RENAISSANCE,INCORPORATED FY2027 Q1 Earnings Report

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Executive Summary

Operating income turned profitable due to improved profitability in the core businesses; however, the impact on bottom-line earnings growth was limited by interest expenses and the high effective tax rate. Revenue was ¥164.1B (+5.4% YoY), operating income was ¥3.6B (turning profitable from -¥2.8B in the previous year), ordinary income was ¥1.6B (improving from -¥5.2B in the previous year), and net income was ¥0.7B (+47.4% YoY). In addition to higher revenue, cost improvements and the recovery in SportsClub’s profitability drove improvement at the operating level, while interest expenses of ¥2.2B and an effective tax rate of approximately 51% restrained net income growth.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥164.1B (+5.4% YoY). SportsClub, the main business accounting for 89.4% of revenue, remained solid at +4.8%, while NursingCare achieved high growth of +64.0% and contributed to diversification. However, HomeFitness continued to decline, with revenue down -17.1%, restraining the company-wide growth rate.

【Profitability】Operating income was ¥3.6B, turning profitable from -¥2.8B in the previous year. The gross profit margin was 8.1% (improving from 4.3% in the previous year), and the operating margin was 2.2% (improving from -1.8% in the previous year). However, ordinary income was limited to ¥1.6B as non-operating expenses, mainly interest expenses of ¥2.2B, weighed on earnings. Net income was ¥0.7B, with a net margin of 0.5%, indicating limited growth at the bottom line. In conclusion, the company achieved higher revenue and earnings, but interest and tax burdens prevented the improvement at the operating level from fully translating into net income.

Segment Analysis

SportsClub generated revenue of ¥146.6B (+4.8% YoY) and operating income of ¥12.2B (+159.3% YoY), with an operating margin of 8.3%, functioning as the core business that generated the majority of company-wide operating income. NursingCare remained small in scale but achieved high growth, with revenue of ¥9.0B (+64.0% YoY) and operating income of ¥0.4B (+223.2% YoY), reflecting progress toward profitability. HomeFitness continued to experience declining revenue and earnings, with revenue of ¥8.4B (-17.1% YoY) and operating income of ¥1.6B (-40.2% YoY), although its operating margin of 18.6% was the highest among the segments. Company-wide adjustments were -¥10.5B, with head-office expenses, including ¥0.4B in goodwill amortization, compressing operating income.

Key Financial Indicators

【Profitability】The operating margin improved to 2.2% (from -1.8% in the previous year), and the net margin improved to 0.5% (from 0.3% in the previous year), but both remained at low levels.【Cash Flow Quality】Non-operating expenses of ¥2.3B, including interest expenses of ¥2.2B, were recorded against non-operating income of ¥0.3B, creating a structure in which most of operating income is offset by interest expenses at the ordinary income level.【Investment Efficiency】ROE of 0.8% can be explained by the decomposition of a 0.5% net margin × total asset turnover of 0.285 × financial leverage of approximately 6.0x, indicating that the high level of leverage does not fully offset the low profit margin.【Financial Soundness】The equity ratio was 16.6% (17.0% in the previous year), while the current ratio was approximately 73.7%, calculated as current assets of ¥138.4B / current liabilities of ¥187.8B, below 1.0x and indicating a level requiring attention to short-term liquidity management.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, the movement of funds can be inferred from changes in the balance sheet. Cash and deposits increased slightly by +2.4% YoY to ¥87.8B. Other current liabilities increased by +¥18.2B (+26%), while the provision for bonuses decreased by -¥6.6B (-48%), suggesting that this quarter experienced significant working capital fluctuations due to seasonality. Short-term borrowings increased by +3.6% to ¥57.0B, indicating greater dependence on short-term financing. Cash on hand of ¥87.8B exceeds the total of short-term borrowings and long-term borrowings due within one year; however, interest coverage remains low, and the stability of liquidity depends on the company’s ability to generate Operating Cash Flow.

