| Metric | This Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥5668.6B | ¥5014.7B | +13.0% |
| Operating Income / Operating Profit | ¥271.0B | ¥266.0B | +1.9% |
| Ordinary Income | ¥277.2B | ¥275.1B | +0.8% |
| Net Income / Net Profit | ¥311.7B | ¥209.4B | +48.8% |
| ROE | 22.1% | 14.4% | - |
The fiscal year ended May 2026 results show Revenue of 5,668.6億円 (YoY +654.0億円 +13.0%), Operating Income of 271.0B (YoY +5.0B +1.9%), Ordinary Income of 277.2B (YoY +2.1B +0.8%), and Net Income attributable to owners of the parent of 171.3B (YoY -7.5B -4.0%). The top line achieved double-digit growth driven by accelerated new store openings and expansion of existing stores, but gross margin declined to 26.4% (prior year 26.6%), down 16bp. Operating margin weakened to 4.8% (prior year 5.3%), a deterioration of 53bp, indicating limited operating leverage. Special losses of 37.1B (mainly impairments of 25.0B) pressured the bottom line, resulting in revenue growth, modest operating income increase, but a decline in final net income.
[Revenue] Revenue of 5,668.6B (YoY +13.0%) was driven by accelerated new openings of drugstore locations and capturing neighborhood demand for food and daily necessities. Gross margin fell 16bp to 26.4%, suggesting impact from a higher food mix and price competition. Cost of goods sold was 4,173.7B (+13.6%), growing faster than sales, and changes in product mix pressured gross profit.
[P&L] Operating Income remained at 271.0B (+1.9%), with profit growth lagging behind revenue growth. SG&A was 1,224.0B (SG&A ratio 21.6%), up +15.1% YoY, with fixed cost burdens from personnel, logistics, and depreciation (144.7B, +16.0% YoY). Non-operating expenses included interest paid which doubled to 12.6B (prior year 6.1B), reflecting higher interest burden from increased long-term borrowings. Ordinary Income was 277.2B (+0.8%). Special losses increased significantly to 37.1B from 21.6B, mainly impairments of 25.0B (prior year 13.3B), including one-off items from rationalizing unprofitable stores and asset reviews. Profit before tax was 240.8B (prior year 253.5B, -5.0%); after an effective tax rate of 28.9%, Net Income attributable to owners of the parent was 171.3B (-4.0%). In summary: revenue up, operating income slightly up, but final net income down.
[Profitability] Operating margin deteriorated 53bp to 4.8% (prior year 5.3%), with fixed cost increases compressing margins. Net margin was 5.5% (Net Income 311.7B ÷ Revenue 5,668.6B, XBRL data basis), improved from 4.2% in the prior year, but on a parent-attributable basis was lower at 3.0%. ROE was 22.1% (XBRL data), high but affected by treasury stock treatment and changes in capital structure. EBITDA was 415.7B (Operating Income 271.0B + Depreciation 144.7B), with an EBITDA margin of 7.3%.
[Cash Quality] Operating Cash Flow (OCF) was 373.2B, 1.20x of Net Income 311.7B and 2.18x of parent-attributable 171.3B, indicating strong cash generation. OCF/EBITDA was 0.90x, and the accruals ratio was -4.9% (formula: [Net Income 311.7B - OCF 373.2B] ÷ Total Assets 4,109.4B), indicating high quality.
[Investment Efficiency] Total asset turnover was 1.38x (Revenue 5,668.6B ÷ Total Assets 4,109.4B), showing standard asset efficiency. EPS was 176.95円 (prior year 175.42円, +0.9%), BPS 1,485.19円 (prior year 1,441.69円, +3.0%).
[Financial Soundness] Equity Ratio was 34.3% (prior year 41.4%), down 7.1pt. Long-term borrowings rose sharply to 1,199.0B (prior year 783.2B, +53.1%), pushing Debt/EBITDA to 2.89x. Interest coverage remained strong at 21.4x (EBIT 271.0B ÷ Interest Paid 12.6B). Current ratio was 131.6% (Current Assets 1,640.3B ÷ Current Liabilities 1,246.1B), and quick ratio was 80.5%, somewhat conservative. Goodwill was 136.0B (9.6% of net assets), intangible assets 189.1B (4.6% of total assets), within healthy ranges.
OCF of 373.2B (YoY +68.4%) rose substantially, with operating cash subtotal of 472.1B (prior year 298.5B) showing cash generation outpacing profit growth. Payments for corporate taxes increased to 90.1B (prior year 73.4B), but reductions in trade receivables (+39.6B) and increases in trade payables (+54.2B) improved working capital, offsetting inventory increases (-61.2B). Investing Cash Flow was -428.8B, reflecting continued proactive investments including capital expenditures of 334.8B (prior year 217.2B, +54.2%) and acquisition of subsidiary shares of 50.7B (prior year 8.7B). Free Cash Flow was -55.6B (prior year -89.1B), negative but with a narrower deficit. Financing Cash Flow was +164.9B, with long-term borrowing proceeds of 660.5B (prior year 255.0B) funding share buybacks of 238.7B (prior year 127.4B) and investment capital; dividends paid were 14.7B (prior year 12.5B). Ending cash balance rose to 586.5B (prior year 477.3B, +22.9%), preserving liquidity.
