SM revenue growth continues, but assess the extent to which lower customer numbers are being offset by higher spend per customer and consolidation effects

In Q1, the SM business generated operating revenue of ¥144.037 billion, up 15.5% year on year. Company-wide operating revenue was ¥243.433 billion, up 9.9%, with the SM business alone accounting for the bulk of consolidated revenue growth. As this includes the contribution from Domi and its subsidiaries, which became consolidated subsidiaries last year, the H1 results should distinguish between revenue growth from the expanded scope of consolidation and organic revenue growth from existing and new stores.

In September, SM same-store sales rose 1.4% year on year, while customer numbers fell 2.3% and spend per customer rose 3.8%. In other words, the increase in sales may have been sustained not by higher customer traffic but by price revisions, product mix, items per transaction or a greater mix of higher-priced products. With prices continuing to rise, a key consideration in assessing the quality of H1 earnings will be whether the increase in spend per customer is accompanied by improved gross margins or by lower volumes as consumers become more cost-conscious.

Historically, the SM business has been supported by strengthening fresh foods and prepared foods, developing destination stores, using processing and wholesale capabilities, and refurbishing stores. For H1, we want to see specific figures for not only same-store sales but also customer numbers, spend per customer, gross margins by product category, the difference between refurbished and non-refurbished stores, and Domi’s contribution to consolidated revenue. As the group’s store count had increased to 1,563 as of September, it will also be necessary to assess whether store expansion is lifting sales while putting pressure on margins through declining customer numbers at existing stores and new-store costs.