BASE FOOD,Inc. Q2 FY2026 earnings call

• Strategic Positioning

  • The company is currently in the stage of crossing the "chasm" to mass market adoption, with the core goal of achieving parity in taste and price with conventional bread and noodles while retaining its core nutrition value proposition to fulfill its 10-year unchanged mission of "Innovating staple foods to make health a given".
  • Management acknowledges temporary sales stagnation but emphasizes that significant progress in product taste improvement and cost reduction has strengthened competitive advantage and built a solid foundation for future growth, raising corporate value.

• New Product and Renovation Results

  • BASE BREAD Sweet Potato launched late in Q2, hit 500,000 bags sold in one month (the fastest growth in company history), and became the second-most popular SKU for recurring subscriptions, with consumer ratings calling it the best-tasting product in the BASE BREAD line. It reduced August churn to 4.1% and improved LTV, with full sales contributions expected from Q3 onward.
  • BASE YAKISOBA Tom Yum Stir-Fried Noodle launched in September, received the highest taste ratings in the YAKISOBA line, and the share of YAKISOBA in total sales has grown steadily. A change from 4-pack to 2-pack ordering was implemented after complex supply chain and digital adjustments, improving trialability and reducing churn.
  • The new BASE RAMEN line (soy sauce and miso flavored instant ramen) was launched to enter the mainstream instant cup noodle market, targeting expansion of "healthy + time-saving" eating occasions and positioning as a next growth driver for H2.

• Marketing and New Business Initiatives

  • A collaboration campaign with popular IP Sumikko Gurashi will run from October to December 2025 across all channels to improve in-store visibility, drive trial, and acquire new users. The company plans to continue exploring character IP collaborations (including for overseas expansion) as an alternative to high-CPA digital search advertising.
  • The B2B subscription service BASE FOOD for Office launched in late September 2025, targeting growing corporate health and wellness demand. It is currently in the validation phase to build a scalable model, and leverages the large, untapped office market that is larger than the entire convenience store channel in Japan.

By sales channel (the company's core product distribution segments):

1. In-house EC: 2.49 billion yen revenue, +0.3% YoY, contributing 66.6% of total Q2 revenue. It maintained flat YoY sales despite temporary headwinds from Q1 user acquisition carryover effects, seasonal factors, and end-of-life for some products.
2. Wholesale: 0.95 billion yen revenue, -17.9% YoY, contributing 25.4% of total Q2 revenue. The decline stemmed from lower in-store visibility after shelf position changes post-product standardization, plus seasonal headwinds, and was within management expectations.
3. Other third-party EC (including Amazon): 0.22 billion yen revenue, -0.4% YoY, contributing 5.9% of total Q2 revenue. Performance was largely flat YoY with no major promotional activities.
4. Overseas: 0.06 billion yen revenue, +52.9% YoY, contributing 1.6% of total Q2 revenue. Growth was broad-based across all operating regions, with 500 store locations achieved at 7-Eleven Hong Kong, and a revenue-sharing manufacturing and sales partnership with a major Chinese food company is on track for launch within the current fiscal year.

Profit performance: Q2 operating profit hit 0.02 billion yen, with an operating margin of 0.7%, a 1.7 percentage point improvement YoY, achieving planned profitability as scheduled. Gross margin reached 57.1%, a 2.9 percentage point improvement YoY, driven by cost reduction from BASE BREAD line renewals and a higher mix of higher-margin channels.

• Management maintains the full-year 2026 February guidance unchanged from the initial release, with no upward or downward revision.
• The 2Q cumulative revenue reached 7.694 billion yen, a 44.2% progress against the full-year target, which is slightly behind plan, but the revenue miss is attributed to temporary seasonal factors and the planned trough in promotional activity, and management expects to recover growth in H2 driven by new products and large promotions.
• Cumulative gross profit reached 4.375 billion yen (43.8% progress against full-year plan), in line with expectations, and gross margin is on track to hit the full-year target of 57.3%.
• Cumulative operating loss through 2Q hit -0.053 billion yen, which is better than plan, with a significant improvement from a -0.47 billion yen loss in the prior year period. Management targets full-year profitability.
• Q3 and Q4 revenue are expected to exceed Q2 levels, with operating profit projected to increase sequentially from Q2 to Q4. The advertising expense ratio is expected to gradually decline from 24.2% while sales grow, driven by efficiency gains from new products and IP collaborations.
• Management expects gross margin to continue improving gradually in H2, while reinvesting for growth acceleration.

• Digital search advertising is facing structural headwinds, with CPA stuck at high levels due to the rise of LLMs and fragmented media consumption, reducing the efficiency of large digital ad spends.
• In the wholesale channel, after products become standard offerings, shelf positions and in-store visibility tend to decline, which creates pressure on sales unless new product improvements or promotional activities are implemented.
• The company's current price point limits market penetration, especially in regional markets, leaving TAM constrained until further cost reductions are achieved.
• The product expansion into the highly competitive mainstream instant ramen market carries execution risk, though management is confident in the product's taste competitiveness.

Q: Was the Q2 gross margin improvement driven by changes in channel/product mix or actual cost reduction? / A: Management confirms the improvement is entirely from structural cost reduction, as there were no meaningful changes to channel or product mix in the quarter. The Q1 BASE BREAD line renewal achieved both lower production costs and better taste ratings, matching the company's strategy of using technology to simultaneously improve product quality and reduce costs, similar to how consumer electronics gain functionality while falling in cost. Future cost reductions will come from optimized raw material sourcing, more efficient production processes, custom flour mixes that allow standard bread factories to produce BASE BREAD at conventional cost levels, and AI-optimized formulation. These improvements are expected to continue going forward.

Q: Why did sales decline in Q2 despite planned additional budget投入 from Q1? Is this just seasonal or a structural issue? / A: Management admits that the strategy of ramping up digital ad spend even with AI optimization did not deliver expected results, due to structural challenges in the digital advertising market that make repeated ads to unconvertible users ineffective. The company has shifted its strategy away from heavy digital ad spend, focusing instead on getting new high-taste products into the market, leveraging character IP collaborations, expanding the office channel, and conducting sampling to lapsed customers who left when product quality was lower. This shift aligns with current market dynamics and is expected to deliver better long-term results.

Q: What is the strategy for expanding into drug stores and supermarkets, given that current penetration is still very low? / A: Management notes that expansion is progressing smoothly despite the slow visible pace, because retail shelf changes only happen 1-2 times per year, so successful business development takes time to impact results. There is significant room for growth from the current 24.7% penetration in drug stores and 9.5% in supermarkets, and the company expects to reach 50-70% penetration over time (it is unlikely to reach 80-90% like in convenience stores due to the fragmented nature of the supermarket industry). The company is developing product formats optimized for supermarkets and bulk family purchases, and expects to see tangible results within the next fiscal year.

Q: Why enter the highly competitive instant cup noodle market with BASE RAMEN, and what is the risk of cannibalizing existing sales? / A: Entry aligns with the company's core mission of innovating staple foods, and the company has always competed in large, competitive staple food categories. If BASE RAMEN can match the taste of top conventional instant ramen while delivering full nutrition, it will create significant market impact and become a new growth driver. Management does not expect meaningful cannibalization, as it fills an unmet need for hot soup products in the portfolio, especially for winter; similar additions like Ajinomoto Knoll protein soup have only added incremental sales and profit to date.