KITABO (3409) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, the operating loss expanded amid declining revenue, with deterioration in the earnings structure being the key issue. Revenue was ¥1.203B (¥1.216B in the same period of the previous year, YoY -1.0%), Operating Income was ¥-0.057B (¥-0.035B in the same period of the previous year), Ordinary Income was ¥-0.053B (¥-0.027B in the same period of the previous year), and Net Income was ¥-0.055B (¥-0.031B in the same period of the previous year). Although the gross margin improved to 16.2% from 14.6% in the same period of the previous year, the 19.0% increase in SG&A expenses was the primary cause of the deterioration in operating results.

Factors Affecting Performance

【Revenue】Revenue was ¥1.203B, down 1.0% year on year. By segment, the Textile Business remained the core business at ¥0.535B in revenue (44.5% composition ratio, down 10.5% year on year), but revenue declined. The Healthcare Business generated ¥0.256B in revenue (21.2% composition ratio, up 64.9%), while the Recycling Business generated ¥0.199B (16.5% composition ratio, up 20.7%), both posting revenue growth. The Spinning Business recorded ¥0.252B in revenue (20.9% composition ratio, down 15.6%), while the newly established Crypto Management Business recorded negative revenue of ¥-0.038B.

【Profit and Loss】The gross margin improved to 16.2% from 14.6% in the same period of the previous year; however, SG&A expenses increased 19.0% year on year to ¥0.252B, more than offsetting the benefit of the gross-margin improvement. Total segment profit was secured at ¥0.065B, but the adjustment for corporate expenses and other items deteriorated to negative ¥0.123B (negative ¥0.105B in the same period of the previous year), which was the primary cause of the consolidated operating loss. The Spinning Business turned from a profit in the same period of the previous year to a loss of ¥0.004B, while the newly established Crypto Management Business also recorded a loss of ¥0.047B. Non-operating income included foreign exchange gains of ¥0.006B and other items, but interest expenses of ¥0.009B were a burden, resulting in an Ordinary Loss of ¥0.053B. The recognition of income taxes and other taxes of ¥0.003B resulted in a Net Loss of ¥0.055B, exceeding the Ordinary Loss. In conclusion, the company recorded declines in both revenue and profit.

Segment Analysis

The Textile Business generated revenue of ¥0.535B (down 10.5% year on year) and segment profit of ¥0.063B (down 16.2%), with a profit margin of 11.7%, and continues to be the core contributor to earnings. The Healthcare Business generated revenue of ¥0.256B (up 64.9%) and segment profit of ¥0.030B (6.2 times the previous year), delivering substantial profit growth and making the largest contribution. The Recycling Business generated revenue of ¥0.199B (up 20.7%) and segment profit of ¥0.023B, turning profitable from a loss of ¥0.020B in the same period of the previous year. The Spinning Business generated revenue of ¥0.252B (down 15.6%), while segment profit fell from a profit of ¥0.011B to a loss of ¥0.004B. The newly established Crypto Management Business recorded negative revenue of ¥-0.038B and a segment loss of ¥0.047B, making it a factor behind earnings volatility during the current period. Against total segment profit of ¥0.065B, the adjustment for corporate expenses and other items of negative ¥0.123B was the primary cause of the consolidated operating loss, indicating that improvements in individual businesses have not been sufficient to absorb corporate expenses.

Key Financial Indicators

【Profitability】The Operating Income margin deteriorated to -4.7% from -2.9% in the same period of the previous year, while the Net Income margin also declined to -4.6% from -2.6%. The gross margin improved to 16.2% from 14.6% in the same period of the previous year, but the SG&A ratio rose to 21.0%, with the heavy cost structure being the primary cause of the deterioration in profit margins.【Cash Flow Quality】Cash and deposits were ¥0.347B, down 32.4% from ¥0.513B in the same period of the previous year, indicating weak cash-generation capacity amid continuing losses.【Investment Efficiency】Annualized ROE was -5.6%, while the Equity Ratio was 60.1% (53.4% in the same period of the previous year). Although net assets increased to ¥1.343B due to capital reinforcement and other factors, capital efficiency remains low because of the recorded loss.【Financial Soundness】The Equity Ratio improved to 60.1% from the same period of the previous year; however, tangible fixed assets (¥1.07B, including land of ¥0.964B) account for the majority of total assets. The interest burden under operating-loss conditions (interest expenses of ¥0.009B) therefore warrants monitoring from the perspective of financial cost resilience.

