SENSHUKAI CO.,LTD.

(Tokyo Stock Exchange, First Section: 8165)

Second Quarter of Fiscal 2017
Earnings Presentation
July 27, 2017

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Contents

1. Consolidated Results of Operations for 2Q Fiscal 20172.

Overview by Segment

3.

2Q Fiscal 2017 Results Relative to Initial Plan

4.

Consolidated Earnings Outlook for Fiscal 2017
- Reasons for Fiscal 2017 Sales and Operating Income Decreases
and Second Half Actions

5. Outlook for Belle Maison
6.

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2

1. Consolidated Results of Operationsfor 2Q Fiscal 2017

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2Q Fiscal 2017 Consolidated Statement of Income (YoY Comparison)(Millions of yen)

2Q 2016

YoY change

2Q 2017% to netsales% to net
sales

Difference

Change in% to net
sales-2,712-4.1%

Net sales

65,898

Cost of sales

34,37752.2%

34,212

54.1%

-165

1.9%

Gross profit

31,52047.8%

28,97345.9%-2,547-1.9%

SG&A expenses

31,92448.4%30,22247.8%-1,702-0.6%

Operating income

-403

-0.6%

-1,248

-2.0%

-845

-1.4%

Ordinary income

181

0.3%

-849

-1.3%

-1,030-1.6%

Profit attributable toowners of parent

162

0.2%

-6,208-9.8%-6,370-10.0%

63,186

Net sales decreased due to sluggish sales of apparel and fashion accessories since 2016 in the mail-order business
Operating loss was caused by a lower gross profit margin resulting from the sales decrease and a higher cost of
sales ratio
Large loss caused mainly by an impairment loss and the reversal of deferred tax assets
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2Q Fiscal 2017 Consolidated Balance Sheet (Compared with End-Fiscal 2016)(Millions of yen)
Difference

Dec. 31, 2016

Jun. 30, 2017

• Current assets

52,61848,969-3,649

 Accounts receivable-other: Merchandise and finished goods:-¥1.7bn-¥1.6bn• Non-current assets

49,341

43,927-5,414

 Property, plant and equipment:
 Intangible assets:-¥3.6bn-¥1.4bn

101,959

92,897-9,062

Remarks

AssetsTotal assets
Liabilities• Current liabilities

29,29826,453-2,845

 Accounts payable-trade:-¥1.1bn Other (Accounts payable-other, etc.):-¥1.1bn Bonds with subscription rights to shares:-¥2.0bn
 Long-term loans payable:+¥2.0bn• Non-current liabilities

20,08820,291203

Total liabilities

49,387

46,745-2,642

Net assets• Shareholders’ equity

58,39946,056-12,343• Accumulated othercomprehensive income-5,890

37

5,927

64

58

-6

52,572

46,152-6,420101,959

92,897-9,062• Non-controlling interests
Total net assets
Total liabilities and net assets
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 Loss: Transfer from unrealized losses onrevaluation of land:-¥6.2bn Revaluation reserve for land:+¥5.9bn-¥5.9bn5

2Q Fiscal 2017 Consolidated Statement of Cash Flows (YoY Comparison)(Millions of yen)

2Q 2016
Net cash provided by(used in) operating
activities

Net cash provided by(used in) investing
activities

1,519

1,296

Difference-223

2Q 2017 highlights
 Loss before income taxes:-¥4.9bn Depreciation:+¥1.2bn

 Impairment loss:+¥4.4bn Decrease in inventories:+¥1.6bn Purchase of property, plant andequipment:-¥0.5bn

-617

-761

-144

 Purchase of intangible assets:-¥0.4bn Proceeds from sales of investment
securities:+¥0.7bn Proceeds from long-term loans payable:+¥2.8bn

Net cash provided by(used in) financing
activities-2,005

Cash and cash
equivalents at end of
period13,127

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2Q 2017

-387

1,618

 Repayments of long-term loans payable:-¥0.9bn Payment for redemption of bonds with
subscription rights to shares:-¥2.0bn

16,743

3,616

6

Consolidated Sales by Business Segment (YoY Comparison)(Millions of yen)
16年第2Q
2Q 2016-6.4%

