MatsukiyoCocokara & Co. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥549.09B
• Operating Income: ¥40.44B
• Net Income: ¥26.68B
• EPS: ¥66.42

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid Q2 with steady topline growth and modest margin expansion, translating into higher operating and net profits and healthy cash conversion. Revenue rose 4.4% YoY to 5,490.94, with operating income up 7.4% to 404.44 and ordinary income up 7.9% to 427.33. Net income increased 6.2% to 265.17, with EPS (basic) at 66.42 yen. Gross profit reached 1,915.59, yielding a gross margin of 34.9%. The operating margin improved to 7.37%, up roughly 20 bps from an estimated 7.17% last year (376.71/5,259.14). Net margin rose to 4.83%, a ~9 bps improvement from an estimated 4.74% a year ago. SG&A was 1,511.15 (27.5% of sales), indicating modest operating leverage as operating income grew faster than revenue. Non-operating tailwinds were small but positive (net +22.89), driven by dividend and interest income. Cash generation was healthy: operating cash flow of 341.12 exceeded net income (OCF/NI = 1.29x), indicating solid earnings quality. Capex was disciplined at 67.44, implying a proxy FCF of about 273.68 (OCF minus capex), though full investing CF was unreported. The balance sheet remains strong with a current ratio of 224% and minimal short-term borrowings (14.02). ROE calculated at 5.1% reflects conservative leverage (1.37x) and a mid-single-digit net margin; ROIC at 6.2% is below the 7–8% retailer target, highlighting scope for capital efficiency improvement. Shareholder returns were active with 152.84 of buybacks; the calculated payout ratio stands at 68.1%, slightly elevated versus typical sustainability benchmarks. Effective tax rate remained high at 36.9%, a drag on net profitability. Forward-looking, continued SG&A discipline, private label penetration, and prescription/healthcare service mix will be key to sustaining margin gains and lifting ROIC. Overall, the quarter demonstrates resilient core operations, adequate cost control, and robust liquidity to fund ongoing shareholder returns.

Profitability Analysis

ROE decomposition: 5.1% ROE = 4.8% Net Profit Margin × 0.765 Asset Turnover × 1.37x Financial Leverage. The component with the most visible improvement this quarter was Net Profit Margin, aided by a ~20 bps expansion in operating margin and ~9 bps improvement in net margin. Business drivers include better SG&A control (operating income grew faster than sales) and a small positive contribution from non-operating items (dividends and interest). Asset turnover remains efficient for a drugstore format at 0.765, broadly stable given sales growth roughly in line with store base and logistics capacity. Financial leverage is conservative at 1.37x, limiting ROE uplift but contributing to balance-sheet resilience. The operating margin expansion appears driven by cost discipline rather than one-time gains, suggesting moderate sustainability, though wage inflation and competitive pricing could cap further expansion. Watch for SG&A growth outpacing revenue; current SG&A ratio (27.5%) implies some leverage but any uptick in labor or rent could erode this. Gross margin at 34.9% indicates mix and pricing remain supportive, but normalization of inbound demand or intensified promotions could pressure margins. Overall, ROE is constrained by low leverage and a high tax rate; absent leverage changes, incremental ROE improvement must come from higher asset turnover (store productivity) or sustained margin gains.

Growth Assessment

Revenue growth of 4.4% YoY indicates steady demand and likely contributions from prescription channels and private brand. Operating income growth of 7.4% outpaced sales, reflecting operating leverage from SG&A control. Net income growth of 6.2% was tempered by a high effective tax rate (36.9%). Non-operating income was modest (24.00) and not central to the story, underscoring reliance on core operations. EBITDA of 485.35 (8.8% margin) suggests healthy underlying profitability for a drugstore chain. Growth quality is solid given OCF > NI and capex contained at 67.44; inventory data is unreported, limiting assessment of working capital drivers. Outlook hinges on: sustaining SG&A efficiency, optimizing store network and format mix, enhancing private label penetration, and increasing prescription and healthcare services. With ROIC at 6.2% (below the 7–8% target), incremental growth should prioritize returns over pure scale, focusing on same-store sales, category mix, and supply chain efficiencies. The high tax rate and conservative leverage cap EPS growth; buybacks help per-share comp but may not fully offset if operating momentum slows.

