R Yoshinoya HD / 9861
COVERAGE INITIATED ON: 2018.11.14 LAST UPDATE: 2019.07.05
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 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
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 ------8 Quarterly trends and results ------8 Past initial forecasts versus results ------17 Business ------21 Business description ------21 Group strategy ------36 Group structure ------37 Profitability snapshot ------38 Strengths and weaknesses ------42 Market and value chain ------44 Restaurant market trends ------44 Competition ------45 Historical performance and financial statements ------48 Income statement ------48 Balance sheet ------49 Cash flow statement ------51 Historical performance ------52 Other information ------60 History ------60 News and topics ------61 Corporate governance and top management ------64 Dividend policy ------65 Major shareholders ------65 Employees ------66 By the way ------66 Profile ------67
02/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
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 boasts a 120-year history since opening its first restaurant. 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 2019, it had a total of 3,403 restaurants, 2,480 in Japan and 923 overseas. The majority of its restaurants in Japan are directly managed, whereas overseas (mainly Yoshinoya and Hanamaru restaurants) most are operated as franchises. The company has five business segments: Yoshinoya, Hanamaru, Arcmeal, Kyotaru, and Overseas.
In the Yoshinoya segment, which accounts for 50% of total sales and 60% of operating profit, the company operated 1,211 ◤ restaurants in Japan (as of end February 2019), ranking the chain second among the three companies that dominate the domestic beef bowl market. Annual sales per restaurant were JPY85mn. Over the past five years, Yoshinoya restaurants in Japan have increased by 21 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 (3.4% in FY02/19). 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 FY02/19) and the Overseas segment (10.5%). The ◤ Hanamaru business comprised 512 restaurants around the country (mostly directly operated), making it the second-largest udon chain in Japan. Annual sales per restaurant were JPY57mn. The company targets a total of 1,000 locations. The Overseas segment mostly involves Yoshinoya (923 locations) and Hanamaru (44) restaurants in the US, China, and the ASEAN region (as of end FY02/19). 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
For FY02/19, the company reported consolidated sales of JPY202.4bn (+2.0% YoY), an operating profit of JPY104mn (-97.4% ◤ YoY), recurring profit of JPY349mn (-92.4% YoY), and net loss of JPY6.0bn (versus profit of JPY1.5bn in FY 02/18). Although operating hours and days in operation at some restaurants were shortened as a result of severe weather conditions and natural disasters such as torrential rains, typhoons, and earthquake, sales at existing Yoshinoya restaurants logged solid gains and top-line growth was further aided by new restaurant openings by the company's Hanamaru chain and overseas. On the earnings front, operating profit fell due to the rising cost of beef, rice, and other ingredients; personnel-related costs also went up as labor shortages led to increased reliance part-time workers. The loss at the net income level reflected JPY5.1bn in impairment losses booked in connection with store closures and other write-offs.
For FY02/20, the company forecasts consolidated sales of JPY208.0bn (+2.8% YoY), an operating profit of JPY1.0bn (+861.5% ◤ YoY), recurring profit of JPY1.5bn (+329.8% YoY), and net income of JPY100mn. It expects comparable store sales to remain largely the same YoY for Yoshinoya, but increase by 2.1—2.5% for Hanamaru, Arcmeal, and Kyotaru. The forecast calls for a total of 287 restaurant openings, of which 162 will be overseas, followed by Yoshinoya and Hanamaru outlets in Japan. 70 restaurants are due to close. On the profit front, the company projects a 0.5pp improvement in the cost ratio, pushing up the operating profit YoY. It also expects net income to soar from a year earlier as it does not anticipate booking impairment losses of the level it saw in FY02/19.
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
03/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
new ways to create value. To this end, it plans to develop new markets and new customers both in Japan and overseas, and introduce measures aimed at countering the impact of Japan's declining population and aging society on its businesses.
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.
04/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Key financial data
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. Est. Sales 171,314 165,883 164,599 173,418 180,032 185,738 188,623 198,503 202,385 208,000 YoY -4.6% -3.2% -0.8% 5.4% 3.8% 3.2% 1.6% 5.2% 2.0% 2.8% Gross profit 111,143 109,358 105,613 108,758 112,491 114,830 120,237 128,912 129,581 134,160 YoY -0.9% -1.6% -3.4% 3.0% 3.4% 2.1% 4.7% 7.2% 0.5% 3.5% GPM 64.9% 65.9% 64.2% 62.7% 62.5% 61.8% 63.7% 64.9% 64.0% 64.5% Operating profit 5,116 4,801 1,877 2,179 3,515 1,613 1,865 4,019 104 1,000 YoY -671.6% -6.2% -60.9% 16.1% 61.3% -54.1% 15.6% 115.5% -97.4% 861.5% OPM 3.0% 2.9% 1.1% 1.3% 2.0% 0.9% 1.0% 2.0% 0.1% 0.5% Recurring profit 5,509 5,311 2,460 3,270 3,993 2,345 2,750 4,604 349 1,500 YoY -1257.4% -3.6% -53.7% 32.9% 22.1% -41.3% 17.3% 67.4% -92.4% 329.8% RPM 3.2% 3.2% 1.5% 1.9% 2.2% 1.3% 1.5% 2.3% 0.2% 0.7% Ne t in c o me 382 1,310 -364 698 941 837 1,248 1,491 -6,000 100 YoY -104.3% 242.9% - -291.8% 34.8% -11.1% 49.1% 19.5% - - Net margin 0.2% 0.8% - 0.4% 0.5% 0.5% 0.7% 0.8% - 0.0% Per share data (JPY) Shares issued (year-end; '000) 662 662 662 66,241 63,941 65,130 65,130 65,130 65,130 - EPS 6.2 25.8 -7.1 13.6 16.2 13.1 19.4 23.1 -92.9 26.3 EPS (fully diluted) ------Dividend per share 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 - Book value per share 849.8 858.4 831.1 831.8 921.0 891.0 879.5 887.1 765.7 - Balance sheet (JPYmn) Cash and cash equivalents 15,576 17,299 14,244 18,174 27,087 21,287 25,474 21,913 16,971 - Total current assets 26,358 26,805 24,242 30,079 39,503 36,984 38,600 37,124 34,260 - Tangible fixed assets 39,999 38,851 38,737 38,236 39,857 44,521 45,178 46,611 46,234 - Investments and other assets 27,381 25,693 24,282 23,710 26,200 26,717 27,292 27,775 28,034 - Intangible fixed assets 3,349 3,020 4,076 3,497 3,096 3,067 3,875 4,102 4,155 - Total assets 97,088 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 - Accounts payable 4,373 3,865 4,116 4,776 6,753 5,741 5,053 5,985 5,607 - Short-term debt 18,614 20,158 17,665 22,918 10,416 13,752 14,493 13,307 11,118 - Total current liabilities 34,573 34,032 31,115 38,673 31,533 31,563 32,530 33,681 31,255 - Long-term debt 11,941 9,036 11,375 8,571 13,824 17,577 20,807 19,754 23,586 - Total fixed liabilities 16,345 14,754 16,832 13,438 18,186 21,994 25,207 24,124 31,404 - Total liabilities 50,918 48,787 47,948 52,112 49,719 53,558 57,737 57,805 62,659 - Net assets 97,088 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 - Total interest-bearing debt 30,555 29,194 29,040 31,489 24,240 31,329 35,300 33,061 34,704 - Cash flow statement (JPYmn) Cash flows from operating activities 13,798 8,109 6,212 7,570 11,833 433 10,104 9,374 2,830 - Cash flows from investing activities -4,585 -3,218 -6,937 -4,258 -9,201 -12,365 -6,526 -8,379 -9,034 - Cash flows from financing activities -7,327 -3,199 -2,473 481 5,595 3,843 1,085 -4,200 2,461 - Financial ratios ROA (RP-based) 5.4% 5.5% 2.6% 3.5% 3.9% 2.1% 2.4% 4.0% 0.3% - ROE 0.8% 3.0% -0.8% 1.6% 1.9% 1.4% 2.2% 2.6% -11.1% - Equity ratio 43.6% 46.7% 46.8% 44.8% 53.7% 51.7% 49.4% 49.5% 46.2% - 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.
05/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
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 Yoshinoya -6.8% -4.9% -2.3% 7.3% 1.2% 0.8% 0.1% 1.4% 0.8% Hanamaru -5.6% -7.3% -0.7% 0.2% 0.0% 1.5% -1.3% 2.9% -1.8% Arcmeal -6.5% -6.7% 1.2% 6.0% 6.7% 1.8% -6.1% -1.2% -8.7% Kyotaru -4.6% -4.3% 1.3% -0.7% 1.3% 0.8% 0.1% -0.4% 0.3% Store count FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Yoshinoya 1,154 1,189 1,193 1,191 1,190 1,188 1,207 1,204 1,211 Openings 41 36 26 27 31 37 36 28 33 Closures 72 21 22 29 32 30 17 31 26 Hanamaru 308 312 327 341 371 390 432 479 512 Openings 34 27 28 30 29 44 52 59 48 Closures 8 8 13 16 14 13 10 10 15 Arcmeal 170 172 172 175 179 186 184 178 171 Openings 0 3 5 5 6 5 0 0 1 Closures 25 1 5 2 2 3 2 6 7 Kyotaru 360 350 330 328 329 315 329 330 333 Openings 9 22 19 21 14 12 25 19 21 Closures 15 32 39 23 13 26 11 18 18 Overseas 439 490 577 636 635 675 733 821 923 Openings 54 64 109 82 49 68 94 107 135 Closures 14 13 22 23 50 40 36 19 33 Other 262 195 191 179 178 169 189 171 *253 Openings 15 5 15 18 17 14 9 9 20 Closures 88 67 19 30 3 26 17 33 19 Consolidated total 2,693 2,708 2,790 2,850 2,882 2,923 3,074 3,179 3,403 Openings 153 157 202 183 146 180 216 222 258 Closures 222 142 120 123 114 138 93 117 118 Per store data (FY average; JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Sales Yoshinoya 78.04 74.83 72.67 78.02 80.07 80.41 81.24 83.85 85.80 Hanamaru 49.83 50.24 60.34 56.55 54.83 56.53 58.10 59.40 58.54 Arcmeal 121.00 120.85 121.24 127.67 134.42 133.46 124.21 124.21 116.03 Kyotaru 70.75 77.85 71.19 72.11 74.69 77.57 79.76 81.02 82.42 Operating profit Yoshinoya 3.80 3.88 1.61 2.41 3.41 2.57 3.20 4.20 2.92 Hanamaru 2.56 2.53 2.84 2.33 2.79 3.04 2.28 2.80 1.26 Arcmeal 3.76 3.35 2.28 2.39 1.62 1.40 0.73 1.15 -4.82 Kyotaru 0.37 -1.71 -0.40 0.07 0.78 0.90 0.22 0.96 0.49 Source: Shared Research based on company data Notes: 80 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.
06/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Recent updates Highlights On July 5, 2019, Yoshinoya Holdings Co., Ltd. released monthly store sales data for June 2019; see the monthly trends section for details.
On June 5, 2019, the company released monthly store sales data for 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 disasters.
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.
On May 16, 2019, Shared Research updated the report following interviews with the company.
On May 7, 2019, the company released monthly store sales data for April 2019; see the monthly trends section for details.
On April 11, 2019, the company announced earnings results for full-year FY02/19; see the results section for details.
On April 5, 2019, the company released monthly store sales data for March 2019.
For previous releases and developments, please refer to the “News and topics” section.
