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

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Executive Summary

In Q1, in addition to a decline in revenue, operating income and net income fell into the red, with the sharp deterioration in the earnings structure being the primary focus. Revenue was ¥17.75B (¥18.19B in the previous year, -2.4% YoY), operating income was ¥-0.71B (¥0.32B in the previous year, -319.6%), ordinary income was ¥-0.68B (¥0.36B in the previous year, -287.6%), and net income was ¥-0.78B (¥0.33B in the previous year, -337.6%). The primary factors were a decline in the gross margin (50.4%, compared with 52.6% in the previous year) and negative operating leverage resulting from a 4.4% increase in SG&A expenses despite the decline in revenue.

Factors Affecting Results

【Revenue】Revenue was ¥17.75B, representing a 2.4% YoY decline. The core Conveyor-Belt Sushi Business recorded revenue of ¥14.53B (-2.0%), while the Delicatessen Business recorded revenue of ¥3.34B (-2.7%), with both segments reporting declines. Weak trends in existing stores, customer traffic, and average spending per customer were common to both businesses.

【Profit and Loss】Against cost of sales of ¥8.80B, the gross margin declined to 50.4% (52.6% in the previous year), suggesting higher raw material costs and deteriorating profitability. SG&A expenses increased 4.4% to ¥9.65B despite the decline in revenue, causing the SG&A ratio to rise to 54.4% (50.8% in the previous year). As a result, operating income fell into the red at ¥-0.71B (¥0.32B in the previous year). Non-operating income included ¥0.13B of income, including ¥0.06B in dividend income, while expenses included ¥0.10B, including ¥0.05B in interest expenses and ¥0.01B in foreign exchange losses, resulting in ordinary income of ¥-0.68B. Extraordinary losses of ¥0.06B (including impairment losses of ¥0.05B) further reduced earnings as a temporary factor, resulting in net income of ¥-0.78B. The Company experienced both lower revenue and lower earnings, including a shift to losses, with top-line weakness and cost deleveraging occurring simultaneously.

Segment Analysis

The Conveyor-Belt Sushi Business recorded revenue of ¥14.53B (-2.0%) and a segment loss of ¥0.65B (compared with segment income of ¥0.33B in the previous year), with its margin plunging from +2.3% to -4.5%, making it the primary cause of the Company-wide loss. The Delicatessen Business recorded revenue of ¥3.34B (-2.7%) and a segment loss of ¥0.08B (a loss of ¥0.03B in the previous year), with the loss widening. Profitability deteriorated in both businesses; however, the deterioration in the margin of the Conveyor-Belt Sushi Business, which has a larger revenue composition, had the greater impact on Company-wide earnings.

Key Financial Indicators

【Profitability】The operating margin deteriorated sharply to -4.0% (1.8% in the previous year), while the net profit margin was -4.4% (1.8% in the previous year) and the gross margin declined to 50.4% (52.6% in the previous year). 【Cash Flow Quality】Non-operating income of ¥0.13B had a relatively small composition, including ¥0.06B in dividend income, and no dependence on temporary investment gains or similar items was observed; however, interest expenses of ¥0.05B and foreign exchange losses of ¥0.01B were recorded on the expense side. 【Investment Efficiency】ROE was -8.2%, with the shift to a net loss directly resulting in lower capital efficiency. 【Financial Soundness】The equity ratio declined to 33.3% (35.2% in the previous year), while net assets decreased to ¥9.46B (¥10.24B in the previous year). Retained earnings fell substantially to ¥0.80B (¥1.57B in the previous year), reducing the cushion provided by internal reserves.

Cash Flow Analysis

As cash flow statement data has not been disclosed, the analysis is based on funding trends inferred from the balance sheet. Cash and deposits remained broadly flat at ¥6.17B (¥6.03B in the previous year), but the Company’s ability to generate funds may have declined as operating results moved into the red. Accounts receivable decreased to ¥2.98B (¥3.44B in the previous year), while accounts payable declined to ¥3.46B (¥3.84B in the previous year), indicating changes in working capital associated with the contraction in business scale. Long-term borrowings remained at ¥3.95B, at the same level as in the previous year. Together with ¥0.25B in current portion of long-term borrowings, the near-term refinancing burden appears limited relative to the cash balance. However, if operating losses continue, the Company’s ability to maintain its cash balance will require monitoring.

