Top Management Message October 12, 2005

Today, LAWSON announced its interim results of fiscal 2005. During the period under review, existing store sales declined 1.4%, primarily owing to an ongoing backlash from the positive impact of hot weather in July 2004. Nonetheless, we benefited from efforts to promote the Three Challenge Practices, which I have endorsed since becoming president of LAWSON: ensuring merchandise assortments meet customer needs, providing courteous service and promoting cleanliness in our stores. Thanks to improvements on the service and cleanliness fronts, gross profit margin at existing stores—crucial to boosting income for franchise owners—rose sharply, exceeding increase of existing stores. Enhanced product development efforts and better customer service supported brisk sales of Karaage-kun crispy Japanese-style fried chicken and other fast food products sold over the counter. As a consequence, consolidated income results exceeded initial forecasts, with operating profit sales rising 9.0%, to ¥25.3 billion; recurring profit advancing 11.2%, to ¥25.0 billion; and net profit increasing 14.1%, to ¥12.8 billion. (For a full summary of our fiscal 2005 interim results, please click here.)

Fiscal 2005 is the first year of LAWSON Challenge 2007, our new medium-term business plan. LAWSON Challenge 2007 focuses on encouraging innovation, improving customer and employee satisfaction, raising productivity and placing a high priority on corporate social responsibility. In the second half of fiscal 2005, we will continue to focus on the three key themes of this plan. First, we will use innovation to enhance our product development capabilities, particularly in the key fast food and rice dishes categories. Second, we will improve store-operating skills by stepping up efforts to gather and analyze data to improve ordering precision, thereby ensuring product selections that reflect local preferences and reducing losses from lost sales opportunities and waste. Third, we will reinforce store development capabilities by focusing efforts on stores that are likely to yield a high return on investment.

Efforts to establish the NATURAL LAWSON and LAWSON STORE100 formats, which are especially suited to the preferences of women and over 50's —two key customer segments that the conventional convenience store format can not attract—have enabled us to gain valuable experience. We have thus created a solid foundation for these stores, from which we will promote intensive store and product development for both formats from now on. With the aim of realizing the objectives in our corporate philosophy, "Happiness and Harmony in our Community," we will continue to promote measures aimed at transcending the conventional convenience store model in line with our guiding principle of "innovation." We will also press forward with efforts to achieve the goals of LAWSON Challenge 2007: average annual growth in earnings per share (EPS) of 10% for fiscal 2005, 2006 and 2007 and return on equity (ROE) of 15% in fiscal 2007, and to these ends will redouble Companywide efforts to enhance income for franchise owners.

October 12, 2005

Takeshi Niinami
President and CEO

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