Quick View
| Metric | This Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥342.4B | ¥333.9B | +2.5% |
| Operating Income / Operating Profit | ¥27.0B | ¥29.3B | −7.8% |
| Ordinary Income | ¥27.3B | ¥29.4B | −7.0% |
| Net Income / Net Profit | ¥8.8B | ¥28.1B | −68.7% |
| ROE | 7.2% | 23.4% | - |
Executive Summary
For the fiscal year ended February 2026, Revenue was ¥342.4B (YoY +¥8.5B, +2.5%), Operating Income was ¥27.0B (YoY -¥2.3B, -7.8%), Ordinary Income was ¥27.3B (YoY -¥2.1B, -7.0%), and Net Income was ¥8.8B (YoY -¥19.3B, -68.7%). Top-line continued resilient growth, but an increase in SG&A (¥63.5B, YoY +¥2.4B, +3.9%) compressed operating margin by 0.9pp to 7.9% (prior year 8.8%). The sharp decline in Net Income was mainly driven by a higher effective tax rate (38.1%, prior year 32.5%) and special losses of ¥2.5B, including impairment losses of ¥2.2B. The Cram School segment (Revenue ¥179.0B, Operating Income ¥13.7B) and In-School Individual Tutoring segment (Revenue ¥37.4B, Operating Income ¥3.9B) were drivers, but the Preschool Education segment’s Operating Income fell sharply by -67.4% YoY, weighing on consolidated profitability. Operating Cash Flow was ¥20.0B (YoY -18.4%), and Free Cash Flow was limited to ¥8.3B, insufficient to cover total dividends of ¥17.0B.
Drivers of Performance
Revenue reached ¥342.4B (YoY +2.5%), marking the third consecutive year of revenue growth. By segment, the core Cram School Business recorded ¥179.0B (+0.9%), representing 52.3% of the total, while the In-School Individual Tutoring Business grew the most at ¥37.4B (+8.9%). The Home-Visit Tutoring Business posted ¥51.6B (+4.6%), Preschool Education ¥57.8B (+0.7%), and Character & Moral Training Camp Education ¥17.3B (+5.3%), each maintaining revenue growth. Gross Profit was ¥90.5B (prior year ¥90.5B), essentially flat, but gross margin declined 0.7pp to 26.4% (prior year 27.1%). SG&A increased to ¥63.5B (prior year ¥61.1B, +3.9%), outpacing revenue growth, and SG&A ratio rose 0.2pp to 18.5% (prior year 18.3%). As a result, Operating Income declined to ¥27.0B (prior year ¥29.3B, -7.8%), and Operating Margin deteriorated 0.9pp to 7.9% (prior year 8.8%). Non-operating income was ¥0.3B (including interest income ¥0.1B), and non-operating expenses were ¥0.1B (negligible interest expense), leaving Ordinary Income at ¥27.3B (prior year ¥29.4B, -7.0%). In extraordinary items, special gains totaled ¥1.3B (gain on sale of fixed assets ¥0.8B, gain on sale of investment securities ¥0.4B), while special losses totaled ¥2.5B including impairment losses of ¥2.2B, resulting in Profit Before Tax of ¥26.1B (prior year ¥25.8B). Income taxes were ¥10.0B (effective tax rate 38.1%, prior year 32.5%), increasing the tax burden and reducing Net Income to ¥8.8B (prior year ¥28.1B, -68.7%). Comprehensive Income was ¥18.8B (prior year ¥16.9B, +11.3%), with a ¥2.9B positive adjustment related to retirement benefits causing divergence from Net Income. The result is revenue up but profits down, highlighting the need for SG&A control and management of special losses and tax burden.
Segment Analysis
- Cram School Business: Revenue ¥179.0B (YoY +0.9%), Operating Income ¥13.7B (YoY +17.9%), margin 7.7% (prior year 6.6%), showing improved profitability and leading consolidated profits.
- Home-Visit Tutoring Business: Revenue ¥51.6B (+4.6%), Operating Income ¥4.0B (+11.8%), margin 7.7% (prior year 7.2%), steady performance.
- Preschool Education Business: Revenue ¥57.8B (+0.7%), Operating Income ¥1.5B (-67.4%), margin 2.6% (prior year 4.5%), sharp decline and primary contributor to consolidated profit decline.
- In-School Individual Tutoring Business: Revenue ¥37.4B (+8.9%), high growth, but Operating Income ¥3.9B (-20.5%), margin 10.4% (prior year 13.0%), profitability declined.
- Character & Moral Training Camp Education Business: Revenue ¥17.3B (+5.3%), Operating Income ¥0.7B (+44.8%), margin 4.0% (prior year 2.9%), showing improvement.
- Other Businesses: Revenue ¥1.4B (+6.5%), Operating Income ¥0.1B (-9.9%), limited scale.
With the transition to a holding company structure, the group changed its method to allocate group operating expenses as corporate-level costs and receive management fees from each segment. Notwithstanding this, the marked decline in margins for Preschool Education and In-School Individual Tutoring highlights the need to reassess resource allocation and cost structure.
