Quick View
| Metric | Current Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥10103.4B | ¥8780.2B | +15.1% |
| Operating Income / Operating Profit | ¥485.7B | ¥425.6B | +14.1% |
| Ordinary Income | ¥500.6B | ¥419.9B | +19.2% |
| Net Income / Net Profit | ¥140.8B | ¥182.4B | −22.8% |
| ROE | 4.8% | 7.3% | - |
Executive Summary
The fiscal year ended Feb 2026 results: Revenue ¥10,103.4B (YoY +¥1,323.2B +15.1%), Operating Income ¥485.7B (YoY +¥60.1B +14.1%), Ordinary Income ¥500.6B (YoY +¥80.7B +19.2%), Net Income attributable to owners of the parent ¥140.8B (YoY -¥41.6B -22.8%). The single segment of Drugstore & Dispensing Pharmacy achieved a triple-digit B increase in revenue, and at the operating stage scale effects from sales growth contributed. Ordinary Income grew faster than operating profit due to improvement in non-operating items (non-operating income ¥59.8B, non-operating expenses ¥44.9B, net +¥14.9B). Net Income increased substantially due to the recognition of deferred tax assets (¥90.9B) resulting in an effective tax rate of 0.4% and EPS of ¥248.56 (YoY +75.1%); however, this tax effect is largely one-off and normalization is expected next fiscal year.
Drivers of Performance Change
Revenue: The revenue increase of +15.1% YoY was driven by store network expansion and same-store sales growth. The company comprises a single Drugstore & Dispensing Pharmacy segment, with domestic sales accounting for over 90% of consolidated revenue by region. Gross margin improved to 31.8% (up +0.5pt from 31.3% prior year), and Gross Profit was ¥3,212.1B (YoY +13.8%). Profitability: Selling, general and administrative expenses (SG&A) were ¥2,726.4B (YoY +17.2%), rising faster than sales growth, with an SG&A ratio of 27.0% (up +0.5pt from 26.5%). The main drivers were rent expenses ¥489.9B (prior year ¥440.0B, +11.3%) and higher personnel costs; fixed-cost base increases accompanying store expansion pressured profitability. Operating Income was ¥485.7B (+14.1%), and the operating margin was 4.8% (flat from 4.8% prior year), as scale effects and gross margin improvement absorbed the SG&A rise to maintain margins. In non-operating items, interest income ¥6.2B, rental income ¥26.8B, etc., contributed steadily and non-operating items produced a net benefit of +¥14.9B. Ordinary Income rose to ¥500.6B (+19.2%), outpacing operating profit growth. Extraordinary items: Recorded Extraordinary Losses ¥58.6B (of which impairment losses ¥57.6B, loss on retirement of fixed assets ¥4.6B) reflecting review of unprofitable stores and assets. Extraordinary Gains ¥9.7B (gain on bargain purchase ¥5.3B, gain on sales of fixed assets ¥4.4B) resulted in net -¥48.9B. Profit before income taxes was ¥451.7B (prior year ¥380.8B, +18.6%). Income taxes: Due to the recognition of deferred tax assets ¥90.9B, income taxes were ¥1.9B (effective tax rate 0.4%), extremely low, resulting in a large increase in Net Income. However, this is a temporary tax effect, and normalization is expected next fiscal year. Conclusion: Revenue and operating profit both increased, and Net Income rose sharply due to one-off tax effects.
