2937.T

Overall Consolidated Performance

• Cumulative 9-month (April-December) total revenue: 15.411 billion yen, +5.2% YoY
• Gross profit: 5.561 billion yen, +8.8% YoY; gross profit margin 36.1%, improved 1.2 percentage points YoY, driven by stronger promotion of high-margin products including dashi and optimization of wholesale prices for franchisees
• Operating profit: 640 million yen, +4.1% YoY; operating margin remained flat YoY at 4.2%, as gross profit gains were offset by increased promotion expenses
• Net profit attributable to parent company shareholders: 480 million yen, +58.8% YoY

Store Network Updates

• During the 9-month cumulative period: 10 new Kuze Fuku Stores opened, 1 new Sanquel store opened; 3 Sanquel stores closed, 5 Sanquel stores converted to Kuze Fuku Stores
• As of Q3 end: total 178 stores (54 direct-operated, 124 FC franchise), a net increase of 3 stores from the end of March 2025

Addressing Core Business Challenges: Existing Store Customer Growth for Kuze Fuku Store

• Current status: Existing store sales have lagged YoY for consecutive months due to customer count declines, but average customer transaction value remains at high levels, indicating sustained market recognition of product value
• Key ongoing initiatives:
  • Store layout reform: Refreshed product displays, expanded in-store tasting and testing opportunities to create more engaging shopping experiences, plus enhanced service and customer interaction skills for staff
  • Merchandising (MD) strategy: Restructured product categories, developing both accessible entry-priced products and high-value products to drive purchase motivation and increase repeat purchase frequency
  • Organizational restructuring: Reorganized cross-functional teams to better align store reform, MD strategy, product development, marketing and CRM, improving execution speed. Targets: over 3 years including this fiscal year, increase existing store average annual revenue by 1.2x and triple loyal customer count

Global Growth Initiatives

• US SCI Business: Achieved operating profit break-even in Q3, meeting the target ahead of plan. Next priorities are further sales expansion and margin improvement through productivity gains. Plans include pursuing active M&A, strengthening cross-selling between acquired brands to capture synergies and accelerate distribution expansion, with ongoing negotiations for placement at new retail chains progressing well.
• Asia Business:
  • Taiwan: Continues to expand retail distribution and product assortment by aligning with local consumer demand, growing local market presence
  • South Korea: Established a local Korean legal entity in September 2025, strengthening local sales capabilities, with early positive impacts already reflected in Q3 results. Going forward, the company will source popular local South Korean products to distribute across Asia and globally, and is exploring manufacturing locations in Southeast Asia as a medium-long term initiative to optimize the overall supply chain and improve competitiveness

New Business Launch

• Launched a new confectionery business in 2025, with the first location opening in Zenkoji, Nagano City in fall 2026. Brand concept is finalized, and development of signature confectionery leveraging Zenkoji's unique local identity is underway.
• The opening is timed to capitalize on the large visitor surge from the 2027 Zenkoji Grand Opening festival to build early brand recognition and maximize sales opportunities. If successful, this model will be rolled out to tourist destinations across Japan, creating signature local confectionery that preserves regional food culture and becomes a new growth engine for the company

Strengthening Integrated Food SPA Model

• Expanded M&A evaluation scope across development, manufacturing and sales functions, both domestically and internationally. The goal is to strengthen a fully integrated in-house model from raw material sourcing to product manufacturing to retail sales. This integrated SPA model will build a more flexible business base that can adapt to market changes, maintain stable operations and profitability despite fluctuations in raw material costs, logistics and distribution, and deliver sustained stable earnings

• Progress against full-year 2026 March fiscal year consolidated guidance as of the 9-month cumulative period: Revenue 74.4%, operating profit 69.7%, ordinary profit 75.4%, net profit attributable to parent company shareholders 99.2%
• Revenue performance in the year-end/holiday season and January 2026 has been strong, and the company remains on track to meet full-year revenue targets
• Operating profit is slightly below the planned progress rate, but the company will continue to pursue gross profit margin improvement and selling, general and administrative (SG&A) cost reduction to improve profitability, and remains committed to achieving full-year guidance
• Targeted initiatives are being actively implemented for the direct and FC store channel to meet their sales targets, and the Q4 period will focus on growing already high-progress business areas to ensure all channels deliver on full-year plans
• For customer growth initiatives at existing stores, full implementation of MD strategy is scheduled for spring 2026, with measurable performance effects expected to start appearing from April 2026 onward, with impact growing through the second half of the calendar year

