Profit recovery is the initial focus as cost pressures outpace revenue growth

In the first quarter from April to June 2026, revenue rose 3.0% year on year to ¥50,124 million. Operating profit, however, turned into an operating loss of ¥111 million from operating profit of ¥292 million in the same period last year. The operating margin was negative 0.2%, down 0.8 percentage points year on year. Ordinary profit also fell 40.9% year on year to ¥215 million, while the quarterly net loss attributable to owners of the parent was ¥317 million. The central issue in the first quarter was therefore deterioration in the profitability of the core business, rather than merely non-operating factors.

The analysis of operating profit drivers in the supplementary earnings materials identified price increases and other factors as a ¥122 million profit driver, the service maintenance business as a ¥43 million profit driver, and the renovation business as a ¥190 million profit driver. These were offset by ¥208 million of negative impact from investment in human capital and other factors and ¥1,597 million from higher costs. The contribution from overseas operations was reported as ¥0 million. In the next earnings release, it will be necessary to check whether these items are disclosed again using the same classifications for the first half, and whether a breakdown of higher costs, including raw materials, labour and logistics, is provided.

Revenue was supported by ¥892 million from higher sales volumes and other factors, ¥735 million from overseas operations, ¥429 million from the service maintenance business and ¥280 million from the renovation business. This was partly offset by a negative ¥888 million impact from the application of the revenue recognition standard. Even when revenue growth is driven by higher volumes or business expansion, it does not necessarily translate directly into improved margins. As gross margin and the amount of SG&A expenses were not disclosed for the first quarter, the first-half results will need to be assessed for changes in gross margin, SG&A expenses, labour costs and raw material costs, to determine which expense items generated the ¥111 million operating loss.

The full-year plan for the fiscal year ending March 2027 calls for revenue of ¥250,000 million and operating profit of ¥18,800 million, implying a planned operating margin of 7.5%. Against the assumption of a 0.9 percentage-point improvement from the 6.6% operating margin in the fiscal year ended March 2026, the first-quarter result was negative 0.2%. Based on the first-quarter operating loss of ¥111 million, the company would need operating profit of ¥18,911 million in the remaining 3 quarters to meet the full-year plan. It will therefore be important to assess not only whether the company has returned to operating profitability by the half-year point, but also whether it can realistically generate the profit required in the second half.

The company has not changed its full-year forecast as of the first quarter, but it has not disclosed the assumptions incorporated into that forecast regarding the impact of higher costs, the extent to which price revisions have taken effect, or the timing of human capital investment. For the first half, it will be necessary to check whether operating profit exceeds ¥0 million, whether the operating margin returns to positive territory, and whether the sum of all items in the driver analysis reconciles with the ¥403 million year-on-year decline in operating profit.