WASEDA ACADEMY (4718) FY2027 Q1 Earnings Report

Quick View

Executive Summary

During the current period, Revenue increased 9.9% year on year to ¥77.2B, while the Company recorded losses at the operating, ordinary income, and net income levels; however, the magnitude of the losses narrowed substantially from the previous year, indicating that profitability is in the process of improving. Revenue was ¥77.2B (¥70.2B in the previous year, +9.9%), Operating Income was ¥-0.9B (¥-3.3B in the previous year, loss narrowed by 72.7%), Ordinary Income was ¥-0.6B (¥-3.1B in the previous year, narrowed by 79.9%), and Net Income attributable to owners of the parent was ¥-1.3B (¥-2.8B in the previous year, narrowed by 53.6%). In addition to the increase in Revenue, overall earnings improved year on year as the gross margin improved to 25.5% (22.6% in the previous year).

Factors Affecting Performance

【Revenue】Revenue was ¥77.2B, representing a 9.9% year-on-year increase. The Company consists of a single Education-Related Business segment, and detailed segment disclosures are not provided; however, the gross margin improved by +2.9pt to 25.5% (22.6% in the previous year), suggesting that improvements in tuition fees per student and utilization rates likely contributed to the increase in Revenue. Advances received declined to ¥5.2B (¥9.2B in the previous year, -44.0%), suggesting changes in the timing of Revenue recognition and seasonality during Q1.

【Earnings】Against Cost of Sales of ¥57.5B, SG&A expenses remained at ¥20.6B (+7.6% year on year), growing more slowly than Revenue (+9.9%), and the SG&A ratio improved to 26.7% (27.3% in the previous year). As a result, the Operating Loss narrowed to ¥-0.9B (¥-3.3B in the previous year), the Ordinary Loss narrowed to ¥-0.6B (¥-3.1B in the previous year), and the Net Loss narrowed to ¥-1.3B (¥-2.8B in the previous year). Non-operating income of ¥0.4B (including dividend income of ¥0.1B) supported Ordinary Income, while Corporate Income Taxes and Other of ¥0.7B were recorded against a Loss Before Taxes of ¥-0.6B, thereby increasing the Net Loss. In conclusion, the Company is on a trend of improving earnings through higher Revenue, but has not yet achieved operating profitability.

Key Financial Indicators

【Profitability】The Operating Margin improved substantially to -1.2% (-4.6% in the previous year), the Ordinary Income Margin improved to -0.8% (-4.5% in the previous year), and the Net Profit Margin improved to -1.7% (-3.9% in the previous year), although all remain negative. ROE was -0.8%, with capital efficiency remaining negative due to the recorded loss. 【Cash Quality】Inventories increased substantially to ¥4.2B (¥1.3B in the previous year, +226.8%), while Accounts Payable increased to ¥6.8B (¥3.0B in the previous year, +125.7%); meanwhile, Advances Received declined to ¥5.2B (¥9.2B in the previous year, -44.0%). Accordingly, the improvement in earnings may not have directly translated into cash generation through working capital. 【Investment Efficiency】Total Assets contracted to ¥243.8B (¥262.0B in the previous year). Although asset efficiency remains low amid the recorded loss, the improving trend in operating performance suggests a recovery in asset efficiency. 【Financial Soundness】The Equity Ratio rose by +1.7pt to 64.9% (63.2% in the previous year), while the Current Ratio was approximately 243% and the Quick Ratio approximately 234%, indicating a high level of short-term payment capacity. Cash and Deposits of ¥100.9B substantially exceeded Current Liabilities of ¥49.0B, and the Debt-to-Equity Ratio remained at a conservative 0.54x.

Cash Flow Analysis

As a separate Cash Flow Statement disclosure is not available for the quarter, cash trends are assessed based on changes in the Balance Sheet. Cash and Deposits were ¥100.9B, a decrease of ¥4.98B from ¥105.9B in the same period of the previous year. Changes in working capital items, including an increase in Inventories (+¥2.9B), an increase in Accounts Payable (+¥3.8B), and a decrease in Advances Received (-¥4.0B), appear to have affected the cash position. Total Assets contracted to ¥243.8B (¥262.0B in the previous year), while Net Assets declined to ¥158.3B (¥165.6B in the previous year). However, the Equity Ratio improved to 64.9%, indicating that the soundness of the financial base has been maintained despite asset contraction. Interest paid was a minor ¥0.03B and is not a structural factor placing pressure on the cash position.

