CENTRAL SPORTS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

This quarter saw the company strengthen its earnings growth trend, primarily due to an improvement in gross margin despite largely flat revenue, indicating an improving quality of earnings. Revenue was ¥115.7B (+1.1% YoY), Operating Income was ¥2.9B (+29.0%), Ordinary Income was ¥2.0B (+79.3%), and Net Income was ¥0.8B (+50.9%). While the improvement in gross margin and decline in interest expense boosted income through the ordinary income level, an extraordinary loss of ¥0.3B associated with store closures partially offset the growth in Net Income.

Factors Affecting Performance

【Revenue】Revenue increased modestly by 1.1% YoY to ¥115.7B. The company operates as a single segment, the Sports Club Management Business, and segment-specific factors affecting changes have not been disclosed. Contract liabilities (advances received and deferred revenue) increased 32.7% YoY to ¥36.2B, indicating future revenue recognition potential based on membership contracts.

【Profit and Loss】Revenue growth outpaced the increase in cost of sales, improving the gross margin to 10.5% (equivalent to 9.8% in the previous year). The SG&A ratio was also broadly flat at 8.0%, resulting in an expansion of the Operating Income margin to 2.5% (2.0% in the previous year). At the ordinary income level, Ordinary Income expanded to ¥2.0B (+79.3%) as interest expense declined to ¥1.1B and interest income increased. However, the recognition of an extraordinary loss of ¥0.3B from store closures and the high tax burden, with an effective tax rate of approximately 51%, restrained the growth in Net Income, which came to ¥0.8B (+50.9%). Both revenue and earnings increased.

Segment Analysis

The company operates as a single segment, the Sports Club Management Business, and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 2.5% (2.0% in the previous year), while the Net Income margin improved to 0.7% (0.5% in the previous year); however, both remain low in absolute terms. 【Cash Quality】Cash and deposits were substantial at ¥65.0B. While the accumulation of contract liabilities is causing cash generation to precede revenue recognition through advances received, interest expense of ¥1.1B remains a recurring cash outflow factor. 【Investment Efficiency】ROE was low at 0.3%, and the total asset turnover ratio was also low, indicating significant room to improve capital efficiency. 【Financial Soundness】The Equity Ratio was high at 62.5%, while interest-bearing borrowings were small at ¥3.7B, indicating a conservative financial foundation.

Cash Flow Analysis

Contract liabilities increased by ¥8.9B YoY, and the accumulation of advances received and deferred revenue is supporting a cash-generative revenue structure in which cash precedes revenue recognition. Meanwhile, income taxes payable declined significantly from the previous year, suggesting that cash outflows associated with tax payments during the period affected quarterly cash flows. The decrease in accounts receivable had a positive effect on cash collection from a working capital perspective, while the ¥1.1B interest outflow reduced cash generation efficiency relative to earnings. Cash and deposits increased from the previous year to ¥65.0B, maintaining short-term financial flexibility.

Quality of Earnings

Recurring earnings are primarily derived from Operating Income associated with sports club operations, while non-operating income was limited in scale, consisting mainly of approximately ¥0.2B in interest income. Non-operating expenses consisted primarily of ¥1.1B in interest expense, which had a non-negligible impact on Ordinary Income. The ¥0.3B extraordinary loss was a temporary factor associated with store closures and reduced Net Income. The gap between Ordinary Income and Net Income was primarily attributable to the high tax burden, with an effective tax rate of approximately 51%; this tax burden is structurally constraining the expansion of the Net Income margin.

Earnings Forecast and Guidance

Progress against the full-year plan was 22.9% for Revenue (¥115.7B against a planned Revenue of ¥505.0B), 9.1% for Operating Income (against a plan of ¥31.5B), and 7.4% for Ordinary Income (against a plan of ¥27.0B), indicating that earnings progress is lagging revenue progress. Extraordinary losses, the high tax burden, and interest expense may be contributing factors, while the back-loaded nature of the business and progress in fulfilling contract liabilities will be key to achieving the full-year plan. Neither the earnings forecast nor the dividend forecast was revised during the current quarter.

Shareholder Returns

The company’s annual dividend plan is ¥40/share (¥20/share in the previous year), implying an increase in dividends. The Payout Ratio against planned EPS of ¥131.24 is approximately 30.5%, a reasonable level. Given the conservative financial structure, with cash and deposits of ¥65.0B and interest-bearing debt of ¥3.7B, there appears to be little impediment to securing funds for dividends.

Risk Factors

1. Interest burden resilience: Although the interest coverage ratio improved at the ordinary income level, interest expense of ¥1.1B remains heavy relative to Ordinary Income, and resilience to rising interest rates requires monitoring.

2. Net Income constrained by the high tax burden: The effective tax rate is high at approximately 51%, resulting in a significant reduction from Ordinary Income to Net Income. If this structure continues, the effect of earnings growth may be less visible at the Net Income level.

3. Risk of recurring extraordinary losses: The company recorded a ¥0.3B loss from store closures during the current period. If optimization of the store portfolio continues, similar temporary losses may arise in the future.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate is below both the industry median and the lower bound of the IQR, placing top-line growth among the slower performers in the industry.

※Source: Company aggregation

Key Points from the Financial Results

1. The improvement in gross margin (equivalent to +69bp) and broadly flat SG&A expenses were the primary drivers of the +54bp improvement in the Operating Income margin, with cost structure stability supporting earnings improvement.

2. Contract liabilities increased 32.7% YoY, and the accumulation of deferred revenue is being monitored as a factor supporting future revenue recognition.

3. Earnings progress against the full-year plan is lagging revenue progress, with extraordinary losses, the high tax burden, and interest expense identified as the primary causes of the delay.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥2,050–¥2,169 at ±1% for the cost of equity, and ¥2,099–¥2,114 at ±0.1 for ω.

Notes:

• Net Income is significantly compressed relative to Operating Income due to the tax burden, acquisition-related expenses, minority interests, and other factors (Net Income ÷ Operating Income 47%). This value reflects that compression at face value; if these factors are temporary, intrinsic earnings power 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 end of the quarter are used (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value is not a forecast or guarantee of the future share price)

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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 aggregated by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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