BASE FOOD,Inc. Q3 FY2026 earnings call

• Company Mission

  • The company's mission is to "Innovate staple foods to make health a given", creating and expanding future staples that are easy, delicious, healthy, and nutritionally balanced. After 10 years of operation, the company aims to eventually achieve price parity and equivalent taste with standard wheat flour bread, using natural ingredients to deliver balanced nutrition, which will unlock a much larger growth stage.

• Product Development and New Launches (expected to contribute from Q4 onward)

  • New BASE BREAD products (BASE BREAD Strawberry, BASE BREAD Chestnut Red Bean) were launched sequentially from the end of Q3 to early Q4 to capture seasonal demand, expected to reduce churn and improve LTV.
  • The new BASE Pound Cake full-fledged dessert series launched at the end of Q3, with the first variant (BASE Pound Cake Earl Grey) already seeing initial subscriber volume three times higher than BASE Cookies at launch. This initiative expands into the snack market, builds a three-product pillar portfolio (bread, noodles, confectionery) to increase purchase frequency, reduce growth stagnation risk, and create synergies across product lines to reduce churn.
  • BASE YAKISOBA Salt Yakisoba won MONOQLO magazine's 2025 Gourmet Grand Prix Best Buy of the Year. The improved taste of BASE YAKISOBA Salt Yakisoba, BASE YAKISOBA Tom Yum Mixed Noodles, and BASE BREAD Sweet Potato represents a major leap in product quality. The improved taste technology will be rolled out to higher-volume core SKUs, and BASE YAKISOBA Seafood Soy Sauce Mixed Noodles is scheduled for launch on January 21.

• Operational Milestones

  • Cumulative total regular subscribers surpassed 1 million, with approximately 200,000 active subscribers and 800,000 churned (inactive) users. The 800,000 inactive users represent a key untapped asset: most cited "not tasty" or "got bored" as their reason for churn, and major product quality improvements mean these users can be reactivated without high-cost digital advertising by leveraging existing customer reach assets.

• Shareholder Structure

  • The company has built a strong shareholder base aligned with medium- to long-term growth, with strengthened engagement with long-term oriented shareholder Hiroyuki Maki. Maki has an existing long-term relationship with the CEO and shares the company's long-term growth focus, prioritizing competitive advantage improvement over short-term profit. The company is conducting joint third-party research with an international strategy consulting firm to validate downside resilience and competitive advantages, and is accessing support including TV CM slot utilization via Maki's Melco Group to drive growth. The CEO and Maki hold a large majority of outstanding shares, reinforcing alignment with long-term growth goals.

• Multi-channel Growth Strategy

  • 49% of new own-brand EC users have prior purchase experience at retail stores, so wholesale acts as a critical customer acquisition funnel for EC. The company will expand distribution to drug stores and supermarkets, while working to improve product quality and implement joint marketing with convenience stores to reverse the gradual sales decline seen after full network coverage.
  • For overseas expansion, the company uses a risk-mitigated approach: test markets via cross-border EC, and transition to general trade (compliant with local regulations, enabling wholesale to local convenience stores and local regular subscription EC) for markets with positive consumer response. Southeast Asia and the US have been exited, while Hong Kong, China, Taiwan, and South Korea are moving to general trade. Hong Kong already has 500 7-Eleven locations carrying products, at similar penetration to Japan. A basic agreement for a revenue-sharing manufacturing and sales joint venture with a major local food company has been signed for mainland China, with launch expected in the early part of the 2027 February fiscal year. The company will explore partnerships with large local food companies in other markets to leverage their scale to increase product unit prices and profits via the company's health added value.

