KOBE BUSSAN (3038) FY2026 Q1 Earnings Report

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Executive Summary

FY2026 Q1 delivered higher revenue and operating income, but Ordinary Income and Net Income declined significantly due to deterioration in non-operating income and expenses. Revenue was ¥1,416.0B (+6.9% YoY) and Operating Income was ¥109.5B (+19.6%), indicating solid performance in the core business, while Ordinary Income was ¥87.6B (-43.5%) and Net Income was ¥59.1B (-44.2%). The primary cause of the earnings decline was the recognition of a ¥32.9B loss on the valuation of derivatives, which must be understood separately from the improvement in core operating profitability.

Factors Affecting Performance

【Revenue】Revenue increased 6.9% YoY to ¥1,416.0B. The Gyomu Super Business, which accounts for 96.3% of consolidated revenue, led the expansion with revenue of ¥1,382.7B (+6.9% YoY), while the Dining and Ready-to-Eat Food Business also posted above-average growth of ¥45.6B (+13.6%). The Eco Renewable Energy Business recorded a 2.3% decline in revenue to ¥9.2B.

【Profit and Loss】Operating Income increased 19.6% YoY to ¥109.5B, and the Operating Margin improved to 7.7% from 6.9% in the prior year. Segment profit in the Gyomu Super Business increased 14.8% YoY to ¥118.8B, leading the earnings growth, while the Eco Renewable Energy Business also turned profitable, recording ¥1.7B. Meanwhile, Ordinary Income declined 43.5% YoY to ¥87.6B due to the recognition of ¥33.4B in non-operating expenses, including a ¥32.9B loss on the valuation of derivatives, and Net Income was ¥59.1B (-44.2% YoY). Extraordinary gains and losses were minimal at a net ¥0.1B, and the declines in Ordinary Income and Net Income were attributable to non-operating financial valuation losses. In conclusion, this quarter exhibited a combination of higher revenue and earnings at the operating level and lower Ordinary Income and Net Income due to financial factors. On an Operating Income basis, the results can be characterized as higher revenue and earnings, whereas on a consolidated bottom-line basis, they represent higher revenue but lower earnings.

Segment Analysis

The Gyomu Super Business recorded external-customer revenue of ¥1,362.9B (+6.8% YoY), accounting for 96.3% of consolidated revenue. Segment profit increased 14.8% YoY to ¥118.8B, and profitability improved, with a profit margin of 8.6% compared with 8.0% in the prior year. The Dining and Ready-to-Eat Food Business recorded revenue of ¥45.6B (+13.6% YoY) and profit of ¥2.9B (+19.6% YoY), securing higher revenue and earnings despite remaining below the Gyomu Super Business, with a profit margin of 6.3%. The Eco Renewable Energy Business posted a 2.3% decline in revenue to ¥9.2B, but turned profitable from a ¥1.8B loss in the prior year, recording profit of ¥1.7B and a profit margin of 18.5%. Company-wide expenses (adjustments) increased to ¥1.39B from ¥1.25B in the prior year, offsetting part of the profit expansion in the core businesses.

Key Financial Indicators

【Profitability】The Operating Margin improved to 7.7% from 6.9% in the same period of the prior year, while the Net Profit Margin declined to 4.2% from 8.0%. The Gross Margin was 12.6%, reflecting the low-margin structure typical of food retail and wholesale businesses.【Cash Flow Quality】Comprehensive Income was ¥6.30B, exceeding Net Income of ¥5.91B, aided by a ¥0.39B improvement in foreign currency translation adjustments.【Investment Efficiency】ROE was 3.7% (on a single-quarter basis), primarily due to the decline in Net Income. Total assets were ¥248.08B, while net assets remained broadly unchanged at ¥161.33B.【Financial Soundness】The Equity Ratio was high at 65.0%, and cash and deposits of ¥121.90B substantially exceeded current liabilities of ¥66.87B. Interest-bearing debt was limited, comprising short-term borrowings of ¥24.12B and long-term borrowings of ¥5.24B, indicating a conservative financial foundation.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is limited, an analysis of funding trends based on movements in the balance sheet shows that cash and deposits were ¥121.90B, slightly down from ¥130.99B in the same period of the prior year. Current assets contracted to ¥172.32B from ¥184.91B in the prior year, while inventories declined slightly to ¥16.99B from ¥17.63B. Short-term borrowings increased substantially to ¥24.12B from ¥3.12B in the prior year, while long-term borrowings decreased significantly to ¥5.24B from ¥27.02B, suggesting that the composition of interest-bearing debt shifted from long-term to short-term borrowings. Overall, the Company maintains ample cash and deposits and a financial position that supports the stability of cash flows generated from operating activities.

