SANKO MARKETING FOODS (2762) FY2026 Q2 Earnings Report

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Executive Summary

The Company remained in an operating loss position despite higher revenue, and substantial earnings improvement is required in the second half of the fiscal year. Revenue increased to ¥4.99B (+7.6% YoY), while Operating Income was ¥-0.33B (an improvement of ¥0.01B from ¥-0.35B in the previous year), Ordinary Income was ¥-0.31B (¥-0.31B in the previous year), and Net Income was ¥-0.31B (¥-0.33B in the previous year), with losses continuing in all cases. Higher revenue and an improved gross profit margin contributed to the reduction in losses, although the increase in SG&A expenses constrained earnings improvement.

Factors Affecting Earnings

【Revenue】Revenue was ¥4.99B, representing a 7.6% increase YoY. As the Company operates as a single segment, segment-level disclosures are not provided; however, progress toward the full-year plan of ¥11.16B was 44.7%, remaining below the standard 50% level. Revenue of approximately ¥6.18B will be required in the second half, necessitating accelerated growth from the first half.

【Profit and Loss】Gross profit was ¥1.75B, with a gross profit margin of 35.1%, improving from approximately 34.6% in the same period of the previous year. Meanwhile, SG&A expenses reached ¥2.09B (+7.0% YoY), and the SG&A ratio of 41.8% exceeded the gross profit margin by 6.7 percentage points, directly causing the operating loss of ¥-0.33B. Non-operating income exceeded non-operating expenses (non-operating income of ¥0.04B and non-operating expenses of ¥0.01B), reducing the ordinary loss to ¥-0.31B. Extraordinary income of ¥0.01B (including gains on the sale of fixed assets) and extraordinary losses of ¥0.00B (impairment losses) were both small, and their impact on the net loss of ¥-0.31B was limited. In conclusion, despite higher revenue, the Company remains in a situation where the burden of fixed costs is heavy and losses continue despite revenue growth.

Segment Analysis

The Company operates as a single segment and does not disclose segment-level revenue or profit and loss.

Key Financial Metrics

【Profitability】The Operating Income margin was -6.7%, improving from approximately -7.5% in the same period of the previous year, but it remained negative. The Net Income margin was -6.3%, and the earnings structure continued to reflect a heavy fixed-cost burden, with an SG&A ratio of 41.8% against a gross profit margin of 35.1%.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-0.42B, representing a cash outflow exceeding the net loss of ¥-0.31B. Increases of ¥0.11B in accounts receivable and ¥0.03B in inventories placed pressure on working capital.【Investment Efficiency】Annualized ROE was -156.6%, while ROIC was also significantly negative, as the small equity base and operating losses materially deteriorated capital efficiency.【Financial Soundness】The Equity Ratio was 15.5%, improving from 13.0% in the same period of the previous year; however, liabilities accounted for more than 80% of total assets, and the maturity of financing continued to shorten, including a 62.5% YoY increase in short-term borrowings.

Cash Flow Analysis

Operating Cash Flow was ¥-0.42B, worsening from ¥-0.35B in the same period of the previous year. The cash outflow exceeded the net loss of ¥-0.31B, as the ¥0.11B increase in accounts receivable and the ¥0.03B increase in inventories placed pressure on working capital, offsetting the cash contribution from the ¥0.06B increase in accounts payable. Investing Cash Flow was ¥-0.08B, and capital expenditures of ¥0.05B exceeded depreciation and amortization expense of ¥0.03B, indicating that renewal and expansion investments continued. Free Cash Flow was ¥-0.50B, meaning that internally generated funds were insufficient to finance investments. Financing Cash Flow was +¥0.45B, and the funding shortfall was covered through a capital increase of ¥0.16B, a net increase in short-term borrowings of ¥0.05B, and ¥0.04B of long-term borrowing. As a result, cash and cash equivalents decreased by ¥0.05B during the period to ¥0.58B. Going forward, in addition to reducing operating losses, improving working capital through the management of accounts receivable and inventories will be key to stabilizing cash management.

