GAKKYUSHA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, Gakkyusha narrowed its losses despite declining revenue, with profitability showing an improving trend from the previous year. Revenue was ¥23.7B (¥24.4B in the previous year, -2.9%), Operating Income was ¥-0.3B (¥-0.4B in the previous year, 25.0% reduction in loss), Ordinary Income was ¥-0.1B (¥-0.2B in the previous year, 47.8% improvement), and Net Income was ¥-0.4B (¥-0.7B in the previous year, 43.5% improvement). Although the core Education Business remained loss-making due to seasonal factors, controls on selling, general and administrative expenses and improvements in non-operating income and expenses supported earnings. Meanwhile, extraordinary losses, including losses on disposal of fixed assets and impairment losses, were incurred and contributed to the deterioration in final earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥23.7B, a 2.9% year-on-year decline. By segment, the core Education segment declined to ¥22.1B (93.2% of total revenue, YoY -3.5%), weighing on company-wide revenue. In contrast, Real Estate increased revenue to ¥0.4B (YoY +3.2%), albeit on a small scale, while Other Businesses decreased significantly to ¥1.2B (YoY -20.2%). Seasonally weaker demand during the first half of the academic term in the Education Business was the primary cause of the company-wide revenue decline.

【Profit and Loss】Operating Income was ¥-0.3B, with the loss narrowing from ¥-0.4B in the previous year. Gross margin improved to 22.9% (22.4% in the previous year), while SG&A expenses were controlled at ¥5.7B (down 2.3% year on year), broadly in line with the revenue decline. By segment, Education recorded an operating loss of ¥-0.7B, although the loss narrowed 29.3% from the previous year, while Real Estate secured profit of ¥0.2B and supported company-wide earnings. Excluding the temporary effects of extraordinary losses (loss on disposal of fixed assets of ¥0.2B and impairment loss of ¥0.1B), Ordinary Income and Net Income also suggest room for improvement on an underlying basis. Overall, despite lower revenue and earnings, the loss narrowed, resulting in a decline in revenue accompanied by a reduction in losses, with signs of underlying profitability improvement.

Segment Analysis

The Education Business is the company-wide pillar, with revenue of ¥22.1B (93.2% of total revenue), but recorded an operating loss of ¥0.7B, reflecting strong seasonal effects. The loss narrowed 29.3% from the ¥0.9B loss in the same period of the previous year, indicating the effects of improved cost efficiency. The Real Estate Business, while small in scale with revenue of ¥0.4B, generated Operating Income of ¥0.2B and a high profit margin of 46.0%, complementing company-wide earnings. Other Businesses, including internet-based examination services, showed a contraction, with revenue of ¥1.2B (YoY -20.2%) and profit of ¥0.2B (YoY -50.4%). The segment mix indicates a high dependence on the Education Business, making recovery in operations during its peak season in the second half of the fiscal year the key to full-year performance.

Key Financial Indicators

【Profitability】The Operating Income margin was -1.1% ( -1.5% in the previous year), while the Net Income margin was -1.6% ( -2.7% in the previous year); in both cases, the losses narrowed. Gross margin improved to 22.9% from the previous year, while the SG&A ratio was 24.1% and was managed broadly in line with the decline in revenue.【Cash Flow Quality】Of the ¥-0.4B Net Loss, extraordinary losses of ¥0.3B (loss on disposal of fixed assets of ¥0.2B and impairment loss of ¥0.1B) expanded the loss as temporary factors. Excluding these items, underlying earnings are estimated to have remained at a smaller loss. 【Investment Efficiency】ROE was -0.5%, indicating low capital efficiency due to the recorded loss.【Financial Soundness】The Equity Ratio remained high at 67.0%, and the capital base was conservative, with net assets of ¥75.8B against long-term borrowings of ¥9.8B. Meanwhile, cash and deposits stood at ¥19.2B, a substantial decrease from the previous year, warranting close attention to changes in on-hand liquidity.

Cash Flow Analysis

Disclosure of the cash flow statement is limited, but changes in the balance sheet indicate that cash and deposits stood at ¥19.2B, a substantial decrease from the previous year. This appears to have been affected by a decrease in advances received, reflecting a contraction in advance payments such as tuition fees, as well as tax payments associated with a decrease in income taxes payable. The occurrence of non-cash items such as losses on disposal of fixed assets and impairment losses weighed on earnings, but their direct impact on cash outflows was limited. Changes in working capital, particularly fluctuations in advances received, determine future cash-generation capacity, making the operating conditions of the Education Business in the second half of the fiscal year a key factor in cash flow trends.

