| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥6368.9 B | ¥2725.3 B | +133.7% |
| Operating Income | ¥242.3 B | ¥124.7 B | +94.3% |
| Ordinary Income | ¥243.9 B | ¥130.6 B | +86.8% |
| Net Income | ¥140.9 B | ¥119.6 B | +17.9% |
| ROE | 1.6% | 1.3% | - |
The cumulative results for Q2 of the fiscal year ending February 2026 show Revenue ¥6368.9 B (YoY +¥3643.6 B +133.7%), Operating Income ¥242.3 B (YoY +¥117.6 B +94.3%), Ordinary Income ¥243.9 B (YoY +¥113.3 B +86.8%), and Net Income attributable to owners of the parent ¥140.9 B (YoY +¥21.3 B +17.9%). Revenue achieved rapid growth of more than 2.3x YoY driven by expansion of the consolidated scope via M&A and network expansion through new store openings, and Operating Income doubled. However, Operating Margin declined 0.8pt to 3.8% (prior 4.6%), and Net Margin declined 2.2pt to 2.2% (prior 4.4%), indicating margin efficiency deterioration despite scale expansion. Progress against the Full Year forecast (Revenue ¥25550.0 B, Operating Income ¥994.0 B, Ordinary Income ¥981.0 B) is generally standard with progress rates of 24.9% for Revenue, 24.4% for Operating Income, and 24.9% for Ordinary Income, while Net Income is front-loaded at ¥140.9 B (progress 34.0% against forecast ¥415.0 B). A high effective tax rate of 44.0% suppressed Net Income growth. Financial stability is high with ROE 1.6% and Equity Ratio 53.2%, but capital efficiency remains low.
[Revenue] Revenue ¥6368.9 B (YoY +133.7%) was mainly due to enlarged consolidated scope from M&A and expansion of the store network through new openings. As a single segment company (retail of pharmaceuticals, cosmetics, etc.), breakdown by business is not disclosed, but robust demand in the drugstore market and same-store and overall-store sales increases contributed. Cost of Sales increased to ¥4451.5 B (YoY +134.0%), broadly in line with Revenue growth, keeping Gross Profit Margin at 30.1% (prior 30.2%). Inventory increased to ¥3156.8 B (prior ¥3079.2 B) +2.5%, and Inventory Days are high at approximately 259 days, indicating an unfolding merchandise stagnation risk.
[Profitability] Gross Profit ¥1917.4 B (Gross Margin 30.1%) less SG&A ¥1675.1 B (SG&A Ratio 26.3%, prior 25.7%) resulted in Operating Income ¥242.3 B (Operating Margin 3.8%, prior 4.6%). SG&A rose faster than Revenue due to structural cost increases such as personnel expenses, logistics costs, and rent, and operating leverage was not realized. Non-operating items were net +¥1.6 B (Other income ¥16.2 B — interest income ¥2.2 B, subsidy income ¥3.3 B, etc.; Other expenses ¥14.6 B — interest expense ¥11.6 B, etc.), a minor impact. Ordinary Income was ¥243.9 B (Ordinary Income Margin 3.8%). Extraordinary items were net +¥7.9 B (Gains ¥15.5 B — gain on sale of investment securities ¥11.6 B, gain on sale of fixed assets ¥1.7 B, etc.; Losses ¥7.6 B — impairment loss ¥2.4 B, loss on retirement of fixed assets ¥0.5 B, etc.), a substantial reduction from prior-year net extraordinary +¥56.1 B. Pre-tax Income ¥251.8 B faced a high tax burden of Corporate Taxes ¥110.9 B (effective tax rate 44.0%), resulting in Net Income attributable to owners of the parent of ¥140.9 B (Net Margin 2.2%). In summary, while revenue and profit increased, rising SG&A ratio and high tax burden compressed margins, and improving profitability remains the next challenge.
[Profitability] Operating Margin 3.8% (prior 4.6%, -0.8pt), Ordinary Income Margin 3.8% (prior 4.8%, -1.0pt), Net Margin 2.2% (prior 4.4%, -2.2pt) — profitability declined at each stage. Gross Margin 30.1% (prior 30.2%) is roughly flat, but the rise in SG&A Ratio to 26.3% (prior 25.7%, +0.6pt) pressured Operating Margin. ROE 1.6% (prior 1.3%) improved but remains low, with the company’s capital efficiency below the past 3-year average.
[Cash Quality] Days Sales Outstanding (DSO) approx. 81 days (Accounts Receivable ¥1405.9 B ÷ Daily Revenue ¥17.4 B), Days Payable Outstanding (DPO) approx. 350 days (Accounts Payable ¥4264.5 B ÷ Daily Cost of Sales ¥12.2 B), indicating a payables-driven financing structure. Inventory Days approx. 259 days (Inventories ¥3156.8 B ÷ Daily Cost of Sales ¥12.2 B) are high, implying inventory stagnation and valuation loss risk. Cash and Deposits ¥2306.1 B increased +14.1% from ¥2021.3 B year ago, securing liquidity, but heavy working capital may impede Operating Cash Flow generation.
