| Metric | Current | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥4971.3B | ¥4570.9B | +8.8% |
| Operating Income / Operating Profit | ¥239.7B | ¥226.2B | +5.9% |
| Ordinary Income | ¥252.3B | ¥234.1B | +7.8% |
| Net Income / Net Profit | ¥88.5B | ¥79.6B | +11.2% |
| ROE | 5.7% | 5.6% | - |
The FY2026 results achieved year-on-year growth across all stages: Revenue ¥4,971.3B (+¥400.4B +8.8% YoY), Operating Income ¥239.7B (+¥13.5B +5.9%), Ordinary Income ¥252.3B (+¥18.2B +7.8%), and Net Income ¥88.5B (+¥8.9B +11.2%). Revenue grew 8.8% driven by new store openings and strengthening of existing stores, while Operating Income rose only 5.9% as a decline in gross margin (26.1% last year → 25.5% this year, a deterioration of 0.6pt) pressured profitability. SG&A ratio improved from 21.1% to 20.7% (0.4pt improvement), with economies of scale and efficiency measures partially offsetting the gross margin decline, resulting in an Operating Margin of 4.8% (virtually flat, down 0.1pt from 4.9%). At the Ordinary Income level, non-operating income of ¥17.7B (including interest income ¥2.0B and rental income ¥9.8B) contributed steadily, and Net Income secured double-digit growth after absorbing Special Losses of ¥16.6B (of which impairments ¥15.4B).
[Revenue] Revenue was ¥4,971.3B, up +8.8% YoY. Expansion of the drugstore format and capture of prescription demand at existing stores are seen as main drivers. Segment information is not disclosed and analysis is on a single-business basis. Cost of Sales was ¥3,701.7B, up 9.6% YoY with the revenue increase. Gross Profit was ¥1,269.5B, up +6.4% YoY due to higher sales, but Gross Margin fell to 25.5% from 26.1% last year (0.6pt deterioration), indicating that intensified price competition, changes in product mix, and impacts from dispensing fees / drug price systems pressured profitability. Gross profit growth (+6.4%) lagged revenue growth (+8.8%), which highlights the need for future margin improvement.
[Profitability] SG&A was ¥1,029.8B, up +6.6% YoY, below the revenue growth rate, leading to an SG&A ratio improvement of 0.4pt to 20.7%. Breakdown: salaries and allowances ¥423.9B (8.5% of sales), rent ¥191.9B (3.9% of sales), and depreciation ¥59.7B, showing restraint in both personnel and rent ratios and reflecting economies of scale and operational efficiency. Operating Income was ¥239.7B (+5.9%), and Operating Margin at 4.8% (down 0.1pt from 4.9%) can be considered effectively flat. Non-operating items included interest income ¥2.0B, with total non-operating income ¥17.7B as a stable income source; non-operating expenses were ¥5.1B (interest expense ¥0.1B), indicating very low financial costs. Ordinary Income was ¥252.3B (+7.8%), with an Ordinary Income margin of 5.1% (0.3pt above the operating stage). Special items recorded Special Income ¥1.1B and Special Losses ¥16.6B (impairment losses ¥15.4B, loss on disposal of fixed assets, etc.), leading to Profit Before Tax of ¥236.8B. After income taxes of ¥66.9B (effective tax rate 28.3%), Net Income was ¥88.5B (+11.2%), concluding with revenue and profit increases.
[Profitability] Operating Margin 4.8% (down 0.1pt from 4.9%), Net Margin 1.8% (up 0.1pt from 1.7%). Operating-level results were held flat due to the impact of the gross margin decline, while the final profit margin improved slightly after absorbing special losses. ROE was 5.7% (Net Income ¥88.5B ÷ Equity ¥1,543.2B), stable year-on-year, indicating steady capital efficiency. Gross Margin 25.5% fell 0.6pt YoY, reflecting intensified price competition and product mix changes. SG&A ratio 20.7% improved by 0.4pt, aided by controlled personnel cost ratio (8.5%) and rent ratio (3.9%).
[Cash Quality] Operating Cash Flow (OCF) was ¥254.3B, 2.87x Net Income, demonstrating high-quality cash generation. OCF/EBITDA (EBITDA = Operating Income ¥239.7B + Depreciation ¥64.4B = ¥304.1B) was 0.84x, slightly below the benchmark of 0.9x, with increases in accounts receivable ¥30.2B and inventories ¥4.8B absorbing working capital and slowing cash conversion. Conversely, accounts payable increased ¥52.2B, lifting OCF and indicating improved working capital efficiency across the supply chain.