Earnings Quality

The deterioration in earnings during the period was primarily attributable to worsening profitability in the core business at the operating level, rather than temporary factors such as extraordinary gains and losses. Extraordinary losses of ¥0.06B (including impairment losses of ¥0.05B) are classified as temporary factors below ordinary income, but their contribution was limited relative to the net loss of ¥0.78B. Non-operating income of ¥0.13B, including ¥0.06B in dividend income, was a relatively small amount equivalent to approximately 0.7% of revenue, and no dependence on temporary gains from asset sales or similar items was observed. The gap between ordinary income of ¥-0.68B and net income of ¥-0.78B was primarily attributable to extraordinary losses and a ¥0.03B burden from income taxes and other taxes, and is explainable within the range attributable to non-recurring items. Overall, earnings quality is primarily determined by the gross margin and SG&A structure at the operating level, while the impact of temporary items is relatively limited.

Earnings Forecast and Guidance

Against the full-year plan of revenue of ¥79.84B, operating income of ¥1.37B, and ordinary income of ¥1.39B, Q1 revenue progress was 22.2%, below the simple progress benchmark of 25%. Progress rates for operating income and ordinary income cannot be calculated because losses were recorded for the current period. Achieving the full-year plan therefore presupposes a substantial earnings improvement over the remaining three quarters. The Company has not revised its earnings or dividend forecasts; however, the gap between Q1 results and the plan is substantial, and progress in improving the gross margin and controlling costs will determine the likelihood of achieving the full-year plan.

Shareholder Returns

The dividend for the fiscal year ending March 2027 is currently undetermined. The Company recorded a quarterly net loss of ¥0.78B, and retained earnings declined 48.8% to ¥0.80B (¥1.57B in the previous year), leaving a limited cushion in internal reserves. The equity ratio also declined to 33.3%, and no disclosure indicating the direction of the dividend policy has been made at this time.

Risk Factors

1. Sharp deterioration in profitability: The operating margin fell to -4.0% (1.8% in the previous year), while the segment margin of the core Conveyor-Belt Sushi Business also fell from +2.3% to -4.5%. If the negative leverage resulting from rising costs and higher SG&A expenses (+4.4%) exceeding the decline in revenue (-2.4%) continues, earnings recovery may be delayed.

2. Deterioration in financial soundness: The equity ratio declined to 33.3% (35.2% in the previous year), while retained earnings decreased 48.8%. Net assets declined to ¥9.46B (¥10.24B in the previous year), making the trajectory of the capital cushion a point of concern if losses continue to be recorded.

3. Progress gap versus the full-year plan: Against the full-year forecast of operating income of ¥1.37B, the Company recorded an operating loss of ¥0.71B in Q1, resulting in a substantial shortfall in terms of progress. The consistency of the Company’s decision not to revise its earnings forecast will need to be validated through results in subsequent quarters.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

The Company’s profitability is substantially below the industry median and ranks toward the bottom of the industry.

Growth and Capital Efficiency

While the industry as a whole is generally growing revenue, the Company reported a decline and is also lagging within the industry in terms of growth.

Source: Compiled by the Company

Key Points in the Financial Results

1. The sharp decline in the segment margin of the core Conveyor-Belt Sushi Business, which accounts for 81.8% of revenue, from +2.3% to -4.5% was the primary cause of the Company-wide shift into the red. The recovery of profitability in this business will therefore determine future performance.

2. SG&A expenses increased 4.4% despite the decline in revenue, causing the SG&A ratio to rise by +3.6pt and operating leverage to reverse. Progress in cost control will serve as an indicator for assessing profitability from the next quarter onward.

3. Q1 progress against the full-year plan was 22.2% for revenue, while profit was negative, making substantial earnings improvement over the remaining period a prerequisite for achieving the plan. As the Company has not revised its earnings forecast at this time, whether guidance will be revised in the next disclosure will be a key point to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥188–¥199 at a ±1% change in the cost of equity, and ¥194–¥194 at a change of ±0.1 in 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 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 with professionals as necessary.

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