Q1 to test a plan in which operating profit lags sales growth

FY2026 revenue was ¥53,998 million, operating profit was ¥6,964 million, ordinary profit was ¥6,899 million, and net income attributable to owners of the parent was ¥4,997 million. For FY2027, the company forecasts revenue of ¥56,900 million, operating profit of ¥7,000 million, ordinary profit of ¥6,900 million, and net income of ¥4,500 million. The plan calls for revenue to increase 5.4% year on year, operating profit to increase 0.5%, ordinary profit to be essentially flat, and net income to decline 10.0%, indicating that profit growth will be clearly slower than top-line growth.

In FY2026-Q1, revenue was ¥13,520 million, operating profit was ¥2,362 million, ordinary profit was ¥2,364 million, and net income attributable to owners of the parent was ¥1,558 million. At the next earnings announcement, progress against the full-year revenue forecast of ¥56,900 million and operating profit forecast of ¥7,000 million should be reviewed, in addition to comparison with the same quarter of the previous year. However, the company explains that the hotel business is seasonal, with revenue and operating profit tending to decline in the third quarter. Accordingly, 25% should not be treated mechanically as the benchmark; year-on-year performance and the assumptions underlying the company’s full-year plan should be considered together.

The FY2027 operating profit forecast increases by only ¥36 million, despite a ¥2,902 million increase in revenue. This raises a planning issue, as upfront costs associated with new openings and rebranding, personnel expenses, rent, and outsourced cleaning costs may offset the benefit of higher revenue. In Q1, we will assess the quality of revenue growth by reviewing the operating margin, the revenue contribution from existing and new hotels, the amounts of opening and rebranding costs, and year-on-year changes in rent and personnel expenses.

The company reports a single segment, the hotel business, and does not disclose segment profit. As a result, it is difficult to identify the source of any deterioration in profitability based solely on changes in consolidated operating profit. At the next earnings announcement, key points will include the extent to which the company discloses revenue, room occupancy, average room rates, hotel count, and room count for the Choice Brand, Choice Brand RS, Original Brand, and other businesses, as well as whether it revises its full-year forecast.