CENTRAL SPORTS (4801) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for the first three quarters increased in both revenue and operating income; however, net income declined due to the reversal of the prior-year tax effect and impairment losses. Revenue was ¥36.77B (+5.3% YoY), Operating Income was ¥1.98B (+50.9%), and Ordinary Income was ¥1.68B (+62.3%), with all three showing substantial growth driven by operating leverage from improved gross margins and reductions in SG&A expenses. Meanwhile, Net Income was limited to ¥1.05B (-17.4%), primarily due to the reversal of the low effective tax rate in the same period of the previous year (current-period effective tax rate: 35.3%) and the recognition of an impairment loss of ¥0.073B.

Factors Affecting Earnings

【Revenue】Revenue was ¥36.77B, an increase of +5.3% YoY. In the single-segment sports club management business, increased member usage and demand for lessons supported revenue growth. Progress against the full-year forecast of ¥50.50B was 72.8%, slightly below the standard 75% progress level.

【Profitability】Gross profit was ¥4.51B (gross margin: 12.3%, an improvement of +98bp from 11.3% in the previous year), while SG&A expenses were ¥2.53B (-4.4% YoY). As a result, Operating Income increased substantially to ¥1.98B (operating margin: 5.4%, an improvement of +163bp from 3.8% in the previous year). Ordinary Income rose to ¥1.68B (+62.3%), but interest expense of ¥0.36B accounted for 18.2% of Operating Income, and earnings outflow from financial expenses remains significant. Profit Before Tax expanded to ¥1.63B (+79.0%), but income taxes and other taxes shifted from a prior-year gain recognition of ¥0.36B to an expense recognition of ¥0.58B in the current period, resulting in Net Income of ¥1.05B (-17.4%). Thus, revenue and operating and ordinary income increased, while Net Income declined.

Key Financial Metrics

【Profitability】The operating margin was 5.4%, an improvement of +163bp from 3.8% in the same period of the previous year, while the gross margin was 12.3%, an improvement of +98bp from 11.3% in the previous year. However, the net profit margin declined by -78bp to 2.9% from 3.7% in the previous year. 【Cash Flow Quality】Income taxes and other taxes of ¥0.58B were recorded against Profit Before Tax of ¥1.63B (effective tax rate: 35.3%), and the reversal of the one-time boost from the prior-year tax effect was the primary cause of the deterioration in the net profit margin. 【Investment Efficiency】Annualized ROE was 5.3%, decomposed into a net profit margin of 2.9%, total asset turnover of 1.19x, and financial leverage of 1.57x. The primary constraint on ROE is the low net profit margin. 【Financial Soundness】The Equity Ratio was 63.9% (62.8% in the previous year), and the current ratio was 112.0%. Short-term funding capacity is secured, although it cannot be described as ample.

Cash Flow Analysis

Although cash flow statement data has not been disclosed, the flow of funds can be observed from balance sheet trends. Cash and deposits were ¥5.80B, up from ¥5.38B in the same period of the previous year, indicating that liquidity has been maintained. Long-term borrowings increased by +35.2% YoY to ¥0.48B, although they remain small at 1.2% of total assets. Contract liabilities (deferred revenue) were ¥2.84B, slightly down from ¥2.98B in the same period of the previous year, indicating that the level of customer advance payments has remained generally stable. Fixed assets were ¥32.13B, accounting for 77.9% of total assets, with continued investment in property, plant and equipment and leased assets representing the core of the company’s capital allocation.

Quality of Earnings

The improvement in earnings for the current period was primarily attributable to recurring business factors, centered on the realization of structural operating leverage through improved gross margins and reductions in SG&A expenses. Non-operating income was small at ¥0.07B and consisted mainly of non-core items such as insurance dividends of ¥0.01B. Meanwhile, the majority of non-operating expenses of ¥0.37B consisted of interest expense of ¥0.36B, meaning that financial expenses remain a persistent factor weighing on Ordinary Income. Extraordinary gains and losses included an impairment loss of ¥0.07B (¥0.02B in the previous year), which depressed Net Income as a temporary factor associated with a reassessment of the profitability of facility assets. The divergence between Net Income and Profit Before Tax was primarily attributable to changes in the level of income taxes and other taxes. The reversal of the one-time boost from the tax effect in the same period of the previous year (gain recognition) was the primary cause of the decline in Net Income in the current period and should be evaluated separately from the substantive improvement in Operating Income and Ordinary Income.

