BASE FOOD,Inc. Q1 FY2026 earnings call

• Mission & Strategic Growth Framework

  • Company mission is to "Innovate staple foods to make health a default," developing and scaling accessible, nutritious, great-tasting staple food products.
  • The medium-term strategy is "Quality Growth": after achieving full-year profitability in the prior fiscal year, the firm aims to grow revenue at 10-30% annually while steadily improving profit margins and maintaining sustained profitability.
  • This quarter is the first year of the new medium-term strategy, with the goal of exponential long-term growth.

• Owned EC Channel Progress

  • The new BASE YAKISOBA product line, specifically the newly launched salt flavor variant, grew to account for ~10% of total company sales, exceeding initial forecasts. The product matches the taste of conventional yakisoba, marking a major milestone for the firm's product quality goals.
  • Newly introduced plans to encourage repeat use successfully prevented churn increases, and churn continues to hit record lows. Total subscription customers reached 232,000, lifetime value (LTV) continues to rise, and average order value also maintains an upward trend.
  • The top-selling core product BASE BREAD Chocolate was recently reformulated, with taste scores improving 0.4 points out of 10, and purchase intent improving 7% versus the prior version, alongside simultaneous cost reductions that will support further margin gains.

• Wholesale Channel Progress

  • Total store count stood at 50,113, a slight decrease, but wholesale channels fulfill a key strategic role: ~49% of new owned EC customers have prior experience purchasing BASE FOOD products at retail, making wholesale a critical top-of-funnel for direct-to-consumer growth.
  • Convenience store allocation is 76.3%, while drugstore allocation reached 25.3% (+6.3pp YoY) and supermarket allocation reached 8.6% (+4.8pp YoY), with significant remaining expansion room in drugstores and supermarkets.
  • Monthly sales per convenience store have trended down slightly after the initial big-bang launch to major chains, and the firm plans to use new product launches, advertising and promotion to slow declines and create new growth peaks.

• Overseas Business Restructuring & Progress

  • The firm has explicitly shifted to concentrating resources on East Asia, ending operations in the U.S. and Singapore. South Korea launched sales in March 2025, and Hong Kong expanded to ~300 7-Eleven locations, with 173,000 units sold in the quarter, a strong increase.
  • China is in preparation: the firm has signed a basic agreement for a revenue-share manufacturing and sales partnership with a major local food company, targeting launch within the current fiscal year. Taiwan and South Korea are in testing phases, with South Korea opening an owned EC in July 2025 for full-scale validation.

• Profitability Improvement Initiatives

  • Halted general hiring after building out required headcount post-IPO, with personnel costs falling; the firm expects productivity to rise meaningfully from AI adoption, maintaining a hiring freeze except for exceptionally qualified candidates, so personnel cost ratio will continue to improve.
  • Shipping efficiency for BASE YAKISOBA is currently lower than for BASE BREAD, but the firm has established a path to improve efficiency via further automation of fulfillment operations to cut shipping costs.
  • The balance sheet remains stable: equity ratio is 23.8%, a healthy level, with no major changes to assets or liabilities.

Overall total revenue for the 1st quarter was 3.94 billion yen, a 7.7% increase year-over-year (YoY):

1. D2C (Owned EC): 2.62 billion yen, +14.3% YoY, contributing 66.5% of total revenue. Growth was driven by new customer acquisition from new product promotions and sustained record-low churn rates.
2. Wholesale: 1.00 billion yen, -7.1% YoY, contributing 25.4% of total revenue. Weak performance at convenience store channels pulled total wholesale sales down, though expansion into new channels like supermarkets progressed steadily.
3. Third-party EC: 0.24 billion yen, +10.2% YoY, contributing 6.1% of total revenue. Growth was led by strong sales of the new BASE YAKISOBA product line.
4. Overseas: 0.05 billion yen, -3.1% YoY, contributing 1.3% of total revenue. A temporary sales decline occurred due to a focus on lower average selling price wholesale expansion in Hong Kong, though total units sold increased YoY and the customer base continues to expand.

