Q1 operating profit halved despite revenue growth, making delivery of the first-half plan the key focus

FY2027-Q1 revenue increased by ¥2,010 million, or 6.3%, to ¥33,701 million from ¥31,691 million in the same quarter of the previous year. Operating profit, however, fell by ¥1,209 million, or 51.0%, to ¥1,164 million from ¥2,373 million. The operating margin declined by approximately 4.0 percentage points, from approximately 7.5% to approximately 3.5%, clearly showing that revenue growth did not translate directly into profit growth. Ordinary profit also fell 49.1% to ¥1,249 million, while profit attributable to owners of the parent declined by only 24.1% to ¥1,345 million.

The company cited an increase in cost of sales resulting from the elimination of unrealised profit on a temporary increase in intercompany inventory, as well as higher selling, general and administrative expenses, as factors behind the decline in operating profit. However, it has not disclosed the amount of the cost-of-sales impact from eliminating unrealised profit, the increase in inventory, or the increase in SG&A expenses. It therefore remains difficult to distinguish whether the deterioration in operating profit reflects an accounting timing difference caused by a temporary inventory build-up or structural cost increases such as higher personnel and logistics expenses.

The revised first-half forecasts are revenue of ¥69,000 million, operating profit of ¥3,500 million, ordinary profit of ¥3,400 million, and interim profit attributable to owners of the parent of ¥3,000 million. Q1 progress against these forecasts was 48.8% for revenue, 33.3% for operating profit, 36.7% for ordinary profit, and 44.8% for net profit. Revenue had reached almost half of the first-half forecast, but operating profit was well below the halfway mark. Simply deducting Q1 results from the first-half forecasts implies that standalone Q2 revenue of ¥35,299 million, operating profit of ¥2,336 million, ordinary profit of ¥2,151 million, and net profit of ¥1,655 million would be required, but these are not figures disclosed by the company as standalone Q2 forecasts.

At the next results announcement, it will be necessary to examine not only whether first-half operating profit reaches ¥3,500 million, but also the gross margin, SG&A ratio, inventory balance, and the amount of the reversal of eliminated unrealised profit. In FY2026, cost improvements supported profit while higher SG&A expenses weighed on operating profit. If the same cost structure continues, achieving the first-half forecast will not by itself increase confidence in the full-year operating profit target of ¥7,000 million. The most important points are the Q2 cumulative amounts by factor and whether the inventory-related effect was reversed in Q2.