Earnings Forecast and Guidance

Progress against the full-year company forecasts was 72.8% for Revenue, 65.4% for Operating Income, 65.9% for Ordinary Income, and 75.3% for Net Income. Revenue progress was broadly in line with seasonality, but progress in Operating Income and Ordinary Income was below the standard 75%. The company therefore needs to generate Operating Income of ¥1.05B in Q4 (the difference from the full-year forecast of ¥3.03B), equivalent to an operating margin of approximately 7.7%. This exceeds the cumulative operating margin of 5.4% for the current period, making improvement in Q4 profitability the key to achieving the full-year forecast. Net Income progress of 75.3% is ahead on a cumulative comparison basis, but the impact of the reversal of the prior-year tax effect must be taken into consideration.

Shareholder Returns

The Q2 dividend was ¥20.00 per share, and the full-year dividend forecast is ¥40.00 per share. The Payout Ratio against cumulative Net Income of ¥1.05B (cumulative basis) is calculated at approximately 21.8%, while the full-year Payout Ratio based on the full-year Net Income forecast of ¥1.40B and the average number of shares outstanding during the period is approximately 32.0%, below the general sustainability guideline of 60%. Retained earnings of ¥22.08B and net assets of ¥26.32B indicate that resources for dividends have accumulated; however, the balance of capital allocation with facility investments and expenditures related to leases and restoration obligations will determine future dividend capacity. No disclosure regarding share buybacks was identified, and this report therefore presents only the Payout Ratio.

Risk Factors

1. Utilization and demand fluctuation risk: Due to the business structure’s high fixed-cost ratio, a slowdown in member usage and demand for lessons could cause operating leverage to work in reverse, resulting in a rapid decline in the operating margin of 5.4%.

2. Long-term fixed liabilities related to facilities: Lease obligations of ¥3.58B and asset retirement obligations of ¥1.91B (12.8% of total liabilities) represent long-term payment burdens, creating a risk that actual expenditures could exceed estimates when facilities are closed or relocated.

3. Pressure on earnings from financial expenses: Interest expense of ¥0.36B is equivalent to 18.2% of Operating Income. Although the interest coverage ratio of 5.49x is sound by benchmark standards, the business structure’s operating margin of 5.4% means that increases in interest rates or declines in earnings could have a significant impact on Ordinary Income.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The company’s profitability is below the industry median, with its net profit margin particularly underperforming.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, placing the company at a disadvantage in terms of growth.

※Source: Company analysis

Key Takeaways from the Financial Results

1. Revenue increased by 5.3%, while Operating Income increased by 50.9%, demonstrating operating leverage driven by improved gross margins and reduced SG&A expenses. The operating margin improved by +163bp YoY but remained at 5.4%, leaving a gap versus the industry median of 8.3%.

2. Net Income declined by 17.4% due to the reversal of the prior-year tax effect and the impact of an impairment loss of ¥0.073B. The improvement at the Operating Income and Ordinary Income levels should be evaluated separately from the trend in Net Income.

3. Achieving the full-year forecast requires an operating margin of approximately 7.7% in Q4, requiring an improvement in profitability above the cumulative 5.4% for the current period. Trends in long-term fixed liabilities related to facilities, including lease obligations and asset retirement obligations, also warrant continued attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,022–¥2,139 for ±1% in the cost of equity, and ¥2,070–¥2,085 for ±0.1 in ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income: 46%). This value reflects that compression at face value; if the factors are temporary, normalized earnings may be higher.
• 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, resulting in a timing difference from the full-year forecast.

(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; 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 through analysis of 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 discretion and responsibility, after consulting a professional as necessary.

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