Key Financial Metrics
Profitability: Operating margin 4.8% (flat from 4.8% prior year), Net Income margin 1.4% (down -0.7pt from 2.1% prior year). Gross profit margin 31.8% improved +0.5pt YoY, a favorable level for retail. ROE 4.8% (down from 10.6% prior year) is below historical levels under the assumption of tax rate normalization; considering Net Income is distorted by a one-off tax effect, trend assessment under normalized conditions is necessary. Cash quality: Operating Cash Flow (OCF) ¥867.8B, 6.2x Net Income, indicating very strong cash generation. OCF/EBITDA (EBITDA = Operating Income + Depreciation = 485.7 + 176.6 = ¥662.3B) = 1.31x, indicating good earnings quality. Free Cash Flow (FCF) was ¥171.4B (OCF ¥867.8B - Investing CF ¥696.4B), remaining positive and sufficient to cover dividends and growth investments. Investment efficiency: Total Asset Turnover 1.64x (Revenue ¥10,103.4B / Average Total Assets ¥5,548.1B) is high for retail. Capex ¥230.9B / Depreciation ¥176.6B = 1.31x, indicating a growth-investment bias. Financial soundness: Equity Ratio 47.3% (down -3.3pt from 50.6% prior year) declined due to increased long-term borrowings but remains in a healthy range. Current Ratio 134.3% (Current Assets ¥3,110.9B / Current Liabilities ¥2,316.5B). Net Debt/EBITDA 1.36x (Interest-bearing debt ¥944.4B - Cash ¥1,112.1B = -¥167.7B, effectively close to debt-free), indicating strong creditworthiness.
Cash Flow Analysis
OCF was ¥867.8B (prior year ¥369.4B, +134.9%), a substantial increase. Of the subtotal ¥1,016.3B, an increase in accounts payable +¥317.0B significantly contributed to working capital improvement, and even after deducting corporate taxes paid -¥155.2B, the positive balance expanded. Accounts receivable +¥5.0B and inventories +¥0.1B indicate working capital is being managed efficiently overall. Contract liabilities -¥6.5B indicate a decrease in advance receipts but had minor impact. Investing CF was -¥696.4B, driven by acquisition of tangible fixed assets -¥230.9B (store expansion), acquisition of investment securities -¥303.6B (strategic investments and surplus cash management), and acquisition of shares of subsidiaries and associates -¥23.3B. Conversely, sales of securities and investment securities ¥121.6B and proceeds from business acquisitions ¥6.3B were cash inflows. Financing CF was +¥412.1B, as long-term borrowings ¥720.0B significantly exceeded repayment of short-term borrowings -¥454.0B, achieving liability duration extension and liquidity strengthening. Dividend payments -¥63.3B were made while securing FCF ¥171.4B. Cash and cash equivalents at period-end were ¥1,111.5B (prior year ¥527.4B, +110.7%), a substantial increase providing a strong financial buffer.
Quality of Earnings
Recurring earnings center on Drugstore & Dispensing Pharmacy operating income ¥485.7B, with stable non-operating contributions such as interest income ¥6.2B, rental income ¥26.8B, and equity-method investment gains ¥2.0B. Non-operating income accounts for 0.6% of sales and is small, not materially distorting performance. One-off items included Extraordinary Losses ¥58.6B (including impairment losses ¥57.6B, loss on retirement of fixed assets ¥4.6B, loss on valuation of investment securities ¥1.0B) reflecting structural adjustment of unprofitable stores and assets. Extraordinary Gains ¥9.7B (gain on bargain purchase ¥5.3B, gain on sale of fixed assets ¥4.4B) resulted in a net -¥48.9B. The gap between Ordinary Income ¥500.6B and Profit before income taxes ¥451.7B (difference -¥48.9B) is recognized as temporary structural adjustment costs. Net Income ¥140.8B reflects an effective tax rate of 0.4% due to recognition of deferred tax assets ¥90.9B; normalization is expected next fiscal year. Accrual quality is high: OCF ¥867.8B / Net Income ¥140.8B = 6.2x, and OCF/EBITDA 1.31x is also favorable. However, a large portion of OCF was driven by accounts payable increase +¥317.0B, which boosted period-end cash and may reverse in subsequent periods.
Forecasts & Guidance
For the fiscal year ending Feb 2027, guidance is: Revenue ¥10,920.0B (YoY +8.1%), Operating Income ¥540.0B (YoY +11.2%), Ordinary Income ¥550.0B (YoY +9.9%), Net Income attributable to owners of the parent ¥328.0B, EPS ¥181.24. Revenue growth is forecast to moderate to +8.1% YoY from the prior double-digit growth but remain solid. Operating Income is planned to increase +11.2%, outpacing sales growth, implying continued SG&A control and scale benefits. Net Income is expected to normalize from the prior fiscal year’s one-off tax effect, with EPS declining from ¥248.56 to ¥181.24, reflecting a conservative guidance that incorporates tax rate normalization. The dividend disclosure considers a stock split (1 share → 2 shares effective Sep 1, 2026), but the policy is consistent with maintaining an annual dividend of ¥35 on a pre-split basis.
