Pharma Foods International Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥15.71B
• Operating Income: ¥-2.51B
• Net Income: ¥360M
• EPS: ¥-65.52

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

PharmaFoods (TSE:2929) reported FY2026 Q1 consolidated results under JGAAP with revenue of 157.12 (100M JPY), up 7.6% YoY, indicating a modest top-line recovery. Gross profit reached 119.01, yielding a high gross margin of 75.7%, suggesting a product mix skewed to high-margin functional foods/supplements and/or strong pricing. Despite the healthy gross margin, SG&A expenses were 110.18 (70.1% of sales), keeping the company in operating loss at -25.11; however, the operating loss improved 46.7% YoY, evidencing cost discipline and initial operating leverage benefits. Ordinary income was -26.44 and non-operating items were small (income 0.87, expenses 0.80), implying core operations remain the primary drag. Notably, Profit Before Tax is shown as +8.88 while net income is -18.91, alongside tax expense of 5.27 and an elevated effective tax rate of 59.3%; this gap suggests undisclosed special items or presentation effects not visible in the provided XBRL fields. EBITDA was -23.50 (margin -15.0%), indicating that the operating loss is not purely depreciation-driven and reflecting ongoing scale inefficiencies in SG&A. DuPont shows ROE at -20.2% driven by a negative net margin (-12.0%), modest asset turnover (0.482x), and high financial leverage (3.48x assets/equity). Liquidity is adequate but tight: current ratio 119.3% and quick ratio 87.8%, with working capital of 38.65, supported by cash of 91.57. Leverage is notable: short-term loans of 114.00 and long-term loans of 6.71 sit against equity of 93.79, and the reported debt-to-equity ratio is 2.25x, indicating elevated refinancing risk. Operating cash flow was slightly positive at 0.35 despite the net loss, aided likely by working capital movements; financing cash flow was a net outflow of -36.46, consistent with debt repayments or reduced borrowings. Capital expenditures were contained at 2.96, implying disciplined investment amid an earnings recovery phase. With DPS unreported, dividend capacity is uncertain; a calculated payout ratio of -38.4% is not meaningful due to negative earnings. Inventory at 63.11 and receivables at 50.38 require monitoring to ensure OCF improvement is sustainable and not purely timing-related. Overall, top-line growth and loss contraction are positives, but sustained profitability hinges on SG&A efficiency, demand quality, and managing short-term debt. Data limitations (several N/As, especially around extraordinary items and dividend disclosures) constrain precision, but available figures indicate an early-stage turnaround with balance sheet risk that necessitates careful monitoring.

From Earnings Presentation: Pharma Foods International Co., Ltd. explains in its supplemental materials for FY2026/July Q1 that although it achieved net sales of 157.12 billion yen (+7.6% YoY), it posted an operating loss of 2.511 billion yen. The primary driver was the strategic deployment of 11,434 million yen in advertising and promotion to cultivate new revenue pillars, with concentrated investment in “Newmo V” and “Lactoron Tablets.” The BtoC business continued to expand steadily with 788,000 active subscription customers (+7.8% YoY), while in the BtoB business, progress included expanded distribution of in-house brand products at Costco and increased overseas adoption of PharmaGABA. The short-term loss was anticipated, and full-year guidance (net sales 68.0 billion yen, operating income 1.5 billion yen) was maintained. In addition, the mid-term strategy under the “New Value Creation 1K Project,” targeting 100.0 billion yen in net sales, was detailed, with a stated continuation of 30.0 billion yen in growth investments across M&A (10.0 billion yen), agriculture and fiber businesses (5.0 billion yen), and drug discovery (12.5 billion yen). Regarding capital cost measures, while acknowledging that ROE at 8.7% (forecast) and ROIC at 4.3% (forecast) fall below the cost of capital, the company cited a capital and business alliance with ITOCHU Corporation, enhanced IR, and strengthened CRM as initiatives to lower the cost of equity. In the Biomedical business, the company looks to out-license two oncology antibody therapeutics (targets in 2028 and 2029) and obtain approval for a cerebral circulation improvement drug (2030), and highlighted the launch of joint AI-driven antibody discovery research with The University of Tokyo.

Financial Analysis

Profitability

roe_decomposition: Reported ROE is -20.2%, decomposed as Net Margin -12.0% x Asset Turnover 0.482x x Financial Leverage 3.48x. The primary driver is a negative net margin despite high gross profitability, with leverage amplifying the loss impact on equity. margin_quality: Gross margin is strong at 75.7% (gross profit 119.01 on revenue 157.12), indicating premium pricing and/or favorable product mix. However, SG&A intensity is high at 70.1% of sales (110.18/157.12), compressing operating margin to around -16.0%. EBITDA margin is -15.0%, signaling that losses are not simply depreciation-related; structural SG&A or customer acquisition costs remain heavy. operating_leverage: Revenue grew 7.6% YoY while operating loss improved 46.7% YoY, consistent with early positive operating leverage. Further fixed-cost absorption and marketing efficiency will be key to moving EBITDA and operating margin to breakeven.

