| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥3192.1B | ¥2929.4B | +9.0% |
| Operating Income / Operating Profit | ¥53.0B | ¥98.1B | -46.0% |
| Ordinary Income | ¥54.5B | ¥100.9B | -46.0% |
| Net Income / Net Profit | ¥36.3B | ¥64.4B | -43.6% |
| ROE | 5.9% | 10.5% | - |
For the fiscal year ended May 2026, Revenue was ¥3192.1B (YoY +¥262.7B +9.0%), Operating Income was ¥53.0B (YoY -¥45.1B -46.0%), Ordinary Income was ¥54.5B (YoY -¥46.4B -46.0%), and Net Income attributable to owners of the parent was ¥36.3B (YoY -¥28.1B -43.6%). While the top line showed solid growth of 9.0%, an increase in cost of goods sold ratio and a sharp rise in selling, general and administrative expenses cut the operating margin roughly in half to 1.7% (prior year 3.3%), and ROE declined to 5.9% (prior year 11.7%). The result is revenue up but earnings down, as cost inflation and higher fixed costs from aggressive investment pressured profitability.
【Revenue】Revenue expanded steadily to ¥3192.1B (+9.0%). Customer traffic as a discount retailer and effects from new store openings likely contributed. Gross margin was 23.3%, down 0.2pt from 23.5% year-on-year, suggesting difficulty in maintaining markups in a competitive pricing environment. Gross profit totaled ¥742.2B (+7.3%); absolute gross profit increased with sales, but the rate of increase lagged sales due to the margin decline.
【Profitability】Operating Income declined sharply to ¥53.0B (-46.0%). SG&A rose to ¥689.2B (+17.0%), growing much faster than sales, pushing the SG&A ratio up to 21.6% (prior year 20.1%), a 1.5pt increase. Major drivers were wage and utilities cost inflation and a surge in depreciation to ¥97.8B (+26.1%). This reflects substantial capital expenditure of ¥262.9B (prior year ¥162.7B) — a large-scale investment up +61.5% YoY — and tangible fixed assets increasing to ¥935.9B (+¥59.3B +6.8%). Operating margin halved to 1.7%, indicating negative operating leverage. Ordinary Income was ¥54.5B (-46.0%), with non-operating income ¥5.4B and non-operating expenses ¥3.9B, leaving limited net non-operating contribution of ¥1.5B. Extraordinary items comprised extraordinary gains ¥2.9B (including insurance proceeds ¥1.1B) and extraordinary losses ¥1.6B (impairment losses ¥0.8B, disaster losses ¥0.8B), for a net ¥1.3B. Profit before tax was ¥55.8B (-44.7%); after corporate taxes ¥19.7B (effective tax rate 35.3%), Net Income attributable to owners of the parent was ¥36.3B (-43.6%). In conclusion, this was a revenue-up/earnings-down result, with top-line growth offset by rising costs and investment burden.
【Profitability】Operating margin 1.7% (prior year 3.3%), Net margin 1.1% (prior year 2.3%), ROE 5.9% (prior year 11.7%) — all declined materially. Gross margin was slightly down at 23.3% (-0.2pt), while SG&A ratio surged to 21.6% (+1.5pt), squeezing operating margin. 【Cash Quality】Operating Cash Flow was ¥110.1B, which is 3.0x Net Income of ¥36.3B, indicating good cash backing, but OCF/EBITDA ratio remained 0.73x (ideal ≥0.9x). Inventory increase -¥9.1B, other current asset increases -¥24.1B, and corporate tax payments -¥38.3B suppressed conversion efficiency. 【Investment Efficiency】Capital expenditures of ¥262.9B were 2.7x depreciation of ¥97.8B, reflecting aggressive investment. Calculated ROIC is approximately 3.9% (after-tax operating profit ÷ invested capital), near the lower bound of capital cost, signaling a need to watch lengthening payback on invested capital. 【Solvency】Equity Ratio was 43.9% (prior year 52.3%), down 8.4pt. Total assets were ¥1393.0B (+¥229.0B +19.7%) while shareholders’ equity was ¥612.1B (+¥1.5B +0.2%), so equity has been nearly flat amid asset expansion. Interest-bearing debt was ¥361.0B, Debt/EBITDA 2.39x, and interest coverage (Operating Income ÷ interest expense) 19.6x, indicating healthy interest-paying capacity. Current ratio was 62.0% (current assets ¥303.8B ÷ current liabilities ¥489.8B) and quick ratio 40.3%, showing weak liquidity. With short-term borrowings of ¥145.8B and cash of ¥103.4B, the cash/short-term debt ratio is 0.71x, indicating high short-term refinancing reliance.