Earnings Quality

Operating Income of ¥109.5B indicates the earnings power of the core business, while the gap between Ordinary Income of ¥87.6B and Net Income of ¥59.1B was primarily attributable to deterioration in non-operating income and expenses. Of ¥11.6B in non-operating income, foreign exchange gains accounted for ¥9.2B, while most of the ¥33.4B in non-operating expenses consisted of a ¥32.9B loss on the valuation of derivatives. This valuation loss has a strongly non-recurring character associated with market price fluctuations and should be understood separately from the profitability of the core business. Extraordinary gains and losses were minimal at a net ¥0.1B, making their contribution to changes in Net Income limited. Comprehensive Income was ¥63.0B, exceeding Net Income, with the improvement in foreign currency translation adjustments serving as an uplift factor. Accordingly, while earnings quality on an Operating Income basis improved from the prior year, Ordinary Income and Net Income incorporate volatility from financial instrument valuations, and it is advisable to evaluate the two levels separately when making period-over-period comparisons.

Earnings Forecast and Guidance

The full-year earnings forecast remains unchanged at revenue of ¥5665.0B (+2.7% YoY), Operating Income of ¥430.0B (+7.8%), and Ordinary Income of ¥437.0B (-9.1%). The Q1 achievement rates were 25.0% for revenue and 25.5% for Operating Income, indicating standard quarterly progress, while the achievement rate for Ordinary Income was only 20.0%, somewhat behind the full-year plan. This difference was primarily due to fluctuations in non-operating income and expenses, including the loss on the valuation of derivatives, and normalization of these valuation gains and losses will be key to achieving the full-year plan.

Shareholder Returns

The annual dividend forecast remains unchanged at ¥32.0. The Payout Ratio against forecast full-year EPS of ¥133.24 is approximately 24.0%, indicating substantial capacity for shareholder returns. Retained earnings were ample at ¥151.42B, and dividend sustainability appears high based on the financial foundation. However, since fluctuations in non-operating income and expenses may affect the full-year Net Income forecast, it is advisable to assess Operating Income together with the eventual full-year earnings outcome when evaluating the source of dividend funding.

Risk Factors

1. Financial Instrument Valuation Risk: A ¥32.9B loss on the valuation of derivatives was recorded, reducing Ordinary Income by an amount equivalent to approximately 30.0% of Operating Income. Fluctuations in foreign exchange rates and market prices could continue to cause significant volatility in non-operating income and expenses and Net Income.

2. Business Concentration Risk: The Gyomu Super Business accounts for 96.3% of external-customer revenue, meaning that changes in sales trends and the product procurement environment in this business could have a substantial impact on consolidated results overall.

3. Low Gross Margin Structure Risk: The Gross Margin is low at 12.6%, and the earnings structure is susceptible to fluctuations in procurement prices for imported food products, foreign exchange rates, logistics costs, and price competition, which can affect the Operating Margin.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Net Profit Margin is 3.2pt below the industry median, with deterioration in non-operating income and expenses lowering the Company’s relative industry position.

Growth and Capital Efficiency

The Revenue Growth Rate is 3.1pt above the industry median, indicating that top-line growth is relatively high within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Operating Income increased 19.6% YoY, and the Operating Margin also improved by approximately 0.8pt, indicating solid earnings momentum in the core business, led primarily by the Gyomu Super Business.

2. Ordinary Income and Net Income declined significantly due to the recognition of a ¥32.9B loss on the valuation of derivatives, and the full-year achievement rates for Ordinary Income and Net Income were approximately 20%, below standard levels. Distinguishing between the Operating Income basis and the consolidated bottom-line basis is key to understanding the results.

3. The robust financial foundation, including an Equity Ratio of 65.0% and cash and deposits of ¥121.90B, demonstrates resilience against fluctuations in non-operating income and expenses.

