KUSURI NO AOKI HOLDINGS (3549) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 secured higher revenue and income, although the increase in SG&A expenses preceded revenue growth, resulting in a slight decline in the operating margin. Revenue was ¥422.81B (+13.7% YoY), Operating Income was ¥21.42B (+7.4%), Ordinary Income was ¥21.83B (+6.6%), and Net Income was ¥15.38B (+10.3%). While the gross profit margin improved slightly to 26.4%, the SG&A ratio rose to 21.4%, causing Operating Income growth to fall below Revenue growth. Net Income growth exceeded Operating Income growth, partly due to a decline in the effective tax rate.

Factors Affecting Performance

【Revenue】Revenue was ¥422.81B, representing a 13.7% YoY increase. The Company operates as a single-segment neighborhood retail business handling pharmaceuticals, cosmetics, daily necessities, and food products, with expansion of its store network and sales scale driving higher revenue. Gross profit was ¥111.79B (+14.4%), exceeding Revenue growth, indicating an improvement in gross profit generation capacity.

【Profit and Loss】Operating Income was limited to ¥21.42B (+7.4%), as the increase in SG&A expenses (+16.1% YoY) absorbed part of the increase in gross profit. The operating margin declined to 5.1% from approximately 5.4% in the same period of the previous year. Meanwhile, Ordinary Income was ¥21.83B (+6.6%) and Net Income was ¥15.38B (+10.3%), with the lower tax burden rate boosting Net Income growth. Net extraordinary income and expenses resulted in a loss of ¥0.23B, with a limited impact. Although the Company recorded higher revenue and income, the key characteristic is that profit growth at the operating level has slowed relative to revenue growth.

Segment Analysis

The Group operates as a single segment consisting of its neighborhood retail business, including pharmaceuticals, cosmetics, daily necessities, food products, and dispensing pharmacies; segment-specific disclosures are not provided.

Key Financial Indicators

【Profitability】The operating margin was 5.1%, down from approximately 5.4% in the same period of the previous year, while the net profit margin was 3.6%, slightly down from approximately 3.7% in the same period of the previous year. The gross profit margin was 26.4%, improving by approximately 15bp YoY. The primary cause of the decline in profitability was not cost of sales but the increase in the SG&A ratio, which rose to 21.4%, approximately 45bp higher YoY. 【Cash Quality】Non-operating income and expenses resulted in net income of ¥0.41B. Interest income of ¥0.17B and dividend income of ¥0.11B were recorded, while interest expense totaled ¥0.90B. Management of financing costs associated with the expansion of borrowings will be a key focus going forward. 【Investment Efficiency】Annualized ROE was 14.8%. Based on a DuPont decomposition into net profit margin, total asset turnover, and financial leverage, the Company has a structure in which the contributions of leverage and asset turnover are relatively significant for a low-margin retailer. 【Financial Soundness】The equity ratio was 35.7%, down from 41.4% in the same period of the previous year. Long-term borrowings increased to ¥111.80B, up 42.7% YoY, indicating a stronger tendency to fund store and equipment investments through borrowings.

Cash Flow Analysis

As detailed cash flow statements are not included in this disclosure, fund flows are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥51.58B from ¥47.73B in the same period of the previous year, while long-term borrowings increased by ¥33.48B YoY to ¥111.797B, suggesting that funds for store and logistics investments are being raised primarily through borrowings. Construction in progress increased 77.5% YoY to ¥12.761B, indicating that investments including new store openings and renovations are underway. Property, plant and equipment reached ¥188.74B, accounting for 48.6% of total assets, indicating that funds continue to be directed toward capital expenditure. Treasury stock decreased from a deduction of ¥12.746B in the same period of the previous year to a deduction of ¥2.550B, also indicating fund movements through capital transactions.