Earnings Quality

The current quarter’s earnings were based on recurring operating revenue, centered on SportsClub. Extraordinary losses were limited, consisting of a ¥0.1B loss on disposal of fixed assets, and the impact of non-recurring factors was limited. Non-operating income was ¥0.3B, equivalent to approximately 0.2% of revenue, including a ¥0.1B foreign exchange gain, but it cannot be considered a structural source of earnings. Meanwhile, non-operating expenses were ¥2.3B, the majority of which consisted of ¥2.2B in interest expenses, the primary cause of the divergence between operating income and ordinary income and net income. Goodwill amortization (approximately ¥0.4B for the quarter) also compressed net income as a burden specific to JGAAP. Reviewing earnings before amortization together with reported earnings would be useful in evaluating earnings quality.

Earnings Forecast and Guidance

Progress against the full-year plan was 24.1% for revenue (¥164.1B/¥680.0B), 20.1% for operating income (¥3.6B/¥18.0B), 18.0% for ordinary income (¥1.6B/¥9.0B), and 14.8% for net income (¥0.7B/¥5.0B). Compared with the standard Q1 progress rate of approximately 25%, revenue was broadly in line with expectations, while all earnings indicators were lagging, apparently reflecting the seasonality of interest expenses and head-office costs. Although the earnings forecast was revised during the current quarter, the dividend forecast was not revised, and the broad framework of the full-year outlook remains unchanged.

Shareholder Returns

The company’s full-year dividend plan is ¥13 per share, representing an increase from the previous year’s actual dividend of ¥4 (interim). Assuming an average number of shares outstanding during the period of approximately 18.91M shares and full-year net income of ¥5.0B, the total dividend is calculated at approximately ¥2.5B, corresponding to a payout ratio of approximately 49%. In light of the financial position, including an equity ratio of 16.6% and a current ratio of approximately 74%, the dividend level appears to be within a range balanced against the company’s ability to generate operating cash. The dividend forecast was not revised during the current quarter.

Risk Factors

1. Business concentration risk: SportsClub accounts for 89.4% of revenue, resulting in high earnings sensitivity to utilization rates and pricing trends in that business. HomeFitness continues to experience declining revenue and earnings, with revenue down -17.1% and operating income down -40.2%.

2. Financial leverage and interest rate risk: The equity ratio is 16.6% and the current ratio is approximately 74%, both below 1.0x, indicating a high degree of dependence on short-term liabilities, including short-term borrowings of ¥57.0B. Interest expenses account for ¥2.2B of non-operating expenses of ¥2.3B, placing pressure on ordinary income.

3. Asset retirement obligation and maturity profile risk: Asset retirement obligations total approximately ¥33B across current and non-current portions, with the current portion increasing by +43.3% YoY. Long-term borrowings due within one year amount to ¥22.4B, requiring continued monitoring of the funding maturity profile.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the operating margin and net margin are significantly below the industry median, placing profitability toward the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, leaving growth at the middle or lower end of the industry.

Source: Company analysis

Key Takeaways from the Financial Results

1. While improved profitability in the core SportsClub business brought about a return to positive operating income, interest expenses of ¥2.2B and an effective tax rate of approximately 51% prevented the improvement at the operating level from fully translating into net income. Consequently, the improvement in operating performance is not sufficiently linked to net income or ROE.

2. Financial indicators of a current ratio of approximately 74% and an equity ratio of 16.6% require ongoing monitoring from the perspectives of short-term liquidity and financial soundness. The high degree of dependence on short-term liabilities is a notable characteristic.

3. By segment, contrasting trends are evident: high growth at NursingCare (revenue +64.0%) and continued revenue declines at HomeFitness (-17.1%), indicating ongoing structural changes within the business portfolio.

Theoretical Share Price (For Reference)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It does not constitute a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥432–¥457 at ±1% for the cost of equity, and ¥442–¥446 at ±0.1 for ω.

Notes:

• Net income is significantly compressed relative to operating income due to tax burdens, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 28%). This value reflects that compression at face value, and underlying earnings power may be higher if these factors are temporary.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end 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 somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value is not a forecast or guarantee of the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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