Total third quarter revenue: 3.74 billion yen, down 6.4% year-on-year. By channel:

• Own-brand EC: 2.41 billion yen, down 7.0% year-on-year, contributing 64.4% of total revenue. The decline was driven by disciplined advertising spending cuts due to unfavorable digital ad market conditions. The number of regular subscribers reached 232,000, an increase of 3,000 quarter-on-quarter, with churn rate hitting an all-time low and LTV reaching an all-time high.
• Wholesale: 1.01 billion yen, down 9.9% year-on-year, contributing 27% of total revenue. The year-on-year decline came from changes in shelf positioning and fixture adjustments during the shift to staple product status, but new product (BASE BREAD Sweet Potato) and collaboration initiatives drove a 7.4% increase quarter-on-quarter, marking a return to growth.
• Third-party EC: 0.24 billion yen, up 7.5% year-on-year, contributing 6.4% of total revenue, with solid performance driven by seasonal sales campaigns.
• Overseas: 0.05 billion yen, up 44.2% year-on-year, contributing 1.3% of total revenue. All operating regions achieved year-on-year revenue growth.

Profit performance:

• Operating profit: 0.09 billion yen, operating margin 2.5%, down 3.3 percentage points year-on-year (the prior-year period had an anomalous one-time profit boost from post-price-hike advertising cuts). Gross margin remained at a high level despite a higher proportion of higher-cost instant noodle products, supported by ongoing cost reduction initiatives. Cumulative operating profit for the first three quarters turned positive, and fixed cost reduction and AI utilization have established a lean cost structure. Selling, general and administrative (SG&A) ratio decreased 1.9 percentage points quarter-on-quarter, with ongoing fixed cost reductions.

• For the full 2026 February fiscal year, management revised down the full-year revenue forecast from the initial 17.41 billion yen to 15.30 billion yen, a 2.11 billion yen downward revision. The revised forecast represents 0.4% year-on-year growth compared to the 2025 February fiscal year full-year result. Gross profit forecast was revised from 9.97 billion yen to 8.72 billion yen (a 1.25 billion yen decrease), but still represents 4.1% year-on-year growth, supported by efficiency gains that outpaced the revenue decline. The operating profit forecast is maintained at the initial guidance level.
• The core company target of achieving 10% to 30% annual revenue growth while maintaining profitability remains unchanged, but the target achievement date has been pushed back one year. The underlying fundamentals (improved churn, higher LTV, organizational efficiency, available marketing budget) are all on track, but the unanticipated surge in digital advertising costs has delayed the target.
• Going forward, management will shift marketing focus away from over-reliance on digital advertising, and will prioritize: rolling out recent major taste improvement technology to all core SKUs, leveraging digital reach assets to target lapsed customers, directing customers to local convenience stores/supermarkets to re-trial improved products, and driving cross-channel growth for both EC and wholesale. This unique combined online-offline asset model (1 million cumulative members, tens of thousands of retail locations) is a unique competitive advantage not found in other food companies, and is expected to deliver efficient growth while mitigating the impact of high digital ad costs.
• Management reaffirmed that the 10% to 30% growth target for the 2027 February fiscal year remains in place, as the shift to asset-driven multi-channel marketing is expected to deliver the targeted growth.

• Digital advertising market conditions: Digital advertising costs have risen far faster than expected, which forced the company to cut advertising spend in the 2026 fiscal year, leading to missed new customer acquisition targets and the full-year revenue downward revision. High digital ad costs remain a headwind for customer acquisition growth.
• Wholesale channel risk: After convenience stores completed full network adoption, sales have gradually declined due to lower shelf positioning and reduced visibility, and the company has not yet fully reversed this trend. A return to strong wholesale growth requires impactful new product launches matching the success of BASE BREAD Chocolate, which requires additional R&D time.
• Mainland China expansion risk: China's regulatory environment is more complex than Hong Kong's, leading to higher risk, and launch has already been delayed to the 2027 fiscal year.
• Product quality scaling risk: While the company has achieved major taste improvements in niche SKUs, rolling out this improved technology to all core SKUs may require additional product development work, and outcomes are not guaranteed.
• Credibility risk: Consecutive downward revisions to revenue forecasts have eroded investor credibility, and the company acknowledges this challenge.

