Q1 revenue rose, but profit fell: can store openings and price increases catch up with profit growth?

FY2027-Q1 revenue was ¥4,403.7 million, up ¥462.9 million, or 11.7%, from ¥3,940.8 million in the same period last year. Operating profit, however, fell 5.1% to ¥142.9 million from ¥150.6 million, ordinary profit fell 8.5% to ¥142.4 million, and net profit attributable to owners of the parent fell 10.5% to ¥99.8 million. Although the company was not operating at a loss, the key issue for the next results announcement is that revenue growth has not flowed through to operating profit.

Calculated as a percentage of revenue, the operating margin was approximately 3.2% in FY2027-Q1, down approximately 0.6 percentage points from approximately 3.8% in the same period last year. In FY2026 as a whole, revenue rose 7.8% year on year to ¥163,808 million, while operating profit fell 3.6% to ¥5,285 million, reducing the operating margin from 3.6% to 3.2%. Accordingly, the first-half results will need to establish whether the latest decline in profit was merely a quarter-specific fluctuation or whether the burden of store expansion, price competition, labor costs and logistics costs is continuing.

The company attributed Q1 revenue growth to new store openings, renovations, and increases in customer traffic and items purchased resulting from stronger selling prices and product assortments, as well as reductions in store work and more efficient logistics. However, it did not disclose the amounts attributable to individual factors behind the year-on-year decline in operating profit, including gross margin, product mix, salaries, rent, depreciation and logistics costs. It also omitted segment information on the grounds that businesses other than the drugstore business were not material, making it difficult for outside investors to isolate the profitability of store groups and the initial costs associated with expansion into Kanto.

FY2026-H1, the relevant comparison period, recorded revenue of ¥8,282.1 million and operating profit of ¥347.2 million, for an operating margin of approximately 4.2%. In FY2027-H1, it will be important not only to see whether revenue exceeds this level, but also whether operating profit surpasses ¥347.2 million and the margin returns to the 4% range. If only revenue increases while operating profit falls below the prior-year first-half level, the company will need to provide a more specific explanation of whether it can maintain its full-year operating profit forecast of ¥5,520 million and how it intends to balance future growth from store investment with near-term profitability.