Q1 cost absorption weakened despite higher revenue

FY2027 Q1 revenue was ¥20,367 million, up 3.3% year on year, but operating profit fell 34.3% to ¥500 million, ordinary profit fell 25.4% to ¥748 million, and net profit attributable to owners of the parent fell 13.5% to ¥553 million. The operating margin was approximately 2.5% based on a simple calculation, about 1.4 percentage points below the approximately 3.9% calculated from FY2026 Q1 revenue of ¥19,717 million and operating profit of ¥762 million. Although revenue is growing, Q1 already shows that higher revenue is not readily translating into profit.

By segment, Materials revenue increased 16.4% year on year to ¥8,330 million, while segment profit fell 1.8% to ¥420 million. Apparel revenue fell 5.7% to ¥10,793 million, and segment profit fell 27.0% to ¥800 million. Brand revenue rose 35.6% to ¥1,762 million but recorded a loss of ¥301 million, while Retail revenue increased 8.5% to ¥243 million and profit increased 26.3% to ¥116 million. Accordingly, the decline in the company-wide margin should be viewed as the combined result of insufficient cost absorption in Materials, lower revenue and profit in Apparel, and upfront investment in Brand, rather than the result of a single business.

The comparative period, FY2026 H1, recorded revenue of ¥39,541 million, operating profit of ¥1,379 million and ordinary profit of ¥1,714 million. The operating margin was approximately 3.5%, above FY2027 Q1's 2.5%. In FY2027 H1, we will look not simply at the annualised Q1 profit level, but at whether cumulative operating profit exceeds the year-earlier figure and whether the operating margin recovers at least to the FY2026 H1 level.

The Q1 earnings summary did not disclose a cash flow statement or expense amounts by item for gross margin and selling, general and administrative expenses. In H1, it will be important to see whether the effects of the weaker yen, logistics costs, raw-material prices, price competition, sales commissions and rent can be explained on a monetary basis. Even if the margin improves, the credibility of the full-year operating profit forecast of ¥4,400 million will depend on whether the improvement reflects temporary price pass-through or a structural improvement from reviewing suppliers and production sites and shifting toward higher-value-added products.