YAKUODO HOLDINGS Co.,Ltd. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥123.61B
• Operating Income: ¥4.65B
• Net Income: ¥3.39B
• EPS: ¥173.50

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

AI Financial Analysis

Executive Summary

Verdict: A mixed FY2026 Q3—solid top-line growth but margin compression left earnings nearly flat. Revenue rose 7.9% YoY to 1236.1, with operating income up only 1.6% to 46.5 and net income essentially flat at 33.9 (+0.3% YoY). Operating margin slipped to 3.76% from 3.99% (-23 bps), while net margin dipped to 2.74% from 2.95% (-21 bps). Gross margin stands at 21.5%, highlighting ongoing pricing and cost pressure typical in drugstore retail. Ordinary income was 48.2 (+0.4% YoY), aided modestly by non-operating income of 3.27 (interest income 0.16) against 1.56 of non-operating expenses. The DuPont view shows ROE at 8.6% (Net margin 2.7% × Asset turnover 1.284 × Leverage 2.43x), with profitability remaining the main drag on returns. Interest coverage is strong at 31.4x, indicating manageable financial risk despite higher reported D/E of 1.43x. Liquidity is adequate on a current ratio basis (1.39x) but weak on a quick basis (0.40x), underscoring reliance on inventories and payables. Inventory intensity is high (34.4% of assets), while accounts payable (215.1) is a key funding source for working capital. Balance sheet shows leverage creeping up via long-term loans (+45% YoY) alongside rising intangibles (+55%), which warrants monitoring for return and impairment risk. Earnings quality cannot be fully assessed due to unreported cash flow data; therefore, OCF conversion is unknown this quarter. The quarterly dividend cadence remains back-end weighted (YE ¥28, Q2 ¥0), with a low payout ratio of 16.3% implying ample headroom if cash generation cooperates. Quality Alert flagged low operating efficiency (EBIT margin 3.8%), consistent with the observed margin compression and competitive retail dynamics. Forward-looking, sustaining LSD-to-MSD growth will likely require improved merchandise mix, shrink/markdown control, and SG&A discipline to stabilize margins amid wage and utility cost pressures. Overall, the company remains growth-positive but pressed on efficiency, with leverage and inventory management as key watch points.

Profitability Analysis

DuPont (3-factor): ROE 8.6% = Net Profit Margin 2.7% × Asset Turnover 1.284 × Financial Leverage 2.43x. The weakest component is net profit margin (2.7%), which is below the 3–5% typical range for efficient drugstore operators and well below broad profitability benchmarks. Operating margin compressed by ~23 bps YoY (3.76% vs 3.99%), while net margin compressed by ~21 bps, indicating that operating deleverage and possibly higher below-the-line costs offset revenue growth. Business drivers: gross margin at 21.5% suggests mix and pricing remained tight; operating income grew only +1.6% against +7.9% revenue, implying SG&A inflation (labor, utilities, logistics) likely outpaced gross profit gains. Sustainability: margin pressure is likely to persist near term given sector wage pressures and competitive pricing, but selective category mix upgrades (PB, healthcare, daily necessities with better turn) and process efficiency could stabilize margins. Watch for SG&A growth vs revenue; current spread suggests SG&A grew faster than gross profit in the period (a negative trend). Quality Alert — LOW_OPERATING_EFFICIENCY (EBIT margin 3.8% < 5%): Root cause: tight gross margin environment and elevated SG&A costs compress EBIT. Context: drugstore retail in Japan often operates at low-single-digit operating margins; however, sustained sub-5% EBIT underscores limited buffer against shocks. Impact: lower operating efficiency elevates earnings volatility risk and dampens ROE, making the equity story more reliant on turnover and leverage rather than margin expansion.

Growth Assessment

Top line expanded 7.9% YoY, a healthy print likely driven by store network growth and steady consumer staples demand. However, operating profit rose only 1.6% and net profit 0.3%, indicating limited operating leverage. The gross margin at 21.5% is consistent with a value-oriented mix; improvement would likely require better private brand penetration, health & beauty mix, and shrink/markdown control. Absent disclosure on same-store sales, traffic, and ticket, it is difficult to parse organic vs network growth; given the sector, modest positive comps are plausible, but cannibalization risks rise with dense footprints. Non-operating items were modestly positive (net +1.71), not a structural driver. With rising long-term debt, management may be investing in store expansion or logistics; returns on these investments must translate into higher ROIC/margins to be accretive. Outlook: expect LSD-to-MSD revenue growth with near-term margin stabilization rather than expansion, contingent on cost control and inventory productivity.

