Can higher rents and occupancy absorb the increase in costs?

Consolidated revenue in FY2027-Q1 was ¥115,902 million, up 3.7% year on year, while operating profit was ¥12,123 million, down 1.1%. Revenue progress was approximately 24.9% against the full-year forecast of ¥465,000 million, while operating profit progress was approximately 31.5% against the forecast of ¥38,500 million. Profit progress itself is therefore ahead of revenue progress. However, the fact that operating profit fell short of the year-earlier level despite higher revenue is important when assessing margins going forward.

The rental business generated revenue of ¥112,019 million and operating profit of ¥14,422 million, supporting consolidated earnings. The company has traditionally identified higher occupancy and rents, a review of selling prices, and optimization of its cost structure as measures to improve the rental business’s profitability. In FY2027-Q1, however, consolidated operating profit growth failed to keep pace with revenue growth. In FY2027-H1, it will be necessary to assess not only whether rental revenue continues to increase, but also the extent to which the benefit of higher revenue absorbed costs such as property maintenance, personnel expenses and DX-related expenses.

Compared with revenue of ¥111,717 million and operating profit of ¥12,206 million in the year-earlier period, FY2027-Q1 revenue increased by ¥4,185 million, while operating profit decreased by ¥83 million. The simple operating margin also declined from approximately 10.9% in the year-earlier period to approximately 10.5%, suggesting that the effects of higher prices and improved occupancy may have been partly offset by higher costs. At the next results announcement, a key issue will be whether the company can disclose at least the year-on-year changes in property maintenance-related costs within cost of sales and personnel investment and DX-related costs within selling, general and administrative expenses.

No quarterly consolidated cash flow statement was prepared for FY2027-Q1, so the extent to which profit is supported by operating cash flow cannot be confirmed until the interim period. For H1, the first benchmark will be half of the full-year plan, or revenue of ¥232,500 million and operating profit of ¥19,250 million. At the same time, the focus will be on whether the operating margin can remain at approximately the Q1 level of 10.5% and whether pricing and occupancy improvements are being achieved without a corresponding increase in costs.