Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥209.5B | ¥295.8B | −29.2% |
| Operating Income | ¥59.5B | ¥48.5B | +22.7% |
| Ordinary Income | ¥59.7B | ¥48.9B | +21.9% |
| Net Income | ¥39.0B | ¥32.5B | +18.5% |
| ROE | 8.7% | 7.7% | - |
Executive Summary
FY2026 Q3 results were Revenue of ¥209.5B (YoY -¥86.3B -29.2%), Operating Income of ¥59.5B (YoY +¥11.0B +22.7%), Ordinary Income of ¥59.7B (YoY +¥10.8B +21.9%), and Net Income attributable to owners of the parent of ¥39.0B (YoY +¥6.5B +20.1%). While Revenue declined significantly from the prior year, the Operating Margin improved substantially to 28.4% (up +12.0pt from 16.4% in the prior year), marking progress toward a higher-margin structure. By segment, the Hotel Business posted Revenue of ¥95.4B and Operating Income of ¥40.4B; the Sports Club Business posted Revenue of ¥93.9B and Operating Income of ¥11.7B; and the Leasing Business posted Revenue of ¥20.6B and Operating Income of ¥7.4B, with the Hotel Business driving overall profitability. The full-year outlook calls for Revenue of ¥272.0B (FY YoY -23.6%), Operating Income of ¥70.0B (FY YoY +18.9%), and Net Income of ¥30.0B (FY YoY +17.9%), continuing to assume a decreasing revenue, increasing profit trend.
Key Financial Metrics
[Profitability] ROE of 6.1% improved from the prior year but slightly trails the industry median of 6.5%. The Operating Margin of 28.4% far exceeds the industry median of 7.1%, at the highest level in the past five periods. The Net Margin of 18.6% also significantly exceeds the industry median of 5.3%, reflecting a highly profitable structure. Gross Margin is 34.6%. [Cash Quality] Cash and Deposits are ¥218.4B, providing 30.3x coverage of Short-Term Borrowings of ¥7.2B. [Investment Efficiency] Total Asset Turnover of 0.29x is well below the industry median of 0.81x, reflecting a capital-intensive business profile. [Financial Soundness] Equity Ratio is 52.0% (industry median 57.1%), Current Ratio is 188.0% (slightly below the industry median of 2.30x = 230%), Interest-bearing Debt is ¥91.8B, and Net Debt is -¥126.6B, indicating a virtually debt-free position. Financial Leverage of 1.62x is below the industry median of 1.72x, a conservative level. Interest Coverage is 58.7x, indicating ample interest-paying capacity.
Cash Flow Analysis
Cash and Deposits increased by ¥9.2B YoY to ¥218.4B, and profit growth at the operating level is estimated to have contributed to cash accumulation. In working capital efficiency, Working Capital stands at ¥108.8B, with Accounts Receivable of ¥24.2B (up +¥2.8B from ¥21.4B in the prior year) and Inventories at a small ¥0.05B, indicating effective management of Accounts Payable and Accrued Expenses. Fixed Assets total ¥491.5B, accounting for 67.9% of Total Assets, maintaining a capital-intensive structure grounded in real estate and equipment. Against Short-Term Borrowings of ¥7.2B and Long-Term Borrowings of ¥84.6B, cash coverage is 2.4x, securing liquidity. Treasury Shares expanded from -¥0.08B in the prior year to -¥9.8B, suggesting share repurchases during the period. Despite declining sales, improved margins are estimated to have strengthened cash generation; however, in the absence of detailed Operating Cash Flow data, quantitative verification of the cash backing of profits is limited.
Quality of Earnings
With Ordinary Income at ¥59.7B versus Operating Income at ¥59.5B, net non-operating gains were approximately ¥0.2B, indicating earnings are generated largely on an operating basis. Non-operating income is presumed to consist mainly of financial income such as interest and dividends received, and after deducting non-operating expenses of ¥1.6B (including interest expense of ¥1.0B), the net amount is small. Extraordinary Gains of ¥1.2B (including Gain on Sales of Fixed Assets of ¥0.4B) and Extraordinary Losses of ¥0.2B were recorded, and of the Profit before income taxes of ¥60.7B, about ¥1.0B is attributable to one-off factors; however, earnings are primarily driven by ordinary activities. The improvement in Operating Margin amid a significant Revenue decline appears to reflect a shift to higher-margin businesses and fixed-cost containment, with SG&A Expenses at ¥13.0B held down from the prior year. The Tax Burden Coefficient of 0.448 and the Effective Tax Rate of 35.8% indicate a high tax burden suppressing Net Income, affecting the quality of after-tax earnings. While earnings power at the ordinary level is solid, the persistence of sales declines and room for improvement in the tax burden are key monitoring points.
