First-quarter operating profit is lagging sales progress, making a second-half recovery necessary to achieve the full-year plan

First-quarter revenue in FY2027 was ¥2,629.5 million, up 2.6% year on year. Progress against the full-year revenue forecast of ¥10,600 million was approximately 24.8%, broadly in line with the 25% elapsed portion of the fiscal year. Operating profit, however, was ¥60.7 million, down 5.9% year on year, representing progress of only approximately 18.1% against the full-year forecast of ¥335 million. With operating profit progress lagging revenue progress by approximately 6.7 percentage points, the company cannot reach its full-year plan through revenue growth alone and needs a second-half profit recovery.

The full-year plan calls for revenue of ¥10,600 million, operating profit of ¥335 million, ordinary profit of ¥365 million and profit attributable to owners of the parent of ¥245 million. Revenue is expected to increase 3.4% from the previous fiscal year, while operating profit is expected to decline 7.3% and ordinary profit 6.1%. Net profit alone is planned to increase 10.5%, but this plan does not assume operating profit growth. In the first quarter, ordinary profit nevertheless rose 13.9% year on year to ¥89 million and net profit rose 31.2% to ¥53.4 million, while operating profit declined, creating a gap between profit that includes non-operating income and extraordinary gains or losses and the earnings power of the core business.

The first-quarter decline in operating profit was mainly due to lower profit in the human resources-related business. In the nursing care business, the personnel expense ratio continued to rise as employee compensation was improved, while subsidy income lifted ordinary profit. Accordingly, the increase in ordinary profit cannot be assessed as a direct improvement in core operating profitability. The company did not disclose operating, investing or financing cash flow, or its cash and cash equivalents balance for the first quarter, so it is not possible to determine whether the increase in profit was accompanied by cash generation.

For the next FY2027-H1 results, the focus should be not only on whether revenue reaches around ¥5,300 million, equivalent to half the full-year forecast, but also on whether operating profit approaches approximately ¥167.5 million, half the full-year forecast. However, given the seasonality of the education business and facility utilization trends, failure to reach 50% alone should not be taken as evidence that the plan will be missed. Operating margin, profit recovery in the human resources-related business and personnel cost burdens in the nursing care business must also be assessed.