07/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Trends and outlook
Quarterly trends and results
Cumulative FY02/17 FY02/18 FY02/19 FY02/19 (JPY mn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Es t . Sales 46,529 93,481 140,616 188,623 48,493 97,689 146,443 198,503 49,794 100,339 150,016 202,385 98.7% 205,000 YoY 1.5% 0.5% 1.4% 1.6% 4.2% 4.5% 4.1% 5.2% 2.7% 2.7% 2.4% 2.0% 3.3% Gross profit 29,479 59,376 89,904 120,237 31,646 63,713 95,293 128,912 31,977 64,416 96,311 129,581 YoY 3.3% 3.2% 5.0% 4.7% 7.4% 7.3% 6.0% 7.2% 1.0% 1.1% 1.1% 0.5% GPM 63.4% 63.5% 63.9% 63.7% 65.3% 65.2% 65.1% 64.9% 64.2% 64.2% 64.2% 64.0% SG&A expenses 29,328 58,431 88,702 118,371 30,898 61,577 92,699 124,893 32,156 64,361 96,873 129,476 YoY 4.1% 3.7% 4.7% 4.6% 5.4% 5.4% 4.5% 5.5% 4.1% 4.5% 4.5% 3.7% SG&A ratio 63.0% 62.5% 63.1% 62.8% 63.7% 63.0% 63.3% 62.9% 64.6% 64.1% 64.6% 64.0% Operating profit 151 945 1,201 1,865 748 2,136 2,594 4,019 -178 55 -562 104 9.5% 1,100 YoY -58.4% -20.7% 41.5% 15.6% 395.4% 126.0% 116.0% 115.5% - -97.4% - -97.4% -72.6% OPM 0.3% 1.0% 0.9% 1.0% 1.5% 2.2% 1.8% 2.0% -0.4% 0.1% -0.4% 0.1% 0.5% Recurring profit 319 1,178 1,807 2,750 837 2,448 2,993 4,604 -44 332 -129 349 20.5% 1,700 YoY -46.6% -20.7% 31.2% 17.3% 162.4% 107.8% 65.6% 67.4% - -86.4% - -92.4% -63.1% RPM 0.7% 1.3% 1.3% 1.5% 1.7% 2.5% 2.0% 2.3% -0.1% 0.3% -0.1% 0.2% 0.8% Net income 130 1,574 1,688 1,248 419 1,290 1,595 1,491 -388 -850 -1,558 -6,000 - -1,100 YoY -48.6% 137.4% 817.4% 49.1% 222.3% -18.0% -5.5% 19.5% - - - - - Net margin 0.3% 1.7% 1.2% 0.7% 0.9% 1.3% 1.1% 0.8% -0.8% -0.8% - - -0.5% Quarterly FY02/17 FY02/18 FY02/19 (JPY mn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 46,529 46,952 47,135 48,007 48,493 49,196 48,754 52,060 49,794 50,545 49,677 52,369 Yoshinoya 23,763 24,647 24,606 24,265 24,001 24,573 24,980 27,528 24,909 25,933 25,490 27,275 Hanamaru 5,855 6,098 5,933 5,994 6,701 6,909 6,773 6,674 7,355 7,466 7,107 7,077 Arcmeal 5,931 5,713 5,424 5,911 5,755 5,744 5,275 5,708 5,346 4,990 4,730 5,181 Kyotaru 6,399 6,241 6,276 6,766 6,810 6,560 6,382 6,943 6,958 6,727 6,634 7,004 Overseas 4,100 3,995 4,244 4,267 4,617 4,908 5,196 5,013 5,005 5,207 5,558 5,392 YoY 1.5% -0.4% 3.3% 1.9% 4.2% 4.8% 3.4% 8.4% 2.7% 2.7% 1.9% 0.6% Yoshinoya 4.2% -0.6% 3.3% 0.3% 1.0% -0.3% 1.5% 13.4% 3.8% 5.5% 2.0% -0.9% Hanamaru 6.7% 8.3% 10.2% 19.7% 14.4% 13.3% 14.2% 11.3% 9.8% 8.1% 4.9% 6.0% Arcmeal -6.1% -6.4% -5.7% -4.4% -3.0% 0.5% -2.7% -3.4% -7.1% -13.1% -10.3% -9.2% Kyotaru 0.2% 2.6% 5.0% 3.6% 6.4% 5.1% 1.7% 2.6% 2.2% 2.5% 3.9% 0.9% Overseas -1.2% -5.5% -2.2% -11.0% 12.6% 22.9% 22.4% 17.5% 8.4% 6.1% 7.0% 7.6% Gross profit 29,479 29,897 30,528 30,333 31,646 32,067 31,580 33,619 31,977 32,439 31,895 33,270 YoY 3.3% 3.1% 8.8% 3.7% 7.4% 7.3% 3.4% 10.8% 1.0% 1.2% 1.0% -1.0% GPM 63.4% 63.7% 64.8% 63.2% 65.3% 65.2% 64.8% 64.6% 64.2% 64.2% 64.2% 63.5% SG&A expenses 29,328 29,103 30,271 29,669 30,898 30,679 31,122 32,194 32,156 32,205 32,512 32,603 YoY 4.1% 3.3% 6.6% 4.2% 5.4% 5.4% 2.8% 8.5% 4.1% 5.0% 4.5% 1.3% SG&A ratio 63.0% 62.0% 64.2% 61.8% 63.7% 62.4% 63.8% 61.8% 64.6% 63.7% 65.4% 62.3% Operating profit 151 794 256 664 748 1,388 458 1,425 -178 233 -617 666 Yoshinoya 601 1,008 1,292 934 915 1,050 1,203 1,896 511 732 910 1,369 Hanamaru 254 417 136 130 464 551 199 60 392 377 -93 -52 Arcmeal 38 11 -148 234 68 142 -98 97 -86 -257 -397 -101 Kyotaru 88 -53 -98 135 244 33 -119 158 206 -16 -57 29 Overseas 331 278 302 2 314 358 416 155 114 200 272 220 YoY -58.4% -4.2% - -13.1% 395.4% 74.8% 78.9% 114.6% - -83.2% - -53.3% Yoshinoya 14.3% 0.5% 130.3% -3.1% 52.2% 4.2% -6.9% 103.0% -44.2% -30.3% -24.4% -27.8% Hanamaru -43.2% 4.8% 36.0% -39.0% 82.7% 32.1% 46.3% -53.8% -15.5% -31.6% - - Arcmeal -73.0% - - -25.5% 78.9% 1190.9% - -58.5% - - - - Kyotaru -47.9% - - -12.9% 177.3% - - 17.0% -15.6% - - -81.6% Overseas 359.7% 6.5% 26.9% - -5.1% 28.8% 37.7% 7650.0% -63.7% -44.1% -34.6% 41.9% OPM 0.3% 1.7% 0.5% 1.4% 1.5% 2.8% 0.9% 2.7% -0.4% 0.5% -1.2% 1.3% Yoshinoya 2.5% 4.1% 5.3% 3.8% 3.8% 4.3% 4.8% 6.9% 2.1% 2.8% 3.6% 5.0% Hanamaru 4.3% 6.8% 2.3% 2.2% 6.9% 8.0% 2.9% 0.9% 5.3% 5.0% -1.3% -0.7% Arcmeal 0.6% 0.2% -2.7% 4.0% 1.2% 2.5% -1.9% 1.7% -1.6% -5.2% -8.4% -1.9% Kyotaru 1.4% -0.8% -1.6% 2.0% 3.6% 0.5% -1.9% 2.3% 3.0% -0.2% -0.9% 0.4% Overseas 8.1% 7.0% 7.1% 0.0% 6.8% 7.3% 8.0% 3.1% 2.3% 3.8% 4.9% 4.1% Recurring profit 319 859 629 943 837 1,611 545 1,611 -44 376 -461 478 YoY -46.6% -3.3% - -2.6% 162.4% 87.5% -13.4% 70.8% - -76.7% - -70.3% RPM 0.7% 1.8% 1.3% 2.0% 1.7% 3.3% 1.1% 3.1% -0.1% 0.7% - 0.9% Net income 130 1,444 114 -440 419 871 305 -104 -388 -462 -708 -4,442 YoY -48.6% 252.2% - - 222.3% -39.7% 167.5% - - - - - Net margin 0.3% 3.1% 0.2% -0.9% 0.9% 1.8% 0.6% -0.2% -0.8% - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
08/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Yoshinoya monthly data
FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Comparable Sales -6.8% -4.9% -2.3% 7.3% 1.2% 0.8% 0.1% 1.4% 0.8% stores Customer count 1.0% -3.9% -6.8% 13.4% -6.4% -11.5% 1.7% 0.2% -0.2% Customer spend -7.2% -1.1% 4.8% -5.3% 8.2% 13.9% -1.6% 1.3% 1.1% All Sales -3.8% -3.3% 1.7% 11.2% 5.3% 3.9% 3.8% 4.8% 3.7% stores Customer count 3.9% -2.4% -3.1% 17.4% -2.6% -9.0% 5.3% 3.5% 3.0% Customer spend -7.0% -0.9% 4.9% -5.3% 8.2% 14.2% -1.5% 1.3% 0.7%
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% 6.3% stores Customer count 2.3% -0.9% -0.6% 5.4% 1.5% Customer spend 5.6% 5.8% 5.8% 1.6% 4.7% All Sales 11.0% 7.8% 8.1% 10.6% 9.4% stores Customer count 5.6% 2.4% 2.6% 8.9% 4.8% Customer spend 5.1% 5.3% 5.4% 1.6% 4.3% FY02/19 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY Comparable Sales 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% FY02/16 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb FY Comparable Sales -2.9% -0.6% 2.9% -3.4% 3.0% 15.4% 5.0% 8.0% -7.3% -7.9% -2.3% 2.5% 0.8% stores Customer count -18.4% -16.0% -13.4% -17.1% -11.3% -2.7% -11.2% -6.5% -18.8% -15.5% -3.7% 1.2% -11.5% Customer spend 19.0% 18.4% 18.8% 16.6% 16.2% 18.5% 18.3% 15.5% 14.1% 9.1% 1.5% 1.4% 13.9% All Sales 0.5% 2.1% 5.3% -1.2% 5.7% 18.8% 8.1% 11.0% -4.9% -5.3% 0.5% 5.8% 3.9% stores Customer count -15.6% -13.8% -11.3% -15.3% -9.0% 0.2% -8.6% -3.9% -16.8% -13.2% -1.1% 4.3% -9.0% Customer spend 19.0% 18.5% 18.8% 16.6% 16.2% 18.6% 18.3% 15.5% 14.2% 9.1% 1.6% 1.4% 14.2% Source: Shared Research based on company data
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) ▷
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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 fiscal 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.
Sales Operating profit
(JPYmn) (JPYmn)
250,000 4,500 4,019 202,385 198,503 3,500 200,000 188,623 1,425
52,369 52,060 2,500 48,007 458 150,000 1,865
49,677 1,500 664 47,135 48,754 1,388 104 100,000 256 500 794 666 46,952 49,196 50,545 748 151 233 50,000 -178 -500 -617 46,529 48,493 49,794
0 -1,500 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data Source: Shared Research based on company data
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.
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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 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.
Yoshinoya: Sales by quarter Yoshinoya: Segment profit by quarter
(JPYmn) (JPYmn) 103,607 120,000 6,000
101,082 5,064 97,281 100,000 5,000 3,522 27,528 27,275 24,265 3,835 80,000 4,000 1,896
934 25,490 60,000 24,606 24,980 3,000 1,369 1,203 1,292 40,000 25,933 2,000 24,647 24,573 910 1,050 1,008 20,000 1,000 732 24,909 23,763 24,001 915 601 511 0 0 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data Source: Shared Research based on company data
Yoshinoya: Sales YoY change Yoshinoya: Segment profit margin
13.4% 15.0% 8.0% 6.9% 12.0% 5.3% 6.0% 4.8% 5.0% 9.0% 4.1% 4.3% 5.5% 3.8% 3.8% 3.6% 4.2% 6.0% 3.3% 4.0% 2.8% 2.0% 2.5% 1.0% 3.0% 0.3% 3.8% -0.9% 2.0% 0.0% 1.5% 2.1% -0.6% -0.3% -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 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Source: Shared Research based on company data Source: Shared Research based on company data
Yoshinoya: Comparable store monthly sales
(%) Sales Customer count Customer spend 60 50 40 30 20 10 0 -10 -20 -30 Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Jun Jun Jun Jun Jun Feb Feb Feb Feb Feb Sep Sep Sep Sep Sep Mar Mar Mar Mar Mar Dec Dec Dec Dec Dec Nov Nov Nov Nov Nov Aug Aug Aug Aug Aug May May May May May
FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Source: Shared Research based on company data
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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.
Hanamaru: Sales by quarter Hanamaru: Segment profit by quarter
(JPYmn) (JPYmn) 29,005 30,000 1,500 27,057 1,274 60 25,000 23,880 7,077 6,674 199 1,000 937 5,994 624 20,000 130 7,107 136 551 6,773 377 15,000 5,933 500 417
7,466 464 10,000 6,909 392 6,098 254 0 -93 5,000 7,355 -52 5,855 6,701 0 -500 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data Source: Shared Research based on company data
Hanamaru: Sales YoY change Hanamaru: Segment profit margin
25.0% 10.0% 8.1% 19.7% 7.0% 6.7% 20.0% 8.0% 14.4% 14.2% 5.3% 13.3% 6.0% 4.2% 15.0% 11.3% 3.6% 10.2% 9.8% 4.0% 8.3% 8.1% 10.0% 6.7% 6.0% 3.0% 4.9% 2.0% 5.0% 2.3% 1.9% -0.7% 0.0% 0.8% -1.3% 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 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Source: Shared Research based on company data Source: Shared Research based on company data
Arcmeal
Full-year sales of JPY20.2bn were down 9.9% YoY. ▷
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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.
Arcmeal: Sales by quarter Arcmeal: Segment profit by quarter
(JPYmn) (JPYmn)
25,000 22,979 22,482 400 135 209 20,247 97 20,000 5,911 5,708 200 234 142 -841 5,181 11 0 38 68 -98 -86 15,000 -148 5,424 5,275 -200 4,730 -257
10,000 -400 5,713 5,744 4,990 -397 -600 5,000 -800 -101 5,931 5,755 5,346
0 -1,000 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data Source: Shared Research based on company data
Arcmeal: Sales YoY change Arcmeal: Segment profit margin
5.0% 6.0% 4.0% 2.5% 0.5% 4.0% 1.7% -3.0% 1.2% 0.0% 2.0% 0.6% 0.2% -4.4% -3.4% -1.9% 0.0% -2.7% -1.9% -6.1% -5.7% -1.6% -5.0% -2.7% -2.0% -9.2% -4.0% -5.2% -7.1% -10.3% -10.0% -6.4% -6.0% -8.4% -13.1% -8.0% -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 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Source: Shared Research based on company data Source: Shared Research based on company data
Kyotaru
Full-year sales of JPY27.3bn were up 2.4% YoY. ▷ 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.
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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 discount 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."
Kyotaru: Sales by quarter Kyotaru: Segment profit by quarter
(JPYmn) (JPYmn) 27,323 30,000 600 26,695 25,682 316 25,000 6,943 7,004 6,766 158 162 20,000 300 72 33 29 6,382 6,634 15,000 6,276 135 244 206 88 10,000 6,560 6,727 0 6,241 -53 -119 -16 -98 5,000 -57 6,399 6,810 6,958
0 -300 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data Source: Shared Research based on company data
Kyotaru: Sales YoY change Kyotaru: Segment profit margin
3.6% 8.0% 6.4% 4.0% 3.0% 3.0% 2.3% 6.0% 5.0% 5.1% 2.0% 1.4% 3.6% 3.9% 2.0% 0.4% 4.0% 2.6% 2.6% 2.5% 1.0% 0.5%
2.0% 0.9% 0.0% 0.2% 2.2% -0.2% 1.7% -1.0% -0.8% 0.0% -2.0% -0.9% -1.6% -1.9% -2.0% -3.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Source: Shared Research based on company data Source: Shared Research based on company data 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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Overseas: Sales by quarter Overseas: Segment profit by quarter
(JPYmn) (JPYmn)
25,000 1,500 21,162 1,243 19,734 20,000 155 16,606 5,392 5,013 1,000 913 2 806 15,000 4,267 416 5,558 302 5,196 220 10,000 4,244 500 278 358 4,908 5,207 272 3,995 5,000 200 331 314 4,100 4,617 5,005 114 0 0 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Shared Research based on company data Source: Shared Research based on company data
Overseas: Sales YoY change Overseas: Segment profit margin
30.0% 10.0% 22.9% 22.4% 8.1% 8.0% 7.1% 7.3% 17.5% 7.0% 6.8% 20.0% 12.6% 8.0% 4.9% 8.4% 7.0% 7.6% 6.0% 10.0% 6.1% 3.8% 4.1% 3.1% -1.2% -2.2% 4.0% 0.0% 2.0% 2.3% -10.0% -11.0% 0.0% -5.5% 0.0% -20.0% -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 FY02/17 FY02/18 FY02/19 FY02/17 FY02/18 FY02/19
Source: Shared Research based on company data 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 Summary For FY02/20, Yoshinoya HD is forecasting consolidated sales of JPY208.0bn (+2.8% YoY), an operating profit of JPY1.0bn (+861.5% YoY), recurring profit of JPY1.5bn (+329.8% YoY), and net income of JPY100mn. Although a breakdown by segment has not been released, the company expects to see an increase in comparable store sales at Yoshinoya (+0.4% YoY), Hanamaru (+2.5% YoY), Arcmeal (+2.2% YoY), and Kyotaru (+2.1% YoY). Initiatives at Yoshinoya include boosting customer footfall by introducing seasonal menus of beef dishes to attract visits by existing customers, and expanding the customer base (capturing younger population and female customers) through store conversions to the self-service format where customers order at the cash register and carry their food to the table themselves. At Hanamaru and Kyotaru, the company plans to see growth through an increase in store counts. While Arcmeal expects a net decrease in store count, the company plans to revise its strategy, reintroduce original service contents, and win back dormant customers. Overseas, it intends to expand service areas in North America, while improving performances of unprofitable stores in China and the ASEAN region.
Store openings and closures by segment
FY02/18 Act. FY02/19 Act. FY02/20 Est. (stores) Openings Closures Yo Y change Openings Closures Yo Y change Yoshinoya 1,200 33 26 1,211 +11 38 16 1,232 +21 Hanamaru 479 48 15 512 +33 35 16 531 +19 Arcmeal 178 1 7 171 -7 0 1 170 -1 Kyotaru 330 21 18 333 +3 16 10 339 +6 Overseas 821 135 33 923 +102 162 22 1,063 +140 Other 171 20 19 253 +82 36 5 285 +32 Consolidated total 3,179 258 118 3,403 +224 287 70 3,620 +217 Source: Shared Research based on company data Note: 67 of the 135 overseas stores slated for opening are franchises; of the net YoY increase under Other, 80 stores are attributable to the acquisition of shares in ramen restaurant operator Withlink Holdings.
