In the first quarter, we faced a difficult business environment as consumer sentiment deteriorated and the economic slump persisted from the previous fiscal year. Nevertheless, we posted a 1.5% year-on-year increase in consolidated operating profit to 12.1 billion yen. One reason was the ongoing beneficial contribution from the introduction in Japan of cigarette vending machines requiring taspo cards (adult identification IC cards). Our perishable food-format convenience store operations also contributed to the higher consolidated operating profit. These operations have synced well with changing consumer behavior, as well as the needs of elderly consumers.

• (1)Existing store sales continued to increase year on year, rising 2.7% due to the beneficial impact of taspo cards and other factors.

Meanwhile, the cumulative number of card members for our proprietary loyalty point cards reached approximately 9.3 million, roughly 2.4 million higher than at May 31, 2008. Steady sales to these members accounted for 17% of all our sales.

• (2) LAWSON, Inc. opened 97 new stores in Japan in the first quarter. Daily sales at new stores were at 513,000 yen, about the same as the corresponding period of the previous fiscal year, as we continued to apply strict in-house store investment criteria.
• (3) Consumer spending behavior had an impact on sales and reflected the deteriorating economic conditions since the beginning of the current fiscal year. To respond to consumer belt-tightening, we strengthened the merchandise assortment of perishable foods and private brand Value Line products offered in appropriately sized small quantities, and introduced 105 yen (tax inclusive) delicatessen items.
• (4) There was only a slight increase in selling, general and administrative (SG&A) expenses despite the fact that we are now investing in earnest in our next-generation IT system. A reduction in expenses from the previous fiscal year for helping franchise owners cope with rising raw materials expenses, thanks to a drop in market prices for raw materials, was the main reason for only a slight rise in SG&A expenses.
• (5) Regarding subsidiaries, Ninety-nine Plus Inc. recorded a strong performance in its perishable foods convenience stores, LAWSON ATM Networks, Inc. saw an increase in both the number of ATMs installed and transactions handled, and LAWSON TICKET INC. registered brisk ticket sales.

Our operating environment will more than likely remain tough in the second quarter and thereafter in the face of sluggish consumer sentiment and as the benefits we gained from taspo's introduction run their course. We will therefore continue to rigorously enforce our "Three Challenge Practices" of quality, service, and cleanliness (QSC) in store operations and use loyalty point card data to assemble merchandise assortments that mesh with customer needs. These actions are aimed at raising gross profit at existing stores. We will also look to cut unnecessary costs and make structural reforms, such as stripping inefficiencies out of the distribution system. In doing so, we hope to achieve our full-year earnings targets. At the same time, we will continue to invest in perishable food-format convenience store operations and other sources of future growth that have the potential to expand our customer base in order to achieve sustained growth over the medium term.

Going forward, we ask for the continued understanding and support of LAWSON shareholders and other investors.

July 2, 2009

Takeshi Niinami
President & CEO

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