Will cost growth continue to outpace the profit impact of higher revenue?

FY2026 revenue was ¥1,447.436 million, up ¥145.665 million, or 11.2%, from ¥1,301.771 million in FY2025. Operating profit, meanwhile, fell ¥81.981 million, from ¥279.617 million to ¥197.636 million, a decline of 29.3%. The operating margin fell 7.8 percentage points, from approximately 21.5% in FY2025 to approximately 13.7% in FY2026, indicating that revenue growth did not translate directly into profit growth.

Gross profit trends are also important in understanding the background to the margin decline. FY2026 gross profit was ¥764.966 million, up ¥26.066 million from ¥738.900 million in FY2025, but its growth was limited to approximately 3.5%, versus 11.2% revenue growth. Cost of sales increased ¥119.599 million, from ¥562.871 million to ¥682.470 million, or approximately 21.2%, and the cost of sales ratio rose from approximately 43.2% to 47.2%. As a result, the gross margin declined from approximately 56.8% to 52.9%.

The pressure on profits may not be a temporary full-year phenomenon. In the first half of FY2026, revenue increased 15.3% year on year to ¥712.124 million, while operating profit fell 10.7% year on year to ¥109.854 million. For the cumulative third quarter, revenue rose 12.9% year on year to ¥1,077 million, whereas operating profit fell 20.1% to ¥166 million. The combination of higher revenue and lower profit continued from the first half through the full year and needs to be reassessed in FY2027-Q1.

The company is reducing SG&A expenses and rebuilding its sales organization while securing personnel and advertising expenses needed for future growth. It has also indicated a policy of increasing customer value by incorporating generative AI into its products. However, the published financial figures do not allow the contribution of personnel expenses, outsourcing costs, communications expenses, development costs and other factors to FY2026's profit decline to be separated. In the next earnings report, we will examine not only revenue but also the cost of sales ratio, total SG&A expenses, personnel expenses associated with the increase in headcount and function development costs, to determine whether growth investment is temporary or an ongoing cause of margin deterioration.