Earnings Quality

Of the ¥0.4B Net Loss for the period, extraordinary losses of ¥0.3B (loss on disposal of fixed assets of ¥0.2B and impairment loss of ¥0.1B) expanded the loss as a temporary factor, while extraordinary income was limited to ¥0.03B. On the basis of Operating Income and Ordinary Income, which indicate recurring profitability, the loss narrowed from the previous year, supported by cost controls and non-operating income and expenses, with interest income of ¥0.1B exceeding interest expenses of ¥0.1B. Excluding the extraordinary losses, underlying earnings are estimated to have remained at a smaller loss, indicating an improvement in earnings quality excluding temporary factors from the previous year. Comprehensive Income was ¥-0.2B, approximately the same level as Net Income, with no significant divergence attributable to foreign currency translation adjustments or valuation differences on securities.

Earnings Forecast and Guidance

The company forecasts full-year 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 limited to 16.2% (¥23.7B/¥146.6B), and progress was somewhat slow even considering the seasonality of the Education Business, which is weighted toward the second half of the fiscal year. Since Operating Income was a loss as of the current period, a progress rate cannot be calculated; however, achieving the full-year plan depends on a recovery in Education Business operations in the second half and limiting the occurrence of extraordinary losses. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The company’s full-year dividend forecast is ¥127 per share, implying a Payout Ratio of approximately 63% against forecast full-year EPS of ¥201.2. As the previous year’s annual dividend was ¥50, this represents a plan for a substantial increase in dividends. Against forecast Net Income of ¥21.9B, total dividends calculated based on the number of issued shares excluding treasury shares appear to be broadly within an acceptable range relative to profit; however, this shareholder return policy assumes achievement of the full-year plan. Cash and deposits stood at ¥19.2B, down from the previous year, so full-year profit progress and cash on hand need to be considered together. No revision was made to the dividend forecast as of the current quarter.

Risk Factors

1. Revenue concentration risk in the Education Business: The Education segment accounts for 93.2% of revenue, creating a structure in which the seasonality of the business, characterized by demand weighted toward the second half of the fiscal year, and structural demand contraction associated with the declining birthrate directly affect company-wide performance.

2. Decline in on-hand liquidity: Cash and deposits were ¥19.2B, a substantial decrease from ¥34.2B in the previous year. Declines in advances received (¥8.6B, compared with ¥11.2B in the previous year) and income taxes payable have contributed to cash outflows, making it important to monitor future cash flow trends.

3. Recurrence of temporary losses: A loss on disposal of fixed assets of ¥0.2B and an impairment loss of ¥0.1B were incurred in the current period, while an impairment loss of ¥0.5B was also recorded in the same period of the previous year. Temporary costs associated with the replacement of classrooms and operating locations are increasing quarterly earnings volatility.

Industry Benchmark (For Reference; Based on Company Research)

Profitability and Returns

The company’s profitability is substantially below the industry median, indicating an inferior earnings structure.

Growth and Capital Efficiency

The revenue growth rate is also substantially below the industry median, positioning the company behind its industry peers in terms of growth.

※Source: Company research

Key Takeaways from the Results

1. In Q1, both the Operating Loss and Net Loss narrowed from the previous year despite lower revenue, with the effects of improved gross margin and SG&A expense controls reflected in earnings. Excluding extraordinary losses, the underlying improvement in earnings is even clearer.

2. The revenue progress rate against the full-year plan was 16.2%, somewhat slow, making a recovery in Education Business operations in the second half, taking into account its seasonality, a prerequisite for achieving the full-year target.

3. The Equity Ratio remained high at 67.0%, indicating a conservative capital structure; however, the substantial decrease in cash and deposits and the contraction in advances received indicate changes in on-hand liquidity and will be points for future monitoring.

Theoretical Share Price (Reference Value)

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

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Since 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 values based solely on publicly disclosed data; these values are not forecasts of the market share price or recommendations for specific investment actions, and do not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release 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, with consultation with a professional advisor as necessary.

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