Risk Factors
- Persistence of significant Revenue decline: In Q3, Revenue was down -29.2% YoY, and the full-year outlook also projects a substantial decrease of -23.6%. Changes in demand conditions and shifts in business mix appear to be underlying factors, and delays in sales recovery risk undermining the assumptions for margin maintenance. Details by segment are limited, and structural versus temporary drivers of the decline remain unclear.
- Profitability suppressed by high tax burden: An Effective Tax Rate of 35.8% and a Tax Burden Coefficient of 0.448 are estimated to be high within the industry, a primary factor suppressing ROE of 6.1%. If room to improve tax efficiency is limited, Net Income growth will rely on improvements at the operating level, constraining enhancement of shareholder returns on equity.
- Fixed asset concentration risk: Fixed Assets of ¥491.5B (67.9% of Total Assets) are presumed to be largely real estate and equipment, with Asset Retirement Obligations of ¥8.0B also recorded. Should market fluctuations or impairment risks materialize, asset values and profitability could be affected.
Industry Benchmarks (Reference, Our Research)
[Position within Industry] (Reference information, our research) Profitability: The Operating Margin of 28.4% significantly exceeds the industry median of 7.1% (IQR 2.9%–10.5%), placing the company in a high-profitability model within the industry. The Net Margin of 18.6% also significantly exceeds the industry median of 5.3%. Meanwhile, ROE of 6.1% slightly trails the industry median of 6.5%, indicating that high margins have not fully translated into shareholder capital efficiency. Soundness: The Equity Ratio of 52.0% is slightly below the industry median of 57.1%, but with Net Debt of -¥126.6B the company is effectively debt-free, and Financial Leverage of 1.62x is below the industry median of 1.72x, a conservative level. The Current Ratio of 188.0% is slightly below the industry median of 230% (2.30x), but cash coverage is ample. Efficiency: Total Asset Turnover of 0.29x is far below the industry median of 0.81x, reflecting a fixed asset–intensive business profile. Revenue growth rate of -29.2% is well below the industry median of +9.1%, indicating a revenue contraction phase within the industry. Industry: Healthcare (N=56 companies), Comparison: 2025 Q3, Source: Our aggregation
Key Takeaways from Results
- Maintaining a high Operating Margin amid revenue decline: While Revenue declined -29.2% YoY, the Operating Margin improved by +12.0pt to 28.4%, likely driven by focus on high-profit segments (Operating Margin of 42.4% in the Hotel Business) and fixed-cost control. The full-year outlook continues to project a decreasing revenue, increasing profit trend; however, the path to sales recovery and sustainability of margin maintenance are areas to watch.
- Virtually debt-free and conservative capital allocation: With Net Debt of -¥126.6B and Cash and Deposits of ¥218.4B, the company maintains ample on-hand liquidity, and a Payout Ratio of 7.0% suggests substantial capacity for dividends. Meanwhile, the expansion of Treasury Shares (-¥9.8B) indicates that shareholder returns are being executed through a combination of dividends and share repurchases. Attention will focus on whether future capital allocation policies contribute to improving shareholder capital efficiency.
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information aggregated by our firm based on publicly available financial statements. Investment decisions are your own responsibility; consult a professional as necessary before making any decisions.
