Genky DrugStores Co.,Ltd. FY2026 FY Earnings Report

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Executive Summary

The Company recorded higher revenue and profits for the current period, primarily due to improved selling, general and administrative expense efficiency, resulting in an improvement in the operating margin from the previous year. Revenue was ¥2,206.4B (¥2,007.9B in the previous year, YoY+9.9%), Operating Income was ¥109.8B (¥96.6B in the previous year, YoY+13.7%), and Ordinary Income was ¥111.6B (¥99.0B in the previous year, YoY+12.7%). Net Income attributable to owners of the parent was ¥78.75B (¥70.66B in the previous year, YoY+11.4%), and EPS increased to ¥258.51 (¥232.51 in the previous year). Operating Income growth exceeding revenue growth was primarily attributable to positive operating leverage, as the increase in SG&A expenses (+8.7%) was below revenue growth (+9.9%).

Factors Affecting Business Performance

【Revenue】Revenue was ¥2,206.4B (YoY+9.9%). The Group operates as a single segment in the retail business, including pharmaceuticals, cosmetics, general merchandise, and food products, with no overseas revenue and operations consisting solely of its domestic business. Cost of sales was ¥1,757.2B (YoY+9.9%), broadly in line with revenue growth. Gross profit was ¥449.2B, and the gross margin of 20.4% was broadly unchanged from the previous year (20.4%), indicating that the product mix and procurement environment remained generally stable.

【Profit and Loss】SG&A expenses were ¥339.4B (YoY+8.7%), below the revenue growth rate, and the SG&A ratio declined to 15.4% (15.6% in the previous year). The operating margin improved to 5.0% (4.8% in the previous year). After accounting for non-operating income of ¥10.0B and non-operating expenses of ¥8.2B, including interest expenses of ¥3.1B, up from ¥2.2B in the previous year, Ordinary Income was ¥111.6B (YoY+12.7%). Extraordinary losses of ¥0.1B, consisting of losses on the disposal and sale of fixed assets, were temporary and immaterial. After deducting income taxes and other taxes of ¥32.8B (effective tax rate: 29.4%) from income before taxes of ¥111.5B, Net Income attributable to owners of the parent was ¥78.75B (YoY+11.4%). The Company recorded higher revenue and profits, with improved SG&A efficiency serving as the primary driver of earnings improvement.

Key Financial Metrics

【Profitability】The operating margin improved to 5.0% (4.8% in the previous year), the Ordinary Income margin improved to 5.1% (4.9% in the previous year), and the net margin improved to 3.6% (3.5% in the previous year), while the gross margin remained broadly unchanged at 20.4%. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥169.8B was 2.2 times Net Income attributable to owners of the parent of ¥78.75B, indicating a high degree of consistency between earnings and cash flow. The EBITDA margin improved to 8.2% (7.9% in the previous year). 【Investment Efficiency】The return on shareholders’ equity (NetIncomeToShareholdersEquityRatio) was 13.8%, slightly down from 14.2% in the previous year. This was primarily due to the dilution effect of net assets increasing (+14.9%) at a faster pace than net income (+11.4%), rather than a deterioration in underlying profitability. ROA, based on Ordinary Income, was 8.2%, remaining at the same level as the previous year. 【Financial Soundness】Although the Equity Ratio of 42.2% (41.8% in the previous year) is trending upward, the Current Ratio of 92.8% and the Quick Ratio of 36.1% were both below 100%, indicating somewhat low short-term liquidity. Long-term borrowings increased to ¥300.2B (¥258.2B in the previous year), but the EBIT-to-interest expense ratio remained high at 35.1x, suggesting that the interest burden is limited at present.

Cash Flow Analysis

OCF was ¥169.8B (up +34.8% year on year), securing a level equivalent to 2.2 times Net Income attributable to owners of the parent of ¥78.75B. Depreciation and amortization of ¥71.3B and an increase in trade payables of ¥41.2B contributed to cash generation, while an increase in inventories of ¥15.8B and an increase in accounts receivable of ¥8.3B were negative factors. Investing Cash Flow was an outflow of ¥202.8B, of which capital expenditures accounted for ¥201.0B (YoY+33.1% from ¥150.9B in the previous year), indicating an acceleration in investments in store openings and logistics. Financing Cash Flow was positive at ¥49.5B, as proceeds from long-term borrowings of ¥146.4B exceeded repayments of ¥93.7B, with borrowings supplementing a portion of investment funding. Free Cash Flow, combining OCF and Investing Cash Flow, was negative at ¥33.0B, indicating that growth investments currently exceed operating cash generation. Cash and cash equivalents increased to ¥78.7B at period-end (¥62.2B in the previous year), strengthening available liquidity.