[Investment Efficiency] Capital expenditures were ¥162.1B, 2.52x depreciation ¥64.4B, indicating an active investment phase, allocating funds for store openings, renovations, and logistics base strengthening. Free Cash Flow (FCF) was ¥50.3B (OCF ¥254.3B - Investing CF ¥204.1B), remaining positive and almost fully covering dividend payments ¥50.4B. Total asset turnover was 1.95x (Revenue ¥4,971.3B ÷ Total Assets ¥2,553.5B), reflecting efficiency consistent with the retail format.
[Financial Soundness] Equity Ratio was 60.4%, virtually unchanged from 60.3% last year, maintaining a high level of soundness. Interest-bearing debt totaled ¥12.6B (short-term borrowings ¥9.5B, long-term borrowings ¥3.1B), effectively a debt-free operation. D/E Ratio was 0.01x, Debt/EBITDA 0.04x, both extremely low. Interest Coverage was 1,598x (EBITDA ¥304.1B ÷ Interest Expense ¥0.1B × 0.8), showing very strong serviceability. Current Ratio was 129.2% (Current Assets ¥1,180.0B ÷ Current Liabilities ¥913.5B), and Quick Ratio 78.4%, indicating good short-term liquidity with cash and deposits ¥371.0B providing a ample cushion. Goodwill increased to ¥8.8B (from ¥2.9B, +¥5.9B) due to expanded consolidation scope but remains negligible relative to EBITDA (0.03x) and Net Assets (0.6%), limiting impairment risk.
OCF was ¥254.3B, up +7.7% YoY, 2.87x Net Income ¥88.5B, demonstrating high-quality cash generation. OCF subtotal (before working capital changes) was ¥336.4B, with non-cash charges such as Depreciation ¥64.4B and Impairment Losses ¥15.4B boosting cash. In working capital, accounts receivable increased ¥30.2B and inventories increased ¥4.8B, absorbing cash, while accounts payable increased ¥52.2B contributing to OCF, indicating active use of supplier credit. After corporate taxes paid of ¥82.7B, OCF remained strong relative to Net Income. However, OCF/EBITDA (EBITDA ¥304.1B) was 0.84x, slightly below the 0.9x benchmark, leaving room to improve working capital efficiency.
Investing CF was ▲¥204.1B, primarily driven by capital expenditures ¥162.1B allocated to store openings and logistics base strengthening. CapEx/Depreciation was 2.52x, indicating an aggressive investment phase and suggesting infrastructure building for the next 2–3 years. Net collection of long-term loans was ¥7.2B (collections ¥11.1B - loans ¥3.9B), deposits net ▲¥4.0B (payments ¥2.4B - collections ¥2.0B), and acquisition of subsidiary shares ¥13.1B contributed, with Investing CF slightly improved from ▲¥207.0B last year. FCF was ¥50.3B (¥29.3B prior year), remaining positive and nearly covering dividend payments ¥50.4B. Financing CF was ▲¥56.8B, reflecting dividend payments ¥57.5B, short-term borrowings repayment ¥1.0B, and long-term borrowings repayment ¥16.1B, while proceeds from long-term borrowings ¥17.9B and proceeds from disposal of treasury stock ¥12.0B provided funding. Operating cash generation is 1.2x the sum of dividends and CapEx (approx. ¥212B), indicating healthy cash circulation using equity.
There is a notable gap between Ordinary Income ¥252.3B and Net Income ¥88.5B, primarily due to Special Losses ¥16.6B (impairment losses ¥15.4B) as a one-off factor and income taxes ¥66.9B (effective tax rate 28.3%). The Impairment Losses ¥15.4B stem from reassessment of store asset profitability and can be considered a non-recurring item separate from recurring earnings quality. Non-operating income ¥17.7B (0.4% of sales) including Interest Income ¥2.0B and Rental Income ¥9.8B is stable and dependence on non-operating income is low. Non-operating expenses ¥5.1B are minor, and interest expense ¥0.1B is negligible. OCF ¥254.3B is 2.87x Net Income, indicating strong cash backing of earnings. Working capital absorbed cash via accounts receivable increase ¥30.2B and inventory increase ¥4.8B; accruals (Net Income - OCF + working capital changes) were negative, meaning cash generation exceeded profits, which reduces the risk of aggressive accounting. Comprehensive Income was ¥173.5B versus Net Income ¥88.5B, a difference of ¥85.0B, including retirement benefit adjustments ¥3.6B and unrealized gain/loss on securities ▲¥0.0B; the bulk of the difference relates to changes in equity (e.g., retained earnings increase), and there are limited elements undermining recurring earnings quality. Goodwill amortization ¥1.1B is 0.02% of sales and negligible, so JGAAP-specific amortization does not materially distort profits.