Financial Health

Liquidity: Current ratio 1.39x (adequate but below the 1.5x benchmark), quick ratio 0.40x (weak), indicating reliance on inventory monetization and trade payables. No explicit warning threshold breach (CR <1.0) is observed. Working capital stands at 130.1, with inventories 330.9 and AP 215.1—inventory-heavy model supported by supplier credit. Solvency: Reported D/E is 1.43x (likely total liabilities-to-equity); interest-bearing debt/equity by our calculation is ~0.40x (159.7/395.9), and debt/capital is 28.7%, consistent with moderate leverage. Interest coverage is strong at 31.4x. Equity-to-asset ratio (calculated) is ~41.1% (395.9/962.4), a solid capital base. Maturity mismatch: Current liabilities 336.6 vs quick assets 109.8 (cash + AR) indicate near-term liquidity is dependent on inventory turnover and payable rollovers; if sell-through slows, refinancing or working capital tightening may be required. Off-balance sheet obligations: none disclosed in the provided data.

Notable B/S Changes

Treasury Stock: -3.00 → -6.22 (-107.3%) - Increased treasury stock balance suggests additional buybacks; modest EPS accretion but reduces liquidity buffer. Intangible Assets: 6.15 → 9.51 (+54.6%) - Likely IT, software, or brand-related; monitor for ROIC contribution and potential impairment risk. Long-term Loans: 110.13 → 159.65 (+45.0%) - Higher leverage to fund growth (stores/logistics); raises fixed charges, necessitating improved cash generation. Accounts Receivable: 18.45 → 25.74 (+39.5%) - Growth consistent with sales expansion; watch for collection periods to avoid working capital drag.

Cash Flow Quality

OCF/Net Income and FCF are not reported; therefore, earnings-to-cash conversion cannot be assessed this quarter. Given high inventories (34.4% of assets) and significant accounts payable, working capital swings can materially affect OCF. Potential red flags to watch next filing: inventory build without corresponding sales growth (risk of markdowns), payables stretching (temporary OCF uplift), and timing differences around quarter-end. Without CapEx data, we cannot evaluate maintenance vs growth investment needs or FCF coverage of dividends.

Dividend Sustainability

Declared year-end DPS is ¥28 with Q2 interim at ¥0, implying a full-year payout ratio of ~16.3% on current NI run-rate—a conservative level. With no FCF data, coverage cannot be confirmed, but low payout suggests ample buffer under normal cash generation. Capital allocation appears to prioritize growth (long-term debt up 45% YoY, intangibles up 55%); absent CapEx disclosure, we assume reinvestment remains a focus. Policy outlook: room exists to raise dividends gradually if OCF remains stable; however, weak quick liquidity and margin pressure argue for maintaining flexibility until cash conversion is evidenced.

Risk Assessment

Business risks include Margin compression from rising labor, utilities, and logistics costs against price-sensitive demand, Inventory risk (high inventory share at 34.4% of assets) leading to markdowns and shrink, Competitive intensity in drugstore retail limiting pricing power and gross margin expansion, Execution risk on store expansion and digital/omnichannel initiatives without clear ROIC uplift.

Financial risks include Liquidity dependence on inventory monetization and supplier credit (quick ratio 0.40x), Leverage creeping up via long-term loans (+45% YoY), increasing fixed obligations, Potential maturity mismatch if sell-through weakens and payables shorten, Limited visibility on cash flows (OCF/FCF unreported), obscuring coverage metrics.

Key concerns include LOW_OPERATING_EFFICIENCY flag: EBIT margin 3.8% below 5% threshold, Operating margin and net margin both compressed YoY despite strong revenue growth, Rising intangibles (+55%) elevate future impairment risk if returns underwhelm, Dependence on non-operating balance (small but supportive) to sustain ordinary income.

Investment Implications

Key takeaways include Top-line momentum (+7.9% YoY) but weak operating leverage (+1.6% OI) indicates cost pressure, EBIT margin at 3.8% triggers a low-efficiency flag; profitability is the primary ROE constraint, Balance sheet is sound overall, but liquidity relies on inventory and payables, Leverage has increased via long-term loans; interest coverage remains strong at 31x, Dividend capacity appears ample at a 16% payout, but confirmation awaits OCF data.

Metrics to watch include Same-store sales growth and traffic vs ticket (to validate organic momentum), Gross margin trajectory and markdown/shrink rates, SG&A growth vs revenue (labor and utilities components), Inventory turnover and inventory-to-sales ratio; AP days vs inventory days, OCF/NI and FCF once disclosed; CapEx/Depreciation to gauge reinvestment intensity.

Regarding relative positioning, Within Japan drugstore peers, revenue growth is competitive, but operating margin sits at the low end of the group. Balance sheet leverage is moderate with strong interest coverage, offering resilience, yet margins must improve to close the gap to top-tier operators.