Can the pharmacy business expanded through M&A withstand the rise in cost ratio caused by reimbursement and drug-price revisions and longer prescription durations?

For the fiscal year ended May 2026, revenue was ¥69,512 million, up 9.5% year on year, and operating profit was ¥979 million, up 233.5%. The core pharmacy business generated revenue of ¥59,331 million and segment profit of ¥1,386 million, with revenue up 12.7% and profit up 139.8%. The company attributed the increase in profit to the expansion in store count through M&A completed by the previous fiscal year, contributions from acquired stores, improved profitability in the pharmacy business and greater efficiency in head-office operations.

In FY2027-Q1, however, consolidated revenue was ¥17,242 million, up 2.9% year on year, while operating profit was just ¥68 million, down 54.8%. The pharmacy business also saw revenue rise 2.3% to ¥14,474 million, but profit fell 32.6% to ¥158 million. The company said the cost ratio rose because of changes in the procurement environment following reimbursement and drug-price revisions, as well as longer prescription durations, indicating that the expansion in revenue has not translated directly into profit growth.

In the financial details, cost of sales for the fiscal year ended May 2026 was ¥60,053 million and gross profit was ¥9,459 million, resulting in a gross margin of approximately 13.6%. In the previous fiscal year, cost of sales was ¥54,542 million and gross profit was ¥8,965 million, for a gross margin of approximately 14.1%. The full-year gross margin therefore declined by approximately 0.5 percentage points. The quarterly financial summary does not provide specific amounts or ratios for cost of sales, gross profit or the operating margin, so next time it will be necessary to assess the impact of reimbursement and drug-price revisions through the year-on-year change in the cost ratio and a monetary bridge.

At the end of FY2027-Q1, the pharmacy business had 405 stores and 153 thousand prescriptions filled. Despite increases in store count and prescriptions after the M&A, if pharmacy business profit is declining, it will be important to separate the profitability gap between existing and acquired stores, drug price margins, technical fees and gross profit per prescription. First-quarter operating profit represented just 6.7% of the full-year forecast of ¥1,014 million, making profit recovery over the remaining period an assumption underlying the plan.