Results outlook
FY02/17 FY02/18 FY02/19 FY02/20 (JPYmn) 1H Act. 2H Act. FY A ct . 1H Act. 2H Act. FY A ct . 1H Act. 2H Act. FY A ct . FY Est . Sales 93,481 95,142 188,623 97,689 100,814 198,503 100,339 102,046 202,385 208,000 YoY 0.5% 2.6% 1.6% 4.5% 6.0% 5.2% 2.7% 1.2% 2.0% 2.8% Cost of sales 34,105 34,281 68,386 33,976 35,615 69,591 35,922 36,881 72,804 73,840 Gross profit 59,376 60,861 120,237 63,713 65,199 128,912 64,416 65,165 129,581 134,160 GPM 63.5% 64.0% 63.7% 65.2% 64.7% 64.9% 64.2% 63.9% 64.0% 64.5% SG&A expenses 58,431 59,940 118,371 61,577 63,316 124,893 64,361 65,115 129,476 133,120 SG&A rat io 62.5% 63.0% 62.8% 63.0% 62.8% 62.9% 64.1% 63.8% 64.0% 64.0% Operating profit 945 920 1,865 2,136 1,883 4,019 55 49 104 1,000 YoY -20.7% 118.5% 15.6% 126.0% 104.7% 115.5% -97.4% -97.4% -97.4% 861.5% OPM 1.0% 1.0% 1.0% 2.2% 1.9% 2.0% 0.1% 0.0% 0.1% 0.5% Recurring profit 1,178 1,572 2,750 2,448 2,156 4,604 332 17 349 1,500 YoY -20.7% 82.8% 17.3% 107.8% 37.2% 67.4% -86.4% -99.2% -92.4% 329.8% RPM 1.3% 1.7% 1.5% 2.5% 2.1% 2.3% 0.3% 0.0% 0.2% 0.7% Net in co me 1,574 -326 1,248 1,290 201 1,491 -850 -5,150 -6,000 100 YoY 137.4% -287.4% 49.1% -18.0% -161.7% 19.5% - - - - Net margin 1.7% -0.3% 0.7% 1.3% 0.2% 0.8% -0.8% -5.0% -3.0% 0.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
16/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Past initial forecasts versus results
Past initial forecasts versus results Results vs. Initial Est. FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 175,000 185,000 193,000 202,000 211,000 Sales (Results) 180,032 185,738 188,623 198,503 202,385 Results vs. Initial Est. 2.9% 0.4% -2.3% -1.7% -4.1% Operating profit (Initial Est.) 3,300 3,000 3,400 4,400 4,100 Operating profit (Results) 3,515 1,613 1,865 4,019 104 Results vs. Initial Est. 6.5% -46.2% -45.1% -8.7% -97.5% Recurring profit (Initial Est.) 3,700 3,400 3,800 5,100 4,700 Recurring profit (Results) 3,993 2,345 2,750 4,604 349 Results vs. Initial Est. 7.9% -31.0% -27.6% -9.7% -92.6% Net income (Initial Est.) 1,000 800 1,900 2,100 1,700 Net income (Results) 941 837 1,248 1,491 -6,000 Results vs. Initial Est. -5.9% 4.6% -34.3% -29.0% - 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 fiscal 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.
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Performance assumptions versus results
FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Est. Act. Diff. Yoshinoya 13.6% 7.3% -6.3pp -0.9% 1.2% +2.1pp 8.0% 0.8% -7.2pp 4.5% 0.1% -4.4pp 2.4% 1.4% -1.0pp 2.6% 0.8% -1.8pp Comparable Hanamaru 0.1% -0.7% -0.8pp 0.8% 0.0% -0.8pp 0.0% 1.5% +1.5pp 0.3% -1.3% -1.6pp 0.2% 2.9% +2.7pp 1.0% -1.8% -2.8pp store sales YoY Arcmeal 1.4% 6.0% +4.6pp 1.4% 6.7% +5.3pp 1.2% 1.8% +0.6pp -0.3% -6.1% -5.8pp 1.5% -1.2% -2.7pp -0.2% -8.7% -8.5pp Kyotaru 1.3% 0.2% -1.1pp 1.5% 1.3% -0.2pp 1.2% 0.8% -0.4pp 0.4% 0.1% -0.3pp 1.0% -0.4% -1.4pp 3.6% 0.3% -3.3pp Yoshinoya Year-end 1,223 1,191 -32 1,213 1,190 -23 1,197 1,188 -9 1,208 1,207 -1 1,219 1,200 -19 1,232 1,211 -21 Openings 53 27 -26 44 31 -13 37 37 +0 50 36 -14 40 28 -12 50 33 -17 Closures 23 29 +6 22 32 +10 30 30 +0 30 17 -13 28 31 +3 18 26 +8 Net increase 30 -2 -32 22 -1 -23 7 7 +0 20 19 -1 12 -3 -15 32 7 -25 Hanamaru Year-end 349 341 -8 403 371 -32 412 390 -22 439 432 -7 478 479 +1 524 512 -12 Openings 32 30 -2 50 29 -21 41 44 +3 50 52 +2 50 59 +9 49 48 -1 Closures 10 16 +6 3 14 +11 0 13 +13 1 10 +9 4 10 +6 4 15 +11 Net increase 22 14 -8 47 15 -32 41 31 -10 49 42 -7 46 49 +3 45 33 -12 Arcmeal Year-end 182 175 -7 186 179 -7 182 186 +4 187 184 -3 182 178 -4 178 171 -7 Openings 10 5 -5 12 6 -6 3 5 +2 1 0 -1 2 0 -2 4 1 -3 Closures 0 2 +2 1 2 +1 0 3 +3 0 2 +2 4 6 +2 4 7 +3 Net increase 10 3 -7 11 4 -7 3 2 -1 1 -2 -3 -2 -6 -4 0 -6 -6 Kyotaru Year-end 333 328 -5 328 329 +1 346 315 -31 327 329 +2 340 330 -10 336 333 -3 Store count Openings 28 21 -7 15 14 -1 26 12 -14 20 25 +5 20 19 -1 22 21 -1 Closures 25 23 -2 15 13 -2 9 26 +17 8 11 +3 9 18 +9 16 18 +2 Net increase 3 -2 -5 0 1 +1 17 -14 -31 12 14 +2 11 1 -10 6 3 -3 Overseas Year-end 717 636 -81 732 635 -97 697 675 -22 780 733 -47 838 821 -17 960 923 -37 Openings 144 82 -62 107 49 -58 75 68 -7 115 94 -21 112 107 -5 147 135 -12 Closures 4 23 +19 11 50 +39 13 40 +27 10 36 +26 7 19 +12 8 33 +25 Net increase 140 59 -81 96 -1 -97 62 28 -34 105 58 -47 105 88 -17 139 102 -37 Other Year-end 195 179 -16 193 178 -15 190 169 -21 173 189 +16 164 171 +7 176 253 +77 Openings 25 18 -7 30 17 -13 22 14 -8 6 9 +3 4 9 +5 8 20 +12 Closures 21 30 +9 1 3 +2 4 26 +22 2 17 +15 29 33 +4 3 19 +16 Net increase 4 -12 -16 29 14 -15 18 -12 -30 4 20 +16 -25 -24 +1 5 1 -4 Consolidated Year-end 2,999 2,850 -149 3,055 2,882 -173 3,024 2,923 -101 3,114 3,074 -40 3,221 3,179 -42 3,406 3,403 -3 total Openings 292 183 -109 258 146 -112 204 180 -24 242 216 -26 228 222 -6 280 258 -22 Closures 83 123 +40 53 114 +61 56 138 +82 51 93 +42 81 117 +36 53 118 +65 Net increase 209 60 -149 205 32 -173 148 42 -106 191 151 -40 147 105 -42 227 140 -87 Cost ratio 36.7% 37.3% +0.6pp 37.0% 37.5% +0.5pp 38.7% 38.2% -0.5pp 35.3% 36.3% +1.0pp 35.0% 35.1% +0.1pp 36.1% 36.0% -0.1pp Costs SG&A ratio 61.6% 61.5% -0.1pp 61.1% 60.5% -0.6pp 59.7% 61.0% +1.3pp 62.9% 62.8% -0.1pp 62.9% 62.9% +0.0pp 62.0% 64.0% +2.0pp 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: 80 Withlink Holdings stores included under Other from Q2 FY02/19
Impairment losses
Impair ment los s es FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Extraordinary losses 3,400 1,470 1,103 1,612 980 1,537 1,607 5,210 Impairment losses 1,579 1,397 1,030 1,494 933 1,409 1,298 5,107 Yoshinoya 292 593 390 496 383 246 370 1,064 Hanamaru 160 180 283 304 153 213 296 1,419 Arcmeal 132 161 69 85 102 404 414 944 Kyotaru 440 270 166 205 110 69 121 385 Overseas 45 106 92 206 101 70 50 793 Other 77 84 27 174 67 403 43 99 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
18/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Medium-term plan: seeking to revamp existing business model
The company formulated its long-term vision dubbed NEW BEGINNINGS 2025, outlining its goals on where it hoped to be in ten years. The long-term vision consists of three stages with medium-term plans designed for each stage. The three years ending in FY02/19 was the first stage—a period for sowing the seeds of growth. The company positions the second stage 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.
The fundamental concepts that make up the long-term vision are as follows. Shared Research understands that they are challenging goals.
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
Long-term visions of Yoshinoya Holdings
Group management philosophy For the People
Long-term management vision
1. Jointly create values with customers instead of unilaterally attempting to create them
The three joint creations to 2. Jointly create new business models and services by leveraging connections beyond achieve vision goals boundaries between divisions, business corporations, and national borders
3. Jointly create new values going beyond hedges between industries and businesses
The three keywords People, Health, and Technology
Source: Company materials Basic strategy 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 notes, 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.
Results of the first stage of long-term vision 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 noteworthy were the significant impairment losses booked 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.
19/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
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 introduced new menus, rolled out new store formats 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 slated to begin in FY02/20. 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.
20/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
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 JPY202.4bn in FY02/19, and ranks fifth out of 95 listed food-service companies in Japan (as of FY02/18). Yoshinoya HD also stands out for running more than 900 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 For ma t Store names Store count Yoshinoya Gyudon Yoshinoya, Sobadokoro 1,211 Hanamaru Udon Self-service Hanamaru Udon 495 Curry udon Senkichi 17 Arcmeal Steak Volks 43 Steak-no-Don 69 Shabu Shabu Suburban Shabu Shabu Don-tei 56 Italian Don Italiano, other 3 Kyotaru Take-out sushi Mainly Kansai-style sushi Kyotaru 169 Edomae-style sushi Sushi Misakiko 8 Eat-in sushi Conveyor belt sushi Kaisen Misakiko 90 Sushi Misakimaru 41 Sushi Misakimako 8 Nihonbashi Sui, other 17 Overseas Gyudon Yoshinoya 879 Udon Hanamaru 44 Other Ramen Setaga-ya, Hirugao, Bari-uma, Torinosuke, other 253 Source: Shared Research based on company data and website Note: The company does not formally disclose individual store count by brand. The store counts in the table are referential figures taken from the company website as of February 2019 and do not necessarily match the figures indicated in the text of this report.
The total number of restaurants (all formats, including take-out only stores) was 3,403 as of end FY02/19, breaking down into 2,480 in Japan and 923 overseas (ratio of 73:27). 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 Although 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 (together accounting for about a third of OP), the Yoshinoya segment still dominates with a 62.5% profit share. 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.
21/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
Sales breakdown by segment (FY02/19) Profit breakdown by segment (before adjustments; FY02/19) Other 1.5% Other -1.3% Kyotaru Overseas Overseas 3.9% 10.6% 19.6%
Kyotaru 13.6% Arcmeal Yoshinoya -20.4% Yoshinoya Arcmeal 51.7% 85.5% 10.1%
Hanamaru Hanamaru 14.5% 15.2%
Source: Shared Research based on company data Source: Shared Research based on company data
Profitability relatively low for Arcmeal and Kyotaru segments; varies year to year for Yoshinoya The Yoshinoya, Hanamaru, and Overseas segments were relatively profitable in FY02/19, whereas Arcmeal and Kyotaru were weak, even though these segments did not finish in the red.
Segment profitability
Segment OPM Asset turnover ROA (OP-based) Yoshinoya 3.4% 2.0 6.8% Hanamaru 2.2% 2.4 5.1% Arcmeal -4.2% 2.3 -9.5% Kyotaru 0.6% 2.6 1.5% Overseas 3.8% 1.3 5.1% Consolidated total 0.1% 1.8 0.1% Source: Shared Research based on company data (FY02/2019 results)
Historical figures indicate Kyotaru’s segment profit has remained low although it returned to the black, while Arcmeal’s profit has slumped and remained low (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 centralizing company-wide business processes at Yoshinoya HD has had a positive impact on segment profit across the board. Looking at the figures, adjustment amounts have increased with the adoption of a holdings company structure, pushing up profits at the segment level.
Sales by segment Operating profit by segment
(JPYmn) (JPYmn) 200,000 8,000 180,000 6,000 160,000 140,000 4,000
120,000 2,000 100,000 0 80,000 60,000 -2,000 40,000 -4,000 20,000 0 -6,000 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Yoshinoya Hanamaru Arcmeal Kyotaru Overseas Other Adjustments
Yoshinoya Hanamaru Arcmeal Kyotaru Overseas Other
Sales (JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 OP (JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 Yoshinoya 91,272 87,667 86,553 92,997 95,318 95,607 97,281 101,082 103,607 Yoshinoya 4,440 4,551 1,916 2,873 4,061 3,054 3,835 5,064 3,522 Hanamaru 14,700 15,573 19,279 18,887 19,521 21,510 23,880 27,057 29,005 Hanamaru 754 783 907 777 994 1,158 937 1,274 624 Arcmeal 22,082 20,666 20,853 22,150 23,793 24,357 22,979 22,482 20,247 Arcmeal 686 573 392 415 286 256 135 209 -841 Kyotaru 25,681 27,638 24,205 23,725 24,537 24,976 25,682 26,695 27,323 Kyotaru 134 -606 -137 24 255 289 72 316 162 Overseas 10,869 10,307 9,880 12,469 14,955 17,510 16,606 19,734 21,162 Overseas -43 -118 -210 286 568 557 913 1,243 806 Other 9,232 6,479 5,882 4,737 3,420 3,492 4,180 3,508 3,061 Other -134 43 -43 57 -148 -158 -56 -6 -53 Adjustments -2,522 -2,449 -2,057 -1,549 -1,514 -1,716 -1,987 -2,058 -2,024 Adjustments -721 -424 -948 -2,254 -2,502 -3,544 -3,973 -4,082 -4,117
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
22/68 Yoshinoya HD / 9861 R LAST UPDATE: 2019.07.05 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp Coverage
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 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.
Yoshinoya: Long-term earnings trends
(JPYmn) Sales Operating profit OPM
250,000 20.0% 16.7% 15.7% 200,000 15.0% 13.0% 150,000 10.0% 100,000 6.9% 6.2% 4.9% 5.2% 4.3% 5.0% 5.0% 3.7% 50,000 2.8% 3.9% 2.4% 3.2% 2.2% 3.1% 0 0.1%0.0% -1.9% -50,000 -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.
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Domestic sales price of US frozen short plate
(JPY/kg) 1,303 1,400 1,200 922 1,000 790 786 777 724 784 800 679 559 559 584 607 584 600 382 300 345 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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 Business model In the Yoshinoya segment, FY02/19 sales grew 2.5% YoY to JPY103.6bn while segment profit was down 30.5% YoY to JPY3.5bn before adjustments. As of end February 2019, there were 1,211 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 1,944 Sukiya restaurants (as of FY03/18). Matsuya Foods Holdings (TSE1: 9887) ranks third with 1,117 Matsuya restaurants (as of FY03/18).
