NAKAMURAYA (2204) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 revealed a deterioration in earnings quality, with profit growth occurring without revenue growth; improvements at the operating and ordinary income levels have not translated into net income. Revenue was ¥25.92B (-0.8% YoY), Operating Income was ¥0.11B (+32.8%), and Ordinary Income was ¥0.26B (+40.4%), while Net Income declined to ¥0.11B (-18.5%). Although the gross margin improved due to cost-of-sales controls, the recording of extraordinary losses and an increase in the effective tax rate to 45.5% pressured Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥25.92B, down 0.8% YoY, representing a modest decline amid a downward revenue trend across all three segments. The Confectionery Business was the core business, generating ¥17.63B and accounting for 68.0% of total revenue, followed by the Grocery Business at ¥7.61B (29.4%) and the Leasing Business at ¥0.69B (2.7%). Although the Leasing Business has an exceptionally high Operating Income margin of 48.2%, its small scale limits its impact on overall results.

【Profit and Loss】Cost of sales declined 1.7% YoY to ¥16.58B, improving the gross margin to 36.1% from 35.5% in the same period of the previous year, and Operating Income increased to ¥0.11B (+32.8%). However, SG&A expenses increased 0.5% YoY to ¥9.23B, offsetting most of the benefit from the improved gross margin, leaving the Operating Income margin at only 0.4%. Ordinary Income expanded to ¥0.26B (+40.4%), supported by ¥0.16B in non-operating income, including ¥0.13B in dividend income. However, extraordinary losses of ¥0.16B, including impairment losses of ¥0.01B, exceeded extraordinary gains of ¥0.09B, while the effective tax rate reached 45.5%, reducing Net Income to ¥0.11B (-18.5%). Overall, the Company recorded higher profits despite lower revenue at the Operating Income and Ordinary Income levels, but Net Income declined, indicating that the earnings improvement did not flow through to the bottom line.

Segment Analysis

Confectionery generated revenue of ¥17.63B and Operating Income of ¥1.11B, for a margin of 6.3%, while Grocery generated revenue of ¥7.61B and Operating Income of ¥0.51B, for a margin of 6.7%; the two core businesses therefore have nearly equivalent profitability. Leasing (real estate leasing and related activities) is small in scale, with revenue of ¥0.69B, but generated Operating Income of ¥0.33B and an exceptionally high margin of 48.2%, accounting for a substantial proportion of total Company Operating Income of ¥0.11B. With the margins of the two core businesses remaining in the 6% range, the structure suggests that the small leasing business is effectively supporting Company-wide profits.

Key Financial Indicators

【Profitability】The Operating Income margin was 0.4%, a slight improvement from approximately 0.3% in the same period of the previous year, but its absolute level remains low. The benefit of the improved gross margin of 36.1% from 35.5% was largely offset by the increase in the SG&A ratio to 35.6% from 35.1%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥1.65B, substantially exceeding Net Income of ¥0.11B, indicating limited accrual-related concerns. However, this was accompanied by working capital accumulation, including a ¥2.88B increase in accounts receivable and a ¥0.74B increase in inventories, partially offset by a ¥0.99B increase in accounts payable. 【Investment Efficiency】Annualized ROE remained low at 0.5%. Capital expenditures of ¥2.07B reached 1.5 times depreciation and amortization expense of ¥1.35B, resulting in negative Free Cash Flow of ¥0.66B. 【Financial Soundness】The Equity Ratio was 56.8%, down from 62.1% in the previous year, while the increase in total assets was primarily attributable to growth in investment securities and property, plant and equipment. Interest-bearing debt was small, consisting of ¥0.30B in short-term borrowings, and financial risk was limited even relative to cash and deposits of ¥1.78B.

Cash Flow Analysis

OCF was ¥1.65B, up 36.1% YoY, indicating cash generation substantially exceeding Net Income of ¥0.11B. This was supported by depreciation and amortization expense of ¥1.35B and a ¥0.99B increase in accounts payable. On the other hand, working capital burdens also arose from a ¥2.88B increase in accounts receivable and a ¥0.74B increase in inventories; therefore, the strength of OCF should be evaluated in contrast with the low level of accounting profit. Investing Cash Flow was negative ¥2.31B, as investment activities centered on ¥2.07B in capital expenditures placed pressure on cash. Financing Cash Flow was negative ¥0.18B, primarily due to dividend payments. Free Cash Flow, calculated as the sum of OCF and Investing Cash Flow, was negative ¥0.66B, confirming that internal funds generated during the period were insufficient to fully cover investment and shareholder returns.

