ARCHITECTS STUDIO JAPAN (6085) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending February 2026, the operating loss expanded substantially year on year due to a decline in revenue combined with a sharp increase in the burden of SG&A expenses. Revenue was ¥5.5B (¥6.8B in the previous year, YoY -18.4%), Operating Income was ¥-4.8B (¥-0.6B in the previous year), Ordinary Income was ¥-4.6B (¥-0.6B in the previous year), and Net Income (consolidated net income for the period) was ¥-4.5B (¥-1.1B in the previous year). While the gross profit margin declined to 50.0%, the SG&A expense ratio rose to 135.7%, making the failure of the cost structure to adjust to the reduced revenue scale the primary cause of the expanded loss.

Factors Affecting Earnings

【Revenue】Revenue was ¥5.5B, down 18.4% year on year. By segment, LifestyleRelated increased its composition ratio with revenue of ¥3.3B (YoY ±0.0%), while HousingRelated recorded a substantial increase to ¥2.2B (+1048.5%) but failed to achieve higher profitability, and InvestmentRelated virtually disappeared at ¥0.0B (-99.1%). Although the rapid expansion of HousingRelated supported overall revenue, its contribution to earnings remained limited.

【Profit and Loss】Gross profit was ¥2.8B, and the gross profit margin declined to 50.0% from 65.0% in the previous year, a decrease of approximately 1,500bp. SG&A expenses were ¥7.5B, exceeding revenue, and the SG&A expense ratio deteriorated to 135.7% (73.2% in the previous year). By segment, LifestyleRelated secured a profit of ¥2.9B (profit margin of 87.4%), whereas HousingRelated recorded a loss of ¥-1.8B (profit margin of -80.6%), with the profitability gap between businesses becoming the primary cause of the deterioration in operating results. Special gains and losses were almost offset, comprising a gain of ¥0.6B and a loss of ¥0.6B, with an impairment loss of ¥0.4B accounting for the central component. In conclusion, this was an earnings report characterized by lower revenue and lower profit.

Segment Analysis

LifestyleRelated maintained high profitability, with revenue of ¥3.3B and Operating Income of ¥2.9B (profit margin of 87.4%), effectively supporting company-wide profit. HousingRelated expanded rapidly to revenue of ¥2.2B (+1048.5%), but Operating Income was ¥-1.8B (profit margin of -80.6%), resulting in a substantial loss; the increase in revenue therefore directly translated into an expanded loss. InvestmentRelated contracted to revenue of ¥0.0B, with a limited impact on profit. Including the adjustment of ¥-2.2B for company-wide expenses and other items, the total segment profit is consistent with the consolidated quarterly operating loss.

Key Financial Indicators

【Profitability】The Operating Income margin deteriorated substantially to -85.6% (-8.1% in the previous year), while the gross profit margin also declined to 50.0% (65.0% in the previous year). The Net Income margin (based on consolidated net income for the period) remained negative, and ROE (annualized) was -1079.7%; however, this figure reflects the reduction in net assets to ¥0.6B and therefore requires caution when interpreted as an indicator of management efficiency.【Cash Flow Quality】Non-operating income of ¥0.3B accounts for approximately 6% of revenue and is insufficient to offset the operating loss.【Investment Efficiency】Revenue of ¥5.5B against total assets of ¥12.7B indicates a declining trend in asset efficiency.【Financial Soundness】The Equity Ratio declined to 4.3% (11.0% in the previous year), while current liabilities of ¥3.7B exceeded current assets of ¥2.7B, indicating a level that requires attention with respect to short-term funding capacity.

Cash Flow Analysis

Although cash flow statement data have not been disclosed, trends in funds can be inferred from changes in the balance sheet. Cash and deposits decreased by ¥1.5B, from ¥2.1B in the same period of the previous year to ¥0.6B. During this period, long-term borrowings were reduced by ¥4.4B, from ¥12.0B to ¥7.6B, while short-term borrowings increased from ¥0.25B to ¥0.68B. This suggests that the repayment burden of long-term debt placed pressure on cash on hand, with part of the funding requirement being covered by a shift to short-term financing. Accounts receivable decreased by ¥1.7B, potentially indicating progress in collections; however, a decline in outstanding billings resulting from the contraction in business scale is also possible. Overall, the company appears to be reviewing its borrowing structure while cash outflows continue.

