Quarterly trends and results

Cumulative		FY03/21				FY03/22				FY03/22		FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	1H Est.	% of Est.	FY Est.
Sales		211,915	424,778	641,796	834,033	213,840	429,493			101.3%	424,000	51.4%	836,000
	YoY	8.5%	4.5%	6.6%	4.7%	-	-				-		-
Gross profit		21,835	43,381	65,964	85,708	21,173	42,498
	YoY	7.6%	4.7%	6.8%	4.7%	-	-
	Gross profit margin	10.3%	10.2%	10.3%	10.3%	9.9%	9.9%
SG&A expenses		18,344	36,984	55,878	74,186	17,617	35,396
	YoY	3.0%	1.6%	2.5%	2.3%	-	-
	SG&A ratio	8.7%	8.7%	8.7%	8.9%	8.2%	8.2%
Operating profit		3,490	6,396	10,086	11,521	3,556	7,101			118.4%	6,000	57.3%	12,400
	YoY	40.1%	27.0%	39.0%	23.5%	-	-				-		-
	Operating profit margin	1.6%	1.5%	1.6%	1.4%	1.7%	1.7%				1.4%		1.5%
Recurring profit		3,669	6,659	10,491	12,099	3,808	7,564			118.2%	6,400	58.2%	13,000
	YoY	36.2%	23.2%	32.1%	19.5%	-	-				-		-
	Recurring profit margin	1.7%	1.6%	1.6%	1.5%	1.8%	1.8%				1.5%		1.6%
Net income		2,476	4,536	7,153	8,200	2,649	5,214			124.1%	4,200	59.9%	8,700
	YoY	19.6%	17.5%	22.8%	14.0%	-	-				-		-
	Net margin	1.2%	1.1%	1.1%	1.0%	1.2%	1.2%				1.0%		1.0%
Quarterly		FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		211,915	212,863	217,018	192,237	213,840	215,653
	YoY	8.5%	0.9%	11.0%	-1.1%	-	-
Gross profit		21,835	21,546	22,583	19,744	21,173	21,325
	YoY	7.6%	1.9%	11.1%	-1.6%	-	-
	Gross profit margin	10.3%	10.1%	10.4%	10.3%	9.9%	9.9%
SG&A expenses		18,344	18,640	18,894	18,308	17,617	17,779
	YoY	3.0%	0.2%	4.3%	1.7%	-	-
	SG&A ratio	8.7%	8.8%	8.7%	9.5%	8.2%	8.2%
Operating profit		3,490	2,906	3,690	1,435	3,556	3,545
	YoY	40.1%	14.2%	66.4%	-30.7%	-	-
	Operating profit margin	1.6%	1.4%	1.7%	0.7%	1.7%	1.6%
Recurring profit		3,669	2,990	3,832	1,608	3,808	3,756
	YoY	36.2%	10.3%	51.0%	-26.4%	-	-
	Recurring profit margin	1.7%	1.4%	1.8%	0.8%	1.8%	1.7%
Net income		2,476	2,060	2,617	1,047	2,649	2,565
	YoY	19.6%	15.0%	33.1%	-23.2%	-	-
	Net margin	1.2%	1.0%	1.2%	0.5%	1.2%	1.2%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: ARATA began applying the Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan Statement No. 29) in Q1 FY03/22. Since FY03/22 figures reflect the application of this standard and FY03/21 figures do not, YoY change figures for FY03/22 have been omitted from this table.

Seasonality: Sales and operating profit tend to be higher in Q3 (October–December) than in the other quarters, because product volume increases due to the year-end holiday shopping season and other factors.