Shareholder Returns
Annual dividend is ¥35 (Interim ¥15, Year-end ¥20), totaling ¥63.3B in dividend payments. The dividend payout ratio of 24.7% against Net Income attributable to owners of the parent ¥140.8B is at a conservative level. Dividend coverage of FCF is 2.7x (FCF ¥171.4B / Dividend payments ¥63.3B), indicating ample capacity. No share buybacks were executed; shareholder returns consist solely of dividends (Total Return Ratio = Payout Ratio 24.7%). A stock split (1 share → 2 shares) is planned next fiscal year, with the post-split year-end dividend expected to be ¥10 (consistent with maintaining an annual ¥35 on a pre-split basis). Given OCF ¥867.8B, Net Income ¥140.8B, and dividend payments ¥63.3B, the company is assessed to be able to sustain both growth investment and dividend payouts.
Risk Factors
- Stagnation in operating efficiency: Operating margin of 4.8% remains below 5%, and SG&A ratio 27.0% (up +0.5pt from 26.5%) pressures profitability. Rent expenses ¥489.9B (up +11.3%) and higher personnel costs are the main causes, and the rise in fixed-cost base associated with store expansion may continue to pose a risk. 2. Continued impairment losses: This period’s impairment losses of ¥57.6B indicate a review of unprofitable stores and assets, and further impairment risk may remain. Structural adjustment costs could pressure profitability. 3. Working capital-driven CF volatility: Of OCF ¥867.8B, accounts payable increase +¥317.0B contributed substantially, creating risk of cash flow reversals if procurement terms change. Efficient management of inventories ¥944.4B also remains an ongoing challenge.
Industry Benchmarking (Reference — Company Estimate)
Industry position (reference, company estimate): Comparing to the retail industry median for FY2025, Operating margin 4.8% is roughly in line with the industry median 4.6% and is standard. Net Income margin 1.4% is below the industry median 3.3%; even excluding temporary tax distortions, profitability is somewhat below industry average. ROE 4.8% is below the industry median 5.9%, but current-year distortions from tax effects require evaluation after normalization. Total Asset Turnover 1.64x significantly exceeds the industry median 1.17x, indicating top-tier asset efficiency. Equity Ratio 47.3% is slightly below the industry median 50.2%, but Net Debt/EBITDA 1.36x is somewhat higher than the industry median -0.59x (many peers are effectively debt-free), though creditworthiness remains healthy. Cash conversion ratio (OCF/EBITDA) 1.31x is below the industry median 1.57x, but excluding the one-off accounts payable increase it is generally favorable. Payout ratio 24.7% is below the industry median 27%, indicating conservative shareholder returns. Overall, the company ranks highly on asset efficiency and growth, while profitability and returns lag somewhat behind industry averages.
Key Points of Focus in the Financial Results
Three key focus points in the results: 1. Net Income distortion from temporary tax effects: Recognition of deferred tax assets ¥90.9B led to Net Income ¥140.8B and an effective tax rate of 0.4%, which is temporary; normalization is expected next fiscal year and EPS is projected to decline to ¥181.24. Assessment should focus on sustainable operating profitability (Operating margin 4.8%) and cash generation quality (OCF ¥867.8B, 6.2x Net Income). 2. Working capital improvement-driven CF uplift: Of OCF ¥867.8B, accounts payable increase +¥317.0B contributed significantly, presenting reversal risk in subsequent periods. FCF ¥171.4B funds dividends and growth investment, but the sustainability of accounts payable changes will determine CF quality. 3. Stagnation in operating efficiency and structural adjustments: Operating margin 4.8% (flat YoY) and SG&A ratio 27.0% (YoY +0.5pt) indicate fixed-cost base increases accompanying scale expansion are pressuring profitability. The impairment losses ¥57.6B reflect a review of unprofitable stores; optimizing the store network and cost control will be key to improving profitability.
This report was auto-generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information aggregated by our firm based on publicly disclosed financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.