NATORI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, while revenue declined slightly, the Company achieved a return to operating profitability, primarily due to an improvement in the cost ratio. Accordingly, profitability improvement without revenue growth was the central theme of the earnings results. Revenue was ¥118.5B (-1.7% year on year), Operating Income was ¥8.4B (a return to profitability from ¥-1.0B in the previous year, YoY +964.9%), Ordinary Income was ¥8.7B (¥-0.7B in the previous year), and Net Income attributable to owners of the parent was ¥6.0B (¥-0.1B in the previous year). The gross profit margin improved significantly to 25.5% from 17.4% in the previous year, and the nearly flat trend in selling, general and administrative expenses directly contributed to the increase in profit.

Factors Driving Earnings Fluctuations

【Revenue】Revenue was ¥118.5B, representing a -1.7% decline year on year. By segment, the Food Manufacturing and Sales Business, which accounted for 99.1% of revenue, decreased slightly to ¥117.4B (-1.8%), while the Real Estate Leasing Business increased slightly to ¥1.1B (+3.3%). The decline in company-wide revenue appears to have been primarily attributable to trends in the core Food Manufacturing and Sales Business.

【Profit and Loss】Cost of sales was ¥88.3B, a -11.4% decrease from ¥99.6B in the previous year. As this decline outpaced the decrease in revenue by a wide margin, the gross profit margin improved to 25.5% (17.4% in the previous year). SG&A expenses were ¥21.9B, remaining nearly flat (¥21.96B in the previous year, -0.4%), and the improvement in gross profit was consequently reflected directly in Operating Income. As a result, Operating Income was ¥8.4B (¥-1.0B in the previous year), while Ordinary Income was ¥8.7B (¥-0.7B in the previous year), both returning to profitability. Extraordinary gains and losses were minimal, comprising extraordinary gains of ¥0.01B and extraordinary losses of ¥0.00B, indicating limited dependence on one-time factors. After deducting income taxes and other taxes of ¥2.7B (effective tax rate of 31.3%), Net Income attributable to owners of the parent was ¥6.0B (¥-0.1B in the previous year). Segment Operating Income was ¥7.6B for the Food Manufacturing and Sales Business (+525.7% year on year, 6.5% margin) and ¥0.8B for the Real Estate Leasing Business (+0.2% year on year, 72.7% margin), with both contributing to the increase in profit. The earnings results therefore reflect lower revenue but higher profit.

Segment Analysis

The Food Manufacturing and Sales Business generated revenue of ¥117.4B (99.1% of company-wide revenue) and Operating Income of ¥7.6B (6.5% margin), delivering a significant year-on-year increase in profit as the improvement in the cost ratio led the recovery in profitability. The Real Estate Leasing Business generated revenue of ¥1.1B (0.9% of company-wide revenue) and, despite its small scale, maintained a high Operating Income margin of 72.7%, supporting company-wide profit. There is a significant gap in profit margins between the segments, and the cost and production efficiency trends of the Food Manufacturing and Sales Business, which accounts for the vast majority of revenue, will determine the Company’s future overall profitability.

Key Financial Indicators

【Profitability】The Operating Income margin and Net Income margin both returned to profitability at 7.1% (-0.8% in the previous year) and 5.0% (-0.1% in the previous year), respectively, driven by the improvement in the gross profit margin to 25.5% (up +810bp from 17.4% in the previous year). 【Cash Flow Quality】Accounts receivable decreased to ¥83.9B (from ¥88.3B in the previous year), inventories remained nearly flat at ¥17.2B, and accounts payable increased to ¥48.0B (from ¥41.8B in the previous year). Overall, changes in working capital had a positive effect on cash generation, and cash and deposits increased to ¥50.0B (¥46.1B in the previous year). 【Capital Efficiency】Total asset turnover (quarterly basis) was 0.275x, while ROE was 2.1% (quarterly actual level, before annualization). These figures comprise Net Income margin of 5.0%, turnover of 0.275x, and financial leverage of 1.53x. 【Financial Soundness】The Equity Ratio was 65.2%, the current ratio was 192.8%, the quick ratio was 177.9%, and interest coverage was 55.4x, indicating a robust financial position. Interest-bearing debt was ¥36.7B, equivalent to approximately 13% of net assets of ¥280.8B. However, short-term borrowings and long-term borrowings due within one year accounted for approximately 76% of the total, making the short-term concentration of the funding structure a monitoring point.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥50.0B from ¥46.1B in the previous year, suggesting that, in addition to improved profitability, changes in working capital contributed to cash generation. Accounts receivable decreased to ¥83.9B (¥88.3B in the previous year), while accounts payable increased to ¥48.0B (¥41.8B in the previous year), with both moving in directions that contributed to the accumulation of cash on hand. Inventories were ¥17.2B, remaining nearly flat, with no significant change in inventory levels. Among interest-bearing debt, short-term borrowings remained flat at ¥25.45B, while long-term borrowings declined slightly from ¥8.98B to ¥8.67B, indicating gradual repayment from a financial perspective. Retained earnings increased from ¥241.1B to ¥245.4B, suggesting that current-period profit is being retained internally.

