KAPPA・CREATE CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, the Company fell from an operating profit in the same period of the previous year into a substantial operating loss, as a decline in gross margin and an increase in SG&A expenses compounded the revenue decline. Revenue was ¥17.75B, down 2.4% year on year, while operating income was ¥-0.71B, deteriorating by ¥1.03B from ¥0.32B in the same period of the previous year. Ordinary income was ¥-0.68B (¥0.36B in the previous year), and the quarterly net loss attributable to owners of the parent was ¥0.765B (compared with profit of ¥0.331B in the previous year). The primary factor was deteriorating profitability in the core conveyor-belt sushi business, where a contraction in gross profit exceeding the decline in revenue coincided with reduced fixed-cost absorption.

Factors Affecting Results

【Revenue】Revenue was ¥17.75B, down 2.4% year on year. Revenue declined in both segments: the conveyor-belt sushi business recorded ¥14.53B (down 2.0%), while the delicatessen business recorded ¥3.22B (down 4.2%), confirming weak demand across the Company.

【Profit and Loss】Gross profit was ¥8.95B, down ¥0.62B from ¥9.56B in the same period of the previous year, and the gross margin declined by approximately 2.2pt to 50.4% from 52.6%. SG&A expenses increased 4.4% to ¥9.65B, and the SG&A ratio rose to 54.4% from 50.8%. Consequently, the operating margin deteriorated by approximately 5.8pt from 1.8% in the same period of the previous year to negative 4.0%, resulting in operating income of ¥-0.71B. The conveyor-belt sushi business recorded a segment loss of ¥0.65B, accounting for the core of the consolidated loss, while the delicatessen business also saw its loss widen to ¥0.08B. Impairment loss of ¥0.05B was included in extraordinary losses as a one-time factor, further reducing loss before taxes. This was a decline in revenue and profit driven by deterioration in both costs and fixed expenses.

Segment Analysis

The conveyor-belt sushi business recorded revenue of ¥14.53B (down 2.0% year on year) and a segment loss of ¥0.65B (compared with profit of ¥0.33B in the same period of the previous year), representing a deterioration of slightly less than ¥1.0B year on year. The business is the Company’s core operation, accounting for approximately 82% of consolidated revenue, and its deteriorating profitability has a direct impact on consolidated performance. The delicatessen business recorded revenue of ¥3.22B (down 4.2%) and a segment loss of ¥0.08B (compared with a loss of ¥0.03B in the same period of the previous year), with the loss widening. Both businesses experienced declining revenue and recorded losses, indicating deterioration in the Company-wide earnings structure rather than weakness in a single business.

Key Financial Indicators

【Profitability】The operating margin was negative 4.0%, deteriorating by approximately 5.8pt from 1.8% in the same period of the previous year, while the net margin also declined to negative 4.3% from 1.8%. Deterioration in both the gross margin, at 50.4% (52.6% in the previous year), and the SG&A ratio, at 54.4% (50.8% in the previous year), contributed to the decline.【Cash Quality】Although actual OCF and other data have not been disclosed, retained earnings declined 48.8% year on year to ¥0.80B, indicating that the loss for the period is directly pressuring capital.【Investment Efficiency】Annualized ROE was negative 32.9%, while ROA was equivalent to negative 10.7%, indicating that returns generated on invested capital are substantially below the cost of capital.【Financial Soundness】The equity ratio was 33.3%, down from 35.2% in the same period of the previous year. The current ratio was 98.1%, below 1.0x, and working capital was negative, with current assets of ¥11.41B against current liabilities of ¥11.62B. Total borrowings amounted to ¥6.45B, comprising long-term borrowings of ¥3.95B and ¥2.50B due within one year, a level close to cash and deposits of ¥6.17B.

Cash Flow Analysis

As actual figures from the statement of cash flows were not included in the disclosed data, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased slightly to ¥6.17B from ¥6.03B in the same period of the previous year, while retained earnings declined by ¥0.77B to ¥0.80B from ¥1.57B, indicating that the loss directly reduced internal reserves. Long-term borrowings were ¥3.95B, remaining at the same level as in the same period of the previous year, while long-term borrowings due within one year were also unchanged at ¥2.50B. No significant change was observed in the Company’s external funding structure. Net assets were ¥9.46B, down ¥0.79B from ¥10.24B in the same period of the previous year, indicating that accumulated losses are gradually weakening the capital base.