17年第2Q
2Q 201755,698 52,145

10.1%
7,451

8,201

-1.0%

2,293

25.2%

2,270
454

通販
Mail-orderbusiness

ブライダル
Bridalbusiness

法人businessCorporates

569

その他
Others* “Others” represents services business primarily offering insurance and credit card services, and childcare business
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Consolidated Operating Income by Business Segment (YoY Comparison)(Millions of yen)
16年第2Q
2Q 2016

17年第2Q
2Q 2017-23.1%

289

222
131
7
-37

-280
-384

-1,610Mail-order
通販business

ブライダル
Bridalbusiness

法人 businessCorporates

その他
Others* “Others” represents services business primarily offering insurance and credit card services, and childcare business
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2. Overview by Segment

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Overview of the Mail-order Business (YoY Comparison)

2Q 2016

2Q 2017Difference

55,69852,145-3,553-280-1,610-1,330Semi-annual number of active
customers (10,000 members)

240.7

224.4

-16.3

Semi-annual number of new
members (10,000 members)

39.4

37.5

-1.9

Average sales per order (Yen)

10,612

10,036-576

Semi-annual order frequency per
customer (Times)

2.01

2.09

0.08

Catalog circulation(10,000 volumes)

4,424

3,056

-1,368Net sales(Millions of yen)
Operating income(Millions of yen)

Main factors

 Decreases in thenumbers of repeat
customers and newmembers

 Caused by a decreasein the average order ofguest buyers* All figures other than net sales and operating income are non-consolidated data for the mail-order business(excluding the Hanpukai business)
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Mail-order Business – First Half Monthly Sales (YoY Comparison)
Mail-order Business –Monthly Sales

January to June: 93.6％
YoY
100％

97.8%

94.3%
91.4%

1月
Jan.

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92.0%

91.6%

2月
Feb.

3月
Mar.

4月
Apr.

93.5%

5月
May

6月
Jun.
11

Mail-order Business –Differences in Cost to Sales Ratio and SG&A Expenses(YoY Comparison)
Cost to Sales Ratio
2.9%
52.8%

16年第2Q
2Q 2016

SG&A Expenses

55.7%

26,771

17年第2Q
2Q 2017

2Q 2016
16年第2Q(Millions of yen)
-1,86024,911

2Q 2017
17年第2Q

Increase in share of bargain and clearance sales

Decrease in number of catalogs and pages

Increase in valuation losses on goods

Cost reduction by reexamining each expense items

Higher exchange rate for forward exchange
contracts
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Mail-order Business –Sales by Product Category (YoY Comparison)(Millions of yen)
2Q 2016
16年第2Q

2Q 2017
17年第2Q-10.8%

23,294

20,772-12.0%

15,20813,390

-8.5%

-9.4%

7,321 6,701

5,635 5,105

35.9%

2,956

Apparel
衣料品

Fashion
服飾雑貨
accessories

Interior
インテリア
goods

Household
生活雑貨
goods

68.3%

4,018

Foods
食品

1,282

2,157

Others
その他

In apparel, sales decreased particularly in outerwear and maternity wear.
* Others: Flowers and gift catalog sales, etc.
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Internet-related Indicators
Internet Sales(Millions of yen)

Ratio of Internet-based Orders(including mobile sales)

3.1%

Sales via catalog: Customer uses Internet to enter
catalog product number

79.3%

82.4%

16年第2Q
2Q 2016

17年第2Q
2Q 2017

Internet-only sales: All Internet sales other than sales
via catalog

39,9004,306

38,423
3,180

34,7452,054

Amount and Share of Smartphone Sales
35,594

2Q 2015
15年第2Q

 Net sales

35,24332,691

2Q 2016
16年第2Q

2Q 2017
17年第2QThe number of Internet customer visits
increased but the sales conversion rate
decreased.
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(Millions of yen)

17,702

 Share of sales

918

7.5%

18,620

46.1％

53.6％

2Q 2016

2Q 2017

14

Overview of the Bridal Business (YoY Comparison)

2Q 2016

2Q 2017Difference

Net sales(Millions of yen)

7,451

8,201

750

Operating income(Millions of yen)

-384

131

515

23

23

0

1,934

2,123

189

365

366

1

Guesthouses

Weddings (Couples)

Average sales per wedding(10,000 yen)

