KEY COFFEE INC FY2027 Q1 Earnings Report

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Executive Summary

Revenue growth centered on the coffee-related business and an improvement in the gross profit margin resulted in significant year-on-year increases in Operating Income, Ordinary Income, and Net Income. Revenue was ¥24.12B (¥20.67B in the previous year, YoY +16.7%), Operating Income was ¥0.78B (¥0.40B in the previous year, YoY +95.3%), Ordinary Income was ¥0.93B (¥0.51B in the previous year, YoY +83.2%), and consolidated Net Income was ¥0.64B (¥0.34B in the previous year, YoY +91.7%). Net Income attributable to owners of the parent was ¥0.627B (¥0.321B in the previous year, YoY +95.2%), while EPS was ¥29.30 (¥15.02 in the previous year). The primary drivers of the earnings growth were expanded sales and an improved gross profit margin in the core coffee-related business (20.2%, +0.9pt year on year), which absorbed the increase in SG&A expenses and generated operating leverage.

Factors Affecting Performance

【Revenue】Revenue of ¥24.12B increased +16.7% YoY, with the coffee-related segment leading overall performance at ¥21.37B (86.1% of the total, YoY +14.5%) on a reported-segment basis. The food-service-related business posted strong growth of ¥1.70B (7.0% of the total, YoY +61.1%), while other businesses (operations, logistics, etc.) also remained solid at ¥1.74B (YoY +13.4%). Although dependence on the coffee-related business remains high, growth in the food-service-related business is contributing to the expansion of the portfolio’s breadth.

【Profit and Loss】The gross profit margin improved to 20.2% from 19.3% in the previous year, an improvement of +0.9pt, while the SG&A ratio was 17.0% (17.4% in the previous year), remaining broadly flat. The improvement in gross profit translated directly into a higher Operating Income margin. The Operating Income margin was 3.2% (1.9% in the previous year, +1.3pt). By segment, Operating Income from the coffee-related business doubled to ¥0.74B (YoY +105.0%, margin 3.5%), becoming the central driver of earnings growth. Ordinary Income was supported by ¥0.21B in non-operating income, of which ¥0.16B, or more than 70%, comprised equity-method investment gains, exceeding the increase in interest expense (¥0.06B versus ¥0.02B in the previous year). The difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes of ¥0.28B (effective tax rate of approximately 30.5%); no temporary factors arising from extraordinary gains or losses were identified. The company achieved both revenue and earnings growth, driven by an improved gross profit margin and expansion of equity-method investment gains.

Segment Analysis

The coffee-related business was the largest driver of earnings growth, with Revenue of ¥21.37B (86.1% of the total, YoY +14.5%) and Operating Income of ¥0.74B (YoY +105.0%, margin 3.5%, improving from 1.9% in the previous year). The food-service-related business achieved high growth, with Revenue of ¥1.70B (YoY +61.1%) and Operating Income of ¥0.05B (YoY +72.4%, margin 2.9%), although its scale remains small. Other businesses (beverage manufacturing, logistics, mail-order sales, etc.) generated Revenue of ¥1.74B (YoY +13.4%) and Operating Income of ¥0.22B (YoY +13.4%, margin 12.6%), demonstrating the highest profitability among the company’s businesses. However, these figures are before the recognition of corporate expense adjustments (△¥0.23B), and adjustments for corporate expenses and other items exist between the total reported segment profit and Operating Income. Profit margins differ significantly among segments, with the earnings foundation consisting of a combination of scale expansion in the coffee-related business and the high profitability of other businesses.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.2% (1.9% in the previous year, +1.3pt), the Ordinary Income margin was 3.9% (2.5% in the previous year, +1.4pt), and the consolidated Net Income margin was 2.7% (1.6% in the previous year, +1.1pt), indicating improvement at each stage. The improvement in the gross profit margin (20.2%, +0.9pt) was the starting point.【Cash Quality】Cash and deposits increased to ¥6.47B (¥5.28B in the previous year, +22.5%), while comprehensive income of ¥0.58B was below Net Income of ¥0.64B. Valuation differences on securities (△¥0.04B) and retirement benefit adjustments (△¥0.03B) contributed to the divergence from Net Income through valuation changes related to other securities and pensions.【Investment Efficiency】The total asset turnover ratio, calculated on a quarterly basis as Revenue divided by total assets, improved slightly to 30.4% (26.3% in the previous year), while ROE was 2.0% (quarterly basis, not annualized).【Financial Soundness】The Equity Ratio was 41.2% (41.1% in the previous year), remaining broadly flat. The current ratio was 127.1%, and the debt-to-equity ratio (D/E) was 1.43x, with short-term borrowings of ¥18.80B accounting for the majority of interest-bearing debt.

Cash Flow Analysis

Because the statement of cash flows has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥1.19B (+22.5%) year on year to ¥6.47B, while short-term borrowings also increased by ¥1.48B (+8.6%) to ¥18.80B, indicating that the buildup of cash on hand was supported to a certain extent by increased borrowings. In terms of working capital, trade receivables (accounts receivable and notes receivable) decreased by ¥2.14B year on year to ¥20.86B, indicating progress in collections. Meanwhile, inventories increased by ¥0.78B (+15.8%) to ¥5.74B, and accounts payable and notes payable remained broadly flat at ¥19.17B (△¥0.12B). The reduction in trade receivables contributed to cash generation, while the buildup of inventories was a factor trapping funds, resulting in a structure in which the two effects offset each other.