Yoshinoya restaurant formats
Self-service 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/mo per set of equipment charges JPY6,000/mo 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 6% (76 outlets as of end February 2019) 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 a 4% royalty 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 March 2019)
Category Main menu (price in JPY including tax) Gyudon (beef bowl) Gyudon Salacia Gyudon Beef Bowl with Toppings of (380) (480) Green Onion and Raw Egg (480) Butadon (Pork Bowl) New Pork Bowl Grilled Pork & Ginger Bowl Pork Bowl with Kimchi Pork Bowl with Toppings of Green (350) (490) (450) Onion and Raw Egg (450) Nabe-zen (hot pot meal) Gyu-suki-nabe Meal Gyu-chige-nabe Meal Gyu-nabe Family Pack (seasonal) (beef hot pot) (Korean hot pot) (980) (690) (690) Grilled Rib Bowl Grilled Rib Bowl Grilled Rib & Ginger Bowl Grilled Rib Bowl with Kimchi Grilled Rib Bowl with Soft-boiled Egg (590) (590) (690) (660)
Curry and Rice Black Curry and Rice Black Curry and Rice with Beef Black Curry and Rice with Black Curry and Rice with Vegetable (350) (550) Cheese (600) (450) 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 (790) Beef (Small Bowl) (860) Miso Soup and Beef (Small Bowl) (930) (1,000)
Vegetable menu Veggie-Beef Meal Veggie Meal Veggie Black Curry Veggie Plate (600) (490) (600) (390)
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) (390) (390) (490) (590) Breakfast Grilled Salted Mackerel Meal Grilled Salmon Meal Grilled Salmon Meal with Egg, Spicy Pollack Roe Meal (450) (450) Natto, and Roasted Laver (390) (550) Dinner Beef and Grilled Beef Rib Meal Broiled Salted Mackerel Meal Broiled Salted Mackerel with (690) (690) Beef (790) Meal set Beef Plate Meal Veggie-Beef Meal Beef and Salmon Meal Grilled Pork & Ginger Meal (500) (600) (580) (550)
Children, family Mini Beef Bowl Set Mini Curry Set (360) (300) 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 around 25%, 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 307 restaurants (137 use the Demae-can delivery service and 204 use UBER EATS [17 use both]) as of April 2019.
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 a self-service 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 20% at pilot stores that have been converted. These stores also saw an increase in female customers, a drop in average customer age by around one year, and reduced labor for the store staff. The plan calls for the remodeling of 26 stores to the self-service format by the end of FY02/19, and another 70 the following year for a total of 96 stores 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 a self-service format. It intends to remodel 7 stores to this format as of end FY02/19 and another 18 by end FY02/20.
Results before and after conversion to the self-service format
Stores in buildings Suburban stores Customer trends Take-out sales growth +26.4% +21.9% No. of male customers +0% +5% No. of female customers +47% +26% Average age (years) -1.2 -1.1 Workload trends Average staff steps -34.2% -22.5% Working hours -4.3 -3.8 Sales contribution Sales +9.3% +11.5% Source: Shared Research based on company data.
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 2018 brand perception survey by Nikkei Research Inc.1 ranked Yoshinoya 307th among 600 Japanese companies, and seventh in the food service business after MOS Food Services (167th in total ranking), Starbucks Coffee Japan (175th), McDonald’s Japan (204th), Kentucky Fried Chicken Japan (209th), Mister Donut (212th), and Doutor Coffee (299th).
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.
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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 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
Chuck eye roll Strip loin Ribeye roll Tenderloin (Chuck tender) Top sirloin butt Short rib Top round (inside) Neck Bottom round (outside)
(Shoulder clod)
Flank Knuckle Hind shank
Brisket Bottom sirloin butt
Fore shank Short plate 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
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operational efficiency and easier working conditions. It plans to increase the number of stores adopting this new style of service to 96 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 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 Business model In the Hanamaru segment, FY02/19 sales were up 7.2% YoY to JPY29.0bn while segment profit fell 51.0% YoY to JPY624mn. The Hanamaru business operated 512 domestic restaurants as of end FY02/19, breaking down into 495 Hanamaru Udon (self-service udon noodle restaurants) and 17 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 JPY67mn in FY02/18. Sales figures disclosed on the website include both segment sales and those of the franchises.
Mainly directly operated restaurants Of the 512 restaurants accounted for in the segment as of end FY02/19, 412 were directly operated restaurants and 100 were franchises (19.5% 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. Hanamaru restaurants have been opening at a rate of 50 outlets per year in recent years.
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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 and sales total sales promotion charges Administrative JPY21,000/mo 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 Business model In FY02/19, the Arcmeal segment recorded sales of JPY20.2bn (-9.9% YoY) and a segment loss of JPY841mn (segment profit of JPY209mn in FY02/18). 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.
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 are around JPY120mn.
*Shabu shabu: Japanese hotpot dish of thinly sliced meat and vegetables cooked together in boiling broth.
Number of restaurants by brand and region
Steak-no-Don Shabu Shabu Don-tei Volks Don Italiano Total Tokyo 9 12 12 33 Kanagawa 3 5 7 15 Saitama 30 14 2 2 48 Chiba 1 8 5 14 Ibaraki 3 1 4 Tochigi 4 4 Gunma 5 4 9 Nagano 1 1 Osaka 10 5 4 1 20 Hyogo 2 2 4 Kyoto 3 2 5 Nara 2 2 Okayama 2 2 Fukuoka 1 5 6 Kumamoto 1 1 Taiwan 1 2 3 Total 69 56 43 3 171 Source: Shared Research based on information published on the websites of each brand (as of April 2019) and company interviews. Store counts do not necessarily match the figures indicated in the text of this report.
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Steak-no-Don Volks Shabu Shabu Don-tei
Source: Shared Research based on company data Source: Shared Research based on company data Source: Shared Research based on company data Steak-no-Don Steak-no-Don is a budget steak restaurant. The first restaurant opened in Maebashi, Gunma Prefecture, in 1976. Representative products are rib loin steak (150g), Don’s classic steak (150g), and Hamburg-style ground beef steak, which are priced around JPY1,000–2,000 (upgrades to a set menu including rice and mini salad cost around another JPY300). Lunches are priced around JPY1,000. Competitors include Skylark group companies Steak Gusto (225g matured beef steak and Hamburg-style ground beef steak with fried egg priced around JPY1,000–1,500) and Gusto (beef cut steak and Hamburg-style ground beef steak priced JPY1,000 or less). Most restaurants are located on main streets in suburban areas and the main customers are families.
Volks Volks is a more upmarket steak restaurant that originated in Osaka*. Each restaurant has a manager and head chef, with the concept of serving “hotel-standard cuisine on a budget.” Its mainstay dish is Australian grain-fed matured sirloin steak (150g priced from around JPY2,000; salad bar included; bread, rice, and soup bar costs around another JPY700). The daily lunch special is offered for less than JPY1,000 (bread, rice, and soup bar included). Competitors include Royal Holdings’ Royal Host (225g Angus sirloin steak priced at around JPY2,500) and Pepper Food Service’s Ikinari Steak (300g Angus sirloin steak priced around JPY2,500). The latter has a slightly different concept, but a similar price range. The restaurants are in suburban roadside locations and mainly cater to families.
* Volks was originally a restaurant operated by Volks Co., Ltd. established in Osaka in 1970 as a subsidiary of Daiei (charged with Daiei’s family restaurant business). It is the first restaurant in Japan to offer a salad bar.
Shabu Shabu Don-tei Shabu Shabu Don-tei is a roadside shabu shabu restaurant developed as the pillar of Don brand restaurants. The chain steadily expanded in the 1980s and 1990s and boasted strong profits. Mainstay products are all-you-can-eat shabu shabu (premium beef priced around JPY3,000, domestic beef around JPY4,000), all-you-can-eat sukiyaki hotpot (same pricing as shabu shabu), all-you-can-eat Premium (assorted meats, sushi, and salad bar; around JPY3,000 plus), and lunches (priced around JPY1,000– 2,000). Competitors include buffet-style shabu shabu restaurant Shabuyo (all-you-can-eat beef and Sangenton-brand pork for around JPY2,000 plus; another JPY1,000 for domestic beef) operated by Skylark Holdings (TSE1: 3197) and Kagonoya (all-you-can-eat course with select beef and Iberian pork shabu shabu and a choice of over 60 Japanese dishes priced around JPY3,500–4,000), a subsidiary of KR Holdings (unlisted). The restaurants are located on suburban main roads and mainly cater to families.
Strengths and challenges Competition with other companies is intense in the Arcmeal segment, making it difficult for the company to highlight its strengths. In this segment, the company operates multiple brands including Volks and Steak-no-Don that have different brand concepts, but it has not been successful in formulating individual strategies and managing the brands. For all Arcmeal brands, there is a large gap between the price of mainstay products and average customer spend. Further, the average customer spend at Volks is converging with that of Steak-no-Don, which has a different concept.
Basic strategy The company is taking steps to improve earnings such as reducing the number of in-store employees and streamlining unprofitable restaurants, as it focuses on revamping the business (including tackling the aforementioned issues).
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Kyotaru segment Business model In the Kyotaru segment, FY02/19 sales finished at JPY27.3bn, up 2.4% YoY, while segment profit fell 48.7% YoY to JPY162mn. The Kyotaru segment comprises three businesses—take-out sushi, eat-in sushi restaurants, and out-of-store sales, with sales weightings of approximately 40%, 50%, and 10%, respectively. 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 JPY80mn. The company does not disclose annual sales of individual brands. The number of take-out sushi stores (mainly Kyotaru) is on the decline, whereas the number of Kaisen Misakiko conveyor belt sushi restaurants is increasing.
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.
Eat-in sushi restaurants The company operates a total of 130 eat-in sushi restaurants. Main brands are urban conveyor belt sushi restaurant Kaisen Misakiko (around 90 restaurants) and conventional sushi restaurant Sushi Misakimaru (over 40). The company launched its first conveyor belt sushi restaurant 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.
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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 of offering 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) has proved successful. As a result, we surmise that Kaisen Misakiko is highly profitable, although the company does not disclose earnings by division.
That said, 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.
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 Business model In the Overseas segment, FY02/19 sales grew 7.2% YoY to JPY21.2bn while segment profit was down 35.2% YoY to JPY806mn. The overseas business consists of Yoshinoya and Hanamaru restaurants.
Overseas restaurants
Store count (end December) Format 2010 2011 2012 2013 2014 2015 2016 2017 2018 US Direct/FC 97 95 96 102 105 102 103 101 101 Taiwan Direct 55 53 55 51 48 52 58 64 68 Shanghai Direct 18 21 24 22 14 9 8 9 10 Qingdao Direct 3 8 10 16 19 Shenzhen Direct 11 12 15 18 18 18 28 37 50 Fujian Direct 4 3 3 5 5 11 12 15 17 Wuhan Direct 1 4 9 17 22 Sichuan Direct 1 4 Chongqing Direct 4 Jiangxi Direct 1 Henan Direct 2 Beijing FC 134 166 202 226 207 211 214 219 236 Yoshinoya Liaoning FC 41 44 56 62 67 69 73 81 89 Heilongjiang and Jilin FC 1 8 11 12 12 10 18 24 Inner Mongolia FC 6 6 8 9 10 10 12 12 14 Hong Kong FC 47 52 57 60 60 56 58 61 62 Qinghai FC 1 2 Singapore Direct 18 18 18 21 19 16 12 17 16 Philippines FC 6 5 7 6 7 7 12 11 12 Indonesia FC 2 11 19 24 35 48 57 73 94 Thailand FC 3 9 18 20 16 15 15 20 Cambodia FC 1 4 2 3 3 2 Malaysia Direct 4 9 12 10 Total 439 490 577 636 635 655 703 783 879 Shanghai Direct 11 11 12 16 23 24 Qingdao Direct 1 3 3 Fujian Direct 1 1 4 Wuhan Direct 1 3 3 2 2 Hanamaru Shenzhen Direct 2 Malaysia Direct 4 9 9 7 Indonesia Direct 2 Total 0 0 0 11 12 19 30 38 44 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. 101 outlets were in the US (of which 27 were franchises) and 427 franchises and 129 directly operated restaurants were located in China, where the management structure varies from region to region. The ASEAN region had a total of 154 restaurants: 10 directly managed restaurants in Malaysia and 16 in Singapore, and the restaurants in other countries operated as franchises.
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
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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. According to Hop Hing Group materials, the Yoshinoya business posted sales of CNY1.7bn (approximately JPY27bn) in 2017.
3 Yoshinoya HD nonconsolidated earnings include franchise revenue (JPY2.2bn in FY02/18), 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 had roughly 1,600 (as of end 1H FY03/19; restaurants in China run by Marugame Seimen’s equity-method company, as well as acquired brands), MOS Food Services had 352 (as of end FY03/18; 258 were restaurants in Taiwan run by an equity-method company), and Saizeriya had 375 (as of end 1H FY0/19; mainly directly operated restaurants in China; overseas [Asia] sales were JPY34.5bn and operating profit was JPY3.6bn in FY08/18).
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
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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 FY02/19 sales of JPY3.1bn (-12.7% YoY) and segment loss of JPY53mn (segment loss of JPY6mn in FY02/18). 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 2019, Setaga-ya had 19 restaurants (directly operated and franchise), including three 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 ▷
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 medium-term plan. 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.
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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.
While Arcmeal continues to struggle, the company hopes to utilize the brand as the only formal table service restaurant in the group that uses the same ingredients (meat) as Yoshinoya.
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.
Group structure
The Yoshinoya HD group comprises the holding company, 43 consolidated subsidiaries, and six equity-method companies (as of FY02/19). The main domestic segments are Yoshinoya, Hanamaru, Arcmeal, 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.
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In other segments, Hanamaru Inc., Arcmeal Co., Ltd., 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 Equit y-met hod affiliat es: 2 Affiliat es not accounted for by Consolidat ed Cons. subs: 2 Yoshinoya Consolidat ed equit y method: 2 subsidiary: 1 Affiliat es not Consolidat ed 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 Consolidat ed subsidiaries: 8 Consolidat ed subsidiaries: 2 Equit y-met hod affiliat e: 1 Equit y-met hod affiliat e: 1
Yoshinoya Asia Yoshinoya Taiwan Yoshinoya (China) America International Yoshinoya
Overseas
Source: Shared Research based on company data
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.
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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.
Domestic wholesale prices and Yoshinoya HD’s cost ratio
(JPY/kg)
1,000 922 38.2% 39.0% 37.3% 38.0% 800 724 784 36.3% 37.0% 37.5% 559 559 600 36.0% 584 607 584 35.1% 35.8% 35.0% 400 35.1% 34.1% 34.0% 200 33.0%
0 32.0% 2010 2011 2012 2013 2014 2015 2016 2017
Short plate wholesale price Cost ratio (RHS)
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 FY02/19, personnel expenses accounted for 46.4% of SG&A expenses, followed by restaurant costs such as rents and utilities (22.6%). These two cost items amounted to 44% of sales. Other main expenses are depreciation and amortization (depreciation and goodwill amortization) and advertising and promotions.
