Sales growth continues, but simultaneous deterioration in gross margin and SG&A makes profit recovery the focus for FY2027-H1

FY2027-Q1 revenue was ¥263.755 billion, up 5.0% year on year, while operating profit was ¥3.095 billion, down 23.9%; ordinary profit was ¥3.152 billion, down 24.1%; and profit attributable to owners of the parent was ¥2.039 billion, down 27.0%. The operating margin was 1.2%, down from approximately 1.6% in the year-earlier quarter. Revenue growth did not translate directly into profit growth, and the divergence between the expansion in sales scale and profitability remains the key issue for the next results announcement.

The first-quarter earnings presentation breaks down the year-on-year decline in operating profit into a ¥1.245 billion increase from higher revenue, offset by a ¥473 million negative impact from the lower gross margin, ¥174 million from higher personnel costs, ¥768 million from higher logistics costs and ¥800 million from higher other SG&A. The gross margin was 9.7%, down 0.2 percentage points year on year, while SG&A was ¥22.586 billion, or 8.6% of revenue. The burden from logistics costs and other SG&A was particularly significant. It will be necessary to determine whether the same cost structure continues through H1 or can be absorbed through gross-margin improvement and higher productivity.

In FY2026, the previous full year, revenue increased 1.9% year on year to ¥1,004.749 trillion, while operating profit declined 11.9% to ¥13.207 billion and ordinary profit declined 13.3% to ¥13.534 billion. The full-year operating-profit bridge showed a ¥1.808 billion positive contribution from higher revenue, offset by negative impacts of ¥700 million from the gross margin, ¥638 million from personnel costs, ¥1.383 billion from logistics costs and ¥867 million from property-related expenses. In FY2027-Q1, logistics costs of ¥768 million and other SG&A of ¥800 million also reduced profit, suggesting that the cost issue may have carried over into the current fiscal year rather than being a one-off factor specific to the previous year.

The FY2027 full-year forecasts are revenue of ¥1,030.000 trillion, operating profit of ¥11.000 billion, ordinary profit of ¥10.500 billion and profit attributable to owners of the parent of ¥7.000 billion. First-quarter progress rates were 25.6%, 28.1%, 30.0% and 29.1%, respectively. Although profit progress exceeded revenue progress, the company has maintained its full-year plan. For H1, the simple 50% benchmarks are operating profit of ¥5.500 billion, ordinary profit of ¥5.250 billion and net profit of ¥3.500 billion. The key issue is not only whether these levels are exceeded, but also whether a gross margin of at least 9.7% and an SG&A ratio of 8.6% or below can be achieved at the same time. The amounts by factor were disclosed for the first quarter, but the breakdown of center fees and rebates and logistics costs, as well as gross-profit changes attributable to price and volume, have not yet been disclosed in sufficient detail.