[Investment Efficiency] Total Asset Turnover 0.38x (Revenue ¥6368.9 B ÷ Total Assets ¥16883.9 B), Fixed Asset Turnover 0.66x (Revenue ¥6368.9 B ÷ Fixed Assets ¥9621.3 B) are low. Goodwill ¥4484.2 B (50.0% of Net Assets) and Intangible Assets ¥4632.8 B (27.4% of Total Assets) indicate high reliance on intangible assets, a factor in weak capital efficiency. Interest Coverage 20.8x (Operating Income ¥242.3 B ÷ Interest Expense ¥11.6 B) shows strong interest-bearing payment resilience.
[Financial Soundness] Equity Ratio 53.2% (prior 53.1%), Current Ratio 128.6% (Current Assets ¥7262.6 B ÷ Current Liabilities ¥5648.3 B), Quick Ratio 72.7% (Quick Assets ¥4105.3 B ÷ Current Liabilities ¥5648.3 B) indicate good short-term liquidity. Interest-bearing debt consists of Short-term Borrowings ¥142.9 B and Long-term Borrowings ¥1195.3 B totaling ¥1338.2 B, plus Lease Liabilities (Current ¥124.4 B + Non-current ¥561.6 B) ¥686.0 B, giving Net Interest-bearing Debt around ¥2024.2 B. Debt/Capital ratio 11.8% (Interest-bearing debt ¥1338.2 B ÷ (Interest-bearing debt ¥1338.2 B + Net Assets ¥8975.5 B)) reflects a conservative capital structure.
Detailed cash flow statement disclosure is not available, so funding trends are analyzed from balance sheet movements. Cash and Deposits increased to ¥2306.1 B (prior ¥2021.3 B, +¥284.8 B), improving liquidity. However, Inventories increased to ¥3156.8 B (prior ¥3079.2 B, +¥77.6 B), and with Inventory Days at 259 days, cash generation from operations depends on inventory monetization. Accounts Receivable increased to ¥1405.9 B (prior ¥1224.8 B, +¥181.1 B, +14.8%), and Receivables growth with Revenue expansion is pressuring working capital. Accounts Payable increased to ¥4264.5 B (prior ¥3755.9 B, +¥508.6 B, +13.5%), with payables increases functioning as a funding source. Tangible Fixed Assets edged up to ¥3176.9 B (prior ¥3137.1 B, +¥39.8 B), suggesting continued investment in new store openings. Goodwill decreased to ¥4484.2 B (prior ¥4545.9 B, -¥61.7 B), reflecting JGAAP goodwill amortization. Long-term Borrowings rose to ¥1195.3 B (prior ¥988.6 B, +¥206.7 B), indicating external financing for capital expenditures and working capital expansion. Net Assets increased only slightly to ¥8975.5 B (prior ¥8957.1 B, +¥18.4 B), as accumulation of Net Income was offset by dividend payments. Overall, rapid Revenue expansion has driven higher working capital and capital expenditure needs, making enhancement of Operating Cash Flow generation the next focal point.
Quality of earnings is assessed by distinguishing recurring income from one-off factors. Gross Profit ¥1917.4 B and Operating Income ¥242.3 B represent the business’s recurring earnings base. Non-operating income net +¥1.6 B (Other income ¥16.2 B - Other expenses ¥14.6 B) is immaterial. Extraordinary items net +¥7.9 B (Extraordinary gains ¥15.5 B - Extraordinary losses ¥7.6 B) were mainly due to gain on sale of investment securities ¥11.6 B, but this represents only 1.2% of Revenue and is limited. Compared with prior-year net extraordinary +¥56.1 B (including gain on sale of investment securities ¥66.8 B), dependence on one-offs has materially decreased, indicating a shift toward core business. Among non-operating income, subsidy income ¥3.3 B may be temporary and requires scrutiny for sustainability. With an effective tax rate of 44.0%, Pre-tax Income ¥251.8 B yielded Net Income ¥140.9 B, limiting after-tax profit to 55.9% of pre-tax. Comprehensive Income ¥110.3 B was ¥30.6 B lower than Net Income ¥140.9 B, driven by Other Comprehensive Income totaling -¥30.6 B (Foreign currency translation adjustment -¥0.2 B, Valuation difference on available-for-sale securities -¥30.1 B, Remeasurements of defined benefit plans -¥0.3 B). The valuation difference on available-for-sale securities -¥30.1 B is an unrealized loss from market fluctuations and presents limited cash realization risk. Overall, the proportion of recurring income has increased and quality of earnings is improving, but high tax burden management and working capital efficiency improvement are keys to sustainable profit generation.
