Earnings presentation for FY2014

Q&A
Q1
Can you provide us with a breakdown of sales forecasts for fiscal 2015, thefiscal year ending February 29, 2016, for existing as well as all stores?
A1
Looking at the F.D.C. Products group as a whole, plans call for sales atexisting as well as all stores to climb 4.2% and 8.9%, respectively, year onyear, for the fiscal year ending February 29, 2016. Meanwhile, total 4°C
jewelry existing and all store sales in fiscal 2015 are forecast to increase
4.4% and 6.5%, respectively, compared with fiscal 2014.
Q2You have stated that the Group will look to control the opening of new 4°C
BRIDAL stores in the fiscal year under review. As you work through to thefinal year of the Group’s Fourth Medium-Term Management Plan, what doyou see are the current major issues confronting 4°C BRIDAL operations,and what measures are you looking to adopt in order to strengthen the 4°C
BRIDAL business?
A2Since the launch of the 4°C BRIDAL brand in 2009, sales trends have been
extremely robust. In the fiscal year ended February 28, 2015, however, sales
at existing stores fell 12.9% compared with the previous fiscal year against
the backdrop of difficult operating conditions. From a product perspective,
the ratio of basic products for the 4°C BRIDAL brand is extremely high. With
this in mind, we believe that our inability to properly develop and provide
new offerings was the principal reason for the downturn in the brand’sperformance.
To address this issue, we have undertaken a thoroughgoing review of ourproduct development activities including the development of various newmaterials. We are considering a broad range of measures with the aim ofdeveloping new materials and products and plan to continuously introduce
fresh offerings in both the high and low price ranges through to June in the1Earnings presentation for FY2014

lead up to the peak demand period of July and August.
From an advertising and promotional perspective, marketing of the 4°C
BRIDAL brand is largely conducted through Zexy. The most pressing issue
that we face here is the decline in the number customer visiting stores via
this promotional channel. On a positive note, the number of customers
attracted to the brand after viewing products online is growing. Taking this
into consideration, we undertook a variety of measures including therenewal of our homepage. This has helped to trigger robust trends of late.
While partially reflecting the conservative approach adopted when initiallysetting forecasts for the current fiscal year, recent results have exceededplans by a considerable margin. Moving forward, we will completely update
product catalogs, renew online sites, and focus primarily on online
advertising.
We will also undertake a thorough overhaul of our sales and marketing
activities. Last year’s customer determined rate was 35%. We began strictly
adhering to a policy of again approaching the remaining 65% from April.
Through these initiatives, we will work diligently to bring about a definitive
recovery in our 4°C BRIDAL operations during the fiscal year ending
February 29, 2016. As our efforts bear fruit, we will work toward opening
new stores from fiscal 2016.
Q3
SG&A expenses are projected to increase 4.6% compared with the previous
fiscal year in fiscal 2015. This increase is higher than the growth rate insales. This is most likely attributable to the upswing in personnel expenses
on the back of a shift in contract employees to permanent employee status.
Can you provide us with a breakdown of SG&A expenses? Furthermore, doyou see the rate of SG&A expense increase coming in at below the growthrate in sales from the fiscal year ending February 28, 2017?
A3SG&A expenses are projected to increase more than ¥1.0 billion. This islargely made up of personnel expenses. Factors include the shift in contract
2

