DAIICHIKOSHO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2027, the Company secured increases in operating income and ordinary income, while net income declined due to the absence of a one-time gain recorded in the previous year. Revenue was ¥411.6B (+1.5% YoY), operating income was ¥49.9B (+17.6%), and ordinary income was ¥51.3B (+12.2%), clearly demonstrating an improvement in core earnings. However, net income attributable to owners of the parent was limited to ¥31.4B (-10.9%). The primary factors behind the decline in net income were the absence of the ¥8.7B gain on the sale of non-current assets recorded in the same period of the previous year and an increase in the effective tax rate from 34.4% to 37.8%. The operating margin improved to 12.1% from 10.5% in the previous year, and the improvement in operating profitability should be considered separately from the temporary decline in net income.

Factors Affecting Earnings

【Revenue】Revenue increased modestly by 1.5% YoY to ¥411.6B. By segment, Karaoke Store and Food & Beverage, which had the largest composition ratio (42.7%), recorded revenue growth of +6.8%, while Professional Karaoke, with a composition ratio of 39.9%, recorded a revenue decline of -7.4%, resulting in contrasting performance. Music Software increased by +9.8%, while Other Businesses outside the reportable segments grew by +13.4%; both expanded despite their relatively small scale.

【Profit and Loss】Operating income increased by +17.6% to ¥49.9B, and the operating margin improved to 12.1% from 10.5% in the previous year, an improvement of +1.66pt. The gross margin improved to 35.8% from 34.9% in the previous year (+0.9pt), while the SG&A expense ratio declined to 23.7% from 24.5% (-0.8pt). As a result, SG&A expenses declined by -1.6% despite revenue growth of +1.5%, generating positive operating leverage. Ordinary income was ¥51.3B (+12.2%), while net non-operating income and expenses were +¥1.4B, nearly unchanged from the previous year. Meanwhile, profit before tax declined by -6.1% YoY to ¥50.6B, because the ¥8.7B gain on the sale of non-current assets (extraordinary income) recorded in the same period of the previous year did not recur in the current period. In addition, the increase in the effective tax rate from 34.4% to 37.8% resulted in net income attributable to owners of the parent of ¥31.4B (-10.9%). In conclusion, revenue and income increased at the operating and ordinary income levels, while net income declined due to the absence of a temporary factor.

Segment Analysis

Professional Karaoke secured an increase in profit, with operating income rising +14.3% to ¥37.3B despite revenue of ¥164.0B (-7.4%); the operating margin improved significantly to 22.7% from 18.4% in the previous year (+4.3pt). The increase in profit despite declining revenue suggests a shift toward operations focused on profitability. Karaoke Store and Food & Beverage expanded as the largest segment, with revenue of ¥175.9B (+6.8%), while operating income declined -2.5% to ¥12.6B and the operating margin fell to 7.2% from 7.8% (-0.7pt). Cost pressures from labor, utilities, food materials, and other expenses appear to have absorbed the benefits of revenue growth. Music Software recorded revenue of ¥14.6B (+9.8%) and operating income of ¥1.2B (+39.3%), with the operating margin improving to 8.5% from 6.7% (+1.8pt). Other Businesses also grew, with revenue of ¥57.1B (+13.4%), operating income of ¥9.2B (+27.9%), and the operating margin improving to 16.1% from 14.3% (+1.8pt). Adjustments, including the head office administrative division, were △¥10.4B compared with △¥11.2B in the previous year, indicating a modest reduction in corporate expenses. Overall, improved profitability in the high-margin Professional Karaoke segment drove the increase in consolidated profit, while the cost absorption capacity of Karaoke Store and Food & Beverage, now the largest segment, emerged as a challenge.

Key Financial Indicators

【Profitability】The operating margin improved to 12.1% from 10.5% in the previous year (+1.66pt), while the ordinary income margin also rose to 12.5% from 11.3%. Meanwhile, ROE remained at 2.5%, as the absence of extraordinary income recorded in the previous year and the higher effective tax rate placed pressure on the net income margin.【Cash Flow Quality】Comprehensive income was ¥34.9B, exceeding net income attributable to owners of the parent of ¥31.4B by +¥3.5B. The primary cause of the difference was an increase in the valuation difference on securities (+¥3.2B).【Investment Efficiency】Total assets were ¥2159.6B, down -2.0% YoY, while net assets were ¥1248.2B, down -0.4% YoY, both essentially unchanged; no major change was observed in asset efficiency.【Financial Soundness】The equity ratio rose to 57.8% from 56.1% in the previous year (+1.7pt), while the current ratio remained high at 302.9%. Interest-bearing debt totaled ¥547.3B, comprising short-term debt of ¥31.95B and long-term debt of ¥515.33B. The Debt/Capital ratio was 30.5%, and EBIT-based interest coverage was 31.6x, indicating substantial resilience against interest expense burdens.

