RENAISSANCE (2378) FY2026 Q3 Earnings Report

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Executive Summary

The most important point is that cumulative results through Q3 showed higher revenue but lower earnings, as increases in costs and expenses exceeding the modest revenue growth, together with the financial expense burden, pressured profitability. Revenue increased to ¥48.19B (+1.3% YoY), maintaining top-line growth, while Operating Income declined significantly to ¥0.89B (-46.0% YoY) and Ordinary Income to ¥0.31B (-72.6% YoY). Net Income was ¥0.52B (-26.8% YoY), exceeding Ordinary Income due to the offsetting effect of extraordinary income and losses and the recognition of income from corporate taxes, but this does not represent the Company’s underlying earning power.

Factors Affecting Business Performance

【Revenue】Revenue was ¥48.19B, an increase of +1.3% YoY. Although the breakdown by business is not disclosed because the Company has a single reportable segment, the cumulative progress rate of 73.0% is somewhat weak compared with the full-year company plan’s revenue growth rate of +3.6% and the standard progress level of 75%, making acceleration of revenue in Q4 necessary.

【Profit and Loss】Cost of sales increased +2.9% YoY, outpacing revenue growth, and the gross margin declined by 146bp from 9.2% to 7.7%. In addition, SG&A expenses increased +3.7%, also faster than revenue growth, causing the operating margin to contract from 3.5% to 1.8%. Below operating income, interest expense reached ¥0.62B (+11.8% YoY), reducing the Ordinary Income margin to 0.7%. Extraordinary income of ¥0.50B, of which fixed-asset-related income was minor, and extraordinary losses of ¥0.51B, including ¥0.41B in impairment losses, were almost fully offset. Following the recognition of ¥0.22B in corporate taxes and other taxes as income, Net Income was ¥0.52B. The Company posted higher revenue but lower earnings, with increases in costs and expenses and the financial expense burden being the primary causes of the deterioration in profitability.

Key Financial Metrics

【Profitability】The operating margin of 1.8% (3.5% in the same period of the previous year), net margin of 1.1% (1.5% in the same period of the previous year), and gross margin of 7.7% (9.2% in the same period of the previous year) all deteriorated from the previous year, indicating that the Company was unable to absorb increases in costs and expenses.【Cash Quality】Extraordinary income of ¥0.50B and extraordinary losses of ¥0.51B were almost fully offset. Including the recognition of ¥0.22B in corporate taxes and other taxes as income, Net Income of ¥0.52B exceeded Ordinary Income of ¥0.31B, indicating that Net Income was strongly affected by one-time items and tax effects.【Investment Efficiency】Annualized ROE was 5.6%, composed of a net margin of 1.1% × total asset turnover of approximately 1.1x × financial leverage of approximately 4.7x, indicating a high degree of reliance on leverage.【Financial Soundness】The Equity Ratio declined slightly to 21.4% (21.8% in the previous year), while working capital was negative, with current assets of ¥13.61B versus current liabilities of ¥16.34B. Interest-bearing debt increased, with short-term borrowings at ¥6.10B (+45.3% YoY) and long-term borrowings at ¥6.91B (+29.9% YoY), contributing to the increased interest expense burden.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, funding trends can be assessed from changes in the balance sheet. Cash and deposits increased to ¥8.37B from ¥7.68B in the same period of the previous year, and funding of +¥1.90B in short-term borrowings and +¥1.59B in long-term borrowings appears to have contributed to the buildup in cash. Meanwhile, working capital was negative ¥2.73B, with current assets of ¥13.61B versus current liabilities of ¥16.34B, suggesting that borrowings are serving to supplement short-term liquidity. Property, plant and equipment increased to ¥26.21B, while goodwill increased to ¥1.56B (+76.2% YoY), indicating continued investment in stores and acquired businesses.

