 135 new restaurants and closed 33 during the year. ▷ Segment profit: Segment profit of JPY806mn was down 35.1% YoY, hurt by a sharp jump in the price of major ingredients across all regions, higher personnel costs, and higher depreciation charges stemming from the opening of new restaurants and
remodeling of existing restaurants.
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Other information
History
Yoshinoya HD Date Description 1899 Yoshinoya restaurant opened in Nihonbashi as a family-run business Dec 1958 Established Yoshinoya Co., Ltd. (now Yoshinoya Holdings Co., Ltd.) Apr 1973 Started franchise expansion; first Yoshinoya franchise restaurant opened in Odawara Nov 1977 Established Yoshinoya West, Inc. (now Yoshinoya America, Inc.), to expand store network in the West Coast of US Jul 1980 Yoshinoya Co., Ltd. filed for corporate reorganization proceedings Mar 1983 Received reorganization plan approval Mar 1987 Completed reorganization proceedings Mar 1988 Merged with D&C Co., Ltd., the operator of Dunkin Donuts Japan, and changed company name to Yoshinoya D&C Co., Ltd. Jan 1990 Yoshinoya D&C Co., Ltd. stock approved by the Japan Securities Dealers Association for over-the-counter trading 1993 Established subsidiary Hokkaido Yoshinoya 1996 Yoshinoya restaurant count in Japan reached 500 1997 Established subsidiary Okinawa Yoshinoya Sep 1998 Yoshinoya D&C Co., Ltd. withdrew from the Dunkin Donuts business; planned openings of Yoshinoya restaurants in Japan completed Oct 1999 Acquired shares in Kyotaru Co., Ltd. (made it a wholly owned subsidiary in Jul. 2011) Nov 2000 Yoshinoya D&C Co., Ltd. stock listed on the First Section of the Tokyo Stock Exchange Apr 2004 Temporarily suspended gyudon sales at Yoshinoya restaurants in Japan due to a ban on imports of US beef Jun Acquired shares in Hanamaru (made it a wholly owned subsidiary in Dec. 2012) Jun Yoshinoya restaurant count in Japan reached 1,000 Apr 2005 Acquired share in Kyushu Yoshinoya (now Nishinihon Yoshinoya) Oct 2007 Introduced a pure holding company system, renamed to Yoshinoya Holdings Co., Ltd., and established Yoshinoya Co., Ltd. Novth Acquired h shares i in Shikoku ti t Yoshinoya (nowlit Nishinihon Yoshinoya) Feb 2008 Subscribed for shares in Don (now Arcmeal) through a third-party allotment (made it a wholly owned subsidiary in Sep. Dec 20092015) Established subsidiary Nakanihon Yoshinoya Mar 2010 Established subsidiary Kitanihon Yoshinoya Dec 2013 Established subsidiary Nishinihon Yoshinoya Nov 2014 Established Asia Yoshinoya International Sdn. Bhd. to supervise business operations in ASEAN countries Jun 2015 Established Yoshinoya China Holdings Co., Ltd. to supervise business operations in China
Source: Shared Research based on company data
Yoshinoya, known as the creator of gyudon beef bowls, will in 2019 be celebrating its 120th anniversary since the opening of its first gyudon restaurant. The company has been operating restaurant chains for 45 years and opened its first overseas restaurant 42 years ago. Its business grew sharply after the opening of the second Yoshinoya restaurant in 1968. The restaurant count reached 100 in 1977 and topped 200 in 1978, backed by the company’s commitment to taste and innovative ideas such as the use of US beef. However, the procurement of beef fell behind the speed of restaurant expansion as beef imports had not been deregulated yet. The company lost customers after it mixed freeze-dried beef (imports of which were not restricted) with fresh beef and raised the price of gyudon. It also ran out of capital after opening new stores too quickly and filed for bankruptcy and rehabilitation under the Corporate Reorganization Act in 1980. Learning from failure, Yoshinoya’s employees reaffirmed that customers will go elsewhere if their gyudon isn’t tasty and that there can be no Yoshinoya without the customers. The company stopped using freeze-dried beef and embarked on a major restructuring exercise. These efforts were rewarded in 1987 when the company completed its reorganization and registered its stock as an OTC-traded security.
