The 1Q loss is explained by seasonality and upfront investment, but the H1 recovery will test the full-year forecast

The first quarter from March to May 2026 generated revenue of ¥6,992 million, up 4.4% year on year. However, operating income was a loss of ¥346 million, a substantial deterioration from the ¥208 million operating profit recorded in the same quarter of the previous year. Ordinary income was also a loss of ¥363 million, while quarterly net income attributable to owners of the parent was a loss of ¥179 million. Losses therefore extended beyond the operating level to ordinary and net income.

The company explained the deterioration in earnings as the result of seasonal costs associated with new-year student recruitment at its cram schools, upfront human capital investment aimed at future growth, restructuring costs and costs for opening new locations. The 1Q loss therefore needs to be viewed in light of the cram-school business's seasonality. However, this disclosure did not provide a bridge separating these costs into human capital investment, restructuring and recruitment costs. In FY2027-H1, we will look to determine whether the upfront costs are nonrecurring or will remain as fixed costs.

The full-year forecast remains unchanged at revenue of ¥28,505 million, operating income of ¥785 million, ordinary income of ¥558 million and net income attributable to owners of the parent of ¥200 million. On a simple calculation, the remaining nine months after deducting 1Q results would need to generate revenue of ¥21,513 million and operating income of ¥1,131 million. In addition, given the 1Q operating loss of ¥346 million, standalone Q2 operating income would need to exceed ¥346 million for cumulative first-half operating income to turn positive. This is an arithmetic checkpoint for measuring progress against the plan at the next results announcement, not a company forecast.

Year-on-year comparisons with FY2026 full-year results are difficult because the previous fiscal year was an irregular nine-month period following a change in the fiscal year-end. In FY2027-H1, the focus will be not only on revenue accumulation but also on the extent to which the operating loss of ¥346 million in 1Q narrows and whether seasonal costs have been absorbed sufficiently to support the view that maintaining the full-year forecast is reasonable.