Sales by customer type

Sales by customer type (Cumulative)			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales			211,915	424,778	641,796	834,033	213,840	429,493
	YoY		8.5%	4.5%	6.6%	4.7%	-	-
	Drugstores		106,313	213,366	319,652	416,373	107,456	216,264
		YoY	10.2%	7.7%	8.5%	6.2%	-	-
		% of total	50.2%	50.2%	49.8%	49.9%	50.3%	50.4%
	DIY centers		34,363	68,028	101,459	129,158	32,400	64,032
		YoY	8.0%	3.2%	4.5%	1.8%	-	-
		% of total	16.2%	16.0%	15.8%	15.5%	15.2%	14.9%
	Supermarkets		26,063	53,760	80,776	104,943	25,697	52,123
		YoY	11.5%	8.3%	9.6%	6.5%	-	-
		% of total	12.3%	12.7%	12.6%	12.6%	12.0%	12.1%
	Discount stores		14,788	29,941	46,088	60,765	15,730	31,611
		YoY	3.2%	-1.7%	1.8%	2.1%	-	-
		% of total	7.0%	7.0%	7.2%	7.3%	7.4%	7.4%
	General merchandising stores (GMS)		10,680	20,962	32,024	41,790	10,622	21,154
		YoY	2.4%	-2.1%	1.2%	0.1%	-	-
		% of total	5.0%	4.9%	5.0%	5.0%	5.0%	4.9%
	Other		19,704	38,718	61,795	81,001	21,932	44,306
		YoY	3.7%	-5.3%	3.7%	4.3%	-	-
		% of total	9.3%	9.1%	9.6%	9.7%	10.3%	10.3%
Sales by customer type (quarterly)			FY03/21				FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales			211,915	212,863	217,018	192,237	213,840	215,653
	YoY		8.5%	0.9%	11.0%	-1.1%	-	-
	Drugstores		106,313	107,053	106,286	96,721	107,456	108,808
		YoY	10.2%	5.3%	10.1%	-0.6%	-	-
		% of total	50.2%	50.3%	49.0%	50.3%	50.3%	50.5%
	DIY centers		34,363	33,665	33,431	27,699	32,400	31,632
		YoY	8.0%	-1.2%	7.3%	-6.9%	-	-
		% of total	16.2%	15.8%	15.4%	14.4%	15.2%	14.7%
	Supermarkets		26,063	27,697	27,016	24,167	25,697	26,426
		YoY	11.5%	5.5%	12.1%	-2.8%	-	-
		% of total	12.3%	13.0%	12.4%	12.6%	12.0%	12.3%
	Discount stores		14,788	15,153	16,147	14,677	15,730	15,881
		YoY	3.2%	-6.0%	9.1%	3.0%	-	-
		% of total	7.0%	7.1%	7.4%	7.6%	7.4%	7.4%
	General merchandising stores (GMS)		10,680	10,282	11,062	9,766	10,622	10,532
		YoY	2.4%	-6.3%	8.0%	-3.3%	-	-
		% of total	5.0%	4.8%	5.1%	5.1%	5.0%	4.9%
	Other		19,704	19,014	23,077	19,206	21,932	22,374
		YoY	3.7%	-13.1%	23.2%	6.4%	-	-
		% of total	9.3%	8.9%	10.6%	10.0%	10.3%	10.4%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: ARATA began applying the Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan Statement No. 29) in Q1 FY03/22. Since FY03/22 figures reflect the application of this standard and FY03/21 figures do not, YoY change figures for FY03/22 have been omitted from this table.

Sales by product category

Sales by category (Cumulative)			FY03/21				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales			211,915	424,778	641,796	834,033	213,840	429,493
	YoY		8.5%	4.5%	6.6%	4.7%	-	-
	Health & Beauty		65,004	131,007	199,964	260,063	63,630	128,845
		YoY	6.7%	3.6%	5.3%	4.0%	-	-
		% of total	30.7%	30.8%	31.2%	31.2%	29.8%	30.0%
	Household		31,642	62,984	95,930	123,858	31,940	65,023
		YoY	14.2%	8.3%	10.7%	10.6%	-	-
		% of total	14.9%	14.8%	14.9%	14.9%	14.9%	15.1%
	Home Care		24,639	45,574	59,755	75,895	24,074	43,021
		YoY	17.8%	12.8%	11.5%	9.9%	-	-
		% of total	11.6%	10.7%	9.3%	9.1%	11.3%	10.0%
	Paper Products		38,648	78,677	122,277	159,069	39,448	81,072
		YoY	4.5%	-0.7%	4.8%	-1.9%	-	-
		% of total	18.2%	18.5%	19.1%	19.1%	18.4%	18.9%
	Home Goods		14,255	29,116	44,760	59,541	14,390	29,323
		YoY	11.4%	5.5%	5.2%	7.7%	-	-
		% of total	6.7%	6.9%	7.0%	7.1%	6.7%	6.8%
	Pet Goods, other		37,724	77,418	119,108	155,604	40,355	82,207
		YoY	4.5%	4.0%	5.8%	5.3%	-	-
		% of total	17.8%	18.2%	18.6%	18.7%	18.9%	19.1%
Sales by category (quarterly)			FY03/21				FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales			211,915	212,863	217,018	192,237	213,840	215,653
	YoY		8.5%	0.9%	11.0%	-1.1%	-	-
	Health & Beauty		65,004	66,003	68,957	60,099	63,630	65,215
		YoY	6.7%	0.7%	8.8%	0.0%	-	-
		% of total	30.7%	31.0%	31.8%	31.3%	29.8%	30.2%
	Household		31,642	31,342	32,946	27,928	31,940	33,083
		YoY	14.2%	2.9%	15.7%	10.1%	-	-
		% of total	14.9%	14.7%	15.2%	14.5%	14.9%	15.3%
	Home Care		24,639	20,935	14,181	16,140	24,074	18,947
		YoY	17.8%	7.4%	7.5%	4.2%	-	-
		% of total	11.6%	9.8%	6.5%	8.4%	11.3%	8.8%
	Paper Products		38,648	40,029	43,600	36,792	39,448	41,624
		YoY	4.5%	-5.4%	16.6%	-19.1%	-	-
		% of total	18.2%	18.8%	20.1%	19.1%	18.4%	19.3%
	Home Goods		14,255	14,861	15,644	14,781	14,390	14,933
		YoY	11.4%	0.4%	4.6%	16.1%	-	-
		% of total	6.7%	7.0%	7.2%	7.7%	6.7%	6.9%
	Pet Goods, other		37,724	39,694	41,690	36,496	40,355	41,852
		YoY	4.5%	3.5%	9.2%	3.8%	-	-
		% of total	17.8%	18.6%	19.2%	19.0%	18.9%	19.4%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: ARATA began applying the Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan Statement No. 29) in Q1 FY03/22. Since FY03/22 figures reflect the application of this standard and FY03/21 figures do not, YoY change figures for FY03/22 have been omitted from this table.

