H2O Retailing / 8242
COVERAGE INITIATED ON: 2020.04.30 LAST UPDATE: 2020.04.30
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.
Research Coverage Report by Shared Research Inc. H2O Retailing / 8242
RCoverageCoverage LAST UPDATE: 2020.04.30 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.
Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Monthly sales ------7 Quarterly trends ------9 Medium-term management plan ------20 Business ------26 Business model ------26 Market trends ------45 Strengths and weaknesses ------53 Historical performance and financial statements ------55 Income statement ------55 Balance sheet ------56 Cash flow statement ------57 Profitability analysis ------57 Historical performance ------58 Other information ------63 History ------63 News and topics ------64 Major subsidiaries ------64 Corporate governance and top management ------65 Policy on shareholder returns ------65 Major shareholders ------66 Profile ------66
02/67 H2O Retailing / 8242
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Executive summary
Business overview
◤ H2O is a retailer that mainly operates department stores (Hankyu Department Stores and Hanshin Department Stores) and supermarkets (such as Izumiya and Hankyu Oasis). The company operates 16 department stores, mainly along the Hankyu Railway and Hanshin Electric Railway lines. It also has 186 supermarkets and superstores (called general merchandise stores or GMSs in Japan) in the Kansai region (as of October 2019). The company follows an area dominance strategy targeting the Kansai region. Kansai has around 20mn consumers and includes the prefectures of Osaka (population of 8.8mn), Hyogo (5.5mn), and Kyoto (2.6mn). H2O’s strategy is to have consumers make as many of their everyday purchases as possible at its supermarkets and enjoyable, non-routine shopping at its department stores. While being affected by a structural decline in department store sales amid competition from specialist stores, the company aims to make the retail spaces at its department stores unique. In this way, H2O aims to attract more customers in the Kansai region, as well as to increase the number of visitors from other parts of Japan and overseas.
◤ H2O was created through the 2007 merger of Hankyu Department Stores and Hanshin Department Stores. Their respective predecessor companies were the Hankyu Market (now Hankyu Main Store), which opened in Osaka’s Umeda district in 1925, and Hanshin Mart (now Hanshin Umeda Main Store), which opened in 1933. Hanshin Electric Railway is H2O’s largest shareholder, with an 11.9% stake, followed by Hankyu Hanshin Holdings (TSE1: 9042), which holds an 8.4% stake. Effectively, Hankyu Hanshin Holdings, the parent company of Hanshin Electric Railway, therefore holds a 20.3% stake in H2O (making it an equity-method affiliate). H2O, Hankyu Hanshin Holdings, and Toho (TSE1: 9602) together form the Hankyu Hanshin Toho Group. The group’s business interests span urban transport, real estate, hotels, department stores, supermarkets, and entertainment.
◤ H2O has four business segments: the Department Store, Supermarket, Shopping Center Management, and Other businesses. In FY03/19, sales were JPY926.9bn, with these segments accounting for 53.4%, 39.7%, 0.9%, and 6.0%, respectively. Operating profit was JPY20.4bn. The Department Store and Shopping Center Management businesses generated operating profits of JPY17.9bn and JPY4.3bn, respectively, while the Supermarket business posted an operating loss of JPY438mn. (The Other business generated operating profit of JPY5.0bn. Adjustments to operating profit [elimination of intra-segment transactions] were JPY6.3bn.) Driven by sales at Hankyu Main Store, performance in the Department Store business remains robust. However, the company struggles with a difficult business climate in the Supermarket business. Although H2O is working to expand this business through Izumiya, which became a wholly owned subsidiary in 2014, Izumiya’s GMS business format exposes it to competition from specialty stores. The company is restructuring operations through such measures as shifting to sales of daily necessities, drugs, and cosmetics via a joint venture.
◤ H2O’s long-term business plan, GP10, espouses a “Kansai dominance strategy.” This strategy centers on the Department Store business (non-routine purchases) and the Supermarket business (routine purchases) and extends to the operation of commercial facilities and hotels. Through its S-point loyalty program, H2O forms alliances with prominent service providers in the region. By working with these partners, H2O aims to operate integrated consumer businesses, boosting its regional market share and increasing its points of contact with consumers.
Trends and outlook
◤ In FY03/19, sales were JPY926.9mn (+0.5% YoY), operating profit was JPY20.4bn (-10.3% YoY), and net income was JPY2.2bn (-85.2% YoY). Sales reached a record high for the second straight year, but losses in the Supermarket business sapped profitability. By segment, the Department Store business (including the Kobe/Takatsuki business) generated JPY17.9bn in operating profit, the Supermarket business produced an operating loss of JPY438mn, the Shopping Center Management business had a JPY4.3bn operating profit, and the Other business generated operating profit of JPY5.0bn. (Adjustments to operating profit were JPY6.3bn).
◤ For FY03/20, the company forecasts sales of JPY928.0bn (+0.1% YoY), operating profit of JPY16.0bn (-21.7% or -JPY4.4bn YoY), and net income of JPY5.0bn (2.3x the FY03/19 figure). H2O forecasts EPS of JPY40.45. The company expects operating profit to fall due to the impact of a hike in the consumption tax rate, changes in consumer behavior due to unusually mild
03/67 H2O Retailing / 8242
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winter weather, and measures to help small and medium-sized companies respond to the government’s push toward cashless transactions, which do not apply to large retailers such as H2O. By segment, H2O expects operating profit to fall more than JPY3.0bn in the Department Store business, more than JPY1.0bn in the Supermarket business, and around JPY1.0bn each in the Shopping Center Management and Other businesses. (It projects adjustments to be up more than JPY1.0bn YoY.) However, due to the spread of the novel coronavirus disease (COVID-19), sales are under greater pressure than expected, with department store sales (on a comparable store basis) falling 38.1% YoY in March 2020. (March sales at the Supermarket business were relatively steady with Izumiya posting a 3.5% YoY decline and Hankyu Oasis a 5.0% increase.)
◤ The medium-term management plan (FY03/20 to FY03/22) targets sales of JPY960.0bn (CAGR of 1.2% from FY03/19), operating profit of JPY25.0bn (7.0%), and net income of JPY12.5bn (79.5%). In the medium-term management plan, the company forecasts a decline in profit in the Department Store business from FY03/19 levels, as it expects many projects in this segment to contribute to profit only after that period. In the Supermarket business, the company expects structural reforms at Izumiya to lift operating profit by JPY5.0bn. H2O plans capital expenditures of JPY95.0bn during the period (JPY31.7bn/year). Major thrusts of the plan are to reinforce large commercial facilities in urban areas, build an operating platform for supermarkets, transform Izumiya’s GMS business model, and create a business ecosystem.
Strengths and weaknesses
Shared Research believes H2O has three key strengths: 1) an ability to create retail spaces that attract consumers (in Kansai, from outside the region, and from overseas) without relying excessively on retailer tenant revenues; 2) highly convenient, attractive locations; and 3) the Hankyu and Hanshin brands.
We believe its weaknesses are: 1) significant lags between decision-making and results due to the time it takes to build and rebuild department stores; 2) the Supermarket business hampered by weak competitiveness of the GMS format; and 3) little experience of business development overseas. (See Strengths and weaknesses section for details.)
04/67 H2O Retailing / 8242
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Key financial data
Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 465,033 505,588 525,154 576,852 844,819 915,690 901,221 921,871 926,872 928,000 YoY -1.1% 8.7% 3.9% 9.8% 46.5% 8.4% -1.6% 2.3% 0.5% 0.1% Gross profit 129,157 139,466 142,529 156,949 241,417 266,363 263,384 266,224 266,235 - YoY -1.7% 8.0% 2.2% 10.1% 53.8% 10.3% -1.1% 1.1% 0.0% - Gross profit margin 27.8% 27.6% 27.1% 27.2% 28.6% 29.1% 29.2% 28.9% 28.7%- SG&A expenses 118,602 129,509 131,859 139,636 220,059 242,538 240,842 243,459 245,813 - YoY -3.8% 9.2% 1.8% 5.9% 57.6% 10.2% -0.7% 1.1% 1.0% - SG&A ratio 25.5% 25.6% 25.1% 24.2% 26.0% 26.5% 26.7% 26.4% 26.5% - Operating profit 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 16,000 YoY 31.6% -5.7% 7.2% 62.3% 23.4% 11.6% -5.4% 1.0% -10.3% -21.7% Operating profit margin 2.3%2.0%2.0%3.0%2.5%2.6%2.5%2.5%2.2%1.7% Recurring profit 11,210 10,309 11,338 18,160 21,219 23,060 21,725 24,272 21,376 16,200 YoY 16.7% -8.0% 10.0% 60.2% 16.8% 8.7% -5.8% 11.7% -11.9% -24.2% Recurring profit margin 2.4%2.0%2.2%3.1%2.5%2.5%2.4%2.6%2.3%1.7% Net income 3,109 1,057 6,200 295 11,586 14,053 14,298 14,636 2,162 5,000 YoY 3.1% -66.0% 486.6% -95.2% - 21.3% 1.7% 2.4% -85.2% 131.3% Net margin 0.7%0.2%1.2%0.1%1.4%1.5%1.6%1.6%0.2%0.5% Per share data (split-adjusted; JPY) Shares outstanding (ex. treasury shares; year-end, mn) 412.6 388.3 388.3 388.3 123.3 123.4 123.5 123.5 123.6 - EPS 30.1 11.5 63.9 3.0 98.1 113.9 115.8 118.5 17.5 40.5 EPS (fully diluted) 27.4 11.0 63.7 3.0 97.6 113.4 115.3 117.9 17.4 - Dividend per share 12.5 12.5 12.5 12.5 25.0 35.0 40.0 40.0 40.0 40.0 Book value per share 1,465 1,724 1,903 1,858 2,033 2,039 2,132 2,264 2,252 - Balance sheet (JPYmn) Cash and cash equivalent 42,149 17,823 15,135 35,402 44,381 48,521 83,481 67,150 55,229 Total current assets 86,332 63,307 65,418 92,027 139,905 145,570 178,318 160,167 150,003 Tangible fixed assets 106,904 109,106 123,312 120,484 255,093 253,461 258,961 280,661 284,860 Investments and other assets 127,407 137,520 145,834 150,108 217,049 180,280 185,721 200,884 209,710 Intangible fixed assets 23,544 25,297 24,759 15,097 19,830 17,730 17,543 17,870 18,762 Total assets 344,187 335,230 359,323 377,716 631,877 597,041 640,543 659,582 663,335 Short-term debt 166 690 585 35,488 15,702 11,040 30,260 43,325 28,950 Current liabilities 118,390 88,891 90,700 141,603 173,826 157,225 189,202 201,569 174,092 Long-term debt 40,589 41,591 41,210 5,501 135,666 125,014 126,299 116,106 145,404 Fixed liabilities 74,360 77,485 82,201 53,836 206,392 187,229 187,018 177,206 209,640 Total liabilities 192,750 166,376 172,901 195,439 380,218 344,454 376,220 378,775 383,732 Shareholders' equity 151,145 167,331 184,746 180,407 250,764 251,556 263,222 279,570 278,364 Total net assets 151,437 168,854 186,422 182,277 251,659 252,587 264,323 280,807 279,603 Total interest-bearing debt 40,755 42,281 41,795 40,989 151,368 136,054 156,559 159,431 174,354 Cash flow statement (JPYmn) Cash flows from operating activities 16,966 16,176 24,533 33,415 25,468 24,539 38,742 32,739 15,392 Cash flows from investing activities -17,235 -16,773 -23,925 -9,628 -49,162 5,852 -25,325 -35,492 -36,682 Cash flows from financing activities -2,818 -13,704 -3,422 -3,557 24,161 -26,207 21,703 -13,812 9,581 Financial ratio ROA (RP-based) 3.3%3.0%3.3%4.9%4.2%3.8%3.5%3.7%3.2% ROE 2.0%0.7%3.5%0.2%5.4%5.6%5.6%5.4%0.8% Equity ratio 43.9% 49.9% 51.4% 47.8% 39.7% 42.1% 41.1% 42.4% 42.0% Source: Shared Research based on company data. Per-share data have been adjusted for stock splits. Note: Figures may differ from company materials due to differences in rounding methods. Note: The company conducted a reverse stock split (1-for-2) on September 1, 2014.
05/67 H2O Retailing / 8242
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Recent updates Highlights
On April 30, 2020, Shared Research initiated coverage of H2O Retailing Corporation.
For previous releases and developments, please refer to the News and topics section.
06/67 H2O Retailing / 8242
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Trends and outlook
Monthly sales
FY03/18 2017 2018 (YoY) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Consolidated -0.7% -0.6% -1.4% -1.1% -1.1% 2.1% 1.8% 5.1% 5.2% 4.9% 4.4% 6.1% Department Store 2.9% 5.4% 5.1% 4.7% 3.1% 7.4% 3.6% 6.9% 3.0% 2.2% 3.4% 5.1% Hankyu Hanshin Dept. Stores Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Hankyu Main Store 5.4% 8.4% 8.3% 8.0% 10.0% 14.4% 10.1% 12.6% 6.5% 7.3% 8.4% 9.6% Hanshin Umeda Main Store -3.5% 1.6% -3.8% -4.3% -0.2% 6.1% 0.2% 0.6% 0.4% -1.5% -1.5% -0.6% Total branch stores 1.6% 2.8% 4.0% 3.4% -5.1% -2.7% -4.7% 0.5% -1.6% -3.9% -2.3% 0.3% All stores 2.9% 5.4% 5.1% 4.7% 3.1% 7.4% 3.6% 6.9% 3.0% 2.1% 3.4% 5.1% Comparable stores 5.4% 9.4% 5.5% 8.8% 4.9% 4.3% 5.3% 7.0% Izumiya Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores -8.5% -12.4% -12.5% -12.1% -8.3% -7.6% -13.7% -10.3% -8.9% -9.3% -8.7% -7.0% Comparable stores -1.8% -5.4% -4.8% -5.0% -1.6% -1.7% -6.6% -1.8% -0.4% -2.1% -3.4% -2.1% Hankyu Oasis Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores 4.6% 3.9% 1.3% 2.7% 3.7% 4.3% -0.7% -0.1% 1.1% 1.3% 0.2% -1.9% Comparable stores 1.4% -0.8% -1.4% -1.9% -1.4% -0.8% -2.7% -0.8% -0.1% -0.3% -1.2% -2.5%
FY03/19 2018 2019 (YoY) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Consolidated 4.1% 0.6% 5.3% 0.0% 5.7% 2.3% 0.9% -2.4% 0.2% -4.6% -1.6% -1.3% Department Store 6.0% -0.5% 3.6% -5.2% 6.6% -0.2% 5.0% -0.8% 3.9% -2.8% 1.2% 0.7% Hankyu Hanshin Dept. Stores Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Hankyu Main Store 10.8% 7.8% 4.5% 0.0% 8.7% 0.6% 6.8% 0.0% 7.2% -0.4% 4.7% 3.6% Hanshin Umeda Main Store 6.8% -16.6% 15.1% -12.4% -3.9% -16.0% -6.8% -11.2% -8.3% -16.6% -3.1% -10.1% Total branch stores -1.5% -6.7% -1.7% -10.5% 7.0% 5.7% 6.6% 1.5% 2.7% -1.8% -2.8% -0.1% All stores 6.0% -0.5% 3.6% -5.2% 6.6% -0.2% 5.0% -0.8% 3.9% -2.8% 1.2% 0.7% Comparable stores 8.0%2.3%6.4%-2.0% All stores ex. Hanshin Umeda Main Store 8.0% 2.4% 6.7% 0.6% 5.5% -1.0% 1.9% 2.2% Izumiya Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores -11.2% -11.2% -6.6% -6.1% -7.2% -4.2% -5.9% -5.7% -4.6% 5.4% -5.2% -5.9% Comparable stores -7.0% -8.4% -3.7% -3.5% -4.9% -1.2% -5.4% -6.1% -6.1% -6.8% -6.6% -6.4% Hankyu Oasis Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores -2.6% -3.6% -2.4% -3.8% -3.2% -3.0% -2.2% -4.0% -4.4% -5.7% -5.6% -3.0% Comparable stores -4.5% -3.3% -0.6% 0.3% 1.0% 1.2% 0.2% -2.2% -2.5% -4.0% -3.8% -2.9%
FY03/20 2019 2020 (YoY) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Consolidated -0.2% -0.3% -0.7% -2.2% 0.7% 15.3% -9.1% -2.9% -3.0% -2.4% -5.9% -21.4% Department Store 1.1% 0.2% 1.8% 1.0% 2.5% 21.6% -13.7% -5.5% -4.5% -1.7% -12.9% -36.9% Hankyu Hanshin Dept. Stores Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Hankyu Main Store 4.6% 0.4% 7.6% 3.8% 6.7% 29.5% -15.8% -5.8% -5.5% -1.4% -18.1% -41.3% Hanshin Umeda Main Store -15.1% 0.5% -20.9% -4.1% -3.4% 21.7% -15.1% -6.6% -5.8% -2.6% -19.9% -42.5% Total branch stores 1.2% -0.3% 2.0% -2.1% -2.2% 7.2% 24.7% 33.7% 36.1% 32.2% 35.8% -0.6% All stores 1.1% 0.2% 1.8% 1.0% 2.5% 21.3% -2.5% 7.4% 8.0% 10.2% -1.8% -28.0% Comparable stores -14.5% -5.4% -4.6% -1.8% -14.3% -38.0% All stores ex. Hanshin Umeda Main Store 3.4%0.1%5.4% Izumiya Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores -3.6% -0.5% -0.4% -9.6% -2.1% 1.1% -11.9% -6.8% -7.9% -8.9% 0.5% -3.5% Comparable stores -5.4% -2.8% -3.5% -12.1% -4.3% -0.8% -13.5% -6.9% -9.2% -9.3% -0.4% -2.8% Hankyu Oasis Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores -5.6% -6.4% -5.3% -7.3% -4.4% -2.8% -4.5% -0.8% -2.0% -1.9% 3.0%5.0% Comparable stores -3.0% -5.1% -5.9% -8.4% -7.8% -6.0% -7.5% -4.8% -5.9% -5.8% -0.7% 2.6% Source: Shared Research based on company data
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Monthly 2019 2020 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Consolidated -4.6% -1.6% -1.3% -0.2% -0.3% -0.7% -2.2% 0.7% 15.3% -9.1% -2.9% -3.0% -2.4% -5.9% -21.4% Department Store -2.8% 1.2% 0.7% 1.1% 0.2% 1.8% 1.0% 2.5% 21.6% -13.7% -5.5% -4.5% -1.7% -12.9% -36.9% Hankyu Hanshin Dept. Stores Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Hankyu Main Store -0.4% 4.7% 3.6% 4.6% 0.4% 7.6% 3.8% 6.7% 29.5% -15.8% -5.8% -5.5% -1.4% -18.1% -41.3% Hanshin Umeda Main Store -16.6% -3.1% -10.1% -15.1% 0.5% -20.9% -4.1% -3.4% 21.7% -15.1% -6.6% -5.8% -2.5% -19.9% -42.5% Total branch stores -1.8% -2.8% -0.1% 1.2% -0.3% 2.0% -2.1% -2.2% 7.2% 24.7% 33.7% 36.1% 32.1% 35.8% -0.6% All stores -2.8% 1.2% 0.7% 1.1% 0.2% 1.8% 1.0% 2.5% 21.3% -2.5% 7.4% 8.0% 10.2% -1.8% -28.0% Comparable stores -14.5% -5.4% -4.6% -1.8% -14.3% -38.0% All stores ex. Hanshin Umeda Main Store -1.0% 1.9% 2.2% 3.4% 0.1% 5.4% Customer count All stores 1.2% 2.5% 2.8% 1.8% 2.6% -9.5% -4.0% -4.3% 3.2% 11.7% 12.2% 12.2% 12.4% 4.2% -25.7% Comparable stores -6.8% -5.9% -5.5% -4.5% -12.5% -38.5% Branch stores Senri Hankyu -3.6% 0.7% -2.7% -0.7% -2.8% -0.6% -3.9% -2.7% 11.9% -11.2% -4.1% -5.2% -5.7% -5.1% -23.5% Takatsuki Hankyu ------Kawanishi Hankyu -3.5% -2.7% -1.4% -0.2% -2.2% -0.4% -3.7% -6.8% 9.7% -15.2% -6.2% -5.2% -6.0% -4.6% -23.2% Takarazuka Hankyu -2.1% -2.4% -2.5% 1.8% -0.9% 0.3% 0.6% -1.8% 4.0% -8.5% -1.5% -0.1% -3.7% -0.4% -20.6% Nishinomiya Hankyu 0.1% -0.1% 1.5% 3.2% 0.2% 7.0% -1.6% 1.9% 16.6% -10.9% -4.1% -3.8% -4.4% -1.3% -29.6% Sanda Hankyu 0.1% -5.6% -0.8% 0.5% 6.0% -5.0% 0.5% 1.3% 5.8% -6.1% 3.2% -6.4% -4.7% 2.2% -18.5% Kobe Hankyu ------Hakata Hankyu 0.4% 0.6% 2.8% 5.0% 4.1% 3.2% 1.0% -2.7% 5.2% -11.5% -3.8% -1.3% -0.4% -11.1% -39.0% Hankyu Men's Tokyo -9.2% -29.5% -11.8% -12.7% -12.6% -1.0% -12.0% 1.1% 0.1% -22.9% -8.8% -9.5% -3.4% 17.9% -38.2% Oi Hankyu Food Hall -2.7% -2.4% 1.8% 2.9% 2.7% 0.0% -0.5% 0.6% 0.4% -3.6% 1.7% 1.5% -1.1% 6.1% -5.0% Tsuzuki Hankyu 2.3% 0.7% 2.8% 2.7% -3.0% -2.3% -5.5% -0.8% -0.7% -8.3% -3.5% 15.3% 14.0% -29.7% -42.2% Amagasaki Hanshin 1.4% 3.9% 2.2% 3.8% 1.7% 2.4% -0.3% -2.5% 2.1% -3.9% -0.4% -2.0% 0.4% 2.2% -15.9% Hanshin Nishinomiya -2.6% 0.6% 1.7% 0.5% -0.7% 1.2% 0.0% -1.6% 6.0% -7.8% -1.2% 1.1% 1.3% 1.9% -19.4% Hanshin Mikage -6.3% -1.6% -1.1% 0.2% -0.5% -10.9% 8.9% -2.7% 2.6% -4.4% 3.9% -1.9% 3.5% 2.4% -13.8% All store sales by product Menswear and goods -4.3% -6.5% 1.0% 2.4% -1.3% 7.9% -3.2% 9.0% 14.3% -14.8% -3.1% -6.4% 0.9% -2.4% -37.3% Womenswear and goods -6.3% 1.1% -2.3% -3.3% -5.9% 1.0% -0.2% -4.5% 15.8% -9.3% 3.0% -1.0% 2.6% -12.7% -41.3% Children's wear and goods -10.4% 1.3% -4.8% -0.4% -6.8% 0.7% 0.0% 2.6% 15.0% -4.3% 5.2% 1.3% 4.3% -12.7% -36.8% Other apparel -9.4% -10.6% -9.0% -14.2% -9.7% 0.6% -5.4% 0.7% 15.6% -11.5% -4.5% -7.4% -3.3% -14.6% -37.6% Apparel -6.2% -2.5% -2.1% -2.4% -4.9% 3.2% -1.7% 0.9% 15.2% -11.7% 0.4% -3.4% 1.7% -9.7% -39.4% Personal items -2.7% 1.5% 2.4% 3.3% 2.1% 6.2% 2.3% 3.1% 33.3% -13.3% -1.6% -3.6% 5.5% -16.9% -39.1% Household goods -4.2% -2.5% 0.3% -25.4% -7.1% 1.7% 1.4% 6.3% 32.5% -9.2% 1.6% 4.2% -2.5% -17.6% -31.5% Food -2.2% -0.5% 0.2% 2.9% 1.7% -3.0% 1.5% -1.2% 3.0% 11.8% 12.5% 14.9% 15.4% 10.0% -14.5% Restaurants and cafes 3.0% 6.4% 8.3% 5.8% 6.9% -5.8% -2.9% -1.8% 7.5% -4.1% 3.3% 1.0% 1.0% -15.4% -53.3% Accessories 3.0% 8.6% 3.0% 5.9% 3.9% 2.6% 2.9% 11.0% 47.0% -14.5% -2.2% -4.5% 5.8% -12.3% -33.6% Services 14.4% 27.0% 22.3% 2.9% 5.2% 9.7% 24.2% 18.4% 56.4% 0.9% 19.5% 16.0% 20.4% -4.4% -33.8% Other 8.7% 1.3% -9.7% -1.6% 12.8% -12.6% -20.9% ------Total -2.8% 1.2% 0.7% 1.1% 0.2% 1.8% 1.0% 2.5% 21.3% -2.5% 7.4% 8.0% 10.2% -1.8% -28.0% Izumiya Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores 5.4% -5.2% -5.9% -3.6% -0.5% -0.4% -9.6% -2.1% 1.1% -11.9% -6.8% -7.9% -8.9% 0.5% -3.5% Comparable stores -6.8% -6.6% -6.4% -5.4% -2.8% -3.5% -12.1% -4.3% -0.8% -13.5% -6.9% -9.2% -9.3% -0.4% -2.8% Hankyu Oasis Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sales All stores -5.7% -5.6% -3.0% -5.6% -6.4% -5.3% -7.3% -4.4% -2.8% -4.5% -0.8% -2.0% -1.9% 3.0% 5.0% Comparable stores -4.0% -3.8% -2.9% -3.0% -5.1% -5.9% -8.4% -7.8% -6.0% -7.5% -4.8% -5.9% -5.8% -0.7% 2.6% Note: Shared Research based on company data
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Quarterly trends
Cumulative FY 03/ 18 FY03/19 FY03/20 FY 03/ 20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3% of FYFY Est. Sales 212,319 432,000 689,206 921,871 219,282 444,408 700,406 926,872 217,124 450,710 693,976 74.8% 928,000 YoY -0.8%-0.4%1.3%2.3%3.3%2.9%1.6%0.5%-1.0%1.4%-0.9% 0.1% Gross profit 62,338 125,889 199,480 266,224 63,804 128,259 201,763 266,235 63,017 129,004 198,407 YoY -0.8%-0.5%0.3%1.1%2.4%1.9%1.1%0.0%-1.2%0.6%-1.7% Gross profit margin 29.4% 29.1% 28.9% 28.9% 29.1% 28.9% 28.8% 28.7% 29.0% 28.6% 28.6% SG&A expenses 58,737 118,911 181,505 243,459 60,444 122,159 185,486 245,813 60,163 122,684 186,516 YoY -1.9% -0.8% -0.2% 1.1% 2.9% 2.7% 2.2% 1.0% -0.5% 0.4% 0.6% SG&A ratio 27.7% 27.5% 26.3% 26.4% 27.6% 27.5% 26.5% 26.5% 27.7% 27.2% 26.9% Operating profit 3,601 6,978 17,975 22,765 3,360 6,100 16,277 20,422 2,854 6,320 11,891 74.3% 16,000 YoY 19.8% 5.4% 4.9% 1.0% -6.7% -12.6% -9.4% -10.3% -15.1% 3.6% -26.9% -21.7% Operating profit margin 1.7%1.6%2.6%2.5%1.5%1.4%2.3%2.2%1.3%1.4%1.7% 1.7% Recurring profit 4,644 8,393 19,645 24,272 3,855 6,449 16,989 21,376 3,511 6,574 12,300 75.9% 16,200 YoY 120.1% 63.9% 18.1% 11.7% -17.0% -23.2% -13.5% -11.9% -8.9% 1.9% -27.6% -24.2% Recurring profit margin 2.2% 1.9% 2.9% 2.6% 1.8% 1.5% 2.4% 2.3% 1.6% 1.5% 1.8% 1.7% Net income 4,027 5,739 15,194 14,636 276 139 6,227 2,162 1,569 1,463 2,533 50.7% 5,000 YoY 29.8% -12.4% 5.2% 2.4% -93.1% -97.6% -59.0% -85.2% 468.5% 952.5% -59.3% 131.3% Net margin 1.9% 1.3% 2.2% 1.6% 0.1% 0.0% 0.9% 0.2% 0.7% 0.3% 0.4% 0.5% Quarterly FY 03/ 18 FY03/19 FY03/20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 Sales 212,319 219,681 257,206 232,665 219,282 225,126 255,998 226,466 217,124 233,586 243,266 YoY -0.8% 0.0% 4.1% 5.5% 3.3% 2.5% -0.5% -2.7% -1.0% 3.8% -5.0% Gross profit 62,338 63,551 73,591 66,744 63,804 64,455 73,504 64,472 63,017 65,987 69,403 YoY -0.8% -0.1% 1.5% 3.6% 2.4% 1.4% -0.1% -3.4% -1.2% 2.4% -5.6% Gross profit margin 29.4% 28.9% 28.6% 28.7% 29.1% 28.6% 28.7% 28.5% 29.0% 28.2% 28.5% SG&A expenses 58,737 60,174 62,594 61,954 60,444 61,715 63,327 60,327 60,163 62,521 63,832 YoY -1.9% 0.3% 1.0% 5.0% 2.9% 2.6% 1.2% -2.6% -0.5% 1.3% 0.8% SG&A ratio 27.7% 27.4% 24.3% 26.6% 27.6% 27.4% 24.7% 26.6% 27.7% 26.8% 26.2% Operating profit 3,601 3,377 10,997 4,790 3,360 2,740 10,177 4,145 2,854 3,466 5,571 YoY 19.8% -6.6% 4.6% -11.4% -6.7% -18.9% -7.5% -13.5% -15.1% 26.5% -45.3% Operating profit margin 1.7%1.5%4.3%2.1%1.5%1.2%4.0%1.8%1.3%1.5%2.3% Recurring profit 4,644 3,749 11,252 4,627 3,855 2,594 10,540 4,387 3,511 3,063 5,726 YoY 120.1% 24.5% -2.3% -9.1% -17.0% -30.8% -6.3% -5.2% -8.9% 18.1% -45.7% Recurring profit margin 2.2% 1.7% 4.4% 2.0% 1.8% 1.2% 4.1% 1.9% 1.6% 1.3% 2.4% Net income 4,027 1,712 9,455 -558 276 -137 6,088 -4,065 1,569 -106 1,070 YoY 29.8% -50.4% 19.8% - -93.1% - -35.6% - 468.5% - -82.4% Net margin 1.9% 0.8% 3.7% -0.2% 0.1% -0.1% 2.4% -1.8% 0.7% 0.0% 0.4%
By segment FY 03/ 18 FY03/19 FY03/20 FY03/20 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3% of FYFY Est. Total sales 212,319 219,681 257,206 232,665 219,282 225,126 255,998 226,466 217,124 233,586 243,266 74.8% 928,000 YoY -0.8% 0.0% 4.1% 5.5% 3.3% 2.5% -0.5% -2.7% -1.0% 3.8% -5.0% 0.1% Department Store 99,712 106,775 138,246 124,871 112,645 116,345 141,448 124,169 113,518 126,152 130,945 -- YoY 4.5% 5.1% 14.9% 13.2% 13.0% 9.0% 2.3% -0.6% 0.8% 8.4% -7.4% - Supermarket 96,478 97,329 102,621 90,124 90,589 93,322 98,393 85,276 87,971 90,064 92,593 -- YoY -6.6% -4.9% -6.8% -3.9% -6.1% -4.1% -4.1% -5.4% -2.9% -3.5% -5.9% - Shopping Center Management 3,301 2,377 2,311 2,378 2,380 2,189 2,094 2,073 2,129 2,023 2,017 -- YoY 44.5% -2.8% -7.7% -13.1% -27.9% -7.9% -9.4% -12.8% -10.5% -7.6% -3.7% - Other 12,827 13,199 14,029 15,291 13,667 13,270 14,061 14,950 13,505 15,346 17,712 -- YoY -1.2% 0.2% -0.9% 10.4% 6.5% 0.5% 0.2% -2.2% -1.2% 15.6% 26.0% - Operating profit 3,601 3,377 10,997 4,790 3,360 2,740 10,177 4,145 2,854 3,466 5,571 74.3% 16,000 YoY 19.8% -6.6% 4.6% -11.4% -6.7% -18.9% -7.5% -13.5% -15.1% 26.5% -45.3% -21.7% Operating profit margin 1.7%1.5%4.3%2.1%1.5%1.2%4.0%1.8%1.3%1.5%2.3% 1.7% Department Store 3,319 2,817 8,237 4,250 3,366 2,254 7,865 4,398 2,872 3,484 4,340 -- YoY 39.4% 20.1% 17.7% -0.4% 1.4% -20.0% -4.5% 3.5% -14.7% 54.6% -44.8% - Operating profit margin 3.3%2.6%6.0%3.4%3.0%1.9%5.6%3.5%2.5%2.8%3.3% - Supermarket -703 -374 1,891 290 -768 -240 1,469 -899 -803 -898 601 -- YoY - - -22.5% - - - -22.3% - - - -59.1% - Operating profit margin -0.7% -0.4% 1.8% 0.3% -0.8% -0.3% 1.5% -1.1% -0.9% -1.0% 0.6% - Shopping Center Management 1,552 1,238 1,097 1,098 1,166 1,133 1,047 935 1,160 1,016 986 -- YoY 156.5% -16.1% -23.0% -28.4% -24.9% -8.5% -4.6% -14.8% -0.5% -10.3% -5.8% - Operating profit margin 47.0% 52.1% 47.5% 46.2% 49.0% 51.8% 50.0% 45.1% 54.5% 50.2% 48.9% - Other 2,525 87 827 -341 3,760 13 855 402 2,893 371 364 -- YoY 12.7% - 50.1% - 48.9% -85.1% 3.4% - -23.1% 2753.8% -57.4% - Operating profit margin 19.7% 0.7% 5.9% -2.2% 27.5% 0.1% 6.1% 2.7% 21.4% 2.4% 2.1% - Adjustments -3,092 -391 -1,055 -507 -4,164 -420 -1,059 -691 -3,268 -507 -720 - Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: In FY03/18 and FY03/19, figures for the Department Store business are totals for the Department Store business and the Kobe/Takatsuki business.