Theoretical Share Price (Reference Value)

Sensitivity: ¥910–¥966 at ±1% for the Cost of Equity, and ¥932–¥947 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, 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 share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings briefing data. It does not recommend investment in any specific security. 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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AI Financial Analysis

Executive Summary

FY2026 Q1 performance was operationally strong, although reported net income declined sharply because a prior-year derivative valuation gain reversed into a substantial current-year valuation loss. Revenue increased 6.9% YoY to ¥141.60bn, while operating income grew materially faster, up 19.6% to ¥10.95bn. Gross profit rose 16.4% to ¥17.82bn, exceeding revenue growth and lifting the gross margin to 12.6% from 11.6%, an expansion of approximately 102bp. Operating margin improved to 7.7% from 6.9%, an approximately 82bp expansion. The operating result demonstrates favorable gross-profit leverage despite SG&A increasing 11.6% YoY to ¥6.88bn, faster than revenue growth. The core Gyomu Super business delivered revenue growth of 6.8% and segment-profit growth of 14.9%. Foodservice and prepared-meal operations also outperformed on both sales and profit growth. Eco-recycled energy returned to segment profitability, contributing ¥0.17bn versus a ¥1.78bn loss in the prior-year quarter. In contrast, ordinary income fell 43.5% to ¥8.76bn and net income decreased 44.2% to ¥5.91bn. The principal reason was a ¥3.29bn loss on valuation of derivatives within non-operating expenses, compared with a ¥4.94bn derivative valuation gain in the prior-year quarter. FX gains of ¥0.92bn partially offset this derivative-related pressure. Consequently, net margin compressed to 4.2% from approximately 8.0%, a decline of about 382bp, despite the operating-margin expansion. Annualized ROE was 14.7%, placing capital returns in the upper end of the good range, supported by annualized asset turnover of 2.283x and moderate financial leverage of 1.54x. The balance sheet remains highly liquid, with ¥121.90bn of cash and deposits, a 257.7% current ratio, and cash equal to 5.06x short-term borrowings. Total interest-bearing debt was essentially unchanged YoY at ¥29.36bn, but the maturity profile shifted decisively toward short-term funding. Q1 revenue progress was 25.0% of full-year guidance and operating-income progress was 25.5%, broadly consistent with a normal first-quarter run rate. Ordinary-income and net-income progress, at 20.1% and 20.0% respectively, trail the 25% reference level because Q1 derivative valuation losses reduced below-operating-line earnings. The maintained full-year forecast implies management expects the operating improvement to continue, while full-year ordinary income is forecast to decline 9.1% YoY. The key forward implication is that underlying retail and segment profitability are improving, but reported earnings retain sensitivity to derivative mark-to-market movements and the timing of their reversal.

Profitability Analysis

The annualized DuPont ROE of 14.7% is decomposed into a 4.2% net profit margin, 2.283x annualized asset turnover, and 1.54x financial leverage. Asset turnover is the principal structural strength: the high-volume wholesale and retail format generates substantial sales relative to the asset base, while leverage remains moderate rather than aggressive. The largest YoY movement in the earnings chain was the net-profit margin, which contracted by roughly 382bp despite operating-margin expansion. Gross margin increased by approximately 102bp to 12.6%, while operating margin improved by about 82bp to 7.7%, indicating that merchandise profitability more than offset higher operating expenses. SG&A increased 11.6% YoY, versus 6.9% revenue growth, and the SG&A-to-sales ratio rose to 4.9% from 4.7%; this is a cost-pressure item to monitor, although it did not prevent operating leverage in Q1. The gap between operating income of ¥10.95bn and ordinary income of ¥8.76bn was driven primarily by the ¥3.29bn derivative valuation loss, partly mitigated by ¥0.92bn of FX gains. The five-factor profile shows a tax burden of 0.673, consistent with the 32.7% effective tax rate, and an interest burden of 0.802. The interest-burden decline does not reflect cash interest stress, as interest expense was only ¥0.01bn and interest coverage was 1,094.5x; rather, it reflects non-operating derivative valuation losses. The current 4.2% net margin therefore understates the Q1 operating earnings trajectory. Sustainability of the operating-margin improvement depends on continued gross-margin discipline and containment of SG&A growth relative to sales.

