Key stories from Japan's retail and consumer markets
The latest edition of JapanConsuming includes commentary on 1) the proposal to bring Welcia and Tsuruha together to form a new FMCG mega-retailer. Although both are designated drugstores, their expansion into food and general FMCG means the creation of what will be Japan’s single largest retail chain by sales, sending shockwaves across the entire industry. 2) KDDI acquiring 50% of Lawson, making it a partner to Mitsubishi Shoji in running the third largest convenience store chain. It’s a big deal, but no one really knows what KDDI’s aims are. Some more imaginative analysts suggest this could be just the first step towards KDDI merging with Rakuten in order to beat Amazon.
Edition: 181
- 08 March, 2024
Healthcare
Welcia’s stock dipped 6% in the morning hours following 3Q results, but Q3 is a seasonally small quarter. The Q3 miss amounts to less than a 3% hit to expected earnings for the full fiscal year to 3/24, which Mike Allen argues is trivial compared to the rebound expected in 3/25. Meanwhile, the stock trades below the prices that Japanese drug store typically sell for in the private market - lower in fact, than what Welcia typically pays for its acquisitions. Mike does not see how this is sustainable.
Edition: 177
- 12 January, 2024
Healthcare
Consensus forecasts are divorced from reality - Welcia is so unpopular that analysts expect it to miss its 3-year recurring profit target by 25% and its sales targets by 9%, implying a massive deceleration in outlet expansion and a decline in margins. Mike Allen believes the group’s planning and executions skills are way too good to ever miss by that magnitude, especially given management's major change in policy recently when it comes to cutting costs. Welcia is trading below private-market value (EV/EBITDA has dropped from 18x to 8x). Japan’s drug store market is an active M&A war zone and companies will be bought if they are too cheap.
Edition: 174
- 24 November, 2023