1Q profit fell more sharply than revenue, making recovery in the reduced margin the top priority

Revenue in 1Q FY2027 was ¥2,116 million, down ¥91 million from ¥2,207 million in the same quarter of the previous year. Operating profit, meanwhile, fell ¥252 million from ¥492 million to ¥240 million. While the decline in revenue was limited to 4.1%, operating profit fell 51.3%, making the deterioration in profit conversion, rather than a simple change in revenue scale, the central issue. Operating margin fell 11.0 percentage points from 22.3% in the same quarter of the previous year to 11.3%.

Looking at the cost breakdown, gross margin improved 2.4 percentage points from 53.5% in the same quarter of the previous year to 55.9%. The deterioration in 1Q profit therefore cannot be explained solely by a decline in gross margin. SG&A was ¥937 million, equivalent to an SG&A-to-revenue ratio of 44.3%. The company explained that personnel and recruitment costs increased by ¥193 million year on year and other expenses by ¥54 million, while cost of sales decreased by ¥94 million. In H1, the focus will be on how much the increases in personnel and recruitment costs and AI-related expenses narrow while the 55.9% gross margin is maintained.

The full-year forecast is revenue of ¥10,000 million and operating profit of ¥946 million, implying a full-year operating margin of approximately 9.5%. Compared with actual operating profit of ¥1,703 million and an operating margin of 20.2% in FY2026, the company's plan itself assumes a substantial decline in profitability. 1Q operating profit of ¥240 million represents 25.3% of the full-year forecast, while revenue of ¥2,116 million represents 21.2%. Profit progress is therefore slightly ahead of the 25% elapsed-quarter rate, but the profit level itself is well below that of the same quarter of the previous year.

The reporting structure consists of a single Consulting business segment, and no segment-level revenue or profit is provided for 1Q. Accordingly, in FY2027 H1 it will be important to assess not only whether the operating margin recovers from 11.3% to the 20% range and whether the SG&A ratio falls from 44.3%, but also whether the increase in company-wide expenses can be explained in terms of changes in personnel and recruitment costs, other expenses and gross profit. Whether cumulative H1 operating profit reaches the previous year's H1 level of ¥993 million will also be a clear test of the plan's achievability.