Revenue growth coexists with declining earnings, with sales growth not flowing through to profit

Revenue in FY2027-Q1 was ¥574.7 billion, up ¥100.1 billion, or 21.1%, from ¥474.6 billion in the same period a year earlier. Operating profit, however, was ¥85.1 billion, down 12.0% from approximately ¥96.7 billion in the same period a year earlier, while profit attributable to owners of the parent also declined 19.7% to ¥68.6 billion. Revenue growth alone appears strong, but the operating margin fell 5.6 percentage points year on year to 14.8%, and the gross profit margin fell 3.4 percentage points to 78.1%.

The decline in profit resulted from the increased cost burden associated with expanding sales. In the disclosed bridge of changes in operating profit, higher revenue contributed ¥100.1 billion, while cost of sales, selling, general and administrative expenses, and research and development expenses reduced profit by ¥38.5 billion, ¥45.9 billion and ¥9.5 billion, respectively. In addition, non-core income and expenses making up the difference between core operating profit and operating profit reduced earnings by ¥17.9 billion. In effect, higher costs and one-off items absorbed the benefit of sales growth.

On a comparable standalone three-month basis, revenue increased significantly from ¥474.6 billion and operating profit of approximately ¥96.7 billion in the same period a year earlier, but operating profit declined. Accordingly, the next results should focus less on the absolute level of revenue and more on the cost-of-sales ratio, profit sharing, research and development expenses, and each component of non-core earnings, including business restructuring costs. The first-quarter disclosure did not provide profit by business unit, so it is not possible to determine which businesses converted revenue growth into profit.

For FY2027-H1, the key questions are how much the operating margin recovers from 14.8% and whether the 3.4-point decline in gross margin is a temporary product-mix effect. It will also be important to determine whether the year-on-year decline in operating profit narrows in the second quarter alone and whether the decline in profit attributable to owners of the parent remains greater than the decline in operating profit, in order to assess the impact of non-core expenses, financial income and expenses, and the tax burden.