ROUND ONE Corporation FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured revenue growth, this quarter was characterized by a heavier cost structure due to increases in selling, general and administrative expenses and financial expenses, resulting in softer profit margins. Revenue was ¥5.138B (+18.2% YoY), Operating Income was ¥634M (+4.3%), and Net Income was ¥337M (-1.1%). The primary driver of revenue growth was the robust expansion of existing businesses in both the Japan and U.S. segments. However, start-up losses in the premium food-service business and higher interest expenses pressured earnings, causing the Operating Income margin to decline to 12.3% from the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥5.138B, representing an 18.2% YoY increase. By segment, the two core regions led growth, with Japan generating ¥2.855B (+16.9%, 55.6% composition ratio) and the U.S. generating ¥2.256B (+20.6%, 43.9% composition ratio). The gross profit margin improved by 98bp YoY to 19.5%, suggesting that improvements in utilization rates and average unit prices contributed to top-line growth.

【Profit and Loss】Operating Income increased only 4.3% to ¥634M. The increase in the SG&A ratio (+288bp as a percentage of revenue) exceeded the benefit from improved gross profitability, causing the Operating Income margin to decline from the previous year. By segment, Japan posted ¥554M (+52.0%, 19.4% margin), delivering substantial earnings growth and driving the Company as a whole. In contrast, the U.S. generated ¥162M (-43.1%, 7.2% margin), representing a decline in earnings, while the premium food-service business recorded an operating loss of ¥81M, with start-up costs acting as a burden. Financial expenses increased to ¥144M, limiting Profit Before Tax to ¥527M (+2.1%). Combined with the high effective tax rate of 36.1%, Net Income declined to ¥337M (-1.1%). In summary, the Company reported revenue growth but declining earnings, with a clear polarization between improved profitability in Japan and deteriorating profitability in the U.S. and new businesses.

Segment Analysis

The Japan segment generated revenue of ¥2.855B (+16.9%) and Operating Income of ¥554M (+52.0%), with a 19.4% margin, demonstrating the highest profitability among all segments and serving as the primary driver of consolidated earnings. The U.S. segment increased revenue to ¥2.256B (+20.6%), but Operating Income declined substantially to ¥162M (-43.1%), with the margin falling to 7.2%. The premium food-service segment began being disclosed separately this period and recorded an operating loss of ¥81M before revenue recognition, with start-up costs diluting consolidated earnings. Improved profitability in Japan absorbed the deterioration in profitability in the U.S. and premium food-service businesses, allowing consolidated Operating Income growth to be maintained only narrowly.

Key Financial Metrics

【Profitability】The Operating Income margin was 12.3%. While the gross profit margin improved by 98bp YoY to 19.5%, the SG&A ratio rose by 288bp YoY to 7.0%, resulting in a modest decline in operating-level profitability. The Net Income margin was 6.6%; the 10.3% Profit Before Tax margin and high effective tax rate of 36.1% compressed bottom-line earnings.【Cash Flow Quality】Cash and cash equivalents increased to ¥6.418B from ¥5.495B in the previous year, while accounts receivable declined to ¥230M (-26.5%), indicating improvement in working capital, although inventories increased to ¥661M.【Investment Efficiency】ROE was 3.9%, a level consistent with a DuPont decomposition comprising a 6.6% Net Income margin, total asset turnover of 0.156x, and financial leverage of 3.83x.【Financial Soundness】The Equity Ratio was 26.1%, slightly down from 26.7% in the previous year. A fixed-cost-like debt structure, including non-current lease liabilities of ¥11.075B and long-term borrowings of ¥5.225B, remains in place.

Cash Flow Analysis

Although detailed information on the cash flow statement has not been disclosed, the trends in the balance sheet indicate an expansion in financial capacity. Cash and cash equivalents increased by ¥918M from the end of the previous fiscal year to ¥6.418B, while non-current bonds and borrowings increased by ¥1.396B to ¥5.225B, suggesting that capital expenditures and business expansion may have been financed through borrowings. The reduction in accounts receivable (-26.5%) contributed to cash generation from working capital, while inventories increased to ¥661M, indicating inventory accumulation. Contract liabilities increased to ¥584M, and the accumulation of advance payments supported short-term liquidity.