Main factors
 Two facilities* opened in2016 made their first full
first-half contributions tosales No new guesthouses* The 33 Sense of Wedding in Osaka opened January 2016; THE SURF OCEAN TERRACE in Chiba opened March 2016
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Overview of the Corporates Business (YoY Comparison)(Millions of yen)

Net sales• Contracting services

2Q 2016

2Q 2017

2,293

2,270

-23

1,573

1,572

-1

Difference

Main factors• Sampling

574

547

-27

 Decrease in samplingsales due to the
reduction in catalog
circulation• Novelties

125

142

17

 Increase in contracting
sales of existing clients• Others

18

7

-11

289

222

-67

Operating income

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3. 2Q Fiscal 2017 Results Relative toInitial Plan

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Consolidated Results Compared to Initial Plan for 2Q Fiscal 2017
(Millions of yen)

2Q 2017 (Initial plan)

2Q 2017 (Results)% to netsales% to net
sales

Relative to initial plan
Difference

Changein % to net
sales
-8.3%

Net sales

68,900

Cost of sales

37,25354.1%

34,21254.1%-3,041

0.0%

Gross profit

31,64645.9%

28,97345.9%-2,673-0.0%

SG&A expenses

31,29645.4%

30,22247.8%-1,074

2.4%

Operating income

350

0.5%

-1,248-2.0%-1,598-2.5%

Ordinary income

750

1.1%

-849

-1.3%

-1,599-2.4%

Profit attributable toowners of parent

500

0.7%

-6,208-9.8%-6,708-10.5%

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63,186-5,71418

Consolidated Sales by Business Segment (Compared with Initial Plan)(Millions of yen)
2Q 2017
17年第2Q実績

2Q 2017
17年第2Q当初

results

initial plan

-10.5%

58,262

52,145
2.9%
7,972

8,201

5.0%
2,162

2,270

12.9%
504

通販
Mail-orderbusiness

ブライダル
Bridalbusiness

法人businessCorporates

569

その他
Others* “Others” represents services business primarily offering insurance and credit card services, and childcare business
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Consolidated Operating Income by Business Segment(Compared with Initial Plan)(Millions of yen)
2Q 2017
17年第2Q当初

2Q 2017
17年第2Q実績

initial plan

results

16.2%
233

131

191

222
7
-12

-62

-1,610Mail-order
通販 business

Bridalbusiness
ブライダル

Corporates
法人 business

Othersその他* “Others” represents services business primarily offering insurance and credit card services, and childcare business
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4. Consolidated Earnings Outlook for
Fiscal 2017
- Reasons for Fiscal 2017 Sales and Operating Income
Decreases and Second Half Actions

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Fiscal 2017 Consolidated Earnings Outlook (YoY Comparison)(Millions of yen)2016 (Results)

2017 (Forecasts)% to netsales% to netsales

YoY change
Difference

Change in% to net
sales-2,174-1.7%

Net sales

129,074

Cost of sales

67,08752.0%

69,978

55.1%

2,891

3.1%

Gross profit

61,98648.0%

56,922

44.9%-5,064-3.1%

SG&A expenses

60,79147.1%

60,722

47.9%

-69

0.8%

Operating income

1,194

0.9%

-3,800-3.0%-4,994-3.9%

Ordinary income

1,673

1.3%

-3,600-2.8%-5,273-4.1%

Profit attributable toowners of parent

1,420

1.1%

-10,400-8.2%-11,820-9.3%

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126,900

22

Fiscal 2017 Consolidated Sales Outlook by Business Segment(YoY Comparison)(Millions of yen)
2016
16年実績

-3.7%

106,606

results

2017
17年予想
forecasts

102,699

5.8%
16,818

17,799

-0.1%

4,576

4,572

70.8%
1,072

Mail-order
通販business

Bridalbusiness
ブライダル

Corporates
法人 business

1,831

Othersその他* “Others” consists of services, primarily insurance, credit cards and childcare, and the cosmetics manufacturingwholesale business of Nissui Pharma Cosmetics Co., Ltd., which was acquired in 2017
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Fiscal 2017 Consolidated Operating Income Outlook
by Business Segment (YoY Comparison)(Millions of yen)
16.2%
751