Q: Following this downward revision, is there any change to the 2027 February fiscal year growth outlook? What is the rationale for maintaining the 10% to 30% medium-term sales growth target?

A: The underlying growth structure has not changed. Sales growth at BASE FOOD depends on the combined strength of R&D, supply chain, and corporate functions, not just marketing. While digital advertising (the former core of new customer acquisition) has become challenging, shifting to a strategy that leverages the company's existing built-up assets will restore growth. Management believes this asset-based approach has meaningful potential and accuracy, so there is no reason to lower the 10% to 30% growth target at this stage.

Q: Individual shareholders do not believe domestic sales can grow further. Can you explain the rationale for future growth that individual shareholders can understand?

A: For own-brand EC, lower churn means less advertising spend is required just to offset churn, which is a positive. Higher LTV also allows for a higher allowable customer acquisition cost (CPA), which should enable higher advertising volume and higher sales/profit once ad market conditions allow. Even with high digital ad costs, marketing is not limited to digital advertising. Organic initiatives like LINE and email outreach to drive lapsed users to re-trial improved products at local convenience stores/supermarkets have extremely low CPA, and when combined with any remaining digital ad spend, blended CPA remains below LTV, enabling profitable growth. For retail, the business has already bottomed out as a staple product. The company will reallocate budget from digital advertising to retail marketing, which can drive growth via retail customer acquisition that feeds back into digital growth. The company already has a proven track record of rolling out BASE BREAD Chocolate to almost all convenience store locations across Japan, and repeating this success with next-generation improved products will deliver additional growth. In the long term, once the company achieves price and taste parity with standard bread, the addressable market is the entire Japanese population of 120 million, which creates enormous room for explosive growth.

Q: The transcript says product taste has improved dramatically over the past several years. Can you explain how taste has improved, and why this will help reactivate dormant customers?

A: It is difficult to convey taste improvement in words, and the best way to understand is to try the new products like BASE BREAD Sweet Potato and BASE YAKISOBA Salt Yakisoba at a convenience store or via EC. That said, to describe it: BASE BREAD Sweet Potato achieves a moist, chewy texture, far less dry than the company's earlier products, and matches the expected taste of a standard sweet potato bread, with only minor remaining room for improvement in residual sourness and fluffiness. BASE YAKISOBA Salt Yakisoba is now indistinguishable from standard salt yakisoba made with refined white flour, which is the result of cumulative improvements to flavor masking, enzyme use, and yeast processing. Early versions of the company's yakisoba were heavily criticized, but one year later the product is now award-winning, which demonstrates the pace of improvement. The fact that taste has improved dramatically but sales have not yet grown makes sense: the top reason for churn is "not tasty", so the current growth plateau is only a function of digital ad market dynamics, not a structural limit. Fixing the core customer complaint (taste) removes the main barrier to growth, so a strategy shift away from over-reliance on digital advertising will unlock growth.

Q: Is there any proof that non-digital marketing channels actually work? Can you share past successful examples?

A: When the company previously grew rapidly, it used a combination of TV CM, digital advertising, and convenience store fixture initiatives, so multi-channel combination marketing has a proven track record. The company has historically had success with non-digital initiatives including friend referrals, reactivation campaigns, influencer marketing (which was a core channel before the company scaled digital advertising), and gift campaigns, all of which still work today and will be expanded. The ambassador program will also be strengthened. The company has always tested initiatives like convenience store digital signage and Amazon/third-party EC ads, and has a diversified portfolio of marketing channels to adapt to changing market conditions. Now that product taste has improved dramatically, leveraging existing assets (reachable lapsed users, retail footprint) to drive re-trial and repurchase plays to the company's strengths. Utilizing internal assets is more controllable than digital advertising, which faces ongoing uncertainty from platform changes and increased competition, so this multi-channel approach is lower risk than continued over-reliance on digital ads.