Q1 secured an operating profit despite lower revenue, but a substantial recovery is needed to reach the full-year forecast

In FY2027-Q1, revenue fell 16.5% to ¥395 million from ¥473 million in the same period of the previous year. Operating profit, however, rose 25.8% to ¥7 million from ¥6 million, and the operating margin on revenue improved on a calculated basis from approximately 1.3% to 1.8%. However, higher interest expenses and other factors resulted in an ordinary loss of ¥36 million and a quarterly net loss attributable to owners of the parent of ¥40 million, meaning that the operating profit did not flow through to the lower levels of profit.

The company forecasts revenue of ¥2,950 million, operating profit of ¥260 million, ordinary profit of ¥100 million and net profit attributable to owners of the parent of ¥25 million. As of Q1, progress was 13.4% for revenue and 2.7% for operating profit, below the revenue of ¥737.5 million and operating profit of ¥65 million implied by simply applying the 25% quarterly elapsed rate. After Q1, the amounts still required to achieve the full-year plan are ¥2,555 million in revenue and ¥253 million in operating profit. Excluding seasonality, a simple half-year benchmark would be cumulative H1 revenue of ¥1,475 million and operating profit of ¥130 million.

The decline in revenue was attributable to store closures and brand consolidation in the apparel business, as well as the reversal of the sharp increase in real estate sales in the previous year. Operating profit benefited from an improved gross margin in the real estate business and lower selling, general and administrative expenses following store closures and brand discontinuations in the apparel business, but no amount-based bridge by factor has been disclosed. Accordingly, it is necessary to determine from segment-level gross margins and SG&A whether the business can secure profit through cost reductions even without a recovery in revenue from Q2 onward, or whether renewed expansion of real estate sales is required.

In FY2027-H1, we will assess whether the 16.5% year-on-year decline in Q1 revenue narrows and how much operating profit accumulates from the ¥7 million recorded in Q1. Achieving the full-year operating profit forecast of ¥260 million requires profit accumulation from H1, not only in the second half. If H1 operating profit falls substantially short of ¥130 million, the assumption that ¥253 million will be earned in the second half becomes more demanding. No revision to the earnings forecast was made as of Q1, but the next point of assessment will be whether the company maintains, lowers or raises its full-year forecast at the H1 results.