Double Standard Inc. FY2027 Q1 Earnings Report

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Executive Summary

Although Revenue expanded significantly by +60.3% year on year, the sharp decline in the gross profit margin limited the rate of profit growth. Revenue amounted to ¥2.26B (¥1.41B in the same period last year, +60.3%), Operating Income was ¥0.35B (+8.2%), Ordinary Income was ¥0.35B (+6.7%), and Net Income was ¥0.21B (+0.7%). Despite the high growth in Revenue, the structure in which the rising cost ratio is putting pressure on profit growth is clear.

Factors Affecting Business Performance

【Revenue】Revenue amounted to ¥2.26B, representing a significant increase of +60.3% year on year. As the Company operates a single segment (WEB Marketing Business), business expansion drove company-wide growth.

【Profit and Loss】Cost of sales increased at a faster pace than Revenue growth to ¥1.60B, causing the gross profit margin to fall significantly to 29.3% from 44.5% in the same period last year. Meanwhile, the SG&A ratio improved to 13.6% from 21.2% in the prior-year period, indicating progress in efficiency gains from economies of scale. As a result, the Operating Income margin declined to 15.7% from 23.2% in the prior-year period. Operating Income increased to ¥0.35B (+8.2%), while Ordinary Income increased to ¥0.35B (+6.7%), securing profit growth. However, the recognition of an extraordinary loss of ¥0.03B constrained Profit Before Tax to ¥0.32B, and Net Income increased only 0.7% to ¥0.21B, narrowing the growth margin. Although both Revenue and profit increased, the rate of profit growth was substantially inferior to the Revenue growth rate, with the rising cost ratio acting as a bottleneck.

Segment Analysis

The Group operates a single segment, the “WEB Marketing Business,” and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Operating Income margin was 15.7%, down from 23.2% in the prior-year period, while the Net Income margin was 9.4%, down from 15.0%. The gross profit margin fell significantly to 29.3% from 44.5%, indicating that changes in the cost structure are affecting overall profitability.【Cash Flow Quality】Accounts receivable and notes receivable stood at ¥0.75B, a certain level, and trends in the collection cycle accompanying the rapid expansion in Revenue warrant close monitoring.【Investment Efficiency】ROE was 3.6%, and the profit level relative to net assets of ¥5.95B was limited. With Net Income of ¥0.21B against total assets of ¥6.58B, asset efficiency was not high.【Financial Soundness】The Equity Ratio was extremely high at 90.3%, while current liabilities of ¥0.58B against current assets of ¥5.38B indicate substantial short-term financial capacity. With cash and deposits of ¥4.23B, the financial foundation is conservative and stable.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, cash flow trends can be inferred from changes in the balance sheet. Cash and deposits declined to ¥4.23B from ¥5.29B in the prior year, while retained earnings also declined to ¥5.63B from ¥6.37B. This decrease is believed to have resulted mainly from shareholder returns, including the payment of dividends in the previous fiscal year. In addition, accounts payable declined substantially to ¥0.16B from ¥0.42B in the prior year, suggesting that cash outflows on the payment side may have preceded cash inflows. As Revenue expanded significantly, changes in working capital affected cash flow trends, and the future development of capital efficiency will be closely watched.

Earnings Quality

An extraordinary loss of ¥0.03B was recorded in current-period profit, and Profit Before Tax of ¥0.32B was reduced by this temporary factor from Operating Income and Ordinary Income, both of which were ¥0.35B. Non-operating income and expenses were immaterial, with non-operating income of ¥0.00B and non-operating expenses of ¥0.01B, and their impact on business profit was limited. Ordinary Income therefore remained at approximately the same level as Operating Income. Comprehensive Income was ¥0.21B, almost equal to Net Income attributable to owners of the parent of ¥0.21B, indicating that the difference arising from other comprehensive income items was small and that current-period profit generally reflects actual business performance. However, the sharp decline in the gross profit margin may include temporary factors, such as the cost structure of large-scale projects or higher outsourcing expenses, and trends from the next period onward need to be monitored to assess recurring earnings power.

Earnings Forecast and Guidance

Against the Full-Year earnings forecast, progress in Q1 was 31.4% for Revenue (¥2.26B/¥7.20B), exceeding the simple one-quarter benchmark of 25%. Meanwhile, progress was 19.7% for Operating Income (¥0.35B/¥1.80B) and 19.8% for Ordinary Income (¥0.35B/¥1.76B), both below the simple progress benchmark of 25%. While Revenue is progressing ahead of schedule, the plan may assume improvement in the cost ratio and expense efficiencies toward the second half of the fiscal year on the profit side. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥70 per share. Based on the Company’s Full-Year EPS forecast of ¥88.56, the Payout Ratio is approximately 79.1%, indicating a high shareholder-return policy. Against the strong financial foundation of cash and deposits of ¥4.23B and an Equity Ratio of 90.3%, the Company appears to have substantial capacity to pay dividends. However, retained earnings declined year on year in Q1, primarily reflecting the payment of dividends in the previous fiscal year. No revisions were made to the dividend forecast during the quarter.

Risk Factors

1. Risk of continued gross profit margin deterioration: The gross profit margin declined significantly to 29.3% from 44.5% in the prior-year period. The decline appears to have been caused by higher outsourcing expenses and changes in the project mix. If this condition continues, the increase in Revenue may not be sufficiently converted into profit.

2. Risk of delayed cash conversion due to working capital expansion: Against the rapid expansion in Revenue, accounts receivable stood at ¥0.75B and work in process also remained at a certain level. A lengthening collection cycle accompanying the increase in Revenue could put pressure on Operating Cash Flow.

3. Risk of profit progress being weighted toward the second half: Progress for Operating Income and Ordinary Income against the Full-Year plan was approximately 19.7–19.8%, materially below Revenue progress of 31.4%. The plan assumes improvement in the cost ratio and efficiency toward the second half, and the extent to which this is achieved will be a key focus going forward.

Industry Benchmark (Reference; Based on Company Research)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Company’s Operating Income margin and Net Income margin exceeded the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially above the industry median, positioning the Company as a high-growth company within the industry.

※Source: Company research

Key Points in the Financial Results

1. Revenue grew +60.3% year on year, substantially exceeding the industry average, while the gross profit margin declined significantly from 44.5% to 29.3%. The trade-off between growth and profitability is a defining feature of the current-period results.

2. The SG&A ratio improved from 21.2% to 13.6%, demonstrating progress in expense efficiency accompanying business expansion. This structural efficiency improvement could support the recovery of profit margins going forward.

3. Progress against the Full-Year plan is ahead on the Revenue side but behind on the profit side. The extent to which the cost ratio normalizes toward the second half will be a key factor in assessing achievement of the Full-Year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥562–¥592 at ±1% for the cost of equity, and ¥574–¥581 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / 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 predict or guarantee future share prices.)

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

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