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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 FY02/18, rose to almost 30% in FY02/19. 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 FY02/9 FY02/10 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Personnel expenses 47,780 50,647 48,345 47,543 47,345 48,332 49,964 51,004 53,652 56,929 60,035 Rents and utilities 22,052 25,329 24,507 24,020 24,739 25,579 26,164 26,157 26,525 27,972 29,255 Advertising expenses 3,919 3,999 3,099 3,604 3,159 3,460 3,081 3,442 4,247 4,609 4,292 Depreciation and goodwill amortization 5,349 6,864 5,858 5,659 5,819 5,501 5,252 5,697 6,244 6,584 7,044 Other 25,211 26,189 24,218 23,730 22,674 23,707 24,515 26,917 27,703 28,799 28,851 Total 104,311 113,028 106,027 104,556 103,736 106,579 108,976 113,217 118,371 124,893 129,477 % of sales Personnel expenses 27.4% 28.2% 28.2% 28.7% 28.8% 27.9% 27.8% 27.5% 28.4% 28.7% 29.7% Rents and utilities 12.7% 14.1% 14.3% 14.5% 15.0% 14.7% 14.5% 14.1% 14.1% 14.1% 14.5% Advertising expenses 2.2% 2.2% 1.8% 2.2% 1.9% 2.0% 1.7% 1.9% 2.3% 2.3% 2.1% Depreciation and goodwill amortization 3.1% 3.8% 3.4% 3.4% 3.5% 3.2% 2.9% 3.1% 3.3% 3.3% 3.5% Other 14.5% 14.6% 14.1% 14.3% 13.8% 13.7% 13.6% 14.5% 14.7% 14.5% 14.3% Total 59.9% 62.9% 61.9% 63.0% 63.0% 61.5% 60.5% 61.0% 62.8% 62.9% 64.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Capital expenditures and depreciation
(JPYmn)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19
New Renovation Other Depreciation
(JPYmn) FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 New 3,773 2,794 3,407 3,364 3,672 4,664 4,932 5,525 4,672 Renovation 1,818 1,718 4,038 2,099 3,556 6,054 3,766 3,415 3,431 Other 2,923 1,303 647 565 1,225 2,161 2,675 1,809 5,146 Depreciation 6,066 5,829 5,834 5,399 5,088 5,433 5,915 6,286 6,700 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.
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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 and Kyotaru, as well as the Overseas segment whose fiscal 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 fiscal 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 JPY25.4tn in 2015 and 2016. 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 Matsuya
30.0 29.1 12.0% 2,500
25.7 10.0% 1,984 1,980 25.0 1,913 1,969 1,963 1,944 8.0% 2,000
20.0 6.0% 1,500 1,207 4.0% 1,173 1,174 1,190 1,188 1,200 15.0 996 975 964 950 943 953 2.0% 1,000
10.0 0.0% 500 -2.0% 5.0 -4.0% 0 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 0.0 -6.0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Shared Research based on company financial results Note: Fiscal years of Sukiya (Zensho Holdings) and Matsuya (Matsuya Foods Source: Shared Research based on Japan Food Association data 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% 1.27 1.55 1.51 1.30 6.0% 6.0% 1.50 1.20 4.0% 4.0% 1.10 1.40 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% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
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.
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%.
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According to the company, the steak restaurant market to which Arcmeal belongs has peaked at about JPY200bn. The shabu shabu restaurant market (also Arcmeal), estimated at around JPY130bn, continues to show moderate growth.
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).
* Sixth to 10th are Sushiro Global Holdings, Saizeriya, Royal Holdings, Doutor NRS Holdings, and Kura Corporation.
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 Host HD), Ikinari Steak (Pepper Food Service) Steak-no-Don Steak Gusto (Skylark Group) Shabu Shabu Don-tei Shabuyo (Skylark Group), Kagonoya (KR Food Service) 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. Its FY03/18 sales were JPY579.1bn (restaurants JPY497.7bn, retail JPY83.5bn) and its operating profit was JPY17.6bn (OPM was 3.0%, higher than Yoshinoya HD’s 2.0%). The company has the largest beef bowl chain in Japan with 1,944 restaurants, and another 98 restaurants in China. Sales in the beef bowl business came to JPY203.6bn.
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 (1,367 restaurants), Jonathan (301), Bamiyan (332), Aiya, Steak Gusto (137), Japanese restaurant Yumean (194), Italian restaurant Grazie Gardens, seafood and sushi restaurant Totoyamichi, and shabu shabu restaurant Shabuyo (181). FY12/18 sales were JPY366.4bn and operating profit was JPY22.9bn. Having relisted after an MBO, the company boasts a high 6.2% OPM.
Matsuya Foods Holdings (TSE1: 9887) Japan’s third-largest beef bowl chain with 953 restaurants. The company also has a pork cutlet chain called Matsunoya (148 restaurants) and conveyor belt sushi chain Sushimatsu (six). FY03/18 sales were JPY93.0bn (beef bowl JPY78.7bn, pork cutlet JPY11.5bn, sushi JPY627mn, others PY410mn, and franchise-related sales JPY2.1bn) and operating profit was JPY4.1bn. OPM at 4.4% is higher than Yoshinoya HD’s 2.0%. The company runs 12 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). FY03/18 sales were JPY116.5bn and operating profit was JPY7.6bn, with a high OPM of 6.6%. The company runs 792 Marugame Seimen restaurants in Japan and 220 overseas (including franchises). The Marugame Seimen segment recorded domestic sales of JPY90.4bn (77.5% share) and segment profit of JPY14.0bn. The overseas segment posted sales of JPY10.4bn (includes other formats) and segment profit of JPY792mn. The overseas business is growing fast, with sales up 1.8x from FY03/17.
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 221 Royal Host family restaurants in Japan and 154 Tenya restaurants specializing in tempura on rice. FY12/18 sales were JPY137.7bn and operating profit was JPY5.7bn. Sales of the restaurant business were JPY61.8bn and recurring profit was JPY2.8bn, accounting for about 50% of the total. The overall OPM was 4.1%.
Chiyoda Sushi (Unlisted) A comprehensive sushi business (restaurants and take-out sushi) founded in 1959, Chiyoda Sushi posted FY03/18 sales of JPY13.8bn. The company runs Chiyoda Sushi take-out sushi stores (177 stores mainly in Tokyo), five gourmet conveyor belt sushi restaurants Tsukiji Gin-ikkan, and six 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) FY02/17 FY02/18 FY02/19 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 188,623 198,503 202,385 525,709 544,028 579,108 83,948 89,039 93,006 Gross profit 120,237 128,912 129,581 297,693 312,177 327,622 56,420 60,810 62,721 SG&A expenses 118,371 124,893 129,477 285,580 293,401 310,010 52,734 55,978 58,601 Operating profit 1,865 4,019 104 12,113 18,775 17,611 3,686 4,831 4,120 Recurring profit 2,750 4,604 349 11,380 18,061 17,656 3,771 5,063 4,375 Net income 1,248 1,491 -6,000 4,026 8,443 8,001 1,616 2,837 2,381 GPM 63.7% 64.9% 64.0% 56.6% 57.4% 56.6% 67.2% 68.3% 67.4% SG&A rat io 62.8% 62.9% 64.0% 54.3% 53.9% 53.5% 62.8% 62.9% 63.0% OPM 1.0% 2.0% 0.1% 2.3% 3.5% 3.0% 4.4% 5.4% 4.4% ROE 2.2% 2.6% -11.1% 6.6% 13.0% 11.8% 4.7% 7.9% 6.2% ROA (RP-based) 2.4% 4.0% -5.3% 4.1% 6.4% 6.0% 6.6% 8.9% 7.6% Total assets 114,947 115,613 112,685 278,340 288,999 296,769 56,979 57,146 58,308 Net assets 57,209 57,807 50,025 75,060 82,107 82,204 34,841 37,172 39,078 Equit y rat io 49.4% 49.5% 46.2% 22.2% 23.5% 22.7% 61.1% 65.0% 67.0% Operating CF 10,104 9,374 2,830 25,455 37,049 37,162 6,573 7,089 6,724 Investing CF -6,526 -8,379 -9,034 -20,814 -26,193 -24,663 -2,257 -3,192 -4,239 Financing CF 1,085 -4,200 2,461 -13,138 -9,403 -9,073 -3,692 -4,012 -2,507 Cash and deposits 25,474 21,913 16,971 20,925 22,274 26,142 8,980 8,847 8,814 Interest-bearing debt 35,300 33,061 34,704 149,445 148,121 150,319 12,254 9,613 7,824 Net debt 9,826 11,148 17,733 128,520 125,847 124,177 3,275 766 -990
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Toridoll Holdings (3397) Skylark Group (3197) Royal Holdings (8179) FY03/16 FY03/17 FY03/18 FY12/16 FY12/17 FY12/18 FY12/16 FY12/17 FY12/18 IFRS Co ns. IFRS Co ns. IFRS Co ns. IFRS Co ns. IFRS Co ns. IFRS Co ns. Cons. Cons. Cons. Sales 95,587 101,779 116,504 354,513 359,445 366,360 133,025 132,070 133,896 Gross profit 71,482 75,563 85,644 248,055 251,152 254,959 91,265 93,313 95,116 SG&A expenses 62,347 66,280 77,685 215,219 221,814 230,538 86,042 87,360 89,407 Operating profit 8,733 8,619 7,635 31,249 28,103 22,857 5,222 5,952 5,709 Recurring profit 8,117 8,466 7,175 28,952 25,515 18,596 5,205 6,056 5,765 Net income 5,212 5,631 4,665 18,216 16,926 11,438 2,377 3,533 2,791 GPM 74.8% 74.2% 73.5% 70.0% 69.9% 69.6% 68.6% 68.8% 71.0% SG&A rat io 65.2% 65.1% 66.7% 60.7% 61.7% 62.9% 64.7% 64.4% 66.8% OPM 9.1% 8.5% 6.6% 8.8% 7.8% 6.2% 3.9% 4.4% 4.3% ROE 18.9% 17.5% 13.2% 16.8% 12.7% 8.9% 5.1% 7.2% 5.5% ROA (RP-based) 13.9% 13.9% 8.2% 9.1% 7.4% 5.7% 5.6% 6.3% 5.9% Total assets 57,793 64,011 110,212 318,317 318,203 330,671 94,070 97,138 99,528 Net assets 30,872 35,006 37,246 114,198 127,324 130,453 44,702 51,973 51,125 Equit y rat io 51.9% 53.4% 32.9% 35.9% 40.0% 39.5% 50.3% 52.5% 50.1% Operating CF 8,587 9,743 9,862 36,029 31,510 31,571 9,212 9,350 8,478 Investing CF -6,194 -8,769 -39,860 -16,662 -19,606 -19,667 -5,961 -4,279 -6,121 Financing CF -7,324 102 35,039 -21,344 -13,078 -8,049 -2,650 -2,580 -4,591 Cash and deposits 10,094 11,183 14,798 16,222 15,094 18,908 5,058 7,552 5,305 Interest-bearing debt 14,613 15,707 53,806 131,807 129,224 133,054 26,242 25,395 27,568 Net debt 4,519 4,524 39,008 115,585 114,130 114,146 21,184 17,843 22,263 Source: Shared Research based on company data
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 fiscal year.
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Historical performance and financial statements Income statement Income statement FY02/10 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 179,602 171,314 165,883 164,599 173,418 180,032 185,738 188,623 198,503 202,385 YoY 3.1% -4.6% -3.2% -0.8% 5.4% 3.8% 3.2% 1.6% 5.2% 2.0% Cost of sales 67,469 60,171 56,525 58,985 64,659 67,540 70,907 68,386 69,590 72,804 Gross profit 112,132 111,143 109,358 105,613 108,758 112,491 114,830 120,237 128,912 129,581 YoY 3.9% -0.9% -1.6% -3.4% 3.0% 3.4% 2.1% 4.7% 7.2% 0.5% GPM 62.4% 64.9% 65.9% 64.2% 62.7% 62.5% 61.8% 63.7% 64.9% 64.0% SG&A expenses 113,028 106,027 104,556 103,736 106,579 108,976 113,217 118,371 124,893 129,477 SG&A ratio 62.9% 61.9% 63.0% 63.0% 61.5% 60.5% 61.0% 62.8% 62.9% 63.3% Operating profit -895 5,116 4,801 1,877 2,179 3,515 1,613 1,865 4,019 104 YoY -125.0% -671.6% -6.2% -60.9% 16.1% 61.3% -54.1% 15.6% 115.5% -97.4% OPM -0.5% 3.0% 2.9% 1.1% 1.3% 2.0% 0.9% 1.0% 2.0% 0.1% Non-operating income 1,406 1,311 1,634 1,459 1,887 1,291 1,509 1,606 1,502 1,350 Non-operating expenses 988 917 1,124 876 796 813 777 721 916 1,105 Recurring profit -476 5,509 5,311 2,460 3,270 3,993 2,345 2,750 4,604 349 YoY -111.0% -1257.4% -3.6% -53.7% 32.9% 22.1% -41.3% 17.3% 67.4% -92.4% RPM -0.3% 3.2% 3.2% 1.5% 1.9% 2.2% 1.3% 1.5% 2.3% 0.2% Extraordinary gains 544 399 1,221 0 0 340 4 1,487 23 7 Extraordinary losses 10,371 2,722 3,400 1,470 1,103 1,612 980 1,537 1,607 5,210 Impairment losses 8,641 1,352 1,579 1,397 1,030 1,494 933 1,409 1,298 5,107 Income taxes 323 2,624 1,937 1,315 1,545 1,881 544 1,460 1,544 1,201 Implied tax rate -3.1% 82.4% 61.8% 132.8% 71.3% 69.1% 39.7% 54.1% 51.1% -24.7% Minority interests -1,686 180 -115 38 -76 -101 -12 -9 -16 -53 Ne t in c o me -8,941 382 1,310 -364 698 941 837 1,248 1,491 -6,000 YoY - - 242.9% - - 34.8% -11.1% 49.1% 19.5% - Net margin -5.0% 0.2% 0.8% -0.2% 0.4% 0.5% 0.5% 0.7% 0.8% -3.0% EBITDA 6,325 11,688 10,849 7,919 7,841 8,847 7,267 8,017 10,522 7,019 EBITDA margin 3.5% 6.8% 6.5% 4.8% 4.5% 4.9% 3.9% 4.3% 5.3% 3.5% 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 FY02/10 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Total current assets 30,003 26,358 26,805 24,242 30,079 39,503 36,984 38,600 37,124 34,260 Cash and deposits 14,087 15,576 17,299 14,244 18,174 27,087 21,287 25,474 21,913 16,971 Notes and accounts receivable 3,963 3,679 3,227 2,757 3,412 4,023 3,362 3,727 5,764 5,829 Inventories 8,501 4,100 3,631 5,100 5,749 5,140 8,839 5,771 5,743 6,345 Other 3,471 3,010 2,653 2,146 2,747 3,258 3,498 3,629 3,708 4,283 Allowance for doubtful accounts -19 -7 -5 -5 -3 -5 -2 -1 -4 -7 Total fixed assets 75,198 70,730 67,565 67,095 65,444 69,155 74,307 76,346 78,489 78,425 Total tangible fixed assets 39,766 39,999 38,851 38,737 38,236 39,857 44,521 45,178 46,611 46,234 Buildings and structures 25,764 24,826 25,131 25,354 24,803 25,405 28,008 28,362 29,402 27,220 Machinery, equipment, and vehicles 912 688 509 519 460 613 743 1,144 1,669 1,833 Tools, furniture, and fixtures 2,694 2,003 1,564 1,499 1,591 1,623 2,095 2,447 2,755 2,677 Land 8,068 9,063 8,781 8,592 8,621 8,793 8,859 8,173 8,127 8,111 Lease assets 2,139 3,015 2,707 2,603 2,623 3,189 4,273 4,849 4,251 5,607 Construction in progress 186 402 157 168 135 232 541 200 404 784 Total intangible fixed assets 4,111 3,349 3,020 4,076 3,497 3,096 3,067 3,875 4,102 4,155 Goodwill 636 267 214 1,685 1,471 1,242 1,055 1,537 1,405 1,244 Other 3,474 3,081 2,806 2,390 2,025 1,854 2,012 2,338 2,696 2,910 Investments and other assets 31,320 27,381 25,693 24,282 23,710 26,200 26,717 27,292 27,775 28,034 Investment securities 911 913 877 999 1,087 4,668 4,278 4,335 4,546 5,320 Long-term loans receivable 726 640 568 505 546 577 511 477 467 289 Other 755 1,044 858 743 852 539 484 643 667 648 Allowance for doubtful accounts -302 -349 -212 -202 -181 -212 -167 -222 -202 -76 Total assets 105,202 97,088 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 LIA BILITIES Total current liabilities 26,298 34,573 34,032 31,115 38,673 31,533 31,563 32,530 33,681 31,255 Notes and accounts payable 5,818 4,373 3,865 4,116 4,776 6,753 5,741 5,053 5,985 5,607 Short-term debt 8,349 18,614 20,158 17,665 22,918 10,416 13,752 14,493 13,307 11,118 Income taxes payable 1,282 948 978 382 1,455 1,063 551 463 1,011 517 Other 10,849 10,638 9,031 8,952 9,524 13,301 11,519 12,521 13,378 10,938 Total fixed liabilities 17,705 16,345 14,754 16,832 13,438 18,186 21,994 25,207 24,124 31,404 Long-term debt 12,876 11,941 9,036 11,375 8,571 13,824 17,577 20,807 19,754 23,586 Deferred tax liabilities 28 27 76 98 12 25 86 0 2 2 Other 4,801 4,377 5,642 5,359 4,855 4,337 4,331 4,400 4,368 885 Total liabilities 44,004 50,918 48,787 47,948 52,112 49,719 53,558 57,737 57,805 62,659 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 11,153 11,139 11,139 11,139 11,139 11,560 11,551 11,534 11,497 Retained earnings 43,659 42,780 42,689 41,105 40,776 38,532 38,077 38,035 38,236 30,944 Treasury stock -5,946 -20,015 -18,089 -18,089 -18,089 -733 -741 -744 -712 -682 Shareholders' equity 59,131 44,183 46,004 44,420 44,091 59,203 59,161 59,107 59,324 52,024 Valuation differences on securities -12 -4 -11 -4 -3 6 -3 4 7 -6 Foreign currency translation adjustments -1,592 -1,815 -1,879 -1,701 -1,339 -826 -1,650 -2,353 -2,040 -2,547 Premeasurements of defined benefit plans -49 -14 -13 -28 -25 Non-controlling interests 3,670 3,806 1,469 675 663 602 240 464 544 579 Total net assets 61,197 46,169 45,584 43,390 43,412 58,938 57,733 57,209 57,807 50,025 Total liabilities and net assets 105,202 97,088 94,371 91,338 95,524 108,658 111,292 114,947 115,613 112,685 Working capital 6,646 3,406 2,993 3,741 4,385 2,410 6,460 4,445 5,522 6,567 Total interest-bearing debt 21,225 30,555 29,194 29,040 31,489 24,240 31,329 35,300 33,061 34,704 Net debt 7,138 14,979 11,895 14,796 13,315 -2,847 10,042 9,826 11,148 17,733 Accounts receivable days 8.5 8.1 7.6 6.6 6.5 7.5 7.3 6.9 8.7 10.5 Days in inventory 35.4 38.2 25.0 27.0 30.6 29.4 36.0 39.0 30.2 30.3 Accounts payable days 32.8 30.9 26.6 24.7 25.1 31.2 32.2 28.8 28.9 29.1 Cash conversion cycle 11.10 15.45 5.96 8.96 12.02 5.81 11.08 17.04 9.97 11.70 Current ratio 114.1% 76.2% 78.8% 77.9% 77.8% 125.3% 117.2% 118.7% 110.2% 109.6% Fixed ratio 130.7% 167.0% 153.2% 157.1% 153.1% 118.5% 129.2% 134.5% 137.1% 150.7% Net debt / Equity ratio 0.13 0.34 0.26 0.34 0.31 -0.04 0.22 0.21 0.23 0.37 Equity ratio 54.7% 43.6% 46.7% 46.8% 44.8% 53.7% 51.7% 49.4% 49.5% 43.9% 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 rental deposits (10% plus).