Yoshinoya’s first M&A was the acquisition of Dunkin Donuts in 1988, but the company did not diversify in earnest until the late 1990s, when it sold Dunkin Donuts (1998). The company acquired Kyotaru in 1999, Hanamaru in 2004, and Don (now Arcmeal) in 2008 (and a few other brands, which were since sold or liquidated). The BSE crisis struck in 2003 during this period of diversification. Unable to procure beef, Yoshinoya had to stop selling gyudon, and as beef prices climbed and remained at a high level, its profit structure came under severe pressure. Today, led by President Kawamura, Yoshinoya HD is once again focusing on
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overseas expansion, as well as various initiatives to renew its business model (see “Medium-term plan” and “Group strategy” sections).
Hanamaru Kyotaru
Date Description Date Description May 2000 Opened the initial restaurant Hanamaru Udon Mar 1932 Opened as a Japanese style restaurant in Kita in Takamatsu city Shimogyo-ku, Kyoto Nov 2001 Established Hanamaru Co., Ltd. Mar 1938 Opened Kyotaru, a Japanese style restaurant, May 2002 Started franchise operation in Nihonbashi Feb 1950 Established Heian Kogyo Co., Ltd. Dec Started operation at Takamatsu factory Apr 1951 Developed chakin sushi Apr 2003 Started operation at Chiba factory Jul 1952 Opened the first Kyotaru store, selling chakin Apr Store count exceeded 50 and Kansai-style sushi; expanded network of Aug Store count exceeded 100 directly operated stores Dec Store count exceeded 150 Apr 1954 Renamed to Kyotaru Co., Ltd. Jun 2004 Signed agreement on capital and business tie- Nov 1979 Opened the first Kyotaru family restaurant up with Yoshinoya D&C Co., Ltd. Jul 1980 Approved for over-the-counter trading (listed Jul Started operation at Shizuoka factory on the Second Section of the Tokyo Stock May 2006 Became a consolidated subsidiary of Yoshinoya Exchange in 1983) D&C Co., Ltd. Jun 1984 Listed on the First Section of the Tokyo Stock Jun 2007 Started operation at Okinawa factory Exchange Oct Store count exceeded 200 Jan 1997 Filed for company reorganization proceedings Nov 2008 Store count exceeded 250 Nov 1997 Opened first conveyor belt sushi restaurant Jul 2009 Established Hanamaru Restaurant under the name Kaisen Misakiko Management (Shanghai) Co., Ltd. as a Feb 2001 Opened Sushi Misakimaru, an Edomae-style subsidiary sushi restaurant with flat rate of JPY100 per Feb 2011 Opened the first overseas store Hanamaru piece of sushi Udon World Expo Feb 2002 Completed company reorganization proceedings Mar Store count exceeded 300 Sep 2005 Listed on the JASDAQ market of the Tokyo Feb 2014 Made Senkichi Co., Ltd. a subsidiary Stock Exchange Apr 2015 Opened the first restaurant in Malaysia, Mid Dec 2010 Opened a take-out Edomae-style sushi store, Valley Megamall Sushi Misakiko May Store count exceeded 350 Apr 2011 Consolidated production to Funabashi factory May 2016 Started operation at Hokkaido factory and started a single factory operation Jul 2011 Became a wholly owned subsidiary of Oct Store count exceeded 400 Yoshinoya Holdings Co., Ltd. through share Feb 2018 Store count exceeded 450 exchange Source: Shared Research based on company data Source: Shared Research based on company data
Arcmeal Date Description Don Volks 1970 Opened the first Steak House Volks in Osaka City 1976 Opened the first Steak-no-Don in Maebashi City 1982 Centralized foodstuffs production 1984 Sales reached JPY10bn 1987 Introduced POS system and connects all stores Listed on the Second Section of Osaka Stock Exchange; store count reached 100 1988 Sales reached JPY20bn 1990 Started chain operation of Shabu Shabu Don- tei 1992 All stores connected with an intra-company network 1993 Centralized production and delivery of foodstuffs 2004 Sales reached JPY10bn 2005 Made Volks a subsidiary Became a subsidiary of Don Co., Ltd. 2006 Merged in March, renamed to Don Co., Ltd with Volks as the surviving company 2006 Converted 49 Volks stores to Steak-no-Don or Shabu Shabu Don-tei; sales reached JPY30bn 2007 Signed agreement on business tie-up with Yoshinoya Holdings Co., Ltd. 2008 Became a consolidated subsidiary of Yoshinoya Holdings (51.11% stake) 2011 Opened the first Taiwan Volks 2013 Opened the first Pastaliano in Osaka City 2015 Changed name to Arcmeal Co., Ltd; became a wholly owned subsidiary of Yoshinoya Holdings through share exchange in September 2020 Sold all shares in Arcmeal Co., Ltd. to Anrakutei Co., Ltd.