The gap between Operating Income 271.0B and Ordinary Income 277.2B was 6.2B, as non-operating income of 24.2B (dividend income 1.8B, subsidy income 1.5B, etc.) exceeded non-operating expenses of 17.9B (interest paid 12.6B). The divergence of 105.9B from Ordinary Income 277.2B to Net Income attributable to owners of the parent 171.3B was driven mainly by Special Losses of 37.1B (impairment 25.0B, valuation loss on investment securities 4.1B, loss on disposal of fixed assets 1.9B, disaster loss 1.2B), corporate taxes of 69.5B, and non-controlling interests. Comprehensive income of 206.2B was below Net Income 311.7B (XBRL basis), with Other Comprehensive Income limited to positive valuation difference on available-for-sale securities of 34.8B. The accruals ratio of -4.9% and OCF/Net Income of 1.20x (2.18x on parent-attributable basis) support high quality earnings. The 25.0B impairment includes one-off factors related to a scrap-and-build strategy, and the recurring earnings base remains stable.
Full-year guidance plans Revenue 6,400.0B (YoY +12.9%), Operating Income 320.0B (+18.1%), Ordinary Income 308.0B (+11.1%), and Net Income attributable to owners of the parent 190.0B (+10.8%). The plan assumes a 20bp improvement in operating margin to 5.0%, contingent on recovery in same-store gross margins (price optimization, expansion of private brand sales, expanded dispensing services) and restraint in SG&A growth (logistics efficiency, automation investment benefits). Year-end dividend is 48円 (including 40円 40th-anniversary commemorative dividend), with the ordinary dividend component of 8円. Forecast EPS of 200.08円 implies +13.1% growth from current EPS of 176.95円. Progress rates are Revenue 88.5%, Operating Income 84.7%, Ordinary Income 90.0%; achieving profit margin improvement in H2 is a condition.
Annual dividend: interim 8円 and year-end 48円 (including commemorative 40円), total 56円. Total dividends amount to approximately 5,350M yen (based on issued shares 95,617 thousand less treasury shares 654 thousand), and payout ratio is 31.3% (based on parent-attributable Net Income 171.3B). Share buybacks of 238.7B were executed, making total return approximately 292B and a Total Return Ratio exceeding 170%, indicating an aggressive stance. Note Free Cash Flow was -55.6B and shareholder returns were funded by long-term borrowings of 660.5B. Next fiscal year dividend forecast is 32円 (excluding the commemorative dividend), and the sustainability of the ordinary dividend is assessed as high. Payout Ratio 8.0% (XBRL data) is conservative, and the balance between growth investment and returns is judged appropriate.
Gross margin decline risk: Gross margin at 26.4% fell 16bp YoY due to a higher proportion of food and price competition. If the low-margin structure of the food category persists, maintaining an operating margin of 4.8% will be difficult. Achieving next year’s 5.0% target requires price optimization and gross margin improvement of private brands.
Fixed cost increases and weakening operating leverage: SG&A ratio rose to 21.6% (YoY +0.6pt), with personnel, logistics, and depreciation (144.7B, +16.0%) pushing up fixed costs. Against sales growth of +13.0%, operating income increased only +1.9%, indicating a failure of operating leverage. Continued wage increases and logistics cost inflation would structurally pressure margins.
Rising leverage and interest burden: Long-term borrowings rose to 1,199.0B (+53.1%), and Debt/EBITDA increased to 2.89x. Interest paid of 12.6B was 2.1x the prior year 6.1B; in a rising-rate environment financial costs could expand further. Asset retirement obligations of 160.7B also remain as future cash outflow risks that could constrain investment capacity.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.8% | 4.6% (1.7%–8.2%) | +0.2pt |
| Net Margin | 5.5% | 3.3% (0.9%–5.8%) | +2.2pt |
Operating margin slightly exceeds the industry median and is standard, while net margin outperforms the median by 2.2pt and is relatively strong.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 13.0% | 4.3% (2.2%–13.0%) | +8.7pt |
Revenue growth rate significantly exceeds the industry median, showing high growth driven by an aggressive store-opening strategy and expansion of existing stores.
※ Source: Company compilation
Improvement in operating margin is the most important observation. With sales up +13.0% and operating income up only +1.9%, efficiency deterioration is pronounced; operating margin of 4.8% (-53bp) is somewhat low versus peers. Achieving next year’s 5.0% (+20bp) requires improvement in gross margin mix (higher-margin food mix, expanded dispensing services) and suppression of SG&A growth (logistics automation, personnel efficiency). Whether structural improvements can be realized in an environment of logistics and labor inflation will be judged by quarterly trends in gross margin and SG&A ratio.
The coexistence of aggressive investment and shareholder returns has been achieved through borrowings. Capital expenditures 334.8B (+54.2%), M&A-related 50.7B, and share buybacks 238.7B total approximately 624B, supplemented by long-term borrowing proceeds of 660.5B. Debt/EBITDA rose to 2.89x, but interest coverage of 21.4x indicates strong tolerance for interest. Free Cash Flow negative 55.6B reflects an investment phase; timing of OCF expansion and return to positive Free Cash Flow will be key to financial sustainability. Payout Ratio 31.3% (including commemorative dividend) is appropriate.
Monitor the frequency and magnitude of special losses (impairment 25.0B). While including one-off items related to a scrap-and-build strategy, there is a risk that impairments could become recurring with continued review of unprofitable stores. Inventory build-up (-61.2B) also suggests an impact on working capital efficiency; improving asset efficiency—both existing-store efficiency (inventory turnover, closure losses) and investment efficiency of new store rollouts (payback period)—will be decisive for structurally improving profitability.
This report is an AI-generated financial analysis document produced from XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed before making investment decisions.