The company full-year plan is Revenue ¥5,410.0B (+8.8% YoY), Operating Income ¥253.0B (+5.5%), Ordinary Income ¥265.0B (+5.0%), and Net Income (company disclosed EPS 263.15 yen, implying approximately ¥170.0B when back-calculated). Progress versus plan: Revenue ¥4,971.3B = 91.9% of plan, Operating Income ¥239.7B = 94.7%, Ordinary Income ¥252.3B = 95.2%, Net Income ¥88.5B = ~52% (assumed on a semi-annual basis), indicating slight shortfall at the top line and operating stages. The 0.6pt drop in Gross Margin and 0.4pt improvement in SG&A largely offset leaving Operating Margin flat, but shortfall against plan stems from weaker sales growth and Gross Margin decline. Full-year achievement depends on a bottoming of Gross Margin in H2, recovery at existing stores, and early ramp-up of new store openings. Dividend guidance is Annual 48.00 yen (including interim 45 yen achieved), progressing as planned and dividend policy is expected to be maintained.
Annual dividend is 93 yen (Interim 45 yen, Year-end 48 yen), with Payout Ratio 32.1% (Total Dividends ¥50.4B ÷ Net Income ¥88.5B × weighted average shares outstanding 64,602 thousand), at a sustainable level. Prior year interim dividend was 34 yen (full-year data unclear), with interim dividend up ¥11 YoY, indicating strengthened shareholder returns aligned with profit growth. FCF ¥50.3B almost fully covers total dividends ¥50.4B, supporting dividend sustainability from cash generation. No share buyback disclosure; Total Return Ratio equals the dividend payout ratio at 32.1%. A 32.1% payout is standard for retail, with modest room for gradual increases tied to profit and cash generation growth. Even in an active CapEx phase (CapEx/Depreciation 2.52x), FCF remains positive, balancing dividends and growth investment.
Gross Margin Decline Risk: Gross Margin is 25.5%, down 0.6pt YoY, pressured by intensified price competition, changes in dispensing fees / drug price systems, and product mix shifts. Continued competitive pressure could further depress gross margin and push Operating Margin below the 5% threshold.
Working Capital Cash Absorption: Increases in accounts receivable ¥30.2B and inventories ¥4.8B lowered OCF/EBITDA to 0.84x, below the 0.9x benchmark. As store expansion raises working capital needs, deterioration in cash conversion efficiency could strain cash flows.
Recurrence of Impairment Losses: Special Losses included Impairment Losses ¥15.4B related to store asset profitability reassessment. If store investment ramp-up (CapEx ¥162.1B) does not mature promptly, the risk of recurring impairments remains.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.8% | 4.6% (1.7%–8.2%) | +0.2pt |
| Net Margin | 1.8% | 3.3% (0.9%–5.8%) | -1.6pt |
Operating Margin is 0.2pt above the industry median and generally mid-tier, while Net Margin is 1.6pt below the median due to the impact of special losses, placing the company lower in ranking.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 8.8% | 4.3% (2.2%–13.0%) | +4.5pt |
Revenue growth outperforms the industry median by 4.5pt, indicating strong growth driven by store expansion and strengthening of existing stores.
※ Source: Company compilation
Room to Improve Operating Efficiency: Operating Margin 4.8% slightly exceeds the industry median 4.6%, but the 0.6pt decline in Gross Margin is pressuring profitability. SG&A improved by 0.4pt, and efforts to bottom out Gross Margin (expanding private brand products, category optimization, responding to dispensing fee revisions) will be key to restore Operating Margin above 5%. Maturation of store investments and working capital optimization (improving inventory and receivables turnover) could recover OCF/EBITDA to 0.9x and improve ROE.
Balance of Solid Financial Base and Growth Investment: Equity Ratio 60.4% and Debt/EBITDA 0.04x indicate effectively debt-free status, with Interest Coverage 1,598x showing very strong serviceability. Even in an active investment phase (CapEx/Depreciation 2.52x), FCF ¥50.3B covers dividends ¥50.4B. If store and logistics investments pay off over the next 2–3 years, a virtuous cycle of profit growth and cash generation can be expected. Goodwill ¥8.8B is trivial at EBITDA ratio 0.03x, limiting M&A-related risk.
This report is an earnings analysis document automatically generated by AI from XBRL earnings release data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions should be made at your own responsibility and, where necessary, after consulting a professional advisor.