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Q3 FY03/20 results Overview
▷ In cumulative Q3 FY03/20, sales were JPY694.0bn (-0.9% YoY), operating profit was JPY11.9bn (-26.9% YoY), and net income was JPY2.5bn (-59.3% YoY). During Q3 (three months), sales were JPY243.3bn (-5.0% YoY), operating profit was JPY5.6bn (- 45.3% YoY), and net income was JPY1.1bn (-82.4% YoY). Contributing factors were a fallback in demand following the surge ahead of a rise in the consumption tax rate, deterioration in performance in the Department Store business due to unusually warm winter weather, and worsening performance in the Supermarket business. In Q3, the company recorded extraordinary losses of JPY4.8bn, including outplacement expenses of JPY3.3bn. Based on its Q3 performance, the company has revised downward its full-year forecast for FY03/20 to sales of JPY928.0bn (+0.1% YoY), operating profit of JPY16.0bn (-21.7% YoY), net income of JPY5.0bn (approximately 2.3x the FY03/19 figure), and EPS of JPY40.45. The previous forecast, announced on October 31, 2019, was for sales of JPY939.2bn, operating profit of JPY18.0bn, net income of JPY7.0bn, and EPS of JPY56.63.
▷ Department Store business: In Q3, sales were JPY130.9bn (-7.4% YoY), and operating profit was JPY4.3bn (-44.8% YoY). At Hankyu Main Store, sales were JPY66.4bn (-8.5% YoY), down from a 12.7% YoY growth in Q2. Contributing factors included a fallback in demand following a surge prior to the consumption tax hike. Unusually warm winter weather also affected sales of high-priced apparel, such as coats. Sales at Hanshin Umeda Main Store were JPY12.8bn (-8.8% YoY). Unusually warm winter also affected sales at existing branch stores to some degree, but less than at flagship stores. The sales mix at branch stores leans more toward food products, for which demand is relatively stable. In October 2019, the former Sogo Kobe and Seibu Takatsuki stores were renamed Kobe Hankyu and Takatsuki Hankyu. The company says the renovations it made to the stores’ food retail spaces were effective in attracting shoppers, and sales rose more than expected. Q3 sales for Hankyu Hanshin Department Stores were JPY130.2bn due to the inclusion of the Kobe/Takatsuki business into the Department Store business. (This sales figure was up 1.0% YoY, with figures for the previous year excluding the Kobe/Takatsuki business.) Gross profit was JPY31.1bn (-1.8% YoY), SG&A expenses were JPY27.7bn (+13.6% YoY), and operating profit was JPY4.3bn (-42.8% YoY). Affected by lower sales of high-priced apparel, GPM was 23.9% (down from 24.6% in Q3 FY03/19).
▷ Supermarket business: In Q3, sales were JPY92.6bn (-5.9% YoY), and operating profit was JPY601mn (-59.1% YoY). Izumiya had sales of JPY54.8bn (-7.4% YoY) and an operating loss of JPY10mn (operating profit of JPY668mn in Q3 FY03/19). Sales of non-food items were affected by three factors: shrinking sales floors at GMSs due to ongoing reconfiguration; a demand fallback following the consumption tax rise; and the impact of unseasonable weather. Comparable store sales sharply dropped YoY, because food product sales were also affected by the unusually mild winter and increasing competition from small and medium-sized supermarkets. Izumiya’s comparable store sales for cumulative Q3 were down 7.1% YoY (-5.0% YoY in 1H). By product category, sales of food products were down 6.4% YoY (-5.8% YoY in 1H), sales of apparel were down 10.0% YoY (- 4.7%), and sales of household goods were down 7.8% YoY (-1.7%). At end-Q3, this business comprised 85 stores (also 85 at end-Q3 FY03/19). Sales rose at reconstructed stores and newly opened stored. Sales at Hankyu Oasis were JPY28.8bn (-2.4% YoY), and operating profit was JPY123mn (-73.4% YoY). GPM was 25.9%, up slightly YoY (from 25.7%) due to constraint in awarding points, but SG&A expenses were JPY9.2bn (+4.0% YoY), lowering profit. Comparable store sales for cumulative Q3 were down 6.0% YoY (-6.0% YoY in 1H). At end-Q3, the company had 78 Hankyu Oasis stores (up three stores, or +4.0%, YoY).
▷ Shopping Center Management and Other businesses: In Q3, sales in the Shopping Center Management business were JPY2.0bn (-3.7% YoY), and operating profit was JPY986mn (-5.8% YoY). Sales were down mainly because of an increase in vacancies at the SELCY shopping center in line with redevelopment of the Senri-chuo area in Osaka. Lost business days and development expenses associated with renovation at Rakuhoku Hankyu Square also lowered profit. In Q3, the Other business delivered sales of JPY17.7bn (+26.0% YoY) and operating profit of JPY364mn (-57.4% YoY). Asnas Co., Ltd. (station kiosks and convenience stores) was included in the scope of consolidation from FY03/20, boosting sales.
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Department Store business
Department Store business: Sales and YoY comparison (left), operating profit and OPM (right)
150,000 Sales YoY (RHS) 20% 9,000 Operating profit Operating profit margin (RHS) 9% 14.9% 8,000 8% 13.2%13.0% 7,000 7% 9.0% 6.0% 100,000 8.4% 10% 6,000 5.8% 5.6% 6% 5.1% 5,000 5% 4.5% 3.9% 2.3% 3.5% 1.5% 0.8% 4,000 3.4% 3.3% 4% 3.3% 3.0% -1.0% -0.6% 2.6% 2.8% 50,000 -1.0% 0% 3,000 2.5%2.3% 2.5% 3% -2.9% 1.9% 2,000 2% -7.4% 1,000 1% 0 -10% 0 0% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 FY03/17 FY03/18 FY03/19 FY03/20 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) (JPYmn) Note: Shared Research based on company data
In Q3 (three months), sales in the Department Store business were JPY130.9bn (-7.4% YoY), and operating profit was JPY4.3bn (- 44.8% YoY). The Q3 figures reflect a backlash from a demand surge in Q2, as consumers made purchases ahead of a rise in the consumption tax rate. The figures also reflected lower sales of coats and other high-priced apparel, affected by an unusually mild winter. Lower demand for coats reduced the impetus to shop at department stores, and the number of store visitors decreased. (Visits at existing stores were down 6.8% YoY in October, down 5.9% YoY in November, and down 5.5% YoY in December.) Sales of food products were also down as a result. In addition to lower sales, sluggish sales of relatively high-margin apparel caused GPM to decline. Hankyu Hanshin Dept. Stores FY03/18 FY03/19 FY03/20 FY03/20 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3% of FYFY Est. Sales 99,663 106,734 125,524 114,149 102,610 106,481 128,909 113,708 103,616 114,728 130,185 - - YoY 4.5% 5.1% 4.4% 3.5% 3.0% -0.2% 2.7% -0.4% 1.0% 7.7% 1.0% - Gross profit 24,740 25,676 31,145 27,320 25,340 25,431 31,690 26,947 25,245 27,070 31,109 YoY 3.7% 4.5% 4.2% 3.3% 2.4% -1.0% 1.7% -1.4% -0.4% 6.4% -1.8% Gross profit margin 24.8% 24.1% 24.8% 23.9% 24.7% 23.9% 24.6% 23.7% 24.4% 23.6% 23.9% Other operating revenue 174 173 171 171 140 140 148 137 142 174 853 YoY 6.1% 4.8% 8.9% 11.0% -19.5% -19.1% -13.5% -19.9% 1.4% 24.3% 476.4% SG&A expenses 21,603 22,984 23,606 23,144 22,070 23,181 24,364 22,801 22,355 23,641 27,689 YoY -0.3% 2.6% 2.1% 4.5% 2.2% 0.9% 3.2% -1.5% 1.3% 2.0% 13.6% SG&A ratio 21.7% 21.5% 18.8% 20.3% 21.5% 21.8% 18.9% 20.1% 21.6% 20.6% 21.3% Operating profit 3,312 2,864 7,710 4,346 3,410 2,390 7,475 4,282 3,033 3,601 4,274 - - YoY 41.1% 22.0% 11.3% -2.4% 3.0% -16.6% -3.0% -1.5% -11.1% 50.7% -42.8% - Operating profit margin 3.3%2.7%6.1%3.8%3.3%2.2%5.8%3.8%2.9%3.1%3.3% - Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
In Q3, Hankyu Hanshin Department Stores had sales of JPY130.2bn (+1.0% YoY, with the previous year’s figure excluding the Kobe/Takatsuki business). Gross profit was JPY31.1bn (-1.8% YoY), SG&A expenses were JPY27.7bn (+13.6% YoY), and operating profit was JPY4.3bn (-42.8% YoY). Excluding Kobe Hankyu and Takatsuki Hankyu, comparable store sales were JPY119.1bn (-7.6% YoY). Sales at Hankyu Main Store were JPY66.4bn (-8.5% YoY), and sales at Hanshin Umeda Main Store were JPY12.7bn (-8.8% YoY). Sales at existing branch stores were JPY39.9bn (-5.8% YoY). Sales at Hanshin Umeda Main Store were affected by an increase in the consumption tax rate, the impact of an unusually mild winter, and a reduction in sales floor area due to the start of phase two construction (which commenced in autumn 2018). Existing branch store sales are weighted more heavily toward food products than flagship stores, so the sales decline was less pronounced. General merchandise value (GMV) at Kobe Hankyu (department store sales plus tenant transaction value) was JPY10.5bn, and GMV at Takatsuki Hankyu was JPY5.6bn.
GPM at Hankyu Hanshin Department Stores was 23.9%, down from 24.4% in Q3 FY03/19. The main reason for the decline was a lower proportion of sales from relatively high-margin apparel (down YoY from 28.9% to 26.2%), while lower-margin food products made up a higher percentage of sales (up YoY from 29.9% to 32.4%). The SG&A expense ratio was 21.3% (up YoY from 18.9%).
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Sales by store FY03/18 FY03/19 FY03/20 FY03/20 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3% of FYFY Est. All stores 99,663 106,734 125,524 114,149 102,610 106,481 128,909 113,708 103,616 114,728 130,185 - YoY 4.5% 5.1% 4.4% 3.5% 3.0% -0.2% 2.7% -0.4% 1.0% 7.7% 1.0% - Hankyu Main Store 51,940 57,042 69,273 62,045 55,954 58,598 72,605 63,590 58,233 66,060 66,447 - YoY 7.3% 10.5% 9.4% 8.4% 7.7% 2.7% 4.8% 2.5% 4.1% 12.7% -8.5% - Hanshin Umeda Main Store 12,622 13,620 15,274 14,006 12,763 12,079 13,938 12,603 11,157 12,632 12,709 - YoY -1.8% 0.3% 0.4% -1.2% 1.1% -11.3% -8.7% -10.0% -12.6% 4.6% -8.8% - Total branches 35,100 36,071 40,978 38,099 33,896 35,799 42,366 37,515 34,225 36,036 55,970 - YoY 2.8% -0.9% -1.8% -2.0% -3.4% -0.8% 3.4% -1.5% 1.0% 0.7% 32.1% - Senri Hankyu 3,708 3,966 4,673 3,936 3,615 3,860 4,669 3,855 3,564 3,879 4,363 - YoY -1.0% -2.0% 0.2% 0.0% -2.5% -2.7% -0.1% -2.1% -1.4% 0.5% -6.6% - Takatsuki Hankyu ------5,601 - YoY ------Kawanishi Hankyu 3,629 3,959 4,540 3,896 3,513 3,864 4,509 3,796 3,478 3,823 4,132 - YoY -1.2% -1.8% -1.9% -1.4% -3.2% -2.4% -0.7% -2.6% -1.0% -1.1% -8.4% - Takarazuka Hankyu 1,762 1,909 2,102 1,905 1,730 1,872 2,103 1,860 1,737 1,885 2,041 - YoY -1.5% -3.4% -0.4% 2.3% -1.8% -2.0% 0.0% -2.4% 0.4% 0.7% -2.9% - Nishinomiya Hankyu 5,853 6,227 7,100 6,655 5,730 6,122 7,205 6,691 5,922 6,407 6,778 - YoY 3.0%1.9%2.5%1.5%-2.1%-1.7%1.5%0.5%3.4%4.7%-5.9% - Kobe Hankyu ------10,465 - YoY ------Sanda Hankyu 289 367 417 350 277 358 414 342 279 365 402 - YoY -3.2% -2.0% 3.2% 1.6% -4.3% -2.3% -0.7% -2.3% 0.7% 2.0% -2.9% - Hakata Hankyu 10,359 10,784 13,096 13,171 11,796 12,277 14,210 13,341 12,279 12,383 13,507 - YoY 3.9% 2.0% 9.7% 10.1% 13.9% 13.8% 8.5% 1.3% 4.1% 0.9% -4.9% - Hankyu Men's Tokyo 3,109 3,208 4,204 3,848 3,359 3,249 4,344 3,266 3,068 3,111 3,770 - YoY -2.5% 5.1% 3.9% 3.0% 8.0% 1.3% 3.3% -15.1% -8.7% -4.2% -13.2% - Oi Hankyu Food Hall 1,058 1,110 1,307 1,103 1,023 1,099 1,304 1,092 1,042 1,101 1,306 - YoY -1.8% -1.4% -1.3% -2.4% -3.3% -1.0% -0.2% -1.0% 1.9% 0.2% 0.2% - Tsuzuki Hankyu 1,162 1,144 1,304 1,225 1,066 1,123 1,338 1,249 1,056 1,0931,381 - YoY 2.3% -2.9% -5.4% -6.6% -8.3% -1.8% 2.6% 2.0% -0.9% -2.7% 3.2% - Amagasaki Hanshin 636 734 822 721 635 747 840 740 652 743 823 - YoY 5.4% 5.5% 6.5% 1.4% -0.1% 1.7% 2.2% 2.6% 2.7% -0.5% -2.0% - Hanshin Nishinomiya 1,019 1,108 1,261 1,158 1,025 1,098 1,278 1,157 1,028 1,111 1,249 - YoY 0.7% 1.1% 3.3% 1.1% 0.6% -0.9% 1.3% -0.1% 0.3% 1.2% -2.3% - Hanshin Mikage 120 134 153 132 120 132 152 127 116 134 151 - YoY -5.7% -1.3% -2.5% -2.7% 0.2% -1.7% -0.7% -3.8% -3.3% 1.5% -0.7% -
Customer count by store FY03/18 FY03/19 FY03/20 Quarterly ('000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 All stores 37,295 38,892 38,724 38,728 37,183 39,453 40,564 39,566 36,464 38,648 45,451 YoY 0.8% -2.0% -2.2% -3.4% -0.3% 1.4% 4.8% 2.2% -1.9% -2.0% 12.0% Hankyu Main Store 11,792 12,631 12,936 13,207 11,816 12,449 13,195 12,837 11,355 12,368 12,097 YoY 3.4% 2.4% 3.0% 2.4% 0.2% -1.4% 2.0% -2.8% -3.9% -0.7% -8.3% Hanshin Umeda Main Store 6,735 7,183 7,157 6,939 8,041 8,699 8,368 7,847 7,472 8,010 7,610 YoY -0.3% -2.0% -0.1% -2.2% 19.4% 21.1% 16.9% 13.1% -7.1% -7.9% -9.1% Total branches 18,771 19,074 18,631 18,582 17,326 18,306 18,999 18,881 17,636 18,269 25,746 YoY -0.4% -4.8% -6.3% -7.5% -7.7% -4.0% 2.0% 1.6% 1.8% -0.2% 35.5% Senri Hankyu 1,207 1,225 1,301 1,241 1,191 1,188 1,291 1,228 1,201 1,196 1,209 YoY -1.7% 0.1% 0.5% -1.4% -1.3% -3.0% -0.8% -1.0% 0.8% 0.7% -6.4% Kawanishi Hankyu 1,528 1,552 1,609 1,573 1,476 1,453 1,591 1,541 1,469 1,460 1,501 YoY -0.7% 0.3% -1.2% -2.7% -3.4% -6.4% -1.1% -2.0% -0.5% 0.5% -5.7% Nishinomiya Hankyu 3,107 3,364 3,350 3,474 3,110 3,339 3,484 3,550 3,231 3,376 3,440 YoY 2.8% 1.7% 3.2% 1.6% 0.1% -0.7% 4.0% 2.2% 3.9% 1.1% -1.3% Hakata Hankyu 6,454 7,021 7,016 7,027 6,590 7,155 7,005 7,093 6,628 6,998 6,888 YoY -2.7% -2.8% 3.2% 1.7% 2.1% 1.9% -0.2% 0.9% 0.6% -2.2% -1.7% Hankyu Men's Tokyo 606 647 687 635 585 620 692 671 650 657 654 YoY 0.3% 2.1% -5.5% -6.6% -3.4% -4.2% 0.7% 5.7% 11.1% 6.0% -5.5% Oi Hankyu Food Hall 1,369 1,386 1,472 1,414 1,332 1,353 1,427 1,394 1,312 1,340 1,411 YoY -1.7% -1.2% -1.1% -2.8% -2.7% -2.4% -3.1% -1.4% -1.5% -1.0% -1.1% Tsuzuki Hankyu 936 955 946 989 882 931 983 1,015 879 912 957 YoY 4.8% 0.9% -4.1% -4.9% -5.8% -2.5% 3.9% 2.6% -0.3% -2.0% -2.6% Hanshin Nishinomiya 962 1,022 1,013 1,077 960 1,029 1,257 1,212 1,051 1,107 1,124 YoY -0.6% 0.5% 1.2% 0.9% -0.2% 0.7% 24.1% 12.5% 9.5% 7.6% -10.6% Hanshin Mikage 1,267 1,245 1,237 1,153 1,200 1,237 1,265 1,179 1,211 1,2241,229 YoY 1.7% -5.6% -6.9% -7.3% -5.3% -0.6% 2.3% 2.3% 0.9% -1.1% -2.8% Note: Shared Research based on company data Note: Figures for Kobe Hankyu and Takatsuki Hankyu are totals of department store and tenant transaction value. Note: Figures may differ from company materials due to differences in rounding methods.
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Sales by product FY03/18 FY03/19 FY03/20 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 Total sales 99,663 106,734 125,524 114,149 102,610 106,481 128,909 113,708 103,616 114,728 130,185 YoY 4.5% 5.1% 4.4% 3.5% 3.0% -0.2% 2.7% -0.4% 1.0% 7.7% 1.0% Apparel 29,535 29,121 36,660 33,842 29,193 27,689 37,204 32,499 28,754 28,984 35,444 YoY 0.8% 3.2% 2.9% 1.0% -1.2% -4.9% 1.5% -4.0% -1.5% 4.7% -4.7% Menswear and goods 8,813 8,351 12,466 10,764 9,155 8,496 13,235 10,418 9,423 9,020 12,218 YoY 2.7% 10.0% 7.0% 7.1% 3.9% 1.7% 6.2% -3.2% 2.9% 6.2% -7.7% Womenswear and goods 15,316 15,144 18,212 17,292 14,905 14,167 18,168 16,740 14,475 14,739 17,743 YoY -1.0% 0.2% 1.4% -1.9% -2.7% -6.5% -0.2% -3.2% -2.9% 4.0% -2.3% Children's wear and goods 2,454 2,526 2,716 2,749 2,336 2,322 2,706 2,596 2,285 2,452 2,724 YoY 5.3% 2.5% -1.8% -2.1% -4.8% -8.1% -0.4% -5.6% -2.2% 5.6% 0.7% Other apparel 2,951 3,100 3,266 3,036 2,796 2,704 3,094 2,746 2,570 2,772 2,760 YoY 1.1% 1.5% 0.4% 0.9% -5.3% -12.8% -5.3% -9.6% -8.1% 2.5% -10.8% Personal items 18,760 20,006 21,810 22,104 20,216 20,370 23,076 22,172 20,987 22,996 21,737 YoY 5.2%7.8%5.6%7.6%7.8%1.8%5.8%0.3%3.8%12.9%-5.8% Household goods 3,309 3,521 3,620 3,263 3,527 3,217 3,411 3,196 3,120 3,600 3,387 YoY 5.1% 9.4% 1.1% -3.7% 6.6% -8.6% -5.8% -2.1% -11.5% 11.9% -0.7% Food 27,662 32,580 38,481 32,032 26,428 31,707 38,571 31,786 26,596 32,033 43,741 YoY 2.6% -1.1% -1.2% -1.6% -4.5% -2.7% 0.2% -0.8% 0.6% 1.0% 13.4% Restaurants and cafes 2,213 2,476 2,318 2,280 2,321 2,601 2,468 2,415 2,365 2,613 2,470 YoY 1.7%2.1%2.8%0.6%4.9%5.0%6.5%5.9%1.9%0.5%0.1% Accessories 17,314 18,178 21,751 19,821 19,992 20,062 23,224 20,745 20,821 24,201 21,666 YoY 14.3% 17.9% 18.8% 15.0% 15.5% 10.4% 6.8% 4.7% 4.1% 20.6% -6.7% Services 460 497 489 446 557 509 572 539 590 662 639 YoY 7.7% 7.8% 1.2% 4.9% 21.1% 2.4% 17.0% 20.9% 5.9% 30.1% 11.7% Other 406 355 395 362 376 321 383 358 380 -361 6,042 YoY 1.0% 0.3% -1.7% -2.7% -7.4% -9.6% -3.0% -1.1% 1.1% - 1477.5% Note: Shared Research based on company data Note: Personal items include shoes, bags, and fashion jewelry. Accessories include cosmetics, fine jewelry, and watches. Supermarket business
Supermarket business: Sales and YoY comparison (left), operating profit and OPM (right)
120,000 Sales YoY (RHS) 0% 2,500 Operating profit Operating profit margin (RHS) 5%
100,000 -2.9% -2% 2,000 4% -3.5% -3.9% -4.1%-4.1% -4.4% 1,500 3% 80,000 -4.7% -4.9% -4% -5.4% 2.2% -5.9% 1.8% -6.1% 1,000 1.5% 2% -6.8% 60,000 -7.2% -6.6% -6% 1.0% 0.6% 500 0.5% 0.3% 1% 40,000 -9.0% -8% -0.1% -0.3% 0 -0.4% 0% -0.8% 20,000 -10% -0.7% -1.1%-0.9%-1.0% -500 -1% 0 -12% Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 -1,000 -2% FY03/17 FY03/18 FY03/19 FY03/20 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 (JPYmn) (JPYmn) FY03/17 FY03/18 FY03/19 FY03/20 Note: Shared Research based on company data
In Q3 (three months), the Supermarket business delivered sales of JPY92.6bn (-5.9% YoY) and operating profit of JPY601mn (- 59.1% YoY).
Izumiya produced sales of JPY54.8bn (-7.4% YoY) and an operating loss of JPY10mn (operating profit of JPY668mn in Q3 FY03/19). In cumulative Q3, comparable store sales were down 7.1% YoY (-5.0% YoY in 1H). By product category, food product sales fell 6.4% YoY (-5.8% YoY in 1H), apparel sales were down 10.0% YoY (-4.7%), and household goods sales decreased 7.8% YoY (-1.7%). Sales of non-food items were affected by three factors: shrinking sales floors at GMSs due to ongoing reconfiguration; a demand fallback following the consumption tax rise; and the impact of unseasonable weather. Food sales were also affected by the unusually mild winter and growing competition from small and medium-sized supermarkets. Small and medium-sized supermarkets can use their reward point systems in conjunction with the cashless payments the government is promoting, but the company cannot use its system in the same way. As a result, small and medium-sized supermarkets have grown more price competitive, making it more difficult for the company to attract customers. This system will cease to apply in June 2020. At end-Q3, Izumiya had 85 stores (same as end-Q3 FY03/19). Sales rose at newly opened and reconstructed stores.
In Q3, GPM was 26.0%, down from 26.6% in Q3 FY03/19. Gross profit fell due to a change in the product mix and increasing competition. SG&A expenses were JPY18.0bn (-4.7% YoY). In relation to Izumiya, the company booked outplacement expenses of JPY3.3bn as an extraordinary loss. The company expects Izumiya to keep reducing fixed costs.
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Izumiy a FY03/18 FY03/19 FY03/20 FY 03/ 20 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3% of FYFY Est. Sales 58,438 58,557 62,457 53,413 53,080 55,425 59,219 50,554 52,858 54,066 54,846 - YoY -11.1% -19.3% -15.3% 16.7% -9.2% -5.3% -5.2% -5.4% -0.4% -2.5% -7.4% - Gross profit 15,385 15,421 16,687 14,319 14,260 14,563 15,728 13,625 13,997 13,636 14,268 - YoY -8.2% -37.1% -26.5% 307.0% -7.3% -5.6% -5.7% -4.8% -1.8% -6.4% -9.3% - Gross profit margin 26.3% 26.3% 26.7% 26.8% 26.9% 26.3% 26.6% 27.0% 26.5% 25.2% 26.0% - Other operating revenue 3,585 3,586 3,737 3,818 3,630 3,704 3,836 3,555 3,628 3,749 3,724 - YoY -16.0% - - -75.5% 1.3% 3.3% 2.6% -6.9% -0.1% 1.2% -2.9% - SG&A expenses 19,414 19,402 19,131 18,181 18,480 18,643 18,896 18,110 18,348 18,254 18,002 - YoY -4.7% -6.1% -9.2% -6.6% -4.8% -3.9% -1.2% -0.4% -0.7% -2.1% -4.7% - SG&A ratio 33.2% 33.1% 30.6% 34.0% 34.8% 33.6% 31.9% 35.8% 34.7% 33.8% 32.8% - Operating profit -443 -394 1,291 -43 -580 -384 668 -930 -722 -869 -10 - YoY - - -20.8% - - - -48.3% - - - - - Operating profit margin -0.8% -0.7% 2.1% -0.1% -1.1% -0.7% 1.1% -1.8% -1.4% -1.6% -0.0% -
Comparable store sales FY03/18 FY03/19 FY03/20 (YoY) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 Food - -9.5% -9.3% -8.5% -4.6% -2.3% -3.2% -3.8% -3.3% -5.8% -6.4% Apparel - -11.6% -10.8% -10.8% -8.1% -7.3% -7.2% -7.7% -4.8% -4.7% -10.0% Household goods - -11.7% -14.0% -14.9% -13.3% -12.5% -11.4% -10.8% -6.2% -1.7% -7.8% Total -4.2% -3.6% -3.4% -9.9% -6.5% -4.7% -5.1% -5.5% -4.0% -5.0% -7.1% Store count FY03/18 FY03/19 FY03/20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Store count 84 84 82 84 83 83 85 85 86 85 85 YoY - -7.7% - -2.3% -1.2% -1.2% 3.7% 1.2% 3.6% 2.4% 0.0% Openings - - -2112 -2 -1 Closures -2 - -2 - -1 -1 - - -1 -1 -1 Note: Shared Research based on company data
In Q3 (three months), Hankyu Oasis delivered sales of JPY28.8bn (-2.4% YoY) and operating profit of JPY123mn (-73.4% YoY). Due to increasing competition from small and medium-sized supermarkets, comparable store sales in cumulative Q3 were down 6.0% YoY (-6.0% YoY in 1H). However, Hankyu Oasis’ efforts to improve profitability, such as constraining the granting of reward points, helped lift GPM slightly YoY, from 25.7% to 25.9%. SG&A expenses were JPY9.2bn (+4.0% YoY). Hankyu Oasis stores numbered 78 at end-Q3 (up three, or +4.0%, YoY). In Q3, one store opened and one closed.
Hankyu Oasis FY03/18 FY03/19 FY03/20 FY 03/ 20 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3% of FYFY Est. Sales 29,179 29,637 30,615 27,367 28,330 28,655 29,522 26,085 26,694 27,264 28,811 - YoY 3.3% 3.5% 0.2% -0.2% -2.9% -3.3% -3.6% -4.7% -5.8% -4.9% -2.4% - Gross profit 7,275 7,650 7,845 7,288 7,000 7,359 7,598 6,999 6,940 7,164 7,474 - YoY -0.0% 2.7% 1.2% -0.6% -3.8% -3.8% -3.1% -4.0% -0.9% -2.6% -1.6% - Gross profit margin 24.9% 25.8% 25.6% 26.6% 24.7% 25.7% 25.7% 26.8% 26.0% 26.3% 25.9% - Other operating revenue 1,665 1,714 1,754 1,874 1,650 1,721 1,722 1,594 1,639 1,785 1,856 - YoY 8.0% 10.8% 8.6% 24.8% -0.9% 0.4% -1.8% -14.9% -0.7% 3.7% 7.8% - SG&A expenses 9,145 9,303 9,261 8,755 8,920 8,941 8,855 8,471 8,755 9,011 9,208 - YoY 5.8% 9.7% 3.5% 2.5% -2.5% -3.9% -4.4% -3.2% -1.8% 0.8% 4.0% - SG&A ratio 31.3% 31.4% 30.2% 32.0% 31.5% 31.2% 30.0% 32.5% 32.8% 33.1% 32.0% - Operating profit -204 61 338 407 -260 131 463 121 -176 -61 123 - - YoY - -88.1% -18.8% 35.7% - 114.8% 37.0% -70.3% - - -73.4% - Operating profit margin -0.7% 0.2% 1.1% 1.5% -0.9% 0.5% 1.6% 0.5% -0.7% -0.2% 0.4% -
Comparable store sales FY03/18 FY03/19 FY03/20 (YoY) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 Total -0.1% -0.7% -0.8% -0.9% -3.2% -1.0% -1.2% -1.7% -4.6% -6.0% -6.0% Store count FY03/18 FY03/19 FY03/20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Store count 84 84 82 78 79 76 75 76 77 77 78 YoY - 2.4% - -6.0% -6.0% -9.5% -8.5% -2.6% -2.5% 1.3% 4.0% Openings 21 - -2 - -1111 Closures -1 -1 -2 -4 -1 -2 -1 - - -1 -1 Note: Shared Research based on company data Shopping Center Management business In the Shopping Center Management business, Q3 (three months) sales amounted to JPY2.0bn (-3.7% YoY), and operating profit was JPY986mn (-5.8% YoY). The main reason for the sales decline was an increase in vacancies at the SELCY shopping center in line with the redevelopment of the Senri-chuo area in Osaka. Lost business days and expenses associated with openings at Rakuhoku Hankyu Square also lowered profit.
Other business In Q3 (three months), the Other business delivered sales of JPY17.7bn (+26.0% YoY) and operating profit of JPY364mn (-57.4% YoY). Asnas (station kiosks and convenience stores) was included in the scope of consolidation from FY03/20, boosting sales.
