| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥389.3B | ¥340.0B | +14.5% |
| Operating Income / Operating Profit | ¥50.0B | ¥51.1B | -2.1% |
| Ordinary Income | ¥52.2B | ¥53.0B | -1.4% |
| Net Income / Net Profit | ¥38.9B | ¥31.9B | +21.9% |
| ROE | 10.2% | 9.1% | - |
For the six months ended February 2026 (Q2), revenue was ¥389.3B (YoY +¥49.3B +14.5%), achieving double-digit top-line growth, while Operating Income was ¥50.0B (YoY -¥1.1B -2.1%) showing a decline. Ordinary Income was ¥52.2B (YoY -¥0.8B -1.4%) a slight decrease, and Net Income was ¥38.9B (YoY +¥7.0B +21.9%) a significant increase. The core Karaoke Business accounted for 97.1% of revenue and drove a 14.9% sales increase, but Operating Margin fell to 12.9% (prior 15.0%), down 2.1ppt. Gross margin compressed to 24.0% (prior 25.3%), down 1.3ppt, and SG&A ratio rose to 11.1% (prior 10.2%), up 0.9ppt, indicating costs grew alongside revenue. The large rise in Net Income was mainly due to a ¥10.1B gain on sale of fixed assets and a reduction in extraordinary losses, and thus does not reflect an improvement in recurring profitability. Progress against the Full Year forecast (Operating Income ¥118.3B) is 42.3%, below the standard 50%, requiring margin recovery in H2.
Revenue growth was driven by steady performance in the core Karaoke Business. By segment, Karaoke posted ¥377.9B (+14.9%), representing 97.1% of sales, aided by network expansion and improved utilization. Property Management was ¥9.3B (+1.1%), roughly flat. Cost of sales increased to ¥296.1B (+¥28.0B +10.4%), rising less than revenue (+14.5%), resulting in gross margin remaining under pressure at 24.0% versus 25.3% a year earlier (-1.3ppt). SG&A rose to ¥43.2B (+¥8.4B +24.1%), growing substantially faster than sales, lifting the SG&A ratio to 11.1% (prior 10.2%) +0.9ppt; this suggests front-loading of personnel and store opening costs. Operating Income declined to ¥50.0B (-2.1%) with an Operating Margin of 12.9% down 2.1ppt from 15.0%. Non-operating items included foreign exchange gains of ¥2.0B (prior year foreign exchange loss ¥0.1B), supporting Ordinary Income of ¥52.2B (-1.4%). Extraordinary income included ¥10.1B gain on sale of fixed assets (prior ¥0.01B), while extraordinary losses narrowed to ¥2.0B (including ¥1.9B litigation settlement) from ¥6.3B (including ¥1.3B impairment loss) a year earlier. Profit before tax was ¥60.3B (+29.1%), with an effective tax rate of 35.4% (prior 31.6%), resulting in Net Income of ¥38.9B (+21.9%). Of the ¥8.1B gap between Ordinary Income and Net Income, ¥10.1B was attributable to the gain on sale of fixed assets; excluding one-off items, underlying Net Income remained roughly flat year-over-year. In conclusion, the company faces revenue growth with margin compression at the operating level.
Karaoke: Revenue ¥377.9B (+14.9%), Operating Income ¥56.8B (+0.5%), Margin 15.0% (prior 17.2%). While revenue grew double digits, margin declined 2.2ppt as cost increases pressured profitability. Property Management: Revenue ¥9.3B (+1.1%), Operating Income ¥1.1B (+28.6%), Margin 12.0% (prior 9.4%), with a 2.6ppt margin improvement. Karaoke accounted for 98.0% of consolidated Operating Income, indicating very high business concentration. Total segment profit was ¥57.3B, from which corporate adjustments of -¥7.2B (prior -¥6.4B) were deducted, yielding consolidated Operating Income of ¥50.0B. The decline in Karaoke margins drove the consolidated Operating Income decrease; focus for H2 should be on utilization improvement and cost efficiency.
Profitability: Operating Margin was 12.9%, down 2.1ppt from 15.0% a year earlier. ROE was 10.2% (Net Profit Margin 10.0% × Total Asset Turnover 0.52 × Financial Leverage 1.97). Net Profit Margin 10.0% improved 0.6ppt from 9.4% the prior year, but this contrasts with the decline in Operating Margin and is chiefly due to the ¥10.1B extraordinary gain. ROA was 5.2% (prior 4.7%), a slight increase. Cash Quality: Operating Cash Flow (OCF) to Net Income multiple was 1.71x, favorable. OCF/EBITDA (EBITDA assumed ¥75.0B after adding Depreciation ¥25.0B) was 0.89x, marginally below the 0.9x target. Investment Efficiency: Total Asset Turnover was 0.52x (prior 0.50x). Capex/Depreciation ratio was 2.16x, indicating an aggressive growth investment posture. ROIC (NOPAT / Invested Capital) is approximately 9.7% (Operating Income ¥50.0B × after-tax rate 65% ÷ Invested Capital ¥338B). Financial Soundness: Equity Ratio was 50.9% (prior 51.2%), stable. Interest-bearing debt (short- and long-term borrowings + convertible bonds) was ¥107.4B, Debt/EBITDA 1.43x, Net Debt/EBITDA 0.39x, indicating low leverage. Interest coverage was very strong at OCF ¥66.4B / Interest paid ¥0.6B = 110.7x. Current Ratio was 0.82x, below 1.0, warranting attention to short-term liquidity, but cash on hand ¥78.5B and robust OCF generation limit financing risk.
