FY2018 (6/17-5/18) Interim Results Explanatory Meeting
January 12, 2018
The earnings forecasts appearing in this material are based on the business environment at the present time, andthere is the possibility that actual earnings may differ from forecasts for various reasons.
Furthermore, only inquiries in Japanese are handled.
Inquiries should be direct to Mr. Kasai or Mr. Tamura (045-914-8241) in the Corporate Planning office.

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1H FY 2018 Consolidated Results
1. Profit and Loss Statement (Consolidated)
2. Balance Sheet (Consolidated)
3. Statement of Cash Flows (Consolidated)
4. New Store Openings
5. Renovation of Existing Stores
6. Performance Highlights
7. Profit and Loss Statement (Create SD)

FY 2018 Efforts in the second half
1. New Store Openings
2. Renovation of Existing Stores
3. Investment in New Store Openings and Renovations
4. Net Sales/Gross Profit
5. Improving Productivity
6. Building Local Health Care System and Health Support Function
7. FYE 5/2018 Forecasts (Consolidated)
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1H FY 2018 Consolidated Results

3

1. Profit and Loss Statement (Consolidated)
1H FY2017(consolidated)(million yen)

Share(%)

1H FY2018(consolidated)(million yen)Share(%)

YoYchange(%)% ofprojection(%)

Net sales

121,549100.0

130,967

100.0

107.7

98.4

Gross profit

33,42127.5

35,384

27.0

105.9

97.3

SG&A expenses

26,32721.7

29,280

22.4

111.2

101.0

Operating profit

7,093

5.8

6,103

4.7

86.0

83.0

Recurring profit

7,249

6.0

6,279

4.8

86.6

83.7

Net profit

4,923

4.1

4,276

3.3

86.9

83.2

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2. Balance Sheet (Consolidated)
May 31, 2017(consolidated)

Total assets
Current assets

110,480
67,798

November 30, 2017(consolidated)

Change113,427 +2,946
68,346+548

Main causesof changes■Total assets
・ Increase of 1,549 million yen inmerchandise
・ Increase of 1,644 million yen in
fixed assets due to new store
openings, etc.

Fixed assets

Total liabilities
Current liabilities
Fixed liabilities

Total net assets

42,68245,080 +2,398

48,228-349

44,15743,541-616

61,901

4,687

・Acquisition of Buildings+586 million yen

48,5784,420

・Land acquisition+1,058 million yen■Total liabilities+266

・ Income tax payable decreasedby -246 million yen
・Increase of +111 million yen
in asset retirement obligations

65,198 +3,296■ Total net assets
・ Posted net income of

Total liabilities andnet assets

110,480

113,427+2,946

4,276 million yen
・ 1,011 million yen dividend payment(million yen)5

3. Statement of Cash Flows (Consolidated)

Cash flow fromoperating activities

November30, 2016

November30, 2017(consolidated)(consolidated)

5,216

3,739

ChangeMain factors in change■Cash flow from operating activities-1,476

・Net income before tax: 6,280 million yen
・Depreciation expenses: 1,514 million yen
・Corporate taxes paid:-3,162 million yen

Cash flow frominvesting activities-2,65457+2,712

・Increase in inventory：-1,487 million yen■ Cash flow from investing activities
・ Acquisition of fixed tangible assets due toCash flow fromfinancing activities-948-1,096-147

store openings and renovation-2,914 million yen
・ Construction in progress: -1,223 million yen

Change in cash
and cashequivalents

1,613

2,701

+1,087

Opening balanceof cash and cash
equipments

26,354

26,521+166

Closing balance ofcash and cashequipments

27,967

29,236

・Certificates of deposit:+4,000 million yen

Cash flow from financing activities+1,268 ■・Dividend:-1, 011 million yen(million yen)6

4. New Store Openings■OTC: 19 store openings ,Prescription drug stores: 16 store openings(In-store pharmacies: 11 store openings; dedicated prescription drug stores: 5 store openings)
Store closure - OTC: Contract expiration 1 store
Dedicated prescription drug stores:Improve management efficiency 1 store

Total number ofstores as of theend of1H FY2018

OTC
in-store pharmaciesRate of pharmacy
establishment in OTC storesdedicated prescription drugstores