873

2016
16年実績
results

2017
17年予想
forecasts-39.8%

517

1.4%

311
146

148

-240

-5,134Mail-order
通販 business

Bridalbusiness
ブライダル

Corporates
法人 business

Othersその他* “Others” consists of services, primarily insurance, credit cards and childcare, and the cosmetics manufacturingwholesale business of Nissui Pharma Cosmetics Co., Ltd., which was acquired in 2017
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Reasons for Fiscal 2017 Sales and Operating Income
Decreases and Second Half Actions
Net Sales
Increasing tendency of customers to buy apparel only during periods of real demand
Increasing similarity of merchandise (all retailers selling the same types of items)
Higher orders from smartphones, but not enough to offset decrease in orders using
catalogs and PCs
Smaller number of catalogs and pages due to review of catalog distribution to use
catalogs more efficiently (decrease in “sales area”), but this change reduced sales
more than expected
Operating Income
Higher cost to sales ratio due to an increase in bargain and inventory clearance sales
Higher cost to sales ratio due to a rising exchange rate for forward exchange contracts
Second Half Actions to Increase Sales
Expand coverage by printing more catalogs (such as by producing compact versions)Use additional marketing measures (more coupons, free-shipping campaigns, moresales promotions on SNS and other steps)
Improving UI and UX and full-scale personalization by starting to use DMP (see note)
Note: User interface (UI) refers to the font, pictures, buttons and other aspects of the screens displayed onbrowsers; user experience (UX) refers to providing a positive experience for users, such as by making
the e-commerce site easy to navigate and ensuring the trouble-free processing of purchases. DMP is aplatform for managing a variety of information collected from the Internet.
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5. Outlook for Belle M aison

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Belle Maison – Loss of Customers
Belle M aison Customers as Pct. of All Women in Japan
Active customers in 2012
(pct. of all women in each age segment)

Active customers between July 2016 to June 2017(pct. of all women in each age segment)

Age
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Effective members (Thousands)

Female populationin 2017

Not registered

Number of women (Thousands)

Age

Five years ago, about 20% of
women in their 30s shopped
at Belle Maison

Not registered

Effective members (Thousands)

Number of women (Thousands)

Female populationin 2012

Today, only about one ofevery eight women in the 40
to 44 age segment shop at

Belle Maison

28

Belle Maison – Decline in Appeal of Merchandise
Wholesalemerchandise

Fashion26,841

Lifestyle

Health & Beauty/Food

16,451

Sales

1H
1H
12年上期
17年上期
FY2012 FY2017

1H 17年上期
1H
12年上期
FY2012

61,219FY201728,946

7,645
6,556
1,764

16,3391H 17年上期
1H
12年上期

8,050

10,621FY2012FY2017

Product types

FY2017FY2017FY2017

1H
1H
12年上期
17年上期
FY2012 FY2017

108,872

63,0055,892

1H 17年上期
1H
12年上期
FY2012FY2012

6,854

29,156FY201259,322
41,122

1H 17年上期
1H
12年上期

20,765

1H 17年上期
1H
12年上期

Total
(Millions of yen)

2,837

21,812

Kids’

Original Belle Maison
merchandise

1H 17年上期
1H
12年上期
FY2012FY2017

1H 17年上期
1H
12年上期
FY2012FY2017

1H
1H
12年上期
17年上期
FY2012 FY2017

A large decrease in sales despite the increase in the number of different types of products offered.
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29

Important Issues– Reasons for Failure of the Medium-term Management Plan
Customer Strategy
30s

TraitsEmployed

Singles
DINKS
30s

40s

50s

Career40s

Active50s

Not employedChildrearing
motherHousewife/ Parttimer

Women between the ages of 30 and 59 are divided into five segments (singles DINKS 30s, childrearing mother, career
40s, housewife/part-timer, active 50s). The plan was to increase the number of customers by using actions that target
each segment. But the result was weaker ties with these segments and a sharp decrease in two customer segments
where Senshukai had been very strong: childcaring mother and housewife/part-timer.
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Important Issues– Reasons for Failure of the Medium-term Management Plan
Merchandising Strategy
Developing too many products based on the customer strategy made the product lineup lessappealing and caused an increase in dead inventory
Launched core brands with the goal of using the SPA (specialty store retailer of private label apparel)business model to generate earnings, but the result was growth in the number of newly developed
items and dead inventory
Large increase in other wholesale products to offset the sales decrease made operations more
inefficient