Growth

revenue_sustainability: Top-line growth of 7.6% YoY suggests resilient underlying demand, likely in D2C/functional food and supplement categories. The sustainability of growth depends on repeat customer behavior and churn management given typical sector dynamics. profit_quality: The divergence between positive Profit Before Tax (8.88) and negative net income (-18.91) with high effective tax rate (59.3%) indicates noise from tax/other items; core profit quality is better assessed via operating metrics, which show loss contraction and stable gross margin. outlook: If the company maintains mid-single to high-single-digit revenue growth while reducing SG&A ratio by 300–500 bps, breakeven at the operating level becomes plausible over the next few quarters. Near-term, financing cost headwinds and potential advertising spend normalization could moderate the pace of profit recovery.

Financial Health

liquidity: Current ratio 119.3% and quick ratio 87.8% reflect adequate but not comfortable liquidity. Cash and deposits of 91.57 provide a cushion, though receivables (50.38) and inventories (63.11) tie up working capital. solvency: Debt-to-equity is reported at 2.25x, with short-term loans 114.00 and long-term loans 6.71 versus equity 93.79, pointing to elevated leverage. Assets/equity at 3.48x underscores sensitivity of equity to asset value changes. capital_structure: Liabilities total 211.01 (current 200.05), indicating a short-term heavy funding profile. Interest coverage (EBITDA/interest) is -104.62x, revealing insufficient operating earnings to service interest absent working capital/cash; refinancing and cost of debt trends are critical.

Cash Flow

earnings_quality: OCF of 0.35 against net loss of -18.91 yields an OCF/NI ratio of -0.02x (mathematically negative due to NI being negative while OCF is slightly positive). This suggests OCF benefited from working capital movements and is not yet driven by underlying profitability. fcf_analysis: With CapEx of 2.96 and OCF of 0.35, estimated FCF is approximately -2.61 (100M JPY). This indicates reliance on cash reserves or financing to fund operations and investment in the quarter. working_capital: Inventories at 63.11 and receivables at 50.38 are sizable versus quarterly revenue, implying potential cash conversion cycle risk if growth slows. Monitoring inventory turnover and collection periods is important to validate OCF sustainability.

Dividend Sustainability

payout_ratio_assessment: DPS and total dividends paid are unreported. The calculated payout ratio of -38.4% is not economically meaningful given negative earnings and should not be used to infer policy. fcf_coverage: With estimated negative FCF (-2.61), internal coverage for dividends would be limited this quarter even if a dividend were declared. policy_outlook: Given loss-making status, elevated leverage, and refinancing needs, a conservative dividend stance is likely until operating cash flow and profitability stabilize. Absence of DPS data limits assessment of historical policy consistency.

Business Outlook

Full-year guidance is maintained at net sales of 68.0 billion yen (+4.0%), operating income of 1.5 billion yen (▲867 million yen YoY), ordinary income of 1.5 billion yen, and profit attributable to owners of parent of 1.0 billion yen (+632 million yen YoY). The Q1 operating loss stems from upfront investment (advertising and promotion) to develop new products and is within plan. In the BtoC business, the company aims to improve profitability by increasing the number of subscription customers and cultivating loyal customers; in the BtoB business, it will expand material adoption and open new distribution channels for in-house brand products. Overseas, obtaining U.S. GRAS certification is the top priority, and preparations for the FDA filing will continue. Medium term, under the “New Value Creation 1K Project,” the company targets 100.0 billion yen in net sales, comprised of 70.0 billion yen from existing businesses and 30.0 billion yen from new businesses (including 10.0 billion yen from M&A, 5.0 billion yen from agriculture and fiber, and 12.5 billion yen from drug discovery, etc.). In the Biomedical business, it envisions out-licensing two oncology antibody therapeutics (2028 and 2029) and obtaining approval for a cerebral circulation improvement drug (2030). In the agriculture business, as a MAFF-subsidized project, it aims for social implementation of a biostimulant formulation. In the fiber business, as a METI/NEDO project, it will promote practical implementation of eggshell membrane nanofibers and electrode materials.

