| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥2701.8B | ¥2454.6B | +10.1% |
| Operating Income / Operating Profit | ¥122.1B | ¥110.0B | +10.9% |
| Ordinary Income | ¥115.9B | ¥113.7B | +1.9% |
| Net Income / Net Profit | ¥69.0B | ¥212.2B | -67.5% |
| ROE | 2.3% | 7.3% | - |
The results for FY2027 ending February, Q1 (cumulative Jun–Aug) show Revenue ¥2,701.8B (YoY +¥247.2B +10.1%), Operating Income ¥122.1B (YoY +¥12.0B +10.9%), Ordinary Income ¥115.9B (YoY +¥2.2B +1.9%), and Net Income ¥69.0B (YoY -¥143.2B -67.5%). While top- and operating-line growth is evident, Net Income fell sharply due to the reversal of a large deferred tax asset recognition in the prior year (Income taxes negative ¥100.2B), which normalized the effective tax rate to 38.1% this period. Revenue achieved double-digit growth driven by recovery in customer counts and expanded prescription (dispensing) demand; gross margin remained at 30.8% while SG&A ratio was contained at 26.3%, supporting solid operating performance. At the ordinary income level, an equity-method loss of ¥11.7B and increased interest expense of ¥3.9B were drags, causing Ordinary Income to underperform Operating Income growth. Special losses of ¥4.4B (loss on valuation of investment securities ¥4.2B, etc.) were limited, so non-recurring impacts were minor.
[Revenue] Revenue was ¥2,701.8B, up +10.1% YoY. In a single-segment structure of drugstores and dispensing pharmacy operations, recovery in customer traffic and steady prescription demand drove growth. Cost of sales was ¥1,868.4B, gross profit ¥833.3B, with gross margin of 30.8%, unchanged from 30.8% a year earlier. Price revisions and product-mix control proved effective in avoiding commoditization/discounting. Stability of gross margin despite double-digit revenue growth was supported by a higher dispensing ratio and scale effects from network expansion.
[Profitability] SG&A was ¥711.2B, or 26.3% of sales, essentially flat from 26.3% a year earlier. Operating Income was ¥122.1B (Operating margin 4.5%), up +10.9% YoY, slightly outpacing revenue growth. Ordinary Income was ¥115.9B, up +1.9%, lagging. Non-operating income totaled ¥18.0B (rental income ¥7.1B, reversal of allowance for doubtful accounts ¥5.1B, etc.), while non-operating expenses were ¥24.2B (interest expense ¥3.9B, equity-method loss ¥11.7B, etc.), which offset operating-level gains at the ordinary-income stage. After booking special losses of ¥4.4B (loss on valuation of investment securities ¥4.2B), profit before tax was ¥111.5B. After deducting income taxes of ¥42.5B (effective tax rate 38.1%), Net Income was ¥69.0B. The prior year included deferred tax asset reversals that made income taxes negative ¥100.2B and inflated Net Income to ¥212.2B; thus this period’s -67.5% YoY decline reflects normalization of tax effect rather than core earnings deterioration. The primary causes of the year-on-year decline were tax-effect reversion and increased non-operating expenses, not impairment of core operating earnings. In summary, revenue and operating profit increased, but Net Income declined visually due to tax-effect normalization and higher non-operating expenses.
