Nitori Holdings (9843): Fine-tuning estimates, maintaining Neutral rating; expecting profit to grow through self-help efforts despite weaker-than-anticipated yen

Research evidence excerpt

Nitori Holdings (9843): Fine-tuning estimates, maintaining Neutral rating; expecting profit to grow through self-help efforts despite weaker-than-anticipated yen

ensus estimate for operating profit is approximately

¥35.0 billion, so our estimate is slightly below consensus. We estimate that Nitori’s

business will see a slight YoY decline in revenue in 1Q, with the gross margin

declining by 0.2ppt, expenses rising by 3.7%, and operating profit decreasing by

approximately 9%. We expect the Nitori business gross margin to improve by about

1.2ppt, due to the impact of changes in the settlement rate (from about ¥148/$ to

¥154/$, a deterioration of 1.4ppt), as well as the impact of independent company

initiatives, such as the introduction of new products, and the impact of forex rates on

the valuation of end-of-period inventory, estimated to be approximately 1.2ppt. We

estimate the impact of the plan for independent company initiatives will be 1.3ppt

for the full year, and we expect the effect to amplify in 2H and beyond. Management

commented that the impact of naphtha shortages and rising naphtha prices on raw

materials has been limited due to competition among suppliers.

• We believe management’s full-year plan for the Nitori business entails around 6%

YoY sales growth, no change in the gross margin, a 6.6% increase in expenses, and a

4% increase in operating profit. As seen in the past two years, we expect that actual

growth in expenses will be smaller than management anticipates. At present, we

assume that full-year expenses will be restrained by about ¥7 billion for a 4.1%

increase for the year, and we assume a similar growth trend in expenses in 1Q. We

believe the Shimachu business is trending in line with the company’s plan, which