AI Financial Analysis
Executive Summary
FY2026 Q3 earnings were operationally strong despite a sharp revenue decline, with margin expansion driving double-digit profit growth. Revenue was ¥20.95bn, down 29.2% year on year. Operating income increased 22.7% to ¥5.95bn. Ordinary income rose 21.9% to ¥5.97bn. Profit attributable to owners increased 18.5% to ¥2.72bn. Gross profit margin improved to 34.6% from 21.6% a year earlier, a substantial expansion of approximately 1,300bp. Operating margin rose to 28.4% from 16.4%, an expansion of approximately 1,200bp. The result indicates that lower sales were more than offset by a markedly improved sales mix, cost structure, or both. SG&A expense declined 14.6% to ¥1.30bn, reinforcing the positive operating-leverage outcome. The current net profit margin was 13.0%, which remains high even after the impact of taxes and non-controlling interests. Non-operating items were immaterial relative to revenue, with net non-operating expense of only ¥0.06bn. Profit before tax was supported by a ¥0.12bn extraordinary gain, including a ¥0.04bn gain on asset sales, although this was not material to the overall earnings result. The annualized ROE was 8.1%, broadly at the threshold between a low and moderate return profile, despite the exceptionally high operating margin. The principal constraint on conversion from operating profit to profit attributable to owners was the high tax burden and the allocation of earnings to non-controlling interests. Liquidity is strong, supported by ¥21.84bn of cash and a 188.0% current ratio. The balance sheet also has substantial tangible fixed assets of ¥46.36bn, consistent with a facility-intensive operating model. FY2026 guidance implies that the company expects revenue to remain lower year on year while preserving a significantly higher profitability profile. Q3 progress is ahead of the normal 75% seasonal benchmark for operating income, ordinary income, and profit attributable to owners, supporting confidence in the earnings target absent a material Q4 disruption. The key forward issue is whether the Q3 margin structure can be sustained while managing fixed facility obligations, personnel costs, and consumer demand in the fitness and leisure market.
Profitability Analysis
The annualized DuPont ROE is 8.1%, decomposed into a 13.0% net profit margin, 0.386x asset turnover, and 1.62x financial leverage. The strongest component is profitability: the 13.0% net margin is excellent by the stated benchmark, while the 28.4% EBIT margin is also well above the 15% excellent threshold. Asset turnover is comparatively modest, reflecting the capital-intensive property and facility base, with property, plant and equipment representing 64.0% of total assets. Financial leverage of 1.62x is moderate and does not suggest that ROE is being driven by aggressive balance-sheet leverage. The largest year-on-year change was margin expansion rather than revenue growth: gross margin expanded roughly 1,300bp and operating margin about 1,200bp. Gross profit increased 13.8% to ¥7.26bn even as sales fell 29.2%, while SG&A declined 14.6% to ¥1.30bn. This combination produced operating-income growth of 22.7%, demonstrating unusually strong operating leverage on the cost base. Sustainability will depend on whether the lower-revenue, higher-margin mix reflects an enduring restructuring or mix shift rather than timing effects. Interest coverage was very strong at 58.65x, and the 1.020 interest-burden ratio shows that financing costs are not a meaningful drag on pre-tax profit. The tax burden, however, was only 0.448 on the reported five-factor decomposition, well below a normal level above 0.70. This weak tax conversion, together with ¥1.18bn of earnings attributable to non-controlling interests, limits the proportion of operating earnings available to parent shareholders. The reported effective tax rate of 35.8% based on consolidated profit before tax is elevated but not exceptional in isolation; the more adverse tax-burden alert reflects the lower conversion to profit attributable to owners. The reported annualized ROE is therefore adequate rather than high, because modest asset turnover and below-normal after-tax conversion offset superior operating margins.
Growth Assessment
The top-line trend remains the principal growth concern: Q3 cumulative revenue declined 29.2% year on year to ¥20.95bn. In contrast, the full-year forecast calls for revenue of ¥27.20bn, down 23.6% year on year, indicating that management does not expect a return to prior-year sales levels during FY2026. The investment-relevant positive is the expected durability of profit recovery: full-year operating income guidance is ¥7.00bn, up 18.9%, despite the forecast sales decline. Q3 operating-income progress was 85.1% of full-year guidance, 10.1 percentage points ahead of the standard 75% Q3 progress rate. Ordinary-income progress was 85.2%, also 10.2 percentage points ahead of the normal pace. Profit attributable to owners reached 90.6% of the ¥3.00bn full-year target, 15.6 percentage points ahead of the standard pace. Revenue progress was 77.0%, only modestly above the 75% benchmark, so the outperformance is predominantly margin-led rather than the result of accelerated sales. The forecast requires Q4 revenue of approximately ¥6.25bn, operating income of ¥1.05bn, and profit attributable to owners of ¥0.28bn. This implied Q4 profit profile is materially less profitable than the Q3 cumulative run rate, suggesting either normal seasonality, planned expenses, or conservatism in the guidance. For a fitness and leisure facility operator, retention and new-member acquisition, pricing power, facility utilization, and personnel and utility-cost control will determine whether the higher margin can persist. The large fixed-asset base makes revenue recovery important over the medium term, because improved utilization can further lift returns while lower utilization can pressure asset productivity.