Growth Assessment

Revenue growth of 6.9% was led by the Gyomu Super segment, where external revenue increased ¥8.68bn to ¥136.29bn. Gyomu Super is the core business by segment-profit contribution, generating ¥11.88bn of segment profit, or the overwhelming majority of pre-corporate-cost segment earnings. Its segment margin improved to 8.7% from 8.1%, with segment profit rising 14.9% YoY. Foodservice and prepared-meal revenue rose 13.4% to ¥4.38bn and segment profit increased 19.6% to ¥0.29bn; its 6.6% margin remained below the core business margin. Eco-recycled energy revenue declined 2.3% to ¥0.92bn, but segment profit turned positive at ¥0.17bn from a ¥1.78bn loss, producing the highest segment margin at 18.5%. Corporate costs increased 11.3% to ¥1.39bn, absorbing part of the segment-level improvement. Full-year revenue guidance of ¥566.50bn implies 2.7% YoY growth, and Q1 progress of 25.0% is aligned with the standard seasonal benchmark. Operating-income progress of 25.5% against the ¥43.00bn full-year forecast is also slightly ahead of the standard Q1 reference point. Ordinary income reached 20.1% of the ¥43.70bn forecast, while net income reached 20.0% of the ¥29.50bn forecast. The divergence between operating progress and below-operating-line profit progress highlights that forecast delivery will be influenced by derivative valuation movements, in addition to core sales and gross-margin performance.

Financial Health

Liquidity is strong, with current assets of ¥172.32bn against current liabilities of ¥66.87bn, producing a current ratio of 257.7%. The quick ratio of 232.3% confirms that liquidity is supported predominantly by cash and receivables rather than inventories. Cash and deposits of ¥121.90bn account for 49.1% of total assets and exceed short-term loans of ¥24.12bn by 5.06x. Working capital was ¥105.45bn, providing a substantial liquidity buffer. Debt-to-equity was a conservative 0.54x, while debt-to-capital was 15.4%, both well within investment-grade-style covenant benchmarks. Interest-bearing debt of ¥29.36bn represents a modest proportion of the ¥161.33bn equity base. Interest coverage of 1,094.5x indicates negligible cash interest-servicing pressure. The principal balance-sheet risk is refinancing concentration: 82.1% of debt is short term, materially above the 40% warning threshold. Short-term loans increased from ¥3.12bn to ¥24.12bn, while long-term loans fell from ¥27.02bn to ¥5.24bn; aggregate interest-bearing debt was essentially flat, indicating a maturity reclassification or refinancing-profile shift rather than a major expansion in gross indebtedness. This raises rollover dependence, but the risk is substantially mitigated by cash of ¥121.90bn and the 5.06x cash-to-short-term-debt ratio. Total liabilities declined to ¥86.74bn from ¥98.79bn, while equity was broadly stable at ¥161.33bn. Intangible assets represented only 0.7% of total assets, limiting balance-sheet dependence on acquired intangible values. Asset retirement obligations totaled ¥1.89bn and should remain part of long-term fixed-asset obligation monitoring.

Notable B/S Changes

Short-term loans: +¥21.00bn (+674.2%) to ¥24.12bn — debt maturity concentration increased substantially, creating refinancing sensitivity despite cash coverage of 5.06x. Long-term loans: -¥21.78bn (-80.6%) to ¥5.24bn — the reduction broadly offsets the rise in short-term loans, indicating a significant shift in the debt maturity profile rather than higher aggregate leverage.

Cash Flow Quality

The Q1 earnings-quality assessment is centered on the distinction between operating profitability and non-operating valuation effects. Operating income increased 19.6% YoY to ¥10.95bn, supported by a ¥2.51bn increase in gross profit. Net income of ¥5.91bn was lower than operating performance would suggest because non-operating expenses included a ¥3.29bn loss on valuation of derivatives. The prior-year quarter included a ¥4.94bn derivative valuation gain, making the YoY net-income decline largely a mark-to-market comparison effect rather than an equivalent deterioration in core trading profitability. FX gains of ¥0.92bn provided only a partial offset. Extraordinary items were immaterial, with ¥0.18bn of extraordinary income and ¥0.04bn of fixed-asset disposal losses. The ¥2.19bn gap between operating income and ordinary income warrants continued monitoring because derivative valuation outcomes can create material volatility in reported earnings. Inventory declined 3.6% YoY to ¥16.99bn while revenue increased 6.9%, which does not indicate inventory accumulation pressure. Trade receivables declined 8.9% YoY to ¥27.53bn, also favorable relative to sales growth. Trade payables declined 17.5% YoY to ¥31.39bn, a movement that may reduce supplier-financing support for working capital but remains comfortably covered by the cash position.

