Assessing cost absorption as operating profit halves despite higher revenue

Revenue in the first quarter of the fiscal year ending March 2027 was ¥35,021 million, up 2.0% year on year. New customer acquisition among restaurants contributed to the increase in revenue, while operating profit fell 57.0% to ¥269 million, ordinary profit fell 50.2% to ¥319 million, and net profit attributable to owners of the parent fell 31.7% to ¥206 million. Progress against the full-year revenue forecast of ¥145,000 million was 24.2%, but progress against the operating profit forecast of ¥2,100 million was only 12.8%, indicating that profit growth is lagging revenue growth.

The decline in margins indicates that the increase in costs cannot be absorbed by sales volume alone. According to the supplementary earnings materials, gross profit increased by only ¥69 million year on year, while selling, general and administrative expenses increased by ¥427 million. By expense category, delivery costs increased by ¥176 million, personnel expenses by ¥56 million, and depreciation and lease expenses by ¥66 million, bringing SG&A as a percentage of revenue to 23.2%. The gross profit margin also declined by 0.3 percentage points year on year to 24.0%, while the operating profit margin fell 1.0 percentage point to 0.8%.

Costs related to the business reorganization totaled approximately ¥120 million in the first quarter against a full-year plan of ¥800 million, and the company described this as being “in line with plan.” However, unlike restructuring costs, higher depreciation resulting from completion of the head office building and the launch of the financial accounting system may remain as fixed costs. Depreciation was ¥938 million and total capital expenditures were ¥2,288 million in the previous fiscal year, so the impact of investments in system upgrades and head office facilities on profit needs to be tracked by expense category.

At the next interim results, comparison with revenue of ¥69,221 million and operating profit of ¥911 million in the year-earlier period will be important. If the first-quarter profit decline was caused by a temporary concentration of reorganization costs, the first-half operating profit margin should exceed 0.8% and progress toward the full-year forecast of ¥2,100 million should rise from 12.8%. Conversely, if delivery, personnel and depreciation costs continue to increase and the gross profit margin falls below 24.0%, revenue growth alone will be unlikely to support the full-year profit plan.