[Profitability] Operating margin was 4.5%, nearly unchanged from 4.5% a year earlier. Gross margin 30.8% and SG&A ratio 26.3% indicate stable structure. ROE was 2.3% (annualized 9.4%), down from 7.3% (annualized 29.2%) in the prior-year period, primarily due to the prior-year boost to Net Income from deferred tax reversals. ROA (Net Income / Total Assets, annualized) is 4.3%. [Cash Quality] Days Sales Outstanding (DSO) 111 days, Days Inventory Outstanding (DIO) 197 days, suggesting inventory and receivables retention and a prolonged cash conversion cycle. [Investment Efficiency] Total Asset Turnover (annualized) 1.69x. Estimated ROIC (NOPAT / Invested Capital, annualized) approximately 3.2%, indicating room for improvement. [Financial Soundness] Equity Ratio 46.0%, slightly down from 47.3% a year earlier but remaining healthy. Current Ratio 141.5%, Quick Ratio (cash + receivables / current liabilities) 98.1%—short-term liquidity is solid though inventory reliance is high. Interest-bearing debt consists of short-term borrowings ¥1.9B + long-term borrowings ¥645.4B + bonds ¥225.0B, totaling ¥872.2B; D/E ratio 0.30x; Debt/Capital 18.0%, conservative. Interest coverage (Operating Income / Interest Expense) 31.3x, indicating ample capacity to service interest.
Detailed disclosure of Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow is not provided, but balance sheet trends were used to analyze cash movements. Cash and deposits were ¥1,246.3B, up ¥134.2B YoY. Short-term borrowings were significantly reduced from ¥228.5B to ¥1.9B (¥226.6B reduction), lowering short-term funding dependence and liquidity risk. Accounts receivable were ¥824.2B, up ¥99.5B YoY—an increase accompanying revenue growth, but DSO at 111 days indicates long collection periods. Inventory was ¥1,007.1B, up ¥62.7B YoY, with DIO 197 days suggesting inventory retention and room to improve working capital efficiency. Accounts payable were ¥1,729.0B, up ¥186.6B YoY, reflecting increased supplier credit usage. Estimated DPO (Accounts payable / Cost of sales × 90 days) is approximately 83 days, and the cash conversion cycle (DSO + DIO - DPO) is about 225 days, prolonged. Non-operating expenses included interest expense ¥3.9B and equity-method loss ¥11.7B, which impair free cash flow. Tangible fixed assets were ¥1,330.9B, up ¥52.7B YoY, suggesting continued capex for store network expansion. Retained earnings (earned surplus) were ¥2,738.0B, up ¥32.8B YoY, as earnings exceeded dividend payouts, supporting equity accumulation.
Operating Income of ¥122.1B exceeds Ordinary Income of ¥115.9B, indicating operating-stage earnings outperform the ordinary-stage. Non-operating income ¥18.0B (rental income ¥7.1B, reversal of allowance for doubtful accounts ¥5.1B, etc.) includes stable rental income, but non-operating expenses ¥24.2B (equity-method loss ¥11.7B, interest expense ¥3.9B, etc.) are a burden, leaving non-operating balance at a deficit of -¥6.2B. The equity-method loss stems from temporary weakening at investees and is not inferred to be structural. Extraordinary items were -¥4.4B (loss on valuation of investment securities ¥4.2B, impairment loss ¥0.1B), limited in magnitude. Comprehensive income was ¥70.6B versus Net Income ¥69.0B, with Other Comprehensive Income ¥1.7B (valuation difference on securities +¥2.3B, actuarial differences on retirement benefits -¥0.8B, etc.) having minor impact. Deferred tax assets were ¥264.5B, down ¥11.7B YoY, as prior-year reversal effects have passed and levels returned to normal. From an accrual perspective, accumulation of inventory and receivables creates a timing lag between profit recognition and cash conversion; improving working-capital efficiency is essential to enhance earnings quality. The divergence between Ordinary Income and Net Income is mainly due to tax-effect normalization; core operating earnings remain solid.
The full-year forecast is Revenue ¥10,920.0B (YoY +8.1%), Operating Income ¥540.0B (YoY +11.2%), Ordinary Income ¥550.0B (YoY +9.9%), and Net Income ¥328.0B. Q1 progress rates versus full-year forecasts are: Revenue 24.7%, Operating Income 22.6%, Ordinary Income 21.1%, Net Income 21.0%. Revenue progress is roughly in line with standard pace (25%), while profit items lag somewhat. The lag in Operating Income is attributable to seasonality (busy season shifting later) and timing of expense allocation; delays in Ordinary and Net Income stem from increased non-operating expenses (equity-method loss, interest expense) and normalization of the effective tax rate. From Q2 onward, seasonality in dispensing demand and stabilization of non-operating expenses may allow catch-up. No forecast revisions have been made; the company maintains that achieving full-year targets remains feasible.
