Don Quijote Disappointing Profit; Strategic Price Cut and Inventory Clearance Depress Gross Margins
Narrow-moat Donki’s third-quarter results fell short of our expectation. Despite a 18.8% growth in top-line (12.4% like for like) and 4% same-store growth posted by its core Don Quijote store format, operating profits stayed flat due to deteriorated gross margins in addition to consolidation impacts of a low-margin Hawaiian super market chain. Management has again raised its full-year earnings guidance by 3.4%, not surprising given its prior conservative estimation of Uny’s profit contribution. ...Don Quijote Holdings is a holding company mainly engaged in the operation of discount stores. The Retail segment is engaged in the operation discount stores offering electrical appliances, daily commodities, foods, apparel, sporting goods and leisure equipment under the name of "Don Quijote" and "MEGA Don Quijote." It also operates general merchandise stores under the name of "Nagasakiya" and do-it-yourself stores under the name of "Doit." It operates 368 stores as of June 30 2017. The Tenant Leasing segment is engaged in the leasing and management of commercial facilities.
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