| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥6478.3B | ¥4568.0B | +41.8% |
| Operating Income | ¥298.3B | ¥168.7B | +76.8% |
| Ordinary Income | ¥284.1B | ¥180.8B | +57.2% |
| Net Income | ¥172.9B | ¥92.7B | +86.6% |
| ROE | 10.9% | 6.5% | - |
For the fiscal year ended April 2026, the company achieved substantial revenue and profit growth with Revenue of 6,478B (YoY +1,910B, +41.8%), Operating Income of 298B (YoY +130B, +76.8%), Ordinary Income of 284B (YoY +103B, +57.2%), and Net Income of 173B (YoY +80B, +86.6%). Expansion of the store network in both pharmacy (dispensing pharmacy) and drug & cosmetic retail, together with M&A (13 consolidated subsidiaries added), drove top-line growth. Improvements in gross margin to 16.8% (YoY +0.5pt) and SG&A ratio to 12.2% (YoY -0.4pt) produced operating leverage, raising the operating margin to 4.6% (YoY +0.9pt). The lower growth rate of Ordinary Income versus Operating Income was mainly due to a sharp increase in interest expense to 20.9B (YoY +692.5%). Even excluding one-time items such as Special Losses of 47B (including impairment losses of 39B), the revenue base was steadily strengthened.
Revenue of 6,478B (+41.8%) by segment: Pharmacy Business (Pharmacy) was 5,564B (+44.6%, 85.9% of total) and Drug & Cosmetic Store Business (Retail) was 803B (+31.5%, 12.4% of total), both achieving double-digit growth. The Pharmacy business benefited from dispensing fee revisions, increased prescription volumes, and addition of 13 consolidated subsidiaries via M&A. The Retail business was supported by higher customer traffic at existing stores and new openings. Cost of sales was 5,390B (YoY +1,300B, +31.8%), improving the cost ratio to 83.2% (YoY -1.0pt) and lifting gross margin to 16.8%.
SG&A amounted to 791B (YoY +215B, +37.3%), rising less than sales (+41.8%), lowering the SG&A ratio to 12.2% (-0.4pt). Major components included rent 115B (1.8% of sales), goodwill amortization 111B (1.7% of sales), and depreciation 42B (0.6% of sales). Personnel costs increased in line with sales expansion but benefited from economies of scale. Operating Income of 298B (+76.8%) with an operating margin of 4.6% (+0.9pt) indicates improved operational efficiency. Outside operating results, interest expense of 21B (prior year 2.6B) became visible as a financing burden, but the interest coverage ratio remained a comfortable 14.3x. Ordinary Income of 284B (+57.2%) lagged Operating Income primarily due to increased financing costs. Special items included impairment losses of 39B and loss on sale of fixed assets of 5B, compressing pre-tax income to 241B (+44.0%). After deducting corporate taxes of 68B (effective tax rate 28.0%, improved from 44.5% prior year), Net Income reached 173B (+86.6%). In conclusion, scale expansion including M&A and improvements in gross margin and SG&A ratio drove the revenue and profit increases.
The Pharmacy segment recorded Segment Income of 358B (prior year 243B), securing a segment margin of 6.4%, aided by dispensing fee revisions and expansion of the pharmacy network (including M&A). The Retail segment posted Segment Income of 65B (prior year 48B) with a segment margin of 8.1%, driven by improved promotion efficiency for cosmetics and daily necessities and sales recovery at existing stores. Corporate costs (administration and system/logistics) rose to 138B (prior year 119B) but declined as a proportion of sales. Segment assets expanded to 4,595B for Pharmacy and 749B for Retail, with goodwill and intangible assets recognized from M&A contributing to the growth of total assets.
Profitability: Operating margin 4.6% (prior year 3.7%, +0.9pt) and Net Income margin 2.7% (prior year 2.0%, +0.7pt) showed marked improvement. ROE of 10.9% (prior year 6.5%) indicates efficient use of equity. The gross margin increase to 16.8% (prior year 16.3%) was supported by dispensing fee mix and procurement efficiency, and the SG&A ratio decline to 12.2% (prior year 12.6%) reflects scale benefits.
