FY2027 1Q: sharp decline in earnings, but full-year forecast maintained

Revenue in the first quarter of the fiscal year ending March 2027 was ¥8,838 million, down 3.4% year on year. Operating profit was ¥93 million, ordinary profit was ¥130 million, and net income attributable to owners of the parent was ¥19 million, down 80.0%, 74.6% and 94.4%, respectively. The deterioration in earnings was far greater than the decline in revenue, and the operating margin fell approximately 4.0 percentage points, from about 5.1% in the same period of the previous year to about 1.1%.

The main causes of the earnings deterioration were lower gross margins in the lifestyle goods business due to inventory-disposal sales following Benexy's dissolution, and closure costs for a factory in China and goodwill amortization in the consumer electronics business. In extraordinary items, the company recorded a ¥36.382 million gain on the sale of fixed assets and a ¥6.609 million loss on the liquidation of an affiliated company, while impairment losses were ¥0 million. The gain on the sale of fixed assets was equivalent to approximately 39% of operating profit of ¥93 million. Although it lifted profit before tax, it does not indicate a recovery in operating earning power.

The full-year forecasts remain unchanged at revenue of ¥36,500 million, operating profit of ¥1,000 million, ordinary profit of ¥1,000 million, net income of ¥700 million and an annual dividend of ¥31. Progress toward the full-year forecasts in 1Q was 24.2% for revenue, 9.3% for operating profit, 13.0% for ordinary profit and 2.7% for net income. Revenue was broadly in line with the 25% of the year elapsed, but earnings were well behind. On a simple calculation, operating profit of ¥907 million would need to be generated over the remaining 3 quarters. The extent to which earnings recover in the first half, including the effect of seasonality and the fading of restructuring costs, will be important.

At the next interim results, it will be necessary to confirm whether the impact of Benexy inventory disposal has run its course and whether additional factory closure costs and goodwill amortization will arise. Although the amounts of extraordinary items have been disclosed, the information does not fully break down by business the gross-margin decline caused by inventory disposal or the closure-related costs. In addition, no quarterly cash flow statement was prepared for 1Q, so the interim results will also need to show how far the earnings decline affected working capital and cash flows.