Dividend Sustainability

The full-year dividend forecast is ¥32.00 per share, with no dividend revision disclosed. Based on forecast EPS of ¥133.24, the implied dividend payout ratio is approximately 24.0%. This is well below the 60% sustainability benchmark and leaves substantial earnings retention capacity. The Q1 basic EPS of ¥26.66 represents 20.0% of forecast full-year EPS, reflecting the derivative valuation loss rather than the stronger operating-income trajectory. Equity of ¥161.33bn and retained earnings of ¥151.42bn provide a substantial capital base supporting shareholder distributions. The conservative payout ratio, low debt-to-capital ratio of 15.4%, and large cash balance support the stated distribution level. Dividend coverage should nevertheless be evaluated alongside the eventual realization or reversal of derivative valuation effects because these affect reported profit and distributable earnings.

Risk Assessment

Business risks include Gross-margin risk: the 12.6% gross margin is below the 20% cross-industry benchmark. A low-margin wholesale and value-retail model requires sustained purchasing discipline, logistics efficiency, and price management because modest changes in procurement costs or selling prices can have an outsized effect on profit., Consumer and competitive risk: the core Gyomu Super operation relies on maintaining customer traffic and value positioning amid food-price inflation, private-label competition, and competing discount retailers., Energy-business variability: Eco-recycled energy returned to profitability despite a 2.3% revenue decline, so the durability of its ¥0.17bn segment profit should be tested across changes in energy prices, operating utilization, and input costs., Foreign-exchange and procurement exposure: Q1 included ¥0.92bn of FX gains, illustrating that currency movements can influence reported results and imported-product economics..

Financial risks include Refinancing risk: the short-term debt ratio of 82.1% exceeds the 40% warning threshold. The sharp shift from long-term to short-term loans increases rollover concentration even though total debt remained stable., Derivative valuation risk: the ¥3.29bn loss on valuation of derivatives was large relative to Q1 operating income and was the principal cause of the decline in ordinary and net income., Working-capital funding risk: trade payables fell ¥6.63bn YoY, reducing supplier-credit funding; however, this is currently mitigated by ¥121.90bn of cash and very strong quick liquidity..

Key concerns include Likelihood: high; impact: high — derivative mark-to-market volatility can continue to create a wide gap between operating performance and reported net income., Likelihood: medium; impact: medium — SG&A grew 11.6%, faster than revenue, and further cost escalation could dilute the operating-margin improvement., Likelihood: medium; impact: medium — the short-term borrowing concentration requires active treasury management despite the substantial cash buffer., Likelihood: medium; impact: high — the low gross-margin model has limited room for error if procurement, logistics, labor, or competitive pricing conditions worsen..

Investment Implications

Key takeaways include Core operating momentum was favorable: revenue grew 6.9%, operating income grew 19.6%, and operating margin expanded approximately 82bp to 7.7%., Gyomu Super remains the primary earnings engine, contributing ¥11.88bn of segment profit and improving its segment margin to 8.7%., Reported net income fell 44.2% primarily because a prior-year derivative valuation gain became a current-year ¥3.29bn valuation loss., The balance sheet is liquid and conservatively capitalized, with a 257.7% current ratio, 0.54x debt-to-equity, and ¥121.90bn of cash., Q1 operating-income progress of 25.5% is consistent with the full-year operating forecast, whereas 20.0% net-income progress reflects non-operating volatility..

Metrics to watch include Gyomu Super revenue growth and segment-profit margin, Gross margin and SG&A-to-sales ratio, Derivative valuation gains or losses and FX effects within non-operating income, Short-term borrowing balance, refinancing schedule, and cash-to-short-term-debt coverage, Eco-recycled energy segment profitability following its return to positive earnings, Progress toward full-year ordinary-income and net-income forecasts.

Regarding relative positioning, The company combines high annualized asset turnover of 2.283x, a solid annualized ROE of 14.7%, and a conservative capital structure. Its 7.7% operating margin is within the good benchmark range but reflects a structurally low 12.6% gross-margin business model. Relative earnings resilience rests on the scale and profitability of Gyomu Super, while comparability of reported net income is reduced by derivative valuation volatility.