Operating Cash Flow was ¥110.1B (-3.7%), reflecting profit before tax ¥55.8B plus non-cash charges such as depreciation ¥97.8B, and incorporating working capital increases (inventory +¥9.1B) and corporate tax payments -¥38.3B. OCF/EBITDA at 0.73x is below the ideal level, with increases in inventory and other current assets suppressing conversion efficiency. Investing Cash Flow was -¥267.1B, largely driven by capital expenditure -¥262.9B, reflecting bolstering of logistics centers and store facilities. Free Cash Flow was a large negative -¥157.0B. Financing Cash Flow was +¥175.4B, centered on long-term borrowings of ¥300.0B; repayments of long-term borrowings were -¥79.1B, net decrease in short-term borrowings -¥10.0B, dividends paid -¥5.4B, and share buybacks -¥30.0B. Long-term borrowings rose sharply to ¥215.2B (prior year ¥39.5B), up +¥175.7B, to fund the aggressive investment program. Working capital is characterized by accounts payable of ¥211.9B, a feature of the business model, and in a rising short-term interest rate environment, changes in payment terms should be monitored.
The majority of earnings derive from recurring operating activities; net non-operating income was ¥1.5B (0.05% of sales) and net extraordinary items ¥1.3B (0.04% of sales), so one-off effects were very limited. The gap between Operating Income ¥53.0B and Net Income ¥36.3B is mainly due to tax expense ¥19.7B (effective tax rate 35.3%), with minor contributions from non-operating and extraordinary items. The accrual ratio ((Net Income - Operating CF) ÷ Total Assets) is -5.3%, within a healthy range, indicating accounting profits are supported by cash. Operating CF/Net Income ratio of 3.0x shows high cash conversion quality, but OCF/EBITDA 0.73x indicates room to improve cash generation efficiency. Comprehensive income was ¥36.9B (Net Income ¥36.3B + Other Comprehensive Income ¥0.6B); the divergence from Net Income is minor, limited to an unrealized gain on securities of ¥0.8B.
Full-year guidance projects Revenue ¥3441.0B (+7.8%), Operating Income ¥74.0B (+39.7%), Ordinary Income ¥76.0B (+39.4%), and Net Income attributable to owners of the parent ¥46.0B (+26.8%). Operating margin is expected to recover to around 2.2%, assuming moderation in SG&A inflation and realization of investment benefits. With first-half Operating Income at ¥53.0B, the plan assumes an increment of ¥21.0B in the second half to reach ¥74.0B for the full year, indicating a second-half-weighted earnings profile. Achieving price/mix improvement, scale benefits, and logistics efficiency progress are conditions for this outcome. Dividend guidance is shown as ¥0 annual in one place, but dividend notes indicate ¥43 annual (up from ¥39, +¥4), so attention should be paid to data consistency.