Quality of Earnings

The earnings for the current period primarily arose from recurring business activities centered on tuition revenue, and no significant one-off gains or losses were identified apart from a loss on disposal of fixed assets of ¥0.02B. Non-operating income was limited to ¥0.4B (including dividend income of ¥0.1B), equivalent to approximately 0.5% of Revenue, indicating a low degree of dependence on non-core income; the improvement in earnings can therefore be viewed as being driven by improved profitability in the core business. Meanwhile, Corporate Income Taxes and Other of ¥0.7B were recorded against a Loss Before Taxes of ¥-0.6B, resulting in the reversal phenomenon of a negative effective tax rate. This is considered attributable to the valuation allowance for deferred tax assets and timing differences in tax effects. The fact that the tax burden amid the recorded loss expanded the Net Loss beyond the Ordinary Loss is an important consideration when assessing earnings quality.

Earnings Forecasts and Guidance

The Company’s full-year forecast calls for Revenue of ¥405.2B (+7.6% year on year), Operating Income of ¥42.4B (+7.0%), and Ordinary Income of ¥42.7B (+7.7%), with no revisions to the earnings forecast or dividend forecast during the current quarter. Q1 Revenue progress was 19.1% (¥77.2B/¥405.2B), below the simple quarterly allocation benchmark of 25%. However, the Education-Related Business is considered to have seasonality characterized by a significant contribution from the second half, including intensive course periods, which is consistent with the tendency for Q1 to record losses at the earnings level. The Company has maintained its plan for higher Revenue and higher earnings, and the slower progress can be interpreted as being within the range of seasonal fluctuations.

Shareholder Returns

The Company’s full-year dividend forecast is ¥75.00 per share, with no revision to the dividend forecast during the current quarter. Based on approximately 18.51 million shares, calculated by deducting treasury shares from shares issued, the total dividend is estimated at approximately ¥1.39B. The Payout Ratio against the full-year forecast Net Income attributable to owners of the parent of ¥2.75B is therefore approximately 50.4%. Given Cash and Deposits of ¥100.9B and the minor interest payment burden, the Company has sufficient capacity to pay dividends, assuming achievement of its full-year plan.

Risk Factors

1. Level of Asset Retirement Obligations: Asset Retirement Obligations were ¥20.6B, accounting for 24.1% of Total Liabilities of ¥85.5B. As temporary cash outflows may occur when school facilities are vacated or renewed, the impact on the medium- to long-term funding plan should be monitored.

2. Seasonality of Quarterly Performance: In Q1, the Company recorded an Operating Loss, Ordinary Loss, and Net Loss, while progress against full-year Revenue was limited to 19.1%. The Education-Related Business’s earnings structure, which is weighted toward the second half, is a factor causing quarterly fluctuations in earnings.

3. Working Capital Fluctuations: Inventories increased +226.8% year on year to ¥4.2B, and Accounts Payable increased +125.7% to ¥6.8B, while Advances Received decreased -44.0% to ¥5.2B. Cash and Deposits declined by ¥4.98B year on year, requiring close monitoring of the impact of working capital fluctuations on the cash position.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

In terms of profitability and returns, both the Operating Margin and Net Profit Margin are substantially below the industry median.

Growth and Capital Efficiency

The Revenue Growth Rate slightly exceeds the industry median, and the pace of Revenue growth is at a standard level within the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Higher Revenue, an improvement in the gross margin (+2.9pt), and a decline in the SG&A ratio (-0.6pt) combined to substantially narrow the Operating Loss, Ordinary Loss, and Net Loss from the previous year. Profitability is on an improving trend.

2. With an Equity Ratio of 64.9% (63.2% in the previous year) and a Current Ratio of approximately 243%, the financial base is solid. Short-term payment capacity and the safety of the capital structure have been maintained even amid the recorded loss.

3. Fluctuations in working capital items—including the sharp increase in Inventories and Accounts Payable and the decline in Advances Received—as well as Asset Retirement Obligations accounting for 24.1% of Total Liabilities, are structural points of note identified in the earnings data.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,040–¥1,100 at Cost of Equity ±1%, and ¥1,065–¥1,077 at ω±0.1.

Notes:

• Net Assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• As Net Assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price)

---

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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2027 Q1 results showed a material year-on-year narrowing of the seasonal loss, supported by 9.9% revenue growth and a substantially improved gross margin. Revenue increased to ¥7.72bn from ¥7.02bn in FY2026 Q1. Gross profit rose 24.0% to ¥1.97bn, outpacing sales growth. The gross margin expanded by 288bp to 25.5% from 22.6%, indicating improved direct-cost absorption. SG&A increased 7.6% to ¥2.06bn, below revenue growth, reducing the SG&A-to-sales ratio by 59bp to 26.7%. Consequently, operating loss narrowed to ¥0.89bn from ¥3.26bn. The operating margin improved by 349bp to -1.1% from -4.6%. Ordinary loss contracted to ¥0.63bn from ¥3.14bn, aided by ¥0.42bn of non-operating income, including insurance income and dividend income. Net loss attributable to owners narrowed to ¥1.28bn from ¥2.77bn, with the net margin improving by 228bp to -1.7%. The loss at the net-income level exceeded the pretax loss because income tax expense was ¥0.66bn despite a pretax loss, producing an effective tax rate of -104.0%. This tax outcome is the principal reason the improvement in ordinary loss did not translate proportionately into bottom-line earnings. The annualized DuPont ROE was -3.2%, reflecting the Q1 loss rather than a balance-sheet leverage problem. Liquidity remains strong, with ¥10.09bn of cash and a 242.9% current ratio. The full-year plan calls for revenue of ¥40.52bn, operating income of ¥4.24bn, and EPS of ¥148.79, so the investment focus is on whether the seasonal Q1 loss converts into the sharply profitable earnings profile embedded in the plan. Q1 revenue progress was 19.1% of the full-year forecast, below the straight-line 25% benchmark but consistent with a business whose enrollment and instructional revenue can be concentrated later in the academic cycle. Operating-income and net-income progress are negative at Q1 because the company remains loss-making at this stage, making margin recovery and student demand conversion the key near-term earnings determinants.

Profitability Analysis

The annualized three-factor DuPont decomposition shows ROE of -3.2%, comprising a -1.7% net profit margin, 1.266x asset turnover, and 1.54x financial leverage. The negative net margin is the binding constraint on shareholder returns; asset utilization and leverage are not the primary source of the weak annualized ROE. The largest year-on-year operating improvement came from margin expansion: gross margin rose 288bp and operating margin improved 349bp. Revenue growth of 9.9% exceeded SG&A growth of 7.6%, creating favorable operating leverage and reducing the SG&A ratio to 26.7%. Direct cost of sales increased 5.8%, materially slower than revenue, which explains the gross-margin improvement. However, the Q1 operating margin remained negative at -1.1%, below the 5% minimum profitability benchmark and consistent with the LOW_OPERATING_EFFICIENCY alert. Annualized ROIC of -6.2% is also below the 5% warning threshold, showing that Q1 operating profit did not cover the return required on the capital employed. The interest-coverage alert of -30.79x is mechanically driven by negative EBIT of ¥0.89bn rather than large cash interest expense, which was only ¥0.03bn. Similarly, the 0.708 interest-burden ratio is distorted by negative EBIT and should be interpreted as evidence that the Q1 operating loss leaves limited earnings capacity to absorb fixed financing costs, rather than as evidence of elevated conventional borrowing costs. The effective tax rate of -104.0% and tax burden of 2.030 are loss-period distortions, as ¥0.66bn of tax expense was recognized against a ¥0.63bn pretax loss. The gap between ordinary loss and net loss was ¥0.65bn, greater than 10% of pretax income in absolute terms, and is therefore a major determinant of reported Q1 earnings. Goodwill was ¥0.53bn, or only 3.3% of equity, while intangible assets were 6.3% of assets; acquired intangible and goodwill balances do not appear to be a material structural drag on profitability.

