Kotobuki Spirits Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

This quarter delivered operating leverage, with profit growth outpacing revenue growth, and profitability continued to improve. Revenue was ¥18.67B (+10.0% YoY), Operating Income was ¥4.15B (+20.7%), Ordinary Income was ¥4.18B (+20.3%), and Net Income was ¥2.73B (+18.6%). An improvement in the gross margin to 61.9% (60.7% a year earlier) and restrained growth in SG&A expenses (+7.8% versus revenue growth of +10.0%) lifted the operating margin to 22.2% (20.3% a year earlier), while an increase in the effective tax rate to 34.6% (33.6% a year earlier) somewhat limited Net Income growth relative to pre-tax income growth (+20.4%).

Factors Affecting Results

【Revenue】All segments reported revenue growth, demonstrating balanced growth. External revenue composition was 45.1% for the Shukurei Group (YoY +8.7%), 28.2% for the KCC Group (+9.9%), 15.6% for the Kotobuki Seika Group (+12.4%), and 10.4% for the sales subsidiaries (+9.7%). All three core groups secured growth ranging from the high single digits to nearly double digits.

【Profit and Loss】The gross margin improved to 61.9% from 60.7% a year earlier, a +1.2pt improvement, while the SG&A ratio declined to 39.6% from 40.4%, a -0.8pt change. These improvements on both fronts generated positive operating leverage, bringing the operating margin to 22.2% (20.3% a year earlier, +1.9pt). Non-operating income and expenses remained net positive, with income of ¥0.03B, primarily from dividends received, against virtually zero expenses. Ordinary Income was therefore ¥4.18B, almost at the same level as Operating Income. Extraordinary losses were limited to a ¥0.003B loss on disposal of fixed assets, resulting in a negligible impact from temporary factors. The gap between pre-tax income and Net Income was mainly attributable to income taxes of ¥1.45B (effective tax rate: 34.6%). Revenue and profit both increased.

Segment Analysis

Segment profit (on a segment-total basis) was ¥1.64B for the Shukurei Group (YoY +25.7%, profit margin 19.0%), ¥1.02B for the KCC Group (+16.9%, profit margin 18.9%), ¥1.03B for the Kotobuki Seika Group (+23.7%, profit margin 24.1%), and ¥0.28B for the sales subsidiaries (+32.7%, profit margin 14.1%). In every segment, profit growth outpaced revenue growth. In terms of profitability, the Kotobuki Seika Group had the highest margin at 24.1% and serves as a core source of earnings. Following the establishment of a new subsidiary by KCC in April 2026, the reporting segment name was changed from “KCC” to “KCC Group.” The “Other” category (non-life insurance agency services, health food business, and Taiwanese confectionery business) reported revenue of ¥0.15B and an operating loss of ¥0.003B; although small in scale, the loss narrowed.

Key Financial Metrics

【Profitability】The operating margin improved to 22.2% from 20.3% in the same period of the previous year, a +1.9pt improvement, while the net margin improved to 14.6% from 13.6%, a +1.1pt improvement. The gross margin also improved to 61.9% from 60.7%, a +1.2pt improvement. 【Cash Quality】Days sales outstanding, based on quarterly revenue, was 32.0 days, a reduction of 12.3 days from 44.3 days a year earlier. By contrast, inventory days increased by 2.6 days to 43.7 days from 41.1 days. Days payable outstanding was 28.2 days and remained broadly flat. The resulting cash conversion cycle was 47.5 days, a reduction of 9.7 days from 57.2 days a year earlier, indicating an overall improvement in working capital efficiency. 【Investment Efficiency】ROE was 6.0%, while EPS was ¥17.69 (¥14.92 a year earlier, +18.6%). Cash represented approximately 51% of total assets, a high level that is one factor suppressing capital efficiency. 【Financial Soundness】The Equity Ratio improved to 80.4% from 79.7% at the end of the previous fiscal year. Liquidity was ample, with current assets of ¥40.24B against current liabilities of ¥8.86B. The Company had virtually no interest-bearing debt, indicating a robust financial base.

Cash Flow Analysis

In lieu of disclosure of the statement of cash flows, fund movements are analyzed based on changes in the balance sheet. Cash and deposits amounted to ¥28.81B, a decrease of ¥3.39B (-10.5%) from the end of the previous fiscal year. The main factors were a ¥2.03B decrease in income taxes payable, reflecting payment of taxes recorded in the previous period, and a ¥1.24B decrease in total current liabilities. Meanwhile, trade receivables decreased by ¥1.69B, indicating progress in cash collection, while inventories increased by ¥0.40B, representing an investment of funds in inventory buildup. Net assets decreased by ¥2.65B. Since this exceeded Net Income of ¥2.73B, capital outflows exceeding earnings occurred, suggesting that shareholder returns, including dividend payments, were the primary cause of the decline in cash. Construction in progress increased by ¥0.59B (+97.2%), indicating that progress in store openings and capital expenditures accounted for part of the use of funds.

