KAPPA・CREATE (7421) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative Q3 results recorded higher revenue but lower earnings, with persistently high SG&A expenses placing significant pressure on profitability. Revenue was nearly unchanged at ¥5.501B (¥5.502B in the previous year, flat YoY), while Operating Income declined substantially to ¥0.044B (¥0.076B in the previous year, -41.6% YoY), Ordinary Income to ¥0.049B (-37.6%), and Net Income to ¥0.035B (¥0.070B in the previous year, -49.4% YoY). The primary cause of the decline in Operating Income was the persistently high SG&A ratio of 51.0%, despite gross profit remaining almost flat.

Factors Affecting Results

【Revenue】Revenue was ¥5.501B, almost flat year on year (+0.0%). By segment, the Conveyor-Belt Sushi Business accounted for ¥4.448B (approximately 81% of total revenue), while the Delica (Vender) Business accounted for ¥1.080B. Revenue from the Conveyor-Belt Sushi Business decreased slightly from the previous year, while the Delica Business recorded a slight increase in revenue.

【Profit and Loss】Gross profit was ¥2.851B (gross profit margin of 51.8%), remaining almost flat from the previous year. However, SG&A expenses remained high at ¥2.807B (SG&A ratio of 51.0%), compressing Operating Income to ¥0.044B. Segment profit declined year on year in both businesses, to ¥0.042B for the Conveyor-Belt Sushi Business and -¥0.003B for the Delica Business. Ordinary Income was supported by ¥0.033B in non-operating income, including ¥0.008B in dividend income, but remained at ¥0.049B. Profit Before Tax after deducting ¥0.001B in extraordinary losses was ¥0.049B, while Net Income was ¥0.035B. Profit margins declined while revenue was maintained, classifying the results as higher revenue but lower earnings.

Segment Analysis

The Conveyor-Belt Sushi Business recorded revenue of ¥4.448B (¥4.448B in the previous year, almost flat) and segment profit of ¥0.042B (¥0.078B in the previous year), representing a substantial decline in profit. The Delica (Vender) Business increased revenue to ¥1.080B (¥1.018B in the previous year, +6.1%), but segment profit remained negative at -¥0.003B (-¥0.007B in the previous year). The decline in profitability of the core Conveyor-Belt Sushi Business pushed down overall profit. Although the Delica Business is on a revenue growth trend, it has not yet achieved profitability.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 0.8% from the previous year's equivalent 1.4%, while the Net Income margin was 0.7%, also down year on year. ROE (annualized) was 4.3%. Under DuPont analysis, this comprises a Net Income margin of 0.7% × total asset turnover of 1.73x × financial leverage of 2.9x, with the low profit margin suppressing the ROE level. 【Cash Quality】Although Operating Cash Flow (OCF) has not been disclosed, inventories increased +23.2% from ¥0.045B in the same period of the previous year to ¥0.055B, making inventory turnover and working capital trends areas to monitor. 【Investment Efficiency】Fixed assets totaled ¥1.827B, including ¥1.304B in property, plant and equipment. Combined with the low Operating Income margin, the efficiency of invested capital remains at a level with room for improvement. 【Financial Soundness】The Equity Ratio was 34.5% (almost flat from 34.9% in the previous year), the current ratio was approximately 109.9%, and long-term borrowings were ¥0.510B. Interest coverage (EBIT/interest expense) remained at approximately 2.8x.

Cash Flow Analysis

As detailed disclosure of the statement of cash flows is unavailable, funding trends are assessed based on changes in the balance sheet. Cash and deposits totaled ¥0.747B, down from ¥0.794B in the same period of the previous year, while long-term borrowings increased to ¥0.510B from ¥0.465B in the previous year. Inventories increased +23.2%, while accounts payable and notes payable increased to ¥0.437B from ¥0.373B in the previous year, indicating that both higher inventories and higher trade liabilities coexisted in terms of working capital. Tangible fixed assets totaled ¥1.304B, up from ¥1.230B in the previous year, suggesting that capital investment has continued. The decline in cash balances and increase in borrowings suggest that investment activities have continued despite the lower earnings level.

Earnings Quality

Ordinary Income of ¥0.049B was calculated by adding non-operating income of ¥0.033B, including ¥0.008B in dividend income and ¥0.001B in foreign exchange gains, to Operating Income of ¥0.044B and deducting non-operating expenses of ¥0.028B, mainly consisting of ¥0.016B in interest expenses. Extraordinary losses were limited to ¥0.001B in losses on disposal of fixed assets, and the impact of one-time factors was limited. Net Income was ¥0.035B after deducting ¥0.013B in income taxes and other taxes from Profit Before Tax of ¥0.049B, resulting in an effective tax rate of approximately 27%, with no significant change from the previous year. Comprehensive Income was ¥0.035B, almost equal to Net Income. The impact of valuation items such as foreign currency translation adjustments and valuation differences on securities was limited, and the small divergence between Net Income and Comprehensive Income indicates no significant distortion in earnings quality.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥8.012B (+9.4% from the previous fiscal year), Operating Income of ¥0.195B (+36.1%), Ordinary Income of ¥0.190B (+29.6%), and EPS of ¥29.28. Cumulative Q3 Revenue of ¥5.501B represents 68.7% of the full-year forecast, while Operating Income of ¥0.044B represents 22.6% of the full-year forecast. These progress rates presuppose substantial improvement in both Operating Income and Ordinary Income during the second half. No revisions have been made to the earnings forecast or dividend forecast.

Shareholder Returns

The dividend for the fiscal year ending March 2026 is currently undecided. The interim dividend for the period (Q2) was zero, and further disclosure, including the level of the year-end dividend, is awaited. Given the substantial decline in Net Income, the Payout Ratio should be monitored because its level will vary depending on the year-end dividend decision and full-year Net Income results.

Risk Factors

1. Profitability decline risk: The Operating Income margin fell to 0.8%, mainly due to the persistently high SG&A ratio of 51.0%. If structural improvements in SG&A expenses do not progress, recovery in operating leverage will remain limited.

2. Inventory increase risk: Inventories increased +23.2% year on year (¥0.045B→¥0.055B), making a decline in inventory turnover and the potential recognition of valuation losses matters to monitor.

3. Interest burden and second-half progress risk: Interest coverage (EBIT/interest expense) remained at approximately 2.8x, leaving limited room to absorb the interest burden. In addition, achieving the full-year forecast requires approximately 77% of full-year Operating Income to be earned in the second half, necessitating progress monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median, indicating that profitability is relatively low within the industry.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. While Revenue remained almost flat, the persistently high SG&A ratio caused the Operating Income margin to decline substantially from the previous year, indicating a change in the earnings structure.

2. Although the Delica (Vender) Business is on a revenue growth trend, it continues to record an operating loss, and the earnings structure remains dependent on the Conveyor-Belt Sushi Business.

3. Cumulative Q3 progress against the full-year forecast was low at 22.6% based on Operating Income, making second-half performance a key determinant of whether the full-year figures will be achieved.

Theoretical Share Price (Reference Value)

Sensitivity: ¥240–¥254 at ±1% for the cost of equity, and ¥246–¥248 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 using only publicly disclosed data; this 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 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 a professional advisor as necessary.

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