Sales Strategy
Still relying significantly on catalogs due to the slow pace of the switch to an e-commerce businessmodel centered on smartphones
The establishment of an omni-channel framework that utilizes stores has not yet produced any clear
benefits

Fulfillment Strategy
The need to adapt to rapidly changing market conditions overwhelmed work on a plan for a new IT
system; big delays in creating this system restricted the ability to execute strategies
Operations started as planned at the Minokamo Distribution Center, but sales decreased andinventories increased, creating a need to reorganize the logistics infrastructure again

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Making Belle Maison Stronger – Merchandise Reform

Review on Customer/Merchandising Strategies
Rebuild a merchandise lineup for the real needs of targeted customer segments
Lower inventory risk by tightly focusing the development of original merchandise
Use national brand products and other wholesale products to add items in new categories and priceranges for attracting a broader range of customers

Fashion merchandise

Downsize for higher efficiency

Concentrate on items for the age 45-59 segment and on plus-size apparel
Focus development activities on well-established functional apparel; shorten the product cycle for non-standard apparel
Shift from the SPA business model to the ODM (outsourced development and manufacturing) model, where othercompanies create and make merchandise that is sold using Senshukai brands

Lifestyle merchandise

Aim for a big increase

Create a merchandise selection that performs strategic roles (entry, middle and higher-end brands)
Reposition Belle Maison Days as the core life style brand
Further differentiate Belle Maison from competitors by raising the quality of services and ideas for innovative products

Health & beauty care products, foods

Enter new market categories

Use other wholesale products based on specific themes to enlarge the selection of merchandise
Use clearly defined themes to create interest in targeted customer segments

Kids’

Aim for renewed growth

Reinforce Internet marketing activities by taking full advantage of the lineup of original brand merchandise thathas an excellent reputation among customers
Add products other than apparel to provide merchandise for an even broader spectrum of needs
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Making Belle Maison Stronger – Merchandise Improvements
Goal for Belle M aison value
Products that incorporate innovations that are closely linked to the lifestyles of targeted customer
segments in the form of functional value
Functions

DesignBalance among three components
with functional value at the top

Price

Examples of popular products
Dining table with drawers, includes chairs- BELLE MAISON DAYS

CustomerratingCopyright SENSHUKAI Co.,Ltd. All Rights Reserved.

comments

Perspiration-removing inner tank top- Salalist

Customerratingcomments

Water-absorbent, quick-dry girls’
short-sleeve polo shirt - GITA

Customerratingcomments

33

Making Belle Maison Stronger – Sales Area Improvements

Review on Sales Strategy
Switch stance to using catalogs as sales promotion tools rather than simply as a sales area
End the previous catalog production method, using instead a shorter process that can adapt withflexibility to changes in markets
Position the e-commerce site as the primary sales area and improve the quality of customer
interactions
縮小による効率化
Business model conversion
flowchart
Planning

Previous
sales cycle

Merchandise
selection

Planning

Start ofsales

Production

Merchandise
selection

Planning

Start ofsales

Production

Merchandise
selection

Planning

Production

Merchandise
selection

Start ofsales

Production

Start ofsales

Goal for newsales cycle

Make revisions to catalog production and merchandise purchasing processes to match the new cycle
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Making Belle Maison Stronger – Infrastructure Improvements

Review on Fulfillment Strategy
Realign and downsize functions to match the scale of operations
Convert fixed expenses to variable expenses
Liquidate property and equipment

Logistics
Centralize logistics operations for the mail-order business into the Nagoya region
Shift outsourced activities to internal operations
Reorganize inefficient logistics bases
Capital and business alliance of subsidiary Belle Maison Logisco with Sumisho Global Logistics
Call center

Make adjustments to match the size of the call center with the smaller scale of operations andthe ongoing shift in sales channels
Improve the quality of customer interactions and services by performing customer assistanceactivities internallyIT system

Significantly reduce the size of IT system development and maintenance operations
Stop developing IT systems by starting from the ground up to create all individual elements
instead of buying packaged products and then making customizations and additions as needed

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Using Lessons Learned from the Failure of the Medium-termManagement Plan

The current Medium-term Management Plan has been terminated
The goal is to return the mail-order business to profitability in
Fiscal 2018
Work is proceeding on a new three-year plan for Fiscal 2018 to
Fiscal 2020
The plan is to be announced on Friday, October 27 with third
quarter results of operations
An information meeting is scheduled for Thursday, November 2