Cash Quality: Operating Cash Flow (OCF) was 308.7B, 1.79x Net Income of 172.9B, indicating strong cash conversion. OCF/Sales was 4.8%, with cash generation remaining solid while absorbing working capital tightening (Accounts receivable increase +39.3B, Inventory increase +35.1B, Accounts payable increase +47.9B).
Investment Efficiency: Total asset turnover was 1.27x, and return on total assets from operating income was 5.9% (prior year 5.4%), showing improved asset efficiency. However, goodwill of 1,942B (122.0% of net assets) is a drag on asset quality. ROA of 3.4% (Ordinary Income basis) declined from 5.8% due mainly to a rapid expansion of total assets (+1,977B, +63.4%), while underlying profitability improved.
Financial Soundness: Equity Ratio fell to 31.2% (prior year 45.7%), and D/E ratio sharply increased to 2.20x (prior year 0.20x). The rise in long-term borrowings to 1,511B (prior year 265B, +471.0%) drove leverage expansion, funded largely by M&A financing. Current ratio improved to 93.6% (prior year 85.4%) but remains below 100%, indicating tight short-term liquidity. With cash on hand of 509B versus short-term borrowings of 207B and current liabilities of 1,851B, the cash/short-term liabilities ratio of 2.45x provides some buffer.
OCF was 308.7B (YoY +33.4%), 1.79x Net Income of 172.9B, maintaining high quality. From OCF subtotal of 415.8B, changes in working capital (Accounts receivable -39.3B, Inventory -35.1B, Accounts payable +47.9B; net absorption -26.5B) and corporate tax payments of 88.2B resulted in solid cash generation. Investing Cash Flow was -606.0B, largely driven by acquisition of subsidiary shares -458.7B as M&A funding, with capital expenditures of -99.0B and depreciation of 111.0B at a 0.89x ratio, indicating maintenance-level CAPEX. Free Cash Flow was -297.3B, a significant negative, but OCF covered dividends of 28.3B and CAPEX, indicating business operations excluding M&A remain cash-healthy. Financing Cash Flow was 537.3B, with long-term borrowings raised 1,509B exceeding long-term debt repayments of 759B, net reduction in short-term borrowings of 67B, and dividends of 28.3B, increasing cash to 509B at year-end (from 267B at beginning; +240B, +89.4%). The cash build-up secures repayment of borrowings and investment flexibility, making short-term liquidity concerns limited.
Operating Income of 298B versus Ordinary Income of 284B reflects a -14B difference outside operations, mainly interest expense of 21B and loss on transfer of receivables of 6B, which are recurring financial costs. Special items comprised impairment losses of 39B (stores and other fixed assets) and loss on disposal of fixed assets 5B, totaling 47B of one-time losses and compressing pre-tax income by about 20% of 241B. A bargain purchase gain of 0.7B was a limited one-time gain. On an ordinary basis, earnings quality is high. Comprehensive income was 190B, +17B versus Net Income of 173B, including other comprehensive income items: valuation gains on securities +6.7B, retirement benefit adjustments +9.3B, and deferred hedge gains/losses +1.4B, improving balance-sheet level asset valuation. On accruals, OCF of 308.7B substantially exceeded Net Income of 172.9B, indicating earnings are backed by cash. While impairment losses have occurred previously (18B prior year), the larger scale this period is viewed as within a normal range associated with post-M&A integration and restructuring of unprofitable stores.
Full-year guidance announced: Revenue 7,215B (YoY +11.4%), Operating Income 325B (YoY +8.9%), Ordinary Income 300B (YoY +5.6%), Net Income 150B (YoY -13.3%). Given first-half results of Revenue 6,478B and Operating Income 298B, second-half is projected at Revenue 737B and Operating Income 27B, implying a substantially lower operating margin in H2. This appears to be a conservative outlook that incorporates postponed M&A integration costs, full-year goodwill amortization (annualization of 111B in H1 could exceed 200B for the year), and full-year interest expense (H1 21B potentially nearly doubling). The projected Revenue growth of +11.4% represents a sharp slowdown from H1 +41.8%; it assumes growth from existing stores and new openings with limited additional M&A contribution. The forecasted decline in Net Income assumes continuation of one-time costs (impairments, etc.) and normalization of tax rate; actual outcomes could beat guidance depending on performance.
Year-end dividend of 100 yen resulted in total dividends of 28B and a payout ratio of 30.3%, maintaining a conservative level. The prior year dividend was also 100 yen, so no increase was implemented. Relative to OCF of 308.7B, dividends of 28B represent a 9.2% payout of OCF, indicating ample coverage from operating cash, but with FCF at -297B dividends were effectively funded by increased borrowings. No share buybacks were executed (treasury stock acquisition 0), so the total return ratio equals the payout ratio at 30.3%. The company is expected to prioritize debt repayment and recovery of financial soundness, likely maintaining a stable payout around 30% in the near term. If post-M&A integration synergies materialize and FCF turns positive, there could be scope to increase dividends or implement share buybacks to enhance shareholder returns.
Dispensing fee and drug price revision risk: The pharmacy business accounts for 85.9% of sales and is exposed to biennial medical fee and drug price revisions. Reductions in dispensing fees or promotion of generics could compress margins. Although gross margin improved by +0.5pt YoY, an adverse next revision (scheduled for FY2026) could deteriorate profitability.
Leverage expansion and interest rate risk: The sharp rise in long-term borrowings to 1,511B (YoY +1,246B, +471.0%) pushed D/E to 2.20x, and interest expense grew to 21B from 2.6B (8x). In a rising rate environment, interest burdens could further increase and squeeze Net Income. Debt/EBITDA (pre-goodwill-amortization EBITDA approx. 520B) is about 3.2x, near the upper bound for investment-grade, limiting scope for additional borrowing.
Goodwill impairment risk: Goodwill of 1,942B equals 122.0% of net assets of 1,592B. If post-M&A integration fails or business conditions worsen (drug price revisions, intensified competition), future impairments could materially erode net assets. The company recorded 39B impairment this year, highlighting the need for monitoring acquired business profitability and realizing integration synergies promptly.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.6% | 4.6% (1.7%–8.2%) | +0.0pt |
| Net Income Margin | 2.7% | 3.3% (0.9%–5.8%) | -0.7pt |
Operating margin aligns with the industry median, demonstrating standard profitability achieved through scale expansion and operational efficiency.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 41.8% | 4.3% (2.2%–13.0%) | +37.5pt |
Revenue growth significantly exceeds the industry median, reflecting an aggressive scale expansion strategy through M&A and store network growth.
※Source: Company compilation
Achieving both M&A-driven scale expansion and margin improvement: The company realized high growth of +41.8% in Revenue while improving Operating Margin by +0.9pt, demonstrating synergies from integrating pharmacies and drugstores. Completion of integration and sustaining same-store growth will be critical going forward.
Rapid financial leverage expansion and cash-flow balance: D/E rose to 2.20x with long-term borrowings up by 1,246B, but OCF remains robust at 1.79x Net Income, indicating healthy cash generation from operations. The pace of debt repayment and recovery of financial soundness will determine the sustainability of ROE.
Concentration of goodwill and intangible assets and balance-sheet quality risk: Goodwill of 1,942B (122.0% of net assets) and total intangible assets of 2,083B (40.9% of total assets) dominate the balance sheet, posing impairment and amortization risks (annual goodwill amortization 111B) that could continue to pressure earnings. Stabilizing acquired businesses and realizing synergies early are key to avoiding impairments.
This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference data compiled by the company based on public financial statements. Investment decisions are the responsibility of the reader; please consult a professional advisor as needed.