Wakou Shokuhin (2813) FY2026 Q3 Earnings Report

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Executive Summary

The period was characterized by higher revenue but lower earnings, with cost increases and declining profitability in the core business failing to keep pace with revenue expansion. Revenue increased to ¥130.1B (¥123.1B in the same period of the previous year, YoY +5.6%), while Operating Income declined to ¥11.2B (down 4.9%), Ordinary Income to ¥11.4B (down 4.9%), and Net Income to ¥7.9B (down 10.0%). The primary factors were the 10.6% increase in SG&A expenses, which exceeded revenue growth, and the decline in the profit margin of the highly profitable U.S. segment.

Factors Affecting Performance

【Revenue】Revenue was ¥130.1B, up 5.6% year on year. By segment, Japan generated ¥100.2B (77.1% composition ratio, up 6.1% year on year), while the U.S. generated ¥32.0B (24.6% composition ratio, up 4.3% year on year), with both regions securing revenue growth.

【Profit and Loss】The gross margin was 28.6%, virtually flat compared with 28.7% in the previous year, but the SG&A expense ratio increased from 19.1% to 20.0%, putting pressure on Operating Income. Operating Income declined by 4.9% to ¥11.2B, while Ordinary Income also declined by 4.9% to ¥11.4B, indicating that the decline was of approximately the same magnitude and that the impact of non-operating income and expenses was limited. Net Income was ¥7.9B, down 10.0%, representing a larger decline than at the operating level. By segment, the USA segment is the core business, generating ¥7.6B, or 66.3% of total segment profit; however, its profit margin declined by approximately 3.7pt from 27.4% to 23.8%, making it the primary cause of the consolidated earnings decline. Japan’s profit margin improved slightly to 3.9% from 3.8% in the previous year. In conclusion, the Company achieved higher revenue but lower earnings, primarily due to the decline in the U.S. business’s profit margin and the increase in SG&A expenses.

Segment Analysis

The Japan segment secured modest revenue and profit growth, with revenue of ¥100.2B (up 6.1% year on year), segment profit of ¥3.9B (up 3.1%), and a profit margin of 3.9%. The U.S. segment posted higher revenue of ¥32.0B (up 4.3%), but segment profit declined by 9.8% to ¥7.6B, and its profit margin fell from 27.4% to 23.8%. The U.S. segment’s contribution to total consolidated Operating Income is high at 66.3%, creating a structure in which the profitability trends of this business determine consolidated performance.

Key Financial Metrics

【Profitability】The Operating Income margin was 8.6%, down approximately 1.0pt from 9.6% in the previous year, while the Net Income margin also declined to 6.1% from 7.1% in the previous year. The gross margin was virtually flat at 28.6%; the primary cause of deteriorating profitability was the increase in the SG&A expense ratio (19.1%→20.0%).【Cash Quality】The corporate income tax burden as a percentage of Profit Before Tax was approximately 30.7%, while extraordinary income and losses resulted in a minor net loss, with no factors observed that materially distorted earnings quality.【Investment Efficiency】ROE (annualized) was 10.8%, supported by the balance among the Net Income margin, total asset turnover, and financial leverage.【Financial Soundness】The Equity Ratio improved to 59.6% from 58.7% in the previous year, and the current ratio remained high at approximately 182%. However, the high proportion of short-term borrowings and other short-term debt within interest-bearing debt, as well as the fact that accounts receivable increased by 35.7%, exceeding revenue growth, require monitoring.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, an examination of funding trends based on changes in the balance sheet shows that cash and deposits amounted to ¥26.5B, a decrease of ¥8.5B (-24.3%) from ¥35.0B in the previous year. Meanwhile, property, plant and equipment increased to ¥59.0B (up ¥7.1B year on year), and investments and other assets increased to ¥21.1B (up ¥6.4B), suggesting that the allocation of funds to capital expenditures and investment assets was one factor behind the decline in cash. Accounts receivable increased by ¥7.7B to ¥29.2B, tying up working capital, while accounts payable also increased by ¥4.0B to ¥15.0B, partially offsetting the effect. Long-term borrowings decreased by ¥1.9B to ¥4.8B, indicating progress in reducing long-term liabilities. Overall, the Company appears to be funding increases in investment and working capital through the use of short-term borrowings (¥17.0B), in addition to internally generated funds from earnings.