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SG&A expenses FY03/18 FY03/19 FY03/20 Quarterly (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 SG&A expenses 58,737 60,174 62,594 61,954 60,444 61,715 63,327 60,327 60,163 62,521 63,832 YoY -1.9% 0.3% 1.0% 5.0% 2.9% 2.6% 1.2% -2.6% -0.5% 1.3% 0.8% % of sales 27.7% 27.4% 24.3% 26.6% 27.6% 27.4% 24.7% 26.6% 27.7% 26.8% 26.2% Personnel 23,600 23,936 24,126 24,268 23,870 23,685 23,875 23,374 23,690 23,612 24,263 YoY - - - - 1.1% -1.0% -1.0% -3.7% -0.8% -0.3% 1.6% % of sales 11.1% 10.9% 9.4% 10.4% 10.9% 10.5% 9.3% 10.3% 10.9% 10.1% 10.0% Rents 9,140 9,170 9,886 10,014 9,890 9,797 9,940 9,679 9,876 10,088 10,504 YoY - - - - 8.2% 6.8% 0.5% -3.3% -0.1% 3.0% 5.7% % of sales 4.3% 4.2% 3.8% 4.3% 4.5% 4.4% 3.9% 4.3% 4.5% 4.3% 4.3% Advertising and display 3,310 3,365 4,101 3,490 3,450 3,564 4,094 3,375 2,976 3,264 2,233 YoY - - - - 4.2% 5.9% -0.2% -3.3% -13.7% -8.4% -45.5% % of sales 1.6% 1.5% 1.6% 1.5% 1.6% 1.6% 1.6% 1.5% 1.4% 1.4% 0.9% Depreciation and amortization 3,620 3,734 3,923 3,974 3,800 4,100 4,209 4,313 4,040 4,197 4,563 YoY - - - - 5.0% 9.8% 7.3% 8.5% 6.3% 2.4% 8.4% % of sales 1.7% 1.7% 1.5% 1.7% 1.7% 1.8% 1.6% 1.9% 1.9% 1.8% 1.9% Outsourcing 4,670 4,586 4,922 4,908 4,760 4,819 4,919 5,095 4,912 5,044 5,066 YoY - - - - 1.9% 5.1% -0.1% 3.8% 3.2% 4.7% 3.0% % of sales 2.2% 2.1% 1.9% 2.1% 2.2% 2.1% 1.9% 2.2% 2.3% 2.2% 2.1% Sales commissions 3,110 3,028 3,276 3,815 3,120 2,888 3,469 2,846 3,113 3,237 4,647 YoY - - - - 0.3% -4.6% 5.9% -25.4% -0.2% 12.1% 34.0% % of sales 1.5% 1.4% 1.3% 1.6% 1.4% 1.3% 1.4% 1.3% 1.4% 1.4% 1.9% Transportation 3,450 3,630 4,196 3,220 3,540 4,074 4,569 3,268 3,571 4,101 4,177 YoY - - - - 2.6% 12.2% 8.9% 1.5% 0.9% 0.7% -8.6% % of sales 1.6% 1.7% 1.6% 1.4% 1.6% 1.8% 1.8% 1.4% 1.6% 1.8% 1.7% Other 7,840 8,719 8,165 8,263 7,970 8,827 8,253 8,378 7,979 8,979 8,380 YoY - - - - 1.7% 1.2% 1.1% 1.4% 0.1% 1.7% 1.5% % of sales 3.7% 4.0% 3.2% 3.6% 3.6% 3.9% 3.2% 3.7% 3.7% 3.8% 3.4% Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
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FY03/20 company forecast
FY03/18 FY 03/ 19 FY 03/ 20 FY03/20 (as of Oct. 31) (JPYmn) 1H 2H FY 1H 2H FY 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. Sales 432,000 489,871 921,871 444,408 482,464 926,872 450,710 477,290 928,000 450,710 488,490 939,200 YoY -0.4% 4.7% 2.3% 2.9% -1.5% 0.5% 1.4% -1.1% 0.1% 1.4% 1.2% 1.3% Gross profit 125,889 140,335 266,224 128,259 137,976 266,235 129,004 - - 129,004 - - YoY -0.5% 2.5% 1.1% 1.9% -1.7% 0.0% 0.6% - - 0.6% - - Gross profit margin 29.1% 28.6% 28.9% 28.9% 28.6% 28.7% 28.6% - - 28.6% - - SG&A expenses 118,911 124,548 243,459 122,159 123,654 245,813 122,684 - - 122,684 - - YoY -0.8% 2.9% 1.1% 2.7% -0.7% 1.0% 0.4% - - 0.4% - - SG&A ratio 27.5% 25.4% 26.4% 27.5% 25.6% 26.5% 27.2% - - 27.2% - - Operating profit 6,978 15,787 22,765 6,100 14,322 20,422 6,320 9,680 16,000 6,320 11,680 18,000 YoY 5.4% -0.8% 1.0% -12.6% -9.3% -10.3% 3.6% -32.4% -21.7% 3.6% -18.4% -11.9% Operating profit margin 1.6% 3.2% 2.5% 1.4% 3.0% 2.2% 1.4% 2.0% 1.7% 1.4% 2.4% 1.9% Recurring profit 8,393 15,879 24,272 6,449 14,927 21,376 6,574 9,626 16,200 6,574 11,626 18,200 YoY 63.9% -4.4% 11.7% -23.2% -6.0% -11.9% 1.9% -35.5% -24.2% 1.9% -22.1% -14.9% Recurring profit margin 1.9% 3.2% 2.6% 1.5% 3.1% 2.3% 1.5% 2.0% 1.7% 1.5% 2.4% 1.9% Net inco me 5,739 8,897 14,636 139 2,023 2,162 1,463 3,537 5,000 1,463 5,537 7,000 YoY -12.4% 14.9% 2.4% -97.6% -77.3% -85.2% 952.5% 74.8% 131.3% 952.5% 173.7% 223.8% Net margin 1.3% 1.8% 1.6% 0.0% 0.4% 0.2% 0.3% 0.7% 0.5% 0.3% 1.1% 0.7% Note: Shared Research based on company data
For FY03/20, the company forecasts sales of JPY928.0bn (+0.1% YoY), operating profit of JPY16.0bn (-21.7% YoY), net income of JPY5.0bn (approximately 2.3x the FY03/19 figure), and EPS of JPY40.45. These figures are adjusted downward from the company’s previous full-year forecast announced on October 31, 2019 (sales of JPY939.2bn, operating profit of JPY18.0bn, net income of JPY7.0bn, and EPS of JPY56.63). The revision takes into account performance in Q3, which was affected by unusually mild winter weather, among other factors. Of the JPY2.0bn downward revision to the operating profit target, the Department Store business accounted for around 50%, the Supermarket business for 30–40%, and the Other business for 10–20%. Calculated from the company’s new forecast, the Q4 forecast amounts to sales of JPY234.0bn (+3.3% YoY), operating profit of JPY4.1bn (-0.9% YoY), and net income of JPY2.5bn (a net loss of JPY4.1bn in Q4 FY03/19).
As of October 31, 2019, the company had forecast that the Department Store business would deliver sales of JPY502.7bn (+1.6% YoY) and operating profit of JPY15.5bn (-13.2% YoY). However, such factors as an unusually mild winter caused the company to lower the operating profit forecast by around JPY1.0bn. Although H2O expects sales to be up slightly YoY in Q4, it also forecasts a rise in SG&A expenses, pulling Q4 profit down YoY.
By segment FY03/18 FY03/19 FY03/20 FY03/20 (as of Oct. 31) (JPYmn) 1H2HFY1H2HFY1H Act.2H Est.FY Est.1H Act.2H Est.FY Est. Total sales 432,000 489,871 921,871 444,408 482,464 926,872 450,710 477,290 928,000 450,710 488,490 939,200 YoY -0.4% 4.7% 2.3% 2.9% -1.5% 0.5% 1.4% -1.1% 0.1% 1.4% 1.2% 1.3% Department Store 206,487 263,117 469,604 228,990 265,617 494,607 239,670 - - 239,670 263,067 502,737 YoY 4.8% 14.1% 9.8% 10.9% 1.0% 5.3% 4.7% - - 4.7% -1.0% 1.6% Supermarket 193,807 192,745 386,552 183,911 183,669 367,580 178,035 - - 178,035 184,391 362,426 YoY -5.7% -5.5% -5.6% -5.1% -4.7% -4.9% -3.2% - - -3.2% 0.4% -1.4% Shopping Center Management 5,678 4,689 10,367 4,569 4,167 8,736 4,152 - - 4,152 5,171 9,323 YoY 20.0% -10.5% 4.0% -19.5% -11.1% -15.7% -9.1% - - -9.1% 24.1% 6.7% Other 26,026 29,320 55,346 26,937 29,011 55,948 28,851 - - 28,851 35,862 64,713 YoY -0.5% 4.7% 2.2% 3.5% -1.1% 1.1% 7.1% - - 7.1% 23.6% 15.7% Operating profit 6,978 15,787 22,765 6,100 14,322 20,422 6,320 9,680 16,000 6,320 11,680 18,000 YoY 5.4% -0.8% 1.0% -12.6% -9.3% -10.3% 3.6% -32.4% -21.7% 3.6% -18.4% -11.9% Operating profit margin 1.6% 3.2% 2.5% 1.4% 3.0% 2.2% 1.4% 2.0% 1.7% 1.4% 2.4% 1.9% Department Store 6,136 12,487 18,623 5,620 12,263 17,883 6,356 - - 6,356 9,164 15,520 YoY 29.8% 10.8% 16.4% -8.4% -1.8% -4.0% 13.1% - - 13.1% -25.3% -13.2% Operating profit margin 3.0% 4.7% 4.0% 2.5% 4.6% 3.6% 2.7% - - 2.7% 3.5% 3.1% Supermarket -1,077 2,181 1,104 -1,008 570 -438 -1,701 - - -1,701 691 -1,010 YoY - -8.7% -72.2% - -73.9% - - - - - 21.2% - Operating profit margin -0.6% 1.1% 0.3% -0.5% 0.3% -0.1% -1.0% - - -1.0% 0.4% -0.3% Shopping Center Management 2,790 2,195 4,985 2,299 1,982 4,281 2,176 - - 2,176 2,084 4,260 YoY 34.1% -25.8% -1.1% -17.6% -9.7% -14.1% -5.4% - - -5.4% 5.1% -0.5% Operating profit margin 49.1% 46.8% 48.1% 50.3% 47.6% 49.0% 52.4% - - 52.4% 40.3% 45.7% Other 2,612 486 3,098 3,773 1,257 5,030 3,264 - - 3,264 1,146 4,410 YoY 26.4% -39.0% 8.2% 44.4% 158.6% 62.4% -13.5% - - -13.5% -8.8% -12.3% Operating profit margin 46.0% 10.4% 29.9% 82.6% 30.2% 57.6% 78.6% - - 78.6% 22.2% 47.3% Adjustments -3,483 -1,562 -5,045 -4,584 -1,750 -6,334 -3,775 - - -3,775 -1,404 -5,179 Note: Shared Research based on company data
Due to the spread of the novel coronavirus disease (COVID-19), recent sales performance fell below expectations. The YoY decline in department store sales (on a comparable store basis) was limited to 1.8% in January 2020, but the rate of decline widened to 14.3% in February and 38.1% in March. The sales downturn was attributed to a near absence of inbound demand as the number of foreign visitors to Japan plummeted, a decrease in customer traffic as consumers avoided unnecessary outings to prevent the spread of the disease, and the shortening of store opening hours (from 10:00–20:00 to 11:00–19:00). Sales declines were particularly pronounced in stores located in metropolitan areas, such as Hankyu Main Store, Hanshin Umeda Main Store, and Hankyu Men’s Tokyo; regional branch stores were less affected.
Further, on April 7, 2020 the Japanese government declared a state of emergency over the COVID-19 outbreak. In response, on April 8 the company announced that it would temporarily close some of its department stores to prevent the further spread of
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the disease. The temporary closure is scheduled for April 8–May 6, 2020. Hankyu Men’s Osaka, Hankyu Men’s Tokyo, Hakata Hankyu, and Sanda Hankyu will be fully closed; Hankyu Umeda Main Store, Hanshin Umeda Main Store, Senri Hankyu, Takatsuki Hankyu, Kawanishi Hankyu, Nishinomiya Hankyu, Kobe Hankyu, Takarazuka Hankyu, Hanshin Nishinomiya, Hanshin Mikage, Amagasaki Hanshin, Oi Hankyu Food Hall, and Tsuzuki Hankyu stores will be closed except for food halls. The company expects the COVID-19 outbreak to also affect its FY03/21 earnings. Supermarkets operated by Izumiya and Hankyu Oasis will continue operations.
As of October 31, 2019, the company’s full-year forecast for the Supermarket business was for sales of JPY362.4bn (-1.4% YoY) and an operating loss of JPY1.0bn (loss of JPY438mn in FY03/19). The most recent forecast slightly lowered expectations for sales and widened the expected operating loss by a little over JPY1.0bn. In Q4, the company expects the Supermarket business to see higher sales and a narrower operating loss YoY.
Compared with the Department Store business, the Supermarket business is seeing relatively steady sales. Izumiya sales (all stores) fell 8.9% YoY in January, rose 0.5% in February, and fell 3.5% in March; sales at Hankyu Oasis were down 1.9% YoY in January, up 3.0% YoY in February, and up 5.0% YoY in March. While the Department Store business is experiencing a substantial sales decline, the Supermarket business appears to be underpinning earnings.
In the Shopping Center Management business, the company’s forecast on October 31, 2019 was for sales of JPY9.3bn (+6.7% YoY) and operating profit of JPY4.3bn (-0.9% YoY). Although the most recent revision lowered full-year expectations slightly for the Shopping Center Management business, the decreases were less pronounced than for other segments.
As of October 31, 2019, the company’s forecast for the Other business was for sales of JPY64.7bn (+15.7% YoY) and operating profit of JPY4.4bn (-12.3% YoY). The most recent revision lowered the full-year outlook for sales and operating profit by several hundred million yen each. As the result of a share exchange on February 1, 2020, subsidiaries Kazokutei and Sun Laurie became wholly owned subsidiaries of SRS Holdings (TSE1: 8163).
Department Store business
Hankyu Hanshin Dept. Stores FY03/18 FY03/19 FY03/20 FY03/20 (as of Oct. 31) (JPYmn) 1H2HFY1H2HFY1H Act.2H Est.FY Est.1H Act.2H Est.FY Est. Sales 206,397 239,673 446,070 209,091 242,617 451,708 218,344 - - 218,344 261,531 479,875 YoY 4.8% 4.0% 4.3% 1.3% 1.2% 1.3% 4.4% - - 4.4% 7.8% 6.2% Gross profit 50,416 58,465 108,881 50,771 58,637 109,408 52,315 - - 52,315 - - YoY 4.1% 3.8% 3.9% 0.7% 0.3% 0.5% 3.0% - - 3.0% - - Gross profit margin 24.4% 24.4% 24.4% 24.3% 24.2% 24.2% 24.0% - - 24.0% - - Other operating revenue 347 342 689 280 285 565 316 - - 316 - - YoY 5.5% 10.0% 7.7% -19.3% -16.7% -18.0% 12.9% - - 12.9% - - SG&A expenses 44,587 46,750 91,337 45,251 47,165 92,416 45,996 - - 45,996 - - YoY 1.2% 3.2% 2.2% 1.5% 0.9% 1.2% 1.6% - - 1.6% - - SG&A ratio 21.6% 19.5% 20.5% 21.6% 19.4% 20.5% 21.1% - - 21.1% - - Operating profit 6,176 12,056 18,232 5,800 11,757 17,557 6,634 - - 6,634 9,080 15,714 YoY 31.5% 6.0% 13.4% -6.1% -2.5% -3.7% 14.4% - - 14.4% -22.8% -10.5% Operating profit margin 3.0% 5.0% 4.1% 2.8% 4.8% 3.9% 3.0% - - 3.0% 3.5% 3.3% Note: Shared Research based on company data
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Sales by store FY03/18 FY03/19 FY03/20 FY03/20 (as of Oct. 31) (JPYmn) 1H 2H FY 1H 2H FY 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. All stores 206,397 239,673 446,070 209,091 242,617 451,708 218,344 - - 218,344 261,531 479,875 YoY 4.8% 4.0% 4.3% 1.3% 1.2% 1.3% 4.4% - - 4.4% 7.8% 6.2% Hankyu Main Store 108,982 131,318 240,300 114,552 136,195 250,747 124,293 - - 124,293 137,440 261,733 YoY 9.0% 8.9% 9.0% 5.1% 3.7% 4.3% 8.5% - - 8.5% 0.9% 4.4% Hanshin Umeda Main Store 26,242 29,280 55,522 24,842 26,541 51,383 23,789 - - 23,789 25,513 49,302 YoY -0.7% -0.4% -0.6% -5.3% -9.4% -7.5% -4.2% - - -4.2% -3.9% -4.0% Total branches 71,171 79,077 150,248 69,695 79,881 149,576 70,261 - - 70,261 107,902 178,163 YoY 0.9% -1.9% -0.6% -2.1% 1.0% -0.4% 0.8% - - 0.8% 35.1% 19.1% Senri Hankyu 7,674 8,609 16,283 7,475 8,524 15,999 7,443 - - 7,443 8,259 15,702 YoY -1.6% 0.1% -0.7% -2.6% -1.0% -1.7% -0.4% - - -0.4% -3.1% -1.9% Takatsuki Hankyu ------10,326 YoY ------Kawanishi Hankyu 7,588 8,436 16,024 7,377 8,305 15,682 7,301 - - 7,301 7,895 15,196 YoY -1.5% -1.7% -1.6% -2.8% -1.6% -2.1% -1.0% - - -1.0% -4.9% -3.1% Takarazuka Hankyu 3,671 4,007 7,678 3,602 3,963 7,565 3,622 - - 3,622 3,845 7,467 YoY -2.5% 0.8% -0.8% -1.9% -1.1% -1.5% 0.6% - - 0.6% -3.0% -1.3% Nishinomiya Hankyu 12,080 13,755 25,835 11,852 13,896 25,748 12,329 - - 12,329 13,896 26,225 YoY 2.4% 2.0% 2.2% -1.9% 1.0% -0.3% 4.0% - - 4.0% 0.0% 1.9% Kobe Hankyu ------19,140 YoY ------Sanda Hankyu 656 767 1,423 635 756 1,391 644 - - 644 737 1,381 YoY -2.5% 2.5% 0.1% -3.2% -1.4% -2.2% 1.4% - - 1.4% -2.5% -0.7% Hakata Hankyu 21,143 26,267 47,410 24,073 27,551 51,624 24,662 - - 24,662 27,102 51,764 YoY 3.0% 9.9% 6.7% 13.9% 4.9% 8.9% 2.4% - - 2.4% -1.6% 0.3% Hankyu Men's Tokyo 6,317 8,052 14,369 6,608 7,610 14,218 6,179 - - 6,179 7,930 14,109 YoY 1.2% 3.4% 2.4% 4.6% -5.5% -1.1% -6.5% - - -6.5% 4.2% -0.8% Oi Hankyu Food Hall 2,168 2,410 4,578 2,122 2,396 4,518 2,143 - - 2,143 2,357 4,500 YoY -1.6% -1.8% -1.7% -2.1% -0.6% -1.3% 1.0% - - 1.0% -1.6% -0.4% Tsuzuki Hankyu 2,306 2,529 4,835 2,189 2,587 4,776 2,149 - - 2,149 2,237 4,386 YoY -0.3% -6.0% -3.4% -5.1% 2.3% -1.2% -1.8% - - -1.8% -13.5% -8.2% Amagasaki Hanshin 1,370 1,543 2,913 1,382 1,580 2,962 1,395 - - 1,395 1,574 2,969 YoY 5.5% 4.0% 4.7% 0.9% 2.4% 1.7% 0.9% - - 0.9% -0.4% 0.2% Hanshin Nishinomiya 2,127 2,419 4,546 2,123 2,435 4,558 2,139 - - 2,139 2,335 4,474 YoY 0.9% 2.2% 1.6% -0.2% 0.7% 0.3% 0.8% - - 0.8% -4.1% -1.8% Hanshin Mikage 254 285 539 252 279 531 250 - - 250 269 519 YoY -3.4% -2.6% -3.0% -0.8% -2.1% -1.5% -0.8% - - -0.8% -3.6% -2.3% Note: Shared Research based on company data Supermarket business
Izumiy a FY03/18 FY03/19 FY03/20 FY03/20 (as of Oct. 31) (JPYmn) 1H 2H FY 1H 2H FY 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. Sales 116,995 115,870 232,865 108,505 109,773 218,278 106,924 - - 106,924 109,014 215,938 YoY -15.4% -3.1% -9.7% -7.3% -5.3% -6.3% -1.5% - - -1.5% -0.7% -1.1% Operating profit -837 1,248 411 -964 -262 -1,226 -1,591 - - -1,591 -200 -1,791 YoY - -3.4% -72.8% ------Operating profit margin -0.7% 1.1% 0.2% -0.9% -0.2% -0.6% -1.5% - - -1.5% -0.2% -0.8% Note: Shared Research based on company data
Hankyu Oasis FY03/18 FY03/19 FY03/20 FY03/20 (as of Oct. 31) (JPYmn) 1H 2H FY 1H 2H FY 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. Sales 58,816 57,982 116,798 56,985 55,607 112,592 53,958 - - 53,958 56,268 110,226 YoY 3.4% 0.0% 1.7% -3.1% -4.1% -3.6% -5.3% - - -5.3% 1.2% -2.1% Operating profit -143 745 602 -129 584 455 -237 - - -237 394 157 YoY - 4.1% -57.1% - -21.6% -24.4% - - - - -32.5% -65.5% Operating profit margin -0.2% 1.3% 0.5% -0.2% 1.1% 0.4% -0.4% - - -0.4% 0.7% 0.1% Note: Shared Research based on company data Capital expenditures Capital expenditures FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Capital expenditures 34,348 12,869 33,084 13,532 38,914 20,110 28,060 26,443 32,039 31,503 YoY -17.2% -62.5% 157.1% -59.1% 187.6% -48.3% 39.5% -5.8% 21.2% -1.7% Department Store 19,463 7,366 22,790 1,457 6,237 3,769 3,372 9,878 11,5317,718 YoY -36.2% -62.2% 209.4% -93.6% 328.1% -39.6% -10.5% 192.9% 16.7% -33.1% % of total 56.7% 57.2% 68.9% 10.8% 16.0% 18.7% 12.0% 37.4% 36.0% 24.5% Supermarket 1,649 1,618 3,918 5,281 10,409 12,883 9,724 9,226 9,048 5,399 YoY -43.9% -1.9% 142.2% 34.8% 97.1% 23.8% -24.5% -5.1% -1.9% -40.3% % of total 4.8% 12.6% 11.8% 39.0% 26.7% 64.1% 34.7% 34.9% 28.2% 17.1% Shopping Center Management 9,782 237 1,834 4,260 - - 6,651 1,558 6,727 8,863 YoY 205.6% -97.6% 673.8% 132.3% - - - -76.6% 331.8% 31.8% % of total 28.5% 1.8% 5.5% 31.5% - - 23.7% 5.9% 21.0% 28.1% Other 3,452 3,645 4,646 2,562 22,302 3,529 10,083 5,873 4,857 9,566 YoY -28.3% 5.6% 27.5% -44.9% 770.5% -84.2% 185.7% -41.8% -17.3% 97.0% % of total 10.1% 28.3% 14.0% 18.9% 57.3% 17.5% 35.9% 22.2% 15.2% 30.4% Adjustments - - -106 -29 -35 -72 -1,771 -95 -125 -44 Note: Shared Research based on company data Note: In FY03/18 and FY03/19, figures for the Department Store business are totals for the Department Store business and the Kobe/Takatsuki business. Figures for the Supermarket business through FY03/16 are totals for the supermarket and Izumiya businesses. Figures for the Shopping Center Management business through FY03/14 are those for the Property Management (PM) business.
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Results vs. initial company forecasts
Results vs. Initial Est. FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 453,000 497,000 530,000 570,000 810,000 900,000 930,000 895,000 945,500 Sales (Results) 465,033 505,588 525,154 576,852 844,819 915,690 901,221 921,871 926,872 Results vs. Initial Est. 2.7% 1.7% -0.9% 1.2% 4.3% 1.7% -3.1% 3.0% -2.0% Operating profit (Initial Est.) 6,200 6,200 10,000 15,000 20,000 23,000 25,000 21,000 18,400 Operating profit (Results) 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 Results vs. Initial Est. 70.2% 60.6% 6.7% 15.4% 6.8% 3.6% -9.8% 8.4% 11.0% Recurring profit (Initial Est.) 6,500 7,100 10,400 15,200 20,100 22,600 24,900 20,100 19,200 Recurring profit (Results) 11,210 10,309 11,338 18,160 21,219 23,060 21,725 24,272 21,376 Results vs. Initial Est. 72.5% 45.2% 9.0% 19.5% 5.6% 2.0% -12.8% 20.8% 11.3% Net income (Initial Est.) 2,600 400 5,400 8,600 - 13,000 14,100 12,000 10,400 Net income (Results) 3,109 1,057 6,200 295 11,586 14,053 14,298 14,636 2,162 Results vs. Initial Est. 19.6% 164.3% 14.8% -96.6% - 8.1% 1.4% 22.0% -79.2% Note: Shared Research based on company data
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Medium-term management plan
H2O formulates and releases medium-term plans based on long-term GP10 (10-year) plans. The current medium-term management plan corresponds to the Phase 2 of the second long-term business plan (FY03/16 to FY03/25), so it is called “GP10- II Phase 2.” The company unveiled this three-year plan (FY03/20 to FY03/22) in May 2019. The long-term business plan that began in FY03/16 (GP10-II) features the “Kansai dominance strategy.” Under this strategy, the company aims to boost regional market share by increasing points of contact with customers in the Kansai area. To achieve this, H2O plans to build a store network encompassing routine shopping (at supermarkets) and enjoyable, non-routine shopping (at department stores).
GP10: This was the company’s first long-term (10-year) business plan, which began in FY03/06. Phase 1 of the plan (called GP10-I, FY03/06 to FY03/15), called for the company to strengthen the Department Store business. The main thrust of this phase was to rebuild the Hankyu Main Store (grand opening in November 2012). Other moves to strengthen the business during that phase were to merge with Hanshin Department Stores (August 2007), open Nishinomiya Hankyu (November 2008), open Hakata Hankyu (March 2011), redevelop Hankyu Oimachi Garden (grand opening in March 2014). The company also set in place the steppingstones to further growth by making Izumiya a wholly owned subsidiary. (Izumiya operates supermarkets and general merchandise stores, mainly in the Kansai region.) The company expects “overseas business development” to be the central theme of its third long-term business plan, GP10-III (FY03/26 to FY03/35). [The company notes that GP refers both to “grand prix” and its “growth and profit” strategies.]
GP10-II Phase 2 GP10-II Phase 2 carries the Kansai dominance strategy forward from Phase 1. The company aims to establish an overwhelming position centered on the Department Store business (to meet demand for non-routine items) and the Supermarket business (for routine items). The company also plans to create a business ecosystem (expanding its network with alliance partners) to deepen connections with customers in the Kansai area and meet a full range of lifestyle needs. The Kansai region (Osaka, Hyogo, and Kyoto prefectures) is H2O’s main commercial area. This area is home to around 20mn people, making up over 15% of the Japanese population. The store network centers on Osaka, the Hanshin region (the cities of Amagasaki, Nishinomiya, Ashiya, and Kobe), the Hokusetsu region to the north (the cities of Itami, Takarazuka, Kawanishi, and Sanda), and the city of Kyoto.
Numerical targets Targets for FY03/22 are sales of JPY960.0bn (CAGR of 1.2% from FY03/19), operating profit of JPY25.0bn (7.0%), and net income of JPY12.5bn (79.5%). By segment, the plan calls for operating profit in the Department Store business of JPY16.5bn (compared with operating profit of JPY17.9bn in FY03/19), JPY5.0bn in the Supermarket business (loss of JPY0.4bn), JPY4.0bn in the Shopping Center Management business (profit of JPY4.3bn), and JPY6.0bn in Other business (profit JPY5.0bn). (Forecast for adjustments is JPY6.5bn.) In the Department Store business, the company expects to incur upfront costs for the reconstruction of Hanshin Department Stores and renovation of Kobe Hankyu and Takatsuki Hankyu. The company is also involved in medium- to long-term projects such as redevelopment of the Senri-chuo area in Osaka and opening of the Ningbo Hankyu department store in China, which it expects to deliver profits after the period of the current medium-term plan, hence the lower profit expectations compared with FY03/19. However, the company anticipates structural reforms to Izumiya’s GMSs to contribute substantially to higher profits in the Food business. For the period of the plan, the company has earmarked capital expenditures of JPY95.0bn (JPY31.7bn/year).
GP10-II Phase 2: Numerical targets
FY03/19 FY03/20 FY03/22 3-year (JPYmn) Sales Operating profit margin (RHS) (JPYmn) FY Init. Est. MTP Change CAGR 947,300 960,000 Sales 926,872 947,300 960,000 33,128 1.2% 1,000,000 926,872 5% YoY 0.5% 2.2% 800,000 4% Operat ing profit 20,422 18,400 25,000 4,578 7.0% YoY -10.3% -9.9% 600,000 2.6% 3% 2.2% Operating profit margin 2.2% 1.9% 2.6% 1.9% Recurring profit 21,376 18,500 25,000 3,624 5.4% 400,000 2% YoY -11.9% -13.5% Recurring profit margin 2.3% 2.0% 2.6% 200,000 1% Net in co me 2,162 7,700 12,500 10,338 79.5% 0 0% YoY -85.2% 256.2% FY03/19 FY03/20 FY03/22 Net margin 0.2% 0.8% 1.3% Initial Est. Plan Note: Shared Research based on company data
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GP10-II Phase 2: Operating profit by segment
Department Store Supermarket Operating profit by segment FY03/19 FY03/20 FY03/22 3-year (JPYmn) SC Management Other Adjustments (JPYmn) FY Init. Est. MTP Change CAGR 30,000 6,000 Department Store 17,883 15,570 16,500 -1,383 -2.6% 5,030 4,000 3,400 YoY -4.0% -12.9% 20,000 4,281 4,350 5,000 Supermarket -438 400 5,000 5,438 - 400
YoY -- 10,000 17,883 16,500 Shopping Center Management 4,281 4,350 4,000 -281 -2.2% 15,570
YoY -14.1% 1.6% 0 -438 Other 5,030 3,400 6,000 970 6.1% -6,335 -5,320 -6,500 YoY 62.4% -32.4% -10,000 FY03/19 FY03/20 FY03/22 Adjustments -6,335 -5,320 -6,500 -165 Initial Est. Plan Note: Shared Research based on company data Note: FY03/19 figures for the Department Store business are totals for the Department Store business and the Kobe/Takatsuki business.
Reasons for changes in operating profit
(JPYbn) 30
25 2.3 0.8 20 -1.1 2.7 -1.2 0.9 -0.7 1.0 15 25.0 20.4 10 18.4
5
0 FY03/19 Department Kobe/Takatsuki Credit card Other FY03/20 Department Format change Rakuhoku and Other FY03/22 Operating profit Store switch Operating profit Store at Izumiya GMS Senrichuo Operating profit
Note: Shared Research based on company data
This medium-term management plan sets no clear targets for capital efficiency. The company says it expects efficiency to decline temporarily during the period of the plan, as it increases assets through business restructuring, redevelopment, and business consolidations, prior to profit growth. Even so, the company does intend to raise profit levels based on the medium-term management plan and continue working to raise efficiency of capital. H2O says its management focuses on ROE, providing shareholder returns that are in line with profits.
The medium-term management plan has four main thrusts: to strengthen large commercial facilities in urban areas, build an operating platform for supermarkets, transform Izumiya’s GMS business model, and create a business ecosystem.
Strengthening large commercial facilities in urban areas Within the Kansai region, the company plans to continue investing in urban department stores that attract customers from a broader area because they are in line with such considerations as population distribution, railway networks, and roadway networks. To achieve these aims, highlights of the current medium-term management plan are to reconstruct one of its flagship stores, the Hanshin Umeda Main Store; renovate the Kobe Hankyu and Takatsuki Hankyu stores, which it took over from Seibu and Sogo; and engage in large-scale redevelopment in the Senri-chuo area, Osaka. Due to investment, the company expects profit to fall in this category in the short term. Over the medium term, though, it expects these projects to contribute to the growth of the Department Store business.
Reconstruction work on the Hanshin Umeda Main Store began in spring 2015, following the post-reconstruction grand opening of the Hankyu Main Store (November 2012). The first phase involved reconstruction on the east side of the Hanshin Umeda Main Store, and Wing I opened in June 2018. Then construction began on Wing II, on the west side. Sales floor area is being limited by the construction (53,395sqm before the start of construction on Wing I, 33,429sqm during construction on Wing I, and 27,811sqm when Wing I commenced operations and construction started on Wing II), making it difficult to boost sales.
The company plans a grand reopening of Wing II in autumn 2021. The sales floor will be around 53,000sqm, approximately the same as before construction began. H2O says it has adopted the concept of “a department store that provides joy on a daily basis” and will expand its lineup of food products—a brand strength for Hanshin Department Stores. Although its does not expect this project to contribute to full-year performance in the final year of the current medium-term management plan (FY03/22), the company believes it will underpin substantial business expansion from FY03/23.
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The Kobe and Takatsuki business is a project to renovate Sogo Kobe and Seibu Takatsuki, which the company took over in October 2017. The company continued operating the stores under those names for two years after acquisition, but renamed them Kobe Hankyu and Takatsuki Hankyu in October 2019, making them branch stores of Hankyu Hanshin Department Stores. Both stores have station-front locations. The company plans to start renovations from basement food floors, which are particularly effective at attracting customers. It will then move on to renovate upper floors. H2O expects to incur unification-related expenses and forecasts a temporary downturn in performance due to renovations (smaller sales floor areas and higher renovation expenses). Ultimately, however, the company expects this project to help boost its market share by strengthening stores and tapping into regional demand from the Kobe and Takatsuki metro areas, which have customer bases next in line behind Umeda.
H2O is redeveloping the Senri-chuo area (in Toyonaka, Osaka) as part of a public/private station-front redevelopment project to promote the “Basic Plan to Invigorate the Senri-Chuo Area.” Senri-Chuo Station is the terminus of the Kita-Osaka Kyuko Railway Namboku Line (which links directly with the Midosuji subway line) and connects with a station on the Osaka Monorail Line. The two stations handle a combined 130,000 passengers per day, exceeding that of Nishinomiya Kitaguchi Station (around 100,000 passengers per day). Passenger numbers have grown in recent years, as access has become more convenient. Currently, H2O operates Senri Hankyu, located at the east exit of Senri-Chuo Station, where the SELCY shopping center is also situated. H2O has invested in Centre LLC, which is the beneficiary of the SELCY trust. The redevelopment project encompasses the joint development of Senri Hankyu and SELCY into a regional shopping center with the department store as an anchor tenant. Total floor space is projected to be around 100,000sqm. This project is H2O’s first large-scale station-front redevelopment. The facility is scheduled to open between 2023 and 2025.
The company participated in one previous station-front redevelopment project (led by Hankyu Hanshin Holdings) on the site of the former Hankyu Nishinomiya baseball stadium, in front of Nishinomiya Kitaguchi Station. Nishinomiya Hankyu is the anchor tenant of Hankyu Nishinomiya Gardens (fully opened in November 2008). Since opening, Nishinomiya Hankyu’s performance has been solid. With annual revenue of more than JPY25.0bn, among the company’s branch stores Nishinomiya Hankyu is second only to Hakata Hankyu. In the Senri-Chuo project, the company will lead the overall redevelopment of the commercial facility, and Senri Hankyu is slated to be the anchor tenant.
The company expects “develop overseas businesses” to be a central theme of its next long-term business plan, GP10-III (FY03/26 to FY03/35). Prior to that, H2O plans to open its first overseas department store, Ningbo Hankyu*, in China in autumn 2020. (This business is operated by an equity-method affiliate, so roughly 33% of its profits and losses will be incorporated in H2O’s consolidated financial results.)