Quality of Earnings

The ordinary loss of ¥-0.31B and net loss of ¥-0.31B were nearly identical, and the impact of extraordinary gains and losses (extraordinary income of ¥0.01B and extraordinary losses of ¥0.00B) was limited, indicating that the recurring earnings structure was directly reflected in final earnings. Non-operating income of ¥0.04B consisted of items including dividend income of ¥0.00B and other non-operating income of ¥0.01B, and contributed to reducing the ordinary loss by exceeding non-operating expenses of ¥0.01B (including interest expense of ¥0.00B). Comprehensive income was ¥-0.32B, with only a small divergence from net income of ¥-0.31B, indicating that the impact of adjustments related to retirement benefits and other items was immaterial. The fact that OCF represented a cash outflow exceeding the net loss was attributable to working capital factors, namely increases in accounts receivable and inventories, indicating that the improvement trend shown in the income statement has not yet been sufficiently confirmed on a cash basis.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥11.16B (+15.3% YoY), Operating Income of ¥0.02B, and Ordinary Income of ¥0.03B, representing a substantial gap from first-half results (Revenue of ¥4.99B and an operating loss of ¥-0.33B). Revenue progress was 44.7%, below the standard 50%, requiring approximately ¥6.18B of revenue in the second half. Operating Income must turn profitable by approximately ¥0.35B in the second half alone, requiring a substantial improvement from the first-half Operating Income margin of -6.7%. The forecast has not been revised, and achieving the plan will require both sales growth and SG&A efficiency improvements in the second half.

Shareholder Returns

The Q2 dividend was ¥0 per share, with no dividend paid, and the full-year dividend forecast is also ¥0. Given the net loss of ¥-0.31B and Free Cash Flow of ¥-0.50B, the Company has not generated sufficient funds internally to finance dividends. Treasury shares totaled 5 thousand shares, an immaterial amount, and no shareholder returns through share repurchases were identified.

Risk Factors

1. Fixed-cost burden and earnings structure risk: The SG&A ratio of 41.8% continues to exceed the gross profit margin of 35.1%, resulting in a fixed-cost burden greater than gross profit. This structure makes Operating Income highly susceptible to fluctuations in revenue, making SG&A restraint in the second half important.

2. Financial leverage and refinancing risk: The Equity Ratio was 15.5%, while short-term borrowings increased 62.5% YoY to ¥0.13B. The current ratio remained close to 100%, requiring continued management of working capital and refinancing terms.

3. Working capital deterioration risk: Accounts receivable increased 28.2% YoY, while inventories increased 29.2%, contributing to the widening OCF outflow. Managing collection periods and inventory levels will be key to improving cash management.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the Company’s Operating Income margin and Net Income margin were negative, and comparison data against the industry median has not been prepared.

Growth and Capital Efficiency

The Revenue growth rate remained positive, but comparison data against the industry median has not been prepared.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Revenue increased 7.6% and the gross profit margin also improved, but the reduction in the operating loss was limited to an improvement of ¥0.01B YoY due to higher SG&A expenses. The financial results indicate that higher revenue and improved profitability have not been achieved simultaneously.

2. Achieving the full-year plan requires Operating Income of approximately ¥0.35B in the second half alone, representing a substantial gap from the first-half result (operating loss of ¥0.33B). In light of the revenue progress rate of 44.7%, performance in the second half will be an important point of observation.

3. OCF was ¥-0.42B, representing a cash outflow exceeding the net loss, and the Company continues to cover the shortfall through external financing via Financing Cash Flow, including capital increases and borrowings. The increase in short-term borrowings indicates a change in the financing structure.

Theoretical Share Price (Reference Value)

Sensitivity: 8 yen–9 yen at ±1% for the cost of equity, and 8 yen–9 yen at ±0.1 for ω.

Notes:

• Goodwill amortization of 0.2 yen per share is added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• 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 (there is 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: 2026-08 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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. 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 a professional advisor as necessary.

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