Earnings Quality

The increase in Ordinary Income was attributable not only to the improvement in Operating Income but also to ¥0.16B in non-operating income, primarily consisting of ¥0.13B in dividend income, indicating a degree of dependence on dividend income from investment securities. Meanwhile, extraordinary gains amounted to ¥0.09B, compared with extraordinary losses of ¥0.16B, including ¥0.01B in impairment losses and losses on the disposal of fixed assets, resulting in a loss of approximately ¥0.06B to Net Income as a temporary factor. In addition, the high effective tax rate of 45.5% also pressured Net Income. Although OCF substantially exceeded Net Income and no significant accounting accrual concerns were evident, increases in accounts receivable and inventories warrant attention as potential future profitability and collection risks. Overall, the increase in Ordinary Income was affected by investment income, temporary extraordinary items, and the tax burden, and earnings quality is less robust than the improvement in gross profit at the operating level.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥37.70B (+1.2% YoY), Operating Income of ¥0.66B (-38.3%), Ordinary Income of ¥0.86B (-32.7%), and Net Income of ¥0.52B (-41.2%), indicating that the Company expects substantial revenue growth and profit improvement in the second half. Cumulative Q3 progress rates were 68.8% for Revenue, 17.0% for Operating Income, 30.5% for Ordinary Income, and 20.8% for Net Income, all below standard progress levels, for which approximately 75% would generally be a benchmark after 9 months. In particular, the low progress rates for Operating Income and Net Income indicate that the plan assumes a concentration of earnings improvement in Q4. Achievement of the full-year plan therefore requires confirmation through subsequent quarterly data.

Shareholder Returns

The full-year dividend forecast is ¥70 per share, implying total dividends of approximately ¥0.40B based on the period-average number of shares outstanding of 5,775,913 shares. The Payout Ratio against forecast full-year Net Income of ¥0.52B is approximately 77.7%, above the general benchmark of 60%. Share repurchases were small at ¥0.003B, resulting in an estimated Total Return Ratio of approximately 78.2% including share repurchases. Given that cumulative Free Cash Flow for the period was negative ¥0.66B, dividend funding depends to a certain extent on the existing financial base, including cash and deposits of ¥1.78B. Dividend sustainability will therefore be affected by the earnings recovery and cash flow trends in the second half.

Risk Factors

1. Prolonged Collection Period for Accounts Receivable: Accounts receivable increased 65.8% YoY to ¥7.24B, representing an accumulation despite declining Revenue. If the prolonged collection period continues, concerns arise regarding the tying up of funds in working capital and its future impact on OCF.

2. Low Profitability and Capital Efficiency: The Operating Income margin of 0.4% and annualized ROE of 0.5% are both below general levels for the food and beverage industry. Relative to the asset base of ¥25.13B in property, plant and equipment and ¥8.52B in investment securities, the recovery capacity through Operating Income is limited.

3. Impact of High Tax Burden and Extraordinary Items: The effective tax rate reached 45.5%, and together with the recognition of ¥0.16B in extraordinary losses, including impairment losses, this offset the increase in Ordinary Income at the Net Income level. The Company’s structure remains susceptible to fluctuations in extraordinary items and the tax burden affecting bottom-line earnings.

Industry Benchmark (Reference; Company Analysis)

Key Points from the Financial Results

1. The gross margin improved to 36.1% from the previous year, indicating progress in cost management. However, the increase in the SG&A ratio offset this benefit, and the absolute Operating Income margin of 0.4% remains low.

2. OCF showed strength at ¥1.65B, substantially exceeding Net Income, but this was accompanied by increases in accounts receivable and inventories. The normalization of working capital should therefore be monitored as a factor influencing future cash flow trends.

3. The progress rate for Operating Income against the full-year plan remained at 17.0%, meaning that substantial earnings improvement in Q4 is a prerequisite for achieving the Company’s forecast. This progress status is an important point to monitor through future financial results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,765–¥3,975 at a ±1% change in the cost of equity, and ¥3,838–¥3,888 at a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used, resulting in a timing gap relative to the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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