Financial Health
Financial health is sound on reported liquidity and leverage measures. Current assets were ¥23.24bn against current liabilities of ¥12.36bn, producing a 188.0% current ratio and ¥10.88bn of working capital. The quick ratio was similarly strong at 187.9%, as liquidity is overwhelmingly cash-based rather than inventory-dependent. Cash and deposits totaled ¥21.84bn, equivalent to 30.2% of total assets and comfortably exceeding current liabilities. Current debt maturities include ¥5.00bn of bonds payable and ¥3.04bn of current portions of long-term loans; these are covered by cash, reducing near-term refinancing risk. Long-term loans were ¥8.46bn, while non-current lease obligations were ¥2.51bn. The reported debt-to-equity ratio was 0.62x and debt/capital was 15.9%, both within conservative solvency ranges; neither the current ratio nor D/E triggers the specified warning thresholds. Total liabilities declined to ¥27.66bn from ¥29.91bn a year earlier, while total equity rose to ¥44.75bn from ¥42.27bn. Equity growth was supported by retained earnings increasing ¥2.42bn to ¥34.78bn and non-controlling interests increasing ¥1.04bn to ¥7.06bn. A notable capital-allocation change was treasury stock increasing in absolute value by approximately ¥0.97bn, from negative ¥0.01bn to negative ¥0.98bn. This suggests a meaningful repurchase or other share-acquisition activity, reducing equity available to common shareholders while remaining modest at 1.4% of total assets. Asset retirement obligations were ¥3.02bn, equal to 10.9% of total liabilities, which is material for a leased/facility-based business. The high ARO ratio is rooted in contractual restoration and closure obligations associated with operating locations. Such obligations are broadly consistent with a network of physical fitness or leisure sites, but they create a fixed claim that may rise as the site portfolio expands or lease conditions change. The impact is a higher structural liability burden and potential cash demands upon closures, relocations, or lease terminations; investors should monitor changes in AROs alongside facility additions and closures. Property, plant and equipment of ¥46.36bn, including buildings of ¥30.99bn and land of ¥11.22bn, makes capital discipline and asset utilization central to solvency quality.
Notable B/S Changes
Treasury stock: increased in absolute value by approximately ¥0.97bn, from negative ¥0.01bn to negative ¥0.98bn - indicates meaningful treasury-share accumulation or other share-acquisition activity; monitor its funding source and total shareholder-return discipline. Retained earnings: +¥2.42bn to ¥34.78bn - earnings retention strengthened common equity and supports liquidity and capital-investment capacity. Non-controlling interests: +¥1.04bn to ¥7.06bn - a larger portion of group equity and earnings is attributable to minority holders, which moderates profit conversion for parent shareholders. Total liabilities: -¥2.25bn to ¥27.66bn - deleveraging improved balance-sheet resilience, although current debt maturities and asset retirement obligations remain important obligations to monitor.
Cash Flow Quality
No cash-flow statement figures are available for the reported period, so operating cash flow, free cash flow, cash conversion, and working-capital cash movements cannot be quantified. Accordingly, an OCF-to-net-income test and an assessment of whether free cash flow covers dividends and capital expenditures cannot be made. Earnings quality on the income statement is nevertheless supported by the fact that operating income of ¥5.95bn was closely matched by ordinary income of ¥5.97bn, indicating limited reliance on non-operating income. Net non-operating expense was only ¥0.06bn, or less than 0.3% of revenue. Extraordinary income was ¥0.12bn and extraordinary loss ¥0.01bn, leaving the net one-off contribution immaterial relative to operating income. The main reported earnings-conversion issue is tax: income tax expense was ¥2.18bn, and the five-factor tax burden of 0.448 indicates a substantial reduction from pre-tax profit to profit attributable to owners. Receivables were only ¥0.67bn and inventories ¥0.05bn, so these balances are not material sources of balance-sheet working-capital exposure relative to the business scale. However, cash earnings and free-cash-flow sustainability should be evaluated against ongoing maintenance needs for the ¥46.36bn property and equipment base and future settlement of asset retirement obligations.