Kanagawa

TokyoShizuoka

Chiba

OtherTotal

300
8488
2272
1430
7379527
136

28.0%

25.0%

19.4%

23.3%

24.3%

25.8%

25702236

Number of total stores at the endof the year 563 stores

5. Renovation of Existing Stores■ Renovated 17 stores･12 stores renovated with the focus on food
⇒ Reduced renovation cost by optimizing the base numbers in light of test results･2 stores renovated with the focus on non-food merchandise⇒ Reviewed departmental compositions by stores adjacent to an SM and spotlighted health & beauty items
at those stores･2 stores renovated to beat competition･1 store renovated to add pharmacy
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6. Performance Highlights
Net Sales■ 107.8% vs. previous year, 98.4% vs. plan
Implemented measures to increase customers in light of the future competitive environment･Launched new coupon-based sales promotion･Implemented EDLP for additional frequently purchased food and everyday household items⇒ The number of customers at existing stores was 100.4% of the previous year’s figure as a result ofimplementing the measures to increase customers and revitalizing stores via renovation.
Sales at existing stores were 100.3% of the previous year’s figure, maintaining positive growththanks to the increased number of customers and growth of the pharmacy section･Growth slowed due to the record number of consecutive rainy days in August, typhoons hitting on
weekends in October, and other inclement weather conditions.
Year-on-year Changes in Sales and Number of Customers at Existing Stores106.0%
104.0%FY ending May 2018

FY ended May 2017

YoY changes in thenumber of customers
and sales reversed inJune

Net Sales

102.0%
100.0%
98.0%
96.0%

Number ofcustomers

The previous year
was a leap year

Adverse weather
such as continuous
rain and typhoons

94.0%

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6. Performance Highlights
Gross Profit Ratio■ Gross profit ratio 27.2%, -0.5% vs. previous year, -0.3% vs. plan
Factors behind the decline･Lower gross margin ratio due to the increase in new stores･Impact of lower gross margin ratio for new stores as a result of enhanced pricing strategies･Sluggish sales of seasonal items due to adverse weather･EDLP for additional frequently purchased food and everyday household items･Increased waste due to expansion of perishables section

SG&A Ratio■ SG&A ratio 22.8%, +0.7% vs. previous year, +0.6% vs. plan
･Personnel expenses: +0.5% vs. previous year
Increase in personnel due to record increase in number of stores(usually an increase of 20–30 stores ⇒ 43 stores this year)
Ramped up efforts to hire pharmacists in step with the growing number of new stores
to be launched
Mounting miscellaneous wages due to changes in working arrangements and higher
initial hourly wage
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6. Performance Highlights(Prescription Department)
New Store Openings■ Opened 16 stores･Opened new stores to build a coordinated local health care system, such as pharmacies that are inline with the government policy separating dispensing and prescribing functions, pharmacies designed
to attract medical institutions, etc.

Net Sales■ Sales: 117.6% vs. previous year, 99.8% vs. plan
･Expanded operations due to new store launches in coordination with medical institutions･Sales of existing stores were steady, standing at 111.7% of the previous year’s figure, with thenumber of prescriptions up at 106.8% of the previous year’s figure.

Gross Profit Ratio■ Gross profit ratio 41.2%, +1.1% vs. previous year, +0.9% vs. plan
･Standard dispensing premiums
Received at 56 stores before revision ⇒ 2 stores after revision⇒ 23 stores at the end of the previous year ⇒ Number climbed back to 46 at the end of Q2(+12 stores vs. plan)･Premiums for generic drug dispensing systems
Received at 118 stores before revision ⇒ 76 stores after revision⇒ 126 stores at the end of the previous year ⇒ 145 stores at the end of Q2(+12 stores vs. plan)10

7. Profit and Loss Statement (Create SD)
1H FY2017(million yen)

1H FY2018

Share(%)(million yen)

Share(%)

YoYchange(%)

129,988 100.0 107.8% ofprojection(%)

Net sales

120,616100.0

Gross profit

33,39927.7

35,340

27.2

105.8

97.3

SG&A expenses

26,66222.1

29,658

22.8

111.2

100.9

Operating profit

6,736

5.6

5,681

4.4

84.3

81.9

Recurring profit

6,886

5.7

5,853

4.5

85.0

82.7

Net profit

4,678

3.9

3,981

3.1

85.1

82.0

98.4

11FY 2018 Efforts in the second half12

1. New Store Openings
Store Opening Plan
■ OTC stores: To be opened at 31 locations in H2,
50 for the year, reaching the target■ Pharmacies: To be opened at 14 locations in H2,
30 for the year, 5 more than the target
Opening various types of stores at various locations■ Suburban
Launch stores jointly with other types of businesses and large outlets inaddition to conventional suburban locations■ Urban/station-front
Launch in-station stores and small drugstores with a pharmacy mainly fordispensing■ SC/in-store
Launch new locations for Cremo, a new business specializing in beauty products,and stores with extensive lines of health, beauty, and home products

