PICKLES HOLDINGS (2935) FY2027 Q1 Earnings Report

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Executive Summary

Despite a decline in revenue, the Company secured higher profit through an improved cost ratio, making this quarter’s results notable for a qualitative improvement in its earnings structure. Revenue was ¥10.50B (-4.9% YoY), Operating Income was ¥0.70B (+12.5%), Ordinary Income was ¥0.71B (+12.2%), and Net Income attributable to owners of the parent was ¥0.47B (+11.6%). The primary factor behind the increase in profit was the 7.5% decline in cost of sales, which was compressed at a faster pace than the decline in revenue. As a result, the gross margin improved to 23.4% from 21.3% in the same period of the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥10.50B, down 4.9% YoY. The Company operates a single segment focused on the manufacture and sale of pickled foods, and therefore a factor decomposition by segment is not available. However, weakness in one or more of sales volume, pricing, and product mix appears to have contributed to the decline.

【Profit and Loss】Cost of sales was ¥8.04B, down 7.5% YoY, and was compressed at a faster pace than the decline in revenue. Consequently, the gross margin improved to 23.4% from 21.3% in the previous year, while the SG&A expense ratio was largely flat at 16.8%. The Operating Income margin rose to 6.6% from 5.6% in the previous year. As the impact of non-operating and extraordinary gains and losses was limited, Ordinary Income and Net Income also increased by double digits. The Company achieved higher profit despite lower revenue, with the increase driven by cost control rather than SG&A reductions.

Segment Analysis

The Group operates a single segment, the Pickled Foods Manufacturing and Sales Business, and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.6%, improving by approximately 1.0pt from 5.6% in the same period of the previous year, while the Net Income margin rose by approximately 0.7pt to 4.5% from 3.8%. The primary factor behind the improvement was the expansion of the gross margin from 21.3% to 23.4%; the SG&A expense ratio was largely flat at 16.8%.【Cash Flow Quality】Comprehensive income was ¥0.41B, below Net Income of ¥0.47B, primarily due to a negative ¥0.06B valuation difference on securities.【Investment Efficiency】Annualized ROE was 9.3%, consisting of a 4.5% Net Income margin, total asset turnover of 1.36x, and financial leverage of 1.52x.【Financial Soundness】The Equity Ratio remained high at 65.6% (65.1% in the previous year), while interest-bearing debt of ¥2.74B was limited relative to net assets of ¥20.30B.

Cash Flow Analysis

Cash and deposits were ¥5.98B, slightly down from ¥6.21B in the same period of the previous year. Accounts payable increased 27.4% from ¥2.91B to ¥3.71B, while short-term borrowings increased 75.0% from ¥0.40B to ¥0.70B, indicating expanding funding needs related to working capital. Meanwhile, current assets of ¥12.52B exceeded current liabilities of ¥7.36B by ¥5.15B, and the current ratio was 170.0%, indicating ample short-term liquidity. Long-term borrowings decreased from ¥2.31B in the same period of the previous year to ¥2.04B, and interest-bearing debt overall remained at a conservative level.

Earnings Quality

The increase in profit during the quarter was primarily attributable to recurring earnings improvement resulting from a lower cost-of-sales ratio, while the contribution of one-time factors was minimal, with extraordinary income of ¥0.001B and extraordinary losses of ¥0.0B. Non-operating gains and losses were also small, consisting of non-operating income of ¥0.02B and non-operating expenses of ¥0.01B; accordingly, Ordinary Income remained at a level that largely reflected Operating Income. However, comprehensive income of ¥0.41B was below Net Income of ¥0.47B, and the negative ¥0.06B valuation difference on securities partially offset the increase in net assets through other comprehensive income. This indicates a certain divergence between accounting Net Income and economically driven changes in asset values.

Earnings Forecast and Guidance

Q1 progress against the Full-Year forecast was 25.6% for revenue (forecast: ¥41.00B), 38.2% for Operating Income (forecast: ¥1.82B), and 38.2% for Ordinary Income (forecast: ¥1.86B), with profit progress substantially exceeding the standard 25%. However, the Full-Year forecast assumes a decline in profit, with Operating Income projected to decrease 12.7% from the previous fiscal year and Ordinary Income projected to decrease 13.4%. Therefore, the forecast does not assume that Q1’s high profit margins will continue unchanged throughout the year. The Company may be anticipating increased cost burdens for raw materials, logistics, and labor, or changes in the sales mix, during the second half of the fiscal year. It would therefore be inappropriate to evaluate Q1 results simply by annualizing them. There were no revisions to either the earnings forecast or the dividend forecast during the quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥29.0 per share, an increase from ¥15.0 in the previous year (combined interim and year-end dividends). The Payout Ratio against forecast Full-Year EPS of ¥98.33 is approximately 29.5%, below the commonly cited sustainability benchmark of 60%. Retained earnings were substantial at ¥17.15B, providing a financial foundation that facilitates balancing retained earnings with shareholder returns. There was no revision to the dividend forecast during the quarter.

Risk Factors

1. Dependence on a Single Business: The Company operates a single segment focused on the manufacture and sale of pickled foods, and revenue declined 4.9% YoY during the quarter. Consumer trends and demand fluctuations in the core category are directly reflected in consolidated performance, making the sustainability of a recovery in the top line a key point of focus.

2. Risk of a Higher Cost Ratio: The cost-of-sales ratio was 76.5%, exceeding the general upper-limit benchmark of 75% for the food and beverage industry. If the Company is unable to pass increases in the costs of agricultural products, seasonings, packaging materials, energy, and logistics on to customers, the gross margin, which improved to 23.4% during the quarter, could reverse.

3. Changes in Working Capital-Related Items: Accounts payable increased 27.4% YoY to ¥3.71B, while short-term borrowings increased 75.0% YoY to ¥0.70B. Although cash and deposits of ¥5.98B provide ample coverage, changes in purchasing terms and working capital requirements should be monitored continuously.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (food_beverage)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, placing the Company in a relatively favorable position within the industry in terms of profitability.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, indicating that the Company lagged its industry peers in terms of top-line growth.

※Source: Company research

Key Points from the Financial Results

1. While revenue declined 4.9%, cost of sales was compressed by 7.5%, improving the Operating Income margin to 6.6%. The increase in profit despite lower revenue resulted from the effects of cost management, indicating that improvements in the cost structure contributed to performance irrespective of whether sales volume recovered.

2. The Company’s Full-Year forecast assumes a 12.7% decline in Operating Income from the previous fiscal year, while Q1 profit progress was high at 38.2%. The Company appears to be assuming a deterioration in the earnings environment toward the second half of the fiscal year. How the gap between Q1 results and the Full-Year plan converges going forward is a key point in the financial results data.

3. With an Equity Ratio of 65.6%, a current ratio of 170.0%, and interest-bearing debt equivalent to approximately 13.5% of net assets, the Company’s financial position remains conservative. Increases in accounts payable and short-term borrowings signal changes in working capital, and their future trends will warrant monitoring.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,434–¥1,517 at ±1% for the cost of equity, and ¥1,470–¥1,477 at ±0.1 for ω.

Notes:

• Because Net Income progress against the Full-Year forecast (38%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; adjustments 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 end of the quarter are used (there is a time gap relative to the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Model: Residual Income Model (Ohlson-type with an explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee the future stock price.)

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This report is an earnings analysis document automatically generated by AI based on 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 discretion and responsibility, after consulting a professional as necessary.

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