Annual dividend forecast is ¥15 per share (post-split consideration; on September 1, 2026, the company plans a 2-for-1 split of common shares; amount shown after split). The full-year EPS forecast of ¥181.24 implies a payout ratio of 8.3%, which is very conservative. Last year’s dividend was also ¥15. Cash and deposits ¥1,246.3B and Equity Ratio 46.0% indicate sufficient financial capacity, and there is no concern about dividend sustainability. The dividend policy emphasizes stable dividends while prioritizing growth investment and financial soundness. There is no disclosure of share buybacks; shareholder returns are limited to dividends. The low payout ratio reflects a strategy to maintain retained earnings for network expansion and other growth investments. Even with working-capital expansion risk, current dividend levels can be funded from internal cash.
Inventory & Receivables Retention Risk: With DSO 111 days and DIO 197 days, working-capital turnover is prolonged and the cash conversion cycle is approximately 225 days. Accumulation of inventory and receivables alongside revenue growth may continue, but risks include discounts, obsolete inventory, and delayed receivable collections that could pressure FCF generation. Improving inventory turnover, SKU optimization, and strengthening receivables management are urgent.
Increase in Non-operating Costs Risk: Non-operating balance is a deficit of -¥6.2B due to interest expense ¥3.9B and equity-method loss ¥11.7B. Continued interest-rate rises would increase financing costs, and prolonged deterioration at equity-method investees would raise ordinary-income volatility. Although interest-bearing debt is conservative, deterioration in interest coverage warrants monitoring.
Room to Improve Operating Efficiency: Operating margin of 4.5% exceeds the industry median of 3.4% but has been flat versus the company’s historical levels. With ongoing upward pressure on labor and logistics costs, maintaining SG&A ratio at 26.3% is uncertain. As dispensing ratio rises and personnel costs increase, productivity improvements and automation (self-checkout, process automation) are key to margin enhancement.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.5% | 3.4% (0.8%–7.7%) | +1.1pt |
| Net Profit Margin | 2.6% | 2.2% (0.5%–6.2%) | +0.3pt |
Operating and net margins exceed industry medians; stable gross margin and cost control support profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 10.1% | 7.7% (0.8%–14.6%) | +2.4pt |
Revenue growth exceeds the industry median by +2.4pt, placing the company in the upper group due to recovery in customer traffic and increased dispensing demand.
※Source: Company compilation
Understand solid operating performance and tax-effect reversion: Revenue +10.1% and Operating Income +10.9% indicate healthy operating growth; maintenance of gross margin 30.8% and containment of SG&A ratio support fundamental earnings power. The YoY -67.5% decline in Net Income stems from reversal of large deferred tax asset recognition in the prior year (negative effective tax rate then), and normalization of the effective tax rate to 38.1% this period is the primary driver—this should not be interpreted as impairment of core earnings.
Room to improve working-capital efficiency: With DSO 111 days and DIO 197 days, the cash conversion cycle is prolonged; improving inventory turnover and receivables collection is key to cash generation and capital efficiency. Accumulation of inventory and receivables related to store expansion is partly inevitable, but SKU optimization and stronger credit management can materially boost FCF generation.
Financial soundness and dividend sustainability: Equity Ratio 46.0% and interest-bearing debt ¥872.2B (Debt/Capital 18.0%) reflect conservative leverage. A large reduction in short-term borrowings has lowered liquidity risk, and cash and deposits ¥1,246.3B make the payout ratio of 8.3% sustainable. Although increases in non-operating expenses and working-capital expansion pose risks, the current financial position can absorb these.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available financial statements. Investment decisions are your responsibility; please consult a professional advisor as necessary.