Earnings Quality

The current period’s earnings structure is highly dependent on one-time items and therefore does not readily reflect recurring earning power. Extraordinary income of ¥0.50B, including only a minor gain on the sale of fixed assets, and extraordinary losses of ¥0.51B, including ¥0.41B in impairment losses, were almost fully offset against Ordinary Income of ¥0.31B. In addition, corporate taxes and other taxes were recognized as income of ¥0.22B, resulting in Net Income of ¥0.52B exceeding Ordinary Income. Of ¥0.65B in non-operating expenses, interest expense accounted for ¥0.62B, meaning that financial expenses absorbed approximately 70% of Operating Income of ¥0.89B. The financial burden is therefore significantly pressuring profitability at the Ordinary Income level. Comprehensive Income was ¥0.51B, approximately in line with Net Income, indicating limited effects from foreign currency translation adjustments, retirement benefit adjustments, and valuation differences on other securities.

Earnings Forecast and Guidance

Revenue progress against the full-year plan was 73.0%, close to the standard progress rate of 75%, while Operating Income and Ordinary Income progress were significantly lower at 52.4% and 35.0%, respectively. Achieving the full-year Operating Income plan of ¥1.70B will require Operating Income of ¥0.81B in Q4 alone, an amount comparable to cumulative Operating Income of ¥0.89B. For Ordinary Income, ¥0.59B will also be required in Q4 against the full-year plan of ¥0.90B, making the pace of profitability recovery a key issue. Net Income was already ¥0.52B on a full-year plan of ¥0.50B, but this was attributable to the offsetting effect of extraordinary income and losses and tax effects, diverging from the weak progress at the Operating Income and Ordinary Income levels.

Shareholder Returns

The Q2 dividend was ¥4.00 per share, while the full-year dividend forecast is ¥13.00, assuming a year-end dividend of ¥9.00. The forecast payout ratio against forecast full-year EPS of ¥25.38 is approximately 51.2%. The payout ratio calculated using cumulative Q3 Net Income of ¥0.523B is 16.4%; however, the full-year payout ratio adopted is 51.2%, based on forecast Net Income of ¥0.50B and forecast EPS. Given the weak progress of Operating Income and Ordinary Income and the financial structure of interest-bearing debt of ¥13.01B and interest coverage of 1.43x, the recovery trend in the profitability of the core business must also be reviewed when assessing dividend resources. No data on share repurchases has been disclosed.

Risk Factors

1. Concentration in a Single Business: The Company has a single reportable segment consisting solely of the sports club operations business, creating a structure in which changes in membership trends, utilization rates, and price competition directly affect business performance.

2. Low Profitability and Financial Expense Burden: Amid low profitability, with an operating margin of 1.8% and gross margin of 7.7%, interest expense of ¥0.62B absorbs approximately 70% of Operating Income of ¥0.89B, leaving interest coverage at only 1.43x.

3. Liquidity and Funding Structure: With a current ratio of 83.3%, negative working capital of ¥2.73B, and short-term borrowings reaching ¥6.10B, up +45.3% YoY, the Company is vulnerable to changes in refinancing conditions under a highly debt-dependent structure, with a D/E ratio of 3.68x.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s operating margin and net margin are both significantly below the industry median, placing it in the lower tier of the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate also falls below the industry median, indicating that the Company’s revenue growth pace is relatively slow within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Although the Company maintained revenue growth, Operating Income declined significantly by -46.0% YoY due to the decline in gross margin and the increase in SG&A expenses. Achieving the full-year Operating Income plan of ¥1.70B will require profit generation in Q4 on a scale comparable to cumulative results.

2. Net Income of ¥0.52B exceeded Ordinary Income of ¥0.31B, but this was attributable to the offsetting effect of extraordinary income and losses and tax effects. This is an important point in evaluating the quality of the results, as the figure does not reflect the earning power of the core business.

3. The financial structure, consisting of interest-bearing debt of ¥13.01B, interest coverage of 1.43x, and a current ratio of 83.3%, increases sensitivity to changes in interest-rate conditions and funding terms. Trends in the Company’s financial metrics going forward warrant close attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥542–¥572 at ±1% for the cost of equity, and ¥554–¥559 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast is 105%, exceeding the standard level of 75%, forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net Income is significantly compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 29%). This figure reflects that compression at face value; if the factors are temporary, underlying earning power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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