Growth Assessment

Revenue growth of 9.9% indicates continued expansion in the education-related core business, which is reported as a single segment. The revenue increase was accompanied by a 24.0% rise in gross profit, implying that the incremental revenue carried a higher gross-profit contribution than the prior-year quarter. The improved cost profile is constructive because cost of sales grew only 5.8%, below sales growth. SG&A discipline was also favorable, as SG&A grew 7.6%, slower than sales. Full-year management guidance assumes 7.6% sales growth to ¥40.52bn and 7.0% operating-income growth to ¥4.24bn. Q1 sales represent 19.1% of the full-year sales plan, 5.9 percentage points below a straight-line 25% benchmark. The negative Q1 operating result represents -2.1% of the full-year operating-income target, and Q1 net income represents -4.7% of the full-year net-income target, emphasizing the importance of subsequent-quarter seasonal earnings generation. The company has not revised either earnings or dividend guidance. Demand sustainability will depend principally on student enrollment, retention, course mix, and the ability to maintain teaching quality while controlling instructor and facility costs. The Q1 gross-margin expansion provides evidence that the current revenue growth is translating into stronger underlying operating leverage, but the persistence of this trend should be tested against later-quarter profitability.

Financial Health

Financial health is sound from a near-term liquidity perspective. Current assets of ¥11.91bn exceeded current liabilities of ¥4.90bn, producing working capital of ¥7.01bn and a current ratio of 242.9%. The quick ratio was also robust at 234.3%, demonstrating that liquidity is overwhelmingly supported by cash rather than inventories. Cash and deposits of ¥10.09bn alone exceeded current liabilities by ¥5.19bn, limiting maturity-mismatch risk. The debt-to-equity ratio was a conservative 0.54x, well below the 2.0x level associated with aggressive leverage. Total equity was ¥15.84bn and represented 64.9% of total assets, providing a meaningful capital cushion. Inventory increased by ¥2.93bn, or 226.8% year on year, to ¥4.22bn. This rise should be monitored because it can reflect preparation for educational-material demand and program delivery, but it also raises inventory realization and obsolescence exposure if enrollment demand falls short. Trade accounts payable increased by ¥3.81bn, or 125.7%, to ¥6.84bn, partially funding the inventory build and increasing supplier-payment execution risk. Asset-retirement obligations were ¥20.56bn, equal to 24.1% of total liabilities, triggering the HIGH_ARO_RATIO alert. This unusually high ratio reflects substantial obligations associated with restoring leased or operated educational facilities; it increases the long-duration fixed-obligation component of the balance sheet and makes location rationalization or site closures potentially more costly. Net defined-benefit liability was ¥12.18bn, adding another material long-term obligation that should be considered alongside lease and restoration commitments. Goodwill of ¥5.27bn was only 2.2% of assets and 3.3% of equity, so the balance sheet is not heavily dependent on acquisition-value retention.

Notable B/S Changes

Inventories: +¥2.93bn (+226.8%) to ¥4.22bn - a substantial build in finished goods relative to the prior-year quarter; monitor conversion into educational-service delivery and potential obsolescence exposure. Trade accounts payable: +¥3.81bn (+125.7%) to ¥6.84bn - supplier financing increased alongside the inventory build, requiring monitoring of payment timing and working-capital normalization. Total assets: -¥18.14bn (-6.9%) to ¥243.83bn - the asset base contracted while cash remained substantial at ¥100.94bn, maintaining strong near-term liquidity. Asset-retirement obligations: ¥20.56bn, equivalent to 24.1% of total liabilities and 8.4% of total assets - a structurally significant facility-restoration obligation that can reduce flexibility in managing the physical school network. Goodwill: -¥0.45bn (-7.9%) to ¥5.27bn - goodwill remains modest at 3.3% of equity, limiting acquisition-related impairment concentration risk.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥75.00 per share, unchanged from the disclosed plan. Against forecast EPS of ¥148.79, the implied dividend payout ratio is approximately 50.4%, within the sub-60% sustainability benchmark. The Q1 loss does not by itself determine annual dividend capacity because the company forecasts substantial full-year profitability and the business is seasonally weighted. Balance-sheet liquidity is supportive, with ¥10.09bn of cash and deposits and ¥15.84bn of equity. Dividend sustainability is therefore principally contingent on delivery of the full-year earnings plan, particularly the recovery from the Q1 operating loss to forecast operating income of ¥4.24bn. The absence of a guidance or dividend revision preserves management's stated shareholder-return framework, while also raising the importance of later-quarter enrollment and margin execution.

