St.Cousair CO.,LTD. Q2 FY2026 earnings call

Core Financial Highlights

• Total cumulative revenue for April-September 1st half: 9.676 billion yen, 5.1% YoY increase; gross profit: 3.476 billion yen, 9.0% YoY increase; gross margin 35.9%, up 1.3pp YoY; operating profit: 264 million yen, 12.3% YoY increase; operating margin 2.7%, up 0.1pp YoY; half-year net profit: 163 million yen, 162 million yen YoY increase.
• Q2 (July-September) gross margin reached 35.6%, up 1pp YoY, continuing the improving trend from Q1, driven by sales expansion of high-margin products (such as dashi stock) and optimization of FC wholesale pricing, offsetting 19 million yen in cost impact from raw material inflation.

Business Growth Initiatives

• Wholesale business recovery: After temporary sales decline from order issues with existing clients in the prior period, the company is expanding client and product portfolios, strengthening partnerships to expand distribution, developing new products based on customer needs, and expanding popular confectionery categories. Sales have been on a recovery trend since late 2024, and expansion efforts will accelerate.
• US subsidiary SCI profitability improvement: SCI has recorded growing sales driven by distribution expansion, but has run operating losses for three consecutive years. The company acquired multiple US brands to improve utilization and productivity of SCI's Oregon manufacturing plant and strengthened fixed cost management. SCI turned EBITDA positive in the prior period, and operating profit breakeven is imminent.
• Strengthening food SPA model in manufacturing: In August 2025, the company acquired a compatible food manufacturing factory, which aims to improve profitability via better cost structure and strengthen in-house manufacturing capacity for sustainable growth. This investment solidifies the company's SPA (planning, production, retail) model and builds a more competitive business foundation.
• New confectionery business: Leveraging rising domestic travel and souvenir confectionery demand, the company launched a new business to create signature local confectionery for tourist areas across Japan. The first location is scheduled to open in July 2026 at Zenkoji Temple in Nagano City, focusing on inheriting local food culture and creating new regional confectionery products.

Problem-Solving Initiatives

• Growing existing store customer traffic: 1) In-store reform: The company focuses on creating attractive stores that encourage entry, offering free tasting experience, adding sensory design, meal-inspiration displays, and accessible product signage to boost purchase intent, with the goal of delivering new discovery experiences that drive customer traffic growth. 2) Product management improvement: The company added a new additive guideline to its existing four product strategies, creating a clear "do not use" additive list, and strictly selecting high-quality, authentic raw materials for core products to improve customer trust and satisfaction. The long-term targets are 1.2x average existing store annual revenue and 3x royal customer count within three years.
• Gross margin improvement: Raw material inflation over the past two years has cut 5pp from operating margin, for a total 1 billion yen negative impact. The company is addressing this via manufacturing cost reduction, FC wholesale pricing optimization, and selling price adjustment. These measures have started to deliver results this term, and the company will continue to strengthen efforts to restore margin and build a sustainable profit structure.

Store Updates

• In the first half, 6 new Kuze Fuku stores (including 3 conversions from Sankuzeru brand) were opened, and 4 Sankuzeru stores were closed. Net store increase of 2 from March 2025, with a total of 177 stores at end-Q2.

By sales channel/segment: 1. Store (including direct-operated and FC stores): 6.247 billion yen, 1.7% YoY decrease, 64.6% of total revenue. The decline is attributed to changes in customer purchasing behavior driven by rising food prices led by rice prices, which reduced customer foot traffic. 2. EC: 558 million yen, 3.5% YoY decrease, 5.8% of total revenue. Gift demand remained solid, but a decline in personal/household demand dragged down overall results. 3. Wholesale (Hole Sale): 1.599 billion yen, 31.8% YoY increase, 16.5% of total revenue. Sales recovered at the major struggling large retail chain client from the prior period, driving strong growth. 4. Global: 1.27 billion yen, 19.7% YoY increase, 13.1% of total revenue. By region within Global segment: US: 905 million yen, 31.6% YoY increase, driven by existing brand growth and revenue from newly acquired brands Bonnie's Jams and KELLY'S JELLY; Taiwan: 127 million yen, 29.1% YoY decrease (YTD is 16.4% YoY increase, dragged down by a prior year large roadshow event); Other regions (primarily South Korea, Canada, Australia, Hong Kong): 18 million yen, 53% YoY decrease, driven by unstable sales in South Korea.

• The company maintains its original full-year FY2026 March term guidance. First half progress against full-year targets is: 46.7% for revenue, 28.8% for operating profit, 29.4% for ordinary profit, 33.8% for parent company attributable net profit, which is aligned with the company's planned seasonal revenue/profit split, where most full-year profit is generated in the second half.
• Management expects to achieve the full-year guidance by the end of the second half, and is targeting to exceed the full-year guidance across all sales channels.
• No plans for full-scale product price increases in the current term. The company will maintain flexibility to adjust pricing for individual products if raw material costs rise sharply.

• Persistently high domestic food prices and rising inflation have driven changes in consumer purchasing behavior, leading to customer foot traffic decline in existing stores and weak household demand for EC channel, which pressure domestic retail revenue growth.
• Recent yen depreciation has created renewed risk of further raw material price inflation, which could pressure margins if costs rise significantly.
• Domestic consumer demand is polarized: while high-value-added company products retain loyal customers, a growing share of consumers have tightened spending due to cost of living increases, which can impact overall sales.
• Unstable sales performance in early-stage new international markets (primarily South Korea) creates near-term revenue headwinds for the global segment.
• While US business is currently solid, sustained high inflation in the US could change consumer sentiment and impact future sales performance.

Q: What is driving the decline in EC personal/household demand, and what are the company's plans to strengthen the EC business going forward? / A: Inflation-driven rice price increases have weakened sales of the "rice accompaniments" category, which is the main drag on personal demand, while gift demand remains solid. Going forward, the company will focus on stronger integration between EC and physical stores, as more customers now research products on EC before purchasing in-store. The company will also expand recipe and product content on the EC site to improve information provision for customers.

Q: Will the new signature confectionery business focus on physical stores, and are there plans for EC sales of these products? / A: The initial priority is building a strong physical store operation at the Zenkoji Temple location, which receives over 6 million annual visitors, with the core goal of developing an appealing signature local product. The company may consider expanding to other physical channels like station buildings in the future, and no concrete plans for EC expansion have been set at this stage.

Q: Given that only ~29% of full-year operating profit has been achieved in the first half, and domestic demand is facing headwinds from high prices, does management still expect to hit full-year targets in the second half, and what is the outlook for the market environment? / A: The company's budget already accounts for its business structure, where most full-year sales and profit are generated in the second half driven by year-end holiday demand and strong winter sales for core products like dashi and hot pot ingredients. Management still expects to hit the full-year target. The main risks are yen depreciation driving further raw material cost increases and polarized domestic consumption, so the company will develop affordable accessible products for price-sensitive consumers and roll out proven in-store reform initiatives across more locations. There are no plans for broad-based price increases, but the company will respond flexibly to sharp raw material cost increases for individual products.

Q: Can you update on overall global business progress, including the unstable sales situation in South Korea? / A: The US business is performing very well, with further expansion opportunities in regional and food service channels, and management is confident in continued growth. In South Korea, the company has built a local legal entity, invested in sales talent, and is actively pitching to local retailers, including co-developing products with local manufacturers. While near-term sales impact is limited, management expects medium-long term sales growth from these investments. Sales are also growing gradually in Australia and Canada, with the company preparing to strengthen sales efforts in the large Canadian market.