Earnings Quality

The scale of non-operating items relative to revenue was limited. Financial income was equivalent to 0.5% of revenue, while financial expenses were 2.8%, and no one-time extraordinary gains or losses were identified. Accordingly, current-period earnings can generally be viewed as being based on recurring business activities. Equity-method investment income was ¥11M, making only a minor contribution to consolidated earnings. However, the effective tax rate was high at 36.1% against Profit Before Tax of ¥527M, and income taxes of ¥190M restrained Net Income growth, resulting in a divergence between Operating Income growth of +4.3% and Net Income growth of -1.1%. Comprehensive income was ¥427M, exceeding Net Income of ¥337M, largely due to a ¥90M contribution from foreign operation translation adjustments. However, this foreign exchange-related factor is highly volatile and its sustainability is uncertain.

Earnings Forecast and Guidance

Progress against the full-year plan was 23.5% for revenue, 19.2% for Operating Income, and 18.4% for Net Income, all below the standard Q1 level of 25%. The slowdown in progress on the earnings front was particularly notable. Achieving the full-year Operating Income forecast of ¥3.305B (+14.9% YoY) and Net Income forecast of ¥1.826B (+9.9%) will depend on improved profitability in the U.S. segment and a reduction in losses in the premium food-service business during the second half of the fiscal year. As of this quarter, the earnings forecasts have not been revised.

Shareholder Returns

The dividend for Q1 was ¥4.5 per share, totaling approximately ¥118M based on the average number of shares outstanding during the period. The Payout Ratio against quarterly Net Income of ¥337M was approximately 35%, a manageable level. Under the full-year forecast, the dividend is ¥18 per share, and the Payout Ratio against forecast EPS of ¥69.46 is approximately 26%. This is lower than the ratio based on quarterly results and represents a plan that incorporates full-year earnings growth.

Risk Factors

1. Declining profitability in the U.S. segment: Although revenue increased by +20.6%, Operating Income declined by -43.1% and the margin fell to 7.2%, diluting the consolidated margin.

2. Start-up losses in the premium food-service business: The business recorded an operating loss of ¥81M, and the pace of loss reduction will affect the Company’s overall profit margin going forward.

3. Higher financial leverage and interest burden: The Equity Ratio was 26.1%, while non-current borrowings stood at ¥5.225B (+¥1.396B YoY), indicating greater reliance on debt. Financial expenses expanded to ¥144M, a substantial increase from the ¥72M level in the previous year.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, indicating a relatively high level of profitability within the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially above the industry median, placing the Company among the industry’s high-growth group.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Japan segment’s 19.4% margin (+52.0% YoY earnings growth) served as the main pillar of consolidated profitability, with improved profitability in the domestic existing business supporting the quality of earnings. At the same time, the deterioration in profitability in the U.S. and premium food-service businesses partially offset this performance, representing a structural point of focus.

2. The SG&A ratio rose by 288bp YoY, outpacing the 98bp improvement in the gross profit margin, indicating a period in which expense growth exceeded revenue growth. Financial expenses also expanded to ¥144M, and the increase in costs associated with leveraged operations constrained earnings growth.

3. Progress against the full-year plan was 23.5% for revenue, 19.2% for Operating Income, and 18.4% for Net Income, slightly below standard Q1 levels. Improved profitability in the U.S. segment and reduced losses in the premium food-service business during the second half of the fiscal year will be the key factors in achieving the full-year targets.

Theoretical Share Price (Reference Value)

Sensitivity: ¥450–¥478 at ±1% for the cost of equity, and ¥460–¥469 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).

(Valuation model: Residual income model (Ohlson-type model with an explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 release data. It does not recommend investment in any specific security. The 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 professionals as necessary.

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