Shares of Sushiro, operated by FOOD & LIFE COMPANIES (3563), have undergone a sharp correction. The decline reflects waning expectations of inclusion in the Nikkei 225 and growth in its overseas business, with attention now focused on profit growth in Asia and developments in its US expansion.
FOOD & LIFE COMPANIES, which operates Sushiro, saw its share price enter a phase of falling approximately 20% from its rise around July to early September. One factor cited was the waning expectation that it would be added to the Nikkei 225. It is also noted that inclusion in the index reflects market expectations only, and that the actual rebalancing outcome does not indicate the underlying strength of the business.
Growth in Japan and overseas has been highlighted, with overseas business profits having reached levels exceeding those of the domestic Sushiro business during certain periods. In Japan, there is room to improve profitability through a review of pricing, while overseas, expansion of the store network and high profitability are said to be supporting growth.
Expansion across Asia is viewed as key. Combining localisation with an outlet-opening strategy, particularly in mainland China, Taiwan and Hong Kong, is expected to improve procurement and logistics efficiency and expand the impact of promotional activities. Initiatives that balance freshness management for sushi toppings with cost control are considered important.
The difference in profitability from Kura Sushi is cited as approximately 8% versus approximately 2% in operating margin, although differences in business composition and accounting standards also have an effect. The importance of regional differences and store density in overseas expansion is also noted, with the explanation that the businesses cannot be assessed through a simple comparison of store counts alone.
The next focus is progress in monetising the US market. While prices of around $5 per plate are being considered in New York and elsewhere, it will be necessary to assess the impact of higher costs and fluctuations in customer numbers on profits. Overall efficiency, including local sourcing, logistics and localisation, is seen as the next key challenge.
The P/E ratio is high at approximately 36x, reflecting expectations for future profit growth, but there is also a risk of downward revisions depending on fluctuations in customer numbers resulting from store-opening costs and price revisions. The conclusion is that customer numbers, average spend per customer, overseas store count, profit margins and progress in the US expansion should be assessed together, both in Japan and overseas.