Source: Shared Research based on company data
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News and topics March, 2020 On March 26, 2020, the company announced it would provide household meal support to help counter the spread of coronavirus disease (COVID-19).
The Japanese government has implemented emergency school closures with the intention of preventing the spread of COVID-19. Schoolchildren who have no classes to attend as a result will experience more frequent opportunities to consume meals at home. In response, the company has been providing schoolchildren its standard size beef bowl for takeout at a price of JPY300 (versus the normal price of JPY380) since March 10, with a planned end date of March 31. On March 26, 2020, the company announced that it would expand this offer to include all customers starting at 10:00 AM on March 27. Details are as follows:
▷ Period: 10:00 AM, Friday, March 27, 2020–12:00 AM, Wednesday, April 1, 2020 ▷ Target product: Beef bowls of all sizes (takeout only; all sizes will be discounted by JPY80 with no order limit per customer) ▷ Participating stores: All Yoshinoya stores in Japan
December, 2019 On December 26, 2019, the company announced a share transfer of its specified subsidiary.
At the Board of Directors meeting held on the same day, the company resolved to sell all its shareholdings in consolidated subsidiary Arcmeal Co., Ltd. to Anrakutei Co., Ltd. (TSE2: 7562). Yoshinoya HD and Anrakutei concluded a share transfer agreement also on the same day.
Amid an increasingly competitive environment for the restaurant industry, Yoshinoya HD determined it would be to its best interest to sell its stake in Arcmeal in order to optimize its business portfolio and strategically allocate resources to growth areas. The company explained that Arcmeal also merits from joining the Anrakutei group, as the restaurants run by the two companies share similar ingredients and store operation methods and could thus generate synergies. In addition, Arcmeal and Anrakutei both started their businesses in the Saitama Prefecture and can mutually benefit from their strengths in the region. In FY02/19, Arcmeal posted sales of JPY20.2bn (-9.8% YoY) and an operating loss of JPY930mn (versus a profit of JPY212mn in FY02/18).
The share transfer date is scheduled for February 29, 2020. The transfer price has not been disclosed. The impact of this transaction on the company’s FY02/20 consolidated results is not clear as of now, since Arcmeal’s performance up to the transfer also needs to be taken into account.
October, 2019 On October 4, 2019, the company announced revisions to its 1H FY02/20 forecasts.
On the same day, the company announced that it expected 1H sales to exceed its previous forecast by JPY4.1bn, driven by the Yoshinoya segment. It added that it expected profit to come in significantly higher than its initial forecasts, with operating profit JPY2.6bn above its previous forecast.
Revisions to 1H FY02/20 forecasts Sales: JPY107.1bn (previous forecast: JPY103.0bn) Operating profit: JPY2.9bn (JPY300mn) Recurring profit: JPY3.0bn (JPY550mn) Net income: JPY1.9bn (JPY50mn) EPS: JPY29.10 (JPY0.77)
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Background to revisions Menu items sold at Yoshinoya restaurants to commemorate its 120th anniversary, such as new beef bowl sizes (small and extra large), a collaborative product (Rizap Beef Salad), and a special sukiyaki meal using sirloin only available in limited quantities, attracted widespread media coverage. This drove volume growth and a strong performance by the Yoshinoya segment. In addition, promotional campaigns such as a discount of JPY80 on take-out menu items in June 2019 performed better than expected. Comparable store sales were up 6.9% YoY. The company said the new menu and take-out offerings appeared to be driving growth in the number of former customers returning and new female customers.
Despite revising up its 1H forecasts, Yoshinoya kept its full-year forecasts unchanged due to several sources of uncertainty. These include: in the domestic market, the impact of the October 2019 hike in the consumption tax/lower tax rate on some daily necessities; overseas, US-China trade friction and geopolitical risks in China and Hong Kong where it operates; and the impact of the US-Japan trade agreement on raw material prices. In light of these circumstances, the company decided to maintain its full-year forecasts.
May, 2019 On May 29, 2019, the company announced the launch of its first canned foods for emergency Canmeshi.
The company announced that it will launch a lineup of canned foods for emergency Yoshinoya Canmeshi Series on its official online store on May 31, 2019.