Management Guidance

Management positions the Q1 operating loss as an upfront investment phase driven by “as-planned” advertising spend and expressed confidence in achieving full-year profitability. Regarding capital cost measures, it recognizes that the forecast ROE of 8.7% is below the cost of equity of 15.8%, stating this is a phase to “continue bold investments to enhance future profitability,” and identified reducing the cost of equity as a key improvement task. As a backdrop to the PBR of 2.22x, it set forth a policy to “raise expectations for profit growth rate and margin.” Specifically, it presented three pillars: improving ROIC (pursuing a balanced financial structure and capturing earnings through CRM enhancement), lowering the cost of equity (restructuring the business portfolio, enhancing IR, and entering into a capital and business alliance with ITOCHU Corporation), and elevating growth expectations (strengthening investments in R&D, facilities, and human capital; enhancing the company’s standing as a healthcare company through M&A). On M&A, it stated that “the representative will personally spearhead sourcing” and that negotiations toward execution are ongoing. The company will continue its 30.0 billion yen growth investment program and reallocate increases in operating cash flow to business investment and shareholder returns. On dividends, it will “flexibly implement based on a basic policy of a 20% total payout ratio,” and maintained its forecast of an annual dividend of 25 yen per share.

Strategic Initiatives

• New Value Creation 1K Project: Target net sales of 100.0 billion yen (70.0 billion yen from existing businesses and 30.0 billion yen from new businesses), and continue 30.0 billion yen of growth investments including 10.0 billion yen in M&A, 5.0 billion yen in agriculture and fiber, 12.5 billion yen in drug discovery, and investments in human capital.
• BtoC business: Drive a shift toward a more profitable customer mix by acquiring new customers, improving retention of existing customers, and cultivating loyal customers. Foster new revenue pillars through aggressive advertising investment (11,434 million yen), centered on “Newmo V” and “Lactoron Tablets.”
• BtoB business (domestic): Expand sales channels across three supply chains: (i) deploy in-house brand products via wholesalers to mass retailers, supermarkets, drugstores, and convenience stores (with expanded distribution at Costco as a prime example), (ii) sell ingredients to beverage and food manufacturers, and (iii) sell ingredients to daily foods manufacturers.
• BtoB business (overseas): Prioritize obtaining U.S. GRAS status and continue smooth preparations for the FDA filing. Strengthen relationships with local agents, with adoption of PharmaGABA for supplements and beverages in Thailand decided.
• Biomedical business: Advance three pipelines—Target A in oncology (out-licensing targeted for 2028), Target B in oncology (out-licensing targeted for 2029), and cerebral circulation improvement compound C (license-in in 2025, approval targeted for 2030). Enhance the competitiveness of the proprietary “ALAgene” platform through joint AI-driven antibody discovery research with The University of Tokyo.
• Agriculture business: As a project selected under MAFF’s “Open Innovation Research and Practical Implementation Promotion Project,” aim for social implementation of biostimulant formulations leveraging plant endophytic yeast and GABA (consortium led by the company with The University of Tokyo and the ITOCHU Corporation group).
• Fiber and nanofiber business: Under METI/NEDO’s “Bio-manufacturing Revolution Promotion Project,” promote R&D on fibers and battery materials utilizing eggshell membrane. Through joint research with Shinshu University, developed next-generation biomass-derived electrode materials and conducted an international journal publication and press briefing (5.0 billion yen investment).
• Capital cost measures: Formalize policies to improve ROIC (pursuing a balanced financial structure, agile management of short-term borrowings, and strengthening CRM), reduce the cost of equity (capital and business alliance with ITOCHU Corporation, enhanced IR, English financial disclosures, online company briefings), and raise growth expectations (continuation of 30.0 billion yen in investments, M&A sourcing).
• Human capital investment: Focus on acquiring and developing global talent and leadership talent.

Risk Assessment

Business Risks:

• High marketing and customer acquisition costs typical in D2C supplements and functional foods, pressuring SG&A.
• Demand normalization risk and reliance on repeat purchase behavior for revenue sustainability.
• Regulatory and labeling risks for health claims in nutraceuticals/functional foods.
• Product concentration and brand fatigue risk affecting gross margin resilience.
• Inventory obsolescence or discounting risk if demand underperforms.

Financial Risks:

• Elevated leverage (debt-to-equity 2.25x) with heavy short-term borrowing (114.00), creating refinancing risk.
• Negative EBITDA and weak interest coverage (-104.62x) increasing sensitivity to interest rate or credit spread changes.
• Working capital dependency to generate OCF amid losses, exposing cash flows to timing swings.
• Potential non-recurring items/tax effects creating P/L volatility and complicating forecasting.

Key Concerns:

• Sustained SG&A intensity (70.1% of sales) preventing operating breakeven despite strong gross margin.
• Discrepancy between Profit Before Tax (+8.88) and Net Income (-18.91) with high effective tax rate, implying undisclosed items.
• Short-term debt concentration versus available liquidity, heightening near-term funding risk.

