Top Management Message for the Second Quarter of Fiscal 2013

Today, Lawson announced its financial results for the second quarter of fiscal 2013 ending February 28, 2014. A summary of our consolidated results for the first six months of fiscal 2013 is:

• Operating profit 35.6 billion yen
(up 3.1% year on year)
• Recurring profit 35.5 billion yen
(up 3.7% year on year)
• Net profit 19.0 billion yen
(up 6.6% year on year)

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Our cumulative sales at existing stores (non-consolidated basis) for the first six months decreased 0.5% year on year. Weak cigarette sales caused by the ongoing trend of a decrease in the number of smokers, which continued from the first quarter, had an adverse impact. However, we endeavored to expand the customer base and make our merchandise assortments better match the needs of customers in each community by introducing freshly-brewed MACHI café at more stores and strengthening our offering of food ingredients to be prepared and eaten at home. In addition to freshly-brewed coffee, we developed and expanded sales of high-value-added products such as in-store prepared foods aimed at further expanding the customer base. Consequently, gross profit margin continued to rise 0.5 percentage point in the first two quarters compared to the previous year.

On the profit side, consolidated operating profit for the six-month period increased by approximately 1.1 billion yen or 3.1% year on year to 35.6 billion yen. Net profit also rose 6.6% to 19.0 billion yen, up approximately 1.2 billion yen from the previous year. This was due to year-on-year decline in extraordinary losses, including impairment losses, reflecting our successful store-opening strategy of emphasizing investment efficiency.

• The number of Ponta cards issued grew favorably to more than 57 million (as of the end of August, 2013) and sales to card members represented about 47% of LAWSON's store sales. The information on customer attributes accumulated through Ponta cards help us to better understand customer needs in greater detail, as we compile and analyze abundant purchasing data linked to more than 10,000 stores. Since the start of this fiscal year, we have been providing the results of purchasing data analysis to individual stores, to enable further enhancement of merchandise assortments to better meet the needs of our valuable customers and the precision of our area strategy.

• The number of Lawson convenience stores which offer freshly-brewed coffee MACHI café increased to 4,294 stores by the end of August 2013. MACHI café provides heart-warming service through face-to-face sales with customers different from self service. Furthermore improved offering of latte menu are contributing to an increase in store competitiveness as a factor to differentiate Lawson, which attracts a wide range of customers including women.

• By continuing to convert the existing stores’ format as well as opening new stores, we increased the number of “fresh-food type LAWSON” stores with a stronger assortment of perishable foods and daily delivered foods to 5,985 stores by the end of August 2013. This has led to an increase in sales of food ingredients to be prepared and eaten at home, such as seasonings and frozen foods, which are often bought together with perishable foods. These products and over-the-counter fast food products that were highly popular in the first half, such as “Genkotsumenchi” (fried minced meat ball) and “Frozen Sweets” (different flavors of sorbet), contributed to a rise in gross profit.

In the second half, amid continued competition to open new stores by our competitors in the convenience store industry, we will focus on strengthening sales at existing stores, as in the first half, and work to increase profit for both franchise owners and the head office. We will also evolve initiatives in the first half that were centered on providing products closely linked to customers’ lifestyles such as over-the-counter fast foods, including MACHI café, perishable foods and daily delivered foods, the prevention of accelerating lifestyle diseases and the development of healthy products (Meal Solutions), and health diagnosis and health management services (Self Medication). At the same time, we will further promote the healthcare-related business that we have undertaken ahead of competitors under the concept of “a balanced diet leads to a healthy body”. In addition, we plan to make further progress in our overseas business and entertainment/home convenience business while strictly adhering to our return on investment (ROI) standards, and to build a foundation for sustainable medium- to long-term growth.

As outlined above, even if we continue to invest in the future toward sustainable medium- to long-term growth, I believe we will still be able to comfortably meet our fiscal 2013 profit targets by implementing measures to bolster our product appeal and reinforce existing stores. Moreover, our ROE has continued to improve to a level of more than 15% and we will continue to aim to achieve an improvement in investment efficiency targeting ROE of 20%, which is our medium-term management target. Furthermore, our EPS growth has exceeded 6-7% over the medium term, and we are continuing to focus on making sustainable increases in dividends to shareholders.

As for dividends, we plan to return a portion of our favorable results in the first half to our shareholders and pay an annual dividend of 220 yen per share (20 yen increase from the previous year) in the fiscal year ending February 2014, which represents an additional 10 yen from the level of 210 yen (10 yen increase from the previous year) announced at the start of the year.

I would like to express my gratitude to our shareholders and investors, for your continued and unwavering support.

October 8, 2013

Takeshi Niinami
Chief Executive Officer
Representative Director

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