Top Management Message April 12, 2006

Today, LAWSON announced its operating results for fiscal 2005, ended February 28, 2006. In terms of economic trends during the period under review, conditions differed depending on the region. While the trend in the Kanto and Chubu regions was toward recovery, harsh conditions persisted in other regions.

At LAWSON, existing store sales declined 2.5% year on year. This disappointing result reflected a number of factors, including an increase in openings of conventional convenience stores (CVS), one of the coldest winters on record, and the discontinuation of Highway Card sales in September last year. However, as a result of our continued emphasis on profitability, existing store markups declined by 1.6%, less than the decline in sales. Existing store markups is an important management indicator for LAWSON. Another noteworthy aspect of our performance was that we delivered recurring profit of ¥43.9 billion, up 3.9% year on year. Not only did we achieve our plan targets, but this also represented an all-time high for LAWSON. Besides reflecting better existing store markups relative to sales, this record-breaking result was driven by contributions from subsidiaries such as LAWSON ATM Networks, Inc. and LAWSON CS Card, Inc., as well as efforts to cut costs in various areas of our operations. Click here for more details of our fiscal 2005 results.

Fiscal 2005 marked the start of our "LAWSON Challenge 2007" medium-term business plan. To realize our goal of creating merchandise assortment tailored to customers in each region, we addressed various operational issues, with a particular focus on two areas: improve product ordering accuracy to minimize opportunity losses and discard losses, and offer more products targeted at seniors and women. As Japan's birthrate declines and its population ages, conventional CVS that have only targeted consumer needs for time-saving and convenience, and primarily supplied products and services for young men, their core target customer segment, will find themselves embroiled in a war of attrition in a mature market with other CVS cut from the same cloth. It will be increasingly difficult for such operators to sustain consistent growth amid this changing bell-curve dynamic. That's why LAWSON is attempting to create new markets by widening its customer base. Stealing a march on our rivals, we developed NATURAL LAWSON stores, which mainly target women with a range of health-oriented products. And in fiscal 2005 we launched another new format called LAWSON STORE100. The concept here is to mainly offer a selection of fresh food in small packages and other daily necessities targeted at housewives and seniors. Because we open these two formats in different types of locations to existing LAWSON stores, they help expand the possibilities for store openings for the Group as a whole. What's more, knowledge gleaned from developing health-oriented products for NATURAL LAWSON and the Value Line private brand for LAWSON STORE100 can be utilized at existing LAWSON outlets. This approach to widening the customer base has already proven effective in increasing the number of customers.

Turning to fiscal 2006, we aim to drive a recovery in customer numbers by implementing sales promotions using our proprietary LAWSON PASS credit card as well as stepping up measures that foster the individual character of each store—the main focus here is creating merchandise assortment matched to customer needs in each area. In addition, we will actively invest in ways that will ensure our medium- and long-term growth. This investment will include accelerating the opening of NATURAL LAWSON and LAWSON STORE100 outlets. With these two formats and our core LAWSON brand stores, we are determined to deliver greater customer satisfaction and realize our vision of becoming "the 'hot' station in the neighborhood." Moreover, working to raise our corporate value, we will upgrade our internal control systems, something important for any publicly owned company, and fulfill our responsibilities as part of Japan's social infrastructure.

To meet the expectations of our shareholders, and after considering the need to raise capital efficiency and balance shareholder returns with retaining sufficient funds to support growth, we plan to raise the annual dividend from ¥90 to ¥100 per share for fiscal 2006. This equates to an increase in the payout ratio from approximately 41% to around 44%. Moving forward, we will continue to implement a capital structure policy that emphasizes the return of profits to shareholders. Continue to expect more from LAWSON in the years ahead.

April 12, 2006

Takeshi Niinami
President and CEO

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