Overall profitability improved significantly: operating loss was 0.07 billion yen (-2% operating margin), a 9.9 percentage point improvement YoY; gross profit was 2.23 billion yen with a 56.6% gross margin, a 4.2 percentage point improvement YoY.

• Full year 2026 February term guidance is unchanged from initial forecasts: total revenue of 17.41 billion yen (+14.2% YoY), gross profit of 9.97 billion yen (+19.1% YoY), gross margin of 57.3% (+2.3pp YoY), and operating profit of 0.19 billion yen (+41.8% YoY), with an operating margin of 1.1% (+0.2pp YoY).
• First quarter revenue progress of 22.7% of full-year target is in line with plan. The firm will strengthen investment centered on owned EC aligned with upcoming product launches, and plans to launch a strategic trial-focused product for wholesale channels starting in Q3 to drive wholesale growth.
• Gross margin progress is also in line with plan; the firm expects margin to improve through the second half of the year from product mix adjustments and ongoing cost reduction initiatives.
• The Q1 operating loss was smaller than planned, giving the firm room to increase advertising investment in Q2, and maintain higher advertising investment versus the prior year through the second half of the year. Fixed costs are stable, and cost ratios are expected to improve as revenue grows.
• Contrary to investor concerns that Q1's 7.7% YoY growth misses the full-year 14% target, the firm notes it built advertising capacity from prior period fixed cost cuts, and will allocate substantial marketing budget to multiple strong new product launches planned for the second half to hit the full-year target, which remains on track.

• Convenience store wholesale channels are facing sustained headwinds, with declining monthly per-store sales after the initial launch momentum faded, and slowly decreasing total store count. There is uncertainty around whether new promotional and product initiatives will reverse this trend.
• Sustained 20-30% annual revenue growth requires significant changes to the firm's historical strategy, including shifting more marketing resources to retail channel support, expanding into lower-price entry-level product segments, and competing in the broader 2 trillion yen bread market, which carries execution risk.
• New product lines like BASE YAKISOBA still have unproven long-term LTV and churn metrics, which creates uncertainty for future profitability and customer lifetime value projections.

Q: Why is new user acquisition growth slower than expected despite stable ad spend and improved churn, in Q1? / A: Management held off on increasing customer acquisition cost (CPA) because LTV is improving from product and service improvements, which are long-term trends. The firm prefers to wait for better timing to deploy capital instead of overspending early. The one-time boost to retail trial and awareness from the big-bang convenience store launch has faded, and resource reallocation to building the new BASE YAKISOBA product line also contributed to slower near-term new acquisition growth. Because Q1 operating losses were smaller than planned, extra advertising capacity has been saved for future quarters.

Q: How do you address flat per-store wholesale sales and declining convenience store counts, and what is your wholesale product variation strategy? / A: Retail shelf space is limited, so adding more SKUs does not directly drive sales increases, but product rotation keeps the assortment fresh and maintains sales levels. The firm now plans to develop channel-specific products optimized for convenience stores and supermarkets, rather than just rolling out products that succeeded on owned EC to retail. The top priority for driving sustainable growth is repeated product reformulation to create better-tasting, lower-cost products that can win in mainstream retail channels. The firm targets growing its annual growth rate to 10-30% by capturing share in the broader bread and staple food market, rather than remaining only in the niche nutrition segment.

Q: What key challenges must be addressed to achieve sustained high 20-30% annual growth? / A: First, the firm must transition to growing organically with its own capital while maintaining profitability, rather than relying on external financing for unprofitable rapid growth. Second, the firm needs to adjust its priority: it will shift more marketing and strategic resources to supporting retail sales, a change from its historical focus on owned EC growth. This will create positive spillovers for owned EC as well. Third, the firm needs to expand its product range: it will develop more great-tasting options that appeal to less health-conscious consumers, as well as lower-cost entry-level products for retail to open new market segments. The long-term goal is to reach parity in taste and cost versus conventional bread, allowing the firm to compete for share in the large 2 trillion yen domestic bread market. Finally, East Asian overseas markets offer lower CPA than Japan currently, so increasing investment overseas can also lift overall growth as the domestic business enters its product update phase.