BASE FOOD,Inc. Q4 FY2025 earnings call

• Core Mission and Long-Term Strategy

  • The company's mission is to innovate staple foods to make healthy eating routine, balancing convenience, taste, and nutritional value, with a long-term focus on 10+ year growth instead of only short-term results.
  • The company follows a quality-focused growth benchmarked against Apple, Tesla, and Dyson, avoiding unnecessary product proliferation while pursuing continued improvement in product quality, cost, and delivery.

• Customer and In-house EC Performance

  • The company prioritized improving customer lifetime value (LTV) over expanding total subscriber count, achieving an 86.8% YoY increase in LTV to a record high. Churn rate dropped to a record low 4.2% in Q4, with average order value rising to 5,650 yen.

• Wholesale Channel Operations

  • The company maintained 50,000+ retail locations, prioritizing rebuilding partner trust after the 2024 recall over aggressive expansion. Convenience store placement saw a slight YoY decline, while supermarket and drugstore locations expanded. 49% of new in-house EC customers have prior retail purchase experience, confirming wholesale's key role as a customer acquisition funnel for the direct-to-consumer business.

• Overseas Business Progress

  • Hong Kong leads overseas growth, with 7-Eleven rollout expanding to 250 locations by year-end, delivering stable daily sales and 16.9% YoY growth in Hong Kong revenue. China mainland is in preparation phase, with a basic agreement for a revenue-share manufacturing and sales partnership with a leading local food company, targeting launch in the 2026 fiscal year. Taiwan, the US, and South Korea are in validation phases, with EC sales launched in the US and South Korea in late February 2025, testing product acceptance and customer acquisition efficiency.

• R&D and Product Development

  • Following the QCD (Quality, Cost, Delivery) framework, the company launched 7x more new products than in the prior year, reducing customer churn by expanding product variety. The new BASE YAKISOBA cup noodle category achieved product-market fit and exceeded 500,000 cumulative units sold, opening access to new customer segments. Customer satisfaction for BASE BREAD Plain improved 4 points YoY, as product taste approaches parity with conventional non-healthy staple foods. R&D continues to deliver cost reduction via ingredient reformulation, balanced with improving taste and quality, with deep tech development accelerated via government grants.

• Financial Position

  • Full year profitability improved the equity ratio to 26.9% from 25.7% YoY. Cash and equivalents rose to 1.983 billion yen from 1.43 billion yen YoY. The company maintains a balanced approach between leverage for growth and maintaining a healthy, flexible financial position.

BASE FOOD reported total full year revenue of 15.24 billion yen, up 2.5% year-over-year.

1. In-house EC: 9.72 billion yen, up 7.1% YoY, accounting for 63.8% of total revenue.
2. Wholesale: 4.46 billion yen, down 2.7% YoY, accounting for 29.3% of total revenue.
3. Other EC: 0.85 billion yen, down 20.2% YoY, accounting for 5.6% of total revenue.
4. Overseas: 0.18 billion yen, up 36.5% YoY, accounting for 1.2% of total revenue. Gross profit improved to 8.38 billion yen from 7.39 billion yen YoY, with gross margin up from 49.7% to 55%. Operating profit reached 0.13 billion yen, turning positive from a -0.9 billion yen loss YoY, with operating margin improving from -6.1% to 0.9%.

• For the 2026 February full year, the company guides total revenue of 17.41 billion yen, representing 14.2% YoY growth, and operating profit of 0.19 billion yen, representing 46.2% YoY growth.
• The company has shifted strategy back to prioritizing top-line growth after achieving the 2025 full year profitability goal, while maintaining net profitability. The medium-term target is annual revenue growth between 10% and 30%, with a focus on hitting the upper end of this range.
• In-house EC will be the primary growth driver, with increased marketing investment targeted at increasing awareness and expanding retail distribution to drive more direct conversions. AI will be leveraged to improve advertising efficiency.
• The 2026 guidance embeds conservative assumptions for wholesale growth, with significant upside potential from new category product placements in domestic retail and further expansion in Hong Kong.
• Price revision effects from 2025 will be reflected across the full 2026 fiscal year, improving cost ratios. Operational efficiency improvements for packaging and shipping will continue via automation and digitalization, further reducing cost ratios.
• New hiring is muted after completing required talent acquisition, with additional budget allocated for generative AI implementation to improve operational efficiency. R&D investment is maintained for advanced deep tech projects, supported by government research grants.
• Similar to prior years, a moderate operating loss is planned for Q1, as the first quarter aligns with the spring new lifestyle season when advertising efficiency is highest, so the company concentrates customer acquisition investment in this period.

• A product recall in 2024 negatively impacted 2024 revenue and required relationship rebuilding with retail partners in 2025, resulting in slower wholesale expansion during the year.
• Wholesale channel sales are less controllable than in-house EC sales, as retail partner ordering and placement decisions depend on semi-annual sales cycles and third-party priorities, creating uncertainty around hitting sales growth targets.
• Sustained raw material price inflation and high fuel costs continue to pressure cost of goods sold, requiring ongoing cost reduction efforts to maintain margins.
• International expansion carries unproven market acceptance risk, with new market entry requiring significant testing and validation before scalable investment.

Q: What factors beyond 2024 price revisions are driving the expected 2026 operating margin improvement, and how will the balance of marketing investment and profitability be managed going forward?

A: Even after significant advertising cost reduction in 2025, the company still delivered 10%-15% actual YoY sales growth in H2 2025, proving that strong growth can be achieved with higher marketing efficiency. 2025 margin improvements freed up more budget for growth investment, and the company will gradually increase marketing spend while continuing to improve efficiency. Lower cost per acquisition opportunities exist in in-store marketing campaigns compared to pure digital advertising, and improved product quality and lower churn have reduced the need for replacement advertising to offset attrition, further improving efficiency. AI tools also create additional room to lower customer acquisition costs.

Q: Wholesale sales declined in 2025, with stagnant same-store sales and slowly declining store count — what is the outlook for this channel going forward?

A: After the 2024 recall, the company prioritized rebuilding trust with retail partners over aggressive expansion in 2025, which explains the mild decline. Going forward, there is significant room for expansion, particularly in underpenetrated supermarket and drugstore channels. Convenience store growth naturally slows after initial rapid rollout, and step-function growth requires new product categories and improved product quality, which the company will roll out over time. While wholesale growth is less controllable than in-house EC growth, the company expects expansion in 2026 and remains focused on delivering this upside growth.

Q: Churn is already at a record low, what room is there for further improvement in retention, and what obstacles need to be overcome?

A: The company aims to reach near 97% monthly retention, a world-class benchmark already very close to the current ~96% level. The biggest remaining opportunity is to further improve product taste, bringing it fully on par with conventional staple foods while retaining superior nutrition. Longer term, cost cutting from improved production efficiency will allow the company to match conventional staple food price points, which will drive even higher retention and adoption. Management believes continued R&D progress will deliver this game-changing improvement over the next 5 to 10 years.