Key Financial Metrics
Profitability weakened: Operating Margin 7.9% (prior year 8.8%, -0.9pp), Net Margin 2.6% (prior year 8.4%, -5.8pp). ROE fell sharply to 7.2% (prior year 17.1%), primarily due to the contraction in Net Margin. ROA declined to 3.9% (prior year 14.6%). Cash quality: Operating Cash Flow (OCF) of ¥20.0B is 2.3x Net Income ¥8.8B, appearing favorable, but Operating CF/EBITDA is only 0.60x, indicating weak cash conversion efficiency. Free Cash Flow was ¥8.3B (OCF ¥20.0B - Investing CF ¥11.7B), insufficient to cover total dividends ¥17.0B, leaving FCF coverage at 0.49x. Investment efficiency: Total Asset Turnover 1.51x (prior year 1.51x) unchanged; CapEx/Depreciation ratio was 1.34x (CapEx ¥8.6B / Depreciation ¥6.4B), indicating continued growth investment. Financial soundness: Equity Ratio 54.1% (prior year 54.1%), D/E ratio 0.85x (prior year 0.83x) remain conservative. Current Ratio 207.3% (prior year 216.3%), Quick Ratio 204.3% (prior year 213.5%) indicate very strong short-term payment ability. Cash and deposits ¥80.8B (prior year ¥89.5B) are 1.3x current liabilities ¥61.7B (prior year ¥58.7B), implying low liquidity risk. Interest Coverage is 39,565x (Operating Income ¥27.0B / interest expense less than ¥0.01B), rendering interest burden effectively negligible.
Cash Flow Analysis
Operating Cash Flow was ¥20.0B (prior year ¥24.5B, -18.4%); while operating profitability was converted to cash to some extent, it declined YoY. Subtotal (before working capital changes) was ¥29.7B. Working capital changes contributed: increase in trade receivables -¥2.0B, decrease in inventories +¥0.2B, decrease in contract liabilities -¥0.1B. After income taxes paid -¥9.8B, OCF totaled ¥20.0B. Investing Cash Flow was -¥11.7B (prior year -¥8.0B), driven by capital expenditures -¥8.6B (prior year -¥6.3B) and intangible asset acquisitions -¥3.5B (prior year -¥1.8B). Proceeds from sale of fixed assets ¥1.7B (prior year ¥1.1B) and sale of investment securities ¥1.0B partly offset outflows. Free Cash Flow declined significantly to ¥8.3B (prior year ¥16.5B, -49.7%). Financing Cash Flow was -¥17.0B (prior year +¥18.4B), mainly due to dividend payments -¥17.0B (prior year -¥15.4B). Short-term borrowings netted to zero after ±¥5.0B increases and repayments. Consequently, cash and cash equivalents decreased by ¥8.7B to an ending balance of ¥80.8B. OCF of ¥20.0B covers dividends ¥17.0B at 85%, but on a FCF basis dividend coverage is insufficient, making the balance between future investment and returns a focal point.
Quality of Earnings
Core earnings center on Revenue ¥342.4B; non-operating income ¥0.3B consists of small items such as interest income ¥0.1B and insurance income ¥0.03B, indicating heavy reliance on core operations. One-off items included special gains ¥1.3B (gain on sale of fixed assets ¥0.8B, gain on sale of investment securities ¥0.4B) and special losses ¥2.5B (impairment losses ¥2.2B, loss on retirement of fixed assets ¥0.1B), netting to -¥1.2B that depressed Profit Before Tax. The fact that OCF ¥20.0B is 2.3x Net Income ¥8.8B is positive, but Comprehensive Income ¥18.8B exceeds Net Income by ¥10.0B primarily due to a ¥2.9B positive adjustment related to retirement benefits, indicating some divergence between accounting profit and cash. Accrual (Net Income - OCF) is -¥11.2B, and the accrual ratio (Accrual / Total Assets) is -4.9%, at a healthy level suggesting that accounting profits are supported by cash. However, the low OCF/EBITDA ratio of 0.60x suggests room to improve cash conversion efficiency through working capital and tax timing. The gap between Ordinary Income ¥27.3B and Net Income ¥8.8B is explained by the high effective tax rate of 38.1% and special losses; underlying operating profitability remains broadly stable.
Guidance / Forecast
Full Year guidance forecasts Revenue ¥356.4B (YoY +4.1%), Operating Income ¥28.8B (YoY +6.3%), Ordinary Income ¥28.0B (YoY +2.5%), and Net Income ¥17.0B (significant increase from prior year ¥8.8B). Progress against the plan by results is: Revenue 96.1%, Operating Income 93.8%, Ordinary Income 97.5%, Net Income 51.8%, indicating Operating Income and Net Income are somewhat lagging. Revenue progress is near plan, but profit performance is affected by higher SG&A and the Preschool Education segment’s profit decline; cost optimization and margin improvement are essential to achieve full-year targets. Forecast EPS for the full year is ¥9.98; actual EPS ¥9.49 represents 95.1% progress. Normalization of tax burden and containment of special losses are prerequisites for returning to profit growth. Dividend guidance is annual ¥0, which is inconsistent with the actual dividend of ¥10 (lump-sum at year-end); given the high payout ratio this fiscal year of 95.4%, a review of dividend policy tied to profit growth is anticipated next year.