Quality of Earnings

Operating Income of ¥0.78B generated by the core business constituted the central component of Ordinary Income of ¥0.93B, and no temporary boost from extraordinary gains or losses was identified. Non-operating income of ¥0.21B (0.9% of Revenue) consisted primarily of equity-method investment gains of ¥0.16B, representing more than 70%, followed by dividend income of ¥0.02B. Dependence on non-operating income is limited, but attention is warranted regarding the volatility of equity-method gains. The difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes of ¥0.28B (effective tax rate of approximately 30.5%), with no structural divergence. Meanwhile, comprehensive income of ¥0.58B was ¥0.07B below Net Income of ¥0.64B, due to negative valuation differences on securities and adjustments related to retirement benefits. In addition, the increase in inventories (+15.8%) should be monitored as an accrual factor that could affect the timing of converting earnings into cash.

Earnings Forecast and Guidance

Progress against the full-year plan was 25.4% for Revenue, at ¥24.1B/¥950.0B, close to the standard quarterly pace. However, progress for the profit metrics was significantly above the simple quarterly allocation benchmark of approximately 25%: Operating Income was ¥0.78B/¥0.90B, or 86.8%; Ordinary Income was ¥0.93B/¥1.00B, or 92.8%; and Net Income attributable to owners of the parent was ¥0.63B/¥0.75B, or 83.6%. The full-year forecast calls for YoY declines of △16.4% in Operating Income and △24.2% in Ordinary Income, which differs in direction from the Q1 results of YoY +95.3% for Operating Income and YoY +83.2% for Ordinary Income. No revision to the earnings forecast had been made as of the current quarter. However, the fact that Q1 alone has reached nearly 90% of the full-year Operating Income forecast suggests either seasonality, such as a period of heightened demand for coffee and beverages, or that the assumptions underlying the full-year plan may be conservative.

Shareholder Returns

The company’s annual dividend plan is ¥12 per share, resulting in a Payout Ratio of 34.3% based on forecast EPS of ¥35. The previous year’s actual dividend was ¥6, representing a doubling on a forecast basis; however, no revision to the dividend forecast had been made as of the current quarter. No data on share buybacks was identified, and returns consist solely of dividends. Accordingly, the company is evaluated based on the Payout Ratio rather than the Total Return Ratio. Cash and deposits stood at ¥6.47B, while Operating Income was on an upward trend at ¥0.78B. From the perspective of dividend funding, no significant concerns are apparent, although the financially leveraged structure’s high dependence on short-term borrowings is a consideration when assessing capacity for shareholder returns.

Risk Factors

1. Dependence on short-term funding structure: Short-term borrowings of ¥18.80B account for the majority of interest-bearing debt, and coverage relative to cash and deposits of ¥6.47B is only 0.34x. Interest expense increased to ¥0.06B from ¥0.02B in the previous year, creating a structure in which changes in the interest-rate environment can readily affect financial costs.

2. Changes in working capital: Inventories increased by +15.8% year on year to ¥5.74B, while trade receivables decreased by ▲9.3% year on year to ¥20.86B. The differing directions of these movements could affect the timing of cash management.

3. Concentration of Revenue in the coffee-related business: The segment’s share of Revenue reached 86.1%, while purchases of key raw materials, including green coffee beans, increased to ¥18.17B (+5.8% year on year). The high dependence on a specific category creates a structure that is susceptible to the impact of raw-material market conditions and foreign-exchange fluctuations.

Industry Benchmark (For Reference; Company Analysis)

Both the Operating Income margin and Net Income margin are below the industry median, placing the company in the lower range within the industry.

The Revenue growth rate is significantly above the industry median, placing the company among the higher-growth companies in the industry.

※Source: Company compilation

Key Points in the Financial Results

1. The gross profit margin improved to 20.2%, an increase of +0.9pt from the previous year. The Operating Income margin also improved to 3.2% (+1.3pt), while the Ordinary Income margin improved to 3.9% (+1.4pt), confirming margin improvement at each stage. Price revisions and changes in the product mix may have contributed to the improvement in profitability.

2. Although the full-year forecast calls for year-on-year declines in both Operating Income and Ordinary Income (△16.4% and △24.2%, respectively), progress in Q1 was 86.8% for Operating Income and 92.8% for Ordinary Income, significantly exceeding the simple quarterly allocation benchmark. No forecast revision had been made as of the current quarter, making the consistency between future quarterly progress and the forecast a key point to monitor.

3. Equity-method investment gains of ¥0.16B accounted for more than 70% of non-operating income, contributing to the increase in Ordinary Income. Because these gains are linked to the performance of affiliated companies, the evolution of this composition is a key point to monitor as a source of volatility.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available 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: ¥1,200–¥1,269 at cost of equity ±1%; ¥1,224–¥1,240 at ω±0.1.

Notes:

• Because progress in Net Income against the full-year forecast (84%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of forecast progress tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Because 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 (there is a timing mismatch with the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest-rate reference month: 2026-06 / This value does not forecast or guarantee future share prices)

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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 available earnings data. Investment decisions should be made at your own discretion and responsibility, and after consulting a professional as necessary.

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