The company’s Out-of-Store Sales Division has been developing ready-to-eat products that can be eaten as is at room temperature. With the launch of Canmeshi, it succeeded in bringing the development through to commercialization for the first time and will begin selling Canned Rice Bowls. The canned meals use quality brown rice rich in nutrients, so they are ideal for times of disaster.
The Canmeshi Series comprises six kinds of meals: Gyudon (beef bowl), Butadon (pork bowl), Grilled Beef Bowl, Grilled Pork & Ginger Bowl, Grilled Salted Mackerel Bowl, and Yakitori (grilled chicken) Bowl. An assorted set of six canned meals containing one of each kind is priced at JPY4,860 (including tax, same applies below). A set comprising six canned meals of the same kind except Grilled Salted Mackerel Bowl will be on sale for JPY4,860, and a set of six cans of Grilled Salted Mackerel Bowl for JPY4,590.
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Corporate governance and top management Corporate governance Form of organization and capital structure Form of organization Company with Audit & Supervisory Board Controlling shareholder None Directors and members of Audit & Supervisory Board Number of directors per Articles of Incorporation 13 Number of directors 5 Directors' terms per Articles of Incorporation 1 year Chairperson of the Board of Directors President Number of outside directors 2 Number of independent outside directors 2 Number of members of Audit & Supervisory Board per Articles of Incorporation 5 Number of members of Audit & Supervisory Board 4 Number of outside members of Audit & Supervisory Board 2 Number of independent outside members of Audit & Supervisory Board 2 Other Participation in electronic voting platform Y Providing convocation notice in English On the web Implementation of measures regarding director incentives Performance-linked compensation, other Eligible for stock option - Disclosure of executive officers' compensation None Policy on determining amount of compensation and calculation methodology Y (Compensation committee) Takeover defenses Y Source: Shared Research based on company data As of November 27, 2018
Top management President and Representative Director Yasutaka Kawamura Yasutaka Kawamura joined Yoshinoya Co., Ltd. in 1993 (assigned to a sales department in the Kansai region). He was put in charge of business development in the planning office in March 2003, became a director of Hanamaru Inc. in July 2004, was appointed president and CEO of Hanamaru in April 2007 and director of Yoshinoya HD in May 2010, and took over as president and CEO of Yoshinoya HD in 2012. Kawamura has also served as director of Yoshinoya America Inc. since August 2013 (current), president and CEO of Yoshinoya Co., Ltd. (current) and president and CEO of Yoshinoya Asset Management Service Co., Ltd. (current) since September 2014, and director of Asia Yoshinoya International since January 2015 (current) and of Yoshinoya China Holdings since June 2015 (current).
Dividend policy
Dividends FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 Dividend per share (JPY) 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 Payout ratio 321.5% 77.7% - 147.2% 123.2% 152.7% 103.4% 86.5% -21.5% 181.2% Source: Shared Research based on company data
The company’s dividend payout ratio exceeded 100% until FY02/17. Its basic dividend policy is profit distribution in the form of stable, long-term dividends, with the final decision based on a range of factors such as management environment and demand for capital, consolidated earnings trends, and the minimum capital required for aggressive business development for the growth of the Yoshinoya Group. The company also has an ongoing shareholder incentive program*.
* Yoshinoya HD’s shareholder incentive program offers 20 JPY300 vouchers per year to shareholders with 100 – 999 shares (one unit = JPY6,000).
