Top Management Message April 10, 2008

LAWSON today announced its operating results for fiscal 2007, ended February 29, 2008. A summary of our consolidated results is as follows:

  • Operating profit rose 4.7% year on year to 46.6 billion yen
  • Recurring profit increased 3.6% to 46.2 billion yen
  • Net profit increased 5.4% to 22.1 billion yen

Please click here for more details of our fiscal 2007 results.

Fiscal 2007 Highlights

The major areas of note concerning our fiscal 2007 results are summarized below.

Consolidated operating profit at 46.6 billion yen was 0.7 billion yen above plan and approximately 4.7% up year on year.

  • (1) Existing store sales fell by 0.8% from the previous fiscal year due to competition from store openings by the major convenience store chains and lackluster economic conditions in regional areas of Japan. But thanks to the success of efforts to enhance our merchandise assortment centered on ready-made meals, sales gradually trended upward from the beginning of the second half of the fiscal year. However, the difference in economic prosperity between major metropolitan areas and regional areas of Japan is still of grave concern.
  • By product category, sales of boxed lunches and other rice dishes struggled to grow. However, there were signs that the launch of products targeted at core customers has reversed this trend. On another positive note, sales campaigns involving bakery, dessert and certain other categories delivered impressive results. The cumulative number of loyalty-point card members, meanwhile, rose steadily, topping 6.22 million—and our target for the year. Sales to these members accounted for roughly 12% of our sales.
  • (2) LAWSON opened a total of 452 stores during fiscal 2007. Rather than trying to open as many stores as possible, we opened stores based on strict adherence to proprietary in-house criteria. As a result of this selective approach, while fewer stores were opened than planned, we saw a 7,000 yen year-on-year improvement in daily sales at new stores.
  • (3) As part of efforts to expand our customer base, we converted around 600 existing stores to the LAWSON PLUS format, which offers a wider range of perishable foods and other merchandise.
  • (4) We cut advertising and promotional expenses and IT expenses in selling, general and administrative expenses as we continued our efficiency drive.
  • (5) Looking at the performance of subsidiaries, LAWSON TICKET INC., the second-ranked player in the ticket sales industry in Japan, recorded lower earnings. On the other hand, LAWSON ATM Networks, Inc. turned in a strong performance on the back of a higher-than-projected volume of ATM transactions. Furthermore, VALUE LAWSON, Inc., which runs LAWSON STORE100 stores, posted a smaller loss.

Initiatives From Fiscal 2008

It is likely that all the major convenience store chains will continue to fuel competition by opening stores of the same type. Economic malaise mainly in regional areas of Japan and soaring prices for raw materials and crude oil are among some of the other factors that promise to make the external operating environment for a nationwide chain like LAWSON as challenging as ever.

In the face of this difficult operating environment, we believe that our biggest management theme is to make LAWSON the preferred choice of franchise owners by taking steps to help improve the earnings of franchised store owners. To this end, we plan to invest heavily in fiscal 2008 to revitalize existing stores and break the sequence of year-on-year declines in same store sales. This should improve profits generated by existing stores.

Specific plans focused on existing stores include investing in advertising and, providing improved merchandise support for franchised store owners, and enhancing our products centered on ready-made meals.

However, as a consequence of our plans to increase expenses in regards to existing stores, we are projecting lower earnings in fiscal 2008.

But we believe that the expenses planned for fiscal 2008 will arrest the trend in falling year-on-year sales at existing stores and ultimately pay off in the form of an earnings recovery in fiscal 2009. In the following year, we expect earnings to beat the fiscal 2007 level.

Even though our plans call for lower earnings in fiscal 2008, we are determined to meet the expectations of investors who take a medium- to long-term view of their shareholding. We hope to do this by returning the majority of free cash flows generated over the next three years to shareholders. Specifically, we hope to raise the annual dividend by 50 yen per share from 110 yen to 160 yen and maintain this level for around the next 3 years (FY2008-FY2010), as long as there is no major change in business conditions going forward. We will also look at buying back and cancelling our own shares in the order of 10 billion yen to 20 billion yen, with the goal of lifting consolidated EPS in fiscal 2008 above that in fiscal 2007.

To LAWSON shareholders and other investors, we ask for your continued understanding and support.

April 10, 2008

Takeshi Niinami
President & CEO

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