Dividend Sustainability
The company paid an interim Q2 dividend of ¥5.00 per share and forecasts a FY2026 dividend of ¥10.00 per share. Against forecast EPS of ¥79.91, the forecast dividend payout ratio is approximately 12.5%, which is conservative and well below the 60% sustainability benchmark. The low payout leaves a wide earnings buffer for debt service, facility investment, and balance-sheet flexibility. Q3 profit attributable to owners of ¥2.72bn already represents 90.6% of the ¥3.00bn full-year profit forecast, further supporting the affordability of the announced dividend if guidance is achieved. The reported Q2 calculated payout ratio of 7.0% also indicates a low interim cash commitment. The increase in treasury stock by approximately ¥0.97bn may reflect share repurchases or other share-acquisition activity, but the available data do not establish the transaction type or timing; therefore, a total return ratio is not calculated. Dividend sustainability ultimately remains linked to cash generation because the company operates with a substantial facility asset base and material asset retirement obligations. The earnings payout profile is clearly conservative, while cash-flow coverage cannot be quantified from the available information.
Risk Assessment
Business risks include Revenue fell 29.2% year on year. A sustained decline in member demand, customer retention, or facility utilization would eventually erode the currently strong margin structure., The fitness and leisure industry is exposed to discretionary consumer spending, competitive membership pricing, and customer churn. These factors can reduce revenue per site and undermine fixed-cost absorption., Personnel, energy, maintenance, and rent-related costs are important for a physical facility operator. Inflation in these costs could compress the 28.4% operating margin if pricing cannot be passed through., The business has ¥46.36bn of property, plant and equipment. Underutilized facilities or unsuccessful new locations could depress asset turnover and create impairment or closure-risk pressure..
Financial risks include Current portions of bonds and long-term loans total approximately ¥8.04bn. While cash of ¥21.84bn covers these maturities, refinancing terms and interest rates remain relevant to future financing costs., Asset retirement obligations of ¥3.02bn are 10.9% of liabilities. This is a material structural obligation that can require cash outflows upon site closures, relocation, or contract termination., The five-factor tax burden was 0.448, and the quality alert identifies a high tax burden. The root cause is the large gap between pre-tax earnings and profit attributable to owners after taxes and non-controlling interests; this reduces shareholder earnings conversion and may restrain ROE., Treasury stock increased by approximately ¥0.97bn. Although modest relative to equity, continued capital returns without demonstrated free-cash-flow coverage could reduce financial flexibility..
Key concerns include Highest priority: sustainability of the margin-led earnings recovery, as profit growth is occurring alongside a substantial sales decline., High priority: the tax-conversion issue. The alert is financially significant because superior operating profitability translates into only an 8.1% annualized ROE., Moderate priority: asset retirement obligations. These are typical in location-based service industries but are sizeable enough to affect exit costs and portfolio optimization., Moderate priority: Q4 guidance implies a considerably lower profit contribution than the Q3 cumulative run rate, making the timing and durability of earnings a key monitoring issue..
Investment Implications
Key takeaways include Operating performance was notably better than the revenue trend: operating income rose 22.7% despite a 29.2% sales decline., Gross margin expanded approximately 1,300bp to 34.6%, and operating margin expanded approximately 1,200bp to 28.4%., FY2026 Q3 progress is ahead of the normal Q3 pace for operating income at 85.1%, ordinary income at 85.2%, and profit attributable to owners at 90.6%., Liquidity is robust, with ¥21.84bn in cash, a 188.0% current ratio, and cash exceeding current liabilities., The forecast ¥10.00 per-share dividend implies a conservative 12.5% payout ratio on forecast EPS..
Metrics to watch include Revenue trajectory, membership and facility utilization trends, and the ability to sustain pricing and sales mix., Gross and operating margins, particularly personnel, energy, maintenance, and occupancy-related cost trends., Q4 operating income versus the approximately ¥1.05bn implied by full-year guidance., Tax burden and the share of consolidated earnings attributable to non-controlling interests., Asset retirement obligations, facility closures or openings, and property and equipment utilization., Cash generation relative to maintenance capital expenditure, debt maturities, dividends, and any treasury-share purchases..
Regarding relative positioning, The company combines an excellent 28.4% operating margin, strong liquidity, and conservative reported leverage with relatively modest annualized ROE of 8.1%, reflecting a capital-intensive asset base and weak after-tax conversion to parent earnings. Its financial profile is therefore stronger than a highly leveraged facility operator, but the investment-relevant comparison point is whether it can sustain superior margins while restoring or stabilizing revenue and improving asset productivity.