SG&A expenses

SG&A expenses				FY03/21				FY03/22
Cumulative (JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
SG&A expenses				18,344	36,984	55,878	74,186	17,617
	YoY			3.0%	1.6%	2.5%	2.3%	-
	Packing and transportation expenses			5,571	11,170	17,029	22,337	5,618
		YoY		5.5%	1.8%	3.5%	1.7%	0.8%
		Transportation and warehousing		4,249	8,497	12,928	16,907	4,262
			YoY	7.2%	2.5%	3.9%	1.3%	0.3%
		Distribution outsourcing		1,163	2,373	3,633	4,786	1,172
			YoY	1.0%	0.8%	2.8%	2.5%	0.8%
		Packing supplies		158	299	467	643	184
			YoY	-6.0%	-8.6%	-1.1%	7.0%	16.5%
	Personnel expenses			8,045	16,291	24,313	32,329	8,005
		YoY		6.1%	4.8%	4.7%	4.6%	-0.5%
	Other			4,728	9,523	14,536	19,520	3,994
		YoY		-4.4%	-3.7%	-2.0%	-0.6%	-
SG&A expenses				FY03/21				FY03/22
Quarterly (JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
SG&A expenses				18,344	18,640	18,894	18,308	17,617
	YoY			3.0%	0.2%	4.3%	1.7%	-
	Packing and transportation expenses			5,571	5,599	5,859	5,308	5,618
		YoY		5.5%	-1.6%	6.9%	-3.7%	0.8%
		Transportation and warehousing		4,249	4,248	4,431	3,979	4,262
			YoY	7.2%	-1.8%	6.5%	-6.3%	0.3%
		Distribution outsourcing		1,163	1,210	1,260	1,153	1,172
			YoY	1.0%	0.5%	7.0%	1.4%	0.8%
		Packing supplies		158	141	168	176	184
			YoY	-6.0%	-11.3%	15.9%	36.4%	16.5%
	Personnel expenses			8,045	8,246	8,022	8,016	8,005
		YoY		6.1%	3.6%	4.3%	4.4%	-0.5%
	Other			4,728	4,795	5,013	4,984	3,994
		YoY		-4.4%	-3.1%	1.5%	3.8%	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: ARATA began applying the Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan Statement No. 29) in Q1 FY03/22. YoY change figures for FY03/22 have been omitted where FY03/22 figures are affected by the application of this standard.