Financial Health

Liquidity is strong: current ratio 224% and quick ratio 224%, with cash and deposits of 1,102.01 versus current liabilities of 1,671.05. No warning on liquidity thresholds (Current Ratio >> 1.0). Solvency is robust with a reported D/E of 0.37x and negligible short-term loans (14.02); interest coverage is exceptionally high at 1,155x, indicating minimal refinancing risk. Maturity mismatch risk appears low as current assets (3,743.06) comfortably exceed current liabilities, and debt reliance is limited. Total liabilities are 1,949.03 against total equity of 5,229.89, underscoring a strong capital base. Balance sheet intangibles are sizable (goodwill 960.21; intangible assets 1,252.52), creating potential impairment sensitivity if performance weakens. No off-balance-sheet obligations were reported in the provided data. Overall financial health is conservative and supportive of ongoing operations and shareholder returns.

Cash Flow Quality

OCF/Net Income is 1.29x, indicating good earnings quality and cash conversion. Operating CF of 341.12 exceeds net income of 265.17, with no apparent reliance on non-cash items beyond normal depreciation (80.91). With capex at 67.44, a proxy FCF (OCF – capex) is approximately 273.68, suggesting ample internal funding capacity, though full investing CF (e.g., M&A, financial investments) is unreported. Financing CF was -246.74, driven by share repurchases of 152.84 and likely dividends (unreported); this was broadly covered by proxy FCF but combined cash returns may exceed FCF if dividends are substantial. Working capital details are incomplete (inventories unreported), limiting a deeper assessment of payables and inventory dynamics; however, accounts payable remain sizable at 1,137.12, typical for retail procurement cycles. No signs of aggressive working capital manipulation are evident from the available data.

Dividend Sustainability

The calculated payout ratio is 68.1%, modestly above the <60% benchmark for high confidence sustainability. Using proxy FCF of ~273.68, dividends equivalent to ~68% of net income (~180.13) would be covered by FCF, leaving limited headroom once buybacks (152.84) are included. Liquidity is strong (cash 1,102.01), offering flexibility to support distributions through cycles. Given ROE at 5.1% and ROIC at 6.2%, management may balance shareholder returns with investments that lift returns (store refurbishments, digital/CRM, supply chain). Policy outlook: stable-to-moderate DPS growth appears feasible if OCF remains > NI and capex disciplined; however, a high tax rate and any margin compression could pressure coverage. Data gaps (actual DPS and total dividend cash outflow) constrain precision; monitor the full-year payout policy and guidance.

Risk Assessment

Business Risks:

• Intense competition in Japan’s drugstore sector, pressuring pricing and gross margins
• Wage and utility cost inflation potentially lifting SG&A ratio
• Execution risk in private label and category mix management
• Regulatory changes in prescription reimbursement and OTC rules affecting pharmacy profitability
• Inbound demand and tourism volatility impacting discretionary and beauty categories
• Store network optimization and cannibalization risk in mature regions
• Potential supply chain disruptions or procurement cost spikes

Financial Risks:

• High goodwill (960.21) and intangible assets (1,252.52) create impairment risk if earnings underperform
• Payout ratio at 68.1% plus buybacks may exceed steady-state FCF in weaker years
• Concentration of trade payables (1,137.12) exposes working capital to vendor terms changes
• Limited leverage provides resilience but constrains ROE improvement without margin/turnover gains

Key Concerns:

• ROIC at 6.2% below the 7–8% target range suggests need for better capital efficiency
• High effective tax rate (36.9%) structurally depresses net margin and ROE
• Incomplete disclosure on inventories and investing cash flows limits visibility on cash conversion durability

Investment Implications

Key Takeaways:

• Steady mid-single-digit revenue growth with modest margin expansion delivered above-sales growth in operating profit
• Earnings quality is solid with OCF/NI at 1.29x and disciplined capex
• Balance sheet strength (current ratio 224%, very low debt) provides flexibility for shareholder returns and investment
• ROE at 5.1% and ROIC at 6.2% indicate room for improvement via mix, efficiency, and capital allocation
• Shareholder returns (buybacks 152.84) are supportive for EPS but should be balanced against ROIC-enhancing investments

Metrics to Watch:

• Same-store sales growth and prescription/healthcare service mix
• Gross margin and SG&A ratio trend (bps) to confirm sustained operating leverage
• Inventory days and payables days (once disclosed) to validate cash conversion
• ROIC trajectory versus 7–8% target
• Payout ratio and aggregate shareholder returns versus FCF
• Effective tax rate trend and any structural changes

Relative Positioning: Within Japan’s drugstore retail peer set, the company exhibits robust liquidity and low leverage with healthy EBITDA margin, but ROIC/ROE are mid-pack due to conservative leverage and a high tax burden; continued SG&A discipline and mix upgrades are key to improving returns.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis