Earnings presentation for the half of FY2016

Q&A
Q1
What factors contributed to the improvement in gross profit margins in each of theJewelry and Apparel businesses? In particular, to what degree has the drop in the cost ofgoods sold as a result of such factors as fluctuations in platinum prices impacted theJewelry Business? What are your thoughts on further improvements in the cost of goods
sold in the 2H?
A1
The gross profit margin in the Jewelry Business improved 0.7 of a percentage point in
1H. Looking at trends in the price of platinum, the average market price per gram fell
¥732 from ¥4,359 in the 1H of fiscal 2015 to ¥3,627 in the 1H of fiscal 2016. As a result,the gross profit margin of the Group’s jewelry products, and especially 4°C BRIDAL
items which are manufactured almost entirely (more than 99%) from platinum,
improved 2.8 percentage points compared with the corresponding period of the previous
fiscal year. Platinum prices in the 2H are expected to remain essentially unchanged fromthe ¥3,627 average recorded for the 1H.
In the Apparel Business, the AS’TY group drastically changed its approach toward
production management shifting away from performance to focus on forecasts. Thissignificantly mitigated production management loss and contributed to a substantial
improvement in the gross profit margin. In its everyday fashion brand PALETTE, age
Co., Ltd. worked diligently to ensure appropriate levels of store inventories. This had anespecially strong impact on women’s items, which saw a major improvement in thegross profit margin. Operating conditions are expected to remain harsh throughout the2H. Under these circumstances, the Group will continue to implement existingmeasures.
Q2In its e-commerce Business, the Group launched a designated bridal ring site in August.
What are your thoughts on current conditions and progress to date?
A2
At this stage, we believe that the number of customers, who purchase bridal rings
without physically seeing the item, remains limited. For this reason, we are expecting1Earnings presentation for the half of FY2016

little or no impact on results for the fiscal year under review. While we have not at thisstage made any special effort to advertise the site, we have already received close to 100
customer requests to try on and view a variety of rings since the site’s launch in August.
Some of these customers are also calling into actual stores. The volume of rings
provided on this trial basis has increased since September. We will endeavor to secure
an upswing in sales from fiscal 2017 as the market’s awareness toward the siteincreases.
Q3
What are your thoughts on the current status of store opening activities in China andwhat are your plans for the future?
A3
Entering the fiscal year under review, we have witnessed a downturn in overall inbounddemand sales in Japan. As far as the retail market in China is concerned including
apparel items, conditions in 2016 remain difficult. From our perspective, theYONDOSHI HOLDINGS Group’s product lineup is mainly comprised of items thattarget the middle-income demographic as opposed to high-priced merchandise. As aresult, net sales for the cumulative January to September period recovered to 99.8% of
the level recorded in the corresponding period of the previous fiscal year. Looking at
September on a stand-alone basis, we are witnessing positive trends. In the future, weplan to open new stores in Shanghai and Xian and to increase sales by expanding ourstore network.
Q4
Turning to “9. Jewelry Business: Sales by Brand and Product” in the presentationreference materials for the first half of fiscal 2016, 4°C BRIDAL and 4°C Jewelry sales
declined 3.5% and 0.7%, respectively, compared with the corresponding period of theprevious fiscal year. While you pushing forward various measures in the 4°C BRIDAL
brand including efforts to upgrade and expand the number of pure platinum items, whatsteps are you taking for 4°C Jewelry?
A4
Demand for 4°C Jewelry gift items is firm clearing levels recorded in the corresponding
period of the previous fiscal year. In contrast, purchases for own use have declined as aresult of current economic conditions. Looking ahead, energies will be channeled2

Earnings presentation for the half of FY2016

toward upgrading and expanding reasonably as well as mid-priced items. In the lineupof 4°C Pregence brand products, which comprise relatively high-priced items, we arecurrently developing gold and platinum products in the ¥50,000 to ¥60,000 price range
as opposed to the existing average range of between ¥80,000 and ¥90,000. In addition,
we will focus on rolling out limited edition Christmas products. Despite the prevailingassumption of a downturn in average spending per customer, we will draw on our ability
to capture large numbers of customers and promote various measures including theintroduction of new eternal silver products to increase sales going forward.
Q5
What impact will the decline in overseas luxury brand prices have on the Company?
A5
Basically, we do not believe the Company’s activities will be affected to any greatdegree. With our bridal products generally priced around the ¥200,000 to ¥290,000
range, we do not, for example, see much competition with Takashimaya, whosebridal-related merchandise retails between ¥500,000 and ¥2,000,000. Tiffany, on theother hand, is for the most part marketed in close proximity to the 4°C brand nationwide.
For this reason, the potential does exist for our sales to be affected. Having said this,however, there is a tendency for sales to increase at stores that are adjacent to Tiffany
outlets. Customers who call into Tiffany often also visit our stores. Impressed by ourbroad product lineup, we have seen a substantial number of customers choose ourproducts. Looking at current conditions, we are not seeing any change in this trend. As
far as overseas luxury brands are concerned, we will not only monitor reductions inprices, but also follow steps aimed at promoting products set at prices attuned to theJapanese market.
Q6
The YONDOSHI HOLDINGS Group is working to resume the opening of MAISONJEWELL, a suburban type shopping center brand. What issues do you currently face?
Will you focus on expanding your network mainly of bridal jewelry stores, or will youlift the pace of your store opening activities after strengthening your lineup outside thebridal product range.
A6Marketing of the MAISON JEWELL brand is currently limited solely to the AEON

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Earnings presentation for the half of FY2016

MALL sales channel. Demand for bridal products is extremely high, with sales of bridal
products at existing stores in the 1H of fiscal 2016 climbing 43% compared with thecorresponding period of the previous fiscal year. At the same time, the presence of ourfashion jewelry continues to rise. Once again, fiscal 2016 1H existing store sales
increased 20% year on year. In the future, we will look to handle not only bridal jewelry
items, but also fashion jewelry as well. There are clear signs that the MAISONJEWELL brand is attracting the interest of customers who prefer to purchase bridal
items away from the hustle and bustle of the city and in a more relaxed suburban setting.
To date, we have implemented a freeze on the opening of new stores and concentrated
on revising the makeup of our merchandise. Backed by an upswing in the scale of sales
per store, we will resume efforts aimed at expanding our network. For example, plans
are in place to open a new store in AEON MALL Hiroshima Fuchu in the 2H of thefiscal year under review. In addition to building stores with annual sales of ¥100 million,
the greatest challenge that we face is further expanding the scope and scale of eachstore’s sales. Our current breakeven point is in excess of ¥60 million. On this basis,existing stores are capable of clearing this threshold. With the majority of AEON MALL
store contracted on a fixed-term lease basis, we will take up negotiations for the openingof stores in line with the timing of lease contract renewal from next spring whilelooking to enter each current location.

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