Revenue up in Q1 but operating profit halved; H1 will test whether margins recover

Q1 revenue rose 4.9% year on year to ¥1,221 million, while operating profit fell 54.0% to ¥31 million, ordinary profit fell 62.8% to ¥23 million, and net profit attributable to owners of the parent fell 51.7% to ¥21 million. The operating margin was approximately 2.5%, calculated by dividing ¥31 million by ¥1,221 million. This was approximately 3.3 percentage points below the roughly 5.8% margin calculated from operating profit of ¥68 million and revenue of ¥1,164 million in the year-earlier quarter.

The full-year forecasts are revenue of ¥5,682 million, operating profit of ¥322 million, ordinary profit of ¥294 million, and net profit of ¥244 million. Simply deducting the Q1 results means that achieving the full-year forecasts will require revenue of ¥4,461 million and operating profit of ¥291 million from Q2 onward. Operating profit had reached only approximately 9.6% of the full-year forecast in Q1, clearly below the approximately 21.5% progress for revenue. Accordingly, H1 will need to be assessed not only for revenue accumulation but also for the extent of margin recovery.

The company said it had pursued redevelopment of existing properties and the acquisition of new properties in its real estate utilization business, sales of key vehicle models and store events in its automobile sales business, and price increases and sales promotions in its musical instrument sales business. However, it has not provided an amount-based breakdown showing how many millions of yen these measures added to revenue or how many millions of yen price increases, higher procurement costs, personnel expenses, and promotional expenses reduced operating profit. It is not yet possible to determine whether the Q1 decline in operating margin resulted from one-off expenses or continuing cost burdens.

The H1 results should be reviewed for cumulative revenue and operating profit, as well as the operating margin, segment profit, and progress against the full-year forecasts. A key dividing line in determining whether the sharp Q1 profit decline can be viewed as temporary will be whether cumulative H1 operating profit approaches ¥161 million, or half of the full-year forecast of ¥322 million on a simple basis, and whether the full-year operating profit forecast is maintained or revised.