Earnings Quality

Earnings were primarily generated by operating activities, and the impact of temporary factors was limited. Extraordinary losses were limited to ¥0.003B, including losses on disposal of fixed assets, and had a negligible impact relative to pre-tax income of ¥4.18B. Non-operating income was ¥0.03B, including ¥0.01B in dividends received, while non-operating expenses were virtually zero. Ordinary Income was therefore ¥4.18B, almost at the same level as Operating Income. Comprehensive income attributable to owners of the parent was ¥2.76B, only ¥0.03B higher than Net Income of ¥2.73B. The effects of a +¥0.03B valuation difference on other securities and a -¥0.01B adjustment related to retirement benefits were limited. The effective tax rate rose slightly to 34.6% (income taxes of ¥1.45B / pre-tax income of ¥4.18B) from 33.6% a year earlier. Accordingly, Net Income growth was limited to +18.6%, compared with pre-tax income growth of +20.4%.

Earnings Forecast and Guidance

Progress toward the full-year forecast in Q1 was 22.1% for Revenue, 20.2% for Operating Income, 20.3% for Ordinary Income, and 19.8% for Net Income, all below the 25% benchmark based on simple linear progress. The Company has not revised its earnings forecast for the current quarter, but has revised its dividend forecast and announced a partial change to its dividend policy, including the payment of an interim dividend. The low progress rates may reflect seasonality, with sales and profit weighted toward the second half, as well as upfront investment in store openings and staffing structures. The full-year plan calls for Revenue growth of +7.3% and Operating Income growth of +10.5%; Q1 growth rates of +10.0% for Revenue and +20.7% for Operating Income are currently tracking above the full-year plan.

Shareholder Returns

The Company forecasts an annual dividend of ¥45.00 for the fiscal year ending March 2027. Based on an average number of shares outstanding during the period of 154,433 thousand shares, the annual dividend amount is estimated at approximately ¥6.95B, implying a Payout Ratio of approximately 50.3% against forecast full-year Net Income of ¥13.81B. Given the financial base of ¥28.81B in cash and deposits and an Equity Ratio of 80.4%, the safety of the dividend funding base is high. The Company announced a partial change to its dividend policy as of today, including the introduction of an interim dividend, and is reviewing the timing of dividend payments. Book value per share (BPS) was ¥293.22, down 5.5% from ¥310.37 at the end of the previous fiscal year, with the decline in net assets resulting from dividend payments and other factors acting as a drag on BPS.

Risk Factors

1. Inventory holding risk: Inventories increased by +13.3% YoY to ¥3.42B, while inventory days increased by 2.6 days to 43.7 days from 41.1 days a year earlier. Although the increase reflects inventory buildup to capture demand, inventory consumption needs to be monitored.

2. High effective tax rate: The effective tax rate was 34.6% (33.6% a year earlier). Net Income growth was limited to +18.6% compared with pre-tax income growth of +20.4%, with the tax burden somewhat constraining profit growth.

3. Seasonality and second-half concentration risk: Q1 progress toward the full-year forecast was 22.1% for Revenue and 20.2% for Operating Income, below the 25% benchmark based on simple linear progress. Capturing demand in the second half is therefore a prerequisite for achieving the full-year plan.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net margin substantially exceeded the median within the Food and Beverage sector, placing the Company among the highest profitability levels in the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeded the industry median, indicating a relatively strong position in both profitability and growth.

※Source: Compiled by the Company

Key Earnings Highlights

1. The combined improvement in the gross margin to 61.9% (+1.2pt) and the SG&A ratio to 39.6% (-0.8pt) brought the operating margin to 22.2% (+1.9pt), generating Operating Income growth of +20.7%, above Revenue growth of +10.0%. Profitability improvements outpacing revenue growth demonstrate the successful combination of pricing and product-mix strategies with cost control.

2. Days sales outstanding declined to 32.0 days from 44.3 days a year earlier, while the cash conversion cycle shortened by 9.7 days to 47.5 days from 57.2 days. Despite the buildup in inventories, working capital efficiency is generally improving.

3. ROE was 6.0%. The conservative financial structure, comprising an Equity Ratio of 80.4% and cash equivalent to approximately 51% of total assets, is one factor suppressing capital efficiency. The Payout Ratio was approximately 50.3%, and a review of the dividend policy, including the introduction of an interim dividend, was announced.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥494–¥524 at ±1% for the cost of equity, and ¥503–¥517 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This figure is not intended to predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The 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 professionals as necessary.