*Ningbo Hankyu: In September 2014, H2O announced plans to launch a Hankyu department store in the city of Ningbo, Zhejiang Province, China. The store will be part of a large-scale development project led by the Ningbo metropolitan government (Eastern New City Development, spanning a development area of 1,600ha). The new store, which is slated to have total floor space of 170,000sqm, will be in central Ningbo. The facility will be operated by Ningbo Hankyu Co., Ltd., which is 70% held by Ningbo Development Co., Ltd. and 30% held by Ningbo Metropolitan Real Estate Development Co., Ltd. Investors in Ningbo Development Co., Ltd. are H2O (47.6%), Cool Japan Fund Inc. (47.6%), Hankyu Hanshin Holdings, Inc. (TSE1: 9042, 4.4%), and Itochu Corporation (TSE1: 8001; 0.4%). Initially scheduled for 2018, Ningbo Hankyu is now slated to open in autumn of 2020. H2O says it postponed the opening date to prioritize store quality from the outset.
Building an operating platform for supermarkets The company’s Supermarket business comprises supermarket operators (Izumiya and Hankyu Oasis) and food product manufacturers. In FY03/19, the Supermarket business generated sales of JPY367.6bn, accounting for 39.7% of consolidated sales. The company has increased sales in this business by making Izumiya a wholly owned subsidiary (June 2014). H2O says it has yet to see satisfactory synergies, despite joint purchasing with Hankyu Oasis and the integration of processing centers and subsidiaries that make prepared foods. The company also faces issues at its Hankyu Oasis stores, which are the result of an October 2008 consolidation of the Hankyu Oasis, Hankyu Nissho Store, Hankyu Family Store, and Hankyu Freshyell brands. Store sizes vary, and information systems are not fully consistent.
In FY03/21, the company plans to transition to a new management system that will integrate product management and operations at Izumiya and Hankyu Oasis. By standardizing its supermarket operating platform, the company plans to benefit from
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joint product procurement, more efficient logistic center operations, and flexible store deployment to match local needs. Ahead of this move, in April 2020 H2O plans to split Izumiya’s current operations into three. Grocery items will remain with the supermarket, but retail spaces handling drugs and cosmetics at Izumiya will be transferred to CFIZ Co., Ltd. (A joint venture with Cocokara Fine [TSE1: 3098], CFIZ is an equity-method affiliate, with H2O owning 49%.) Other divisions handling non-food items and property management for shopping centers will be transferred to the Shopping Center Management business, which includes H2O Shopping Center Development Co., Ltd.
Transforming Izumiya’s GMS business model Improving performance in the Supermarket business (moving from losses to the generation of stable profits) is key to achieving the numerical targets of the current medium-term management plan. Eliminating losses from non-food items in Izumiya’s GMS business format is a priority. As of end-FY03/19, Izumiya had 85 stores (34 GMSs, seven supercenters, and 44 supermarkets). In FY03/19, sales were JPY218.2bn, and the operating loss was JPY1.2bn. The company says the supermarket division (including a division that handles grocery items at GMSs) delivered around JPY3.0bn in profit, while losses on non-food items were more than JPY4.0bn.
Restructuring Izumiya: After acquiring Izumiya in 2014, in 2016 H2O restructured the Izumiya business, divesting it of some operations. The revamped Izumiya still handles supermarket, GMS, and other retail operations. However, the former Izumiya division that processed perishable foods has been transferred to a company that operates processing centers. H2O changed the name of the former Izumiya (which retained the shopping center management and development businesses) to H2O Asset Management, which is now in the Shopping Center Management business segment. The former Izumiya did not become unprofitable; H2O Asset Management generated operating profit of JPY3.6bn in FY03/17, andJPY3.5bn in FY03/18 (excluding the Kobe/Takatsuki business; FY03/19 figure was not disclosed).
As stated above, Izumiya’s operations were split into three areas: grocery items (Izumiya), daily necessities (handled by CFIZ, a joint venture with Cocokara Fine), and non-food items and shopping center operation (H2O Shopping Center Development). Izumiya will specialize in supermarket operations, working more closely with Hankyu Oasis to raise efficiencies and boost profitability.
With CFIZ, the company plans to acquire three types of expertise Cocokara Fine has built through its drugstore business. The first is the ability to source drugs, cosmetics, and daily necessities. Second is adapting store formats attuned to store locations and sales floor areas. The third type of expertise involves counseling-focused customer interaction and product recommendations. The two companies expect CFIZ to have 37 stores operational by August 31, 2021. CFIZ is slated to be an equity-method affiliate of H2O.
H2O Shopping Center Development will work to quickly erase losses in areas other than foods, drugs, and cosmetics (such as apparel) and actively introduce tenants suited to its locations. Through these initiatives, the company aims to take advantage of its good locations and promote structural reforms at supermarket-anchored shopping centers that can attract customers.
H2O plans to open no new supermarkets, other than projects it has already begun. The company says it will consider opening new stores after it is assured of generating profits through existing supermarket operations.
Creating a business ecosystem The company’s core activities are to meet customer demand for mainly non-routine purchases through the Department Store business and demand for mainly routine items in the Supermarket business. In addition, it aims to increase points of contact with customers in the regions of its operation by actively forming alliances with outside partners. The company thinks this move should help boost customer retention.
The company expects the S-point loyalty program to play a central role in this effort. H2O launched S-point in 2016 with the Hankyu Hanshin Group as a common reward point service for the Kansai region. S-point members number around 7.5mn, equivalent to nearly 40% of the commercial area’s population. The reward points can be used at Hankyu Hanshin Group railways, taxis, station kiosks, department stores, supermarkets, and Seven-Eleven stores in six Kansai prefectures (around 2,700 stores), as well as at all stores operated by Kansai Super Market (TSE1: 9919), with which the company has a capital and business alliance in
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place. H2O plans to expand access to stores operated by SRS Holdings (TSE1: 8163), another alliance partner, and Cocokara Fine in the Kansai region.
The reward point service gives the company access to data showing when and where customers shop and how much they spend. This data can be used to provide consumers with better products and services. (For example, when notifying customers of reward point balances the company can show campaign ads tailored to their preferences.) People can accumulate S-points through a range of consumer activities in the Kansai area. The company says a growing number of the S-point club members are using the program across areas and business formats, such as accumulating reward points at suburban supermarkets and using them at Hankyu Main Store and other flagship stores. In this way, S-points can encourage customers to visit and shop at department stores.
Main locations that accept S-points Department stores Supermarkets Hankyu Department Stores Hankyu Oasis Qanat Hayashi Hanshin Department Stores Izumiya Kansai Super
Convenience store Bookstore Seven-Eleven Book 1st.
Shopping malls Hankyu Sanbangai HEP FIVE NU Chayamachi NU Chayamachi Plus Herbis Plaza Herbis Plaza Ent Diamor Osaka Diamor fiore Hankyu Nishinomiya Gardens Rosavia Ming Hankyu Takatsuki G Collection Hankyu Takarazuka Mew Hankyu Katsura Kyoto Avanti Rakuhoku Hankyu Square (other)
Online shopping Hankyu Online Shopping Hanshin Online Shopping Stacia Shopping Site (other)
Transportation Hankyu Railw ay Hanshin Elect ric Railw ay Nose Elect ric Railw ay Kit a-Osaka Kyuko Line Hokushinkyuko Railway Kobe Rapid Transit Railway Hankyu Bus Hanshin Bus Hankyu Denen Bus Osaka Airport Transport Hankyu Expressway Bus Hanshin Express Bus Hankyu Taxi Hanshin Taxi
Inside (or close to) station Asnas Scra Sannomiya Seijo Ishii Doubleday COLOR FiELD atelier haruka Baan Hana (other)
Accommodation, restaurants Hankyu-Hanshin-Daiichi Hotel Group The Ritz-Carlton Osaka Ours Inn Hankyu Navio Dining LAXA SQUARE Garden City Club Osaka Café & Restaurant Star Isle (other)
Entertainment and leisure Takarazuka Grand Theater Hanshin Koshien Stadium Tigers Shop Alps Billboard Live Osaka Rokko Int'l Musical Box Museum Rokko Snow Park Rokko Garden Terrace
Travel Hankyu Travel Hanshin Ivy Travel ANA SKY WEB/ANA SKY MOBILE
Lifestyle support The Mainichi Newspapers Nikkei Business Publications Mitsubishi UFJ Trust and Banking Hankyu Job Yell ORIX Car Share Hankyu Rental Cycle Hankyu Bicycle Parking Center Park First Gurunavi Source: Shared Research based on the S-point website
In addition to sharing reward points, H2O hopes to work with alliance partners on payments and other new customer services. In this manner, it aims to build a customer service platform that can be shared by businesses in the Kansai region, creating a business ecosystem that benefits customers and businesses alike.
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Working with alliance partners to build a business ecosystem in the Kansai region
Source: Company materials
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Business Business model
The company operates department stores (Hankyu Department Stores and Hanshin Department Stores) and supermarkets (such as Izumiya and Hankyu Oasis) mainly in the Kansai region. This commercial area, which includes Osaka, Hyogo, and Kyoto prefectures, has a population of around 20mn.
H2O was created through the 2007 merger of Hankyu Department Stores and Hanshin Department Stores. Their respective predecessor companies were Hankyu Market (now Hankyu Main Store), which opened in Osaka’s Umeda district in 1925, and Hanshin Mart (now Hanshin Umeda Main Store), which opened in 1933. Both companies are spinoffs from railway operators’ (Hankyu Railway and Hanshin Electric Railway) retail businesses at terminal stations.
Hanshin Electric Railway is H2O’s largest shareholder, with an 11.9% stake, followed by Hankyu Hanshin Holdings (TSE1: 9042), which holds an 8.4% stake. Effectively, Hankyu Hanshin Holdings, the parent company of Hanshin Electric Railway, therefore holds a 20.3% stake in H2O (making it an equity-method affiliate). Also, H2O is the third-largest shareholder of Toho (TSE1: 9602) with a 7.6% stake. Toho’s largest shareholder is Hankyu Hanshin Holdings (12.7%) and its second-largest is Hankyu Hanshin Properties, a wholly owned subsidiary of Hankyu Hanshin Holdings (8.4%).
H2O, Hankyu Hanshin Holdings, and Toho are the main members of the Hankyu Hanshin Toho Group. (Ichizo Kobayashi was central to the formation of these businesses, as Hankyu Railway, Hankyu Department Stores, and Toho.) The group’s business interests span urban transport, real estate, hotels, department stores, supermarkets, and entertainment. The businesses are connected. For example, H2O leases buildings and other property for Hankyu Main Store, Hanshin Umeda Main Store, and Hankyu Men’s Tokyo from companies in the Hankyu Hanshin Toho Group. The companies also share S-points, which can be used in the Kansai region.
Ichizo Kobayashi (1873–1957): Born in Yamanashi Prefecture, Kobayashi was a businessman and politician. Upon graduation from Keio University, he joined Mitsui Bank. Leaving the bank, he established the Minoo Arima Electric Tramway Company (now Hankyu Railway) in 1907. In 1910, he began developing the land along railway lines and selling homes there. (He was the first in Japan to offer installment sales of homes.) In 1913, he organized the Takarazuka Chorus Group (now the Takarazuka Revue Company). In 1920, construction was completed on the Hankyu Building, in Umeda, Osaka. In 1925, Hankyu Market opened in the building, becoming the world’s first terminal-station department store. In 1932, he established the Tokyo Takarazuka Theater. He founded Toho Pictures in 1937. Kobayashi was appointed Minister of Commerce and Industry in1940. He was also involved in the management of Denentoshi Co., Ltd, the parent of Tokyo Dento (now Tokyo Electric Power Company) and Tokyu Corporation.
H2O has four business segments: the Department Store, Supermarket, Shopping Center Management, and Other businesses. The Department Store business accounts for more than 50% of sales, the Supermarket business for around 40%, the Shopping Center Management business around 1%, and Other business for more than 5%. In FY03/19, operating profit was JPY20.4bn. Of this amount, the Department Store business generated JPY17.9bn in operating profit, the Supermarket business produced an operating loss of JPY438mn, the Shopping Center Management business had a JPY4.3bn operating profit, and the Other business generated operating profit of JPY5.0bn. (Adjustments to operating profit were JPY6.3bn.)
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Store locations and population distributions: Overview of store locations (left), distribution of stores in the Kansai area (center), population distribution in the main Kansai area (around 20mn people)
Source: Shared Research from company data By segment FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Total sales 465,033 505,588 525,154 576,852 844,819 915,690 901,221 921,871 926,872 YoY -1.1% 8.7% 3.9% 9.8% 46.5% 8.4% -1.6% 2.3% 0.5% Department Store 350,382 375,304 383,318 427,266 421,008 431,178 427,644 446,225 451,840 YoY -2.1% 7.1% 2.1% 11.5% -1.5% 2.4% -0.8% 4.3% 1.3% Kobe/Takatsuki ------23,379 42,767 YoY ------82.9% Supermarket 90,912 91,627 93,328 100,223 379,405 436,901 409,454 386,552 367,580 YoY 2.8% 0.8% 1.9% 7.4% 278.6% 15.2% -6.3% -5.6% -4.9% Supermarkets 90,912 91,627 93,328 100,223 108,674 118,326 - - - YoY 2.8%0.8%1.9%7.4%8.4%8.9%- - - Izumiya - - - - 270,731 318,575 - - - YoY -----17.7%--- Shopping Center Management 13,488 13,048 13,770 12,924 - - 9,970 10,367 8,736 YoY 4.7% -3.3% 5.5% -6.1% - - - 4.0% -15.7% Other 10,250 25,608 34,737 36,436 44,405 47,609 54,151 55,346 55,948 YoY -7.8% 149.8% 35.6% 4.9% 21.9% 7.2% 13.7% 2.2% 1.1% Operating profit 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 YoY 31.6% -5.7% 7.2% 62.3% 23.4% 11.6% -5.4% 1.0% -10.3% Operating profit margin 2.3%2.0%2.0%3.0%2.5%2.6%2.5%2.5%2.2% Department Store 8,228 5,761 7,842 13,246 15,734 16,625 15,993 18,020 17,582 YoY 41.5% -30.0% 36.1% 68.9% 18.8% 5.7% -3.8% 12.7% -2.4% Operating profit margin 2.3%1.5%2.0%3.1%3.7%3.9%3.7%4.0%3.9% Kobe/Takatsuki ------603 301 YoY ------50.1% Operating profit margin ------2.6% 0.7% Supermarket 1,737 1,798 1,811 2,127 5,541 7,023 3,977 1,104 -438 YoY 21.9% 3.5% 0.7% 17.4% 160.5% 26.7% -43.4% -72.2% - Operating profit margin 1.9%2.0%1.9%2.1%1.5%1.6%1.0%0.3%-0.1% Supermarkets 1,737 1,798 1,811 2,127 2,396 2,282 - - - YoY 21.9% 3.5% 0.7% 17.4% 12.6% -4.8% - - - Operating profit margin 1.9% 2.0% 1.9% 2.1% 2.2% 1.9% - - - Izumiya - - - - 3,145 4,741 - - - YoY -----50.7%--- Operating profit margin - - - - 1.2% 1.5% - - - Shopping Center Management 624 1,740 1,594 1,394 - - 5,038 4,985 4,281 YoY -17.1% 178.8% -8.4% -12.5% - - - -1.1% -14.1% Operating profit margin 4.6% 13.3% 11.6% 10.8% - - 50.5% 48.1% 49.0% Other 1,770 1,554 618 3,541 2,355 3,317 2,863 3,098 5,030 YoY -12.7% -12.2% -60.2% 473.0% -33.5% 40.8% -13.7% 8.2% 62.4% Operating profit margin 17.3% 6.1% 1.8% 9.7% 5.3% 7.0% 5.3% 5.6% 9.0% Adjustments -1,805 -897 -1,196 -2,279 -2,273 -3,142 -5,330 -5,047 -6,335 Note: Shared Research based on company data Note: Figures for the Supermarket business through FY03/16 are totals of the supermarket and Izumiya businesses. Figures for the Shopping Center Management business through FY03/14 are those for the PM business.
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Department Store business
Department Store FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Sales 350,382 375,304 383,318 427,266 421,008 431,178 427,644 469,604 494,607 YoY -2.1% 7.1% 2.1% 11.5% -1.5% 2.4% -0.8% 9.8% 5.3% Operating profit 8,228 5,761 7,842 13,246 15,734 16,625 15,993 18,623 17,883 YoY 41.5% -30.0% 36.1% 68.9% 18.8% 5.7% -3.8% 16.4% -4.0% Operating profit margin 2.3%1.5%2.0%3.1%3.7%3.9%3.7%4.0%3.6% Capital expenditures 19,463 7,366 22,790 1,457 6,237 3,769 3,372 9,878 11,531 YoY -36.2% -62.2% 209.4% -93.6% 328.1% -39.6% -10.5% 192.9% 16.7% Depreciation and amortization 5,067 6,807 7,145 7,147 4,704 4,758 4,561 4,386 5,477 YoY -12.9% 34.3% 5.0% 0.0% -34.2% 1.1% -4.1% -3.8% 24.9% EBITDA 13,295 12,568 14,987 20,393 20,438 21,383 20,554 23,009 23,360 YoY 14.3% -5.5% 19.2% 36.1% 0.2% 4.6% -3.9% 11.9% 1.5% EBITDA margin 3.8%3.3%3.9%4.8%4.9%5.0%4.8%4.9%4.7% Note: Shared Research based on company data Note: Figures for FY03/18 and FY03/19 are totals for the Department Store business and the Kobe/Takatsuki business.
The Department Store business is the company’s mainstay, generating more than 50% of sales. In this business, H2O has two flagship stores, Hankyu Main Store and Hanshin Umeda Main Store, and a total of 16 stores (including flagship stores), most along Hankyu Railway and Hanshin Electric Railway lines. Twelve stores bear the Hankyu brand, and four are branded Hanshin. We understand that Hankyu brand awareness has traditionally centered on apparel and accessories, while Hanshin is known for its strength in food products.
Department Store business performance
(JPYbn) Sales EBITDA margin Operating profit margin (RHS) (JPYmn) 600 6% Operating profit Capital expenditures Depreciation and amortization 35,000 4.9% 5.0% 4.8% 4.9% 500 4.8% 4.7% 5% 30,000
3.8% 3.9% 25,000 400 4% 3.3% 3.3% 4.0% 3.7% 3.9% 3.7% 20,000 300 3.6% 3% 3.1% 15,000 200 2.3% 2% 2.0% 10,000 1.6% 100 1.5% 1% 5,000
0 0% 0 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Note: Shared Research based on company data
Earnings at Hankyu Hanshin Department Stores, Inc. comprise a majority of the Department Store business. In FY03/19, Hankyu Hanshin Department Stores (excluding Kobe Hankyu and Takatsuki Hankyu) delivered sales of JPY451.7bn, operating profit of JPY17.6bn, and OPM of 3.9%. (GPM was 24.2%, the SG&A expense ratio was 20.5%, and ratio of revenue from leasing and other operations to sales was 0.1%.) Kobe Hankyu and Takatsuki Hankyu became part of Hankyu Hanshin Department Stores in 2H FY03/20.
The company has three principal types of department store. The first is flagship stores, which are large stores at Osaka Umeda Station (JR Osaka Station), the terminal station on the Hankyu Railway and Hanshin Electric Railway lines. The second type is suburban branch stores, located at other stations along the Hankyu Railway and Hanshin Electric Railway lines. The third type of stores, which operate outside this area, include Hakata Hankyu and Hankyu Men’s Tokyo.
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Hankyu Hanshin Department Stores FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 348,969 373,903 381,925 426,838 420,612 430,731 427,534 446,070 451,708 YoY -2.1% 7.1% 2.1% 11.8% -1.5% 2.4% -0.7% 4.3% 1.3% Gross profit 86,920 91,817 94,154 105,505 104,149 106,014 104,772 108,881 109,408 YoY -3.4% 5.6% 2.5% 12.1% -1.3% 1.8% -1.2% 3.9% 0.5% Gross profit margin 24.9% 24.6% 24.7% 24.7% 24.8% 24.6% 24.5% 24.4% 24.2% Other operating revenue 1,590 1,608 1,747 894 858 910 640 689 565 YoY -7.1% 1.1% 8.6% -48.8% -4.0% 6.1% -29.7% 7.7% -18.0% SG&A expenses 79,780 87,107 87,379 92,325 89,081 90,103 89,339 91,337 92,416 YoY -6.8% 9.2% 0.3% 5.7% -3.5% 1.1% -0.8% 2.2% 1.2% SG&A ratio 22.9% 23.3% 22.9% 21.6% 21.2% 20.9% 20.9% 20.5% 20.5% Operating profit 8,730 6,319 8,522 14,074 15,926 16,822 16,072 18,232 17,557 YoY 42.2% -27.6% 34.9% 65.1% 13.2% 5.6% -4.5% 13.4% -3.7% Operating profit margin 2.5% 1.7% 2.2% 3.3% 3.8% 3.9% 3.8% 4.1% 3.9% Note: Shared Research based on company data
Performance at Hankyu Hanshin Department Stores
(JPYbn) (JPYbn) Flagship stores Suburban branches Other branches Sales Gross profit margin (RHS) 500 SG&A ratio (RHS) Operating profit margin (RHS) 446 452 500 50% 427 421 431 428 450 450 45% 382 62 66 400 374 53 58 58 355 348 56 400 40% 49 350 10 13 46 88 84 350 35% 99 95 95 93 300 109 99 300 30% 108 111 25.2% 24.9% 24.6% 24.7% 24.7% 24.8% 24.6% 24.5% 24.4% 24.2% 250 250 25%
200 200 24.0% 22.9% 23.3% 22.9% 20% 21.6% 21.2% 20.9% 20.9% 20.5% 20.5% 150 296 302 150 15% 275 269 277 276 236 227 234 100 217 100 10% 3.3% 3.8% 3.9% 3.8% 4.1% 3.9% 50 50 1.7% 2.5% 1.7% 2.2% 5%
0 0 0% FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18 Note: Shared Research based on company data Note: Hankyu Main Store and Hanshin Umeda Main Store are flagship stores. Other major stores include Hankyu Men’s Tokyo and Hakata Hankyu. Flagship stores Hankyu Main Store and Hanshin Umeda Main Store are the company’s flagship stores. Hankyu Main Store (including Hankyu Men’s Osaka) is the larger, with sales of JPY250.7bn in FY03/19. It is also Japan’s second-largest department store by sales, after the Isetan Shinjuku Main Store.
Hankyu Main Store Hankyu Main Store is a long-established department store that started out in 1925 as Hankyu Market. This store was the purported start of department stores at terminal train stations. The current structure had its grand reopening in 2012 after two phases of reconstruction (phase one on the south side from 2005 to 2009 and phase two on the north side from 2009 to 2012). The main building is 15 stories, with 13 above ground and two below. Professing to be a “theater-style department store,” the ninth floor features an expansive event space and an open atrium that reaches from there up to the 12th floor. Hankyu Men’s Osaka occupies the building next door. (Hankyu Main Store sales include those of Hankyu Men’s Osaka.) The sales floor area is 98,733sqm (end-FY03/19).
Hankyu Main Store has a reputation for apparel, with track records in attracting multiple apparel brands for whom Hankyu Main Store was their first foray into department stores in Kansai or in Japan. As of January 2019, the store was arranged as B2F and B1F: food products; 1F: handbags and fashion jewelry; 2F: cosmetics; 3F: womenswear (mode); 4F: womenswear (contemporary); 5F: luxury items and fine jewelry; 6F: womenswear (premium); 7F: daily necessities and accessories; 8F: sportswear and menswear; 9F: event space and gallery; 10F: hobby goods; 11F: children’s wear; 12F and 13F: restaurants. (Main areas for menswear are at Hankyu Men’s Osaka, which carries menswear on all floors, from B1 through 5F. Each floor sells menswear according to a different theme.)
The company designs retail spaces itself, and one distinguishing feature of these areas is their expansiveness. Many department stores simply lease out parceled-out spaces to specific brands or manufacturers. By comparison, H2O designs retail spaces so that brands that evoke a similar taste are congregated together. For instance, the womenswear (contemporary) retail space on the fourth floor is designed into discrete areas: urban style, weekend style, office style, and party and dress-up. The event space on
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the ninth floor hosts various events that attract customers throughout the year. Tie-ups with these events at individual retail spaces help attract customers throughout the store.
Rather than peaking in FY03/14 due to the impact of reconstruction, sales at Hankyu Main Store have continued to increase. In FY03/19, store sales reached a new record of JPY250.7bn. The company explains that an increase in overseas visitors from China and other countries contributed to the increase, but says sales to Japanese customers (not tax free) contributed approximately the same amount. Many Japanese department stores have been able to take advantage of inbound demand but failed to boost sales among Japanese customers. The company says the solid reputation its retail space designs have earned among consumers give it cachet not just within Kansai, but also attracts consumers from the Kyushu, Chugoku, and Shikoku regions. As a result, sales continue to grow.
Hankyu Main Store’s tax-free sales to inbound visitors to Japan amount to approximately JPY31.0bn, up some JPY29.0bn over the past five years. Although it does not design retail spaces specifically for inbound visitors, the company says it takes proactive measures to make spaces more convenient for these customers. In addition to smartphone payments, H2O facilitates app-based reservations (customers pick up items at dedicated counters) and provides apps with menus in a shopper’s native tongue that allow them to place orders simply by reading in a QR code. The company says it is also using artificial intelligence to develop an app to guide shoppers around the store. Due to these efforts, in July 2019 Hankyu Hanshin Department Stores was named a “WeChat Pay Smart Flagship Department Store,” the first store outside China to receive this distinction.
Hankyu Main Store and Hanshin Umeda Main Store: Sales (left) and sales floor area (right)
(JPYbn) Hankyu Main Store Hanshin Umeda Main Store (sqm) Hankyu Main Store Hanshin Umeda Main Store 350 160,000
140,000 300 53,395 53,395 56 51 120,000 250 59 56 32,732 33,429 33,429 33,429 27,811 82 72 100,000 200 92 89 96 92 80,000 53,395 53,395 53,395 150 60,000 240 251 218 221 97,710 97,804 97,804 97,519 97,540 98,281 98,733 100 198 192 40,000 144 131 145 124 50,114 50,114 50,015 50 20,000
0 0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Note: Shared Research based on company data Hanshin Umeda Main Store Hanshin Umeda Main Store is a department store that started out in 1933 as Hanshin Mart. Hanshin Department Stores are known for their food products, exemplified by Hanshin Shokuhinkan (Hanshin Food Hall). Hanshin Umeda Main Store underpinned the company’s department store business while Hankyu Main Store was undergoing reconstruction in the period up to 2012. Now, Hanshin Umeda Main Store is itself undergoing reconstruction. Phase one construction (east side) began in 2015, reducing the store’s sales floor area from around 53,000sqm to approximately 33,000sqm. The east side opened in June 2018 after phase one construction was complete, and phase two construction (west side) began. The store’s current sales floor area is approximately 28,000sqm. The grand reopening is scheduled for autumn 2021, after phase two construction is complete. The sales floor area is scheduled to be the same as before reconstruction, at around 53,000sqm.
The B1 and 1F areas carry food products. Other floors are arranged as 2F: women’s accessories, fashion jewelry, and cosmetics; 3F: women’s shoes and handbags; 4F and 5F: womenswear; 6F: menswear and men’s accessories; 7F: daily necessities, children’s wear, watches, and fine jewelry; 8F: event space; 9F: kimonos and accessories, as well as artwork. With a product lineup designed to prevent the store from competing directly with Hankyu Department Stores, Hanshin Umeda Main Store has a higher percentage of casual items and tends to focus on lower-priced items. The company says Hanshin Department Stores also leverage Hankyu Department Stores’ store design and product selection/display capabilities.
Suburban branch stores Suburban branch stores include Nishinomiya Hankyu, Senri Hankyu, Kawanishi Hankyu, Takarazuka Hankyu, Sanda Hankyu, Amagasaki Hanshin, Hanshin Nishinomiya, and Hanshin Mikage. In 2017, the company took over Sogo Kobe and Seibu Takatsuki and renamed them Kobe Hankyu and Takatsuki Hankyu in October 2019, including them in the Hankyu Department Stores
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lineup. (In FY03/19, they contributed JPY42.8bn to sales, JPY301mn to operating profit, and JPY339mn to depreciation and amortization.) All of the suburban branch stores are located within 50km of central Osaka and operate as satellites of the flagship stores. As people living near branch stores can instead visit flagship stores for special purchases, suburban branch stores tend to carry more convenience-oriented items rather than full department store lineups.
Nishinomiya Hankyu is an anchor tenant of Hankyu Nishinomiya Gardens (operated by Hankyu Hanshin Building Management, a subsidiary of Hankyu Hanshin Holdings), which opened in 2008 as a redevelopment on the site of the former Nishinomiya baseball stadium. Hankyu Nishinomiya Gardens is a large shopping center housing more than 260 shops, including those operated by group companies such as Nishinomiya Hankyu, Toho Cinemas Nishinomiya OS, and Izumiya. The shopping center is a three-minute walk from Nishinomiya Kitaguchi Station and accessible by car, with parking for around 3,500, so is convenient both for local residents and people in outlying areas.
At Nishinomiya Hankyu, 1F stocks foods and household items; 2F and 3F have womenswear and fashion jewelry; and 4F has menswear, children’s wear, and accessories. Although it opened more than 10 years ago, the company says the store continues to attract customers and coexists well with other parts of the shopping center. In FY03/19, Nishinomiya Hankyu recorded sales of JPY25.7bn, its highest level to date.
Although performance at Nishinomiya Hankyu has been solid, many other suburban branch stores have experienced gradual declines. Like many other department stores in Japan, the company’s suburban branch stores are located in communities with aging populations. Also, younger people are visiting department stores less frequently, and the stores are subject to increasing competition from specialty stores and other competing business formats. To revive them, the company is focusing on maintaining links with its flagship Hankyu Main Store and efforts targeting younger customers.
Against this backdrop, H2O is concentrating on the Senri-chuo area redevelopment, including Senri Hankyu. First opened in 1970, Senri Hankyu (total floor space of around 21,000sqm) had become superannuated. In this area, the company is planning a new shopping center based around a department store, with the integrated development of Senri Hankyu and the nearby SELCY shopping center. The company plans to open the new center around 2023 to 2025. Although it expects Senri Hankyu’s sales (around JPY16.0bn) to fall temporarily and will incur investment costs, after reopening the company anticipates higher department store sales and real estate leasing revenue.
Senri New Town redevelopment: The first residents of Senri New Town began living there in 1962. This residential area straddles the cities of Toyonaka and Suita, Osaka Prefecture. The population of Senri New Town peaked above 120,000 in around 1975. After that point, the area’s problems gradually accumulated, including fewer children and aging residents, as well as building deterioration. Osaka Prefecture and the cities of Toyonaka and Suita responded by formulating the Senri New Town Regeneration Guidelines in 2007. These guidelines called for reconstruction of public rental housing. The housing was later rebuilt again, with public housing giving way to condominiums, providing a supply of new residences. Senri New Town offers good commuting access to central Osaka, encouraging an influx of people into the new housing. In 2010, Senri New Town’s population bottomed out (at around 89,000). Although the Japan’s overall population is trending downward, Senri New Town’s is forecast to continue rising until around 2025 (to approximately 110,000 people).
Suburban branch stores: Sales (left) and sales floor area (right)
(JPYbn) Nishinomiya Hankyu Senri Hankyu Sakai Kitahanada Hankyu (sqm) Nishinomiya Hankyu Senri Hankyu Sakai Kitahanada Hankyu Kawanishi Hankyu Takarazuka Hankyu Kobe Hankyu Kawanishi Hankyu Takarazuka Hankyu Kobe Hankyu Tsuzuki Hankyu Other suburban branches Tsuzuki Hankyu Other suburban branches 120 111 153,990 109 108 145,390 99 99 150,000 95 95 93 100 88 84 109,269 80 99,653 97,911 98,531 96,156 96,254 100,000 80,254 80,254 60
40 50,000
20
0 0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Note: Shared Research based on company data Note: Shijokawaramachi Hankyu closed in August 2010, Kobe Hankyu closed in March 2012, and Sakai Kitahanada Hankyu closed in July 2017.
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Other major branch stores Other major branch stores, Hakata Hankyu and Hankyu Men’s Tokyo, are outside the Kansai region. The company’s main management strategy is to dominate the Kansai region, but these stores provide a degree of balance (a certain amount of regional dispersion). We also understand that the company positions these stores as a way to actively leverage its competitiveness.
Hakata Hankyu opened in 2011 as an anchor tenant of JR Hakata City, in a building at the Hakata Exit of Hakata Station. The store has a sales floor area of around 42,000sqm, making it second in size to Hankyu Main Store. Hakata Hankyu is at the south side of the station building and has one floor below ground and eight above. Hakata Hankyu allows the company to leverage the experience in operating department stores in terminal station buildings that it has accumulated over its years in Umeda. Fast fashion was enjoying an upswelling of popularity around the time this store opened. Taking this trend into consideration, the store features Hakata Sisters, a retail space dedicated to low-priced women’s apparel. The store underwent a major renovation in 2017. Although originally targeting customers from the Fukuoka area, the company decided the store had the potential to also attract customers from neighboring Japanese prefectures as well as nearby countries (South Korea and China). While leveraging its capability to design retail spaces, H2O also created a store featuring overseas luxury brands with the power to attract customers from a broader area. The area around Hakata Station has grown more commercial, attracting more customers as a result. Hakata Hankyu has benefited from this trend, with sales surpassing JPY50.0bn for the first time in FY03/19 to reach JPY51.6bn.
