Will the profit improvement achieved despite lower sales continue in FY2027-H1?

In FY2027 1Q, revenue was ¥1,301.847 million, down 5.0% from ¥1,369.907 million in the year-earlier quarter. Operating income, meanwhile, turned from a ¥17.828 million loss in the year-earlier quarter to a ¥79.734 million profit, and the operating margin improved from approximately negative 1.3% to approximately 6.1%. As profit improved substantially while the top line contracted, the key issue this time is not revenue growth but the sustainability of the margin improvement.

In FY2026, the previous fiscal year, revenue increased just 0.1% year on year to ¥5,711 million, while operating income fell 11.5% to ¥182 million and the operating margin declined from 3.6% to 3.2%. The company attributed the decline in profit to a higher cost-of-sales ratio resulting from costs associated with producing and launching new items and inventory valuation. Accordingly, the 1Q improvement was likely driven less by stronger demand than by a reversal in costs that had deteriorated in the previous fiscal year.

1Q segment profit was ¥44.354 million in the Metal Products business, which turned profitable from a ¥50 million loss in the year-earlier quarter, while the Leisure business generated ¥35.379 million, up 7.7% year on year. The company cited product cost improvements and expense reductions for both businesses, but did not disclose the amounts of the cost improvements or expense reductions, or a breakdown of the cost-of-sales ratio and SG&A expenses. It is therefore not currently possible to quantify how much of the ¥79.734 million in operating income reflects temporary expense reductions and how much represents sustainable improvement in profitability.

For the next reporting period, FY2027-H1, the simple 50% benchmarks of ¥2,865 million in revenue and ¥90 million in operating income will be used for comparison with the full-year forecasts. These are not company-provided half-year targets, however, but mechanical benchmarks that do not take seasonality into account. Even if operating income exceeds ¥90 million, a substantial shortfall in revenue could indicate greater reliance on cost improvements and expense reductions. It will therefore be necessary to examine the cumulative 2Q operating margin, cost-of-sales ratio and reasons for changes in SG&A expenses.