GAKKYUSHA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 FY2027, the company achieved an improvement in earnings despite a decline in revenue, with the loss narrowing under lower revenue. Revenue was ¥23.7B (¥24.4B in the same period of the previous year, YoY -2.9%), Operating Income was ¥-0.3B (¥-0.4B in the same period of the previous year, YoY +25.0%), Ordinary Income was ¥-0.1B (¥-0.2B in the same period of the previous year, YoY +47.8%), and Net Income was ¥-0.4B (¥-0.7B in the same period of the previous year, YoY +43.5%). While revenue from the Education Business continued to decline, the narrowing loss in that business and the decrease in impairment losses led the improvement in consolidated earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥23.7B, down 2.9% year on year. Revenue from the core Education Business declined to ¥22.1B (down 3.5%), weighing on the overall figure because it accounts for more than 93% of consolidated revenue. Meanwhile, the Real Estate Business generated revenue of ¥0.4B (up 3.2%), and the Other Businesses generated revenue of ¥1.2B (up 6.4%); however, their scale was too small to offset the decline in the Education Business.

【Earnings】Operating Income was ¥-0.3B, improving from ¥-0.4B in the same period of the previous year. The gross margin rose to 22.9% (22.4% in the same period of the previous year), while SG&A expenses were ¥5.7B, down 2.3% year on year. However, the SG&A ratio rose 16bp to 24.1%, indicating that fixed-cost absorption remains a challenge. Ordinary Income improved to ¥-0.1B, partly because interest income exceeded interest expenses. Net Income narrowed to ¥-0.4B despite the recognition of ¥0.3B in extraordinary losses, including a ¥0.2B loss on disposal of fixed assets and a ¥0.1B impairment loss; impairment losses declined substantially from ¥0.5B in the same period of the previous year. In conclusion, although revenue and earnings declined, the amount of the loss itself narrowed, resulting in improved earnings despite lower revenue.

Segment Analysis

The Education Business recorded revenue of ¥22.1B (down 3.5% year on year) and a segment loss of ¥0.7B (¥0.9B in the same period of the previous year), with its loss ratio improving to -3.0% from -4.1% in the same period of the previous year. Impairment losses were ¥0.1B, substantially down from ¥0.5B in the same period of the previous year, making this the primary factor behind the improvement in consolidated earnings. The Real Estate Business recorded revenue of ¥0.4B (up 3.2% year on year), segment profit of ¥0.2B, and a profit margin of 46.0%, making it the most profitable segment and the largest contributor in terms of profit despite its small scale. The Other Businesses increased revenue to ¥1.2B (up 6.4% year on year), but segment profit declined 50.4% to ¥0.2B, and the profit margin fell to 14.9% from 23.9% in the same period of the previous year, suggesting the impact of promotional, content-related, and other expenses.

Key Financial Indicators

【Profitability】The Operating Income margin was -1.1%, improving 34bp from -1.5% in the same period of the previous year but remaining negative. While the gross margin improved to 22.9% from 22.4% in the same period of the previous year, the SG&A ratio rose 16bp to 24.1%, indicating challenges in fixed-cost absorption. 【Cash Flow Quality】Extraordinary losses of ¥0.3B (a ¥0.2B loss on disposal of fixed assets and a ¥0.1B impairment loss) were recognized, and temporary items accounted for a relatively large portion of the Net Loss. 【Investment Efficiency】ROE was -2.0% on an annualized basis, and the Equity Ratio was 67.0%; capital efficiency remained low due to the recognition of losses. 【Financial Soundness】Current assets of ¥23.1B exceeded current liabilities of ¥20.6B, maintaining positive working capital. However, cash and deposits declined from ¥34.2B in the same period of the previous year to ¥19.2B, falling below current liabilities. Against long-term borrowings of ¥9.8B, the Equity Ratio of 67.0% indicates a conservative capital structure.

Cash Flow Analysis

As the detailed statement of cash flows is not disclosed in this material, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥19.2B, down ¥14.9B from ¥34.2B in the same period of the previous year, representing a decline rate of 43.7%. At the same time, current liabilities declined by ¥6.2B from ¥26.7B to ¥20.6B, suggesting that the decrease in funds may reflect multiple overlapping factors, including business investment, debt reduction, and seasonal increases in expenditures. Accounts payable declined by ¥0.15B to ¥0.02B, indicating that settlement of procurement and outsourcing liabilities, as well as changes in transaction volume, affected short-term funding requirements. Property, plant and equipment was ¥62.6B, increasing year on year, indicating continued investment in fixed assets under an asset-intensive business structure. The downward trend in cash levels is an issue requiring attention from the perspective of monitoring future liquidity.

