YAKUODO HOLDINGS (7679) FY2027 Q2 Earnings Report

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Executive Summary

Revenue grew in the first half, but SG&A expenses increased by more than gross profit, resulting in higher revenue but lower profit. Revenue was ¥89.76B (+8.4% YoY), while Operating Income was ¥3.29B (down 5.3% YoY). Net Income attributable to owners of the parent was ¥2.23B (down 11.8% YoY). Gross profit increased by ¥1.75B, but SG&A expenses rose by ¥1.94B, more than offsetting the increase. The operating margin was 3.7%, down approximately 0.5pt from 4.2% in the prior-year period.

Factors Behind Performance Changes

【Revenue】Revenue was ¥89.76B, up ¥6.94B (+8.4%) from ¥82.82B in the prior-year period. The Drugstore Business is the main business, and segment information is omitted. The gross margin was 21.9%, improving by approximately 0.3pt from 21.7% in the prior-year period. Revenue growth, combined with the improved gross margin, brought gross profit to ¥19.69B (up ¥1.75B YoY).

【Profit and Loss】SG&A expenses were ¥16.41B, up 13.4% from ¥14.47B in the prior-year period. This exceeded revenue growth (+8.4%), with the SG&A ratio rising from 17.5% to 18.3%. Depreciation and amortization also increased from ¥1.62B to ¥2.06B, adding to the expense burden associated with capital investment. Operating Income was ¥3.29B (down 5.3% YoY), and Ordinary Income was ¥3.24B (down 9.5% YoY). The larger decline in Ordinary Income was due to interest expenses increasing from ¥0.09B to ¥0.28B. Net Income attributable to owners of the parent was ¥2.23B (down 11.8% YoY), resulting in higher revenue but lower profit.

Key Financial Metrics

【Profitability】The operating margin was 3.7% (4.2% in the prior-year period), and annualized ROE was 10.7%. EPS was ¥114.75, down 11.3% from ¥129.33 in the prior year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥5.29B, 2.4x Net Income attributable to owners of the parent. This was supported by depreciation and amortization of ¥2.06B and an increase in accounts payable of ¥2.28B. 【Investment Efficiency】Capital expenditures were ¥4.83B, equivalent to 2.3x depreciation and amortization. Investment outflows weighed on Free Cash Flow, which was △¥0.06B. 【Financial Soundness】The Equity Ratio was 35.2%, down from 39.0% in the prior-year period. The current ratio was 160.3%, and long-term borrowings were ¥30.6B (¥22.41B in the prior-year period). Inventory was ¥35.66B, accounting for approximately 59% of current assets.

Cash Flow Analysis

OCF was ¥5.29B (+2.9% YoY), with subtotal before changes in working capital of ¥6.34B. An inventory increase of △¥1.93B and an increase in trade receivables of △¥1.12B tied up cash, while an increase in accounts payable of ¥2.28B partially offset the outflows. Investing Cash Flow was △¥5.35B, of which capital expenditures accounted for ¥4.83B, leaving Free Cash Flow nearly balanced at △¥0.06B. Dividends paid were ¥0.56B. Financing Cash Flow was an inflow of ¥8.84B, mainly due to the difference between ¥13B in proceeds from long-term borrowings and ¥3.18B in repayments. As a result, cash and deposits increased to ¥18.79B (¥10.01B in the prior-year period). The increase in cash was supported by borrowings rather than OCF.