Shareholder Returns
A year-end dividend of ¥10 was paid, bringing total annual dividends to ¥17.0B (prior year ¥15.4B). Payout Ratio was 95.4% (prior year 54.8%), demonstrating a high-return stance effectively distributing nearly all Net Income ¥8.8B. However, total dividends ¥17.0B far exceed Free Cash Flow ¥8.3B, yielding an FCF coverage of 0.49x and raising sustainability concerns. Share buybacks were effectively zero (CF -¥0.0B); total shareholder returns consisted solely of dividends. DOE (Dividend on Equity) was 1.39% (dividends ¥17.0B / Net Assets ¥122.7B), modest as a capital-efficiency-based return metric. While past dividend history has been stable, the high payout ratio this period largely reflects the sharp decline in Net Income and is likely a temporary phenomenon; the full-year forecast assuming ¥0 dividend suggests a return to a dividend policy aligned with profit growth next year. With cash and deposits ¥80.8B and strong liquidity, short-term dividend payment ability is high, but medium-to-long-term stable dividends hinge on restoring Free Cash Flow generation.
Risk Factors
- Risk of sharp deterioration in Preschool Education profitability (quantified: Operating Income -67.4%, margin down to 2.6%): The segment accounts for Revenue ¥57.8B (16.9% of total) but Operating Income plunged to ¥1.5B, depressing consolidated Operating Margin by approximately 0.3pp. If cost structure revisions and demand recovery do not proceed, negative effects on consolidated profitability may persist.
- Risk from low cash conversion efficiency and dividend sustainability (quantified: FCF coverage 0.49x, Payout Ratio 95.4%): With OCF ¥20.0B and Investing CF ¥11.7B, FCF ¥8.3B is far below dividends ¥17.0B. Without investment restraint or OCF expansion, the company may need to draw down cash or cut dividends.
- Risk of concentrated future cash outflows for asset retirement obligations (quantified: Asset retirement obligations ¥13.6B, 13.1% of total liabilities): Obligations to restore leased classroom premises to original condition amount to ¥13.6B, and one-time cash outflows may occur upon exits/closures. Spend concentration around site strategy changes or contract renewal timing requires careful liquidity management.
Industry Benchmark (Reference — Company Analysis)
Industry positioning (reference, company compilation): Company Operating Margin 7.9% slightly below industry median 8.1%; Net Margin 2.6% is well below industry median 5.8%, mainly due to this period’s special losses and high effective tax rate. ROE 7.2% is below industry median 10.1%, indicating room for profitability improvement. Total Asset Turnover 1.51x substantially exceeds industry median 0.89x, demonstrating strong asset efficiency. Equity Ratio 54.1% is slightly below industry median 59.2%, while D/E ratio 0.85x is conservative compared with the industry. Current Ratio 207.3% is slightly below the industry median 244% but remains at a high level. Payout Ratio 95.4% greatly exceeds industry median 31%, showing a temporary high-return stance, while FCF coverage 0.49x falls short of healthy industry norms. CapEx/Depreciation ratio 1.34x substantially exceeds industry median 0.42x, indicating an aggressive growth investment posture. Revenue growth +2.5% lags industry median +10.1%, reflecting relatively slower growth. Overall, asset efficiency and financial safety exceed industry averages, but profitability and growth are middling; cost optimization and margin improvement are key to improving relative industry position.
Key Points from the Financial Results
Key takeaways are as follows. First, despite revenue growth, SG&A increases lowered Operating Margin to 7.9% (down 0.9pp), making cost control the top priority. The change in allocation method of corporate-level expenses following the shift to a holding company structure also had an impact, and margin dispersion across segments (Cram School 7.7%, Preschool 2.6%, In-School Individual 10.4%) is notable. Second, Net Income declined sharply by -68.7% YoY, mainly due to the rise in the effective tax rate to 38.1% and one-off impairment losses of ¥2.2B; given Comprehensive Income ¥18.8B exceeds Net Income ¥8.8B, the underlying operating earning power is considered to be reasonably intact. Third, Free Cash Flow ¥8.3B is below total dividends ¥17.0B, with FCF coverage 0.49x, leaving questions about dividend sustainability. Ample cash and deposits ¥80.8B support short-term payment ability, but medium-to-long-term recovery of dividend capacity requires either OCF expansion or investment restraint. Full-year guidance anticipates revenue and operating income growth (Revenue +4.1%, Operating Income +6.3%), but actual progress is Operating Income 94% and Net Income 52%, meaning recovery of Preschool profitability and execution of cost optimization are prerequisites for achieving the guidance.
This report is an AI-generated financial analysis document produced by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed before making any investment decisions.