Revenue up, but operating margin down; the key Q3 focus is how likely the full-year plan is to be achieved

FY2026-H1 revenue increased 7.9% to ¥3,832.163 million from ¥3,551.502 million in the same period of the previous year. However, operating profit declined 13.0% to ¥240.063 million from ¥275.972 million, meaning that revenue growth did not translate directly into operating profit growth. The operating margin fell by approximately 1.5 percentage points, from approximately 7.8% in the same period of the previous year to approximately 6.3%. The key measure for the next earnings release will be whether higher revenue is converted into profit, rather than revenue growth itself.

In its earnings presentation, the company reported H1 progress against its full-year forecasts of 50.0% for revenue, 61.8% for operating profit, 69.2% for ordinary profit and 57.9% for interim net income attributable to owners of the parent, and explained that all four items were progressing as planned. The full-year forecasts are ¥7,657.428 million in revenue, ¥388.532 million in operating profit, ¥362.276 million in ordinary profit and ¥246.991 million in net income. Accordingly, on a simple time-apportionment basis, cumulative Q3 revenue of ¥5,743 million and operating profit of ¥291 million provide reference levels to monitor, although seasonality has not been disclosed and these should not be regarded as the company's formal targets.

The deterioration in margins reflected a 1.3-percentage-point decline in gross margin, from 33.2% in the same period of the previous year to 31.9%, as well as increases in advertising expenses, packing and freight costs, and personnel expenses. The earnings presentation breaks down the impact as follows: gross profit increased by ¥44 million, but increases of ¥13 million in advertising expenses, ¥24 million in packing and freight costs, ¥22 million in personnel expenses and ¥32 million in other expenses reduced operating profit. Restoring the operating margin to the level of the same period of the previous year will require not only revenue growth but also a recovery in gross margin and a pause in expense increases.

The H1 disclosure does not provide standalone results for the three months of the quarter, the amount of cost reductions planned from Q3 onward or details of the cost assumptions incorporated into the full-year forecast. In the next release, we will check cumulative Q3 revenue and operating profit, as well as whether the operating margin falls below 6.3% or returns to the 7% range. Even if the full-year forecast is left unchanged, if the margin does not recover in Q3, it will be necessary to carefully assess whether achievement of the plan depends on fourth-quarter seasonality or temporary reductions in expenses.