| Metric | This Period | Prior-Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥593.5B | ¥513.5B | +15.6% |
| Operating Income / Operating Profit | ¥75.7B | ¥84.0B | -9.8% |
| Ordinary Income | ¥77.5B | ¥85.9B | -9.8% |
| Net Income / Net Profit | ¥55.4B | ¥54.1B | +2.5% |
| ROE | 14.2% | 15.4% | - |
For the cumulative Q3 of the fiscal year ending August 2026 (Sept 2025–May 2026), revenue was ¥593.5B (YoY +¥80.0B +15.6%), operating income was ¥75.7B (YoY -¥8.3B -9.8%), ordinary income was ¥77.5B (YoY -¥8.4B -9.8%), and net income was ¥55.4B (YoY +¥1.3B +2.5%). Despite revenue growth, operating and ordinary stages showed declines, while final profit edged up due to non-recurring gains. The core Karaoke Business lifted revenue by 16.0%, but gross margin deterioration to 76.5% cost ratio (from 73.8% prior year, +2.7pt) and SG&A ratio rising to 10.7% (from 9.9%, +0.8pt) depressed operating margin to 12.8% (from 16.3%, -3.5pt). Gain on sale of fixed assets of ¥10.1B and foreign exchange gains of ¥2.4B boosted pre-tax profit; after an effective tax rate of 35.2% the company secured a modest +2.5% increase in net profit. Against the full-year forecast (Revenue ¥820.5B, Operating Income ¥118.3B, Ordinary Income ¥120.3B), progress rates are Revenue 72.3%, Operating Income 64.0%, Ordinary Income 64.4%, implying reliance on a Q4 rebound in the busy season.
[Revenue] Top-line was ¥593.5B, up ¥80.0B YoY (+15.6%). The core Karaoke segment drove results with ¥576.4B (97.1% of total, +16.0% YoY), supported by store expansion and recovery in same-store demand. Real Estate Management segment was ¥14.0B (+1.5%) and stable. Karaoke revenue drivers include continued normalization of outing/entertainment demand, contribution from new openings, and business succession via absorption-type split (recorded goodwill of ¥28.5B related to the karaoke store business succession in Nov 2025). The concentration above 97% in karaoke revenue suggests room for greater business diversification.
[Profitability] Operating income was ¥75.7B, down ¥8.3B YoY (-9.8%). Gross profit was ¥139.4B (gross margin 23.5%) up ¥4.7B YoY but gross margin declined by 2.7pt (prior year 26.2%). The rise in cost ratio is assumed due to cost inflation in energy/food and higher labor costs (minimum wage revisions, etc.). SG&A was ¥63.7B (SG&A ratio 10.7%), up ¥13.0B YoY (+25.5%), rising far faster than revenue — suggesting upfront corporate overhead, store opening costs, and M&A integration costs. By segment, Karaoke operating income was ¥85.2B (margin 14.8%, YoY -6.7%), the main cause of margin compression; Real Estate Management was ¥1.4B (margin 10.2%, YoY -4.5%) but small in scale with limited impact. Ordinary income was ¥77.5B, after non-operating income of ¥4.4B (including FX gains ¥2.4B) and non-operating expenses ¥2.6B (including interest expense ¥1.1B, FX losses ¥0.5B), resulting in a YoY decline of 9.8% at the ordinary level. Special gains of ¥10.1B (entirely gain on sale of fixed assets) and special losses ¥2.1B (settlement payments ¥1.9B, impairment losses ¥0.1B, etc.) produced pre-tax income of ¥85.5B. After deducting income taxes ¥30.1B (effective tax rate 35.2%), net income was ¥55.4B (YoY +2.5%). In sum: revenue up, operating/ordinary down, final profit slightly up due to one-off gains.
The Karaoke segment (Revenue ¥576.4B, Operating Income ¥85.2B) delivered robust revenue growth of +16.0% YoY, but operating income declined -6.7% YoY and margin narrowed to 14.8% (from 16.1%, -1.3pt). The divergence—revenue up ¥79.9B vs operating income down ¥6.1B—is explained by higher variable costs (COGS, labor) and increased fixed costs. Real Estate Management segment (Revenue ¥14.0B, Operating Income ¥1.4B) saw revenue +1.5% and profit -4.5%, margin 10.2% (from 10.8%, -0.6pt), with limited impact on consolidated results. Karaoke accounts for 97.1% of revenue and 98.4% of operating profit (against segment profit total ¥86.6B), indicating very high business concentration; future growth and profitability improvements will be highly dependent on Karaoke operations efficiency and pricing strategy.
