Revenue up, but operating profit down; Q1 gross margin decline is the key issue for FY2027-H1

Operating revenue for the first quarter of the fiscal year ending February 2027 was ¥112,199 million, up 3.4% from ¥108,541 million in the year-earlier quarter. Operating income, however, fell 12.7% to ¥2,571 million from ¥2,944 million, indicating that revenue growth did not translate into profit. Ordinary income also fell 16.8% to ¥2,774 million, while net income attributable to owners of the parent fell 45.3% to ¥1,186 million, with the decline widening at lower levels of the income statement.

Calculated against operating revenue, the operating margin was 2.29% in the first quarter, down 0.42 percentage points from 2.71% in the year-earlier quarter. The company attributed the increase in operating revenue to new stores, growth at existing stores and the merger of subsidiaries, while explaining that lower gross margins reduced gross profit and that personnel, logistics and store operating costs also increased. However, first-quarter gross margin, the decline in gross profit and cost increases by expense category were not disclosed, so the extent of margin deterioration cannot be separated into pricing, product mix and cost factors.

The full-year plan remains unchanged at operating revenue of ¥478,000 million, operating income of ¥14,300 million, ordinary income of ¥15,200 million and net income of ¥9,800 million. First-quarter progress was 23.5% for operating revenue but only 18.0% for operating income, leaving profit progress 5.5 percentage points behind revenue progress. After deducting first-quarter results, the company needs to generate operating revenue of ¥365,801 million and operating income of ¥11,729 million over the remainder of the period, implying a 3.21% operating margin. This is 0.92 percentage points above the first-quarter margin of 2.29%.

Accordingly, FY2027-H1 should be assessed not only on whether operating revenue exceeded the year-earlier period, but also on whether operating income progress approached ¥7,150 million, or 50% of the full-year forecast. Key points include whether gross margin improved after its first-quarter decline, whether the growth rates of personnel, logistics and store operating costs fell below the growth rate of gross profit, and how price increases and changes in product mix affected gross margin.

If the H1 results do not disclose the operating margin, gross margin, total selling, general and administrative expenses, year-on-year changes and increases by expense category, it will remain difficult to quantitatively assess the likelihood of achieving full-year operating income of ¥14,300 million. The first-quarter earnings explanation provided only qualitative factors, so at a minimum the H1 results should clarify gross margin and the amounts of personnel and logistics costs.