Top Management Message October 16, 2002

I am pleased to announce that yesterday we released our interim operating results for the six months ended August 31, 2002.

During this period, consumer sentiment remained depressed and signs of a recovery were nonexistent in the Japanese economy. Failure to reach a final resolution to the bad-loan problem, continuing deflation, falling exports due to a slowing U.S. economy, and low levels of domestic production and capital expenditures were among other factors that cast a pall over the economy. With consumption adversely affected, competition escalated in the Japanese convenience store industry, particularly among major chains. Companies in the industry are also increasingly battling supermarkets, restaurants and players from other sectors of the economy.

Against this backdrop, in the first half of the current fiscal year we concentrated on steadily implementing Lawson Challenge 2004, our reform plan to revitalize Lawson and drive further growth, and ultimately realize our vision of being "the 'hot' station in the neighborhood." This fiscal year is a litmus test for Lawson Challenge 2004. We will resolutely dispose of unproductive assets that we have let accumulate over more than 25 years in business, despite the negative effect this will have on our earnings. Also this year we are aggressively promoting other initiatives that will give us a leaner framework capable of delivering growth over the medium and long term and propel us toward our goal under Lawson Challenge 2004 of generating consolidated operating income of 50 billion. These initiatives include optimizing our manufacturing, distribution and purchasing networks; revitalizing front-line operations; placing greater emphasis on profitability when opening stores; introducing a target-based management system; and optimizing our cost structure. I feel that we took the necessary actions in the interim period to give us this impetus.

Total net sales of Lawson stores including franchised stores were 667,265 million, 0.6% short of target. One factor was that existing store sales fell 1.0% more than originally planned. However, the gross profit margin improved by 0.1 of a percentage point against target, notably on account of efforts to keep a lid on costs. Consolidated recurring profit was 18,667 million, 11.0% higher than originally forecast. This result is attributable in part to our focus and efforts to persevere under difficult operating conditions.

I am heartened by this performance and now feel that the time is right to take the offensive in the second half of the year. Granted, if we continue to tightly control costs, I feel we can achieve our original profit targets. But competition is intensifying and consumer preferences are changing dramatically. Clearly, now is the time to invest in carefully targeted areas to make Lawson more competitive and build on our growth potential. It is the time to act quickly to give us an even better chance of achieving our Lawson Challenge 2004 goals. The additional investments we have decided to make have forced us to revise our original profit targets downward. But I want to reassure shareholders and other investors that this decision should result in higher corporate value further down the line.

Further details of our interim operating results and management strategy in the year's second half and beyond can be found on this website by clicking on here.

October 16, 2002

Takeshi Niinami
President and CEO

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