KAN-NANMARU CORPORATION FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥473M
• Operating Income: ¥-27M
• Net Income: ¥-26M
• EPS: ¥-7.05

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Kannanmaru Co., Ltd. (75850) reported FY2026 Q1 standalone results under JGAAP showing slight top-line growth but continued operating losses. Revenue was ¥473.0 million, up 1.2% year over year, indicating modest demand resilience. Gross profit was ¥326.1 million, implying a reported gross margin of 68.9%; note that this gross profit figure does not arithmetically reconcile with the reported cost of sales (a ¥5.2 million gap), which may reflect classification nuances under JGAAP rather than an error. Operating income remained negative at ¥-27.0 million (flat YoY), signaling that incremental sales did not translate into operating break-even due to fixed-cost burden or insufficient pricing power. Ordinary income improved slightly to ¥-25.0 million, indicating some non-operating offset (e.g., modest financial or other income) against the operating loss. Net income was ¥-26.0 million (flat YoY), with a reported EPS of ¥-7.05, although share count data were not disclosed in this extract. DuPont metrics indicate a net profit margin of -5.50%, asset turnover of 0.329x, and financial leverage of 3.59x, resulting in a reported ROE of -6.50%. The company exhibits a solid current ratio of 152.6% (working capital of ¥207.4 million), suggesting short-term liquidity appears adequate based on disclosed current assets and liabilities. However, leverage remains elevated with a debt-to-equity ratio of 2.78x (total liabilities ¥1,113.6 million vs. equity ¥400.0 million), leaving little room for prolonged losses without capital reinforcement. Interest expense was ¥1.14 million in the quarter, and with operating losses, the interest coverage ratio is -23.7x, highlighting limited debt service coverage from operations. Equity ratio was reported as 0.0% in the summary field, but the balance sheet shows total equity of ¥400.0 million; we treat the 0.0% ratio as undisclosed rather than zero. Cash flow statements show zeros across operating, investing, and financing, which we interpret as not disclosed; therefore, we cannot assess operating cash conversion or free cash flow. Inventories were not disclosed, and depreciation and amortization were also not disclosed, limiting margin quality analysis. The company paid no dividends in the period, consistent with negative earnings, and payout/FCF coverage ratios in the extract are not meaningful given undisclosed cash flows. Overall, results suggest modest sales stabilization but continued cost absorption and negative earnings, with balance sheet leverage requiring a path to sustained operating profit.

Profitability Analysis

ROE decomposes into -5.50% net margin × 0.329x asset turnover × 3.59x leverage = -6.50% (as reported). The negative margin is the primary driver of weak ROE; leverage amplifies equity volatility. Gross margin is reported at 68.9%, which is high for food-service distribution but could reflect JGAAP classifications where certain store labor or occupancy costs may sit in SG&A. The -¥27.0 million operating loss indicates SG&A and other fixed costs outpaced gross profit, highlighting operating deleverage. Interest burden is modest in absolute terms (¥1.14 million) but not covered by EBIT (coverage -23.7x). Ordinary income at -¥25.0 million was slightly better than operating income, suggesting minor non-operating support (e.g., subsidies, rent adjustments, or financial income) but not enough to offset structural losses. The flat YoY operating loss despite 1.2% YoY revenue growth implies pricing and mix improvements, if any, have been insufficient to overcome fixed cost inflation (e.g., utilities, rents, or labor). With depreciation not disclosed, EBITDA cannot be reliably calculated; the reported EBITDA of 0% should be treated as undisclosed rather than true zero. Overall profitability hinges on achieving break-even scale and controlling fixed costs; current leverage magnifies the need to restore positive operating margins.

Growth Assessment

Revenue grew 1.2% YoY to ¥473.0 million, indicating modest demand traction but not enough to change the earnings trajectory. The stability of operating loss YoY suggests incremental sales did not deliver operating leverage, implying either persistent cost inflation or discounting to support traffic. Gross profit reported at ¥326.1 million implies healthy apparent gross margin, but the lack of depreciation and inventory detail complicates margin quality assessment. Ordinary and net losses narrowed slightly vs. operating income, but the improvement is marginal and non-core. Near-term growth sustainability appears tied to same-store sales momentum, menu pricing, and cost pass-through to offset food and labor pressures. With asset turnover at 0.329x (on a quarterly basis, not annualized), efficiency improvement could support earnings if sales density recovers. The outlook remains cautious: without evidence of stronger comp growth or cost normalization, profit recovery timing is uncertain. Structural actions (hours optimization, procurement efficiencies, selective store rationalization) may be required to achieve break-even.