OCF was ¥66.4B (YoY +25.0%), 1.71x of Net Income ¥38.9B. Adding Depreciation ¥25.0B yields an OCF subtotal of ¥88.8B, from which working capital changes of -¥2.2B (Inventory -¥0.3B, Accounts Receivable +¥3.2B, Accounts Payable -¥1.0B, etc.) were deducted, and corporate taxes paid ¥20.1B were applied. Investing Cash Flow was -¥76.9B, driven by Capex ¥53.9B (2.16x depreciation) and net guarantee deposits outflow ¥6.8B (paid ¥7.5B - collected ¥0.7B). Proceeds from sale of fixed assets of ¥22.3B partially offset outflows. Free Cash Flow was -¥10.5B, typical of a growth investment phase. Financing Cash Flow was -¥17.5B, reflecting long-term borrowings repayments ¥6.8B, dividends paid ¥9.9B, and lease repayments ¥0.8B. New long-term borrowings of ¥20.0B were also arranged, so net repayments were minor. Cash decreased by ¥26.4B to ¥78.5B, but OCF generation remains solid and funding balance is expected to improve with a moderation of investment pace and H2 profit recovery.
Ordinary Income ¥52.2B converted to Net Income ¥38.9B at a conversion rate of 74.5%, with tax expense ¥21.3B (effective tax rate 35.4%) as the main difference. Extraordinary income ¥10.1B (gain on sale of fixed assets) boosted Net Income by ¥8.1B; excluding one-offs, underlying Net Income approximates ¥30.8B (Ordinary Income × 65%). Non-operating foreign exchange gains ¥2.0B supported Ordinary Income, a ¥2.1B improvement from a ¥0.1B foreign exchange loss a year earlier. Comprehensive income was ¥39.8B, ¥0.9B above Net Income, driven by ¥0.9B valuation gains on securities. OCF subtotal ¥88.8B covers Net Income ¥38.9B by 2.28x, and accrual impacts including non-cash items (Depreciation ¥25.0B, Goodwill amortization ¥0.8B, etc.) are within a normal range. Working capital change was a small outflow of ¥2.2B, with Accounts Receivable increase ¥3.2B outweighing Accounts Payable decrease ¥1.0B, reflecting slight incremental working capital needs from business expansion. Sustainability of earnings is roughly in line at the Ordinary Income level, but operating margin decline and reliance on extraordinary gains are structural concerns.
Full Year forecast: Revenue ¥820.5B (+18.2%), Operating Income ¥118.3B (+3.8%), Ordinary Income ¥120.3B (+3.7%). H1 progress rates are: Revenue 47.4%, Operating Income 42.3%, Ordinary Income 43.4%, trailing the standard 50% by about 7–8ppt for Operating and Ordinary Income. Full-year assumed Operating Margin is 14.4%, requiring a 1.5ppt improvement from H1’s 12.9%. H2 assumptions include demand capture in busy seasons (year-end/New Year, graduation season), higher utilization rates, and SG&A efficiency leading to scale effects. Considering a slowdown in Capex and the reversal of one-off gains, H2 Operating Income target of ¥68.3B (Full Year minus H1) implies ~+8.4% growth versus prior H2 ~¥63B, making margin recovery feasibility the key issue. Annual dividend forecast of ¥13 (unchanged) has been paid in H1; payout ratio is expected around 30% on a full-year basis.
An interim dividend of ¥13 has been paid, with total interim dividend payout ¥10.7B against H1 Net Income ¥38.9B (issued shares 83,781 thousand shares - treasury stock 1,358 thousand shares), implying a payout ratio of about 28%, a conservative level. Dividends are adequately covered by OCF ¥66.4B, and interest-bearing debt is low, leaving balance sheet flexibility. However, Free Cash Flow was -¥10.5B as investment was prioritized, meaning dividends exceeded FCF. Assuming an annual dividend of ¥13, the full-year payout ratio is expected around 30%, consistent with historical levels. No share buybacks were implemented this period (CF impact -¥0.0B). Total return ratio is approximately 30% through dividends only, placing the company in the mid-range within the industry. Financial capacity is sufficient, and scope for dividend increases could expand depending on H2 profit recovery and smoothing of investment pace.
Industry Position (reference, company analysis): Compared with IT & Communications sector (n=7 companies, 2025-Q2 medians), Operating Margin 12.9% is 1.1ppt below the sector median 14.0%, placing the company in the middle range. Net Profit Margin 10.0% is 0.8ppt above the median 9.2%, but this is largely driven by extraordinary gains, so on an Ordinary Income basis performance is in line with the sector. ROE 10.2% materially exceeds the median 5.6%, reflecting strong capital efficiency using Financial Leverage 1.97x (median 1.55x). Revenue growth 14.5% trails the median 21.0%, placing the company mid-pack on growth. Equity Ratio 50.9% is below the median 60.2%, but leverage remains low and balance sheet is healthy. Current Ratio 0.82x is far below the sector median 7.74x, reflecting the deferred revenue model’s short-term liquidity structure. Capex/Depreciation 2.16x is much higher than the sector median 0.34x, highlighting an aggressive investment stance. Overall, the company ranks highly on growth investment and capital efficiency, but lags on operating margins and liquidity relative to peers, making profitability improvement and working capital management relative challenges.
This report is an AI-generated earnings analysis based on XBRL financial statement data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference data compiled by our firm from publicly available financial statements. Investment decisions are your responsibility; consult professionals as needed before making investment decisions.