Top Management Message July 3, 2012

Today, Lawson has announced its financial results for the first quarter of fiscal 2012 ending February 28, 2013. A summary of our consolidated results for the first three months of fiscal 2012 is:

• Operating profit 13.9 billion yen
(up 8.4% year on year)
• Recurring profit 13.7 billion yen
(up 7.1% year on year)
• Net profit 6.2 billion yen

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During the first quarter of fiscal 2012, we continued our efforts to materialize our corporate philosophy of "Creating Happiness and Harmony in Our Communities." Our customers, in particular our new customer groups of seniors and women, are rediscovering the value of convenience stores as "neighborhood stores." We strengthened the offering of fresh foods and developed products by leveraging our customer relationship management (CRM) based on analysis of our customer card data and our supply chain management (SCM) including procurement of high-quality raw materials. Our efforts to optimize merchandise assortments to match customer needs proved to be effective. In addition, ticket sales were strong. As a result, existing-store sales increased by 5.0% year-on-year in the first quarter. Use of CRM and SCM contributed to an improved gross profit margin on products excluding cigarettes compared to the previous year. As such, consolidated operating profit increased by 1.1 billion yen or 8.4% year-on-year to 13.9 billion yen. Net profit amounted to 6.2 billion yen, up 8.3 billion yen from the first quarter of the previous year during which we incurred losses of 2.8 billion yen associated with the Great East Japan Earthquake and 8.2 billion yen related to changes in accounting standards for asset retirement obligations.

Major initiatives in the first quarter of fiscal 2012 were:

  • We developed products that match customer needs by using purchase data of our multi-partner loyalty program Ponta card members. Specific examples include chilled tuna sushi, prepared foods such as croquettes and minced cutlets, private brand "Lawson select" products, and authentic Japanese sweets series "Ankoya" (red bean sweets) from our original dessert brand "Uchi Café SWEETS." Continuing from the previous fiscal year, we strived to add more value in the raw material procurement process by taking measures such as bulk purchase of high-grade food ingredients by the Raw Material Purchasing Department. This has enabled us to develop merchandise having good value relative to the price, which led to an increase in gross profit margin.
  • The number of Ponta cards issued exceeded 44 million, and sales to the card members represented about 43% of Lawson's store sales. We strengthened our efforts to implement the operational reform PRiSM, that is based on analysis of the Ponta card data and our backbone IT system. This has helped to enhance our merchandising power, improve accuracy in order placement, and reduce opportunity loss. As such, we have achieved growth through supply chain management (SCM) and customer relationship management (CRM) as the main pillars of our strategy.
  • With the aim of gaining more support from the new customer groups such as women and seniors, we increased the number of "fresh food-type LAWSON" stores with a stronger assortment of fresh foods and daily delivered foods by converting the existing stores' format as well as opening new stores. We also accelerated the opening of pure fresh food-type convenience stores, LAWSON STORE100.

In the second quarter starting June 1st, while we anticipate weak sales of cigarettes, we expect to improve gross profit margin on products excluding cigarettes compared to the second quarter of the previous year by further strengthening our efforts to implement the above measures. As such, we are confident that our profit plan for the first six months of fiscal 2012 can be achieved. We will also enhance our overseas operations as well as entertainment and e-commerce operations to build foundation for sustainable medium to long-term growth.

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

July 3, 2012

Takeshi Niinami
President & Chief Executive Officer

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