By sales channel/segment: 1. Store segment (including direct-operated and FC stores): Revenue was 10.152 billion yen, a 1.8% decrease year-on-year, accounting for 65.9% of total cumulative revenue. The decline is driven by customer count decreases from external environmental factors. 2. EC segment: Revenue was 904 million yen, a 5.6% decrease year-on-year, accounting for 5.9% of total cumulative revenue. The decline comes from lower purchase conversion on the official website. 3. Wholesale segment: Revenue was 2.336 billion yen, a 22.4% increase year-on-year, accounting for 15.2% of total cumulative revenue. Growth is driven by strong sales at major large retail chain clients. 4. Global segment: Revenue was 2.018 billion yen, a 39.7% increase year-on-year, accounting for 13.1% of total cumulative revenue. By region within Global: - United States: Revenue was 1.368 billion yen, a 46.9% increase year-on-year, driven by growth of the existing KUZE FUKU & SONS brand plus revenue from recently acquired Bonnie's Jams and KELLY'S JELLY businesses. - Taiwan: Revenue was 581 million yen, a 36.4% increase year-on-year, driven by increased product assortment for US-based large retail chains. - Other regions (South Korea, Australia, Canada, Hong Kong): Revenue was 68 million yen, a 21.9% decrease year-on-year, due to high revenue volatility in these markets. For the 3-month Q3 period (October-December), total consolidated revenue was 5.735 billion yen, a 5.4% increase year-on-year, led by growth in Wholesale and Global segments.

• Store segment: Sustained customer count declines at existing stores driven by external macro factors (changes in consumer purchasing behavior from high prices)
• EC segment: Sustained low purchase conversion on the official website leading to revenue declines
• Non-core global regions: High revenue volatility leading to year-over-year sales declines
• Raw material cost: Rising raw material prices created a 17 million yen negative impact on gross profit in Q3
• Capital structure: Increased interest-bearing debt from pre-investment for domestic and international M&A activity led to a slight decline in ROIC from Q2 levels, and a 7.9 percentage point decline in equity ratio to 45.7% compared to the end of the prior fiscal year
• Operating profit: Cumulative operating profit progress against full-year guidance is slightly weak, requiring additional SG&A optimization and gross profit improvement efforts in Q4

Q: What is the outlook for achieving the full-year operating profit target?

A: While operating profit looks slightly weak at the Q3 stage, performance from December year-end through January 2026 has shown clear improvement, and we are focused on delivering solid results in Q4 to achieve the full-year target.

Q: Existing stores have seen continued customer declines due to changing purchasing behavior from high prices. Heading into the 2027 March fiscal year, which initiative (pricing response, store reform, CRM) do you see as the most effective for customer recovery, and what is your top priority?

A: The most immediate actionable initiative we are pursuing in the second half is increasing store entry rate, which we are driving through expanded in-store tasting and testing experiences, and we are already seeing clear positive results from this. Next, we need to increase the purchase conversion rate for customers who do enter the store, and MD (merchandising) strategy is the most critical factor for this. To bring in new customers, our top priority is expanding accessible entry-priced products (entry goods) that lower the barrier to purchase. For example, our test-launched "All-Purpose Dashi Potato Chips" priced at 299 yen has been very accessible to customers, and we see significant opportunity from expanding this product category, so we are prioritizing development of these goods right now. Second, we are also focused on developing repeatable daily-use items, starting with the dashi category, to drive ongoing repeat purchases.

Q: The US SCI business achieved operating profit break-even in Q3 of the 2026 March fiscal year. What is your current outlook and what are your plans to improve margin going forward?

A: We have made incremental improvements over the past 5 years and are optimistic about the outlook for further margin gains. We have two core ongoing initiatives to improve per-unit cost and margin: first, we have successfully reduced raw material costs through ongoing rigorous negotiations with suppliers. Second, we have adjusted product recipes over the past several years to create better-tasting products while lowering per-unit cost, and these efforts are already reflected in our results, and will continue. Additionally, because higher factory utilization reduces per-unit production cost, we are targeting utilization as close to 100% as possible. Following the M&A of Portlandia Foods, Bonnie's Jams, and KELLY'S JELLY, we have already achieved significant utilization improvement, which we expect to deliver further margin gains. Existing business, including existing brands and sales to Costco, is also growing strongly, which will further boost factory utilization and support continued margin improvement.

Q: Sales in South Korea are growing, which is attributed to the establishment of the local legal entity. Can you share details on your specific initiatives there?

A: First, establishing a local Korean entity with on-the-ground staff has greatly increased the number of customer touchpoints and business discussions, which has increased our win rate for new distribution. A local presence also demonstrates our long-term commitment to the South Korean market, which builds customer trust and further improves our adoption rate. Second, the sales performance of products we have already launched is very strong, with sustained repeat purchases. Our product "Premium Kuze Fuku Castella" is particularly popular with South Korean consumers. We will continue to roll out additional new products and closely monitor performance going forward.

Q: Have customer growth initiatives already started, and when do you expect to see measurable effects?

A: We have already started rolling out expanded in-store tasting and testing across all stores in the second half, which is already increasing store entry rates. We are now simultaneously rolling out the next phase of MD strategy initiatives, which are scheduled for full deployment in spring 2026. We expect measurable performance effects to start showing up in results from April 2026 onward, with impact increasing as the year progresses. We have set shelf efficiency improvement as a core KPI, and we will track sales and inventory turnover per shelf, replacing underperforming products to continuously refine store assortments, which will drive sustained sales and customer growth.