Will margins begin to recover in FY2027 after the low profitability of FY2026 despite revenue growth?

In FY2026, revenue rose 2.7% year on year to ¥107.633 billion, driven by the launch of floor carpets at North and Central American sites in the previous fiscal year, a recovery in demand for interior materials for railways and buses, and an increase in the number of office-building projects supplied with carpet tiles. However, production efficiency declined at the Mexico site because preparations for the production system failed to keep pace with the increase in new orders. As a result, operating profit fell 21.1% to ¥2.369 billion. The operating margin declined 0.7 percentage points, from approximately 2.9% in the previous fiscal year to 2.2%, indicating that revenue growth did not translate directly into profit growth.

The company’s FY2027 full-year forecasts are revenue of ¥106.5 billion, operating profit of ¥3.5 billion, ordinary profit of ¥3.6 billion, and net income attributable to owners of the parent of ¥1.45 billion. Revenue is expected to decline 1.1% year on year, while operating profit is planned to increase 47.7%, implying a simple-calculation recovery in the operating margin to approximately 3.3%. This would exceed the 2.2% recorded in FY2026, but would still fall short of the STEP II target of a 5.0% operating margin by the fiscal year ending May 2027.

The most recent comparable period, FY2026-Q1, recorded revenue of ¥25.465 billion, operating profit of ¥318 million, ordinary profit of ¥533 million, and quarterly net income attributable to owners of the parent of ¥59 million. In FY2027-Q1, it will be necessary to check not only whether revenue exceeds the year-earlier period, but also whether the operating margin exceeds the 2.2% recorded for FY2026 as a whole and whether improvement is occurring at the operating level without relying on non-operating income and expenses. In addition to the standalone Q1 figures, the progress rate toward the full-year forecast of ¥3.5 billion and the level of progress the company considers appropriate in light of seasonality will also be important.

The current full-year forecast does not disclose FY2027 profit plans by segment or the amount of operating profit recovery expected from improved production efficiency. Accordingly, in Q1 we will track whether price revisions, higher-value-added products, revenue growth in North and Central America and Southeast Asia, and improvements to the production system in Mexico are reflected not only in revenue but also in margins. The assessment of the results will depend on whether the path toward a 5.0% operating margin remains a qualitative explanation or advances to an explanation supported by segment profit and quantified cost improvements.