Risk Assessment

Business risks include Enrollment, retention, and competitive intensity risk: education-service demand can be affected by demographics, entrance-exam trends, household spending conditions, and competition from rival cram schools and digital-learning providers., Fixed-cost operating leverage risk: instructor compensation, educational-facility costs, and administrative expenses can weigh on profit if revenue growth moderates; Q1 operating margin remained negative at -1.1% despite the substantial year-on-year improvement., Educational-material inventory risk: finished goods increased 226.8% year on year to ¥4.22bn, requiring demand conversion and disciplined inventory management., Execution risk against the full-year plan: Q1 sales progress was 19.1% of the annual target and operating income was still negative, leaving later-quarter enrollment and margin delivery central to achieving ¥4.24bn of planned operating income..

Financial risks include Debt-service alert: interest coverage of -30.79x is below the 2.0x warning level because EBIT was negative. Cash interest expense was limited at ¥0.03bn, but sustained operating losses would reduce the capacity to service fixed financial obligations from earnings., Interest-burden alert: the 0.708 interest-burden ratio indicates that the Q1 earnings base was insufficiently strong; negative EBIT makes this ratio volatile, but profitability recovery is needed to normalize coverage., Asset-retirement-obligation alert: asset-retirement obligations of ¥20.56bn equal 24.1% of liabilities, materially above the 5% alert threshold. These obligations may constrain flexibility in facility closures, relocations, or footprint optimization., Tax-recognition volatility: ¥0.66bn of income tax expense on a ¥0.63bn pretax loss resulted in a -104.0% effective tax rate and widened the net loss. Similar tax effects can create volatility between operating and bottom-line performance..

Key concerns include Whether the 288bp gross-margin improvement can be sustained through the academic year while protecting educational quality and enrollment outcomes., Whether the inventory build and higher trade payables unwind in an orderly manner as educational materials are delivered and suppliers are paid., Whether later-quarter profitability is sufficient to bridge from a ¥0.89bn Q1 operating loss to the ¥4.24bn full-year operating-income forecast., Whether the high proportion of asset-retirement obligations within liabilities reduces strategic flexibility as the physical school network evolves..

Investment Implications

Key takeaways include Q1 revenue growth of 9.9%, gross-margin expansion of 288bp, and operating-loss reduction of ¥2.37bn demonstrate a materially improved start versus the prior-year quarter., The annualized ROE of -3.2% and annualized ROIC of -6.2% remain weak because Q1 remained loss-making; the earnings recovery must continue beyond the first quarter., Liquidity is a clear balance-sheet strength, supported by ¥10.09bn of cash, a 242.9% current ratio, and a 0.54x debt-to-equity ratio., The balance sheet carries limited goodwill concentration, but high asset-retirement obligations create a meaningful long-term fixed-obligation consideration., The ¥75 per-share full-year dividend plan implies a 50.4% payout ratio based on forecast EPS, making forecast execution the central determinant of shareholder-return capacity..

Metrics to watch include Revenue growth and gross margin versus the Q1 level of 9.9% and 25.5%, respectively., Operating-margin conversion from -1.1% in Q1 toward the full-year operating-income target., Student enrollment, retention, and course-mix indicators., Inventory levels relative to revenue and the evolution of trade accounts payable., Income-tax expense and the relationship between ordinary income and net income., Asset-retirement obligations and any changes in the educational-facility network., Progress toward full-year revenue of ¥40.52bn, operating income of ¥4.24bn, and EPS of ¥148.79..

Regarding relative positioning, The company combines a cash-rich and conservatively leveraged balance sheet with a Q1 earnings profile that is improving sharply year on year but remains seasonally loss-making. Its relative operating position will be determined by the durability of gross-margin gains and its ability to convert enrollment-led revenue growth into later-quarter operating profit while managing a facility-based obligation structure.