Earnings presentation for FY2014

employees to permanent employee status. In specific terms, personnel
expenses are expected to climb approximately ¥ 0.4 billion, or 5.3%, year on
year and account for around 40% of the total increase in SG&A expenses.
Other components of SG&A expenses include expenses relating to theopening of new stores mainly in the F.D.C. Products business. Leasehold
rental expenses are estimated to climb 3% year on year. Depreciation as wellas advertising expenses are each anticipated to increase 4% compared withthe previous period. The upswing in these categories is largely in line withthe opening of new stores.
Meanwhile, we will look to hold the rate of SG&A expenses increase towithin the rate of sales growth, which is set at between 6 and 7% for fiscal
2016 and fiscal 2017.
Q4
Can you provide us with details of recent conditions in April? After
struggling in the fiscal year ended February 28, 2015, are you sensing arecovery in 4°C BRIDAL operations after entering April?
A4
The Group recorded double-digit percentage rates of sales growth in its
jewelry business in March 2014 due mainly to the rush in demand in thelead-up to Japan’s consumption tax rate hike. Entering the current fiscal
year, combined sales of 4°C jewelry and 4°C BRIDAL products in March 2015
were essentially in line with plans (target for all stores: up 0.3%; down 14.8%
year on year: target for existing stores: down 0.2%; down 16.1% year onyear).
Turning to recent conditions in April, combined sales of 4°C jewelry and 4°C
BRIDAL products up to April 12 after properly aligning the number ofoperating days climbed 22.5% for all stores and 19.3% for existing stores yearon year. Looking at 4°C BRIDAL products on a stand-alone basis, sales at all
and existing stores were up 29.4% and 20.0%, respectively year on year, andin excess of plans.
Combined existing store sales of 4°C jewelry and 4°C BRIDAL products for3

Earnings presentation for FY2014

the first quarter are forecast to come in at below the previous year. Initially,
we were projecting a decrease of 2% compared with the corresponding periodof the previous fiscal year. Should trends continue at their current pace, weanticipate store sales will surpass the levels recorded in the correspondingperiod of the previous fiscal year. On this basis, we expect revenue toincrease.
Q5
Under the Business Vision of the Group’s fourth Medium-Term ManagementPlan, you have identified the goal of expanding the EC business. What
percentage of F.D.C. Products’ sales can be attributed to the EC business?
What is your target for the EC business under the fourth Medium-TermManagement Plan? Can you provide details of specific measures aimed atachieving the Group’s EC business plans?
A5
Sales of F.D.C. Products’ EC business were robust in the 65th business term
climbing 28% year on year to ¥874,080,000. Exhibiting year-on-year growthof 38%, sales of the company’s own site were especially strong. The EC
business accounts for 3.3% of F.D.C. Products’ sales totaling ¥28.0 billion. At
this stage, the company has no presence in the bridal market.
Currently, the fashion jewelry makes up around 5% of the EC market.
Generally speaking, fashion apparel provides the dominant share at roughly
10%. With this in mind, we will first look to lift the ratio of EC fashion
jewelry activities.
In addition, we have commenced preparations to roll out EC businessactivities in the 4°C BRIDAL business from the fiscal year ending February
28, 2017. While specific numerical targets are currently being considered, weare committed to securing definitive growth.
MISUZU Co., Ltd. EC business sales came in at ¥130 million, up 32%
compared with the previous period. We are also targeting growth of morethan 10% in the fiscal year ending February 29, 2016.

4

Earnings presentation for FY2014

Q6
Looking at page 7 of the fourth Medium-Term Management Plan
presentation materials, the operating income margin for the fiscal year
ending February 29, 2016 is forecast to come at lower than the level recorded
for the previous fiscal year. What are the reasons for this downturn?
A6
Investment in human resources is the main reason for the downturn. This
includes the shift of contract employees to permanent employee status. In
addition, and against the backdrop of efforts to address the increase in childcare requirements by balancing conventional normal work with alternative
shifts, we have set the number of child care work personnel at a ratio of 0.7 ofnormal work personnel and are endeavoring to provide support through ashift structure.
Every effort is being made to promote the shift to permanent employee
status in a bid to strengthen sales capabilities and to support employees intheir child care needs. This effort is contributing to a small increase inoverhead expenses.
Q7
When do you expect the shift to permanent employee status will add value
and bear fruit? How do you plan to raise productivity per employee?
A7
Drawing from past experience, the majority of employees who shift topermanent employee status tend to begin showing their wares from aroundthe second and third years. We will align our education and training
activities including the Group’s in-house school to this timeline.
In terms of productivity, our current key indicator is sales per employee. At
this stage, we only measure the performance of permanent employees.
Looking ahead, we plan to evaluate the effects of shifting to permanent
employee status including measurement methods.

5