Is margin-led improvement preceding a recovery in revenue growth?

Revenue in Q1 of FY2027 was ¥9,045 million, down 3.5% year on year, while operating profit rose 25.0% to ¥790 million. Operating margin on revenue was approximately 8.7% on a simple calculation, up from approximately 6.7% in the year-earlier quarter. By contrast, for FY2026 as a whole, revenue was ¥33,812 million, down just 0.3%, while operating profit rose 66.1% to ¥1,774 million, representing an operating margin of 5.2%. Recent improvement in profitability is evident, but it is not yet clear whether the improvement has been accompanied by a recovery in revenue scale.

By segment, the Halmek business reported Q1 revenue of ¥7,281 million, down 2.8% year on year, and segment profit of ¥781 million, up 27.2%. The Kotose business reported revenue of ¥1,879 million, down 8.7%, and a segment loss of ¥44 million. Accordingly, the improvement in consolidated operating profit did not result from revenue growth in both businesses. It depended mainly on improved profitability in the Halmek business and higher margins resulting from more selective advertising investment.

The Q1 earnings presentation showed the factors behind changes in operating profit by business: information content contributed a positive ¥40 million, Halmek merchandise a positive ¥100 million, Kotose merchandise a negative ¥10 million, and the community business a positive ¥10 million, among others. However, the actual amounts of advertising expenses, cost of sales and selling, general and administrative expenses, as well as the impact of reduced advertising and a better cost ratio on operating profit of ¥790 million, have not been disclosed. To assess the repeatability of the profit improvement, it will be important to see whether the company provides additional disclosure by business and expense category in FY2027-H1.

The full-year FY2027 forecast remains unchanged at revenue of ¥35,000 million and operating profit of ¥2,000 million. As of Q1, progress against the full-year forecast was 25.8% for revenue and 39.5% for operating profit, although the company said Q1 profit exceeded its first-half profit target. However, sales are seasonal, with promotions concentrated in June and November–December, making revenue and profit in Q1 and Q3 comparatively large. In FY2027-H1, the key points will not be simply whether revenue of ¥17,500 million and operating profit of ¥1,000 million were achieved, but also the variance from the first-half plan after accounting for seasonality and whether margins were maintained while advertising investment was resumed.