Cash Flow Analysis

As the company does not disclose a statement of cash flows, fund movements can be assessed based on changes in the balance sheet. Cash and deposits declined by ¥0.166B (32.4%), from ¥0.513B in the same period of the previous year to ¥0.347B. In addition to the recognition of a Net Loss of ¥0.055B, accounts receivable increased to ¥0.251B (up ¥0.024B year on year) and inventories increased to ¥0.129B (up ¥0.023B), indicating that working capital increased. Weak cash-generation capacity through operating activities and the accumulation of working capital are considered to have contributed to the decline in cash. Accounts payable also increased to ¥0.078B (up ¥0.013B), but this was insufficient to offset the increases in accounts receivable and inventories. Short-term borrowings were ¥0.312B, unchanged from the same period of the previous year, while long-term borrowings declined to ¥0.140B. Although there was no significant change in the composition of interest-bearing debt, funding flexibility has declined from the same period of the previous year due to the reduction in the cash balance.

Quality of Earnings

The current-period loss was primarily attributable to recurring deterioration in the profitability of the core business, while the impact of extraordinary gains and losses was limited. Extraordinary income consisted solely of a gain on the sale of fixed assets of ¥0.004B, making its contribution to the loss before taxes of ¥0.053B limited. Non-operating income of ¥0.017B included foreign exchange gains of ¥0.006B and dividend income of ¥0.005B, which contain volatile elements that cannot readily be regarded as recurring earnings based on underlying business strength. Meanwhile, interest expenses of ¥0.009B constituted the main component of non-operating expenses and pressured profit as a recurring financial cost. Accounts receivable and inventories increased despite the decline in revenue, raising some concern regarding earnings quality from an accruals perspective. Against a loss before taxes of ¥0.053B, the recognition of income taxes and other taxes of ¥0.003B resulted in a Net Loss of ¥0.055B, exceeding the loss before taxes and further reducing earnings quality during the loss-making period.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥2.002B (up +22.5% year on year), Operating Income of ¥0.017B, Ordinary Income of ¥0.023B, and Net Income of ¥0.016B, with no forecast revision during the current quarter. The progress rate for cumulative revenue of ¥1.203B was only 60.1%, below the standard quarterly progress benchmark of approximately 75%. Achieving the full-year forecast will require approximately ¥0.798B in revenue and approximately ¥0.075B in Operating Income in Q4, equivalent to a profit margin of approximately 9.4%. However, all cumulative profit figures remain negative, and substantial earnings improvement in Q4 is a prerequisite for achieving the plan.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0, indicating that the no-dividend policy continues. As the company recorded a cumulative Net Loss of ¥0.055B, the Payout Ratio cannot be calculated because there is no profit serving as the basis for the calculation. The no-dividend policy can be viewed as a response to the financial situation, including the operating loss and the 32.4% year-on-year decline in cash and deposits. No data on share buybacks has been disclosed.

Risk Factors

1. Declining revenue in the core business and the Spinning Business turning loss-making: Revenue in the Textile Business declined 10.5% year on year, while segment profit declined 16.2%, indicating weakening profitability in the core business, which accounts for 44.5% of consolidated revenue. The Spinning Business experienced a 15.6% decline in revenue and fell from a profit of ¥0.011B to a loss of ¥0.004B.

2. Losses in the newly established Crypto Management Business: Established from Q3 of the current fiscal year, this business recorded negative revenue of ¥-0.038B and a segment loss of ¥0.047B, creating an earnings volatility factor due to price fluctuations and the lack of an established business model.

3. Declining resilience to financial costs: Interest expenses of ¥0.009B were incurred against an Operating Loss of ¥0.057B, meaning that interest payments could not be absorbed by Operating Income. Cash and deposits declined 32.4% year on year, and liquidity trends must be monitored together with the company’s dependence on short-term liabilities, including short-term borrowings of ¥0.312B.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is substantially below the industry median, with both Operating Income and Net Income margins in negative territory and ranking in the lower tier of the industry.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, indicating relatively weak growth compared with other companies in the industry, which is generally on an upward revenue trend.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Although the gross margin improved by approximately 1.6 percentage points year on year, the 19.0% increase in SG&A expenses caused the Operating Income margin to deteriorate by approximately 1.9 percentage points. The benefit of cost-side improvement was offset by an increase in fixed costs.

2. The Healthcare Business and Recycling Business achieved revenue growth and profit growth or a return to profitability, demonstrating partial improvement in the portfolio. However, these gains were outweighed by declining revenue in the core Textile Business, the Spinning Business turning loss-making, and losses in the newly established Crypto Management Business, resulting in declines in both consolidated revenue and profit.

3. Progress against the full-year company forecast of revenue of ¥2.002B and Operating Income of ¥0.017B was only 60.1% for revenue, requiring profit generation in Q4 substantially exceeding cumulative results. The gap between the plan and actual results is a key point of focus in the financial results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥34–¥35 at Cost of Equity ±1%, and ¥34–¥35 at ω ±0.1.

Notes:

• Since forecast ROE is below the Cost of Equity, the theoretical value is below Net Assets per Share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because 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: 2026-08 / Mechanically calculated value based solely on publicly disclosed data; it 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 based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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