Slight decline in sales but sharp drop in operating profit: gross profit and cost breakdown is the key H1 issue

FY2027 Q1 revenue was ¥21,582 million, down ¥398 million, or 1.8%, from ¥21,980 million in the same period of the previous year. Operating profit, meanwhile, declined ¥489 million, or 34.1%, from ¥1,434 million to ¥945 million. The simple operating margin calculation shows a 2.1-point decline, from approximately 6.5% to approximately 4.4%. The key H1 issue is that profitability deteriorated more than the decline in sales would suggest.

The company identifies higher energy-related prices and raw material costs, the weaker yen, rising wages, and inflation as risks. At the same time, SG&A expenses declined 2.5% year on year as the company reviewed advertising expenses and restrained administrative costs. Despite progress in reducing fixed costs, operating profit fell ¥489 million. H1 will therefore need to establish whether cost of sales, purchase prices, discounts, or product mix pushed down the gross margin. Q1 did not include disclosure of cost of sales or gross profit in either amount or margin terms, or a profit bridge by factor.

Ordinary profit, which is close to profit before tax, was ¥1,099 million, down 24.5% year on year. Net profit attributable to owners of the parent was ¥815 million, down 37.6%. Q1 included ¥148 million in impairment losses and ¥186 million in depreciation and amortisation. The impairment loss reduced net profit at a level below operating profit. H1 will be used to assess whether additional impairment losses arise, which stores or shared assets are affected, and whether profit recovery can be confirmed excluding extraordinary gains and losses.

The reported business consists of a single segment, the footwear business, so profit contributions by brand, store format, and e-commerce versus physical stores cannot be confirmed. Accordingly, the key points are not only whether the company-wide 4.4% operating margin improves in H1, but also whether gross margin, the SG&A ratio, and cumulative impairment losses are disclosed. In particular, if the 2.5% decline in SG&A expenses continues but the operating margin remains at or below 4.4%, cost reductions may not be sufficient to offset deterioration in pricing and purchasing conditions.