Renewal benefits are reaching revenue, but front-loaded costs are weighing on the operating margin

FY2027 Q1 revenue was ¥6,069 million, up 0.3% year on year, while operating profit was ¥1,004 million, down 3.8%. The operating margin declined 0.7 percentage points from approximately 17.2% in the year-earlier quarter to approximately 16.5%. Ordinary profit also fell 3.4% to ¥862 million, and net income for the quarter fell 30.9% to ¥610 million. Although revenue was maintained, the conversion of revenue into profit was less efficient than in the year-earlier quarter.

The company explained that revenue increased due to contributions from 3 facilities that completed full-property renovations between the previous and current fiscal years. At the same time, it said that more floors were renovated in Q1 than in the year-earlier quarter, increasing related costs. However, the disclosures provided do not quantify the amount of renovation-related costs incurred or the year-on-year increase in the number of floors renovated. In H1, it will be necessary to determine whether the cost burden is temporary or structural and likely to continue into H2.

In FY2026, revenue was ¥24,192 million, operating profit was ¥3,818 million and the operating margin was 15.8%, reflecting higher profitability at 4 hotels that had completed full-property renovations. Operating profit increased substantially, by 70.4% year on year, demonstrating that renovations have contributed to medium-term earnings improvement. However, in FY2027 Q1, the revenue contribution from facilities that completed renovations and the cost burden from ongoing construction became apparent at the same time. It will therefore be necessary to assess by facility or cost category whether completed facilities are actually driving higher margins.

The FY2027 full-year forecasts are revenue of ¥25,900 million and operating profit of ¥4,100 million, with Q1 progress at approximately 23.4% and 24.5%, respectively. On a simple 50% H1 benchmark, revenue of ¥12,950 million and operating profit of ¥2,050 million would be the reference points, but the hotel business is seasonal, so full-year achievement cannot be determined on this basis alone. At the next results announcement, the key points will be whether the operating margin returns from 16.5% to the 17% range, whether the profit level excluding renovation costs is explained, and whether the full-year operating profit forecast of ¥4,100 million is maintained.