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Liabilities Interest-bearing debt including leases 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 FY02/10 FY02/11 FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 92 13,798 8,109 6,212 7,570 11,833 433 10,104 9,374 2,830 Cash flows from investing activities (2) -9,127 -4,585 -3,218 -6,937 -4,258 -9,201 -12,365 -6,526 -8,379 -9,034 Free cash flow (1+2) -9,035 9,213 4,891 -725 3,312 2,632 -11,932 3,578 995 -6,204 Cash flows from financing activities 2,383 -7,327 -3,199 -2,473 481 5,595 3,843 1,085 -4,200 2,461 Depreciation and amortization (A) 7,220 6,572 6,048 6,042 5,662 5,332 5,654 6,152 6,503 6,915 Capital expenditures (B) -8,301 -5,037 -4,058 -5,823 -4,322 -5,891 -8,656 -7,699 -7,461 -7,371 Working capital changes (C) 3,957 -3,240 -413 748 644 -1,975 4,050 -2,015 1,077 1,045 Simple FCF (NI + A + B - C) -13,979 5,157 3,713 -893 1,394 2,357 -6,215 1,716 -544 -7,501 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, net income before income taxes, 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 [JPY2.0bn–4.0bn] + depreciation [JPY5.0bn–6.0bn] – income taxes [JPY1.5bn–2.0bn]) trended between JPY5.0bn and JPY8.0bn. Cash flows provided by operating activities dropped significantly in FY02/19 as the company recorded a pre-tax loss.
Cash flows from investing activities Acquisition of fixed assets accompanying the opening of new restaurants is the main item. Capital expenditures over the past nine years stood at around JPY4.0–8.6bn. In the past five years up 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 FY02/19 results In Q3FY02/19, consolidated sales were JPY150.0bn (+2.4% YoY), gross profit was JPY96.3bn (+1.1% YoY), operating loss was JPY562mn (versus operating profit of JPY2.6bn in Q3 FY02/18), recurring loss was JPY129mn (recurring profit of JPY3.0bn), and net loss was JPY1.6bn (net income of JPY1.6bn).
Sales increased YoY due to robust performance of comparable stores at the company’s mainstay Yoshinoya business and sales growth in the Hanamaru, Kyotaru, and Overseas segments where the company has been aggressively opening new stores. Despite the rise in sales, figures were below forecasts for Yoshinoya and Hanamaru, and, based on its own analyses, the company feels there is room for improvement in various measures aimed at raising sales, including those related to products and store involvement. Meanwhile, the company posted an operating loss. Primarily responsible for unprofitability were external factors such as shortened trading hours or unavoidable closures at many stores due to typhoons and the Hokkaido earthquake in September 2018 that lowered operating rates. Additionally, a rise in the price of ingredients (rice and meat) and higher part-time wages spurred cost increases. Shared Research feels that the company’s expansion of its new service format to actual stores, heralded as the first stage of the company’s medium-term plan, continues to be a factor contributing to cost. Net loss at the bottom line expanded as the company booked a JPY639mn impairment loss mainly linked to store closures.
The three years including FY02/19 comprise the first stage of the company’s long-term vision NEW BEGINNINGS 2025. The company sees this as a period for sowing the seeds of growth in the second stage onward. The company has been reviewing its management comprehensively from customer acquisition methods through cost/expense management and employee training. It aims to restore margins by boosting service value and labor productivity. In FY02/19, the last year of the first stage, the company plans to make final fine-tuning adjustments to its new service model at Yoshinoya and introduce additional measures aimed at increasing sales with an eye on FY02/20. The company is aiming to continue to grow and expand scale at the Hanamaru, Kyotaru, and Overseas segments and feels that upfront investment in the training and education of human resources is a constant necessity, as these elements will provide a foundation for future growth in pursuit of this goal.
Segment results Yoshinoya
Sales grew 3.8% YoY to JPY76.3bn, mainly on solid comparable store sales thanks to the effect of various initiatives. However, ◤ the sales increase appears to be below the initial forecast as products that performed strongly during FY02/18 were not available during FY02/19.
Segment profit: Despite brisk comparable store sales that led to overall sales growth, segment profit was down 32.0% YoY to ◤ JPY2.2bn due to increases in ingredient prices and personnel expenses.
Comparable store sales were +4.7% YoY in September, -0.7% in October, and -3.0% in November. Customer traffic was ◤ +3.0% YoY in September, -0.8% in October, and -5.4% in November, while average customer spend was +1.6% in September, +0.1% in October, and +2.5% in November. Sales growth strongly reflected an increase in average customer spend.
The total number of restaurants was 1,208. The company opened 27 new restaurants and closed 19. ◤ Main initiatives: In April Yoshinoya launched the “JPY80 off every day!” season ticket campaign in collaboration with Hanamaru. ◤ In September it 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. New product launches included Shin Aji-butadon (new pork bowl) in March and Torisukidon (chicken 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. Further, the installation of new point-of-sale cash registers starting in August enabled the handling of e-money cards issued by domestic public transportation operators.
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Hanamaru
Sales grew 7.6% YoY to JPY21.9bn, mainly due to an increase in restaurant counts from aggressive new store openings. ◤ Segment profit: Despite sales growth from new store openings, profit was down 44.3% YoY to JPY676mn because of YoY ◤ decline in comparable store sales and impact of higher personnel, distribution, and other costs.
The total number of restaurants was 507 (opened 36 and closed 8). The company focused on business expansion in the first ◤ stage of it 10-year plan.
Main 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 tap into 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), and in November, Shisenfu Mabo Ankake udon (Sichuan mapo sauce noodles).
Arcmeal
Sales fell 10.2% YoY to JPY15.1bn, mainly due to greater competition in the steak and shabu shabu business that led to ◤ sluggish comparable store sales, and a YoY decline in number of restaurants. The decline in sales was mostly within the bounds of company forecasts.
Segment profit: Arcmeal posted segment loss of JPY740mn (-JPY852mn YoY) due to sales decline. ◤ The total number of restaurants was 173 (opened one and closed six). ◤ Main initiatives: 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 unveiled 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
Sales grew 2.9% YoY to JPY20.3bn. Factors contributing to sales growth included store increase for conveyor belt sushi ◤ restaurant Kaisen Misakiko (an aggressive store opening program targeting Greater Tokyo), sales growth from opening Kyotaru and Sushi Misakiko stores side-by-side with enhanced product offerings for Edomae-style sushi (an initiative to strengthen the take-out sushi business), and brisk comparable store sales that benefited from various initiatives.
Segment profit: Despite sales growth, segment profit dropped 16.0% YoY to JPY133mn because of higher ingredient prices. ◤ The total number of stores/restaurants was 332 (opened 19, closed 17). ◤ Main initiatives: Sales campaigns in the take-out sushi business (discount sales of sushi rolls and various sales events for ◤ “hare-no-hi” celebration day) and in the restaurant business (“bluefin tuna festival,” “(manager’s recommendation) JPY99 sale” [for red plates usually priced at JPY110], and “thank you sale”) proved effective.
Overseas
Sales grew 7.1% YoY to JPY15.8bn, mainly due to robust sales in the US and Taiwan and an increase in the number of ◤ restaurants (including franchises) thanks to an aggressive store opening program.
Segment profit: Fell 46.1% YoY to JPY586mn. Reasons for the drop included higher ingredient prices in all regions, higher ◤ personnel costs, and a rise in depreciation associated with opening and remodeling restaurants.
The total number of restaurants was 891 (opened 90, closed 20). ◤
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1H FY02/19 results
In 1H FY02/19, consolidated sales were JPY100.3bn (+2.7% YoY), gross profit was JPY64.4bn (+1.1% YoY), operating profit was JPY55mn (-97.4% YoY), recurring profit was JPY332mn (-86.4% YoY), and net loss was JPY850mn.
Sales increased YoY due to robust performance of comparable stores at the company’s mainstay Yoshinoya business and sales growth in the Hanamaru, Kyotaru, and Overseas segments where the company has been aggressively opening new stores. That said, external factors such as a rise in the price of ingredients (rice and meat) and higher part-time wages weighed heavily on earnings. The company also incurred large expenses associated with the various reforms outlined in its medium-term plan (the first stage of its 10-year management plan). As a result, operating profit dropped YoY. The bottom line finished at a net loss as the company booked a JPY511mn impairment loss mainly linked to store closures.
The company plans to attract customers through joint sales promotion activities with companies outside the Yoshinoya group, and by aggressively launching high value-added products and seasonal menus. On the cost front, it will work to reduce losses by controlling the number of ingredients it handles and improving inventory management. To bring down labor hours to appropriate levels, the company intends to replace its point of sales systems and introduce barcode scanners and automatic change dispensers at all Yoshinoya restaurants. The company explained that it hoped to regain profitability by improving the value of its services and labor productivity, which it hopes to achieve through continued provision of a good work environment and employee training.
Segment results Yoshinoya
Sales grew 4.7% YoY to JPY50.8bn, mainly on solid comparable store sales thanks to the effect of various initiatives. However, ◤ the sales increase appears to be below the initial company forecast.
Comparable store sales grew 6.3% YoY in June, 3.3% in July, and 2.1% in August. Customer traffic increased 7.5% YoY in June, ◤ 2.9% in July, and 3.7% in August, while average customer spend was down 1.2% in June, up 0.4% in July, and up 0.3% in August. We can thus conclude that sales growth was mainly driven by an increase in customer traffic.
The total number of restaurants was 1,205. The company opened 19 new restaurants and closed 14. ◤ Main initiatives: “JPY80 off every day!” season ticket campaign in collaboration with Hanamaru (April) and ink stamp collection ◤ campaign with original gold-themed products offered as premiums at 800 restaurants (May). Also ran LINE (texting app) student discount campaign targeting students under age 25. In August, ran a “half-price for children” campaign, the first of its kind for Yoshinoya. Launched new product Shin Aji-butadon (new pork bowl) in March and Torisukidon (chicken and egg bowl) in April. Popular summer specials such as Mugitoro Gyusara Gozen (grated yam, steamed barley, and beef meal), Unaju (broiled eel and rice), and Oroshi Gyukarubi-don (grilled rib bowl with grated radish) were introduced during the summer season. Aburi Shiosaba Teishoku (grilled mackerel meal) and Sanma Sumibiyaki Teishoku (grilled saury meal) were also added to the Yoshinoya no Bangohan (Yoshinoya dinner) set menu lineup.
Segment profit: Despite brisk comparable store sales that led to overall sales growth, segment profit was down 36.8% YoY to ◤ JPY1.2bn due to increases in ingredient prices and personnel expenses.
To win new customers, improve labor productivity, and reduce excess labor for employees, the company is trying out various designs to develop next-generation store formats. It hopes to finalize a new service model during FY02/19 in preparation for store renovations beginning in the second stage of the company’s long-term management plan.
Hanamaru
Sales grew 8.9% YoY to JPY14.8bn, mainly due to an increase in restaurant counts from aggressive new store openings. ◤ The total number of restaurants was 493 (opened 20 and closed 46). The company focused on business expansion in the first ◤ stage of it 10-year plan and is pushing ahead with store openings to achieve the target of 500 Hanamaru restaurants.