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Major shareholders
Top shareholders Shares held Shareholding ratio
Japan Trustee Services Bank, Ltd. 6,067,400 9.40% The Master Trust Bank of Japan, Ltd. 2,972,800 4.60% Kisshokai 854,400 1.32% State Street Bank West Client - Treaty 505234 713,800 1.11% Trust & Custody Services Bank, Ltd. 550,000 0.85% Mitsui Life Insurance Company Limited (Standing proxy: Japan Trustee Services Bank, Ltd.) 448,275 0.69% Hannan Corporation 326,800 0.51% Suntory Liquors Limited 295,700 0.46% Kewpie Corporation 270000 0.0042 SSBTC CLIENT OMNIBUS ACCOUNT (Standing proxy: The Hongkong and Shanghai Banking 255,697 0.40% Corporation, Limited, Tokyo branch) SUM 12,754,872 19.75% Source: Shared Research based on company data As of end February 2019
Employees
No . o f e mp lo y e e s FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (year-end) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Yoshinoya 1,269 1,221 1,210 1,298 1,322 1,380 1,288 1,328 Part-time employees 7,890 7,601 8,321 8,463 8,195 8,019 8,671 8,674 Hanamaru 274 421 443 453 361 418 415 437 Part-time employees 935 981 1,038 1,143 1,358 1,527 1,746 1,905 Arcmeal 355 347 348 357 379 399 384 365 Part-time employees 2,165 2,124 2,251 2,407 2,276 2,101 1,789 1,841 Kyotaru 522 522 517 509 500 518 518 518 Part-time employees 2,204 2,150 2,092 2,150 2,144 2,122 2,310 2,391 Overseas 485 460 431 507 876 1,068 1,101 1,301 Part-time employees 1,532 1,468 1,413 1,060 1,303 1,620 2,103 2,154 Other 224 195 152 100 98 139 107 136 Part-time employees 582 601 477 209 247 341 212 254 Corporate 201 173 100 122 162 329 355 307 Part-time employees 0 0 0 0 0 0 314 314 Total Regular employees 3,330 3,339 3,201 3,346 3,698 4,251 4,168 4,392 Part-time employees 15,308 14,925 15,592 15,432 15,523 15,730 17,145 17,533 Source: Shared Research based on company data Note: Part-time employees are the average number employed in financial year Note: The increase in the number of corporate part-time employees in FY02/18 is due to centralizing group headquarter functions.
Employees per store/restaurant by segment (full-time and part-time employees)
FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Yoshinoya 7.70 7.39 8.00 8.20 8.01 7.79 8.27 8.26 Hanamaru 3.88 4.29 4.34 4.30 4.41 4.50 4.51 4.57 Arcmeal 14.65 14.37 14.85 15.44 14.27 13.59 12.21 12.90 Kyotaru 7.79 8.10 7.95 8.08 8.39 8.02 8.57 8.74 Source: Shared Research based on company data Note: Figures for part-times employees in the Overseas segment have been omitted as overseas franchises are large in number and varying in working conditions.
Part-time employees per store/restaurant by segment FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Yoshinoya 6.73 6.38 6.98 7.11 6.89 6.70 7.19 7.18 Hanamaru 3.02 3.07 3.11 3.21 3.57 3.72 3.83 3.84 Arcmeal 12.66 12.35 12.97 13.60 12.47 11.36 9.88 10.55 Kyotaru 6.21 6.32 6.36 6.54 6.66 6.59 7.01 7.21 Source: Shared Research based on company data Note: Figures for part-times employees in the Overseas segment have been omitted as overseas franchises are large in number and varying in working conditions.
73/75 Yoshinoya HD / 9861 RCoverage LAST UPDATE: 2020.07.06 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
By the way
There are a few theories associated with the origin of the company’s name. According to one, the name was derived from Yoshino, Fukushima-ku, Osaka, the hometown of founder Eikichi Matsuda. Another theory suggests the name came from the Yoshino cherry trees as the founder was particularly fond of cherry blossoms.
Yoshinoya’s famous catchphrase “Tasty, cheap, and fast” was “Fast and tasty” when the company was first established, because gyudon was not an inexpensive meal at the time. The words “Fast, tasty, and cheap” (in that order) appeared on the sign of the Shinbashi restaurant when it opened in 1972. Although the price still wasn’t cheap in absolute terms, “cheap” was added, because it was an economical way to eat beef. The word order was based on the order of impressions customers formed from the moment they entered the restaurant. In 1993, when a poor rice crop in Japan resulted in the use of some foreign rice, the company received feedback from customers that it didn’t taste good. After making improvements, the company put “tasty” at the beginning of the phrase in 1994 (“Tasty, fast, and cheap” to convey the message that quality improvements were made). The word order was changed to “Tasty, cheap, and fast” in 1997 to emphasize the low price when the consumption tax rate went up in 1997, before switching around again to “Tasty, fast, and cheap.” Since 2003 it has been “Tasty, cheap, and fast,” because the company believed it had successfully combined tastiness and low price, and aimed to improve service quality rather than providing a fast service.
Profile
Company Name Head Office Daiwa River Gate 18th floor Yoshinoya Holdings Co., Ltd. 36-2 Hakozakicho, Nihonbashi, Chuo-ku Tokyo Phone Listed On November 2000 +81-3-5651-8800 (Over-the-counter trading from January 1990) Established Exchange Listing December 1958 First Section of the Tokyo Stock Exchange Website Financial Year-End https://www.yoshinoya-holdings.com/english/index.html February IR Contact IR Web - https://www.yoshinoya-holdings.com/english/ir/index.html
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