[Profitability] Operating margin 12.8% (from 16.3%, -3.5pt), net margin 9.3% (from 10.5%, -1.2pt) — profitability has contracted. ROE 14.2% with Equity Ratio 50.8% and ROA 7.2% (annualized ≈ 9.6%) indicate capital efficiency remains in a healthy range, though negative operating leverage (SG&A +25.5% vs Revenue +15.6%) poses a concern for future profitability trends. [Cash Quality] Non-operating income ¥4.4B (0.7% of revenue) was mainly FX gains ¥2.4B, limited as an indicator of sustainable cash generation. Special gain ¥10.1B lifted pre-tax margin to 14.4%, but the fixed asset sale is a one-time item. Contract liabilities (advance receipts) ¥41.8B represent customer prepayments, reflecting a cash-ahead business model and contributing to negative working capital of ¥-45.5B. [Investment Efficiency] Total asset turnover annualized ≈ 0.77x; fixed asset turnover annualized ≈ 0.96x — asset efficiency is moderate. Goodwill ¥28.5B (3.7% of total assets, 7.3% of equity) rose significantly due to business succession M&A; realization of integration synergies and impairment testing will be key value drivers. [Financial Soundness] Equity Ratio 50.8% (from 51.2%, -0.4pt), debt-to-equity 0.97x — capital structure is healthy. Interest-bearing debt (short-term borrowings ¥15.0B + long-term borrowings ¥76.7B = ¥91.7B) versus cash ¥71.2B yields net interest-bearing debt ¥20.5B and Debt/Equity 23.5%, indicating low debt dependence. Interest coverage ≈ 67x (Operating Income ¥75.7B ÷ interest expense ¥1.1B), showing ample capacity to service interest. However, current ratio 76.4% (Current Assets ¥146.8B ÷ Current Liabilities ¥192.3B) is below 1.0x, so short-term liquidity requires management of advance receipts and seasonal cash flows. Asset retirement obligations ¥77.2B (20.5% of liabilities) denote future store renovation/exit costs and need monitoring as long-term cash outflow risks.
Net income ¥55.4B included significant non-recurring items such as gain on sale of fixed assets ¥10.1B and FX gains ¥2.4B; core operating cash generation should be evaluated starting from operating income ¥75.7B. Contract liabilities ¥41.8B (vs ¥37.4B prior year, +¥4.4B) show accumulation of advance receipts and cash-first collection, contributing to working capital of ¥-45.5B and efficient cash use. Cash and deposits were ¥71.2B, down ¥33.7B YoY (-32.1%), likely due to capex (tangible fixed assets +¥37.0B, intangible fixed assets +¥28.6B), M&A-related payments, and consideration payments tied to goodwill recognition — implying investment CF outflows. Long-term borrowings rose to ¥76.7B (from ¥71.9B prior year, +¥4.8B), suggesting some financing was raised in financing CF. Increase in asset retirement obligations ¥9.4B reflects additional future removal obligations from openings/renovations and will entail future cash outflows; stable free cash flow depends on continued operating CF generation.
Current earnings structure shows operating-margin compression being supplemented by special gains and non-operating income, raising concerns on recurring quality. Operating income ¥75.7B (12.8% of revenue) represents core earning power; however, special gain ¥10.1B (gain on sale of fixed assets) is temporary. FX gains ¥2.4B are volatile and not a reliable recurring source. The gap between ordinary income ¥77.5B and net income ¥55.4B is explained by tax expense ¥30.1B and net special items ¥8.0B; effective tax rate 35.2% is standard. Prior year included special losses ¥6.7B (impairment ¥1.6B etc.) which suppressed final profit; this period saw special gains support results. Non-operating income ¥4.4B (0.7% of revenue) is small and limited as a structural income source. Comprehensive income ¥55.9B equals net income ¥55.4B plus other comprehensive income ¥0.5B (foreign currency translation adjustments ¥0.1B, valuation differences on securities ¥0.3B) — the divergence is small and impact on net assets minor. Conclusion: the slight increase in final profit this period is heavily dependent on one-off items; core earnings quality warrants attention given operating profit decline.
Full-year forecast: Revenue ¥820.5B (YoY +18.2%), Operating Income ¥118.3B (YoY +3.8%), Ordinary Income ¥120.3B (YoY +3.7%), Dividend maintained at ¥15. Progress against cumulative Q3 results: Revenue 72.3%, Operating Income 64.0%, Ordinary Income 64.4% — against a standard Q3 cumulative progress of 75% (3/4 of year), this is ~-2.7pt on revenue and ~-11pt on profits. This underperformance is attributable to higher cost ratio and SG&A ratio tightening operating margins versus assumptions. The fiscal year ends August; Q4 (June–Aug) is the busy summer season historically skewed to the second half. To meet full-year plan, Q4 needs upside: Revenue ¥227.0B (≈ +¥9.0B/month pace) and Operating Income ¥42.6B (operating margin 18.8%), requiring sustained high utilization, price/menu mix optimization, and cost control (notably variable costs and labor). Dividend forecast ¥15 (implied payout ratio ~22.4% estimated) assumes ¥12 paid by Q3 cumulative (DPS total ¥12), with ¥3 at year-end; given the announced dividend adjustment, review of shareholder return policy considering earnings and cash flow is suggested.
