Q1 revenue increased, but operating profit declined; assess the margin pressure from higher costs

First-quarter revenue was ¥62.4 billion, up 1.8% from ¥61.385 billion in the same period of the previous year. Operating profit, however, fell 14.2% to ¥3.610 billion from ¥4.205 billion. Although the gross profit margin improved by 0.2 percentage points year on year to 35.1%, the operating margin fell 1.1 percentage points to 5.8%, suggesting that the burden on operating expenses, including SG&A and other expenses, was heavier than at the gross profit level.

In the operating profit bridge presented in the earnings presentation, sales and sales mix contributed ¥3.2 billion, higher unit prices and price revisions contributed ¥4.0 billion, and streamlining and cost reductions contributed ¥1.4 billion to the increase in profit. These were offset by ¥6.6 billion in cost increases, ¥0.7 billion in human capital investment and ¥1.3 billion in other expenses. SG&A was ¥18.3 billion, with SG&A as a percentage of revenue at 29.4%. In addition to higher materials and logistics costs, increases in expenses, particularly labor costs, put pressure on profit.

Volumes were also weak. Shipments of system kitchens fell 2.1% year on year and vanity units fell 5.5%, meaning that the increase in revenue was not driven solely by higher volumes. Higher selling prices, increased remodeling sales volumes and changes in product mix supported revenue growth, but with lower volumes and higher costs occurring simultaneously, the sustainability of higher unit prices as a driver of profit growth remains to be tested.

The full-year forecast assumes that materials price adjustment charges will be reflected in selling prices from September 2026 and that a separate price revision will be implemented from April 2027. In FY2027-H1, the key checks will be whether higher unit prices were reflected not only in revenue but also in the gross profit margin, the extent to which the ¥6.6 billion in cost increases recurs, and whether the impact of materials and logistics costs attributable to the situation in the Middle East has diminished. How far cumulative first-half profit can recover from Q1 operating profit of ¥3.6 billion will be the first test of the achievability of the full-year forecast.