Earnings Quality

The current period’s results were centered on an operating loss, with limited impact from temporary factors. Special gains of ¥0.6B and special losses of ¥0.6B were almost offset, resulting in only a marginal net positive effect. The impairment loss of ¥0.4B included in special losses reflects a reassessment of the future profitability of assets. Although it is a temporary factor, it also suggests structurally deteriorating profitability. Non-operating income of ¥0.3B includes dividends received and other income, but is broadly offset by non-operating expenses, including interest expenses of ¥0.2B. As the core of the income statement is the operating loss of ¥4.8B, earnings quality reflects a decline in the underlying earning power of the business, while the impact of accrual-related adjustments is limited.

Earnings Forecast and Guidance

The full-year forecasts are revenue of ¥7.0B, Operating Income of ¥-5.1B, Ordinary Income of ¥-5.0B, and Net Income attributable to owners of the parent of ¥-6.15B. For the cumulative Q3 period, progress rates were 79.9% for revenue (above the standard 75%), 93.1% for the operating loss, and 93.5% for the ordinary loss, indicating that the majority of the full-year forecast losses have already been recorded. The progress rate for net loss attributable to owners of the parent was only 62.3%, suggesting that additional special gains and losses, tax effects, and other items may arise in Q4. The earnings forecast was revised during the current quarter, and the pace of loss recognition remains rapid even relative to the level following the downward revision.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0, with the suspension of dividends continuing. Continuing the dividend suspension while equity attributable to owners of the parent is ¥-0.05B can be viewed as a measure prioritizing capital preservation and liquidity 확보. As no dividend payments have been made, the Payout Ratio has no applicable basis for calculation, and recovery in earnings and cash is a prerequisite for the resumption of shareholder returns.

Risk Factors

1. Profitability deterioration risk: While revenue declined 18.4% year on year, the gross profit margin decreased from 65.0% to 50.0%, and the SG&A expense ratio rose to 135.7%. If the insufficient absorption of fixed costs continues, losses may expand further.

2. Liquidity and leverage risk: Working capital is negative, with current liabilities of ¥3.7B against current assets of ¥2.7B. The Equity Ratio has declined to 4.3%, and interest-bearing debt, including long-term borrowings of ¥7.6B, represents a significant proportion of total assets.

3. Asset valuation risk: The impairment loss of ¥0.4B included in special losses indicates downward pressure on the earnings outlook for business assets. If earnings improvement is delayed, additional asset impairment losses may occur.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The company’s profitability is substantially below the industry median, with both its Operating Income margin and Net Income margin ranking near the bottom of the industry.

Growth and Capital Efficiency

While many companies in the industry are on a revenue growth trajectory, the company recorded a revenue decline and ranked near the bottom of the industry in terms of growth.

※Source: Company analysis

Key Points from the Earnings Report

1. Revenue decline, gross profit margin deterioration, and an increase in the SG&A expense ratio occurred simultaneously, causing the Operating Income margin to deteriorate to -85.6%. Lowering the break-even point will be a key focus going forward.

2. While the full-year revenue progress rate of 79.9% exceeds the standard level, more than 90% of the full-year forecast operating and ordinary losses have already been recorded. Cost management in Q4 will be the determining factor in achieving the plan.

3. While long-term borrowings have been reduced, cash and deposits have declined while short-term borrowings have increased, making changes in the maturity structure of funding an area to monitor going forward.

Theoretical Share Price (Reference Value)

Sensitivity: -¥44 to -¥44 at ±1% in the cost of equity, and -¥44 to -¥44 at ±0.1 in ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets at the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation 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; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee the future share price.)

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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 issue. 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 professionals as necessary.

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