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Value Creation of NITORI Group

Sustainability

Data Center

NITORI Group’s Financial Strategy

We will accelerate
investment in future growthto achieve our vision while
maintaining a highly
profitable business model
Masaomi Zenji

Executive Officer
General Manager
Accounting & Finance Division

1 Summary of Business Results for the Fiscal Year Ending March 31, 2023
Despite a challenging environment with weak yen and soaring raw material prices, the NITORIGroup achieved sales and ordinary income growth for the 36th consecutive year.
Please tell us about the key points of the business performance for the fiscal year ending
March 31, 2023.
While facing various headwinds such as the sharp depreciationof the yen and soaring logistics and raw material costs, NITORIGroup achieved its 36th consecutive year of sales and ordinary
income growth with net sales of 948.0 billion yen and ordinary
income of 144.0 billion yen.
The increase in ordinary income was also made possible by
the irregular accounting period, but we believe it was the resultof the persistence of all employees, a company-wide review ofall operations, cost reductions, and expense reductions.
Although the gross profit margin decreased to 50.4% (52.5% inthe previous year) due to the exchange rate and rising trade
costs, and the ordinary profit margin decreased to 15.2% (17.5%
in the previous year) due to increased shipping and delivery
costs and labor costs, we were able to secure ordinary income
growth as a result of the sales and profit growth effect. We feelthat we were able to demonstrate the strength of our businessmodel that integrates manufacturing, logistics, IT and retail,while dealing with the factors that deteriorated profitability. Inaddition, we have made thorough efforts to improve theefficiency of logistics and delivery, including the use ofcompressed packaging for products. We believe that this would
not have been possible without our business model, in which allprocesses in the supply chain are controlled in a single
integrated manner.
Net sales grew steadily due to the expansion of the number ofstores (a net increase of 101 stores from the end of the previous

Net sales and year-on-year change
Net sales (Billions of yen)

106.3

105.6

Year-on-year change (%)

111.6

113.2

116.8
948.0

811.5608.1

2018

642.2

2019

716.9

2020

2021

2022 (FY)fiscal year) and the growth of existing store sales (101.2%year-on-year), and also due to the increase in the number of app
members and the success of new attempts in the e-commercebusiness, including the well-received live commerce. The
number of stores at the end of the period totaled 902, including
773 stores in Japan (net increase of 65 stores from the end of
the previous period) and 129 stores overseas (net increase of 36
stores from the end of the previous period).
Although sales per customer increased to 107.2% of theprevious year’s level, the number of customers decreased to94.4% of the previous year’s level. The Company intends to20

Top Message

Highlight

Value Creation of NITORI Group

Sustainability

Data Center

Highlight

NITORI Group’s Financial Strategy
increase the number of customers by strongly introducing newproducts and changing product specifications, improving thevalue of “offering the unexpected” and strengthening its
approach to customers through TV commercials, various
promotion campaigns and individualized proposals to customers
using the NITORI app.
On the financial side, total assets increased 15.2% from theend of the previous fiscal year to 1,133.7 billion yen due toinvestments for the expansion of the number of stores and therestructuring of domestic distribution bases. Shareholders’ equity
increased 11.6% to 818.0 billion yen. As a result, the equity ratio
remained almost unchanged at 72.2% (74.5% at the end of theprevious period).

2 Financial Features
Could you describe the financial characteristics of your unique business model?
I would say the high level of profitability and productivity. We
secure a gross profit margin of more than 50% and an ordinary
income margin of more than 15%, and our gross profit per
employee on sales is approximately 2.5 times the nationalaverage. The high level of profitability is the root of value creationthat enables bold investments, business expansion and businessmodel evolution.
The ever-increasing number of stores and customers are themetrics of social contribution and the key growth driver of itsperformance. Compared to 30 years ago, the number of storeshas increased 43-fold and sales have increased by 53-fold.

Keys of financial strategy toachieve Vision 2032

3,000 stores Net Sales ¥3 trillion
Openingstores

Opening stores at an average of about
300 stores per year within the next fewyears

Logistics

Reforming domestic logistics bases.
Total investment is approximately
350 billion yen.

Human
CapitalExpanding the number of IT personnel to
1,000 by 2032. As part of this plan, Nitori
Digital Base was established in April 2022.

