Top Management Message October 7, 2014

Today Lawson announced its financial results for the first half of fiscal 2014, or the six months to August 31, 2014. The main consolidated results are listed below:

• Operating profit 40.0 billion yen
(up 12.3% year on year)
• Recurring profit 39.6 billion yen
(up 11.5% year on year)
• Net profit 21.8 billion yen
(up 14.9% year on year)

Click here for more detailed results.

Lawson achieved strong gains in profit in the first half from March to August 2014. Consolidated operating profit rose 4.3 billion yen, or 12.3% year on year, to 40.0 billion yen. Our net profit performance was also strong, rising 2.8 billion yen, or 14.9% year on year to 21.8 billion yen.

Over that six-month period, we successfully expanded the number of stores offering our freshly-ground MACHI café service, and further enriched our range of foodstuffs for cooking or warming in the home. We have made progress on our underlying strategy aimed at expanding Lawson’s customer base, and providing a product range to better meet local community needs. However, the continued fall in the number of smokers in Japan resulted in another slump in cigarette sales over the period. This, plus the poor weather and typhoons in July and August, had a considerable adverse impact on existing-store sales, affecting the figure down 1.0% year on year in the first six months from March to August 2014.

Lawson opened 513 new stores and closed 214 stores over the six-month period, boosting the total number of Lawson stores in Japan by a net 299 stores. This was roughly in line with our initial plan. In addition to the expansion of MACHI café, we also successfully strengthened our range of pre-prepared fast-food items and other higher value-added products. The rise in sales of such high-margin items helped fuel further healthy gains in our gross profit margin, which rose 0.4 point year on year in the six months to August 31, 2014.

FY2014 1H: Main business features

  • We sought to boost customer satisfaction by strengthening our range of lunchtime products on offer across Lawson stores. These include lunch boxes, rice balls, sandwiches and over-the-counter fast food. We noted strong sales of new key items in a number of ranges: our “Taste of home!” series of lunch boxes and rice balls in the mainstay cooked rice category; “Genkotsu” croquettes in the fast-food pre-prepared range; and, in our dessert bakery, the Pure Series of additive-free products made from superior quality ingredients.
  • We increased the number of stores offering our MACHI café service to 9,368 at the end of August 2014. We believe this friendly service boosts direct communication with our customers, and sets us apart from other convenience store chains. The decision to expand our latte menu helped attract a broader range of customers, particularly women. Our personal MACHI café services are definitely helping to boost the competitiveness of the Lawson chain.
  • The number of Ponta cards issued under our joint points program continued to rise strongly, topping 6.5 million at the end of August 2014.The percentage of Lawson sales purchased by Ponta card members has now reached 50%. The customer data collected from Ponta cards, combined with the rich purchasing data collected from over 10,000 stores, enables us to form a clear, swift picture of immediate regional customer needs.
  • In terms of entertainment services, we acquired the holding company of United Cinemas Co., Ltd. in August 2014. United Cinemas is the third largest in the industry, operating 331 screens across Japan. Incorporating these assets into the Lawson Group will help us expand our ticket sales operation, and provide the type of entertainment products and items that our customers expect.
  • We have also been making further improvements to our home convenience services by incorporating the Smart Kitchen regular home delivery service operation into the Lawson Group in July, and rebranding it as Lawson Fresh online home shopping.

Japanese consumption trends are expected to remain opaque in the second half of fiscal 2014, from September 2014 through February 2015. The competition surrounding new store openings in the convenience store industry is also likely to remain fierce. Given this environment, we believe it is vital to maintain our strong focus on strengthening existing-store sales, and boosting mutual profit opportunities for the Lawson Group and its franchise member owners. We are committed to further strengthening the range of products and services on offer in order to fully satisfy customer needs. This drive covers a whole range of products and services which are important to our customers’ daily lives, from MACHI café and other other-the-counter food and drink to fresh produce and same-day delivery items. The commitment to improved service also involves expanding the range of health-related products on offer to meet the local community needs.

On September 30, 2014, we announced our intention to purchase the Japanese supermarket chain, Seijo Ishii Co., Ltd. Seijo Ishii has carved itself a strong competitive position versus both regular and upmarket supermarkets. In addition, our two companies have much in common in terms of our comprehensive business models which span the manufacture through retail of products. I believe we can successfully boost the corporate value of both companies by joining forces in a range of strategic areas. Lawson understands the vital importance of building a firm operational base in order to help ensure consistent medium- to long-term growth. We intend to continue focusing on capital efficiency and the aggressive strengthening of our domestic convenience store business. At the same time, we will be looking to further develop our entertainment-related business, operations outside of Japan, and home convenience services.

I am confident that these strategies will help achieve our profit targets for fiscal 2014. I remain committed to boosting our corporate value by enthusiastically pursuing our corporate philosophy of, “Creating Happiness and Harmony in Our Communities.”

I would like to thank our shareholders and investors for their loyal support of Lawson’s management strategy and competitive approach.

October 7, 2014

Genichi Tamatsuka
President and CEO
Representative Director

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