Quality of Earnings

The Net Loss of ¥0.4B for the current period included ¥0.3B in extraordinary losses, consisting of a ¥0.2B loss on disposal of fixed assets and a ¥0.1B impairment loss, indicating a relatively high proportion of temporary items. Non-operating income and expenses included interest income of ¥0.1B exceeding interest expenses of ¥0.1B, contributing to the improvement in Ordinary Income. This effect from the management of funds outside the core business should be evaluated separately from a substantive improvement in business earnings. Impairment losses in the Education Business declined substantially from ¥0.5B in the same period of the previous year to ¥0.1B, meaning that the narrowing of the Net Loss was partly attributable to a reduced burden from temporary losses. Accordingly, the improvement in earnings for the current period reflects both a structural improvement in the profitability of the core business and a reduction in temporary factors. Ongoing assessment of recurring earnings power will therefore require monitoring revenue trends in the Education Business and progress in fixed-cost absorption.

Earnings Forecast and Guidance

The company has not revised its full-year earnings forecast and maintains its forecasts of revenue of ¥146.6B (up +12.1% year on year), Operating Income of ¥32.4B (up +11.4%), and Ordinary Income of ¥32.4B (up +7.8%). The Q1 revenue progress rate was 16.2%, below the standard quarterly progress benchmark of 25%. Because the company recorded a loss in Operating Income for the current period, the progress rate is negative relative to the full-year forecast. However, the Education Business is seasonal, with its busy periods, such as summer courses, concentrated in the second half of the fiscal year. Therefore, it would not be appropriate to assess the likelihood of achieving the full-year plan based solely on the low Q1 progress rate. Achieving the full-year plan will require securing revenue of ¥122.9B and Operating Income of approximately ¥32.6B during the remaining period, making trends in student numbers and per-student pricing in the Education Business the key focus going forward.

Shareholder Returns

The company forecasts an annual dividend of ¥127 per share, with no revision to the dividend forecast. Based on the average number of shares outstanding during the period of 10,868 thousand shares, the estimated total annual dividend is approximately ¥13.8B, resulting in a Payout Ratio of approximately 63.1% against the company’s forecast Net Income attributable to owners of the parent of ¥21.86B. This is a Payout Ratio calculated using dividends only as the numerator and is not the Total Return Ratio, which includes share repurchases. The forecast Payout Ratio is slightly above the generally accepted sustainability guideline of 60%, meaning dividend sustainability depends on the extent to which the full-year earnings plan is achieved. As the company recorded a Net Loss in Q1, earnings progress during the busy season of the Education Business in the second half of the fiscal year will be the focus in assessing the dividend.

Risk Factors

1. Decline in Education Business revenue: The core Education Business recorded revenue of ¥22.1B, down 3.5% year on year. Student recruitment and retention rates, as well as the decline in the school-age population resulting from the declining birthrate, represent structural risks specific to the industry and have a significant impact on most of consolidated performance.

2. Deterioration in funding liquidity: Cash and deposits were ¥19.2B, down 43.7% from ¥34.2B in the same period of the previous year, and cash alone was below current liabilities of ¥20.6B. The current ratio was 112.2%, exceeding 100% but below the generally regarded sound level of 150%, necessitating monitoring of cash trends.

3. Continued fixed-asset-related losses: During the current period, the company recognized a ¥0.2B loss on disposal of fixed assets and a ¥0.1B impairment loss. Asset retirement obligations were ¥5.05B, accounting for 13.7% of total liabilities. If the timing of reorganizations and withdrawals from school buildings and other facilities becomes concentrated, additional funding requirements or loss recognition may arise.

Industry Benchmark (For Reference; Compiled by the Company)

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 in negative territory.

Growth and Capital Efficiency

The Revenue Growth Rate is also 12.2pt below the industry median, indicating low growth within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Loss narrowed from ¥0.4B in the same period of the previous year to ¥0.3B, and the gross margin also improved. However, this partly reflects a reduction in temporary factors, namely the contraction in impairment losses in the Education Business. This should be evaluated separately from a recovery in recurring earnings power.

2. The Real Estate Business had the highest profit contribution, with a segment profit margin of 46.0%. However, its revenue scale was small at ¥0.4B, and the direction of consolidated performance continues to depend on revenue trends in the larger Education Business.

3. Cash and deposits declined 43.7% year on year, while asset retirement obligations accounted for 13.7% of total liabilities. These are key points to monitor when assessing future cash trends. The forecast Payout Ratio of approximately 63.1% is linked to the extent to which the full-year earnings plan is achieved.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,091–¥1,153 at ±1% in the cost of equity, and ¥1,112–¥1,137 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from 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 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock 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 discretion and responsibility, after consulting with a professional as necessary.

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