Top Management Message October 3, 2012

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

• Operating profit 34.5 billion yen
(up 6.1% year on year)
• Recurring profit 34.2 billion yen
(up 5.1% year on year)
• Net profit 17.8 billion yen
(up 99.3% year on year)

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Our cumulative sales at existing stores (non-consolidated basis) for the first six months increased 1.0% year on year and were in line with our initial plan. Contrary to the first quarter (March to May) when we recorded significant growth from the same quarter of the previous year, the second quarter (June to August) was affected by waning consumer sentiment, that was triggered by the global economic slowdown, on top of a high hurdle to outperform results a year ago, when the hot weather contributed to sales growth. However, we are regarded highly by our customers, in particular our new customer groups of seniors and women, for providing the value of convenience stores as "neighborhood stores." We are pleased that our customer base has continued to grow and the number of loyal customers has been steadily increasing. We believe this was attributable to our efforts to optimize merchandise assortments to match customer needs. We strengthened the offering of perishable foods and developed products by leveraging our customer relationship management (CRM) based on analysis of our loyalty card data and our supply chain management (SCM) including procurement of high-quality raw materials. In addition, we pursued creation of added value in the value chain and improved accuracy in order placement by use of our ongoing business reform PRiSM. They contributed to a 0.6 percentage point improvement in gross profit margin on products excluding cigarettes compared to the previous year.

As a result, consolidated operating profit increased by approximately 2.0 billion yen or 6.1% year-on-year to 34.5 billion yen. Net profit amounted to 17.8 billion yen, increased approximately 9.0 billion yen from the first six months of the previous year during which we incurred extraordinary losses of 3.3 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 second quarter of fiscal 2012 were:

  • We developed products that match customer needs by using purchase data from our multi-partner loyalty program Ponta card members. Specific examples include prepared foods such as "Torikara" (Japanese fried chicken), private brand "Lawson select" products, and authentic Japanese sweets series "Ankoya" (red bean sweets) in our original dessert brand "Uchi Café SWEETS" product group. We strived to add more value in the raw material procurement process by bulk purchase of high-grade food ingredients. 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 Lawson convenience stores which offer freshly-brewed "MACHI café" expanded to around 1,700. Face-to-face selling, not self-service selling, has realized more hospitable services and it led to an increase in combined sale with a dessert item.
  • The number of Ponta cards issued steadily grew to approximately 44 million, and sales to the card members represented about 44% of Lawson's store sales. We strengthened our efforts to implement the operational reform PRiSM, which 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. We will promote 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 newly identified 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.

In the second half starting October 1st, we anticipate a harsh business environment with subdued consumer sentiment, which is affected by the macroeconomic trend. Lawson will adhere to our internal return on investment (ROI) standards and continue to open stores after examining their profitability, which we believe supports our steady growth. We will not seek to become larger just by reckless store openings, rather strive to enhance profitability of existing stores with the cooperation of franchise owners and the headquarters. Major initiatives in the second half of fiscal 2012 will be to accelerate promoting the following initiatives taken in the first half. Namely,

  • We will aim to further improve gross profit margin by developing and increasing sales of high-margin items such as prepared foods and ready-made meals, and by reducing opportunity loss by proceeding with the implementation of PRiSM.
  • We will encourage our Ponta card holders to become more loyal customers and raise the ratio of store sales by them, with the aim of expanding areas where we believe we have high competitiveness relative to our peers.
  • We will introduce the advanced SCM reforms so that we can eliminate remaining inefficiency in value chain and enhance added value.

I expect that we can attain our profit plan for fiscal 2012 by taking the above initiatives. Moreover, we plan to make further progress in our overseas business as well as in the entertainment and e-commerce businesses, all the while strictly adhering to our ROI standards. We will further establish the basis for achieving long- and medium-term sustainable growth.

As for dividends, we plan to raise the per-share dividend by an additional 10 yen from 190 yen (10 yen increase from the previous year) which we announced initially to 200 yen. This will make the annual increase 20 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 continuous understanding and support.

October 3, 2012

Takeshi Niinami
President & Chief Executive Officer

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