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36

6. Others

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Topics
Establishment of Feel Life to Leverage Senshukai’s
Resources in Order to Sell Products for Seniors
In March 2017, Senshukai acquired the business of JFR Online Co. Ltd., acatalog retailing company that was a subsidiary of J.FRONT RETAILING Co.,Ltd.
The business was then taken over by a new Senshukai subsidiary called FeelLife Inc.
This business issues fashion media, sells healthy and flavorful food products,
and has other operations. There are about 300,000 customers, mainly womenin the senior age segment. Senshukai expects to capture synergies between
this business and its mail-order business that serves mainly women between
the ages of 30 and 59.

Acquisition of Nissui Pharma Cosmetics to Strengthen
and Expand the Cosmetics Business
In July 2017, Senshukai acquired Nissui Pharma Cosmetics, which manufacturesand sells cosmetics and was a wholly owned subsidiary of Nissui PharmaceuticalCo., Ltd., a member of the Nissui Group.
The main product of Nissui Pharma Cosmetics is the line of Lisblanc cosmetics,
which are based on natural ingredients for good health and beauty. This
growing company uses Lisblanc and other brands to sell products at stores andthrough many other channels. Senshukai believes this company is an excellent
match with the Senshukai Group’s omni-channel expertise in the mail-orderbusiness, sales promotion skills, and infrastructure (distribution centers and callcenter). Senshukai expects this acquisition will enable Nissui Pharma Cosmetics
to continue growing as well as produce synergies that will benefit bothcompanies.
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38

Senshukai's CSR Activities in 2Q Fiscal 2017
“Smile Forest project” is supported by donations from costumers
The 14th Green Power Class - A special event for parents and children
These classes, which Senshukai holds at elementary schools, makechildren think about the importance of renewable energy and ways todeal with problems involving energy and the environment. In March, aclass was held in the Nishi-Umeda district of Osaka using a format thatallowed both parents and children to participate.
Tohoku reconstruction support - Activities in the 6th year The latest family photo studio event was held in the city of Ishinomaki
As part of an earthquake recovery program to give smiles to mothers and theirchildren in Tohoku, Senshukai has donated more than 30,000 blankets for babies in
the four prefectures (Aomori, Iwate, Miyagi and Fukushima) of the Tohoku region.
On Mother’s Day in May 2017, Senshukai operated a family photo studio, which uses
a professional photographer, at an event held by Baby Smile Ishinomaki, anorganization that helps with raising children in this city in Miyagi prefecture.
Senshukai has been working with this organization since the March 2011 earthquake
and tsunami that devastated this region of Japan.
Senshukai forum featured a presentation by ROHTO and a
discussion group consisting of young Senshukai employees
ROHTO Pharmaceutical Co., Ltd. has been using the creation of shared value
in order to energize its entire organization. Senshukai held a seminar where
Yasunori Kawasaki, manager of ROHTO’s public relations and CSV
department, gave a presentation about this subject. This event also included
discussions by Senshukai employees in their second to fourth years at thecompany concerning the future direction and goals of corporate social
responsibility programs.
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Dividend Forecast and Earnings Announcements Scheduled in Fiscal 2017
Dividend Forecast
Senshukai’s policy regarding dividends is to distribute earnings to shareholders in a manner thatreflects its performance. Furthermore, the policy is to pay stable dividends that take into accountthe payout ratio while reflecting the need to use retained earnings to strengthen the company’s
foundation for business operations.
In the 2016 earnings announcement dated February 2, 2017, Senshukai announced its plan to pay
an annual dividend of 8 yen per share for 2017. However, because of the consolidated and nonconsolidated net losses in 2017, Senshukai now plans to pay no dividend for 2017.

Schedule for Earnings Announcements


October 27, 2017 (Friday) Announcement of financial results for the third quarter of Fiscal 2017

February 8, 2018 (Thursday)February 9, 2018 (Friday)

Announcement of financial results for Fiscal 2017

Earnings presentation for Fiscal 2017 (Tokyo)

The forward-looking statements contained in this earnings presentation are based on informationthat was available at the time of the release of this presentation. Actual results could differ
significantly from these projections due to a variety of factors.

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