CENTRAL SPORTS (4801) FY2027 Q1 Earnings Report

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Executive Summary

Although the Company reported higher revenue and earnings, the primary driver of earnings growth was an improvement in the cost structure resulting from an improved gross profit margin and lower interest expenses, rather than revenue expansion. Revenue was ¥11.57B (+1.1% YoY), Operating Income was ¥0.29B (+29.0%), Ordinary Income was ¥0.20B (+79.3%), and Net Income was ¥0.08B (+50.9%). The gross profit margin improved to 10.5% from 9.8% in the same period of the previous year, while interest expenses declined from ¥0.122B to ¥0.112B, resulting in a significant increase in Ordinary Income. Meanwhile, Q1 progress against the full-year company forecast was 9.1% for Operating Income, 7.4% for Ordinary Income, and 5.4% for Net Income, all substantially below the standard 25%, requiring an acceleration in earnings improvement from Q2 onward to achieve the full-year plan.

Factors Affecting Business Performance

【Revenue】Revenue increased 1.1% YoY to ¥11.57B, representing limited growth. Contract liabilities, including membership fees received in advance, increased 32.7% YoY to ¥3.62B, indicating that advance revenue from the membership base is expanding at a faster pace than Revenue. As the Company operates as a single segment, Sports Club Management Business, no segment-level breakdown has been disclosed.

【Profit and Loss】Gross profit was ¥1.21B, compared with ¥1.12B in the same period of the previous year, and the gross profit margin improved to 10.5% from 9.8%. SG&A expenses were ¥0.93B, up 3.0% YoY and exceeding the Revenue growth rate; however, the benefit of the improved gross profit margin absorbed this increase, resulting in Operating Income of ¥0.29B (+29.0%). Interest expenses, the primary component of non-operating expenses, were ¥0.11B, down from ¥0.12B in the same period of the previous year, and Ordinary Income increased to ¥0.20B (+79.3%). Although a loss on store closures of ¥0.03B was recorded as an extraordinary loss, Net Income increased to ¥0.08B (+50.9%). The Company achieved higher revenue and earnings.

Segment Analysis

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

Key Financial Metrics

【Profitability】The Operating Income margin improved to 2.5% from 1.9% in the same period of the previous year, while the Net Income margin also increased to 0.7% from 0.5%. The gross profit margin was 10.5%, compared with 9.8% in the same period of the previous year, with improvements in the cost structure leading the increase in profit margins.【Cash Flow Quality】Contract liabilities increased 32.7% YoY to ¥3.62B, indicating an expanding base of advance revenue from membership fees and other sources. Accounts receivable decreased 10.2% YoY to ¥1.89B, indicating improved collection efficiency.【Investment Efficiency】Annualized ROE was 1.2% and ROIC was 2.8%, both remaining at low levels. BPS was ¥2,366.44, a slight decrease from ¥2,375.96 in the same period of the previous year.【Financial Soundness】The Equity Ratio remained high at 62.5%, compared with 62.9% in the same period of the previous year. Long-term borrowings were small at ¥0.37B, indicating low dependence on interest-bearing debt; however, lease liabilities of ¥3.38B and asset retirement obligations of ¥2.14B represent fixed financial burdens.

Cash Flow Analysis

Although the statement of cash flows has not been directly disclosed, funding trends can be inferred from changes in the balance sheet. Contract liabilities increased 32.7% YoY to ¥3.62B, strengthening the structure in which advance revenue from members supports working capital. Cash and deposits increased 2.3% YoY to ¥6.50B, indicating that financial liquidity has been maintained. Accounts receivable decreased 10.2% YoY to ¥1.89B, and collection efficiency improved as Revenue increased. Under this asset-intensive business structure, which includes property, plant and equipment of ¥20.32B, lease assets of ¥6.12B, and asset retirement obligations of ¥2.14B, future funding trends will depend on whether the accumulation of contract liabilities and improvements in the Operating Income margin can absorb these financial burdens.

Quality of Earnings

The improvement in earnings for the current period was primarily attributable to recurring improvements in profitability, while the only material temporary factor was the recognition of a ¥0.03B loss on store closures as an extraordinary loss. Non-operating income was small at ¥0.02B, while most of the ¥0.11B in non-operating expenses consisted of interest expenses; the structure in which financial expenses constrain the potential for boosting Ordinary Income remains unchanged. However, interest expenses themselves declined YoY, contributing to the expansion of Ordinary Income. Comprehensive income was ¥0.12B, exceeding Net Income of ¥0.08B, supported by items such as foreign currency translation adjustments of ¥0.03B and valuation differences on securities of ¥0.01B. The effective tax rate was high at 50.9%, suppressing the conversion of profit before tax into Net Income; this is an important factor to consider when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥50.50B (+3.3% YoY), Operating Income of ¥3.15B (+17.5%), and Ordinary Income of ¥2.70B (+19.6%), with no revision to the forecast during the current quarter. Q1 progress was 22.9% for Revenue, compared with 9.1% for Operating Income, 7.4% for Ordinary Income, and 5.4% for Net Income, all below the simple quarterly progress benchmark of 25%. Although the Sports Club Business may exhibit seasonality, accelerating profit-margin improvement over the remaining 3 quarters will be necessary to achieve the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥40.00 per share, with no revision to the dividend forecast during the current quarter. Based on forecast full-year EPS of ¥131.24, the Payout Ratio is 30.5%, below the 60% level generally considered a benchmark for sustainability. As the dividend in the same period of the previous year was ¥20 per share, the full-year forecast represents a plan to exceed the previous year's annual dividend. No disclosure regarding share repurchases has been made, and shareholder returns are evaluated solely on the basis of dividends.

Risk Factors

1. Low profitability and fixed-cost pressure: With the Operating Income margin at 2.5% and the gross profit margin at 10.5%, both at low levels, earnings could fluctuate significantly if increases in costs such as personnel expenses, utilities, and rent cannot be absorbed through price pass-through or improved utilization rates.

2. Weak conversion of earnings due to interest and tax burdens: Interest expenses of ¥0.11B provide only limited headroom, reflected in interest coverage of 2.57x, while the effective tax rate of 50.9% suppresses the conversion of profit before tax into Net Income.

3. Low progress against the full-year plan: Q1 progress for Operating Income, Ordinary Income, and Net Income was substantially below the standard 25% (9.1%, 7.4%, and 5.4%, respectively), making the pace of earnings improvement from Q2 onward a key factor in achieving the full-year plan.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company's profitability is substantially below the industry median and ranks toward the lower end.

Growth and Capital Efficiency

The Revenue growth rate is also substantially below the industry median, indicating an inferior growth position.

Source: Company analysis

Key Points from the Earnings Results

1. An approximately 69bp improvement in the gross profit margin served as the starting point for Operating Income growth of +29.0% and Ordinary Income growth of +79.3%. Profit growth substantially exceeding the +1.1% Revenue growth rate indicates that improvements in the cost structure had a significant impact.

2. Contract liabilities increased 32.7% YoY to ¥3.62B, expanding the base of advance revenue from members. This is observed as a structural indicator of future Revenue stability.

3. Q1 profit progress against the full-year forecast was low at 9.1% for Operating Income and 7.4% for Ordinary Income, while annualized ROE of 1.2% and ROIC of 2.8% also remained at low levels. The sustainability of profitability improvements and the potential for enhanced capital efficiency will be key points when assessing future earnings results.

Theoretical Share Price (Reference Value)

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 substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 47%). This figure reflects that compression at face value; if these factors are temporary, underlying 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 difference relative to the full-year forecast.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of future share prices.)

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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 professionals as necessary.

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