Earnings Quality

The loss for the period was primarily attributable to recurring factors at the operating level—namely, the decline in gross margin and increase in SG&A expenses—while the impact of extraordinary losses of ¥0.06B, including the one-time impairment loss of ¥0.05B, was limited. Non-operating income included ¥0.06B in dividends received, bringing total income to ¥0.13B, while expenses including ¥0.05B in interest expenses totaled ¥0.10B, resulting in a net gain of ¥0.03B; however, this was insufficient to offset the operating loss of ¥0.71B. Corporate income taxes of ¥0.03B were recognized against a loss before taxes of ¥0.74B, warranting attention as a certain tax burden arose despite the loss. Comprehensive income was ¥-0.78B, broadly in line with the net loss attributable to owners of the parent of ¥0.765B. No significant divergence attributable to valuation differences such as foreign currency translation adjustments was observed, and comprehensive income broadly reflects the underlying profit and loss.

Earnings Forecast and Guidance

The Company’s full-year forecast is revenue of ¥79.84B (up 9.1% from the previous fiscal year), operating income of ¥1.37B (up 156.6%), and ordinary income of ¥1.39B (up 134.2%). Q1 revenue progress was 22.2%, slightly below the simple one-quarter benchmark of 25%. Meanwhile, operating income and ordinary income were negative as of Q1, resulting in negative progress rates on a calculated basis. To achieve the full-year operating income target, approximately ¥2.07B in cumulative operating income will need to be generated over the remaining three quarters, making improvement in gross margin and containment of SG&A expenses relative to revenue from the second half onward prerequisites for achieving the plan. No revision to the earnings forecast was disclosed on this occasion.

Shareholder Returns

The dividend for the fiscal year ending March 2027 is currently undetermined. The Company recorded a quarterly net loss attributable to owners of the parent of ¥0.765B, and retained earnings declined to ¥0.80B. Data on dividends paid and share repurchases have not been disclosed; therefore, the Payout Ratio and Total Return Ratio have not been calculated.

Risk Factors

1. Deterioration in the profitability of the core business: The conveyor-belt sushi business recorded a segment loss of ¥0.65B on revenue of ¥14.53B and is the primary driver of consolidated earnings. Improving the business’s gross profit and fixed-cost structure will be the central challenge in rebuilding the Company as a whole.

2. Reduced short-term liquidity headroom: The current ratio was 98.1%, below 1.0x, and working capital was negative, with current assets of ¥11.41B against current liabilities of ¥11.62B. The Company’s ability to address short-term obligations, including ¥2.50B in long-term borrowings due within one year, requires monitoring.

3. Reduced resilience to interest payment burdens: EBIT was ¥-0.71B due to the operating loss, providing no earnings coverage for interest expenses of ¥0.05B. If the recovery in operating earnings is delayed, the relative weight of the financial burden may increase.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

Profitability was substantially below the industry median, with both operating and net income ranking in the lower tier of the retail industry.

Growth and Capital Efficiency

Revenue growth was also substantially below the industry median, putting the Company outside the industry’s growth trend.

※Source: Company compilation

Key Points from the Financial Results

1. Operating earnings shifted from a profit of ¥0.32B in the same period of the previous year to a loss of ¥0.71B, with the deterioration in profitability occurring on a scale substantially exceeding the 2.4% decline in revenue.

2. The core conveyor-belt sushi business recorded a segment loss of ¥0.65B. Improvement in the business’s gross profit and control of fixed costs will be the central points to monitor in assessing a recovery in consolidated performance.

3. The full-year plan is weighted toward the second half, and operating income progress was negative in Q1. The pace of margin recovery from the next quarter onward will be a key factor in assessing the likelihood of achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥188–¥199 at cost of equity ±1%, and ¥194–¥194 at ω±0.1.

Notes:

• Net assets as of the quarter-end have been used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 as necessary.

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