Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

1. Company Overview

SFP Holdings <3198> operates popular businesses such as 'Isomaru Suisan' (seafood izakaya) and 'Toriryo Shoten' (specializing in chicken dishes) in front of stations and busy downtown areas (street stores) with 24-hour operation as its main business. By establishing a unique revenue model that maximizes customer attraction due to prime locations, it has achieved high profitability and growth. Since the fiscal year ending February 2021, it has refrained from large-scale investments such as new store openings due to a significant decline in performance caused by the spread of the new coronavirus infection (hereinafter referred to as the COVID-19 pandemic), and has instead focused on strengthening its profit structure through cost reduction. However, with the recovery of domestic consumption and the capture of inbound demand after the end of the COVID-19 pandemic (hereinafter referred to as the post-COVID era), signs of a full recovery are finally emerging. It is also working on expanding into regional cities and developing focused business formats for a new growth stage. As of the end of August 2024, the total number of stores is 207 (including 18 franchised stores).

* Depending on market characteristics, some stores may not operate 24 hours.

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

For the first half of the fiscal year ending February 2025, revenue increased by 5.3% year-on-year to 15037 million yen, operating profit decreased by 10.1% to 907 million yen, and ordinary profit decreased by 7.7% to 1023 million yen compared to the same period last year, resulting in increased revenue and reduced profit. Despite temporary closures at some stores due to the impact of typhoons during the summer, efforts made since the post-COVID era to extend operating hours (late-night) and capture strong inbound demand paid off, ensuring increased revenue. On the cost and expense side, an increase in dining-focused visiting foreign tourists led to a rise in the cost ratio, while the impact of a weak yen and high prices was limited by menu adjustments, maintaining almost the same cost ratio level as the previous year. However, expenses such as personnel costs due to expanded hiring and increased utility costs (drop in subsidy effects) expanded, resulting in a decline in operating profit.

* Late-night hours are lucrative for izakayas as they often receive high-margin alcohol orders. The company has been addressing labor shortages, including hiring foreign staff, and has been gradually working on resuming late-night operations.

3. Financial estimates for the fiscal year ending February 2025

For the performance of the fiscal year ending in February 2025, the initial forecast remains unchanged, with revenue expected to increase by 3.2% year-on-year to 30,000 million yen, operating profit to increase by the same 3.6% to 2,100 million yen, and ordinary profit to increase by 2.8% to 2,300 million yen, expecting an increase in both revenue and profit. With continued tailwinds from inbound demand, it is anticipated that the growth of existing stores and revenue contribution from newly opened stores will lead to increased sales. On the profit and loss side, despite additional costs such as increased labor costs, the end of subsidies, and increased utility costs (electricity and gas fees), as well as the expected incurring of one-time costs for new store openings and proactive investments for medium-term growth, it is projected to secure increased profit due to the uplift in revenue.

4. Future Direction

The company had been disclosing a medium-term management plan for the next three years annually until the fiscal year ending in February 2020, but due to the uncertainties brought on by the COVID-19 pandemic from the fiscal year ending in February 2021 onwards, the public disclosure has been postponed. However, looking ahead to future environmental changes, the company has outlined short- and medium-term directions, focusing on (1) opening stores in regional cities, (2) expanding the popular bar business format they are concentrating on, (3) growth of existing stores (targeting tourists and late-night operations), and (4) measures against inflation (such as price adjustments), aiming for an early return to a full-fledged growth trajectory.

■Key Points

• For the first half of the fiscal year ending in February 2025, there is an increase in revenue, yet a decrease in operating profit.

• Despite an increase in revenue due to extended operating hours (late-night) and capturing inbound demand, expenses have expanded due to rising labor costs from expanded recruitment.

• The performance for the fiscal year ending in February 2025 is expected to remain in line with the initial forecast, showing an outlook of increased revenue and profit.

• Aim to return to a full-fledged growth trajectory early by opening stores in regional cities, expanding the popular bar business format, growing existing stores, and implementing measures against inflation.

(Written by Fisco Guest Analyst Ikuo Shibata)