Top Management Message January 11, 2011

The LAWSON Group (LAWSON) today announced financial results for the third quarter of fiscal 2010. Results for major financial indicators (nine months cumulative on a consolidated basis) are as follows.

• Operating profit 45.9 billion yen
(104.4% year on year)
• Recurring profit 45.2 billion yen
(104.3% year on year)
• Q3 Net Profit 20.7 billion yen
(105.0% year on year)

Please click here for more details on the operating results.

LAWSON achieved earnings growth significantly above its expectations in each of the following categories of consolidated operating profit, recurring profit, and the third quarter net profit. In particular, the operating profit recorded all-time high.

Non-consolidated financial results

For the first nine months of fiscal 2010-from March 1 to November 31, 2010-an extremely hot summer and rush demand for cigarettes ahead of the October 1 increase in the tobacco tax contributed to higher sales. Although consumption has not yet reached a full recovery, LAWSON succeeded in enhancing its products, including desserts and pastas, by focusing on the selective procurement of ingredients, which has resulted in strong sales of highly profitable ready-made meals. As a result of these two factors, sales for existing stores on a non-consolidated basis was 99.4% year on year, and it was 103.2% year on year on a three months cumulative basis from September to November, which has greatly exceeded our projection.

The gross profit margin on a non-consolidated basis increased 0.3 percentage points to 30.7% from the same period a year ago. The structural reform in raw material procurement and the promotion of the proactive ordering system using our sophisticated IT system PRiSM, led to the expected improvement in the gross profit margin.

As a result, driven by strong sales at existing stores, operating profit on a non-consolidated basis increased by 1.9 billion yen from the corresponding period in the previous year, exceeding the forecast by 2.1 billion yen.

Consolidated financial results

Regarding subsidiaries and affiliates, the major contributor to earnings was LAWSON ATM Networks, Inc., which performed strongly. As a result, operating profit on a consolidated basis increased by 1.9 billion yen from the previous year, exceeding the projection by 2.1 billion yen.

For the fourth quarter, trend of consumer sentiment remains unpredictable. However, the excessive price competition has waned and we have received a positive response for our competitive product development in rice balls, over-the-counter fast foods, desserts, and pastas. Also, our customer base has been expanded to the senior citizens. As well as the expected substantial reduction in lost opportunities through the further utilization of the core IT system "PRiSM," we have increased our full-year profit forecast for fiscal 2010, revising our consolidated operating profit upward to 53.0 billion yen from 50.5 billion yen and consolidated recurring profit to 51.6 billion from 49.1 billion yen. The net profit on a consolidated basis was revised up to 23.2 yen from 22.0 billion yen.

To coincide with the release of the third quarter financial results, we have also implemented an extensive organizational change, setting up two new pillars called the "group system" and the "branch system." The objectives of these two systems are to enhance decision-making speed and to strengthen enforcement. This change also created an environment where I can apply my time more strategically to focus on major events and issues.

Regarding the group system, we have set up the following three groups: (1) the "CVS Operating Group," to oversee domestic CVS business; (2) the "Entertainment & e-Commerce Group, to promote e-commerce business; and (3) the "Overseas Operating Group," to enhance our overseas operation. We will seek to speed up the decision-making process by placing the group CEOs at each group. Moreover, we will concentrate our corporate function at headquarters and thus pursue our corporate planning as a single, united group. With the introduction of the group system, we are planning to integrate operations of existing CVS business where our competence in multi-formats in the catchment areas lies, fresh food CVS and food businesses. We will also promote growth areas such as entertainment and Internet businesses as well as overseas operations and, as the LAWSON Group as a whole, will work on expanding our customer base.

With the introduction of the branch system, we will decrease the number of hierarchical levels and promote delegation. With the sales division system implemented last year, operating and development divisions were integrated and this led to a significant improvement in daily sales and profits at new stores. Reflecting this achievement, we will deploy 75 managers who have completed several years of our career development program at seven regional offices as branch directors to conduct more finely textured and community-based store development, with further integration of operation and store development. Under the branch system, we will provide merchandise assortments and services better-suited to the needs of customers in each catchment area.

We thank you, our shareholders and investors, for your continuing understanding and support.

January 11, 2011

Takeshi Niinami
President & Chief Executive Officer

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