Top Management Message October 13, 2011

Today, Lawson announced its financial results for the second quarter of fiscal 2011 ending February 29, 2012. A summary of our consolidated results for the first six months of fiscal 2011 is as follows:

• Operating profit increased 8.0% year on year to 32.5 billion yen.
• Recurring profit increased 9.8% year on year to 32.6 billion yen.
• Net profit decreased 27.1% year on year to 8.9 billion yen.

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Our cumulative sales at existing stores (non-consolidated basis) for the first six months increased 6.4% year on year and exceeded our own forecast by about 3%. Contrary to the first quarter which was affected by the earthquake and tsunami of March 11, 2011, Lawson performed strongly in the second quarter, thanks to the hot summer in July and August, and success in expanding the customer base to include more women and seniors by handling more fresh foods at the stores. The other major aspect of our growth was a result of favorable sales of high value-added merchandise ,such as chilled lunch box and desserts. The gross profit margin on products excluding cigarettes improved by 0.5 percentage point. This was attributable to improvement in added value achieved by leveraging our advantages in raw material procurement, and reduction in sales opportunity loss by introduction of our backbone IT system, PRiSM. As a result of these efforts, our operating profits (consolidated basis) exceeded our own forecast by 4.0 billion yen to increase 8.0% year on year to 32.5 billion yen.

Regarding net profit for the first six months, an extraordinary loss recorded as an asset retirement obligation (8.3 billion yen) and loss on disaster (3.4 billion yen) resulted in a decrease in net profit, which nevertheless exceeded our initial forecast by 3.6 billion yen.

Major initiatives in the second quarter of fiscal 2011 were as follows:

  • We expanded our customer base by adding more female and senior-age customers and developed our own products such as chilled lunch boxes, desserts, and short pasta by leveraging our advantages in raw material procurement. Such efforts resulted in favorable sales.
  • Regarding fresh food-type LAWSON stores (Hybrid-type), which we position as a driver to expand the customer base, we accelerated the introduction of fresh foods, depending on store locations. The number of those hybrid-stores reached approximately 3,100.
  • We strove to visualize and minimize sales opportunity loss caused by products being out of stock, by thorough use of our IT system PRiSM.
  • Our multi-partner loyalty program Ponta is steadily welcoming more members, who now number around 35 million. Sales to these members represented over 36% of Lawson's store sales.

Please let me also touch on progress regarding the medium- and long-term measures.

【Expansion of customer base】
Lawson will continue to use data of our Ponta card members and create shop floors that match the needs of our customers in their community, with the aim of expanding the customer base by adding more female and senior-age customers. We were ahead of our competitors in strengthening handling of fresh foods. Our plan is to accelerate introduction of fresh foods at our convenience stores as well as LAWSON STORE100 stores. The aggregate number of Hybrid-type and LAWSON STORE100 is expected to increase to approximately 5,000 by the end of February 2012. In addition, we will offer a much wider range of merchandise to our card members by using the Internet. This will bring us one step further in realizing our mission of "Whatever you want, whenever and wherever you need it," based on our Customer Relationship Management (CRM).

【Entertainment and e-commerce】
Regarding the entertainment and e-commerce business, an early end to post-disaster voluntary restraints on holding various events, and improvement in consumer sentiment helped LAWSON ENTERMEDIA, Inc. and HMV Japan, Inc. achieve a year-on-year growth in profit on a combined basis. In September 2011, Lawson's online shopping site, Loppi, opened and a wide range of merchandise are now available to our Ponta card members. We will continue to augment services that utilize online shopping sites as well as real stores.

【Overseas development】
We acquired shares of our subsidiary in Shanghai and raised our equity stake to 85%. We plan to promptly restructure and improve its operation and merchandise, in order to exploit the strengths of the Japanese-type convenience store. In remarkably growing Indonesia, we will increase LAWSON brand stores through alliance with Alfa Group, one of the largest retail groups in Indonesia. In Singapore, we established a regional headquarters to supervise our operations in Asia excluding China, in the first half of fiscal 2011. We will explore opportunities to expand elsewhere, such as other major cities of China and India, with due consideration in capital discipline based on targeted return on investment.

Earnings forecast and dividend increase for fiscal 2011

Following our announcement of an upward revision in earnings forecasts for fiscal 2011 on September 29, we are expecting to record a 9th consecutive increase in operating profit this year, with the estimated amount of 61.5 billion yen (up 10.7% year on year.) By thoroughly implementing measures to increase female and senior-age customers in our customer base and by enhancing our capability to develop our merchandise, we aim to have merchandise that satisfies the needs of customers in their communities, improve profitability of franchise stores, and achieve our annual earnings forecasts. As for dividends, we plan to raise the per-share dividend by an additional ¥5 yen from ¥175 yen (up ¥5 yen from the previous year) which we announced initially to ¥180 yen. This will make the annual increase ¥10 yen. We plan to do so in order to return a portion of our favorable results in the first half to our shareholders.

I would like to thank you, our shareholders and investors, for your continuing understanding and support.

October 13, 2011

Takeshi Niinami
President & Chief Executive Officer

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