Quality of Earnings

The improvement in current-period profit was primarily driven by the improvement in gross profit margin at the operating level, with limited dependence on one-time factors. The main component of non-operating income of ¥0.5B was dividend income of ¥0.3B (¥0.27B in the previous year), while non-operating expenses of ¥0.2B mainly comprised interest expenses of ¥0.15B. Accordingly, both had a minor impact on earnings. Extraordinary gains of ¥0.01B and extraordinary losses of ¥0.00B were virtually negligible. The difference between Ordinary Income of ¥8.7B and Net Income attributable to owners of the parent of ¥6.0B was primarily due to income taxes and other taxes of ¥2.7B (effective tax rate of 31.3%), with limited divergence attributable to factors other than tax expenses. Meanwhile, comprehensive income was ¥5.6B, below Net Income of ¥6.0B, mainly because valuation differences on available-for-sale securities made a negative contribution of ¥-0.3B. This divergence resulted from changes in the market value of held securities and should be considered separately from the earnings power of the core business.

Earnings Forecast and Guidance

Against the full-year earnings forecasts (Revenue of ¥489.0B, Operating Income of ¥21.5B, Ordinary Income of ¥21.8B, and Net Income of ¥14.6B), progress in Q1 was 24.2% for Revenue, 39.0% for Operating Income, 39.7% for Ordinary Income, and 40.8% for Net Income. Compared with the simple progress benchmark of 25%, Revenue was tracking broadly in line with the plan, while profit was ahead by +14–16pt, suggesting that the effects of the improved cost ratio may have emerged earlier than anticipated. Both the earnings forecast and dividend forecast remain unchanged, with no revisions made.

Shareholder Returns

The full-year dividend forecast is ¥30.00 per share (Company plan), implying a Payout Ratio of approximately 25.9% against forecast EPS of ¥116.03. The Company has disclosed a plan to add a commemorative dividend for its 88th anniversary to both the interim and year-end regular dividends. From a financial perspective, the Company has a financial foundation supporting its capacity for shareholder returns, as evidenced by an Equity Ratio of 65.2% and interest coverage of 55.4x. Treasury shares remain limited to a portion (2,450 thousand shares) of the 15,032 thousand issued shares, and no new information concerning share repurchases during the quarter has been disclosed.

Risk Factors

1. Business concentration risk: The Food Manufacturing and Sales Business accounts for 99.1% of revenue, creating a structure in which demand fluctuations in that business directly affect company-wide performance. The Real Estate Leasing Business is small, with revenue of ¥1.1B, limiting its diversification effect.

2. Risk of reversal in the cost environment: The increase in profit during the period was primarily attributable to an improvement of +810bp in the gross profit margin resulting from a -11.4% decline in cost of sales. If prices for raw materials, energy, and other inputs reverse direction, the recent pace of profit growth could slow through downward pressure on the gross profit margin.

3. Short-term concentration of interest-bearing debt: Short-term borrowings and long-term borrowings due within one year account for approximately 76% of total interest-bearing debt of ¥36.7B, warranting attention to increased refinancing costs in a rising interest rate environment. However, cash and deposits of ¥50.0B exceed short-term liabilities, providing a buffer for near-term liquidity.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin are both above the median for the food and beverage industry.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median. In contrast to its high profitability, the Company is relatively less competitive in terms of top-line growth.

※Source: Compiled by the Company

Key Earnings Highlights

1. Significant profit growth despite lower revenue: Operating profit returned to profitability mainly due to the gross profit margin improving to 25.5% (up +810bp from 17.4% in the previous year), while full-year progress rates of 39.0% for Operating Income and 40.8% for Net Income are ahead of the simple progress benchmark of 25%. The sustainability of the improved cost ratio will be the key focus going forward.

2. Conservative Payout Ratio: Against the dividend forecast of ¥30.00, the Payout Ratio is approximately 25.9% (based on forecast EPS). Together with financial soundness indicators such as an Equity Ratio of 65.2%, this suggests a stable shareholder return policy.

3. Business concentration structure: The Food Manufacturing and Sales Business accounts for 99.1% of revenue, creating a structure in which volume trends in that business determine the recovery of company-wide revenue growth. The Real Estate Leasing Business is small but highly profitable (72.7% margin), supporting company-wide profit.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,926–¥2,038 at ±1% for the cost of equity, and ¥1,973–¥1,986 at ±0.1 for ω.

Notes:

• Since progress of Net Income against the full-year forecast (41%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of plan tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• 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 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 / Interest Rate Reference Month: 2026-07 / This value is not intended to predict 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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional where necessary.

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