Earnings Quality

Earnings for the period were primarily generated by recurring Operating Income and were not materially affected by extraordinary gains or losses. Non-operating income was modest at ¥0.23B, while almost all of the ¥0.28B in non-operating expenses consisted of interest expenses. As a result, Ordinary Income was ¥0.05B below Operating Income. OCF was 2.4x Net Income, providing substantial cash backing. However, one contributing factor was the increase in non-cash expenses such as depreciation and amortization. Comprehensive income was ¥2.23B, with virtually no divergence from Net Income. The primary reasons for the profit decline were higher SG&A expenses and depreciation and amortization charges, rather than one-off losses.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥185.05B (+13.0% YoY), Operating Income of ¥5.52B (+4.4% YoY), Ordinary Income of ¥5.48B (+0.2% YoY), and Net Income attributable to owners of the parent of ¥4.03B. First-half progress against the full-year forecasts was 48.5% for Revenue, 59.6% for Operating Income, 59.1% for Ordinary Income, and 55.4% for Net Income. Operating Income is tracking ahead of plan. Required Operating Income for the second half is ¥2.23B, implying an operating margin of approximately 2.3% for the second half. This is below the first-half level of 3.7%. There was no revision to the earnings forecast during the quarter.

Shareholder Returns

The dividend for the end of Q2 was ¥0, and the full-year dividend forecast is ¥30 per share. The Payout Ratio against forecast full-year Net Income of ¥4.03B is approximately 14.5%. This calculation uses approximately ¥0.58B, calculated by multiplying ¥30 by the average number of shares outstanding during the period of 19,451 thousand shares. Dividends paid in the first half were ¥0.56B, within the range of OCF of ¥5.29B. However, Free Cash Flow was △¥0.06B, meaning that investment and shareholder returns were not both funded at the same time. The dividend burden is light, so the sustainability of shareholder returns will depend on the extent to which cash flow recovers after investment.

Risk Factors

1. Lower margins due to rising SG&A expenses: SG&A expenses increased by 13.4%, exceeding revenue growth of 8.4%. The SG&A ratio rose from 17.5% to 18.3%. Even if the gross margin improves, the operating margin could decline further from 3.7% if this gap persists.

2. Inventory accumulation and working capital tied up: Inventory was ¥35.66B, accounting for 30.0% of total assets. In the first half, the increase in inventory resulted in a cash outflow of ¥1.93B. Accounts receivable were also ¥3.31B, up 50.8% from ¥2.2B in the prior-year period. Changes in demand or price reductions could affect both earnings and cash flow.

3. Greater reliance on borrowings and higher interest burden: Long-term borrowings were ¥30.6B (+36.6% YoY), and the portion due within one year was ¥7.27B. Interest expenses increased from ¥0.09B to ¥0.28B. Operating Income was approximately 11.8x interest expenses, so interest coverage remains adequate. However, with Free Cash Flow at △¥0.06B, ongoing investment is structurally dependent on borrowings.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin are above the industry median and are positioned around the middle to slightly above the middle of the IQR.

Growth and Capital Efficiency

Revenue growth is above the industry median and is positioned toward the upper end of the IQR.

※Source: Company estimates

Key Points to Watch in the Results

1. A key structural feature of the period is that higher revenue did not translate into higher profit. Revenue increased by 8.4%, but Operating Income declined by 5.3%. Increases in SG&A expenses and depreciation and amortization exceeded the increase in gross profit. The key question is whether store expansion investment will generate revenue and enable the company to absorb these expenses.

2. Cash generation and investment requirements are closely balanced. OCF is a substantial 2.4x Net Income, but capital expenditures are large and Free Cash Flow is △¥0.06B. The increase in the cash balance was due to Financing Cash Flow of ¥8.84B. Trends in long-term borrowings and the Equity Ratio (35.2%) are key financial items to monitor.

3. Under the full-year forecast, first-half progress in Operating Income is ahead of plan at 59.6%. The operating margin required in the second half is approximately 2.3%, below the first-half level of 3.7%. The rate of SG&A expense growth and inventory levels in the second half will determine the extent to which the forecast is achieved.

Theoretical Share Price (Reference)

Sensitivity: With the cost of equity ±1%, ¥2,086–¥2,211; with ω ±0.1, ¥2,147–¥2,147.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of quarter-end are used (there is a timing difference versus the full-year forecast).
• Since 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: 2026-09 / Mechanically calculated using only publicly disclosed data; this is not a forecast of market share prices 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 analysis of XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional.

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