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2. Renovation of Existing Stores
H2 Renovation Plan
■ Focus on renovations aimed at enhancing food products as well as those
aimed at enhancing health & beauty (non-food) products
17 stores in H1

11 stores in H2･Focus on food: 12 stores･Focus on non-food: 2 stores･Drugstores with pharmacy: 1 store･To beat competition: 2 stores･Focus on food: 2 stores･Focus on non-food: 7 stores･Drugstores with pharmacy: 1 store･Cremo (new business): 1 store■ 28 stores to be opened for the year, 3 more stores than planned

3. Investment in New Store Openings and Renovations■ Investment in new store openings and renovations (including land acquisition)
Expected investment to total 12 billion yen for the year
(up 4.3 billion yen year on year 155% of the previous year’s figure)⇒ Actively invest in opening large stores (including acquiring land)
and renovating existing stores
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4. Net Sales/Gross Profit
Net Sales
Continue to implement measures to increase customers with an eye toenhancing the top line
■ Continue EDLP and review product lines■ Conduct new sales promotion and review tools (coupons, online flyers)■ Boost top-line growth by opening more stores (31 locations in H2)■ Revitalize existing stores via renovation
Gross Profit
Work to increase profits while keeping prices down
■ Coordinate the number of discounted items with sales promotions⇒Review discounted items and sales promotions, some of which wereoverlapping, to improve gross margin ratio■ Improving gross margin for perishables⇒ Launch a project for perishables section with an eye to reducing waste
and improving the gross margin via better purchasing■ Secure capital via better purchasing for each product category15

5. Improving Productivity
Enhancing Logistics■ Enhance distribution network in our areas of dominance with an eye to opening more locations
Open a new dry center ⇒ Investing over 5 billion yen
Improving Store Operation■ Refine classification of delivered goods to enhance shelf stocking efficiency⇒ Expand the scope of refined classification for dry products in phases and implement it
at all locations by the end of March⇒ Expand the scope of refined classification of chilled products to include all locations
by the end of June
■ Implement the system to check expiration dates so as to improve working hours⇒ To be implemented at all locations at the end of January■ Enhance the accuracy of computer-assisted ordering and start experimenting withthe demand forecast system■ Reduce costs by improving operations at perishables section
Personnel Plan
■ Step up efforts to open locations with pharmacy services to optimize placement of pharmacists(30 locations this fiscal year, 5 more than planned)⇒ Enhance efficiency via optimal placement of pharmacists who have been hired in advance■ Train personnel to be licensed partners to ensure efficient operation⇒ Train enough people to avoid future personnel shortages and ensure efficient operation
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6. Building Local Health Care System andHealth Support Function
Creating a Coordinated Local Health Care System■ Open new stores to attract the kind of medical institutions local residents need
■ Open new drugstores with a function to provide health support services
Addition of Health Support Function■ Increase store locations that provide home-care services to meet local nursing care needs
Number of stores with home-care services
67 at the end of the previous fiscal year ⇒ 96 in H1 ⇒ Increase to 117 (up 50) in H2
Services to be provided by 63%of
all pharmacies by the end of the year

■ Overhaul health consultations⇒ Look into more objective topics for consultations (such as blood testing and respiratory
functions) to encourage local residents to see a doctor (seek medical care) rather
than just helping them solve their health problems■ Train personnel to be family pharmacists knowledgeable about both OTC andprescription drugs⇒ Provide a 3-year (internal training) program where trainees acquire knowledge about
symptomatology, exercise therapy, and health food so they can better support patients inmanaging their health177. FYE 5/2018 Forecasts (Consolidated)
FYE 5/2017(consolidatedresults)

FYE 5/2018(consolidated projection)(million yen)

Share
(%)

(million yen)

Share(%)

Net sales

247,341100.0

271,200

100.0

109.6

Gross profit

68,14927.6

74,700

27.5

109.6

SG&A expenses

53,70721.7

59,300

21.9

110.4

Operating profit

14,441

5.8

15,4005.7

106.6

Recurring profit

14,7686.0

15,7005.8

106.3

Net profit

10,1194.1

10,4003.8

102.8

YoY Change (%)

18