(Reference) Changes in the drugstore market (product sales)

Drugstore market		FY03/21				FY03/22
Cumulative (JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Product sales price		1,837,751	3,683,350	5,499,659	7,234,962	1,836,654
	YoY	7.8%	4.7%	5.3%	3.2%	-0.1%
Drugstore market		FY03/21				FY03/22
Quarterly (JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Product sales price		1,837,751	1,845,599	1,816,309	1,735,303	1,836,654
	YoY	7.8%	1.8%	6.3%	-2.8%	-0.1%
No. of stores		16,615	16,788	17,000	16,969	17,225
	YoY	3.6%	3.8%	3.5%	3.2%	3.7%

Source: Shared Research based on “Census of Commerce” by the Ministry of Economy, Trade and Industry

1H FY03/22 results (out November 4, 2021)

Sales: JPY429.5bn
Operating profit: JPY7.1bn
Recurring profit: JPY7.6bn
Net income attributable to owners of the parent: JPY5.2bn

The company began applying the Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan Statement No. 29) in Q1 FY03/22. The following section outlines the impact from the application of this standard.

Variable consideration: Beginning in 1H, expected future returns and other items will be estimated and booked in accordance with defined variable consideration provisions and deducted from sales and cost of sales.

Consideration payable to a customer: A portion of expenses that were previously booked as non-operating expenses and SG&A expenses will be treated as consideration payable to a customer from Q1 and deducted from sales.

The impact from the application of the Accounting Standard for Revenue Recognition in 1H FY03/22 was JPY2.2bn for sales, JPY322mn for cost of sales, JPY1.8bn for SG&A expenses, JPY60mn for operating profit, and JPY21mn for recurring profit and pre-tax net income. Under the previous accounting standard, sales would have been JPY431.7bn (+1.6% YoY) and operating profit JPY7.2bn (+12.0% YoY).

With the near extinguishment of inbound demand due to the COVID-19 pandemic and the government’s declaration of a state of emergency contributing to fewer people going out, ongoing uncertainties over when the pandemic would be brought under control resulted in consumer spending in 1H being defined by a continued focus on saving rather than on spending.

In order to fulfil its mission of providing a stable supply of daily necessities to retailers, the company’s sales and purchasing departments worked to quickly identify changes in consumer lifestyles and purchasing behaviors, leading to sales. The company has made the health and safety of its employees at the logistics centers its top priority and has continued to take measures at these locations to prevent the spread of infections. The company also introduced staggered working hours and telecommuting at each of its sites to prevent COVID-19 infections and maintain operations, and enhanced productivity by curbing logistics costs.

Sales by product category

Sales by product category in 1H FY03/22 were as follows.

Health & Beauty (cosmetics, pharmaceuticals, oral care products, etc.): JPY128.8bn (JPY131.0bn in 1H FY03/21, prior to the application of the Accounting Standard for Revenue Recognition)
Household (laundry, kitchen detergents, etc.): JPY65.0bn (JPY63.0bn)
Home Care (fragrances, deodorants, insect repellants, etc.): JPY43.0bn (JPY45.6bn)
Paper Products (diapers, toilet paper, etc.): JPY81.1bn (JPY78.7bn)
Home Goods (kitchen supplies, toiletries, etc.): JPY29.3bn (JPY29.1bn)
Pet Goods/Other: JPY82.2bn (JPY77.4bn)

Due to the shift to a new lifestyle in which people spend more time at home and transition to telework, sales of large-volume, high-function, high-priced products in the Household category such as laundry detergents and household cleaning products were strong. Moreover, pet goods also performed well due to an increase in the amount of time spent with pets at home.

Sales were sluggish in COVID-19 infection control products such as masks and disinfectants, largely in reaction to increased demand for these products in 1H FY03/21. However, the public's awareness of hygiene remained high, and hygiene products fared better than before the spread of COVID-19. Demand for cosmetics deteriorated in 1H FY03/21 as people refrained from going out, but demand for basic skincare and makeup products recovered in 1H FY03/22.

Sales by customer type

Sales by customer type in 1H FY03/22 were as follows.

Drugstores: JPY216.3bn (JPY213.4bn in 1H FY03/21, prior to the application of the Accounting Standard for Revenue Recognition)
DIY centers: JPY64.0bn (JPY68.0bn)
Supermarkets: JPY52.1bn (JPY53.8bn)
Discount stores: JPY31.6bn (JPY29.9bn)
GMSs: JPY21.2bn (JPY21.0bn)
Other customers (including department stores, online retailers, and cross-border e-commerce businesses): JPY44.3bn (JPY38.7bn)