Quality of Earnings

Operating Income, which indicates recurring earnings power, was ¥11.2B. Extraordinary income and losses were minor on a net basis, comprising extraordinary income of ¥0.05B and extraordinary losses of ¥0.08B, meaning that nearly all of the ¥11.4B Profit Before Tax was derived from the core business. Non-operating income was limited to ¥0.6B (including interest income of ¥0.2B and dividend income of ¥0.04B), while non-operating expenses were ¥0.4B (including interest expenses of ¥0.2B and foreign exchange losses of ¥0.2B); consequently, the divergence between Ordinary Income and Operating Income was small. Meanwhile, comprehensive income was ¥14.0B, exceeding Net Income of ¥7.9B, primarily due to ¥3.6B in valuation difference on other securities and ¥2.5B in foreign currency translation adjustments. As these items are linked to market prices and foreign exchange rates, the gap with Net Income is attributable to temporary valuation factors and should be distinguished from the earnings power of the core business. In addition, the fact that accounts receivable are increasing faster than revenue growth warrants attention from an accrual perspective, and there remains scope to continue verifying the cash flow support underpinning earnings.

Earnings Forecast and Guidance

The full-year Company forecasts are revenue of ¥171.1B (up 5.3% year on year), Operating Income of ¥14.7B (down 7.5%), Ordinary Income of ¥14.7B (down 8.4%), and EPS of ¥430.58. The Q3 cumulative progress rates were 76.0% for revenue, 76.3% for Operating Income, 77.6% for Ordinary Income, and 73.7% for Net Income, all broadly within the standard level of approximately 75%. Although the Net Income progress rate was somewhat low, it was within the range of fluctuations in extraordinary income and losses and the tax burden, with no significant deviation observed in achieving the full-year forecast.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year Company forecast is an annual dividend of ¥86 per share. Based on the average number of shares outstanding during the period of 2.494 million shares, the forecast total dividend is calculated at approximately ¥2.15B, resulting in a Payout Ratio of approximately 20.0% against the full-year Net Income forecast of ¥10.72B. Retained earnings were ¥51.8B (up 11.8% year on year), indicating a substantial retained capital base and sufficient capacity to pay the forecast dividend. As there is no actual data for share buybacks during the period, the Total Return Ratio has not been calculated.

Risk Factors

1. Declining profitability of the U.S. business: The profit margin of the U.S. segment, which accounts for 66.3% of consolidated Operating Income, declined by approximately 3.6pt from 27.4% to 23.8%. A delay in recovery would have a significant impact on consolidated performance.

2. Increase in trade receivables and collection period: Accounts receivable increased by 35.7% year on year, substantially exceeding the 5.6% revenue growth rate. If longer collection terms persist, the demand for working capital may increase.

3. Dependence on short-term funding: The proportion of current liabilities, including short-term borrowings of ¥17.0B, is high. Liquidity itself remains sound, with a current ratio of 182% and a quick ratio of 150.5%, but sensitivity to changes in the interest-rate environment and refinancing terms requires monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Within the industry, both the Operating Income margin and Net Income margin are above the median.

Growth and Capital Efficiency

The revenue growth rate also exceeds the industry median, indicating a relatively high pace of revenue growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Revenue growth continued in both Japan and the U.S., but the 10.6% increase in SG&A expenses exceeded revenue growth of 5.6%, causing the Operating Income margin to decline by approximately 1.0pt to 8.6%. This trend represents a structural change in the expense base that warrants close attention.

2. The decline in the profit margin of the U.S. business, which generates more than 60% of consolidated profit, is the central structural factor behind the earnings decline for the period. Profitability trends in this business will determine the future direction of consolidated performance.

3. Full-year progress rates for each profit item are at standard levels of approximately 75%, and no significant deviation from the Company forecasts is currently evident.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,882–¥4,111 at ±1% Cost of Equity, and ¥3,992–¥3,997 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from 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 using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 with professionals as necessary.

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