Quality of Earnings

Recurring earning power is supported by the improvement in the gross profit margin to 26.4%; however, the increase in SG&A expenses (+16.1% YoY) has pressured Operating Income growth, resulting in a slight dilution in earnings quality. Non-operating income and expenses consisted of recurring income such as interest income of ¥0.17B and dividend income of ¥0.11B, as well as interest expense of ¥0.90B, resulting in a small net gain of ¥0.41B. Extraordinary income totaled ¥0.07B against extraordinary losses of ¥0.30B, consisting of impairment losses of ¥0.11B and losses on disposal of fixed assets of ¥0.19B. This resulted in a temporary net loss of ¥0.23B, with a limited impact on profit before tax. Net Income growth of 10.3% exceeded Operating Income growth of 7.4%; however, this was largely attributable to the decline in the effective tax rate, rather than an improvement in the profitability of the core business. Comprehensive income was ¥18.32B, exceeding Net Income of ¥15.38B, primarily due to a ¥2.95B increase in valuation differences on securities. Accordingly, it includes valuation gains unrelated to the underlying business performance.

Earnings Forecast and Guidance

Progress against the full-year forecast was 75.5% for Revenue, 93.1% for Operating Income, 96.2% for Ordinary Income, and 99.2% for Net Income, with profit items significantly exceeding the standard progress rate of 75%. The Company maintained its full-year forecasts of Revenue of ¥560.0B (+11.7% YoY), Operating Income of ¥23.00B (-13.5%), and Ordinary Income of ¥22.70B (-17.5%). Although the full-year plan calls for lower income, the Company secured higher income on a cumulative Q3 basis. This difference suggests that a certain level of expense recognition and seasonal effects have been incorporated into Q4. Neither the earnings forecast nor the dividend forecast has been revised, and progress exceeding the standard rate does not immediately imply an upward revision.

Shareholder Returns

The Q2 dividend was ¥8.00 per share, while the full-year dividend forecast remains unchanged at ¥56.00. Based on the 95,616,980 issued shares, the total full-year dividend is estimated at approximately ¥5.35B, resulting in a payout ratio of approximately 34.5% against the full-year Net Income forecast of ¥15.50B. This figure represents the payout ratio based solely on dividends and excludes share repurchases. Retained earnings are substantial at ¥103.30B, providing sufficient capacity to fund dividends; however, the balance of capital allocation between shareholder returns and capital expenditure accompanied by increased borrowings will be a key issue going forward.

Risk Factors

1. Headwinds to operating leverage from higher SG&A expenses: SG&A expenses increased 16.1% YoY, exceeding the 13.7% Revenue growth rate, and the operating margin declined by approximately 30bp. The extent to which personnel, logistics, and new store-related expenses can be absorbed will determine future profitability.

2. Rising financial leverage accompanying the expansion of borrowings: Long-term borrowings reached ¥111.80B, up 42.7% YoY, while the equity ratio declined to 35.7% from 41.4% in the same period of the previous year. Higher interest rates and changes in refinancing conditions could affect the interest expense burden.

3. Recovery of store investments and asset efficiency: Construction in progress increased 77.5% YoY to ¥12.76B, while property, plant and equipment reached ¥188.74B. Losses on disposal of fixed assets of ¥0.19B and impairment losses of ¥0.11B were recorded. The monetization of new store and renovation investments will remain subject to ongoing monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Profitability exceeds the industry median, with both the operating and net profit margins positioned in the upper range.

Growth and Capital Efficiency

Revenue growth exceeded the upper bound of the industry IQR (10.3%), indicating high growth relative to peers in the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Company achieved both scale expansion and higher income, with Revenue up 13.7%, Operating Income up 7.4%, and Net Income up 10.3%. However, the operating margin declined by approximately 30bp due to the increase in the SG&A ratio (+45bp), making progress in expense absorption a key focus going forward.

2. Although profit progress against the full-year forecast was high at 93–99%, the Company maintained its full-year forecast of a 13.5% YoY decline in Operating Income. The realization of the Q4 expense plan and seasonal factors will therefore be key points to monitor.

3. As long-term borrowings increased 42.7% YoY and the equity ratio declined, the monetization of store and equipment investments, as indicated by the sharp 77.5% increase in construction in progress, will be critical to evaluating medium-term financial soundness.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,513–¥1,602 at ±1% for the cost of equity, and ¥1,555–¥1,560 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (99%) exceeds the standard rate (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed their forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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