Cumulative Q3 dividends include interim dividend of ¥13 and total paid per share is ¥12 (annualized equivalent ¥16). Against full-year dividend forecast ¥15, cumulative Q3 dividend of ¥12 implies a year-end dividend of ¥3. On a Q3 cumulative basis, payout ratio versus EPS ¥67.00 is approx. 19.4% (interim ¥13), and on full-year forecast basis ¥15 / estimated full-year EPS ≈ ¥67 => ≈22.4%, a conservative level. No share buyback disclosure; total return consists solely of dividends. Dividend forecast was revised — see separate disclosures for details — but given current profitability (ROE 14.2%), cash ¥71.2B, interest-bearing debt ¥91.7B, and operating CF potential, capacity to pay dividends appears sufficient. The tight current ratio 76.4% warrants attention, but because of the advance-receipt nature of contract liabilities, negative working capital does not immediately constrain operations and is not at a level that would immediately threaten dividend sustainability. Over the medium term, recovery in operating margin and net income growth will determine scope for dividend increases.
Declining operating margin trend: gross margin -2.7pt, SG&A ratio +0.8pt, operating margin -3.5pt — profitability has deteriorated. Sustained cost inflation (energy, food, labor) and SG&A growth +25.5% (far exceeding revenue growth +15.6%) have reversed operating leverage; if price pass-through and efficiency gains do not materialize, risks include missing full-year profit targets and medium-term ROE erosion.
Liquidity risk: current ratio 76.4% — short-term liabilities exceed current assets, and working capital is negative ¥-45.5B. Contract liabilities ¥41.8B provide advance cash, but seasonality, unexpected capex, and realization of asset retirement obligations ¥77.2B could jointly pressure short-term liquidity. Cash ¥71.2B is down ¥33.7B YoY, so balancing investment CF is important.
Business concentration and M&A integration: Karaoke accounts for 97.1% of revenue and 98.4% of operating profit, limiting portfolio diversification. The absorption-type split created goodwill ¥28.5B (7.3% of equity), increasing sensitivity to integration synergy delivery and impairment testing. Demand volatility in leisure consumption, intensified competition, or external shocks (e.g., renewed infectious outbreaks) would directly impact consolidated performance.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 12.8% | 8.2% (3.6%–18.0%) | +4.6pt |
| Net Margin | 9.3% | 6.0% (2.2%–12.7%) | +3.4pt |
Profitability exceeds the industry median, securing a premium of +4.6pt on operating margin and +3.4pt on net margin, though the year-over-year contraction warrants attention.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 15.6% | 10.4% (-1.1%–19.5%) | +5.2pt |
Revenue growth outperforms median by +5.2pt, reflecting top-line expansion via openings and business succession.
※ Source: Company compilation
Divergence between revenue growth and operating decline: While revenue grew strongly +15.6%, operating income fell -9.8%. Cost control and pricing effectiveness are key watchpoints. The structural change of gross margin -2.7pt and SG&A ratio +0.8pt suggests both external cost pressures (energy, labor) and internal efficiency opportunities. Meeting full-year guidance assumes Q4 recovery to operating margin ~18.8%; same-store utilization, average spend per customer, and cost containment progress are short-term drivers.
Growth acceleration via business succession M&A and PMI execution: The Nov 2025 karaoke store business succession generated goodwill ¥28.5B and is expected to boost top-line and market share. Goodwill/equity ratio 7.3% is relatively low, indicating reasonable impairment resilience, but realization of integration synergies (purchasing scale, operational standardization, brand consolidation) will be central to mid-term value creation. Part of SG&A increase (+25.5%) is likely PMI-related costs; subsequent normalization and margin recovery post-integration are scenarios to monitor.
Shareholder returns and capital allocation: Payout ratio ~22%, ROE 14.2%, cash ¥71.2B, net interest-bearing debt ¥20.5B indicate healthy finances and room for dividend increases. Dividend forecast revision suggests reassessment of return policy considering earnings environment. Tight current ratio 76.4% is mitigated by advance receipts’ nature, but balancing investment CF (openings/renovations/M&A) and shareholder returns remains the capital allocation focus. Medium-term dividend expansion depends on operating margin recovery.
This report is an AI-generated earnings analysis produced by analyzing XBRL financial statement data. It does not constitute an investment recommendation for any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.