The forerunner to Hankyu Men’s Tokyo, in the Yurakucho district, was Yurakucho Hankyu, which opened in the Yurakucho Mullion complex in 1984. Yurakucho Hankyu closed in July 2011. Following renovation, the store reopened as Hankyu Men’s Tokyo that October. The Yurakucho area, which is also home to the Marui and Lumine department stores, is considered something of a fashion hub, and the company faces increasing competition from these quarters. In March 2019, it conducted further large-scale renovation at Hankyu Men’s Tokyo. Switching out two-thirds of its tenants, the company relaunched the store as a “base camp of adventure for the creative-conscious men.” In this way, the company sought to sharpen the store’s image as a leader of avant-garde fashion. In FY03/19, Hankyu Men’s Tokyo had sales of JPY14.2bn, up 24% from FY03/13 (JPY11.5bn) when the store started to contribute to the company’s earnings on a full-year basis.
The company categorizes Ningbo Hankyu (scheduled to open in autumn 2020) in China as an “outlying” department store, being outside the Kansai region. The store will be part of a large-scale development project led by the Ningbo metropolitan government (Eastern New City Development, spanning a development area of 1,600ha). The new store, which is slated to have total floor space of 170,000sqm, will be in central Ningbo. The facility will be operated by Ningbo Hankyu Co., Ltd., which is 70% held by Ningbo Development Co., Ltd. and 30% held by Ningbo Metropolitan Real Estate Development Co., Ltd. Investors in Ningbo Development Co., Ltd. are H2O (47.6%), Cool Japan Fund (47.6%), Hankyu Hanshin Holdings (4.4%), and Itochu (0.4%). Ningbo Hankyu will be an equity-method affiliate (33% of its profits and losses will be incorporated in H2O’s consolidated financial results).
The company expects overseas business development to be a central theme of its next long-term business plan, GP10-III (FY03/26 to FY03/35), and is considering the ASEAN region for its next overseas move.
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Sales at other major branch stores (JPYmn) Hankyu Men's Tokyo Hakata Hankyu 80,000
70,000 65,842 61,779 58,370 58,469 60,000 55,881 53,110 48,930 50,000 46,346
40,000 51,624 43,850 44,442 47,410 40,464 42,293 30,000 37,462 37,259 20,000 12,751 10,000 4,289 12,646 13,588 14,520 14,027 14,369 14,218 9,885 8,462 9,087 11,468 0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Note: Shared Research based on company data Note: Hakata Hankyu opened in March 2011. Sales by store FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. All stores 348,969 373,903 381,925 426,838 420,612 430,731 427,534 446,070 451,708 YoY -2.1% 7.1% 2.1% 11.8% -1.5% 2.4% -0.7% 4.3% 1.3% Hankyu Main Store 131,087 124,458 144,698 192,214 197,839 218,358 220,515 240,300 250,747 YoY -9.0% -5.1% 16.3% 32.8% 2.9% 10.4% 1.0% 9.0% 4.3% Hanshin Umeda Main Store 96,045 92,350 89,239 82,413 71,590 58,919 55,830 55,522 51,383 YoY 4.2% -3.8% -3.4% -7.6% -13.1% -17.7% -5.2% -0.6% -7.5% Total branches 120,512 156,954 147,981 152,204 151,175 153,447 151,188 150,248 149,576 YoY 1.7% 30.2% -5.7% 2.9% -0.7% 1.5% -1.5% -0.6% -0.4% Senri Hankyu 17,317 17,265 17,186 17,390 16,550 16,744 16,398 16,283 15,999 YoY 0.4% -0.3% -0.5% 1.2% -4.8% 1.2% -2.1% -0.7% -1.7% Sakai Kitahanada Hankyu 10,165 10,260 10,286 10,123 9,350 8,856 8,104 3,809 - YoY -0.6% 0.9% 0.3% -1.6% -7.6% -5.3% -8.5% -53.0% - Kawanishi Hankyu 18,458 18,105 17,711 17,549 16,758 16,633 16,285 16,024 15,682 YoY -1.0% -1.9% -2.2% -0.9% -4.5% -0.7% -2.1% -1.6% -2.1% Takarazuka Hankyu 9,167 8,906 8,885 8,690 7,856 7,840 7,740 7,678 7,565 YoY -1.5% -2.8% -0.2% -2.2% -9.6% -0.2% -1.3% -0.8% -1.5% Nishinomiya Hankyu 21,763 23,197 24,180 25,116 24,841 25,178 25,279 25,835 25,748 YoY 13.4% 6.6% 4.2% 3.9% -1.1% 1.4% 0.4% 2.2% -0.3% Kobe Hankyu 9,1439,705------YoY -7.8%6.1%------Sanda Hankyu 1,437 1,410 1,394 1,392 1,392 1,410 1,422 1,423 1,391 YoY -0.1% -1.9% -1.1% -0.1% 0.0% 1.3% 0.8% 0.1% -2.2% Shijokawaramachi Hankyu2,288------YoY -50.0%------Hakata Hankyu 4,289 37,259 37,462 40,464 42,293 43,850 44,442 47,410 51,624 YoY - 768.7% 0.5% 8.0% 4.5% 3.7% 1.4% 6.7% 8.9% Hankyu Men's Tokyo 8,462 9,087 11,468 12,646 13,588 14,520 14,027 14,369 14,218 YoY -14.4% 7.4% 26.2% 10.3% 7.4% 6.9% -3.4% 2.4% -1.1% Oi Hankyu Food Hall 386 4,745 4,557 4,683 4,690 4,723 4,657 4,578 4,518 YoY - 1129.3% -4.0% 2.8% 0.1% 0.7% -1.4% -1.7% -1.3% Tsuzuki Hankyu 7,991 7,827 5,987 5,231 5,091 5,021 5,005 4,835 4,776 YoY -4.2% -2.1% -23.5% -12.6% -2.7% -1.4% -0.3% -3.4% -1.2% Amagasaki Hanshin 3,633 3,727 3,786 3,818 3,687 3,578 2,782 2,913 2,962 YoY 80.1% 2.6% 1.6% 0.8% -3.4% -3.0% -22.2% 4.7% 1.7% Hanshin Nishinomiya 4,660 4,579 4,506 4,539 4,535 4,535 4,474 4,546 4,558 YoY -1.6% -1.7% -1.6% 0.7% -0.1% 0.0% -1.3% 1.6% 0.3% Hanshin Mikage 1,353 882 573 563 544 559 556 539 531 YoY -24.3% -34.8% -35.0% -1.7% -3.4% 2.8% -0.6% -3.0% -1.5% Note: Shared Research based on company data Note: Sakai Kitahanada Hankyu closed in July 2017, Kobe Hankyu closed in March 2012, Shijokawaramachi Hankyu closed in August 2010, Hakata Hankyu opened in March 2011, and Oi Hankyu Food Hall opened in March 2011.
In FY03/19, Hankyu Hanshin Department Stores derives 28.0% of sales from apparel, 19.0% from personal items (shoes, bags, and fashion jewelry), 18.6% from accessories (cosmetics, fine jewelry, and watches), and 28.4% from food products. This lineup is notable for the high percentage of sales apparel continues to deliver and the fact that total sales of apparel, personal items, and accessories are at record levels. High sales of apparel sets the company apart in an era when many department stores have shrunk their apparel offerings due to the aging of core customers, changing consumer preferences, and the rise of fast fashion and other specialty stores employing the SPA model (an apparel business format that integrates design, manufacture, and retail; SPA referring to specialty-store retailers of private-label apparel). GPM is highest on apparel, followed by accessories (including cosmetics) and personal items. GPM is relatively low on foods, being around 10pp lower than for apparel.
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Sales by product FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Total sales 348,969 373,903 381,925 426,838 420,612 430,731 427,534 446,070 451,708 YoY -2.1% 7.1% 2.1% 11.8% -1.5% 2.4% -0.7% 4.3% 1.3% Apparel 120,362 126,647 125,996 135,608 134,720 131,862 126,663 129,158 126,585 YoY -3.6% 5.2% -0.5% 7.6% -0.7% -2.1% -3.9% 2.0% -2.0% Menswear and goods 26,134 31,182 34,459 36,754 37,645 38,640 37,873 40,394 41,304 YoY -0.4% 19.3% 10.5% 6.7% 2.4% 2.6% -2.0% 6.7% 2.3% Womenswear and goods 68,040 69,790 68,208 74,150 72,901 69,569 66,185 65,964 63,980 YoY -5.0% 2.6% -2.3% 8.7% -1.7% -4.6% -4.9% -0.3% -3.0% Children's wear and goods 12,115 12,155 10,432 10,776 10,657 10,721 10,369 10,445 9,960 YoY -0.2% 0.3% -14.2% 3.3% -1.1% 0.6% -3.3% 0.7% -4.6% Other apparel 14,070 13,519 12,897 13,927 13,516 12,931 12,235 12,353 11,340 YoY -5.2% -3.9% -4.6% 8.0% -3.0% -4.3% -5.4% 1.0% -8.2% Personal items 49,710 57,342 63,214 78,052 77,845 78,412 77,584 82,680 85,834 YoY 0.0% 15.4% 10.2% 23.5% -0.3% 0.7% -1.1% 6.6% 3.8% Household goods 13,023 13,340 12,670 14,618 13,456 13,139 13,334 13,713 13,351 YoY -3.9% 2.4% -5.0% 15.4% -7.9% -2.4% 1.5% 2.8% -2.6% Food 114,078 124,917 125,369 132,128 131,351 130,868 131,399 130,755 128,492 YoY -0.1% 9.5% 0.4% 5.4% -0.6% -0.4% 0.4% -0.5% -1.7% Restaurants and cafes 8,002 7,895 10,126 12,068 10,453 9,278 9,120 9,2879,805 YoY -2.6% -1.3% 28.3% 19.2% -13.4% -11.2% -1.7% 1.8% 5.6% Accessories 39,418 39,612 40,693 50,322 48,969 63,813 66,104 77,064 84,023 YoY -3.7% 0.5% 2.7% 23.7% -2.7% 30.3% 3.6% 16.6% 9.0% Services 2,778 2,481 2,265 2,291 2,286 1,852 1,796 1,892 2,177 YoY -14.5% -10.7% -8.7% 1.1% -0.2% -19.0% -3.0% 5.3% 15.1% Other 1,594 1,666 1,587 1,747 1,528 1,501 1,530 1,518 1,438 YoY -7.1% 4.5% -4.7% 10.1% -12.5% -1.8% 1.9% -0.8% -5.3% Note: Shared Research based on company data Note: Personal items include shoes, bags, and fashion jewelry. Accessories include cosmetics, fine jewelry, and watches.
Sales by product category
(JPYbn) Apparel Personal items Accessories Food Household goods, restaurants, cafes, services 500 446 452 427 421 431 428 26 27 26 400 374 382 31 28 26 356 349 25 27 128 27 131 25 132 131 131 131 300 125 114 125 114 84 50 49 64 66 77 41 200 41 39 40 78 78 78 78 83 86 50 50 57 63 100 125 120 127 126 136 135 132 127 129 127
0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Note: Shared Research based on company data
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Sales per sqm FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPY'000) Act. Act. Act. Act. Act. Act. Act. Act. Act. All stores 1,222 1,316 1,340 1,408 1,439 1,531 1,525 1,635 1,720 YoY -7.8% 7.7% 1.8% 5.0% 2.2% 6.4% -0.4% 7.2% 5.2% Hankyu Main Store 2,616 2,486 1,959 1,966 2,023 2,236 2,261 2,454 2,545 YoY -9.0% -5.0% -21.2% 0.4% 2.9% 10.5% 1.1% 8.5% 3.7% Hanshin Umeda Main Store 1,799 1,730 1,671 1,543 1,662 1,781 1,670 1,661 1,678 YoY 4.2% -3.8% -3.4% -7.6% 7.7% 7.1% -6.2% -0.6% 1.0% Total branches 662 869 938 1,001 998 1,019 1,011 1,062 1,120 YoY -7.6% 31.3% 8.0% 6.7% -0.3% 2.1% -0.7% 5.0% 5.5% Senri Hankyu 1,255 1,251 1,245 1,260 1,199 1,213 1,184 1,171 1,151 YoY 0.4% -0.3% -0.5% 1.2% -4.8% 1.2% -2.4% -1.1% -1.7% Sakai Kitahanada Hankyu 635 641 643 633 584 554 507 238 - YoY -0.6% 0.9% 0.3% -1.6% -7.6% -5.3% -8.5% - - Kawanishi Hankyu 1,189 1,166 1,141 1,130 1,079 1,071 1,049 1,032 1,010 YoY -1.0% -1.9% -2.2% -0.9% -4.5% -0.7% -2.1% -1.6% -2.1% Takarazuka Hankyu 1,275 1,238 1,236 1,366 1,346 1,275 1,259 1,249 1,230 YoY -1.5% -2.8% -0.2% 10.6% -1.5% -5.2% -1.3% -0.8% -1.5% Nishinomiya Hankyu 871 928 967 1,005 994 1,005 1,007 1,029 1,026 YoY 13.4% 6.6% 4.2% 3.9% -1.1% 1.2% 0.2% 2.2% -0.3% Kobe Hankyu 275------YoY -7.8%------Sanda Hankyu 671 658 650 650 650 658 663 664 649 YoY -0.1% -1.9% -1.1% -0.1% 0.0% 1.3% 0.8% 0.1% -2.2% Hakata Hankyu 205 891 895 967 1,011 1,048 1,062 1,133 1,234 YoY - 334.4% 0.5% 8.0% 4.5% 3.7% 1.4% 6.7% 8.9% Hankyu Men's Tokyo 739 794 1,002 1,105 1,187 1,269 1,226 1,255 1,242 YoY -14.4% 7.4% 26.2% 10.3% 7.4% 6.9% -3.4% 2.4% -1.1% Oi Hankyu Food Hall 378 2,280 2,149 2,250 2,297 2,313 2,281 2,242 2,213 YoY - 503.0% -5.8% 4.7% 2.1% 0.7% -1.4% -1.7% -1.3% Tsuzuki Hankyu 489 479 519 777 756 745 743 718 709 YoY -4.2% -2.1% 8.3% 49.7% -2.7% -1.4% -0.3% -3.4% -1.2% Amagasaki Hanshin 682 699 710 716 692 874 975 1,020 1,037 YoY 80.1% 2.6% 1.6% 0.8% -3.4% 26.4% 11.5% 4.7% 1.7% Hanshin Nishinomiya 932 916 902 908 907 907 895 910 912 YoY -1.6% -1.7% -1.6% 0.7% -0.1% 0.0% -1.3% 1.6% 0.3% Hanshin Mikage 363 389 713 700 677 695 691 670 660 YoY -24.3% 7.2% 83.0% -1.7% -3.4% 2.8% -0.6% -3.0% -1.5% Note: Shared Research based on company data Note: Sakai Kitahanada Hankyu closed in July 2017, Kobe Hankyu closed in March 2012, Shijokawaramachi Hankyu closed in August 2010, Hakata Hankyu opened in March 2011, and Oi Hankyu Food Hall opened in March 2011.
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Customer count by store FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 ('000) Act. Act. Act. Act. Act. Act. Act. Act. Act. All stores 143,046 166,555 163,252 166,844 165,590 155,902 156,379 153,639 156,766 YoY -3.1% 16.4% -2.0% 2.2% -0.8% -5.9% 0.3% -1.8% 2.0% Hankyu Main Store 37,689 34,010 40,027 46,839 48,955 49,003 49,191 50,566 50,297 YoY -8.8% -9.8% 17.7% 17.0% 4.5% 0.1% 0.4% 2.8% -0.5% Hanshin Umeda Main Store 45,594 46,003 44,591 41,743 37,726 28,866 28,345 28,014 32,955 YoY 1.2% 0.9% -3.1% -6.4% -9.6% -23.5% -1.8% -1.2% 17.6% Total branches 59,754 86,538 78,629 78,257 78,904 78,026 78,843 75,058 73,512 YoY -2.3% 44.8% -9.1% -0.5% 0.8% -1.1% 1.0% -4.8% -2.1% Senri Hankyu 6,114 6,025 5,417 5,328 5,648 5,115 5,004 4,974 4,898 YoY 0.3% -1.5% -10.1% -1.6% 6.0% -9.4% -2.2% -0.6% -1.5% Sakai Kitahanada Hankyu 7,402 7,347 7,526 7,244 6,767 6,425 5,535 1,987 - YoY -0.6% -0.7% 2.4% -3.7% -6.6% -5.1% -13.9% -64.1% - Kawanishi Hankyu 5,722 4,946 5,747 5,889 5,842 6,483 6,332 6,262 6,061 YoY -9.6% -13.6% 16.2% 2.5% -0.8% 11.0% -2.3% -1.1% -3.2% Nishinomiya Hankyu 12,836 13,094 13,341 13,394 13,492 13,111 12,996 13,295 13,483 YoY 7.0% 2.0% 1.9% 0.4% 0.7% -2.8% -0.9% 2.3% 1.4% Kobe Hankyu 2,8822,907------YoY -1.0%0.9%------Shijokawaramachi Hankyu1,624------YoY -52.8%------Hakata Hankyu 4,549 29,122 24,887 25,164 25,598 25,189 27,567 27,518 27,843 YoY - 540.2% -14.5% 1.1% 1.7% -1.6% 9.4% -0.2% 1.2% Hankyu Men's Tokyo 3,091 3,261 3,162 2,985 2,905 2,730 2,645 2,575 2,568 YoY -20.7% 5.5% -3.0% -5.6% -2.7% -6.0% -3.1% -2.6% -0.3% Oi Hankyu Food Hall 419 5,169 4,949 5,346 5,797 5,950 5,739 5,641 5,506 YoY - 1133.7% -4.3% 8.0% 8.4% 2.6% -3.6% -1.7% -2.4% Tsuzuki Hankyu 5,283 5,113 4,200 3,651 3,745 3,875 3,865 3,826 3,811 YoY -4.1% -3.2% -17.9% -13.1% 2.6% 3.5% -0.3% -1.0% -0.4% Hanshin Nishinomiya 4,361 4,281 4,148 4,099 4,069 4,061 4,054 4,074 4,458 YoY -1.1% -1.8% -3.1% -1.2% -0.7% -0.2% -0.2% 0.5% 9.4% Hanshin Mikage 5,471 5,273 5,252 5,157 5,041 5,087 5,138 4,902 4,881 YoY 21.4% -3.6% -0.4% -1.8% -2.2% 0.9% 1.0% -4.6% -0.4% Sales per employee FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPY) Act. Act. Act. Act. Act. Act. Act. Act. Act. All stores 2,440 2,245 2,339 2,558 2,540 2,763 2,734 2,903 2,881 YoY 1.0% -8.0% 4.2% 9.4% -0.7% 8.8% -1.0% 6.2% -0.8% Hankyu Main Store 3,478 3,659 3,615 4,104 4,041 4,456 4,483 4,752 4,985 YoY -0.2% 5.2% -1.2% 13.5% -1.5% 10.3% 0.6% 6.0% 4.9% Hanshin Umeda Main Store 2,107 2,007 2,001 1,974 1,898 2,041 1,970 1,982 1,559 YoY 3.0% -4.7% -0.3% -1.3% -3.9% 7.6% -3.5% 0.6% -21.3% Total branches 2,017 1,814 1,882 1,945 1,916 1,967 1,918 2,002 2,035 YoY 4.1% -10.1% 3.8% 3.3% -1.5% 2.6% -2.5% 4.4% 1.6% Senri Hankyu 2,832 2,866 3,173 3,264 2,930 3,274 3,277 3,274 3,266 YoY 0.1% 1.2% 10.7% 2.9% -10.2% 11.7% 0.1% -0.1% -0.2% Sakai Kitahanada Hankyu 1,373 1,396 1,367 1,397 1,382 1,378 1,464 1,917 - YoY 0.1% 1.7% -2.1% 2.2% -1.1% -0.2% 6.2% 30.9% - Kawanishi Hankyu 3,226 3,661 3,082 2,980 2,869 2,566 2,572 2,559 2,587 YoY 9.6% 13.5% -15.8% -3.3% -3.7% -10.6% 0.2% -0.5% 1.1% Nishinomiya Hankyu 1,695 1,772 1,812 1,875 1,841 1,920 1,945 1,943 1,910 YoY 6.0% 4.5% 2.3% 3.5% -1.8% 4.3% 1.3% -0.1% -1.7% Kobe Hankyu 3,1723,338------YoY -6.9%5.2%------Shijokawaramachi Hankyu1,409------YoY 6.0%------Hakata Hankyu 943 1,279 1,505 1,608 1,652 1,741 1,612 1,723 1,854 YoY - 35.7% 17.7% 6.8% 2.7% 5.4% -7.4% 6.9% 7.6% Hankyu Men's Tokyo 2,738 2,787 3,627 4,237 4,677 5,319 5,303 5,580 5,537 YoY 7.9% 1.8% 30.2% 16.8% 10.4% 13.7% -0.3% 5.2% -0.8% Oi Hankyu Food Hall 921 918 921 876 809 794 812 812 821 YoY - -0.4% 0.3% -4.9% -7.6% -1.9% 2.2% 0.0% 1.1% Tsuzuki Hankyu 1,513 1,531 1,425 1,433 1,359 1,296 1,295 1,264 1,253 YoY -0.1% 1.2% -6.9% 0.5% -5.1% -4.7% 0.0% -2.4% -0.8% Hanshin Nishinomiya 1,069 1,070 1,086 1,107 1,115 1,117 1,104 1,116 1,022 YoY -0.5% 0.1% 1.6% 1.9% 0.6% 0.2% -1.2% 1.1% -8.4% Hanshin Mikage 247 167 109 109 108 110 108 110 109 YoY -37.7% -32.4% -34.8% 0.1% -1.2% 1.8% -1.6% 1.7% -1.1% Note: Shared Research based on company data Note: Sakai Kitahanada Hankyu closed in July 2017, Kobe Hankyu closed in March 2012, Shijokawaramachi Hankyu closed in August 2010, Hakata Hankyu opened in March 2011, and Oi Hankyu Food Hall closed in March 2011.
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Supermarket business
Food FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 90,912 91,627 93,328 100,223 379,405 436,901 409,454 386,552 367,580 YoY 2.8% 0.8% 1.9% 7.4% 278.6% 15.2% -6.3% -5.6% -4.9% Operating profit 1,737 1,798 1,811 2,127 5,541 7,023 3,977 1,104 -438 YoY 21.9% 3.5% 0.7% 17.4% 160.5% 26.7% -43.4% -72.2% - Operating profit margin 1.9% 2.0% 1.9% 2.1% 1.5% 1.6% 1.0% 0.3% -0.1% Capital expenditures 1,649 1,618 3,918 5,281 10,409 12,883 9,724 9,226 9,048 YoY -43.9% -1.9% 142.2% 34.8% 97.1% 23.8% -24.5% -5.1% -1.9% Depreciation and amortization 1,857 1,782 1,853 1,963 6,068 - 5,858 5,746 5,600 YoY 2.4% -4.0% 4.0% 5.9% 209.1% - - -1.9% -2.5% EBITDA 3,594 3,580 3,664 4,090 11,609 7,023 9,835 6,850 5,162 YoY 11.0% -0.4% 2.3% 11.6% 183.8% -39.5% 40.0% -30.4% -24.6% EBITDA margin 4.0% 3.9% 3.9% 4.1% 3.1% 1.6% 2.4% 1.8% 1.4% Note: Shared Research based on company data Note: Figures through FY03/16 are totals for the supermarket and Izumiya businesses.
In the Supermarket business, the company has Izumiya (mainly GMSs and supermarkets), Hankyu Oasis (chiefly supermarkets), and food production companies that supply food items to the group’s supermarkets and department stores. Izumiya and Hankyu Oasis have combined sales of JPY330.9bn (FY03/19), making up around 90% of sales in the Supermarket business segment. Companies such as Hankyu Kitchen Yell Kansai, a home delivery business focused on food (FY03/19 sales of roughly JPY9.4bn), is managed through the Other business segment.
Izumiya Izumiya became a wholly owned subsidiary on June 1, 2014 through a share exchange. The transaction included the delivery of 53.6mn shares (10.0mn from treasury stock, and the remainder through a new share issuance) and an acquisition price of JPY43.4bn (leading to a gain on negative goodwill of JPY10.0bn in FY03/15). Prior to the acquisition of Izumiya, H2O’s intention was to diversify its retail business format, expanding from its core department store business to increase market shares in Kansai. At the time (end-FY03/14), it operated 71 Hankyu Oasis and other stores in the Supermarket business, generating sales of around JPY100.0bn.
Before becoming a subsidiary of H2O, in FY02/14 Izumiya had sales of JPY331.5bn and operating profit of JPY3.6bn. At the end of FY02/14, it was operating 93 stores (86 in Kansai, five in Kanto, and one other). Its corporate concept, encapsulated in the phrase “Goodly Goods at a Nice Price,” was to provide a stable supply of reliable, quality products. Izumiya developed private-brand products (StyleOne) in collaboration with Uny (centered in the Kanto and Tokai regions), Fuji (Chugoku and Shikoku), and Marushoku/Sunlive (Kyushu and Chugoku). Hankyu Oasis stores were mostly along the Hankyu Railway line, while Izumiya stores were in other areas of Kansai. Operating both was in line with H2O’s strategy for increasing market share in Kansai, and the company expected to generate synergies through the larger market scale. Izumiya FY03/17 FY03/18 FY03/19 Comp. store sales FY03/17 FY03/18 FY03/19 (JPYmn) Act. Act. Act. (YoY) Act. Act. Act. Sales 257,803 232,865 218,278 Food - -8.5% -3.8% YoY - -9.7% -6.3% Apparel - -10.8% -7.7% Gross profit 67,488 61,812 58,176 Household goods - -14.9% -10.8% YoY - -8.4% -5.9% Total - -9.9% -5.5% Gross profit margin 26.2% 26.5% 26.7% Store count FY03/17 FY03/18 FY03/19 Other operating revenue 15,602 14,726 14,725 Act. Act. Act. YoY --5.6%-0.0%Store count 868485 SG&A expenses 81,578 76,128 74,129 YoY -7.5% -2.3% 1.2% YoY --6.7%-2.6%Openings 122 SG&A ratio 31.6% 32.7% 34.0% Closures -7 -4 -2 Operating profit 1,513 411 -1,226 YoY - -72.8% - Operating profit margin 0.6% 0.2% -0.6% Note: Shared Research based on company data
As of end-March 2019, Izumiya had 85 stores, fewer than when it became a subsidiary. After H2O made Izumiya a subsidiary, it closed down unprofitable stores and closed GMSs outside the Kansai area. The company also promoted joint sourcing with Hankyu Oasis and the sharing of factories for food preparation. In addition, it sought to boost profitability by revamping stores
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that had deteriorated. To increase management efficiency, the company effectively transferred property management and development (land and buildings for stores) to H2O Asset Management, leaving Izumiya to concentrate on GMS and supermarket management reforms.
However, amid the rise of apparel specialty stores and drugstores, Izumiya’s GMSs lost competitiveness. Sales of apparel, household goods, and other GMS non-food items decreased, and in FY03/19 Izumiya reported an operating loss of JPY1.2bn. H2O says the Supermarket business on its own (around 70% of sales) would have generated some JPY3.0bn in operating profit (meaning that the loss on non-food items was more than JPY4.0bn). The company recognizes the need for urgent structural reform of GMSs that also handle non-food items, such as household goods (around 15% of sales) and apparel (approximately 10%). The company is pursuing efforts to generate additional earnings by moving retail spaces for drugs and cosmetics to joint ventures (equity-method affiliates).
The supplementary information provided in the company’s current earnings materials differs from reporting of Izumiya’s results at the time of acquisition; only GMS and supermarket operations are shown. At the time of acquisition, Izumiya also had a food product preparation business and a shopping center management business (management and development of land and buildings for stores). These businesses have effectively been hived off to the Shopping Center Management business (through a divesture on July 1, 2016). The former Izumiya did not become unprofitable. Rather, as a result of the divesture some JPY3.0– 4.0bn in operating profit is now being generated in the Shopping Center Management business.
Store openings and closures after the Izumiya merger Post-merger store changes Openings Closures FY03/15 Convenience store Higashimikuni 4-chome Osaka GMS Itabashi Tokyo Supermarket Senbonnakadachiuri Kyoto Supermarket Senbonkitaoji Kyoto FY03/16 Supermarket Hoenzaka Osaka GMS Oyama Tochigi Supermarket LaLaPort Expocity Osaka GMS Nishikishiwada Osaka Supermarket Nakamozu Osaka Intra-group lease Supermarket Kitasukematsu Osaka Intra-group lease Supermarket Minamisumiyoshi Osaka Int ra-group lease FY03/17 Supercenter Fukumachi Osaka GMS Yachiyo Chiba GMS Harborland Hyogo GMS Tsudaka Okayama GMS Ushiku Ibaraki GMS Suminodo Osaka Reconstruction Supermarket Abiko Osaka Reconstruction GMS Izumifuchu Osaka Reconstruction Supermarket Yamadanishi Osaka Reconstruction FY03/18 Supermarket Abiko Osaka Reconstruction GMS Kemigawahama Chiba Supermarket Yamadanishi Osaka Reconstruction Supermarket Saikudani Osaka GMS Hanazono Osaka Reconstruction GMS Fushimi Kyoto Reconstruction FY03/19 Supermarket Kishinosato Osaka GMS Daito Osaka Supermarket Shonai Osaka Relocation GMS Shonai Osaka Relocation Supermarket Suminodo Osaka Reconstruction Supermarket Fushimi Kyoto Reconstruction FY03/20 Supermarket Izumifuchu Osaka Reconstruction GMS Higashineyagawa Osaka Supermarket Hanazono Osaka Reconstruction GMS Izumisano Osaka Supermarket Shinchujo Osaka GMS Wakaeiwata Osaka GMS Miyazaki Miyazaki (year-end) 84 stores scheduled for changes (30 GMSs, seven supercenters, and 47 supermarkets and other) Note: Shared Research based on company data Hankyu Oasis Hankyu Oasis has its origins in Oasis, which was established in 1960; Hankyu Family Store, which was split off from the Hankyu Department Stores’ subsidiary Hankyu Kyoei Bussan; Hankyu Freshyell, a food sourcing company split off from Hankyu Kyoei Bussan; and Hankyu Nissho Store, a former subsidiary of Nihon Glass Shoji (now Nipro) that the company acquired. Hankyu Oasis has annual sales of approximately JPY110.0bn and operates 76 stores, mostly along the Hankyu Railway line. The company describes its aims as creating a lively market and making lifestyle proposals by providing beneficial food-related information.
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Hankyu Oasis FY03/17 FY03/18 FY03/19 Comp. store sales FY03/17 FY03/18FY03/19 (JPYmn) Act. Act. Act. (YoY) Act. Act. Act. Sales 114,850 116,798 112,592 Total -0.5% -0.9% -1.7% YoY - 1.7% -3.6% Store count FY03/17 FY03/18 FY03/19 Gross profit 29,812 30,058 28,956 Act. Act. Act. YoY - 0.8% -3.7% Store count 83 78 76 Gross profit margin 26.0% 25.7% 25.7% YoY 2.5% -6.0% -2.6% Other operating revenue 6,206 7,007 6,687 Openings 4 3 3 YoY - 12.9% -4.6% Closures -2 -8 -4 SG&A expenses 34,614 36,464 35,187 YoY - 5.3% -3.5% SG&A ratio 30.1% 31.2% 31.3% Operating profit 1,404 602 455 YoY - -57.1% -24.4% Operating profit margin 1.2% 0.5% 0.4% Note: Shared Research based on company data
Hankyu Oasis’ store openings and renovations since 2009 have focused on increasing its “high-quality food specialist stores” (the phrase it uses for stores that create a high-end ambiance through measures such as communicating face to face with customers, selling perishable foods by weight, offering highly specialized lineups, erecting large display cases, and holding cooking lessons). In 2018, the company adopted the new Kitchen & Market business format. The company is targeting “grocerant” (a portmanteau of “grocery” and “restaurant”) demand, which is gaining a growing amount of attention. In addition to expanding its offerings of prepared foods and offering dine-in areas, Hankyu Oasis is also providing spaces where people can cook and eat the fresh fish and meat products they purchase in its stores. Stores employing these approaches include Lucua Osaka, which opened in April 2018, and Fukushima Fukumaru 57, which began operations in May 2019.
Izumiya and Hankyu Oasis both have lower GPMs than large supermarket chains, but their SG&A expense ratios are similar to those of supermarket chains, so their OPMs are lower. Large supermarket operators typically have GPM of around 29%; in FY03/19, Izumiya had GPM of 26.7%, and Hankyu Oasis had GPM of 25.7%. These lower margins reflect a reliance on special sales and reward points (which are effectively discounts). Also, store sizes vary significantly, sapping efficiency. To improve profitability, Hankyu Oasis is working to standardize operations by paring down the number of products (SKUs), curtailing excessive promotions by revising its reward point system, and offering more prepared foods and other high-margin products.
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Shopping Center Management and Other businesses
Shopping Center Management, Other FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 23,738 38,656 48,507 49,360 44,405 47,609 64,121 65,713 64,684 YoY -1.1% 62.8% 25.5% 1.8% -10.0% 7.2% 34.7% 2.5% -1.6% Shopping Center Management 13,488 13,048 13,770 12,924 - - 9,970 10,367 8,736 YoY 4.7% -3.3% 5.5% -6.1% - - - 4.0% -15.7% Other 10,250 25,608 34,737 36,436 44,405 47,609 54,151 55,346 55,948 YoY -7.8% 149.8% 35.6% 4.9% 21.9% 7.2% 13.7% 2.2% 1.1% Operating profit 2,394 3,294 2,212 4,935 2,355 3,317 7,901 8,083 9,311 YoY -13.9% 37.6% -32.8% 123.1% -52.3% 40.8% 138.2% 2.3% 15.2% Operating profit margin 10.1% 8.5% 4.6% 10.0% 5.3% 7.0% 12.3% 12.3% 14.4% Shopping Center Management 624 1,740 1,594 1,394 - - 5,038 4,985 4,281 YoY -17.1% 178.8% -8.4% -12.5% - - - -1.1% -14.1% Operating profit margin 4.6% 13.3% 11.6% 10.8% - - 50.5% 48.1% 49.0% Other 1,770 1,554 618 3,541 2,355 3,317 2,863 3,098 5,030 YoY -12.7% -12.2% -60.2% 473.0% -33.5% 40.8% -13.7% 8.2% 62.4% Operating profit margin 17.3% 6.1% 1.8% 9.7% 5.3% 7.0% 5.3% 5.6% 9.0% Capital expenditures 13,234 3,882 6,480 6,822 22,302 3,529 16,734 7,431 11,584 YoY 65.2% -70.7% 66.9% 5.3% 226.9% -84.2% 374.2% -55.6% 55.9% Shopping Center Management 9,782 237 1,834 4,260 - - 6,651 1,558 6,727 YoY 205.6% -97.6% 673.8% 132.3% - - - -76.6% 331.8% Other 3,452 3,645 4,646 2,562 22,302 3,529 10,083 5,873 4,857 YoY -28.3% 5.6% 27.5% -44.9% 770.5% -84.2% 185.7% -41.8% -17.3% Depreciation and amortization 2,896 4,046 4,572 4,525 4,414 4,611 5,512 6,157 6,392 YoY 4.9% 39.7% 13.0% -1.0% -2.5% 4.5% 19.5% 11.7% 3.8% Shopping Center Management 477 979 921 955 - - 2,046 2,254 2,274 YoY 8.9% 105.2% -5.9% 3.7% - - - 10.2% 0.9% Other 2,419 3,067 3,651 3,570 4,414 4,611 3,466 3,903 4,118 YoY 4.1% 26.8% 19.0% -2.2% 23.6% 4.5% -24.8% 12.6% 5.5% EBITDA 5,290 7,340 6,784 9,460 6,769 7,928 13,413 14,240 15,703 YoY -4.5% 38.8% -7.6% 39.4% -28.4% 17.1% 69.2% 6.2% 10.3% EBITDA margin 22.3% 19.0% 14.0% 19.2% 15.2% 16.7% 20.9% 21.7% 24.3% Shopping Center Management 1,101 2,719 2,515 2,349 - - 7,084 7,239 6,555 YoY -7.6% 147.0% -7.5% -6.6% - - - 2.2% -9.4% EBITDA margin 8.2% 20.8% 18.3% 18.2% - - 71.1% 69.8% 75.0% Other 4,189 4,621 4,269 7,111 6,769 7,928 6,329 7,001 9,148 YoY -3.7% 10.3% -7.6% 66.6% -4.8% 17.1% -20.2% 10.6% 30.7% EBITDA margin 40.9% 18.0% 12.3% 19.5% 15.2% 16.7% 11.7% 12.6% 16.4% Note: Shared Research based on company data Note: Figures for the Shopping Center Management business through FY03/14 are those for the PM business. Shopping Center Management business In FY03/19, the Shopping Center Management business generated sales of JPY8.7bn and operating profit of JPY4.3bn. A subsidiary, H2O Asset Management, manages and develops real estate for the commercial facilities Izumiya had operated. Another subsidiary, Hankyu Shopping Center Development, manages Mosaic Mall Kohoku, Mosaic Box, Kyoto Avanti, and Rakuhoku Hankyu Square, and develops shopping centers. The real estate this business took over from Izumiya is contributing around JPY3.0–4.0bn to operating profit (contributed JPY3.6bn in FY03/17 and JPY3.5bn in FY03/18, not disclosed for FY03/19). Other companies in the Shopping Center Management business are Kanso, which manages and maintains building equipment and provides security and cleaning services; and Hankyu Maintenance Service, which provides store repairs, cleaning, and security services (mainly for group companies). Oi Development, which runs the Ours Inn Hankyu business hotel in front of the Oimachi train station in Tokyo, was part of the Property Management (PM) segment until FY03/14. Now, it is part of the Other business segment.
Other business Main constituents of the Other business are home delivery platform (FY03/19 sales, including internal transactions, of JPY9.4bn), which is centered on the Kansai region. Restaurant chains (JPY8.9bn) include Kazokutei, which the company sold to SRS Holdings (TSE1: 8163) in February 2020. In-store interior works generated sales of JPY6.2bn, and hotel operations provided JPY5.4bn. Other business performance includes dividends H2O Retailing Corporation (non-consolidated basis) receives from subsidiaries. (Typically, a significant amount is recorded in Q1 and eliminated through adjustments.)
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Other business sales (including internal transactions) (JPYmn) Home delivery platform Restaurant chains In-store interior works Hotels Restaurants Staffing Department Store Tomonokai Rental management of commercial facilities 45,000
40,000 3,871 3,167 35,000 3,515 3,406 3,501 2,877 6,324 2,663 2,920 3,123 30,000 3,554 2,645 3,184 4,915 5,311 4,735 5,232 5,442 25,000 3,331 3,583 6,814 6,672 2,976 5,187 5,108 6,353 5,129 6,368 6,247 20,000 6,894 3,738 15,000 3,460 8,393 8,260 3,832 4,219 8,466 8,563 8,547 8,762 8,858 1,789 10,000 1,922 3,442 4,829 11,800 11,783 5,000 10,905 10,510 10,379 10,227 9,895 9,406 6,662 6,959 0 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Note: Shared Research based on company data
Cost structure
Cost of sales The Department Store business, which accounts for more than 50% of sales, has GPM of around 24%. The Supermarket business, which generates some 40% of sales, has GPM of approximately 26%.
Consignment sales (“purchase as sold”) and outright purchases In the Department Store business, around 80% of sales are of products sourced on a “consignment sales” basis. This means that products on display or in store inventories are recognized as the inventories of the apparel manufacturers or other companies that supply the products rather than as H2O’s inventories. Under this arrangement, purchase and sale transactions occur simultaneously when products are sold to consumers. Accordingly, H2O bears no inventory risks (risks of price changes, storage, or obsolescence). By contrast, with “outright purchases,” H2O buys products from a supplier and recognizes those items as its own inventories until they are sold. H2O therefore assumes inventory risk. In general, products purchased on this basis have higher GPM to account for this risk. In revenue recognition under IFRS, consignment sales transactions are recognized using the net method (=gross profit) rather than the gross method (=cost of merchandise [sold] + gross profit). Industry peer J. Front Retailing (TSE1: 3086) adopted IFRS, using the net method, in FY03/17.
SG&A expenses The company’s SG&A expense ratio is in the neighborhood of 25–26%. The largest component of SG&A expenses, personnel expenses, accounts for around JPY95.0bn per year (more than 10% of sales). As of end-FY03/19, the company had 8,793 employees. In addition, on average more than 16,000 temporary employees work at the company.
Leasing fees are just under JPY40.0bn (more than 4% of sales). The company’s major department stores (such as Hankyu Main Store and Hanshin Umeda Main Store) lease property from Hankyu Hanshin Toho Group companies, such as Hankyu Railway, Hankyu Hanshin Properties, and Hanshin Electric Railway. (Each year, the company pays nearly JPY10.0bn in leasing fees to Hankyu Railway and around JPY3.0bn to Hanshin Electric Railway). Izumiya leases store real estate from Sumitomo Mitsui Trust Bank and other companies.
Depreciation and amortization expenses and transportation expenses each equate to less than 2% of sales.
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SG&A expenses FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. SG&A expenses 118,602 129,509 131,859 139,636 220,059 242,538 240,842 243,459 245,813 YoY -3.8% 9.2% 1.8% 5.9% 57.6% 10.2% -0.7% 1.1% 1.0% % of sales 25.5% 25.6% 25.1% 24.2% 26.0% 26.5% 26.7% 26.4% 26.5% Personnel 47,924 49,410 49,129 52,368 88,648 95,626 95,351 95,930 94,804 YoY -6.5% 3.1% -0.6% 6.6% 69.3% 7.9% -0.3% 0.6% -1.2% % of sales 10.3% 9.8% 9.4% 9.1% 10.5% 10.4% 10.6% 10.4% 10.2% Rents 21,142 23,192 23,556 25,172 36,152 37,660 37,073 38,210 39,306 YoY -4.0% 9.7% 1.6% 6.9% 43.6% 4.2% -1.6% 3.1% 2.9% % of sales 4.5% 4.6% 4.5% 4.4% 4.3% 4.1% 4.1% 4.1% 4.2% Advertising and display 6,382 8,108 8,673 9,311 16,821 17,382 15,409 14,266 14,483 YoY 0.2% 27.0% 7.0% 7.4% 80.7% 3.3% -11.4% -7.4% 1.5% % of sales 1.4% 1.6% 1.7% 1.6% 2.0% 1.9% 1.7% 1.5% 1.6% Depreciation and amortization 9,599 12,183 12,772 12,840 14,272 15,305 14,962 15,251 16,422 YoY -5.5% 26.9% 4.8% 0.5% 11.2% 7.2% -2.2% 1.9% 7.7% % of sales 2.1% 2.4% 2.4% 2.2% 1.7% 1.7% 1.7% 1.7% 1.8% Outsourcing 6,467 7,166 7,832 7,777 17,476 19,607 19,570 19,086 19,593 YoY -3.4% 10.8% 9.3% -0.7% 124.7% 12.2% -0.2% -2.5% 2.7% % of sales 1.4% 1.4% 1.5% 1.3% 2.1% 2.1% 2.2% 2.1% 2.1% Sales commissions 4,024 4,487 4,179 4,842 6,023 7,009 9,848 13,229 12,323 YoY 4.4% 11.5% -6.9% 15.9% 24.4% 16.4% 40.5% 34.3% -6.8% % of sales 0.9% 0.9% 0.8% 0.8% 0.7% 0.8% 1.1% 1.4% 1.3% Transportation 5,159 5,876 6,121 6,375 7,347 13,158 14,459 14,496 15,451 YoY 1.1% 13.9% 4.2% 4.1% 15.2% 79.1% 9.9% 0.3% 6.6% % of sales 1.1% 1.2% 1.2% 1.1% 0.9% 1.4% 1.6% 1.6% 1.7% Other 17,901 19,084 19,593 20,947 33,316 36,787 34,165 32,987 33,428 YoY 0.0% 6.6% 2.7% 6.9% 59.0% 10.4% -7.1% -3.4% 1.3% % of sales 3.8% 3.8% 3.7% 3.6% 3.9% 4.0% 3.8% 3.6% 3.6% Note: Shared Research based on company data Number of employees FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (consolidated) Total (excluding temporary employees) 5,258 5,693 5,542 5,416 8,590 8,456 8,528 8,868 8,793 Department Store 3,447 3,289 3,163 3,078 3,014 2,917 2,942 3,258 3,180 Supermarket 1,016 1,003 1,015 995 4,381 3,541 3,593 3,576 3,524 Shopping Center Management 185 177 133 126 - 365 352 347 353 Other 610 1,224 1,231 1,217 1,195 1,633 1,641 1,687 1,736 Temporary employees (average) 7,272 8,750 8,817 9,048 19,485 19,120 18,608 17,792 16,628 Note: Shared Research based on company data Note: In FY03/18 and FY03/19, figures for the Department Store business are totals for the Department Store business and the Kobe/Takatsuki business. Figures for the Supermarket business through FY03/16 are totals for the supermarket and Izumiya businesses. Figures for the Shopping Center Management business through FY03/14 are those for the PM business.
Principal leased properties (FY03/19) Segment Subsidiary Location Lessee Space (sqm) Department Store Hankyu Hanshin Department Stores Hankyu Main Store Hankyu Railw ay 144,262 Hankyu Hanshin Properties Hankyu Hanshin Properties 17,816 Toho Hanshin Umeda Main Store Hanshin Electric Railway 58,118 Hankyu Railw ay Hankyu Men's Tokyo Toho 18,049 Nishinomiya Hankyu Hankyu Railway 38,643 Hakata Hankyu JR Hakata City 54,710 Kobe/Takatsuki H2O Asset Management Sogo Kobe Hanshin Electric Railw ay 64,896 Muromachi Building, ot her Seibu Takatsuki Mitsubishi UFJ Lease & Finance 23,659 Shinko Management Seibu Takatsuki Nippon Express 4,592 Muromachi Building, ot her Supermarket Izumiya Izumiya Yao Sumitomo Mitsui Trust Bank 34,198 Izumiya Senrigaoka Sumit omo Mit sui T rust Bank 24,399 Izumiya Hakubaicho Sumit omo Mit sui T rust Bank 16,525 Izumiya Nishinomiya Gardens Hankyu Railw ay 15,916 Izumiya Y aw at a Sumit omo Mit sui Finance and Leasing 25,630 Shopping Center Management H2O Asset Management Qanat Rakuhoku Sumitomo Mitsui Trust Bank 48,302 Hankyu Shopping Center Development Mosaic Mall Kohoku Daiichi Kyodo Kaihatsu 180,765 Note: Shared Research based on company data
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Depreciation and amortization FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Depreciation 9,821 12,637 13,511 13,598 15,149 16,230 15,857 16,223 17,399 YoY -5.5% 28.7% 6.9% 0.6% 11.4% 7.1% -2.3% 2.3% 7.2% Department Store 5,067 6,807 7,145 7,147 4,704 4,758 4,561 4,386 5,477 YoY -12.9% 34.3% 5.0% 0.0% -34.2% 1.1% -4.1% -3.8% 24.9% % of total 51.6% 53.9% 52.9% 52.6% 31.1% 29.3% 28.8% 27.0% 31.5% Supermarket 1,857 1,782 1,853 1,963 6,068 6,916 5,858 5,746 5,600 YoY 2.4% -4.0% 4.0% 5.9% 209.1% 14.0% -15.3% -1.9% -2.5% % of total 18.9% 14.1% 13.7% 14.4% 40.1% 42.6% 36.9% 35.4% 32.2% Shopping Center Management 477 979 921 955 - - 2,046 2,254 2,274 YoY 8.9% 105.2% -5.9% 3.7% - - - 10.2% 0.9% % of total 4.9% 7.7% 6.8% 7.0% - - 12.9% 13.9% 13.1% Other 2,419 3,067 3,651 3,570 4,414 4,611 3,466 3,903 4,118 YoY 4.1% 26.8% 19.0% -2.2% 23.6% 4.5% -24.8% 12.6% 5.5% % of total 24.6% 24.3% 27.0% 26.3% 29.1% 28.4% 21.9% 24.1% 23.7% Adjustments - - -60 -38 -37 -56 -76 -67 -71 Note: Shared Research based on company data Note: In FY03/18 and FY03/19, figures for the Department Store business are totals for the Department Store business and the Kobe/Takatsuki business. Figures for the Supermarket business through FY03/16 are totals for the supermarket and Izumiya businesses. Figures for the Shopping Center Management business through FY03/14 are those for the PM business. Capital expenditures FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Capital expenditures 34,348 12,869 33,084 13,532 38,914 20,110 28,060 26,443 32,039 YoY -17.2% -62.5% 157.1% -59.1% 187.6% -48.3% 39.5% -5.8% 21.2% Department Store 19,463 7,366 22,790 1,457 6,237 3,769 3,372 9,878 11,531 YoY -36.2% -62.2% 209.4% -93.6% 328.1% -39.6% -10.5% 192.9% 16.7% % of total 56.7% 57.2% 68.9% 10.8% 16.0% 18.7% 12.0% 37.4% 36.0% Supermarket 1,649 1,618 3,918 5,281 10,409 12,883 9,724 9,226 9,048 YoY -43.9% -1.9% 142.2% 34.8% 97.1% 23.8% -24.5% -5.1% -1.9% % of total 4.8% 12.6% 11.8% 39.0% 26.7% 64.1% 34.7% 34.9% 28.2% Shopping Center Management 9,782 237 1,834 4,260 - - 6,651 1,558 6,727 YoY 205.6% -97.6% 673.8% 132.3% - - - -76.6% 331.8% % of total 28.5% 1.8% 5.5% 31.5% - - 23.7% 5.9% 21.0% Other 3,452 3,645 4,646 2,562 22,302 3,529 10,083 5,873 4,857 YoY -28.3% 5.6% 27.5% -44.9% 770.5% -84.2% 185.7% -41.8% -17.3% % of total 10.1% 28.3% 14.0% 18.9% 57.3% 17.5% 35.9% 22.2% 15.2% Adjustments - - -106 -29 -35 -72 -1,771 -95 -125 Note: Shared Research based on company data Note: In FY03/18 and FY03/19, figures for the Department Store business are totals for the Department Store business and the Kobe/Takatsuki business. Figures for the Supermarket business through FY03/16 are totals for the supermarket and Izumiya businesses. Figures for the Shopping Center Management business through FY03/14 are those for the PM business.
Business tie-ups
H2O strives to make active use of external resources and proactively enters into alliances with other companies. Key business alliances are outlined in detail below.
Cocokara Fine (TSE1: 3098): In May 2019, H2O announced the establishment of a joint venture and a memorandum of understanding on a business alliance with Cocokara Fine, a major drugstore operator. The agreement had four elements. First, Cocokara Fine would invest in a company split off from Izumiya to sell household-related products. Second, Cocokara Fine would supply health and beauty products to a food product sales company split off from Izumiya. Third, Cocokara Fine would introduce the S-point loyalty program at its stores in the Kansai region (around 400 out of 1,300 stores nationwide). Fourth, the food product sales company split off from Izumiya would supply food products to Cocokara Fine. In December 2019, the two companies set up a joint venture called CFIZ (49% held by H20, 51% by Cocokara Fine) to create more attractive retail spaces for drugs and cosmetics at Izumiya. By end-August 2021, the companies plan to have this joint venture operate 37 stores.
SRS Holdings (TSE1: 8163): In May 2019, H2O unveiled a capital and business alliance with SRS Holdings, which runs eating and drinking establishments, principally in the Kansai region. This alliance had four main elements: adoption of the S-point loyalty program at SRS group restaurants; consideration of joint purchasing and logistics in the restaurant business; opening restaurants operated by the SRS group in H2O’s shopping centers; joint business using vegetables, rice, and deli items produced and prepared by the H2O group. H2O acquired around 3% of SRS’ outstanding shares. In November 2019, H2O announced a transfer of its Kazokutei and Sun Laurie restaurant operators to the SRS Holdings group through a share exchange. H2O considers
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SRS a strategic business partner. Through the ongoing holding of SRS’ shares, H2O aims to strengthen its relationship with SRS to “build an integrated lifestyle industry.”
Kansai Super Market (TSE1: 9919): In October 2016, H2O announced a capital and business alliance with Kansai Super Market, which operates 65 supermarkets in the Kansai region. H2O believes the two companies have strong business affinity due to their having the same business bases and regions of operation. In addition to joint purchasing and other product-related measures, Kansai Super Market has introduced the S-point loyalty program, and the companies are working on initiatives they think their combined scale in the Kansai region should enable them to achieve. H2O accepted a third-party allocation of new shares from Kansai Super Market (10.02% of issued shares). The companies have also agreed on a basic framework covering five areas: Kansai Super Market’s stores’ handling of H2O’s products, joint purchasing of products to be sold in both companies’ stores, the introduction of the S-point loyalty program at Kansai Super Market’s stores, the joint development of a next- generation sales register for use at both companies’ supermarkets, and sales of mid-year and year-end gifts provided by Hankyu Hanshin Department Stores at Kansai Super Market’s stores.
Takashimaya (TSE1: 8233): In October 2008, H2O and Takashimaya announced an agreement to forge a business and capital alliance with a view to a merger. The stated aim was to mutually benefit from sharing Takashimaya’s “management resources and expertise in the creation of a large store network and development of commercial facilities” and H2O’s “management resources and expertise related to the diversification and cultivation of retail businesses centered on department stores in the Kansai region.” On this basis, the two companies each held around 10% of the other’s outstanding shares. However, in March 2010 the companies announced that they had abandoned merger plans and instead formed a new business alliance. The new agreement was limited to joint product development, joint purchasing of equipment and materials, collaboration in the mid-year and year- end gift businesses, and the joint development of retail spaces. In March 2015, the companies announced a reduction in their mutual shareholdings from 10% to 5%.
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Market trends
Department store industry
The “Current Survey of Commerce” by the Ministry of Economy, Trade and Industry (METI) puts Japanese department store sales at around JPY6.3tn, around half its level of more than JPY12tn in the early 1990s. Shared Research sees several reasons for this decline, including a falloff in the sometimes excessive popularity of luxury brands; the move toward casual fashion and other changes in consumer preferences; the emergence of business formats that put a premium on convenience (dedicated apparel shops, drugstores, and convenience stores); the graying of the customer base at department stores; shrinking populations (particularly in rural areas); and the rise of e-commerce, which has made it easier for individuals to find even relatively rare items. METI’s department store statistics are for “retailers with sales floor area of 3,000sqm or more in 23 wards of Tokyo and cities designated by government ordinance, or with sales floor area of 1,500sqm or more in other areas, with 50% or less of this sales floor area dedicated to self-service formats, and with apparel, food products, and housing items each accounting for 50% or less of sales.”
Department store sales
(JPYbn) 10,000
8,000
6,000 9,900 9,576 9,315 9,086 8,783 8,759 8,611 8,429 4,000 7,844 7,054 6,727 6,723 6,649 6,893 6,702 6,792 6,561 6,535 6,396
2,000
0 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010FY2011FY2012FY2013FY2014FY2015FY2016FY2017FY2018 (JPYbn) 10,000 Apparel Beverages and foods Other
2,470 2,348 8,000 2,247 2,156 2,128 2,114 2,078 2,041 1,890 2,427 1,714 6,000 2,365 2,331 1,655 1,634 1,771 1,810 2,296 1,630 1,684 1,786 1,844 2,246 2,209 2,193 2,181 1,844 2,155 2,020 4,000 1,952 1,947 1,914 1,922 1,928 1,927 1,887 1,852 1,801
5,002 4,863 4,737 4,634 2,000 4,409 4,436 4,340 4,207 3,799 3,320 3,120 3,141 3,106 3,201 3,090 3,056 2,888 2,840 2,752
0 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010FY2011FY2012FY2013FY2014FY2015FY2016FY2017FY2018 Source: Shared Research based on METI’s “Current Survey of Commerce”
Department store sales in FY2018 have shrunk by approximately 35% compared with FY2000. Particularly notable has been the drop in apparel sales, which have fallen by roughly 45% from their FY2000 level, to JPY2.8tn. Shared Research believes this drop is attributable to the fact that many department stores have been unable to respond sufficiently to changing consumer preferences and so continued to lose out in competition with specialty stores adopting the SPA model (an apparel business format that integrates design, manufacture, and retail; SPA referring to specialty-store retailers of private-label apparel). Since FY2000, sales of food products have fallen by around 25%, to JPY1.8tn, with sales of other products also decreasing by around 25%.
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Department store sales (Tokyo, Nagoya, and Osaka)
(JPYbn) Tokyo, Nagoya, and Osaka Other regions 8,000 7,381 7,000 6,584 6,292 6,153 6,145 6,217 6,212 6,174 5,978 5,953 5,887 6,000 5,755 4,183 5,000 3,758 3,585 3,495 3,456 3,421 3,395 3,363 3,238 3,157 3,050 2,941 4,000
3,000
2,000 3,198 2,827 2,708 2,658 2,689 2,796 2,818 2,812 2,740 2,796 2,837 2,814 1,000
0 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 Source: Shared Research based on Japan Department Stores Association data
A 1991 revision to the Large-Scale Retail Store Law (which was enacted in 1974) lent significant influence to the department store business. Until the revision, Large-Scale Retail Stores Council could dictate opening dates, total floor spaces, store closing hours, and number of holidays at department stores, volume retailers, and other large stores. (The rationale was that this oversight allowed the council to appropriately protect business opportunities for small and medium-sized retailers.) The ability to dictate total floor spaces was particularly hobbling to large retailers’ efforts to open new stores. Amid mounting criticism that these rules amounted to non-tariff barriers, the law was revised in 1991. The Commercial Activities Adjustments Board, which had been located in the Chamber of Commerce and Industry and been involved in the opening of large stores, was disbanded. These revisions paved the way for opening large shopping centers centered in suburban areas, and demand that had previously centered around stations and in urban areas moved to the suburbs. The impact of the legislative revisions was particularly profound in outlying regions.
According to materials from the Japan Department Stores Association, the drop in department store sales in Tokyo, Nagoya, and Osaka has been limited to slightly more than 10% in the decade since 2008. In other regions, the sales decline has been around 30%. In addition to shrinking rural populations, the demand shift from metropolitan to suburban areas has had a major impact on department store sales.
Department store sales floor areas (Tokyo, Nagoya, and Osaka)
('000 sqm) 8,000 Tokyo, Nagoya, and Osaka Other regions 6,819 7,000 6,632 6,469 6,409 6,324 6,237 6,092 6,035 5,903 6,000 5,673 5,491 5,263 5,000 4,849 4,736 4,000 4,595 4,516 4,385 4,326 4,228 4,257 4,123 3,939 3,800 3,573 3,000
2,000
1,000 1,970 1,896 1,874 1,893 1,939 1,912 1,864 1,779 1,780 1,734 1,690 1,690 0 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 Source: Shared Research based on Japan Department Stores Association data
Sales per area
(JPY'000/sqm) All department stores in Japan Hankyu Main Store Hankyu Hanshin Department Stores 3,000 2,616 2,486 2,454 2,545 2,500 2,236 2,261 1,959 1,966 2,023 2,000 1,635 1,720 1,439 1,531 1,525 1,316 1,340 1,408 1,500 1,222
1,000 1,055 1,070 961 956 965 990 1,008 1,018 1,001 1,029 500
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Shared Research based on company materials and data from the Japan Department Stores Association
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Department store competitors The company’s main competitors in the Department Store business are J. Front Retailing (TSE1: 3086), Isetan Mitsukoshi Holdings (TSE1: 3099), and Takashimaya (TSE1: 8233).
J. Front Retailing was formed in 2007 through a merger between Daimaru and Matsuzakaya. Daimaru traces its roots back to the formation of a kimono fabric store called Daimonjiya in 1717. Matsuzakaya originated with a store founded in 1611 selling kimono fabric and accessories. Daimaru’s flagship stores are in Shinsaibashi (Osaka), Umeda (Osaka), Tokyo, Kobe, and Sapporo. Matsuzakaya has flagship stores in Nagoya and Ueno. J. Front Retailing also has a Real Estate segment, operating the GINZA SIX shopping complex, which it opened on the site of the former Matsuzakaya Ginza store. In December 2019, J. Front Retailing announced a tender offer for its subsidiary, PARCO (TSE1: 8251), which is expected to become a wholly owned subsidiary.
Isetan Mitsukoshi Holdings was formed in 2008 through a merger between Mitsukoshi and Isetan. Mitsukoshi originated with the founding of Echigoya, a kimono fabrics dealer, in 1673. Isetan’s origins date back to 1886 and the opening of the Iseya Tanji Kimono Store. Stores bearing the Isetan name in Japan include the Shinjuku Main Store, as well as stores in Tachikawa, Urawa, and Sagamihara. Mitsukoshi stores include the Nihombashi Main Store, as well as a store in Ginza, Nagoya, Fukuoka, and Sapporo. Mitsukoshi also has stores overseas, in Shanghai, Tianjin, Chengdu, Singapore, Bangkok, Kuala Lumpur, and Florida. Mitsukoshi had a business alliance in place with Isetan from July 1996 through December 2007.
Takashimaya was founded in 1831 as a secondhand clothing and cotton cloth store. The company has flagship stores in Osaka, Tokyo (Nihombashi), Yokohama, Shinjuku, and Kyoto. JR Nagoya Takashimaya is a joint venture with the Central Japan Railway Company (TSE1: 9022), with Takashimaya holding a 33.4% stake. Takashimaya’s other stores in Japan are in Tamagawa, Tachikawa, Omiya, and Kashiwa, among other cities. Overseas, Takashimaya has stores in Singapore, Shanghai, Ho Chi Minh City, and Bangkok. H2O has a capital and business alliance with Takashimaya, and the two companies hold 5% of each other’s outstanding shares.
Department store competitors in Japan
Latest full-year results (JPYmn) Ticker Company 3-year Operating Description Sales CA GR profit
Hankyu Department Stores and Hanshin Department Stores merged in 2007; also operates 8242 H2O Retailing 921,871 0.4% 22,765 supermarket chains Oasis and GMS Izumiya
Two department stores Daimaru and Matsuzakaya merged in 2007; has PARCO as a subsidiary; 3086 J. Front Retailing 459,840 - 40,891 opened a large-scale complex GINZA SIX in April 2017
Established through a merger between Isetan and Mitsukoshi; the flagship stores Isetan Shinjuku 3099 Isetan Mitsukoshi Holdings 1,196,803 -2.4% 29,229 and Nihombashi Mitsukoshi boast leading sales in Japan
A long-standing department store operating in Tokyo, Osaka, and other cities nationwide; its 8233 Takashimaya 912,848 -0.6% 26,661 Singapore store and subsidiary Toshin Development (operating malls) make large contributions to the group
Source: Shared Research based on individual companies’ materials Note: Sales at J. Front Retailing and Takashimaya refer to sales revenue.
Japanese-affiliated department store competitors overseas Ticker Company Overseas department store business % of Sales total Description (JPYmn) sales Has total of 34 stores in China, Singapore, Malaysia, Thailand, Italy, US, and other; Mitsukoshi Paris, the first overseas store for the company, was opened in 1971 in France (closed in 2010); opened Isetan Isetan Mitsukoshi 3099 61,655 5.2% Singapore in 1972, Mitsukoshi Rome (Italy) in 1975, Isetan Kuala Lumpur (Malaysia) in 1990, Shin Kong Holdings Mitsukoshi first store (Taipei) in 1991, Isetan Bangkok (Thailand) in 1992, Isetan Tianjin (China) in 1993; China and Southeast Asia represent the majority of overseas sales
Has four overseas stores in Singapore, China, Vietnam, and Thailand; aiming to expand business areas centering on ASEAN; opened Takashimaya New York, the first Japanese department store overseas, in 8233 Takashimaya 23,427 2.8% 1958 (closed in 2010); opened store in Singapore (1993), Taipei (1994), China (2012), Vietnam (2016), and Thailand (2018)
Source: Shared Research based on individual companies’ materials
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Sales rankings by stores of major department store operators Sales rankings by st ore Tax-free sales Sales CAGR (JPYmn) FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 % of total 5-year 3-year 1 Isetan Shinjuku 265,451 258,497 272,465 268,597 274,149 288,879 29,659 10.3% 1.7% 1.2% 2 Hankyu Main Store 192,214 197,839 218,358 220,515 240,300 250,747 30,981 12.4% 5.5% 2.8% 3 Seibu Ikebukuro 184,453 187,330 190,018 186,597 185,149 184,091 - 0.0% -0.6% 4 JR Nagoya Takashimaya 128,632 155,760 162,715 - 5 Takashimaya Osaka 120,685 122,526 127,630 129,952 141,450 147,271 19% 4.1% 2.9% 6 Nihombashi Mitsukoshi 173,640 165,560 168,316 165,127 155,357 144,775 3,355 2.3% -3.6% -3.0% 7 Takashimaya Yokohama 135,370 134,848 132,035 129,431 131,649 132,528 - -0.4% 0.1% 8 Nihombashi Takashimaya 129,901 129,843 136,631 132,908 134,241 129,308 - -0.1% -1.1% 9 Kintetsu Abeno Harukas 91,643 103,645 102,630 102,317 117,673 124,575 - 6.3% 4.0% 10 Matsuzakaya Nagoya 124,149 125,625 124,834 120,685 117,646 119,170 3,502 2.9% -0.8% -0.9% Source: Shared Research based on individual companies’ materials and data from WWD Japan
Performance at major department stores Competitors (JPYmn) FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 H2O Ret ailing Consolidated sales 465,033 505,588 525,154 576,852 844,819 915,690 901,221 921,871 926,872 Gross profit 129,157 139,466 142,529 156,949 241,417 266,363 263,384 266,224 266,235 Gross profit margin 27.8% 27.6% 27.1% 27.2% 28.6% 29.1% 29.2% 28.9% 28.7% SG&A expenses 118,602 129,509 131,859 139,636 220,059 242,538 240,842 243,459 245,813 SG&A ratio 25.5% 25.6% 25.1% 24.2% 26.0% 26.5% 26.7% 26.4% 26.5% Operating profit 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 Operat ing profit margin 2.3% 2.0% 2.0% 3.0% 2.5% 2.6% 2.5% 2.5% 2.2% Recurring profit 11,210 10,309 11,338 18,160 21,219 23,060 21,725 24,272 21,376 Recurring profit margin 2.4% 2.0% 2.2% 3.1% 2.5% 2.5% 2.4% 2.6% 2.3% ROE 2.0% 0.7% 3.5% 0.2% 5.4% 5.6% 5.6% 5.4% 0.8% ROA (RP-based) 3.3% 3.0% 3.3% 4.9% 4.2% 3.8% 3.5% 3.7% 3.2% J. Front Retailing Revenue 950,102 941,415 1,092,756 1,146,319 1,149,529 1,163,564 452,505 469,915 459,840 Gross profit 229,588 226,646 245,615 244,130 243,663 245,532 212,567 212,935 212,396 Gross profit margin 24.2% 24.1% 22.5% 21.3% 21.2% 21.1% 47.0% 45.3% 46.2% SG&A expenses 209,265 205,052 214,757 202,313 201,572 197,494 167,668 166,688 166,882 SG&A ratio 22.0% 21.8% 19.7% 17.6% 17.5% 17.0% 37.1% 35.5% 36.3% Operating profit 20,323 21,594 30,857 41,816 42,091 48,038 41,727 49,546 40,891 Operating profit margin 2.1% 2.3% 2.8% 3.6% 3.7% 4.1% 9.2% 10.5% 8.9% Pre-tax profit 21,092 22,941 32,202 40,502 40,404 47,910 42,608 48,271 42,126 Pre-tax margin 2.2% 2.4% 2.9% 3.5% 3.5% 4.1% 9.4% 10.3% 9.2% ROE 2.8% 5.8% 3.6% 8.9% 5.3% 6.9% 7.6% 7.5% 6.8% ROA (pre-tax profit-based) 2.6% 2.8% 3.5% 4.2% 4.2% 4.7% 4.2% 4.9% 4.0% Iset an Mit sukoshi Holdings Consolidated sales 1,220,772 1,239,921 1,236,333 1,321,512 1,272,130 1,287,253 1,253,457 1,256,386 1,196,803 Gross profit 342,005 347,788 347,410 370,022 355,456 361,868 365,609 367,282 348,282 Gross profit margin 28.0% 28.0% 28.1% 28.0% 27.9% 28.1% 29.2% 29.2% 29.1% SG&A expenses 331,012 323,954 320,771 335,376 322,373 328,761 341,674 342,869 319,053 SG&A ratio 27.1% 26.1% 25.9% 25.4% 25.3% 25.5% 27.3% 27.3% 26.7% Operating profit 10,993 23,834 26,639 34,646 33,083 33,107 23,935 24,413 29,229 Operat ing profit margin 0.9% 1.9% 2.2% 2.6% 2.6% 2.6% 1.9% 1.9% 2.4% Recurring profit 27,093 38,452 34,217 38,440 34,563 36,704 27,418 27,325 31,995 Recurring profit margin 2.2% 3.1% 2.8% 2.9% 2.7% 2.9% 2.2% 2.2% 2.7% ROE 0.6% 13.6% 5.3% 4.2% 5.5% 4.7% 2.6% -0.2% 2.3% ROA (RP-based) 0.9% 1.9% 2.2% 2.8% 2.6% 2.6% 1.8% 1.9% 2.3% Takashimaya Operating revenue 869,476 858,123 870,333 904,180 912,523 929,588 923,601 907,805 912,848 Gross profit 212,249 208,245 209,700 214,673 214,492 214,878 211,996 218,405 217,403 Gross profit margin 25.9% 25.8% 25.7% 25.4% 25.2% 24.8% 24.6% 25.8% 25.7% SG&A expenses 244,489 239,512 239,169 243,969 243,618 245,605 240,835 245,957 256,695 SG&A ratio 29.8% 29.7% 29.3% 28.8% 28.6% 28.4% 28.0% 29.1% 30.3% Operating profit 18,173 21,099 25,476 29,099 32,022 32,972 34,000 35,318 26,661 Operat ing profit margin 2.2% 2.6% 3.1% 3.4% 3.8% 3.8% 3.9% 4.2% 3.1% Recurring profit 22,484 24,355 29,866 33,350 35,904 37,785 37,215 38,606 31,234 Recurring profit margin 2.7% 3.0% 3.7% 3.9% 4.2% 4.4% 4.3% 4.6% 3.7% ROE 4.7% 3.6% 5.2% 5.4% 5.9% 6.0% 5.1% 5.6% 3.7% ROA (RP-based) 2.8% 3.0% 3.7% 3.9% 3.8% 3.9% 3.8% 3.8% 3.0% Source: Shared Research based on individual companies’ materials Note: Figures may differ from company materials due to differences in rounding methods. Note: J. Front Retailing adopted IFRS in FY2016. Figures through FY2015 are according to J-GAAP.
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Tax-free sales Tax-free sales (JPYmn) FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 Japan Department Stores Association (member companies) Total sales 6,174,279 5,978,014 5,953,256 6,805,127 Tax-free sales 194,300 184,300 270,400 339,600 % of total sales 3.1% 3.1% 4.5% 5.0% H2O Ret ailing Hankyu Main Store Total sales 192,214 197,839 218,358 220,515 240,300 250,747 Tax-free sales 2,346 6,490 16,455 16,655 26,800 30,981 % of total sales 1.2% 3.3% 7.5% 7.6% 11.2% 12.4% J. Front Retailing Daimaru Matsuzakaya department stores Total sales 678,286 671,767 677,511 646,990 659,608 663,523 Tax-free sales 6,442 15,156 33,860 29,415 47,902 58,890 % of total dep't store sales 0.9% 2.3% 5.0% 4.5% 7.3% 8.9% Iset an Mit sukoshi Holdings Department stores Total sales 679,085 660,147 648,615 634,280 Tax-free sales 60,266 52,272 67,511 75,554 % of total sales 8.9% 7.9% 10.4% 11.9% Takashimaya Domestic dep't stores (parent + four subsidiaries) Total sales 747,812 745,039 755,041 745,146 765,037 768,448 Tax-free sales 8,300 14,000 29,900 34,400 48,700 54,700 % of total sales 1.1% 1.9% 4.0% 4.6% 6.4% 7.1% Source: Shared Research based on individual companies’ materials Note: Figures may differ from company materials due to differences in rounding methods. Note: Department store sales for Isetan Mitsukoshi Holdings indicate total sales for individual stores.
Because department stores handle a wide range of items, they compete with drugstores, as well as apparel, furniture, supermarket, and other specialty stores. Shared Research thinks that, as they cannot compete on price with low-cost competitors moving large volumes of national brand products, department stores must create a certain cachet through sourcing capabilities and sophisticated product lineups. The recent popularization of e-commerce has increased opportunities for consumers to purchase products in small quantities directly from manufacturers. To be successful in this environment, department stores themselves are actively engaging in e-commerce initiatives. We think that department stores are being called on to organically link offline and online shopping, offering physical displays and purchasing experiences at their stores, as well as virtual displays, product introductions, and ease of purchase through e-commerce.
Scale of the B2C online market (left) and B2C online product sales, by product (right, 2018, market size of JPY9.3tn)
(JPYtn) Food, beverages, liquor 20 2% 3% 3% 18% Home appliances, audio and video equipment, PC and peripherals Books, movies, and music 15 19% Cosmetics and pharmaceuticals
Home goods, furniture, interior 10 18.0 goods 16.5 18% 15.1 Apparel and accessories 12.8 13.8 5 11.2 Automobiles, bikes, and parts 8.5 9.5 7.8 17% Office goods and stationeries 13% 0 Other CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 7%
Source: Shared Research based on METI materials
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Supermarket industry
According to METI’s statistics, sales in the supermarket industry have been stable at around JPY12–13tn since FY2000. Whereas department store sales are sensitive to economic fluctuations and consumer sentiment, supermarkets are relatively impervious to such factors, as they mainly provide foods and other daily necessities. That said, the sales mix has changed. Food and beverage sales grew around 51% from FY2000 to JPY9.8tn in FY2018. Over that same period, sales of apparel were down 59%, to JPY1.1tn, and sales of other items (personal items, furniture, home electronics, and daily necessities) decreased 36%, to JPY2.2tn. Whereas supermarkets remained competitive in the food and beverage category, in apparel and other items, they lost share to specialty stores over this period.
Supermarket sales
(JPYbn) 14,000
12,000
10,000
8,000
12,978 13,251 13,293 13,148 12,965 13,090 13,152 6,000 12,695 12,645 12,726 12,647 12,597 12,499 12,564 12,824 12,815 12,513 12,852 12,906
4,000
2,000
0 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
(JPYbn) Beverages and foods Apparel Other 14,000
12,000 2,867 2,395 2,184 2,208 2,192 2,977 2,935 2,981 3,450 3,351 3,247 3,094 2,936 2,940 2,973 3,018 2,949 2,875 2,985 1,188 1,125 10,000 1,324 1,303 1,236 1,496 1,459 1,412 2,020 1,842 1,638 1,529 2,310 2,204 2,163 2,066 8,000 2,726 2,590 2,419
6,000 9,449 9,545 9,694 9,835 8,338 8,505 8,512 8,858 9,103 4,000 7,457 7,396 7,525 7,786 8,024 8,001 6,519 6,703 7,060 7,244 2,000
0 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 Source: Shared Research based on METI’s “Current Survey of Commerce” Supermarket competitors
Main supermarket competitors
Latest full-year results (JPYmn) Ticker Company 3-year Operating Description Sales CA GR profit
Hankyu Department Stores and Hanshin Department Stores merged in 2007; also operates 8242 H2O Retailing 921,871 0.4% 22,765 supermarket chains Oasis and GMS Izumiya
The largest supermarket chain in the Tokyo Metropolitan area, under the Aeon group; has 3222 United Super Markets Holdings 679,276 1.5% 11,811 Maruetsu, Kasumi, MaxValu Kanto among others
Supermarket chain in the Tama area in Tokyo; has drugstore chain subsidiary; also operates high- 8182 Inageya 242,967 -0.8% 2,279 end supermarkets; has business ties with Aeon
One of the leading supermarket operators in Japan; focuses on the Tokyo Metropolitan area and 8194 Life 678,211 3.5% 12,285 the Kinki region; an equity-method affiliate of Mitsubishi Corporation; a Nichiryu group company
Operates supermarkets mainly in Saitama Prefecture; strong in standardizing store operations and 9974 Belc 222,880 7.7% 9,818 its own logistics structure; highly profitable; has ties with Aeon
Source: Shared Research based on individual companies’ materials
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Performance at major supermarkets Competitors (JPYmn) FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 H2O Ret ailing Consolidated sales 465,033 505,588 525,154 576,852 844,819 915,690 901,221 921,871 926,872 Gross profit 129,157 139,466 142,529 156,949 241,417 266,363 263,384 266,224 266,235 Gross profit margin 27.8% 27.6% 27.1% 27.2% 28.6% 29.1% 29.2% 28.9% 28.7% SG&A expenses 118,602 129,509 131,859 139,636 220,059 242,538 240,842 243,459 245,813 SG&A ratio 25.5% 25.6% 25.1% 24.2% 26.0% 26.5% 26.7% 26.4% 26.5% Operating profit margin 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 Operating profit margin 2.3% 2.0% 2.0% 3.0% 2.5% 2.6% 2.5% 2.5% 2.2% Recurring profit margin 11,210 10,309 11,338 18,160 21,219 23,060 21,725 24,272 21,376 Recurring profit margin 2.4% 2.0% 2.2% 3.1% 2.5% 2.5% 2.4% 2.6% 2.3% ROE 2.0% 0.7% 3.5% 0.2% 5.4% 5.6% 5.6% 5.4% 0.8% ROA (RP-based) 3.3% 3.0% 3.3% 4.9% 4.2% 3.8% 3.5% 3.7% 3.2% United Super Markets Holdings Consolidated sales - - - - - 649,539 670,475 677,557 679,276 Gross profit - - - - - 183,194 189,124 192,269 194,674 Gross profit margin - - - - - 28.2% 28.2% 28.4% 28.7% SG&A expenses - - - - - 183,430 189,136 192,892 197,910 SG&A ratio - - - - - 28.2% 28.2% 28.5% 29.1% Operating profit margin - - - - - 14,024 14,320 14,068 11,811 Operating profit margin - - - - - 2.2% 2.1% 2.1% 1.7% Recurring profit margin - - - - - 13,862 14,185 14,188 12,253 Recurring profit margin - - - - - 2.1% 2.1% 2.1% 1.8% ROE - - - - - 4.1% 5.5% 5.4% 3.8% ROA (RP-based) - - - - - 5.5% 5.6% 5.5% 4.7% Inageya Consolidated sales 211,966 211,157 212,980 222,403 232,081 248,571 249,132 245,932 242,967 Gross profit 57,899 58,089 58,811 62,036 65,701 69,928 69,860 70,135 70,169 Gross profit margin 27.3% 27.5% 27.6% 27.9% 28.3% 28.1% 28.0% 28.5% 28.9% SG&A expenses 62,091 62,162 63,189 67,368 70,699 75,422 76,460 75,480 76,577 SG&A ratio 29.3% 29.4% 29.7% 30.3% 30.5% 30.3% 30.7% 30.7% 31.5% Operating profit margin 3,784 3,934 3,498 2,676 3,254 3,320 2,396 3,597 2,279 Operating profit margin 1.8% 1.9% 1.6% 1.2% 1.4% 1.3% 1.0% 1.5% 0.9% Recurring profit margin 4,071 4,138 3,846 3,074 3,622 3,682 2,653 3,844 2,583 Recurring profit margin 1.9% 2.0% 1.8% 1.4% 1.6% 1.5% 1.1% 1.6% 1.1% ROE 1.5% 2.7% 5.8% 2.5% 2.3% 1.9% 1.3% 2.2% -2.5% ROA (RP-based) 5.2% 4.8% 4.1% 3.4% 4.0% 3.8% 2.7% 3.9% 2.6% Life Consolidated sales 466,895 488,235 505,004 519,953 568,717 612,458 634,643 658,274 678,211 Gross profit 123,426 131,409 136,212 141,212 155,049 169,716 176,855 185,005 195,185 Gross profit margin 26.4% 26.9% 27.0% 27.2% 27.3% 27.7% 27.9% 28.1% 28.8% SG&A expenses 127,307 135,214 143,747 148,548 161,279 174,412 182,522 192,383 203,382 SG&A ratio 27.3% 27.7% 28.5% 28.6% 28.4% 28.5% 28.8% 29.2% 30.0% Operating profit margin 10,046 11,065 7,402 7,634 10,823 12,831 12,664 12,094 12,285 Operating profit margin 2.2% 2.3% 1.5% 1.5% 1.9% 2.1% 2.0% 1.8% 1.8% Recurring profit margin 9,850 10,873 7,308 7,702 10,928 12,982 12,834 12,550 12,831 Recurring profit margin 2.1% 2.2% 1.4% 1.5% 1.9% 2.1% 2.0% 1.9% 1.9% ROE 7.4% 8.5% 5.8% 7.0% 10.0% 14.5% 13.6% 9.9% 10.2% ROA (RP-based) 5.9% 6.5% 4.2% 4.2% 5.6% 6.2% 5.9% 5.6% 5.4% Belc Consolidated sales 109,519 121,692 130,822 142,405 158,866 178,639 191,164 208,730 222,880 Gross profit 28,214 31,473 33,581 36,646 41,342 46,251 49,189 54,062 57,566 Gross profit margin 25.8% 25.9% 25.7% 25.7% 26.0% 25.9% 25.7% 25.9% 25.8% SG&A expenses 24,762 26,919 28,929 31,649 35,511 39,409 41,538 46,285 49,394 SG&A ratio 22.6% 22.1% 22.1% 22.2% 22.4% 22.1% 21.7% 22.2% 22.2% Operating profit margin 5,032 6,250 6,375 6,887 7,283 8,409 9,164 9,521 9,818 Operating profit margin 4.6% 5.1% 4.9% 4.8% 4.6% 4.7% 4.8% 4.6% 4.4% Recurring profit margin 5,243 6,464 6,608 7,134 7,541 8,788 9,562 9,963 10,370 Recurring profit margin 4.8% 5.3% 5.1% 5.0% 4.7% 4.9% 5.0% 4.8% 4.7% ROE 8.8% 10.4% 9.6% 10.4% 10.7% 11.5% 12.3% 12.3% 10.8% ROA (RP-based) 9.4% 10.8% 10.0% 9.7% 9.2% 9.7% 9.9% 9.7% 9.3% Source: Shared Research based on individual companies’ materials Note: Figures may differ from company materials due to differences in rounding methods.
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Chinese visitors to Japan, by airport
('000 people) Kansai International Airport Haneda Int'l Airport and Narita Int'l Airport 3,500 2,961 3,000 2,436 2,500 2,188
2,000 1,771 2,300
1,500 1,204 1,820 1,565 855 833 859 1,404 1,000 661 716 534 609 618 500 655 408 367 354 0 223 279 327 314 277 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 Source: Shared Research based on “Statistical Survey on Legal Migrants” (Ministry of Justice)
Since 2014, Kansai Airport has become a major point of entry to Japan for overseas visitors, particularly visitors from China. Whereas department store sales were formerly driven by internal demand, more recently department stores have targeted and captured demand from overseas visitors.
Population trends and future estimates in the Kansai region
('000 people) Kyoto Osaka Hyogo Nara Wakayama 19,513 19,513 19,492 20,000 18,925 19,191 19,340 19,312 18,991 18,441 18,482 17,864 17,168 16,431 15,691 15,000
10,000
5,000
0 CY1980 CY1985 CY1990 CY1995 CY2000 CY2005 CY2010 CY2015 CY2020 CY2025 CY2030 CY2035 CY2040 CY2045
Source: Shared Research based on “Population Statistics” (Ministry of Internal Affairs and Communications) and “Regional Population Projection for Japan” (National Institute of Population and Social Security Research)
Like other parts of Japan, the Kansai region is experiencing falling rates of childbirth and graying population, and the population is forecast to shrink over the medium to long term. To sustain performance in this environment, companies need to raise their share of consumption per person (increase regional market share) or capture more demand from outside the region (including from overseas).
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Strengths and weaknesses
Strengths
◤ Ability to create retail spaces that attract consumers (in Kansai, from outside the region, and from overseas) without relying excessively on retailer tenant revenues: Many retail spaces in the company’s department stores are designed to project a specific taste by combining products selected from multiple manufacturers and brands. Other department stores, by contrast, often leave the design of retail spaces entirely at tenants’ discretion (a business model focused on leasing space). H2O says consumers in Kansai and other regions applaud the design of its retail space designs. Such spaces help attract overseas customers and boost sales from Japanese and inbound consumers alike. Marketwide, the department store industry is shrinking, with sales having fallen more than 30% since 2000. H2O’s Department Store segment, meanwhile, is generating record sales. Over the past five years, sales at Hankyu Hanshin Department Stores (excluding the Kobe/Takatsuki business) have grown at a CAGR of 1.1%. At a CAGR of 5.5%, sales growth has been particularly noteworthy at Hankyu Main Store, a flagship store. (Among Japanese department stores, sales are second only to the Isetan Main Store. Sales growth at Hankyu Main Store divide roughly 50/50 between Japanese and inbound customers).
◤ Highly convenient, attractive locations: The company’s Hankyu Main Store, Hanshin Umeda Main Store, and other department stores are situated near terminal stations in large cities. Branch stores are also in good locations, typically at stations along the Hankyu Railway and Hanshin Electric Railway lines. These locations hark back to the retailers’ origins as spinoffs from railway operators. While the company does operate some department stores in other areas, such as Hakata Hankyu and Hankyu Men’s Tokyo, the company says these stores are located in prime commercial locations and enjoy a competitive advantage compared with retailers that emerged later.
◤ The Hankyu and Hanshin brands: In addition to H2O, the Hankyu Hanshin Toho Group includes Hankyu Hanshin Holdings (TSE1: 9042) and Toho (TSE1: 9602). In addition to department stores and supermarkets, the group is active in the real estate, hotel, and entertainment businesses, with close ties to the Kansai region. Hankyu and Hanshin are among Kansai’s best-known brands. The S-point loyalty program, which is used throughout the group, has around 7.5mn members, more than one-third the Kansai region’s population (of approximately 20.0mn).
Weaknesses
◤ Significant lags between decision-making and results due to the time it takes to build and rebuild department stores: The Hanshin Umeda Main Store is under redevelopment. Phase one construction started in spring 2015, and the company plans a grand reopening in autumn 2021, once phase two construction is complete. In 2014, the company announced plans to open Ningbo Hankyu in China, which is now scheduled to open in autumn 2020. Makeovers of Izumiya’s GMSs typically take one to two years, as the process requires rebuilding or renovation. Shared Research thinks the company’s business format is the reason both forward-looking and retrospective measures take time. We think such time lags may lead to lost opportunities stemming from changes in the business environment, changing trends in customer preferences, and technological advances. (In the past, the company has fallen short of targets set in its medium-term management plans.) The company may have less executional agility than companies that can open stores more easily, such as drugstores, apparel retailers, and other companies adopting different business formats, as well as online retailers.
◤ Supermarket business hampered by weak competitiveness of the GMS format: The company’s Department Store business continues to grow, despite an industrywide sales decline. However, earnings are low in the Supermarket business; the segment generated an operating loss in FY03/19. The reason, Shared Research believes, is that the company’s GMSs have weak competitiveness. In the Supermarket business, sales were JPY367.6bn. Izumiya accounted for JPY218.3bn of this. Of Izumiya’s 85 stores, 34 are GMSs (as of end-FY03/19). The supermarket sections of GMSs generate profits, but sections that carry daily necessities, apparel, and other non-food items are losing ground to drugstores and specialty stores, such as apparel manufacturers following the SPA model (an apparel business format that integrates design, manufacture, and retail; SPA referring to specialty-store retailer of private-label apparel). We infer that this situation arose as competitors have honed their competitive edge since 2014, when Izumiya became a subsidiary. Shared Research believes reliance on GMSs is a competitive disadvantage for H2O.
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◤ Little experience of business development overseas: Ningbo Hankyu (Zhejiang Province, China), which H2O plans to open in autumn 2020, will be its first overseas department store. Next, the company plans to move into the ASEAN region and other areas where populations are expanding and economic growth is high. Peer companies Takashimaya (TSE1: 8233) and Isetan Mitsukoshi Holdings (TSE1: 3099) have already forayed overseas, so they enjoy some degree of name recognition and have built up customer bases and experience outside Japan. H2O has not amassed such expertise. Responding to local demand will take time and may result in unexpected losses.
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Historical performance and financial statements Income statement
Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 465,033 505,588 525,154 576,852 844,819 915,690 901,221 921,871 926,872 YoY -1.1% 8.7% 3.9% 9.8% 46.5% 8.4% -1.6% 2.3% 0.5% Cost of sales 335,876 366,122 382,625 419,903 603,402 649,327 637,837 655,647 660,637 Gross profit 129,157 139,466 142,529 156,949 241,417 266,363 263,384 266,224 266,235 YoY -1.7% 8.0% 2.2% 10.1% 53.8% 10.3% -1.1% 1.1% 0.0% Gross profit margin 27.8% 27.6% 27.1% 27.2% 28.6% 29.1% 29.2% 28.9% 28.7% SG&A expenses 118,602 129,509 131,859 139,636 220,059 242,538 240,842 243,459 245,813 YoY -3.8% 9.2% 1.8% 5.9% 57.6% 10.2% -0.7% 1.1% 1.0% SG&A ratio 25.5% 25.6% 25.1% 24.2% 26.0% 26.5% 26.7% 26.4% 26.5% Operating profit 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 YoY 31.6% -5.7% 7.2% 62.3% 23.4% 11.6% -5.4% 1.0% -10.3% Operating profit margin 2.3% 2.0% 2.0% 3.0% 2.5% 2.6% 2.5% 2.5% 2.2% Non-operating income 3,064 2,891 2,981 3,181 3,720 3,169 3,018 4,508 3,887 Non-operating expenses -2,409 -2,539 -2,313 -2,334 -3,859 -3,934 -3,835 -3,001 -2,933 Interest income 89 82 71 64 86 102 91 198 80 Dividend income 831 828 826 982 960 1,177 949 1,230 1,326 Interest expenses 392 415 439 452 1,201 1,244 1,081 1,003 728 Equity in earnings of affiliates -42 -16 7 104 54 68 -34 195 -179 Gains on foreign exchange ------58 -159 485 - Recurring profit 11,210 10,309 11,338 18,160 21,219 23,060 21,725 24,272 21,376 YoY 16.7% -8.0% 10.0% 60.2% 16.8% 8.7% -5.8% 11.7% -11.9% Recurring profit margin 2.4% 2.0% 2.2% 3.1% 2.5% 2.5% 2.4% 2.6% 2.3% Extraordinary gains 779 1,020 7,159 126 10,846 9,251 4,561 5,243 895 Extraordinary losses 6,143 8,494 7,204 11,462 14,483 7,937 6,281 6,296 14,221 Impairment losses 226 269 621 1,295 2,333 3,836 2,300 3,479 2,592 Loss on store closures 2,085 1,766 1,642 - 7,872 2,855 2,921 1,639 7,228 Loss on store renovations 376 - - 9,411 3,204 - - - - Other 3,456 6,459 4,941 756 1,074 1,246 1,060 1,178 4,401 Income taxes 2,777 1,795 5,133 6,502 6,021 10,321 5,706 8,583 5,888 Implied tax rate 47.5% 63.3% 45.5% 95.3% 34.2% 42.3% 28.5% 37.0% 73.1% Net income attributable to non-controlling interests -40 -16 -40 26 -25 - - - - Net income attributable to owners of the parent 3,109 1,057 6,200 295 11,586 14,053 14,298 14,636 2,162 YoY 3.1% -66.0% 486.6% -95.2% - 21.3% 1.7% 2.4% -85.2% Net margin 0.7% 0.2% 1.2% 0.1% 1.4% 1.5% 1.6% 1.6% 0.2% Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Balance sheet
Balance sheet FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Cash and deposits 42,149 17,823 15,135 35,402 44,381 48,521 83,481 67,150 55,229 Notes and accounts receivable 18,995 19,979 22,960 30,987 39,158 46,785 43,588 46,939 49,886 Inventories 15,596 15,458 16,078 16,507 37,025 35,506 35,292 35,295 33,919 Deferred tax assets 4,279 4,849 6,116 3,936 5,701 4,910 4,146 - - Other 5,313 5,198 5,129 5,195 13,640 9,848 11,811 10,783 10,969 Total current assets 86,332 63,307 65,418 92,027 139,905 145,570 178,318 160,167 150,003 Buildings and structures 65,011 62,406 76,299 74,296 116,951 113,755 108,262 108,692 115,608 Land 33,948 35,324 35,730 37,460 124,406 124,341 134,591 149,550 147,281 Other 7,945 11,376 11,283 8,728 13,736 15,365 16,108 22,419 21,971 Total tangible fixed assets 106,904 109,106 123,312 120,484 255,093 253,461 258,961 280,661 284,860 Goodwill 16,037 17,107 16,019 7,942 7,127 5,997 5,217 4,647 4,076 Other 7,507 8,190 8,740 7,155 12,703 11,733 12,326 13,223 14,686 Total intangible assets 23,544 25,297 24,759 15,097 19,830 17,730 17,543 17,870 18,762 Investment securities 55,173 64,300 87,639 88,949 127,086 97,513 103,031 114,544 121,149 Deferred tax assets 10,624 9,575 6,736 9,862 10,184 8,945 9,960 12,649 11,942 Other 61,610 63,645 51,459 51,297 79,779 73,822 72,730 73,691 76,619 Investments and other assets 127,407 137,520 145,834 150,108 217,049 180,280 185,721 200,884 209,710 Total fixed assets 257,855 271,923 293,905 285,689 491,972 451,471 462,225 499,415 513,332 Total assets 344,187 335,230 359,323 377,716 631,877 597,041 640,543 659,582 663,335
LIA BILITIES Notes and accounts payable 32,516 32,444 35,960 44,213 61,921 62,235 59,394 62,794 59,732 Short-term debt 166 690 585 35,488 15,702 11,040 30,260 43,325 28,950 Other 66,775 47,643 46,870 53,545 79,064 70,279 85,219 76,288 65,755 Total current liabilities 118,390 88,891 90,700 141,603 173,826 157,225 189,202 201,569 174,092 Long-term debt 40,589 41,591 41,210 5,501 135,666 125,014 126,299 116,106 145,404 Other 26,276 25,348 23,454 29,996 44,050 41,593 39,198 36,367 38,084 Total fixed liabilities 74,360 77,485 82,201 53,836 206,392 187,229 187,018 177,206 209,640 Total liabilities 192,750 166,376 172,901 195,439 380,218 344,454 376,220 378,775 383,732 NET A SSETS Shareholder's equity 151,236 161,194 164,957 162,817 213,134 223,013 232,786 242,390 239,755 Accumulated other comprehensive income -91 6,136 19,787 17,589 37,627 28,541 30,434 37,178 38,608 Subscription rights to shares 232 341 531 676 892 1,028 1,098 1,234 1,235 Non-controlling interests 60 1,182 1,145 1,194 3 3 3 3 4 Total net assets 151,437 168,854 186,422 182,277 251,659 252,587 264,323 280,807 279,603 Working capital 2,075 2,993 3,078 3,281 14,262 20,056 19,486 19,440 24,073 Total interest-bearing debt 40,755 42,281 41,795 40,989 151,368 136,054 156,559 159,431 174,354 Net debt -1,394 24,458 26,660 5,587 106,987 87,533 73,078 92,281 119,125 Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Tangible fixed assets were JPY120.5bn in FY03/14, before Izumiya became a subsidiary. After the resulting acquisition of buildings, structures, and land, tangible fixed assets rose to JPY255.1bn in FY03/15.
In FY03/19, investment securities amounted to JPY121.1bn. Cross-shareholdings accounted for JPY91.5bn of this amount. In addition to holdings in Toho (JPY60.7bn), another member of the Hankyu Hanshin Toho Group, H2O holds shares as part of capital and business alliances with Takashimaya (JPY13.1bn) and Kansai Super Market (JPY3.3bn).
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Cash flow statement
Cash flow statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 16,966 16,176 24,533 33,415 25,468 24,539 38,742 32,739 15,392 Pre-tax profit 5,846 2,835 11,293 6,824 17,582 24,374 20,005 23,219 8,050 Depreciation 9,821 12,637 13,511 13,598 15,149 16,230 15,857 16,223 17,399 Impairment losses 226 269 621 1,295 2,333 3,836 2,300 3,479 2,592 Amortization of goodwill 966 1,070 1,221 1,246 686 612 612 570 570 Gains on negative goodwill - - - - -10,030 - - -2,010 - Change in working capital 1,868 -492 22 -221 -5,654 -7,438 362 381 -4,298 Income taxes -1,119 -1,906 -1,722 -341 -6,787 -8,455 -8,266 -5,721 -7,304 Other -642 1,763 -413 11,014 12,189 -4,620 7,872 -3,402 -1,617 Cash flows from investing activities (2) -17,235 -16,773 -23,925 -9,628 -49,162 5,852 -25,325 -35,492 -36,682 Purchase of tangible fixed assets -13,316 -21,374 -29,865 -9,891 -32,931 -18,803 -23,983 -19,197 -30,289 Purchase of intangible fixed assets -1,953 -1,981 -1,924 -1,511 -2,517 -2,249 -3,340 -4,009 -3,713 Proceeds from sale of tangible/intangible fixed assets 5 19 1,106 102 250 1,272 5,827 4,760 1,412 Other -1,971 6,563 6,758 1,672 -13,964 25,632 -3,829 -17,046 -4,092 Free cash flow (1+2) -269 -597 608 23,787 -23,694 30,391 13,417 -2,753 -21,290 Cash flows from financing activities -2,818 -13,704 -3,422 -3,557 24,161 -26,207 21,703 -13,812 9,581 Net increase in short-term borrowings - -232 -40 - 84 -6,500 2,000 -2,000 8,000 Net increase in long-term borrowings -166 -2,198 -651 -812 21,623 -14,813 27,223 572 -2,584 Proceeds from issuance and redemption of bonds - -20,017 -35 -34 9,838 -100 -2,100 -6,600 9,946 Acquisition and disposal of treasury shares -17 11,273 -11 -22 -3,486 -13 -4 -6 -3 Dividends paid -2,578 -2,373 -2,427 -2,426 -2,773 -3,700 -4,628 -4,938 -4,941 Other -57 -157 -258 -263 -1,125 -1,081 -788 -840 -837 Other -151 -53 127 70 109 -26 -150 253 -213 Change in cash and cash equivalents -3,238 -14,354 -2,687 20,300 8,950 4,158 34,970 -16,312 -11,922 Cash and cash equivalents (year-end) 32,125 17,770 15,082 35,383 44,334 48,492 83,462 67,150 55,229 Depreciation and amortization (A) 9,821 12,637 13,511 13,598 15,149 16,230 15,857 16,223 17,399 Capital expenditures (B) -13,311 -21,355 -28,759 -9,789 -32,681 -17,531 -18,156 -14,437 -28,877 Change in working capital (C) 1,868 -492 22 -221 -5,654 -7,438 362 381 -4,298 Simple FCF (NI + A + B - C) 4,224 -6,375 -3,933 10,412 -5,604 15,635 18,068 25,386 -7,726 Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Profitability analysis
Profit margins FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Gross profit 129,157 139,466 142,529 156,949 241,417 266,363 263,384 266,224 266,235 Gross profit margin 27.8% 27.6% 27.1% 27.2% 28.6% 29.1% 29.2% 28.9% 28.7% Operating profit 10,555 9,957 10,670 17,313 21,358 23,825 22,542 22,765 20,422 Operating profit margin 2.3% 2.0% 2.0% 3.0% 2.5% 2.6% 2.5% 2.5% 2.2% EBITDA 20,376 22,594 24,181 30,911 36,507 40,055 38,399 38,988 37,821 EBITDA margin 4.4% 4.5% 4.6% 5.4% 4.3% 4.4% 4.3% 4.2% 4.1% Net margin 0.7% 0.2% 1.2% 0.1% 1.4% 1.5% 1.6% 1.6% 0.2% Financial ratios ROA (RP-based) 3.3% 3.0% 3.3% 4.9% 4.2% 3.8% 3.5% 3.7% 3.2% ROE 2.0% 0.7% 3.5% 0.2% 5.4% 5.6% 5.6% 5.4% 0.8% Total asset turnover 134.9% 146.8% 154.6% 166.1% 229.2% 181.4% 146.7% 149.0% 142.6% Working capital 2,075 2,993 3,078 3,281 14,262 20,056 19,486 19,440 24,073 Current ratio 72.9% 71.2% 72.1% 65.0% 80.5% 92.6% 94.2% 79.5% 86.2% Quick ratio 55.3% 48.0% 48.7% 49.7% 51.3% 63.7% 69.4% 56.6% 60.4% OCF / Current liabilities 16.9% 15.6% 27.3% 28.8% 16.1% 14.8% 22.4% 16.8% 8.2% OCF / Total liabilities 8.8% 9.7% 14.2% 17.1% 6.7% 7.1% 10.3% 8.6% 4.0% Cash conversion cycle (days) -8.45 -2.83 -2.66 -3.62 -0.76 2.62 3.76 3.56 4.34 Change in working capital 13,933 918 85 203 10,981 5,794 -570 -46 4,633 Note: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Historical performance
1H FY03/20 results Overview In 1H FY03/20, the company recorded sales of JPY450.7bn (+1.4% YoY), operating profit of JPY6.3bn (+3.6% YoY), and net income of JPY1.5bn (10.5x the 1H FY03/19 level). In Q2 (three months), sales were JPY233.6bn (+3.8% YoY), operating profit was JPY3.5bn (+26.5% YoY), and the net loss was JPY106mn (net loss of JPY137mn in Q2 FY03/19). Gross profit was up 2.4% YoY, but GPM fell from 28.6% in Q2 FY03/19 to 28.2%. SG&A expenses rose 1.3% YoY, while the SG&A expense ratio was 26.8%, down from 27.4% in Q2 FY03/19. By segment, operating profit in the Department Store business (including the Kobe/Takatsuki business) was up JPY1.2bn YoY. Operating profit was down JPY658mn YoY in the Supermarket business, down JPY117mn YoY in the Shopping Center Management business, and up JPY358mn YoY in the Other business. (Adjustments were down JPY87mn YoY). The company posted an extraordinary gain of JPY857mn (including an JPY840mn gain on sales of non-current assets) and an extraordinary loss of JPY2.4bn (a loss on sales of non-current assets of JPY863mn, a loss on retirement of non-current assets of JPY472mn, and a loss on store closures of JPY266mn).
In October 2019, the company transferred Sogo Kobe and Seibu Takatsuki, which it had acquired in October 2017, to Hankyu Hanshin Department Stores. The stores were renamed Kobe Hankyu and Takatsuki Hankyu. Following on from this move, in FY03/20 the company combined the Kobe/Takatsuki business segment into the Department Store business segment.
Department Store business: In the Department Store business (including the Kobe/Takatsuki business), Q2 sales amounted to JPY126.2bn (+8.4% YoY), and operating profit was JPY3.5bn (+54.6% YoY). Sales growth was sluggish in Q2 FY03/19, affected by earthquakes and typhoons. Also, sales in Q2 FY03/20 benefited from a surge in demand ahead of the consumption tax hike (from 8% to 10% on non-food items) in October 2019. Sales at Hankyu Hanshin Department Stores (excluding the Kobe/Takatsuki business) were JPY114.7bn (+7.7% YoY), and operating profit was JPY3.6bn (+50.7% YoY). Gross profit rose 6.4% YoY, and GPM was 23.6%, down slightly from Q2 FY03/19 (23.9%). The company kept the rise in SG&A expenses to 2.0% YoY, and the SG&A expense ratio fell to 20.6% (21.8%).
Hankyu Main Store’s sales were JPY66.1bn (+12.7% YoY), boosting overall performance. Sales at Hanshin Umeda Main Store were JPY12.6bn (+4.6% YoY). (Hanshin Umeda Main Store’s Wing II is scheduled for a grand reopening in autumn 2021.) Total branch store sales amounted to JPY36.0bn (+0.7% YoY). Driving up performance, Nishinomiya Hankyu’s sales were JPY6.4bn (+4.7% YoY), and Hakata Hankyu’s sales were JPY12.4bn (+0.9% YoY). Sales at Hankyu Men’s Tokyo were JPY3.1bn (-4.2% YoY). By product category, sales were up 4.7% YoY for apparel, up 12.9% YoY for personal items, up 11.9% YoY for household goods, up 20.6% YoY for accessories, and up 1.0% YoY for food products. For the Kobe/Takatsuki business, Q2 sales were JPY11.4bn (+14.9% YoY), and the operating loss was JPY64mn (operating loss of JPY88mn in Q2 FY03/19).
Supermarket business: In the Supermarket business, sales in Q2 were JPY90.1bn (-3.5% YoY), and the operating loss was JPY898mn (operating loss of JPY240mn in Q2 FY03/19). From Izumiya, sales were JPY54.1bn (-2.5% YoY), and the operating loss was JPY869mn (operating loss of JPY384mn in Q2 FY03/19). Gross profit was down 6.4% YoY, and GPM was down YoY to 25.2% (26.3%). Even though SG&A expenses fell 2.1% YoY, the operating loss widened. In 1H, comparable store sales were down 5.0% YoY. Of this amount, sales were down 5.8% YoY in food products, down 4.7% YoY in apparel, and down 1.7% YoY in household goods. (In Q1, sales were down 4.0% YoY, with sales of food products down 3.3% YoY, apparel down 4.8% YoY, and household goods down 6.2% YoY). At end-Q2, Izumiya had 85 stores (83 at end-Q2 FY03/19; no new stores in Q2 FY03/20 and one store closed). Sales grew at reconstructed stores and newly opened stores, but overall sales were reduced YoY due to smaller sales areas for non-food items at GMSs as a result of ongoing reconfiguration. Unstable weather also had a negative impact on sales.
Hankyu Oasis had sales of JPY27.3bn (-4.9% YoY) and an operating loss of JPY61mn (operating profit of JPY131 in Q2 FY02/19). Gross profit was down 2.6% YoY, while GPM rose to 26.3% (25.7%). The company traces the improved GPM to its changes in the way reward points are granted and its revised pricing policies. SG&A expenses rose 0.8% YoY, and the SG&A expense ratio rose to 33.1% (31.2%), leading to an operating loss. In 1H, Hankyu Oasis’ comparable store sales were down 6.0% YoY (-4.6% YoY in Q1). At end-Q2, the number of stores was 77 (76 at end-Q2 FY03/19; one new store in Q2 FY03/20 and one store closed).
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Shopping Center Management business, Other business: In Q2, the Shopping Center Management business had sales of JPY2.0bn (-7.6% YoY) and operating profit of JPY1.0bn (-10.3% YoY). Redevelopment of the Senri-chuo area in Osaka prompted an increase in tenant vacancies, lowering sales. A rise in expenses for construction to expand the floor space of Qanat Rakuhoku (which opened on December 6, 2019) led to the drop in profit. In the Other business, sales were JPY15.3bn (+15.6% YoY), and operating profit was JPY371mn (28.5x the level in Q2 FY03/19). The acquisition on August 1, 2019 of the convenience store and station kiosk business (53 convenience stores and 47 station kiosks) from Eki Retail Service Hankyu Hanshin, a group company of the Hankyu Hanshin Holdings, contributed to performance.
Q1 FY03/20 results Overview In Q1 FY03/20, sales were JPY217.1bn (-1.0% YoY), operating profit was JPY2.9bn (-15.1% YoY), and net income was JPY1.6bn (5.7x the figure for Q1 FY03/19). Gross profit was down 1.2% YoY, and GPM dipped to 29.0% (29.1%). SG&A expenses were down 0.5% YoY, while the SG&A expense ratio edged up to 27.7% (27.6%). By segment, operating profit was down JPY494mn in the Department Store business (including the Kobe/Takatsuki business), down JPY35mn in the Supermarket business, down JPY6mn in the Shopping Center Management business, and down JPY867mn in the Other business. (Adjustments were up JPY1.0bn YoY). The company recorded no extraordinary gain, while extraordinary losses totaled JPY254mn (a JPY150mn loss on retirement of non-current assets and a JPY101mn loss on store closures). (In Q1 FY03/19, the extraordinary loss was JPY2.1bn.)
In October 2019, the company transferred Sogo Kobe and Seibu Takatsuki, which it had acquired in October 2017, to Hankyu Hanshin Department Stores. The stores were renamed Kobe Hankyu and Takatsuki Hankyu. Following on from this move, in FY03/20 the company combined the Kobe/Takatsuki business segment into the Department Store business segment.
Department Store business: In the Department Store business (including the Kobe/Takatsuki business), sales were JPY113.5bn (+0.8% YoY), and operating profit was JPY2.9bn (-14.7% YoY). At Hankyu Hanshin Department Stores (excluding the Kobe/Takatsuki business), sales were JPY103.6bn (+1.0% YoY), and operating profit was JPY3.0bn (-11.1% YoY). Gross profit was down 0.4% YoY, and GPM fell to 24.4% (24.7%). SG&A expenses were up 1.3% YoY, and the SG&A expense ratio edged up to 21.6% (21.5%).
At Hankyu Main Store, sales were JPY58.2bn (+4.1% YoY), but sales were down at Hanshin Umeda Main Store to JPY11.2bn (- 12.6% YoY), reflecting a surge in performance one year earlier when Wing I opened, plus a decrease in the sales floor area. (Wing II of Hanshin Umeda Main Store is scheduled for a grand reopening in autumn 2021.) Total branch store sales were JPY34.2bn (+1.0% YoY). Contributing to sales in this business were Hakata Hankyu, with sales of JPY12.3bn (+4.1% YoY), and Nishinomiya Hankyu, which had sales of JPY5.9bn (+3.4% YoY), while Hankyu Men’s Tokyo and the suburban branch stores dragged down sales. By product category, sales were down for apparel (-1.5% YoY) and household goods (-11.5% YoY), but growth in sales for personal items (+3.8% YoY), food products (+0.6% YoY), and accessories (+4.1% YoY) made up for these declines. In the Kobe/Takatsuki business, sales were JPY9.9bn (-0.8% YoY), and the operating loss was JPY128mn (operating loss of JPY54mn in Q1 FY03/19). Sogo Kobe and Seibu Takatsuki were transferred to Hankyu Hanshin Department Stores on October 1, 2019, with names scheduled to change to Kobe Hankyu and Takatsuki Hankyu.
Supermarket business: In the Supermarket business, sales were JPY88.0bn (-2.9% YoY), and the operating loss was JPY803mn (operating loss of JPY768mn in Q1 FY03/19). Izumiya generated sales of JPY52.9bn (-0.4% YoY) and had an operating loss of JPY722mn (operating loss of JPY580mn in Q1 FY03/19). SG&A expenses fell 0.7% YoY, and the SG&A expense ratio fell to 34.7% (34.8%), but gross profit decreased 1.8% YoY, so GPM fell to 26.5% (26.9%). Comparable store sales were down 4.0% YoY (sales of food products down 3.3% YoY, apparel down 4.8% YoY, household goods down 6.2% YoY). At end-Q1, Izumiya had 86 stores (83 at end-Q1 FY03/19). Store reconstruction and new store openings had a positive impact on sales for Izumiya, but a reduction in sales floor area for non-food items in line with the restructuring of GMSs had a negative effect. At Hankyu Oasis, sales were JPY26.7bn (-5.8% YoY), and the operating loss was JPY176mn (operating loss of JPY260mn in Q1 FY03/19). At end-Q1, Hankyu Oasis had 77 stores (79 at end-Q1 FY03/19), and comparable store sales were down 4.6% YoY. However, revised pricing
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policies (such as a revision in the granting of points) caused GPM to rise to 26.0% (24.7% in Q1 FY03/19). SG&A expenses also fell 1.8% YoY, causing losses to narrow.
Shopping Center Management business, Other business: In the Shopping Center Management business, sales were JPY2.1bn (- 10.5% YoY), and operating profit was JPY1.2bn (-0.5% YoY). The downturn in sales and profit was due to an increase in tenant vacancies, owing to redevelopment of the Senri-chuo area in Osaka (scheduled to open in 2023–2025). In the Other business, sales were JPY13.5bn (-1.2% YoY), and operating profit was JPY2.9bn (-23.1% YoY).
FY03/19 results Overview In FY03/19, sales were JPY926.9bn (+0.5% YoY), operating profit was JPY20.4bn (-10.3% YoY), and net income was JPY2.2bn (- 85.2% YoY). Although sales reached a historic high for the second consecutive year, losses in the Supermarket business pushed down profit. Gross profit was flat YoY, while GPM dipped to 28.7% (28.9% in FY03/18). SG&A expenses rose 1.0% YoY, and the SG&A expense ratio edged up to 26.5% (26.4%). By segment, operating profit was down JPY438mn in the Department Store business, down JPY302mn in the Kobe/Takatsuki business, down JPY1.5bn in the Supermarket business, and down JPY704mn in the Shopping Center Management business, while operating profit rose JPY1.9bn in the Other business. (Adjustments were down JPY1.3bn YoY.) The company posted JPY895mn in insurance claim income as an extraordinary gain, while the extraordinary loss amounted to JPY14.2bn (a JPY7.2bn loss on store closures, a JPY2.6bn impairment loss, a JPY1.4bn loss on disaster, and a JPY1.3bn loss on retirement of non-current assets).
Department Store business: In the Department Store business, sales were JPY451.8bn (+1.3% YoY), and operating profit was JPY17.6bn (-2.4% YoY). For Hankyu Hanshin Department Stores, sales were JPY451.7bn (+1.3% YoY), and operating profit was JPY17.6bn (-3.7% YoY). Gross profit rose just 0.5% YoY, and GPM slightly declined to 24.2% (24.4% in FY03/18). SG&A expenses were up 1.2% YoY, and the SG&A expense ratio was flat YoY, at 20.5%.
For Hankyu Main Store, sales continued to rise, to JPY250.7bn (+4.3% YoY). Business was affected by natural disasters, including the 2018 Northern Osaka Earthquake and multiple large typhoons making landfall, but demand increased from both domestic and inbound customers. Sales at the Hanshin Umeda Main Store were JPY51.4bn (-7.5% YoY). The reconstructed Wing I opened on June 1, 2018, and Wing II construction commenced (scheduled for grand reopening in autumn 2021). At end-FY03/19, the sales floor area was down 16.8% YoY, affecting performance. Total branch store sales were JPY149.6bn (-0.4% YoY). Excluding the impact of the previous year’s Sakai Kitahanada Hankyu closure (July 31, 2017), sales would have been up 2.1% YoY. Buoyed by extensive renovations in November 2017, Hakata Hankyu’s sales rose to JPY51.6bn (+8.9% YoY). By product category, higher sales of accessories (+9.0% YoY) and personal items (+3.8% YoY) made up for lower sales of apparel (-2.0% YoY) and food products (-1.7% YoY).
In the Department Store business (excluding the Kobe/Takatsuki business), capital expenditures amounted to JPY10.9bn, due to construction at the Hanshin Umeda Main Store, and depreciation and amortization expenses were JPY5.1bn. The Kobe/Takatsuki business, which entered the scope of consolidation in 2H FY03/18, generated sales of JPY42.8bn and operating profit of JPY301mn (in 2H FY03/17, sales of JPY23.4bn and operating profit of JPY603mn). Capital expenditure was JPY665mn, and depreciation and amortization expenses were JPY339mn.
Supermarket business: In the Supermarket business, sales were JPY367.6bn (-4.9% YoY), and the operating loss was JPY438mn (operating profit of JPY1.1bn in FY03/18). Hankyu Oasis lowered SG&A expenses amid a decline in sales, so reported relatively firm sales of JPY112.6bn (-3.6% YoY) and operating profit of JPY455mn (-24.4% YoY). Meanwhile, Izumiya had sales of JPY218.3bn (-6.3% YoY) and an operating loss of JPY1.3bn (operating profit of JPY411mn in FY03/17). Izumiya’s comparable store sales were down 5.5% YoY, affected particularly by a lower sales of non-food items (sales of food products down 3.8% YoY, apparel down 7.7% YoY, household goods down 10.8% YoY). In the Supermarket business, capital expenditure was JPY9.0bn (new Hankyu Oasis stores, reconstruction of Izumiya stores), and depreciation and amortization expenses were JPY5.6bn.
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Shopping Center Management business: In the Shopping Center Management business, sales were JPY8.7bn (-15.7% YoY), and operating profit was JPY4.3bn (-14.1% YoY). The declines were largely due to an increase in tenant vacancies in line with redevelopment of the Senri-chuo area in Osaka (scheduled to open in 2023–2025). Capital expenditure was JPY6.7bn (Izumiya store reconstruction), and depreciation and amortization expenses were JPY2.3bn.
Other business: In the Other business, sales were JPY55.9bn (+1.1% YoY), and operating profit was JPY5.0bn (+62.4% YoY). Segment profit benefited from an increase in dividends from subsidiaries (which are eliminated in adjustments) and the absence of expenses related to changes in membership program (from Hankyu Hanshin Tomonokai) that the company incurred in FY03/18. Capital expenditure was JPY4.9bn (system investments), and depreciation and amortization expenses were JPY4.1bn.
Q3 FY03/19 results Overview In cumulative Q3 FY03/19, sales were JPY700.4bn (+1.6% YoY), operating profit was JPY16.3bn (-9.4% YoY), and net income was JPY6.2bn (-59.0% YoY). In Q3 (three months, October–December 2019), sales were JPY256.0bn (-0.5% YoY), operating profit was JPY10.2bn (-7.5% YoY), and net income was JPY6.1bn (-35.6% YoY). Gross profit was down 0.1% YoY, and GPM improved slightly, to 28.7% (28.6% in Q3 FY03/18). SG&A expenses were up 1.2% YoY, and the SG&A expense ratio edged up to 24.7% (24.3%). By segment, operating profit was down JPY372mn in the Department Store business (including the Kobe/Takatsuki business, at JPY128mn), down JPY422mn in the Supermarket business, down JPY50mn in the Shopping Center Management business, and up JPY28mn in the Other business. (Adjustments were down JPY4mn YoY.)
Department Store business: In Q3, the Department Store business (including the Kobe/Takatsuki business) had sales of JPY141.4bn (+2.3% YoY), and operating profit of JPY7.9bn (-4.5% YoY). For Hankyu Hanshin Department Stores (excluding the Kobe/Takatsuki business), sales were JPY128.9bn (+2.7% YoY), and operating profit was JPY7.5bn (-3.0% YoY). Gross profit was up 1.7% YoY, while GPM edged down to 24.6% (24.8% in Q3 FY03/18). SG&A expenses were up 3.2% YoY, and the SG&A expense ratio increased slightly, to 18.9% (18.8%).
For Hankyu Main Store, sales were JPY72.6bn (+4.8% YoY). Inbound demand recovered thanks to a lull in the impact from typhoons and other natural disasters, pushing up sales of watches, fine jewelry, and other high-ticket items. Hanshin Umeda Main Store had sales of JPY13.9bn (-8.7% YoY). The store opened on June 1, 2018 after phase one reconstruction, and phase two construction has commenced (grand reopening scheduled for autumn 2021). At end-Q3, the sales floor area was down 16.8% YoY, but the negative impact on sales was relatively subdued. Total sales at branch stores (excluding the Kobe/Takatsuki business) were JPY42.4bn (+3.4% YoY). Hakata Hankyu’s sales were JPY14.2bn (+8.5% YoY), pushing up these sales, while Hankyu Men’s Tokyo’s sales of JPY4.3bn (+3.3% YoY) and Nishinomiya Hankyu’s sales of JPY7.2bn (+1.5% YoY) also contributed. By product category, sales were down for apparel (-1.5% YoY), household goods (-5.8% YoY), and food products (-0.2% YoY), but higher sales of personal items (+5.8% YoY) and accessories (+6.8% YoY) made up for these declines. In the Kobe/Takatsuki business, sales were JPY12.5bn (-1.5% YoY), and operating profit was JPY380mn (-25.2% YoY).
Supermarket business: In the Supermarket business, sales were JPY98.4bn (-4.1% YoY), and operating profit was JPY1.5bn (- 22.3% YoY). Izumiya delivered sales of JPY59.2bn (-5.2% YoY) and operating profit of JPY668mn (-48.3% YoY). In cumulative Q3, comparable store sales were down 5.1% YoY (sales of food products down 3.2% YoY, apparel down 7.2% YoY, and household goods down 11.4% YoY). Lower sales of non-food items reflected a decrease in directly managed sales floors and sluggish sales of seasonal items. At end-Q3, Izumiya had 85 stores (82 at end-Q3 FY03/18). Hankyu Oasis generated sales of JPY29.5bn (-3.6% YoY) and operating profit of JPY463mn (+37.0% YoY). The company continued to close stores, mainly unprofitable ones, reducing the number at end-Q3 to 75 (82 at end-Q3 FY03/18). Sales thus decreased, but SG&A expenses were down a sharp 4.4%, leading to profit at the operating level.
Shopping Center Management business, Other business: In the Shopping Center Management business, sales were JPY2.1bn (- 9.4% YoY), and operating profit was JPY1.0bn (-4.6% YoY). The number of leased properties fell due to a decrease in the number of stores as Izumiya restructured. Also sapping performance, the number of tenant vacancies at shopping centers surged in line
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with redevelopment of the Senri-chuo area in Osaka (slated to open around 2023–2025). In the Other business, sales were JPY14.1bn (+0.2% YoY), and operating profit was JPY855mn (+3.4% YoY).
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Other information
History
Date Description April 1929 Hanshin Kyuko Dentetsu Kabushiki-gaisha (now Hankyu Hanshin Holdings, Inc.) established a department store (a division) in Osaka’s Umeda district March 1947 Keihanshin Kyuko Dentetsu Kabushiki-gaisha (now Hankyu Hanshin Holdings, Inc.) spun out the department store division, establishing Hankyu Department Stores, Inc. May 1949 Hankyu Department Stores, Inc. listed on the First Section of the Osaka Securities Exchange October 1960 Established Hankyu Oasis Co., Ltd. (subsidiary) September 1962 Hankyu Department Stores, Inc. listed on the First Section of the Tokyo Stock Exchange October 1992 Established HD Development Co., Ltd. (now Hankyu Shopping Center Development Co., Ltd. [subsidiary]) May 2002 Established Hankyu Kitchen Yell Co., Ltd. (subsidiary) March 2004 Made Hankyu Foods Industry Co., Ltd. a wholly owned subsidiary through a share exchange June 2006 In a company split, Hankyu Foods Industry Co., Ltd. transferred business to Hankyu Foods Co., Ltd. and two other companies (subsidiaries) July Acquired shares in Nissho Corporation (renamed Hankyu Nissho Store Co., Ltd.) and made it a subsidiary September Established Hanshoku Co., Ltd. (subsidiary) October 2007 Made Hanshin Department Stores, Ltd. a subsidiary through a share exchange and merged operations Renamed to H2O Retailing Corporation and transitioned to a holding company structure Established Hankyu Department Stores, Inc. (subsidiary) through a company split Established Oi Development Co., Ltd. (subsidiary) March 2008 Merged with Hankyu Food Industry Co., Ltd. in an absorption-type merger October Hankyu Department Stores, Inc. and Hanshin Department Stores, Ltd. merged to form Hankyu Hanshin Department Stores, Inc. Hanshoku Co., Ltd., Hankyu Oasis Co., Ltd., Hankyu Nissho Store Co., Ltd., Hankyu Family Store Co., Ltd., and Hankyu Fresh Yell Co., Ltd. merged February 2009 Merged with Mosaic Realty Co., Ltd. (subsidiary) in an absorption-type merger April 2011 Acquired shares in e-veryD.com Inc. and made it a subsidiary September Acquired shares in Kazokutei Co., Ltd. and made it a subsidiary November 2012 Grand opening of Hankyu Umeda Main Store following reconstruction June 2014 Made Izumiya Co., Ltd. a subsidiary through a share exchange and merged operations April 2016 Established H2O Foods Group Co., Ltd. (subsidiary) July Transferred operations of the former Izumiya Co., Ltd. to the new Izumiya Co., Ltd. (subsidiary, formed through a company split ), renamed H2O Asset Management Co., Ltd. October 2017 H2O took over the Sogo Kobe and Seibu Takatsuki stores from Sogo & Seibu Co., Ltd. June 2018 Opened Wing I at the Hanshin Umeda Main Store following reconstruction September 2019 Sogo Kobe and Seibu Takatsuki stores renamed as the Kobe Hankyu and Takatsuki Hankyu stores, respectively February 2020 Transferred Kazokutei Co., Ltd. and Sun Laurie Co., Ltd. to SRS Holdings Co., Ltd. through a share exchange Note: Shared Research based on company data
Background for the launch of H2O Retailing: As of September 2005, although Hanshin Department Stores was listed on the Osaka Securities Exchange, the department store operator was a subsidiary of Hanshin Electric Railway, which owned more than 50% of its outstanding shares. In an October 2005 restructuring of the railway group, Hanshin Department Stores became a wholly owned subsidiary through a share exchange. A fund led by Yoshiaki Murakami (a former bureaucrat at the Ministry of International Trade and Industry) then purchased a large number of Hanshin Electric Railway’s shares. Focusing on the value of its real estate holdings and content related to the Hanshin Tigers (a Japanese professional baseball team), the Murakami fund believed Hanshin Electric Railway’s shares were undervalued. In addition to purchasing Hanshin Electric Railway’s shares outright, the fund managed to amass a significant stake (at one point holding more than 38% of Hanshin Electric Railway) by also buying convertible bonds and shares in Hanshin Department Stores.
Hankyu Holdings also thought Hanshin Electric Railway’s real estate assets near Umeda Station were attractively valued. Accordingly, in May 2006 Hankyu came in as a white knight investor, making a tender offer for Hanshin Electric Railway. Initially, there was a gap between the offer price and the fund’s desired purchase price. However, in June 2006 the Tokyo District Public Prosecutors Office instigated a compulsory investigation of the fund, requiring the fund to quickly liquidate its holdings, and the fund acceded to the tender offer. As a result, Hanshin Electric Railway became a subsidiary of Hankyu Holdings.
For Hankyu Department Stores, the plan to integrate with Hanshin Department Stores was attractive because it could help to offset the drop in sales that would occur while Hankyu Main Store was being rebuilt. The merger negotiations took time, however, because the two Umeda-centered stores had been competitors for some time, and Hankyu Department Stores had not been a Hankyu Holdings subsidiary. In late September 2006, Hankyu Department Stores and Hanshin Department Stores agreed to a comprehensive business alliance that led to the launch of Hankyu Hanshin Holdings (on October 1, 2006). Following due diligence procedures, Hankyu Department Stores and Hanshin Department Stores merged in March 2007.
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News and topics
Major subsidiaries
Segment Company Stake Business description Department Store Hankyu Hanshin Department 100.00% Hankyu Department tores (10 stores), Hanshin Stores, Inc. Department Stores (4 stores) Supermarket H2O Foods Group Co., Ltd. 100.00% Planning and management of foods business Izumiya Co., Ltd. 100.00% Supermarket and GMS operations Hankyu Oasis Co., Ltd. 100.00% Supermarket operations Qanat Co., Ltd. 100.00% Supermarket operations Sun Laurie Co., Ltd. 100.00% Management of restaurants Hankyu delica I, Inc. 100.00% Manufacture and sale of prepared food and Japanese sweets Hankyu Bakery Co., Ltd. 100.00% Manufacture and sale of bakery products Hankyu Foods, Inc. 100.00% Manufacture and sale of laver seaweed and dried foods Hankyu Food Process Co., Ltd. 100.00% Processing and sale of fresh food Yamanami Co., Ltd. 100.00% Manufacture and processing of foods Shopping Center Management H2O Asset Management Co., Ltd. 100.00% Property development and management; department store operation Kanso Co., Ltd. 100.00% Comprehensive building maintenance services Kanso Sakai Co., Ltd. 100.00% Comprehensive building maintenance services Hankyu Shopping Center100.00% Commercial facility operations Development Co., Ltd. Hankyu Maintenance Service Co., 100.00% Comprehensive building maintenance services Ltd. Other Oi Development Co., Ltd. 100.00% Management of budget hotels Hankyu Hanshin Department Stores 100.00% Various services for funding system with special Tomonokai Co., Ltd. benefits F.G.J. Co., Ltd. 80.00% Operation of personal care products shops e-veryD. Com Co., Ltd. 100.00% Provision of systems and expertise for home delivery business Kazokutei Co., Ltd. 100.00% Operation of restaurant chain for Japanese noodles Suzhou Izumiya Department Store 100.00% Management of Suzhou Izumiya Dept. Store in China Co., Ltd. Heart Dining, Inc. 100.00% Operation of cafes, restaurants, and company cafeterias Hankyu Act For Co., Ltd. 100.00% Outsourcing of accounting and wage calculation Hankyu Wedding Co., Ltd. 100.00% Wedding dress rentals Hankyu Kitchen Yell Kansai, Inc. 100.00% Membership-based home delivery service of foods and household goods (Kansai region) Hankyu Quality Support Co., Ltd. 100.00% Management and consulting services on qualit y control Hankyu Kenso Co., Ltd. 100.00% Interior design and construction for commercial facilit ies Hankyu Job Yell Co., Ltd. 100.00% Personnel dispatching and placement services Hankyu Design Systems Co., Ltd. 100.00% Commercial designs, planning and production of websites, photographing, and printing Hankyu Hello Dog Co., Ltd. 100.00% Beauty care and accessories for pets Hanky B&C Planning Co., Lt d. 100.00% Sales of 100-yen bread and operation of cafes Hankyu Dept. Stores Uniform Co., 100.00% Planning and sales of uniforms for students and Ltd. companies Hankyu Home Styling Co., Ltd. 100.00% Sales of furniture and interior goods Persona Co., Ltd. 100.00% Credit card, insurance agency, travel agency, electronic money business operations Note: Shared Research based on company data as of FY03/19
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Corporate governance and top management Corporate governance Form of organization and capital structure Form of organization Company with Audit & Supervisory Board Controlling shareholder None Directors and Audit & Supervisory Board members Number of directors under Articles of Incorporation 15 Number of directors 9 Directors' terms under Articles of Incorporation 1 Chairman of the Board of Directors Chairman Number of outside directors 3 Number of independent outside directors 3 Number of members of Audit & Supervisor Board 5 Number of outside members of Audit & Supervisory Board 3 Number of independent outside members of Audit & Supervisory Board 3 Other Participation in electronic voting platform Y Providing convocation notice in English Y Implementation of measures regarding director incentives Stock option Inside directors, outside directors, directors Eligible for stock option of and members of the Audit & Supervisory Board at subsidiaries, other Disclosure of individual director's compensation None Policy on determining amount of compensation and calculation methodology In place Corporate takeover defenses None Note: Shared Research based on company data as of October 2019
Top management Atsushi Suzuki (born April 5, 1956), Chairman of the Board, in charge of the Supermarket business and Business Creation Headquarters Mr. Suzuki joined Hankyu Department Stores, Inc. in 1980. In 2000, he became executive manager of the SC Division. In 2003, he was appointed representative director and senior managing executive officer of Hankyu Shopping Center Development Co., Ltd. He became executive officer in 2006. In March 2014, he became a director of H2O Retailing. In April 2014, he was appointed president and representative director. In April 2020, he became the company’s chairman.
Naoya Araki (born May 14, 1957), President and Representative Director Mr. Araki joined Hankyu Department Stores, Inc. in 1981. In 2003, he became general manager of the Suburban Store Development Office. He was appointed executive officer in 2004. In 2012, he became president and representative director of Hankyu Hanshin Department Stores, Inc. (current position). In June 2012, he assumed the position of representative director of H2O Retailing. In April 2020, he became president and representative director of H2O Retailing and chairman and representative director of Hankyu Hanshin Department Stores, Inc.
Policy on shareholder returns
Per share data (split-adjusted; JPY) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Shares outstanding (ex. treasury shares; year-end, mn) 412.6 388.3 388.3 388.3 123.3 123.4 123.5 123.5 123.6 EPS 30.1 11.5 63.9 3.0 98.1 113.9 115.8 118.5 17.5 EPS (fully diluted) 27.4 11.0 63.7 3.0 97.6 113.4 115.3 117.9 17.4 Dividend per share 12.5 12.5 12.5 12.5 25.0 35.0 40.0 40.0 40.0 Payout ratio 41.5% 108.9% 19.6% 411.2% 25.5% 30.7% 34.5% 33.7% 228.6% Book value per share 1,465 1,724 1,903 1,858 2,033 2,039 2,132 2,264 2,252 Note: Shared Research based on company data Note: The company conducted a reverse stock split (1-for-2) on September 1, 2014.
The company’s fundamental stance on shareholder returns is to provide stable dividends based on annual performance, taking into consideration the cash flow needed to build an appropriate financial structure for the medium to long term and to invest in
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growth. Specifically, the company seeks to optimize the distribution of profits, taking medium- to long-term forecasts of net income, net assets, and cash flows into consideration.
Major shareholders
Top shareholders Shares held ('000) Shareholding ratio
Hanshin Electric Railway Co., Ltd. 14,749 11.9% Hankyu Hanshin Holdings, Inc. 10,336 8.4% Takashimaya Co., Ltd. 6,259 5.1% The Master Trust Bank of Japan, Ltd. (Trust account) 5,903 4.8% Japan Trustee Services Bank, Ltd. (Trust account) 4,256 3.4% Japan Trustee Services Bank, Ltd. (Trust account 9) 3,782 3.1% Izumiya Kyowakai 2,712 2.2% JP MORGAN CHASE BANK 380684 1,950 1.6% (Standing proxy: Mizuho Bank, Ltd. Settlement Department) Japan Trustee Services Bank, Ltd. (Trust account 5) 1,923 1.6% H2O Retailing Group Employees Shareholding Association 1,701 1.4% SUM 53,576 43.3% Note: Shared Research based on company data (as of September 30, 2019)
Profile
Company name Head office H2O Retailing Corporation 8-7 Kakuda-cho, Kita-ku, Osaka, 530-0017 Phone Listed on +81-6-6365-8120 First Section, Tokyo Stock Exchange Established Listing date March 1947 September 1962 Website Fiscal year-end https://www.h2o-retailing.co.jp/en/index.html March IR contact IR web - https://www.h2o-retailing.co.jp/en/ir.html
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