Will hotel operating margins continue to decline despite higher revenue?

Consolidated revenue in the first quarter increased 7.4% year on year to ¥12,085 million, but operating profit declined 30.3% to ¥648 million. The operating margin, calculated from these figures, was approximately 5.4%, down about 2.9 percentage points from approximately 8.3% in the year-earlier quarter. Revenue in the hotel operations business also increased to ¥12,073 million, but segment profit fell 19.0% year on year to ¥932 million, indicating that expansion in scale has not translated directly into profit growth.

The company cites the reversal of lodging demand associated with the Kansai–Osaka Expo, a decline in Chinese guests, higher variable rent and operating expenses, and the front-loading of costs related to new openings as factors behind the decline in profit. As of the first quarter, however, no disclosure was available breaking down these cost increases by amount or providing a breakdown of operating profit between existing and new hotels. Accordingly, in the next interim results, it will be necessary to assess not only whether the hotel operations business can maintain its margin of approximately 7.7%, but also whether the higher costs are temporary pre-opening expenses or recurring fixed costs associated with expanding the number of operating hotels.

In the fiscal year ended March 2026, the room occupancy rate was 90.2%, ADR was ¥12,954 and RevPAR was ¥11,682, but in the first quarter of the fiscal year ending March 2027 these declined to 88.6%, ¥12,871 and ¥11,403, respectively. In the interim results, the key points will be whether occupancy can return to around 90% and whether ADR and RevPAR can turn positive year on year. The earnings release does not disclose a detailed bridge of revenue or expenses by region, so we will also assess whether supplementary explanations are provided separating the earnings of existing domestic hotels, newly opened hotels and the overseas business.