Full-year FY03/22 company forecast

		FY03/21			FY03/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Sales		424,778	409,255	834,033	429,493	406,507	836,000
	YoY	4.5%	5.0%	4.7%	1.6%	-0.2%	0.7%
Operating profit		6,396	5,125	11,521	7,101	5,299	12,400
	YoY	27.0%	19.5%	23.5%	12.1%	4.3%	8.6%
	Operating profit margin	1.5%	1.3%	1.4%	1.7%	1.3%	1.5%
Recurring profit		6,659	5,440	12,099	7,564	5,436	13,000
	YoY	23.2%	15.2%	19.5%	13.9%	-0.3%	7.5%
	Recurring profit margin	1.6%	1.3%	1.5%	1.8%	1.3%	1.6%
Net income		4,536	3,664	8,200	5,214	3,486	8,700
	YoY	17.5%	10.0%	14.0%	15.6%	-5.5%	6.1%
	Net margin	1.1%	0.9%	1.0%	1.2%	0.9%	1.0%

Source: Shared Research based on company data
ARATA has adopted Accounting Standards for Revenue Recognition (ASBJ Statement No. 29) effective from FY03/22. The YoY changes for FY03/22 estimates noted in the table above have been adjusted by applying the same accounting standards to FY03/21 earnings results.

In November 2021, the company upwardly revised its full-year forecast. The revised forecast calls for sales of JPY836.0bn, operating profit of JPY12.4bn, recurring profit of JPY13.0bn, and net income attributable to owners of the parent of JPY8.7bn.

ARATA has adopted the Accounting Standard for Revenue Recognition (Accounting Standard Board of Japan [ASBJ] Statement No. 29) effective from FY03/22. Previously, calculation costs for orders taken via the electronic data interchange (EDI) backbone were booked as expenses, and sales discounts (JPY81mn in FY03/21) also were booked as non-operating expenses. Under the new standard, though, such costs will be deducted from sales. When applying the new accounting standard to FY03/21 earnings results, the company’s FY03/22 forecast is for a 0.7% YoY increase in sales, 8.6% YoY increase in operating profit, 7.5% YoY increase in recurring profit, and 6.1% YoY increase in net income attributable to owners of the parent.

Compared to the previous forecast, the revised company forecast was an increase of JPY5.0bn in sales, JPY900mn in operating profit, JPY900mn in recurring profit, and JPY700mn in net income attributable to owners of the parent. The company upwardly revised its full-year FY03/22 forecast based on 1H results.

Medium-term outlook

		FY03/20	FY03/21	FY03/22	FY03/23	FY03/23	3-year	FY03/30	3-year
(JPYmn)		Act.	Act.	Est.	Prev. MTP	MTP	CAGR	Long-term vision	CAGR
Sales		796,227	834,033	831,000	845,000	850,000	2.2%	1,000,000	2.3%
	YoY	5.5%	4.7%	-	-	0.6%		-
Operating profit		9,326	11,521	11,500	11,500	12,900	11.4%	-
	YoY	4.9%	23.5%	-	-	12.2%		-
	Operating profit margin	1.2%	1.4%	1.4%	1.4%	1.5%		-
Recurring profit		10,124	12,099	12,100	12,000	13,500	10.1%	-
	YoY	7.4%	19.5%	-	-	12.5%		-
	Recurring profit margin	1.3%	1.5%	1.5%	1.4%	1.6%		-
ROE		8.8%	9.4%	-	9–10%	9–10%		-

Source: Shared Research based on company data
*ARATA has adopted the Accounting Standard for Revenue Recognition (Accounting Standard Board of Japan [ASBJ] Statement No. 29) effective from FY03/22. When applying the new accounting standard to FY03/21 earnings results, the company’s FY03/22 forecast is for a 0.7% YoY increase in sales, 8.6% YoY increase in operating profit, 7.5% YoY increase in recurring profit, and 6.1% YoY increase in net income attributable to owners of the parent.
*Company forecasts for FY03/23 and FY03/30 do not reflect the adoption of new accounting standards

In November 2021, the company upwardly revised its medium-term management plan (FY03/21–FY03/23) targets. For FY03/23, the plan targets sales of JPY850.0bn (three-year CAGR of 2.2%), operating profit of JPY12.9bn (11.4%), recurring profit of JPY13.5bn (10.1%), ROE of over 9% but less than 10% (versus 8.8% in FY03/20), and equity ratio of 33–35% (versus 33.2% in FY03/20).

Amidst fluctuations in the social environment, the company employed a variety of strategies, thereby improving its performance. Having achieved its operating profit and recurring profit targets in FY03/21, the company revised upward its targets for the current medium-term management plan ending in FY03/23.

ARATA Corporation 2733