M&A

Expanding the Group’s business fields
through M&A and alliances

Meanwhile, ordinary income has grown 107-fold. Although total
assets have expanded along with the number of stores, we havemaintained an equity ratio of over 70% and ROA and ROE,
which indicate investment efficiency, in excess of 12% without
significantly altering our financial balance.
Since the fiscal year ended February 2022, capital
expenditures have exceeded 100 billion yen annually, including
investments to rebuild the domestic logistics network, but havenot significantly exceeded the ample operating cash flow.
Financial risks include foreign exchange risk and impairment
risk for store assets and products inventory. Regarding foreignexchange risk, we will consider policies and methods for theutilization of forward exchange contracts, taking into account ourrecent reflections on this issue. However, as the ratio of overseas
sales increases in the future, the diversification of settlement
currencies will increase, and we expect to see a natural hedging
effect that will reduce foreign exchange risk.
On the other hand, there is limited risk of impairment on store
assets and products inventory. In addition to the number ofcustomers who make purchases, which we consider our mostimportant KPI, we have established various management
indicators to monitor profitability, financial ratios, and efficiency ofstore operations on a daily basis.
We have very few unprofitable stores due to our unique andrigorous research at the time of opening stores and our store
management capabilities. Moreover, we do not perceive productinventories as a major risk factor due to our development
capabilities and the stability of actual turnover rates.

3 Future financial strategies
What is NITORI Group’s financial strategy for the future to achieve the Vision 2032?
Investment for growth will be the core of our strategy. In
addition to opening more stores domestically and globally, wewill accelerate investments to strengthen and reform ourbusiness foundation by upgrading our logistics base network,
21enhancing NITORI app functions and e-commerce, increasing
our Human Capital including global and IT personnel andpromoting DX.

As for store openings, we will continue to actively open storesin Japan, while at the same time accelerating store openings inAsian countries and regions, averaging about a total of 300
stores per year within the next few years.
The total amount of investment in the development of domestic
logistics bases, which has been underway since past fiscalyears, is expected to be approximately 350 billion yen, including
already executed investments. Of the eight logistics centers tobe built, Ishikari DC and Kobe DC have already started
operation, and construction of Nagoya DC, Satte DC, Sendai DCand Fukuoka DC has already begun. We also expect this reform
to have the effect of reducing CO2 emissions. In addition, we willneed to develop overseas logistics bases as our overseas
business expands in the future.
Human Capital investment is another important theme. Inaddition to global human resources, we will strengthen
recruitment and training of IT personnel with a plan to expand
our IT staff to 1,000 by 2032. As part of this plan, we established

Nitori Digital Base in April 2022. We will increase the ratio of
in-house system development and promote innovation.
In order to realize our mission and vision, NITORI Group has
been developing its own unique business model and at the sametime expanding its products and services. In pursuit of further
growth, we view M&A and alliances as important strategic tools,and we will work to strengthen existing businesses as well as
those that contribute to the expansion of our business fields.
We will also expand our assets through active investment.
Depending on the external environment and the timing ofinvestments, we expect to temporarily raise external funds andexperience fluctuations in profitability, management efficiency,
and various financial indicators, but we will maintain financial
discipline and a business model that generates high profits,
thereby ensuring financial stability and efficiency over themedium to long term. We will continue to aim to achieve ourtargets of an equity ratio of at least 60%, ROA of at least 15%,and ROE of at least 15%.

4 Forecast for Fiscal Year Ending March 2024
What is the outlook for the fiscal year ending March 2024, and what are the assumptions for that
outlook? Also, what are the plans for shareholder returns?
Regarding the forecast of consolidated results, we forecast net
sales of 932.0 billion yen and ordinary income of 147.0 billion
yen. Due to the irregular financial results of the previous fiscal
year, sales are expected to decrease, but ordinary income isexpected to increase.
Regarding the assumptions for the forecast, we plan acomparable store year-on-year ratio of 104.4%, capital
expenditures of 102.0 billion yen, and an assumed exchange
rate of 130 yen to the U.S. dollar.
Our basic policy for shareholder returns has been to maintainstable dividends based on business growth and profitability,financial soundness (cash generation, cash holdings, and equity
ratio levels), investment conditions, and capital efficiency. The
annual dividend per share for the fiscal year ending March 31,
2023 was 146 yen, an increase of 6 yen over the previous year.
150 yen per share, an increase of 4 yen over the previous year,
is planned for the fiscal year ending March 31, 2024, which
would be the 20th consecutive year of dividend increase.
We are at a stage where we must prioritize investment ingrowth in order to achieve our 2032 Vision, and we intend tocontinue to steadily increase dividends in line with profit growth.

5 Message
What are your aspirations for constructive dialogue with stakeholders, including enhanced
disclosure of information, including non-financial information?
NITORI Group will expand its investment in growth to realize its
mission and vision. At the same time, we will strengthen thefunctions of our business model that integrates manufacturing,logistics, IT and retail, and further evolve our advantages.
We will also continue to identify and address issues at an earlystage by establishing appropriate management indicators andmonitoring them more thoroughly than ever before. Furthermore,in addition to the promotion of resource recycling, climatechange countermeasures and green logistics, we will also focus
on Sustainability Policy, which we must fulfill as a globalcompany, such as respect for human rights, diversity and theimprovement of the labor environment. We are committed todisclosing information and conducting investor relations activities
to communicate not only our financial information but also theprogress of our business model and strategies and the status of
our sustainability initiatives in an easy-to-understand manner, so
please do not hesitate to contact us with any questions orcomments that you may have.

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