Risk Factors from Presentation:

• Potential for persistent elevation of the SG&A ratio due to deteriorating advertising efficiency (Q1 actual SG&A ratio: 110.18 billion yen/157.12 billion yen ≒ 70.1%).
• Uncertainty in new product development: If investments in products such as “Newmo V” and “Lactoron Tablets” do not contribute to earnings as planned, there is a risk of missing profit targets.
• Uncertainty in M&A negotiations: Timing, size, and terms are undecided, and the impact on performance upon execution is unclear.
• Regulatory risks in overseas business: If obtaining U.S. GRAS certification is delayed, North American market expansion may not progress as planned.
• Development risks in the drug discovery pipeline: Progress of pipelines, licensing agreements, and approvals are not guaranteed, and R&D investments may not deliver planned outcomes (explicitly stated as a disclaimer in the materials).
• Changes in the economic and operating environment: Forecasts and outlooks may diverge significantly (explicitly stated as a disclaimer in the materials).
• Delays in addressing capital costs: If improvements in ROE and ROIC do not materialize, divergence from the cost of equity may persist, making it difficult to improve PBR.

Investment Implications

Key Takeaways:

• Revenue grew 7.6% YoY with gross margin at 75.7%, confirming strong unit economics at the gross level.
• Operating loss improved 46.7% YoY but remains sizable at -25.11; EBITDA margin still negative at -15.0%.
• Leverage is high (2.25x D/E) with 114.00 in short-term loans, making liquidity and refinancing key watchpoints.
• OCF positive but minimal (0.35) and FCF estimated at -2.61, indicating continued external funding needs.
• DuPont ROE -20.2% driven by negative margin and high leverage; profitability recovery is necessary to protect equity.

Metrics to Watch:

• SG&A ratio trajectory and advertising spend efficiency (CPA/LTV, repeat rates).
• Operating margin and EBITDA breakeven timing.
• Working capital metrics: inventory turnover and days sales outstanding.
• Cash and short-term debt coverage; refinancing schedules and interest costs.
• Gross margin stability and product mix shifts.
• Clarity on extraordinary items/tax drivers behind PBT-to-NI gap.

Relative Positioning: Within Japan’s health foods/supplement space, PharmaFoods exhibits above-peer gross margins but weaker profitability and higher leverage than larger, established peers. The company appears in a turnaround phase with improving but still negative operating metrics and a more constrained balance sheet.

Supplementary Insights (Key Highlights)

• Advertising and promotion expenses of 11,434 million yen (+43.9% YoY) were the second-largest on a quarterly basis, and new product development has been successful, with cumulative shipments of 690,000 bottles of “Newmo V” in eight months since launch (roughly twice the pace at the time of the original Newmo launch).
• The hair regrowth tonic “Newmo” began distribution across Costco stores nationwide, expanding the distribution channels for in-house brand products following “Sleep Labo” and “Blood Pressure Labo.”
• In the overseas BtoB business, preparations for an FDA application to obtain U.S. GRAS status are progressing smoothly, and adoption of PharmaGABA for supplements and beverages in Thailand has been decided.
• Selected for the Ministry of Agriculture, Forestry and Fisheries (MAFF) “Open Innovation Research and Practical Implementation Promotion Project,” the company established a consortium toward social implementation of a biostimulant for rice cultivation (lead: the company, The University of Tokyo, and the ITOCHU Corporation group).
• Under METI/NEDO’s “Bio-manufacturing Revolution Promotion Project,” the company is advancing research on battery materials and fibers utilizing eggshell membrane. Joint research with Shinshu University succeeded in developing next-generation biomass-derived electrode materials, followed by publication in an international journal and a press briefing.
• Launched joint research with Professor Kohei Tsumoto of The University of Tokyo to establish an AI-enabled antibody drug discovery platform, strengthening competitiveness in antibody therapeutics development.
• Accelerated entry of new-category products into retail channels by launching sales of eyelash serum “WMOA” and cream shampoo “KURUB” at LOFT stores.
• Renewed “Tamagosamin” as a Food with Function Claims, bolstering its value proposition in the joint-care market (cumulative shipments: 8.31 million bags).
• Full-year FY2026 guidance maintained at net sales 68.0 billion yen (+4.0%), operating income 1.5 billion yen (down), and profit attributable to owners of parent 1.0 billion yen (+171%); the company stated it will disclose as appropriate upon execution of M&A.
• As capital cost measures, the company set policies to improve ROE and ROIC by pursuing a balanced financial structure, strengthening CRM, restructuring the business portfolio, and enhancing IR, while stating it will continue 30.0 billion yen of investments.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
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