Main initiatives: “One-day half-price” campaign for Ontama Bukkake noodles on March 15. In April, collaborated with ◤ Yoshinoya for “tempura season ticket” campaign and began selling Honey Mustard Chicken Salad Udon, which was voted first
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by fans in a promotion held in collaboration with a pop idol group. In May, as in 2017, began selling a seasonal specialty Udonken no Somen (cold somen noodles). In June, 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) for its “summer meat noodle” campaign.
Segment profit: Despite sales growth from new store openings, profit was down 24.3% YoY to JPY769mn because of YoY ◤ decline in comparable store sales and impact of higher distribution and other costs.
Arcmeal
Sales fell 10.1% YoY to JPY10.3bn, mainly due to greater competition in the steak and shabu shabu business that led to ◤ sluggish comparable store sales, and a YoY decline in number of restaurants.
The total number of restaurants was 179 (opened one and closed two). ◤ Main initiatives: Transformed monthly “meat day” into a family event, and introduced limited seasonal menus for the Golden ◤ Week holidays. Also held Mothers’ Day campaign of all-you-can-eat desserts for women only. Volks introduced 4 value lunch in March, while Steak-no-Don began serving a budget set that included a salad and drink bar (all-you-can-eat salad and all- you-can-drink non-alcoholic beverages). For the summer season, Volks offered a seasonal Japanese-style sirloin steak, Steak-no-Don introduced a rib loin steak with lemon sauce and chives, and Don-tei began serving beef tongue shabu shabu with a sea salt and lemon broth.
Segment profit: Posted segment loss of JPY343mn (-JPY553mn YoY) due to sales decline. ◤
Kyotaru
Sales grew 2.4% YoY to JPY13.7bn. Factors contributing to sales growth included store increase for conveyor belt sushi ◤ restaurant Kaisen Misakiko (an aggressive store opening program targeting Greater Tokyo), sales growth from opening Kyotaru and Sushi Misakiko stores side-by-side with enhanced product offerings for Edomae-style sushi (an initiative to strengthen the take-out sushi business), and brisk comparable store sales that benefited from various initiatives.
The total number of stores/restaurants was 329 (opened 12, closed 13). ◤ Main initiatives: Sales campaigns in the take-out sushi business (discount sales of sushi rolls and various sales events for ◤ “hare-no-hi” celebration day) and in the restaurant business (“bluefin tuna festival,” “JPY99 sale” [for red plates usually priced at JPY110], and “thank you sale”) proved effective.
Segment profit: Despite sales growth, segment profit dropped 31.5% YoY to JPY190mn because of higher ingredient prices ◤ and an increase in one-time expenses due to store/restaurant renovations.
Overseas
Sales grew 7.2% YoY to JPY10.2bn, mainly due to robust sales in the US and Taiwan and an increase in the number of ◤ restaurants (including franchises) thanks to an aggressive store opening program.
The total number of restaurants was 859 (opened 52, closed 14). ◤ Segment profit: Fell 53.2% YoY to JPY314mn. Reasons for the drop included higher ingredient prices in all regions including ◤ higher beef and chicken prices in the US, an increase in personnel expenses following the minimum wage hike in the US, an increase in personnel expenses in China, and a rise in depreciation associated with opening and remodeling restaurants.
Q1 FY02/19 results Summary Consolidated sales were JPY49.8bn (+2.7% YoY), gross profit was JPY32.0bn (+1.0% YoY), operating loss was JPY178mn (versus JPY748mn operating profit in Q1 FY02/18), recurring loss was JPY44mn (JPY837mn recurring profit in Q1 FY02/18), and net loss was JPY388mn (JPY419mn net income in Q1 FY02/18). Results were severe, with the company posting its first Q1 operating loss in five years (since FY03/14).
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Sales were up YoY due to solid performance at Yoshinoya’s comparable stores and increase in new stores in the Hanamaru, Kyotaru, and Overseas segments. However, sales growth was not enough to absorb the rise in the price of ingredients (mainly meat), with the cost ratio worsening 1.1pp to 35.8% (the company’s full-year forecast is 36.1%). Consequently, results fell short of the company’s forecast. SG&A expenses were up 4.1% YoY to JPY32.2bn because of an increase in hiring and training costs amid a labor shortage, higher part-time wages, and a rise in distribution costs (fuel prices). The company posted an operating loss, because the SG&A expense ratio went up 0.9pp to 64.6% and sales fell short of target. Although SG&A expenses were in line with forecast, the company avoided cutting costs to ensure it launched new products properly, which takes time and effort. The Yoshinoya, Hanamaru, Kyotaru, and Overseas segments posted a profit, although lower than a year earlier, while Arcmeal posted a loss on lower sales.
The company has not revised its 1H and full-year forecasts.
Segment results Yoshinoya
Sales grew 3.8% YoY to JPY25.0bn, which appears to be below the initial company forecast. The segment recorded solid ◤ comparable store sales thanks to the effect of various initiatives.
Comparable store sales growth was 3.3% YoY in March, 7.0% in April, and 2.1% in May. Customer traffic increased 3.6% YoY ◤ in March, 4.4% in April, and 2.9% in May, while average customer spend was down 0.3% in March, up 2.5% in April, and down 0.8% in May. We can thus conclude that sales growth was mainly driven by an increase in customer traffic.
The total number of restaurants was 1,200. The company opened 10 new restaurants and closed 10. ◤ Main initiatives: “JPY80 off each day!” season ticket campaign in collaboration with Hanamaru (April) and ink stamp campaign ◤ at 800 restaurants (May). Also ran a LINE (texting app) student discount campaign targeting students under age 25. Launched new product Shin Aji-butadon (new pork bowl) in March and Torisukidon (chicken and egg bowl) in April, as well as Aburi Shiosaba Teishoku (grilled mackerel meal), the third in the Yoshinoya no Bangohan (Yoshinoya dinner) set menu lineup.
Segment profit: Down 44.1% YoY to JPY511mn due to rises in ingredient prices and personnel expenses. ◤
Hanamaru
Sales grew 9.7% YoY to JPY7.4bn, mainly due to an increase in restaurant counts from new store openings. ◤ The total number of restaurants was 488 (opened 13 and closed four). ◤ Main initiatives: One-day half-price campaign for Ontama Bukkake noodles on March 15. In April, collaborated with Yoshinoya ◤ for “tempura season ticket” campaign and began selling Honey Mustard Chicken Salad Udon, which was voted first by fans in a promotion held in collaboration with a pop idol group. In May, as in 2017, began selling Udonken no Somen (cold somen noodles).
Segment profit: Down 15.4% YoY to JPY392mn despite sales growth from new store openings, because of YoY decline in ◤ comparable store sales and impact of higher distribution and other costs
Arcmeal
Sales fell 7.1% YoY to JPY5.3bn, mainly due to greater competition in the steak and shabu shabu business and YoY decline in ◤ number of restaurants.
The total number of restaurants was 179 (opened one). ◤ Main initiatives: Modified monthly “meat day” into a family event, and introduced limited seasonal menus for the Golden ◤ Week holidays. Also held Mothers’ Day campaign of all-you-can-eat desserts for women only. Volks introduced 4 Value Lunch in March, while Steak-no-Don began serving a budget set menu.
Segment profit: Posted segment loss of JPY86mn (-JPY154mn YoY) due to sales decline. ◤
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Kyotaru
Sales grew 2.2% YoY to JPY7.0bn, mainly due to an increase in conveyor belt sushi restaurants such as Kaisen Misakiko and ◤ other initiatives that boosted comparable store sales. The total number of stores/restaurants was 327 (opened four, closed seven). ◤ Main initiatives: Sales campaigns in the take-out sushi business (discount sales of sushi rolls and “hare-no-hi” celebration day ◤ sale) and in the restaurant business (“bluefin tuna festival,” “JPY99 sale” [for red plates usually priced at JPY110], and “thank you sale”) proved effective
Segment profit: Despite sales growth, segment profit dropped 15.5% YoY to JPY206mn because of higher ingredient and ◤ other costs.
Overseas
Sales grew 8.4% YoY to JPY5.0bn, mainly due to brisk sales in the US and Taiwan, and an increase in the number of restaurants ◤ (including franchises) thanks to an aggressive store opening program.
The total number of restaurants was 833 (opened 24, closed 12). ◤ Segment profit: Posted a 63.6% YoY decline in segment profit at JPY114mn. Reasons comprised higher ingredient prices in all ◤ regions including beef and chicken prices in the US, an increase in personnel expenses following the minimum wage hike in the US, and a rise in depreciation associated with opening and remodeling restaurants.
FY02/18 results Summary Consolidated sales were JPY198.5bn (+5.2% YoY), operating profit was JPY4.0bn (+115.5% YoY), recurring profit was JPY4.6bn (+67.4% YoY), and net income was JPY1.5bn (+19.5% YoY). The company posted robust sales and profit growth.
The YoY sales growth can be attributed to a JPY3.8bn increase in the Yoshinoya segment on solid comparable store sales driven by successful campaigns, and store increases in the Hanamaru and Overseas segments, which boosted sales by JPY3.2bn and JPY3.1bn, respectively. On the profit front, earnings improvement at the mainstay Yoshinoya segment contributed to overall performance, and profit grew YoY at all segments.
GPM improved 1.2pp from 63.7% in FY02/17 to 64.9% in FY02/18 due to lower beef prices, while the SG&A expense ratio went up 0.1pp to 62.9% because of higher personnel expenses and an increase in facilities expenses due to aggressive store openings. OPM improved sharply from 1.0% in FY02/17 to 2.0% in FY02/18. The JPY1.6bn extraordinary losses came from JPY1.3bn in impairment losses (all segments combined) and JPY257mn loss associated with a lawsuit in the US.
FY02/18 results undershot initial company forecasts for sales (full-year forecast: JPY202.0bn) by 1.7%, operating profit (JPY4.4bn) by 8.7%, recurring profit (JPY5.1bn) by 9.7%, and net income (JPY2.1bn) by 29.0%. The growth rates of comparable store sales were lower than expected for all brands except Hanamaru. In terms of costs, the cost ratio and SG&A expenses were more or less on budget, but savings were not enough to compensate for the sales shortfall. Net income fell far short of forecast mainly due to the unexpectedly large extraordinary losses of JPY1.6bn.
Segment results Yoshinoya Sales were JPY101.1bn (+3.9% YoY). The number of restaurants at end FY02/18 was down YoY to 1,200 (opened 28, closed 31), but comparable store sales were solid (+1.4% YoY). Customer traffic and average customer spend were also up 0.2% and1.3% YoY, respectively. Main sales initiatives were as follows:
First collaboration with Hanamaru in September 2017 (season ticket for discounts at both restaurants) followed by ◤ collaboration with Softbank in February 2018 (Super Friday)
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Began selling ham and eggs meal, and Shirasu-oroshi Teishoku (young sardine and grated radish meal) as set menus targeting ◤ the breakfast business, and Gyu Gyu Teishoku (beef meal) as part of the Yoshinoya no Bangohan (Yoshinoya dinner) series targeting the dinner business Began selling family take-out version of Gyusuki Nabezen (beef sukiyaki set) called Gyunabe Family Pack ◤
Operating profit grew 32.1% YoY to JPY5.1bn as sales promotions boosted sales while food ingredient prices fell.
Hanamaru Sales were JPY27.1bn (+13.3% YoY). The number of restaurants at end FY02/18 increased by 49 YoY to 479 (opened 59, closed 10) as the company continued to open restaurants in new locations near or in railway stations and in shopping centers. Comparable store sales grew a brisk 2.9% YoY due to the following initiatives:
Launched “tempura season ticket” campaign in April and collaboration with Yoshinoya (season ticket for discounts at both ◤ restaurants) in September, followed by half-price Ontama Bukkake noodles campaigns on January 15 and February 15
Launched Udon Ken no Somen (cold somen noodles) and Biribiri Sanra Udon (hot and sour soup noodle) as seasonal items ◤ and held promotional noodle campaigns (Sichuan style udon and udon with warming winter sauces)
Operating profit was up 35.9% YoY to JPY1.3bn due to sales growth and lower cost of sales.
Arcmeal Sales were JPY22.5bn (-2.2% YoY). The number of restaurants at end FY02/18 was down to 178 (closed six) and comparable store sales were down 1.2% YoY, mainly due to greater competition in the steak and shabu shabu businesses. The company engaged in the following initiatives to increase customer traffic.
Increased the number of “meat days” per month from one (29th) to two (2nd and 9th) and introduced the G (gram) Card ◤ (loyalty card) for all brands in this segment, which is stamped according to the weight of meat eaten (grams) and/or menu item
Ran all-you-can-eat steak campaigns at Volks and Steak-no-Don in alternate months starting in June to attract new customers ◤ Offered limited seasonal menu items for winter, including Spring Onion and Mizore Shabu Shabu at Don-tei and boned steak ◤ at Volks.
Despite lower sales, operating profit was up 54.4% YoY to JPY209mn as the company optimized cost of sales and personnel expenses, and reorganized the sales force to strengthen management capability.
Kyotaru Sales were JPY26.7bn (+3.9% YoY). Contributing factors were the increase in the number of conveyor belt sushi restaurants, including Kaisen Misakiko, for which the company started an aggressive store opening program in FY02/17, stable comparable store sales (+0.4% YoY), and increased out-of-store sales of cooked rice after expanding the cooked rice line at the Funabashi facility. The number of restaurants at end FY02/18 was up by one to 330 (opened 19, closed 18). Main initiative was as follows:
Launched sales campaigns in the take-out sushi business (discount sale of sushi rolls and “hare-no-hi” celebration day sale) ◤ and in the restaurant business (“bluefin tuna festival,” “JPY99 sale” [for red plates usually priced at JPY110], and a campaign that increased the number of items priced at JPY180).
Operating profit was up 336.6% YoY to JPY316mn mainly due to sales growth.
Overseas Sales were JPY19.7bn (+18.8% YoY). Contributing factors were brisk comparable store sales in the US and China, net increase of 88 restaurants to 821 as a result of an aggressive store opening program (opened 107, closed 19), and a switch to direct operation of Yoshinoya Singapore restaurants from Q2. Operating profit reached JPY1.2bn, up 36.0% YoY, as sales growth more than absorbed the increase in depreciation associated with opening and remodeling restaurants.
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Financial condition In terms of assets, cash and deposits decreased by JPY3.6bn as a result of investment in new restaurants, accounts receivable – trade increased by JPY2.0bn as a result of a promotional campaign in February, and tangible fixed assets increased by JPY1.4bn. As a result, total assets saw a JPY666mn increase from the end of FY02/17. For liabilities, interest-bearing debt decreased by JPY1.8bn, but total liabilities increased by JPY67mn YoY due to increases in accounts payable–trade and income taxes payable. Net assets increased by JPY598mn from end FY02/17 due to a JPY201mn increase in retained earnings and JPY313mn increase in the foreign currency translation adjustment account because of yen depreciation. As a result, the equity ratio was up 0.1pp from end FY02/17 to 49.5%.
Cash flows Cash flows from operating activities saw a net inflow of JPY9.4bn (income before income taxes of JPY3.0bn and depreciation of JPY6.3bn), despite an increase in the outlay of working capital. Cash flows from investing activities saw a net outflow of JPY8.4bn due to an aggressive store opening program. Cash flows from financing activities saw a net outflow of JPY4.2bn, with a net JPY1.5bn decrease in long-term loans.
