Revenue up, operating profit down: assessing whether margins recover in H1

Q1 revenue was ¥3,003 million, up 5.3% year on year, setting a new record for a first quarter. Operating profit, however, declined by ¥64 million, from ¥203 million in the year-earlier period to ¥139 million, while the operating margin fell 2.5 percentage points, from approximately 7.1% to 4.6%. Ordinary profit was ¥132 million and net profit was ¥86 million, down 32.3% and 34.2% year on year, respectively.

The company said it pursued reductions in manufacturing costs and price revisions in response to upward pressure on raw material and energy prices caused by the weaker yen and the situation in the Middle East. At the same time, upfront costs for new-store openings, system investment expenses, front-loaded promotional spending, human capital investment including improved employee compensation, and higher distribution costs associated with increased sales weighed on profit. Although the Q1 materials explain the reasons for the changes in these costs, they do not disclose the increase by expense category or the impact on operating profit.

The Q1 gross profit margin was 52.5%, in line with the year-earlier period. Accordingly, the decline in profit appears to reflect an increase in SG&A expenses, logistics costs and investment expenses that outpaced revenue growth, rather than a sharp fall in the gross margin. Operating profit was ¥203 million in the year-earlier Q1, while operating profit for H1 FY2026 was ¥347 million and the operating margin was approximately 6.2%. If this level is not recovered in FY2027-H1, greater cost absorption in the second half will be required to achieve the full-year operating profit target of ¥740 million.

At the next results announcement, the first points to check will be whether H1 operating profit exceeds the year-earlier ¥347 million and whether the operating margin returns to approximately 6.2%. In addition, the company should be monitored for its ability to maintain the 52.5% gross profit margin, the pace of increases in logistics and promotional expenses, and the timing of expense recognition for new stores and system investments. Since the company has left its full-year plan unchanged, the H1 expense-category disclosures will be important in determining whether the cost burden reflects temporary upfront investment or recurring costs that will continue as sales expand.