A year-end dividend of ¥39 per share was paid, producing a payout ratio of 15.7% (total dividends ¥5.4B ÷ Net Income ¥36.3B), a conservative level. The company also conducted share buybacks of ¥30.0B in the same fiscal year; combined with dividends, total shareholder returns were ¥35.4B, and the total return ratio was 97.5%, near the level of Net Income for the period. While the dividend payout ratio based on cash dividends alone is low, the inclusion of buybacks shows a high total return; under Free Cash Flow of -¥157.0B, the balance between capital efficiency and financial flexibility is a concern. Dividend notes show a revised annual dividend of ¥43 for the next fiscal year (+¥4), suggesting management aims for gradual dividend increases linked to earnings. Share buybacks are expected to be tactical and limited, and likely to be restrained during periods where investment takes priority.
Gross margin downside risk: Gross margin at 23.3% was only down -0.2pt YoY, but difficulty in maintaining markups is becoming evident. Continued price competition or delays in passing through rising costs could further pressure the low operating margin of 1.7%. The gap between SG&A ratio 21.6% and gross margin is only 1.7pt; if gross margin falls 0.5pt, operating margin would halve to 1.2%, making price policy and markup management key monitoring metrics.
Liquidity risk: Current ratio 62.0% and quick ratio 40.3% indicate weak liquidity. Cash of ¥103.4B versus short-term borrowings ¥145.8B yields a cash/short-term debt ratio of 0.71x. Short-term liabilities account for 40.4% of total liabilities (current liabilities ¥489.8B ÷ total liabilities ¥780.9B), indicating high short-term dependence and dependence on continued refinancing. With FCF at -¥157.0B, rising rates or changes in credit conditions could affect funding costs and terms.
Delay in investment payback risk: The company implemented aggressive investments of ¥262.9B (2.7x depreciation), but ROIC is approximately 3.9%, near the lower bound of the cost of capital. Long-term borrowings jumped to ¥215.2B (+¥175.7B +445.5%), and if ramp-up of investments or revenue realization is delayed, financial burden could increase and capital efficiency could deteriorate. Asset retirement obligations of ¥61.8B (7.9% of liabilities) represent potential future cash outflows for store closures/refurbishments, posing a cost recognition risk during portfolio refresh cycles.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 1.7% | 4.6% (1.7%–8.2%) | -2.9pt |
| Net Margin | 1.1% | 3.3% (0.9%–5.8%) | -2.2pt |
The company’s operating margin of 1.7% is 2.9pt below the retail industry median of 4.6%, and net margin of 1.1% is 2.2pt below the median of 3.3%. Profitability sits in the lower tier within the industry, and improving the cost structure is a key challenge.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 9.0% | 4.3% (2.2%–13.0%) | +4.7pt |
Revenue growth of 9.0% exceeds the industry median of 4.3% by 4.7pt, placing the company among the leaders in top-line expansion. Attention will be on improving the balance between growth and profitability.
※ Source: Company compilation
While revenue growth of 9.0% exceeds the industry median by 4.7pt, operating margin of 1.7% trails the median by 2.9pt, highlighting a pronounced gap between growth and profitability. The sharp rise in SG&A ratio to 21.6% (+1.5pt) is the main cause, driven by wage and utilities cost inflation and increased depreciation of ¥97.8B (+26.1%). The company plans to recover operating income to ¥74.0B (+39.7%) next fiscal year, but this assumes moderation of SG&A inflation and realization of investment benefits. Improvement in existing-store gross margin, attainment of scale economics, and progress in logistics efficiency are key to feasibility.
Funding and capital efficiency during the aggressive investment phase are focal points. Capital expenditures were ¥262.9B (2.7x depreciation), long-term borrowings rose sharply to ¥215.2B (+¥175.7B +445.5%), and FCF was a significant negative -¥157.0B. Debt/EBITDA 2.39x and interest coverage 19.6x indicate payment capacity is healthy, but liquidity indicators (current ratio 62.0%, quick ratio 40.3%) are weak and reliance on short-term refinancing is high. ROIC is approximately 3.9%, near the lower bound of capital cost, so monitoring the recovery trajectory of invested capital and strengthening liquidity are important.
This report was automatically generated by AI analyzing XBRL financial statement data and is a financial analysis document. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; please consult a professional advisor as appropriate before making any investment decision.