Full Year forecast: Revenue ¥25550.0 B (YoY +76.1%), Operating Income ¥994.0 B (YoY +57.7%), Ordinary Income ¥981.0 B (YoY +55.5%), Net Income attributable to owners of the parent ¥415.0 B. Progress of the Q2 cumulative results is standard relative to Full Year guidance: Revenue 24.9% (¥6368.9 B ÷ ¥25550.0 B), Operating Income 24.4% (¥242.3 B ÷ ¥994.0 B), Ordinary Income 24.9% (¥243.9 B ÷ ¥981.0 B). Net Income at ¥140.9 B is front-loaded with progress 34.0% (¥140.9 B ÷ ¥415.0 B), but Q2 included contributions from one-offs (gain on sale of investment securities, etc.), and the second half is expected to rely more on recurring profits. Forecast EPS ¥91.62 vs. Q2 cumulative EPS ¥29.75 (progress 32.5%). Forecast dividend ¥24.00 (post-split basis) vs. dividend at Q2-end ¥133.5 (pre-split basis); dividend policy unchanged. No revisions to earnings forecasts have been announced, and the company expects to achieve Full Year targets. Key drivers for second-half progress will be absorption of SG&A, normalization of inventory turnover, and realization of M&A integration benefits.
Dividend per share at Q2-end of the fiscal year ending February 2026 was ¥133.5 (pre-split basis). A 5-for-1 stock split was implemented effective September 1, 2025, and the year-end dividend forecast on a post-split basis is ¥24.00, equivalent to annual dividends of ¥248.50 on a pre-split basis. With Full Year forecast EPS ¥91.62 and annual dividend ¥24.00 (post-split basis), the Payout Ratio is approximately 26%, indicating a conservative policy. Last fiscal year’s annual dividend was ¥133.5 (pre-split basis), so dividend level is effectively maintained. Dividend sustainability is supported by Operating Cash Flow generation capacity and Cash and Deposits ¥2306.1 B. There is no disclosure of share buybacks; shareholder returns are concentrated on dividends. With Interest Coverage 20.8x and Debt/Capital ratio 11.8%, financial capacity is ample and continuation of dividends is not a concern. Going forward, there is room to expand returns based on improvements in working capital efficiency and Free Cash Flow growth.
Inventory stagnation and valuation loss risk: Inventories ¥3156.8 B and Inventory Days 259 days are high, raising the risk of markdowns and impairment from unsold or obsolete merchandise. In the drugstore format, seasonal or perishable items stagnating can directly hit margins, so delays in inventory optimization could further depress Gross Margin and Net Margin.
Profitability deterioration from rising SG&A Ratio: SG&A Ratio rose to 26.3% (prior 25.7%, +0.6pt) mainly due to higher personnel costs, logistics costs, and rent. If upward pressure on labor costs (e.g., minimum wage increases) and persistently high logistics costs continue, there is further downside risk to Operating Margin. Failure to realize scale benefits relative to Revenue growth and persistent weak operating leverage would delay profitability recovery.
Goodwill impairment risk: Goodwill ¥4484.2 B (50.0% of Net Assets) and high dependence on intangible assets mean that delays in realizing M&A integration effects or deterioration in business conditions could trigger impairment losses that materially erode Net Assets and Net Income. The thickness of intangible assets from past large M&A deals is a factor in low capital efficiency (ROE 1.6%, estimated ROIC 1.7%), and delays in realizing integration synergies would crystallize investment recovery risk.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 3.8% | 3.4% (0.8%–7.7%) | +0.4pt |
| Net Margin | 2.2% | 2.2% (0.5%–6.2%) | -0.0pt |
Operating Margin is 0.4pt above the industry median, but Net Margin is in line with the median, with heavy tax burden as a relative weakness.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 133.7% | 7.7% (0.8%–14.6%) | +126.0pt |
Revenue Growth materially exceeds the industry median, highlighting scale expansion through M&A and store openings.
※ Source: Company compilation
Rapid Revenue expansion and unrealized operating leverage: Revenue grew +133.7% YoY, among the top in the industry, but Operating Margin fell to 3.8% (prior 4.6%, -0.8pt), and the rise in SG&A Ratio (26.3%, prior 25.7%) impeded realization of scale benefits. Progress against the Full Year forecast is generally standard, but second-half focus will be absorption of SG&A and normalization of inventory turnover (Inventory Days 259). Realization of integration effects and profitability improvement will be the next valuation inflection points.
High tax burden and weak capital efficiency: A high effective tax rate of 44.0% keeps Net Margin at 2.2% and leaves ROE at 1.6% and estimated ROIC at 1.7%, indicating low capital efficiency. A balance sheet structure highly dependent on intangible assets, including Goodwill ¥4484.2 B (50.0% of Net Assets), suppresses capital efficiency. Realization of M&A integration synergies and tax management are mid-term improvement drivers. A conservative payout ratio of 26% prioritizes financial stability and supports a sustainable structure.
Working capital management and cash generation: Inventory Days 259 and DSO 81 days indicate heavy working capital burdens that inhibit Operating Cash Flow generation. The payables-driven financing structure with DPO 350 days may create cash outflow pressure if payment terms normalize. Inventory optimization and strengthened receivables collection are essential to achieve sustainable cash generation and balance growth investments.
This report is an earnings analysis document automatically generated by AI based on XBRL financial statement data. 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 statement data. Investment decisions are your own responsibility; consult a professional advisor as necessary.