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Other information
History
Yoshinoya HD
Date Description 1899 Yoshinoya restaurant opens in Nihonbashi as a family-run business Dec 1958 Establishes Yoshinoya Co., Ltd. (current Yoshinoya Holdings Co., Ltd.) Apr 1973 Starts franchise expansion; first Yoshinoya franchise restaurant opens in Odawara Nov 1977 Establishes Yoshinoya West, Inc. (current Yoshinoya America, Inc.), to expand store network in the West Coast of US Jul 1980 Yoshinoya Co., Ltd. files for corporate reorganization proceedings Mar 1983 Receives reorganization plan approval Mar 1987 Completes reorganization proceedings Mar 1988 Merges with D&C Co., Ltd., the operator of Dunkin Donuts Japan, and changes 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 Establishes subsidiary Hokkaido Yoshinoya 1996 Yoshinoya restaurant count in Japan reaches 500 1997 Establishes subsidiary Okinawa Yoshinoya Yoshinoya D&C Co., Ltd. withdraws from the Dunkin Donuts business; planned openings of Yoshinoya restaurants in Japan Sep 1998 completed Oct 1999 Acquires shares of Kyotaru Co., Ltd. (makes 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 suspends gyudon sales at Yoshinoya restaurants in Japan due to a ban on imports of US beef Jun Acquires shares of Hanamaru (makes it a wholly owned subsidiary in Dec 2012) Jun Yoshinoya restaurant count in Japan reaches 1,000 Apr 2005 Acquires share of Kyushu Yoshinoya (current Nishinihon Yoshinoya) Introduces a pure holding company system, renames to Yoshinoya Holdings Co., Ltd., and establishes Yoshinoya Co., Ltd. Oct 2007 through a incorporation-type company split Nov Acquires shares of Shikoku Yoshinoya (current Nishinihon Yoshinoya) Subscribes for shares of Don (current Arcmeal) through a third-party allotment (makes a wholly owned subsidiary in Sep Feb 2008 2015) Dec 2009 Establishes subsidiary Nakanihon Yoshinoya Mar 2010 Establishes subsidiary Kitanihon Yoshinoya Dec 2013 Establishes subsidiary Nishinihon Yoshinoya Nov 2014 Establishes Asia Yoshinoya International Sdn. Bhd. to supervise business operations in ASEAN countries Jun 2015 Establishes 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 Arcmeal Date Description Date Description May 2000 Opens the initial restaurant Hanamaru Udon Kita in Don Volks Takamatsu city 1970 Opens the first Steak House Volks in Osaka City Nov 2001 Establishes Hanamaru Co., Ltd. 1976 Opens the first Steak-no-Don in Maebashi City May 2002 Starts franchise operation 1982 Centralizes foodstuffs production Dec Starts operation at Takamatsu factory 1984 Sales reach JPY10bn Apr 2003 Starts operation at Chiba factory 1987 Introduces POS system and connects all stores Listed on the Second Section of Osaka Stock Apr Store count exceeds 50 Exchange; store count reaches 100 Aug Store count exceeds 100 1988 Sales reach JPY20bn Dec Store count exceeds 150 1990 Starts chain operation of Shabu Shabu Don-tei Jun 2004 Signs agreement on capital and business tie-up with 1992 All stores connected with an intra-company network Yoshinoya D&C Co., Ltd. 1993 Centralizes production and delivery of foodstuffs Jul Starts operation at Shizuoka factory 2004 Sales reach JPY10bn May 2006 Becomes a consolidated subsidiary of Yoshinoya D&C 2005 Makes Volks a subsidiary Becomes a subsidiary of Don Co., Ltd. Co., Ltd. 2006 Merges in March, renamed to Don Co., Ltd with Volks Jun 2007 Starts operation at Okinawa factory as the surviving company Oct Store count exceeds 200 2006 Converts 49 Volks stores to Steak-no-Don or Shabu Nov 2008 Store count exceeds 250 Shabu Don-tei; sales reach JPY30bn Jul 2009 Establishes Hanamaru Restaurant Management 2007 Signs agreement on business tie-up with Yoshinoya (Shanghai) Co., Ltd. as a subsidiary Holdings Co., Ltd. Feb 2011 Opens the first overseas store Hanamaru Udon World 2008 Becomes a consolidated subsidiary of Yoshinoya Expo Holdings (51.11% stake) Mar Store count exceeds 300 2011 Opens the first Taiwan Volks Feb 2014 Makes Senkichi Co., Ltd. a subsidiary 2013 Opens the first Pastaliano in Osaka City Apr 2015 Opens the first restaurant in Malaysia, Mid Valley 2015 Changes name to Arcmeal Co., Ltd; becomes a wholly Megamall owned subsidiary of Yoshinoya Holdings through May Store count exceeds 350 share exchange in September May 2016 Starts operation at Hokkaido factory Oct Store count exceeds 400 Feb 2018 Store count exceeds 450 Source: Shared Research based on company data Source: Shared Research based on company data
Kyotaru
Date Description Mar 1932 Opens as a Japanese style restaurant in Shimogyo-ku, Kyoto Mar 1938 Opens Kyotaru, a Japanese style restaurant, in Nihonbashi Feb 1950 Establishes Heian Kogyo Co., Ltd. Apr 1951 Develops chakin sushi Jul 1952 Opens the first Kyotaru store, selling chakin and Kansai-style sushi; expands network of directly operated stores Apr 1954 Changes name to Kyotaru Co., Ltd. Nov 1979 Opens the first Kyotaru family restaurant Jul 1980 Approved for over-the-counter trading (lists on the Second Section of the Tokyo Stock Exchange in 1983) Jun 1984 Lists on the First Section of the Tokyo Stock Exchange Jan 1997 Files for company reorganization proceedings Nov 1997 Opens first conveyor belt sushi restaurant under the name Kaisen Misakiko Feb 2001 Opens Sushi Misakimaru, an Edomae-style sushi restaurant with flat rate of JPY100 per piece of sushi Feb 2002 Completes company reorganization proceedings Sep 2005 Lists on JASDAQ market of the Tokyo Stock Exchange Dec 2010 Opens a take-out Edomae-style sushi store, Sushi Misakiko Apr 2011 Consolidates production to Funabashi factory and starts a single factory operation Jul 2011 Becomes a wholly owned subsidiary of Yoshinoya Holdings Co., Ltd. through share exchange Source: Shared Research based on company data
News and topics March, 2019 On March 29, 2019, the company announced the recording of extraordinary losses and revisions to its FY02/19 forecasts.
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Net income attributable to EPS Consolidated (JPYmn) Sales Operating profit Recurring profit owners of the (JPY) parent Previous Est. 205,000 1,100 1,700 -1,100 -17.04 Revised Est. 202,385 104 358 -5,882 -89.54 Difference -2,615 -996 -1,342 -4,782 - Difference as % of Prev. Est. -1.3% -90.5% -78.9% - - FY02/18 Act. 198,503 4,019 4,604 1,491 23.11 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Extraordinary losses Following a review of the future value of stores and other fixed assets managed by its consolidated subsidiaries based on the “Accounting Standard for Impairment of Fixed Assets,” Yoshinoya HD posted total impairment losses of JPY5.0bn under extraordinary losses. A breakdown by key segments is given below:
Impairment losses of JPY1.1bn at Yoshinoya were primarily attributed to the increased number of store refurbishments under the plan to increase the number of stores operating under the new service model in FY02/20. Impairment losses of JPY1.4bn at Hanamaru, JPY944mn at Arcmeal, JPY868mn in Overseas, and JPY385mn at Kyotaru were primarily attributed to the closure and planned closure of poor-performing stores over FY02/19 and FY02/20.
Revisions to forecasts Comparable store sales in key segments fell short of targets in 2H FY02/19 because of stagnation in customer numbers amid intensified competition. As a result of this, consolidated sales are now projected to be JPY202.4bn (JPY2.6bn short of target), operating profit JPY104mn (JPY996mn short) and recurring profit JPY358mn (JPY1.3bn short). In addition, the company now expects to book net losses attributable to owners of the parent of JPY5.9bn as a result of booking the above-stated extraordinary losses.
Please note that no changes have been made to the annual dividends forecast or the shareholder incentive program.
On March 27, 2019, the company announced the acquisition of additional shares to make Withlink Holdings Co., Ltd. a wholly owned subsidiary.
At the board of directors meeting held on the same day, the company resolved to acquire additional shares in Withlink Holdings Co., Ltd. (Withlink) to make it a wholly owned subsidiary.
Details on the subsidiary subject to change due to the company’s acquisition of additional shares are as follows.
Name of subsidiary: Withlink Holdings Co., Ltd. ▷ Location: Asaminami-ku, Hiroshima, Hiroshima Prefecture ▷ Representative: Toshiharu Eguchi (representative director and president) ▷ Business: Ramen restaurant operator (Operates franchises and directly managed stores) ▷ As of end-February 2019, Withlink operated a total of 86 stores (58 domestic and 28 overseas stores [11 areas in nine countries]) centering on the Bariuma and Torinosuke ramen brands. Bariuma’s mainstay is the “Ultimate tonkotsu-shoyu ramen,” which, according to Withlink, showcases a signature soup made of pork and chicken bone broth and carefully selected soy sauce.
Capital: JPY25mn ▷ Major shareholders and shareholding ratio: Toshiharu Eguchi (37.7% [70% of voting rights]) ▷ Yoshinoya Holdings Co., Ltd. (62.3% [30% of voting rights])
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Details on the transaction counterparty and the company’s shareholding after the acquisition are as follows.
Counterparty: Toshiharu Eguchi (Hiroshima, Hiroshima Prefecture) ▷ Effective dates of acquisition: March 29, 2019 and May 1, 2019 (step acquisition) ▷ Changes in the company’s shareholding: ▷ Effective March 29, 2019 3,114 shares (before transaction) to 3,514 shares (shareholding ratio: 70.3% [70.00% of voting rights]) Number of shares to be acquired: 400 shares with voting rights; 0 class A shares Effective May 1, 2019 3,514 shares (before transaction) to 5,000 shares (100% of shares and voting rights) Number of shares to be acquired: 300 shares with voting rights; 1,186 class A shares
According to the company, the impact of this transaction on FY02/19 earnings forecasts is negligible.
November, 2018 On November 27, 2018, the company announced an absorption-type merger with a consolidated subsidiary.
At the Board of Directors meeting held on the same day, the company approved a resolution for an absorption-type merger in which, effective February 1, 2019, the company would become the surviving company and absorb its wholly-owned subsidiaries Yoshinoya Asset Management Service Co., Ltd., Hanamaru Split Company (currently Hanamaru Inc.; company name to be changed to Hanamaru Split Company effective December 1, 2018), and Kyotaru Split Company (currently Kyotaru Inc.; company name to be changed to Kyotaru Split Company effective December 1, 2018).
Objective of absorption-type merger As the company heads toward its long-term vision NEW BEGINNINGS 2025, it reviewed the overall group management structure and decided to centrally hold and manage all of its trademarks, external debt liabilities, and certain lease rights currently held by each business company. As a result of this change, the company would be able to promote the effective use of group resources as the holder of group brands, as well as revise the company’s profit structure. Furthermore, by removing asset management and business operation from the business companies, they are expected to be able to focus more on business activities. The company expects this change to produce more prompt and nimble decision-making.
Overview of merger Schedule Board resolution on merger agreement: November 27, 2018 Resolution by the General Meeting of Shareholders: November 27, 2018 (only Yoshinoya Asset Management Service) Signing: December 1, 2018 Date of merger (scheduled): February 1, 2019
Method of merger Absorption-type merger in which the company will become the surviving company and absorb the non-surviving companies, Yoshinoya Asset Management Service Co., Ltd., Hanamaru Split Company Inc., and Kyotaru Split Company Inc.
Details of allotment related to merger Because Yoshinoya Asset Management Service Co., Ltd., Hanamaru Split Company Inc., and Kyotaru Split Company Inc. are all wholly-owned subsidiaries, there will be no issuance of new shares or other provision for compensation resulting from this merger.
Handling of subscription rights to shares and bonds with subscription rights to shares resulting from this merger This is not pertinent to Yoshinoya Asset Management Service Co., Ltd., Hanamaru Split Company Inc., and Kyotaru Split Company Inc.
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Impact on results This absorption -type merger is a reorganizing procedure between wholly-owned subsidiaries. As such, this merger has little impact on parent-only and consolidated results.
On November 8, 2018, the company announced it had introduced a payment service using e-money*1 cards issued by domestic public transportation operators.
Yoshinoya started introducing the payment service at domestic Yoshinoya restaurants in stages from August 2018. As of end October 2018, the service was available at 890 Yoshinoya restaurants, scheduled to be extended to all restaurants with a few exceptions in December 2018. Yoshinoya previously introduced the WAON*2 e-money payment service, but it will offer multiple e-money payment services going forward.
*1 The following transportation e-money services can be used at Yoshinoya restaurants: Kitaca**1, Suica**2, PASMO**3, TOICA**4, manaca**5, ICOCA**6, SUGOCA**7, nimoca**8, and Hayakaken **9 (PiTaPa is excluded). These are registered trademarks of the following companies: **1 Kitaca: Hokkaido Railway Company (JR Hokkaido) **2 Suica: East Japan Railway Company (JR East) **3 PASMO: PASMO Co., Ltd. **4 TOICA: Central Japan Railway Company (JR Tokai) **5 manaca: Nagoya Transportation Development Organization Co., Ltd. and MIC **6 ICOCA: West Japan Railway Company (JR West) **7 SUGOCA: Kyushu Railway Company (JR Kyushu) **8 nimoca: Nishi-Nippon Railroad Co., Ltd. **9 Hayakaken: Fukuoka City Transportation Bureau
*2 WAON is a registered trademark of AEON Co., Ltd.
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
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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 Dividend per share (JPY) 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% 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).
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
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Employees
No. of employees FY02/12 FY02/13 FY02/14 FY02/15 FY02/16 FY02/17 FY02/18 (year-end) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Yoshinoya 1,269 1,221 1,210 1,298 1,322 1,380 1,288 Part-time employees 7,890 7,601 8,321 8,463 8,195 8,019 8,671 Hanamaru 274 421 443 453 361 418 415 Part-time employees 935 981 1,038 1,143 1,358 1,527 1,746 Arcmeal 355 347 348 357 379 399 384 Part-time employees 2,165 2,124 2,251 2,407 2,276 2,101 1,789 Kyotaru 522 522 517 509 500 518 518 Part-time employees 2,204 2,150 2,092 2,150 2,144 2,122 2,310 Overseas 485 460 431 507 876 1,068 1,101 Part-time employees 1,532 1,468 1,413 1,060 1,303 1,620 2,103 Other 224 195 152 100 98 139 107 Part-time employees 582 601 477 209 247 341 212 Corporate 201 173 100 122 162 329 355 Part-time employees 0 0 0 0 0 0 314 Total Regular employees 3,330 3,339 3,201 3,346 3,698 4,251 4,168 Part-time employees 15,308 14,925 15,592 15,432 15,523 15,730 17,145 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 Yoshinoya 7.70 7.39 8.00 8.20 8.01 7.79 8.30 Hanamaru 3.88 4.29 4.34 4.30 4.41 4.50 4.51 Arcmeal 14.65 14.37 14.85 15.44 14.27 13.59 12.21 Kyotaru 7.79 8.10 7.95 8.08 8.39 8.02 8.57 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 Yoshinoya 6.73 6.38 6.98 7.11 6.89 6.70 7.20 Hanamaru 3.02 3.07 3.11 3.21 3.57 3.72 3.83 Arcmeal 12.66 12.35 12.97 13.60 12.47 11.36 9.88 Kyotaru 6.21 6.32 6.36 6.54 6.66 6.59 7.01 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.
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.
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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 Fiscal 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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