Financial Health

Total assets stand at ¥1,437.0 million with equity of ¥400.0 million and liabilities of ¥1,113.6 million. The current ratio of 152.6% (current assets ¥601.9 million vs. current liabilities ¥394.5 million) indicates adequate short-term liquidity buffer. Quick ratio is reported equal to current ratio due to inventories being undisclosed in this extract; thus, true quick liquidity cannot be verified. Working capital is ¥207.4 million, offering near-term operating flexibility. Leverage is high with a debt-to-equity ratio of 2.78x, which raises solvency risk if losses persist. Financial leverage from DuPont is 3.59x (assets/equity), consistent with the capital structure. Interest expense is modest at ¥1.14 million for the quarter, but negative EBIT renders coverage inadequate. Equity ratio is shown as 0.0% in the summary but is evidently around 27.8% if calculated from disclosed totals (¥400.0m/¥1,437.0m); we treat the 0.0% as not disclosed. Overall, liquidity appears serviceable, but solvency relies on returning to operating profitability or accessing capital.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this extract (zeros denote undisclosed), so OCF/NI and FCF metrics cannot be interpreted. Earnings quality assessment is therefore limited; we cannot corroborate the net loss with cash burn or working capital movements. Depreciation and amortization are also undisclosed, preventing reconciliation from operating income to cash earnings. Working capital appears positive at ¥207.4 million based on balance sheet, but detailed components (inventories, receivables, payables) are not available. Absent OCF data, we cannot judge cash conversion cycle dynamics or sustainability of liquidity without tapping financing.

Dividend Sustainability

Annual DPS is shown as ¥0.00 and payout ratio 0.0%, which we interpret as no dividend and/or undisclosed payout in the quarter. With negative net income (¥-26.0 million) and no reported free cash flow, distributable capacity is constrained. Given elevated leverage (D/E 2.78x) and ongoing operating losses, internal priority likely remains on stabilizing operations and preserving liquidity rather than distributions. Without positive earnings and confirmed positive OCF, sustainable dividends are not supported by fundamentals at this time. Policy outlook cannot be inferred from the data provided; if a dividend policy exists, it is not reflected in the extract.

Risk Assessment

Business Risks:

• Thin revenue growth (+1.2% YoY) insufficient to offset fixed costs, prolonging operating losses
• Cost inflation (food, labor, utilities) potentially outpacing pricing power
• Operating leverage risk due to high fixed-cost base and store-level profitability sensitivity
• Customer traffic volatility and competitive discounting in the food-service sector
• Execution risk in cost control, menu/pricing adjustments, and potential store rationalization

Financial Risks:

• High leverage (debt-to-equity 2.78x) increases solvency risk if losses persist
• Negative interest coverage (‑23.7x) indicates inability to service interest from current operations
• Limited visibility on cash flows (OCF/FCF undisclosed) constrains liquidity assessment
• Equity base of ¥400.0 million provides limited buffer against prolonged losses
• Potential covenant or refinancing risk if external debt terms tighten

Key Concerns:

• Sustained operating loss of ¥-27.0 million despite revenue growth
• Dependence on non-operating items to partially offset operating loss (ordinary income > operating income)
• Data limitations (no CF, D&A, inventories) hinder full earnings quality analysis
• Apparent gross profit mismatch versus cost of sales suggests classification nuances that complicate margin analysis

Investment Implications

Key Takeaways:

• Top-line grew modestly (+1.2% YoY) but did not translate into operating break-even
• Negative ROE (-6.5%) driven by a -5.5% net margin; leverage (3.59x) amplifies equity downside
• Liquidity appears adequate (current ratio 1.53x), but solvency risk persists with D/E of 2.78x
• Interest burden is manageable in size but not covered by EBIT (coverage -23.7x)
• Cash flow disclosure is absent, limiting validation of earnings quality and cash runway

Metrics to Watch:

• Same-store sales and average ticket to gauge pricing power and demand
• Operating income trajectory and SG&A ratio to sales for evidence of cost control
• Gross profit reconciliation and cost of goods trends (food input inflation vs. menu pricing)
• OCF and FCF once disclosed, including working capital movements
• Leverage and interest coverage, including any refinancing or covenant developments

Relative Positioning: Within small-cap Japanese food-service operators, the company exhibits weaker profitability momentum (continued operating losses) and higher leverage than would be preferred, though near-term liquidity is reasonable; sustained improvement requires demonstrable operating leverage from same-store growth and cost discipline.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis