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Japan-Update

Japan drugstores log record Q1 profit

Chains adjust to drug price cuts, add in-store pharmacies

TOKYO -- Japan's five major drugstore chains each booked a record first-quarter net profit as cheap food products attracted customers and pharmacy operations rallied from lower drug prices.

Sundrug, Matsumotokiyoshi Holdings, Welcia Holdings, Sugi Holdings and Cocokara Fine each boosted sales thanks to the addition of 10 to 20 new locations by each brand. Sundrug and Matsumotokiyoshi also renovated 30 stores each, improving their offerings of frozen food and daily necessities.

In order to attract more customers, drugstores are pricing food products cheaper than convenience stores and absorbing the impact with relatively high-margin products like cosmetics and medicine, improving profitability overall. Welcia added more locations with built-in pharmacies, lifting the company's gross profit margin by 1.3 percentage points on the year to 29.4%. The company's net profit jumped 54% to 4.3 billion yen ($39 million).

Matsumotokiyoshi shuttered unprofitable locations through last fiscal year and improved its margin 0.6 percentage point on brisk sales of profitable store-brand products such as body soap. Net profit rose 10% to 5.7 billion yen.

The government cut drug prices in April 2016, pushing down profit in the prior year at companies such as Sugi and Cocokara Fine, whose pharmacy operations make up a large portion of total sales, but such effects have passed. Both companies raised profit levels in the first quarter thanks to the addition of more in-store pharmacies. Cocokara Fine also reopened stores it had closed the prior year for renovations, helping to boost net profit 79% to 2.5 billion yen. New locations and refurbishments have increased costs, but the impact was absorbed by higher profits.

Each chain expects net profit to increase for fiscal 2017. "Rising profits are expected to continue from the next year onward thanks to growing drug sales attributable to Japan's aging population," said Dairo Murata of JP Morgan Securities.

(Nikkei)

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