Earnings Quality

Extraordinary income and losses were extremely immaterial, consisting of extraordinary income of ¥0.04B and extraordinary losses of ¥0.09B. Accordingly, there was almost no difference between Ordinary Income of ¥111.6B and income before taxes of ¥111.5B, indicating that current-period earnings were largely generated by recurring business activities. Non-operating income of ¥10.0B represented only 0.45% of revenue and primarily consisted of highly recurring items such as rent received. Interest expenses of ¥3.1B, up YoY+45% from ¥2.2B in the previous year, were the largest component of non-operating expenses of ¥8.2B, reflecting the increase in borrowings. After deducting income taxes and other taxes of ¥32.8B (effective tax rate: 29.4%) from Ordinary Income, Net Income attributable to owners of the parent was ¥78.75B. The difference from Ordinary Income was attributable to the tax burden, with no unusual factors identified. OCF reaching 2.2 times net income indicates that reported earnings were realized with corresponding cash generation, and earnings quality can be assessed as sound.

Earnings Forecast and Guidance

The Company disclosed its forecast for the next period, comprising revenue of ¥2,440.0B (YoY+10.6%), Operating Income of ¥120.0B (YoY+9.2%), Ordinary Income of ¥121.0B (YoY+8.4%), EPS of ¥268.79, and a dividend of ¥6.50. The forecast operating margin is approximately 4.9%, expected to decline slightly from the current-period actual result of 5.0%, reflecting what appears to be a conservative set of assumptions incorporating start-up costs for new store openings and higher fixed costs. Revenue growth (+10.6%) is projected to exceed Operating Income growth (+9.2%). Although the trend of higher revenue and profits is expected to continue, the pace of margin improvement seen in the current period is expected to moderate somewhat.

Shareholder Returns

The annual dividend for the current period was ¥13 (¥6.5 interim dividend and ¥6.5 year-end dividend), resulting in a conservative Payout Ratio of 5.0% (total dividends of ¥3.96B ÷ Net Income attributable to owners of the parent of ¥78.75B). No share repurchases were identified, and shareholder returns are centered on dividends. Total dividends of ¥3.96B were small relative to OCF of ¥169.8B, and there are no concerns regarding the Company’s ability to pay. The dividend forecast for the next period was disclosed at ¥6.50 per share.

Risk Factors

1. Short-Term Liquidity Risk: The Current Ratio was 92.8% (current assets of ¥461.2B / current liabilities of ¥497.1B), and the Quick Ratio was 36.1% (¥179.2B of current assets excluding inventories / current liabilities of ¥497.1B), both below 100%. A negative working capital structure dependent on trade payables of ¥308.5B continues, warranting monitoring from the perspective of flexibility in cash management.

2. Gross Margin and Price Competition Risk: The gross margin remained broadly unchanged from the previous year at 20.4%. However, discount-oriented retail formats are susceptible to price competition, and changes in the discounting environment could affect the gross margin.

3. Risk of Higher Interest Expense: Long-term borrowings increased to ¥300.2B (¥258.2B in the previous year), while interest expenses increased to ¥3.1B (¥2.2B in the previous year, YoY+45%). Nevertheless, the EBIT-to-interest expense ratio remained high at 35.1x, and the interest burden is limited at present.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

The operating margin is slightly above the industry median, while the net margin is below the industry median. The difference between the two metrics warrants attention.

Growth and Capital Efficiency

The revenue growth rate is significantly above the industry median and ranks among the higher growth levels within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The SG&A ratio declined to 15.4% (15.6% in the previous year), and the operating margin improved to 5.0% (4.8% in the previous year). Positive operating leverage was generated as the increase in SG&A expenses (+8.7%) was below revenue growth (+9.9%), indicating progress in cost efficiency accompanying scale expansion.

2. Capital expenditures increased to ¥201.0B (¥150.9B in the previous year, YoY+33.1%), reaching 2.8 times depreciation and amortization of ¥71.3B. As a result, Free Cash Flow was negative at ¥33.0B. The Company is in a phase of growth investment, and the pace at which these investments are monetized will be a key focus going forward.

3. The Current Ratio of 92.8% and Quick Ratio of 36.1% were both below 100%, and the negative working capital structure dependent on trade payables continues. Although OCF is ample, flexibility in short-term cash management warrants monitoring.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson type, with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,195–¥2,332 at Cost of Equity ±1%; ¥2,256–¥2,272 at ω±0.1.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL financial results 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 financial results data. Investment decisions should be made at your own responsibility, with consultation with a professional as necessary.

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