Cash Flow Analysis

Cash and deposits were ¥413.4B, down -15.4% from ¥488.4B in the previous year, likely reflecting funding requirements for tax payments, capital expenditures, shareholder returns, and other purposes. In terms of working capital, inventories declined to ¥133.0B from ¥140.2B in the previous year (-5.2%), and trade receivables declined to ¥68.7B from ¥69.9B (-1.8%), while trade payables increased to ¥26.9B from ¥23.8B (+13.2%). Overall, working capital was compressed compared with the previous year. Long-term borrowings were ¥515.3B compared with ¥516.8B in the previous year, remaining essentially unchanged, with no major change in the composition of interest-bearing debt. Income taxes payable declined significantly YoY, indicating progress in the payment of taxes accrued in the previous fiscal period.

Quality of Earnings

The increases in operating income and ordinary income during the current period were supported by structural factors, namely an improvement in the gross margin (+0.9pt) and a decline in the SG&A expense ratio (-0.8pt), and can therefore be viewed as an improvement in recurring earnings power. In contrast, the same period of the previous year included the ¥8.7B gain on the sale of non-current assets as extraordinary income, whereas extraordinary income was zero in the current period. The reversal of this temporary factor directly resulted in declines in profit before tax and net income. Extraordinary losses were limited to ¥0.7B, including an impairment loss of ¥0.1B, and had a limited impact on profit and loss. Comprehensive income of ¥34.9B exceeded net income attributable to owners of the parent of ¥31.4B, with the difference primarily attributable to an increase in unrealized gains on investment securities (a +¥3.2B increase in the valuation difference on securities), representing a valuation-related factor distinct from realized gains and losses. Based on the above, the increase in operating income resulted from an improvement in high-quality core earnings, while the decline in net income can be characterized as noise caused by non-recurring factors and a higher tax burden.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥1690.0B (+3.7%), operating income of ¥193.0B (+7.7%), and ordinary income of ¥197.0B (+7.9%). Q1 progress rates were 24.3% for revenue, 25.9% for operating income, and 26.0% for ordinary income, approximately in line with or slightly above a simple quarterly allocation of 25%. The EPS forecast is ¥121.88 and the dividend forecast is ¥68.00. While the earnings forecast was revised during the quarter, the dividend forecast was not revised. The fact that progress in operating income and ordinary income exceeded that of revenue is consistent with the plan to improve profitability throughout the full year.

Shareholder Returns

The Company’s annual dividend plan is ¥68.00, implying a payout ratio of approximately 55.8% against the EPS forecast of ¥121.88. There was no revision to the dividend forecast during the quarter, and the initial plan has been maintained. The sound financial foundation, including an equity ratio of 57.8% and a current ratio of 302.9%, also supports the dividend plan.

Risk Factors

1. Increase in interest expense: Interest expense increased by +52% from ¥1.04B to ¥1.58B. With long-term borrowings of ¥515.3B, higher interest costs could increase non-operating expenses going forward.

2. Deterioration in the profitability of the Karaoke Store and Food & Beverage segment: Revenue increased by +6.8%, but operating income declined by -2.5%, and the operating margin fell to 7.2% from 7.8% in the previous year. Rising labor, utilities, food material, and other costs are placing pressure on the profitability of the largest segment.

3. Increase in the effective tax rate: The effective tax rate rose from 34.4% to 37.8%, contributing to a decline in net income of -10.9%, greater than the -6.1% decline in profit before tax.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net income margin significantly exceeded the industry median, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, indicating a relatively slower pace of top-line expansion.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin improved to 12.1% from 10.5% in the previous year (+1.66pt), indicating structural profitability improvement driven by both gross margin enhancement and greater SG&A efficiency.

2. The decline in net income (-10.9%) was primarily attributable to the absence of the ¥8.7B gain on the sale of non-current assets recorded in the previous year and the increase in the effective tax rate (34.4%→37.8%); it should be considered separately from the increasing trend in operating and ordinary income.

3. Full-year progress was 24.3% for revenue and 25.9% for operating income, broadly in line with standard quarterly allocation. The details of the earnings forecast revision during the quarter and segment-level profitability trends in the second half are the key points to monitor going forward.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥1,214–¥1,283 at ±1% for the cost of equity, and ¥1,247–¥1,249 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: 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. 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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