Pan Pacific International Holdings Corporation
November 10, 2021

Overview of Q&A Session at Analysts Briefing for Q1 FY June 2022
This document provides an overview of the Q&A session at the analysts briefing
for the first quarter results. Questions and answers have been edited for clarity.
Q1. To verify the figures, could you tell us about the figures for which actual
results fell below expectations at the stage of operating profit for each businessformat, as well as the overview for overall sales and gross profit margin fromthe perspective of the financial indicators?
A: For operating profit, we were about 3 billion yen below the supposition. Thiswas due to the difficult time that we had in August.
Gross profit margin was influenced by the application of revenue recognition
standards and an actual decline. The latter was mainly brought about by the loss
in sales for seasonal products and products generating high gross profits in thedomestic discount store business and GMS business.
Figures for the discount store business levelled out again in October, and webelieve it will change from this point on. As we incurred less Selling, General, andAdministrative (SG&A) expenses than expected, the 3 billion yen represents theamount that we recovered in that respect.
Q2. Is it possible to recover, to some extent, in the direction of the planned
figures for the first half through reopening?
A: In the first quarter, profits were adversely impacted by the significant reduction
in income and gross profit in August. On the other hand, looking at actual resultsfor October, the respective companies in the domestic business are showing
signs of recovery with a margin of increase of about 5 to 7 points in comparison
with the first quarter. The year-on-year margin of improvement for gross profit
recovered by about 10 points compared to the first quarter, and we will regain thefirst quarter’s under-performance from the second quarter and after.
Q3. There are several measures for the discount store business. What effectwill these measures have after the reopening?
How about the effects of progress in productivity improvement and sales
measures (such as “private brands” (PB))?
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November 10, 2021

A: With regard to productivity improvements, we achieved 800,000 hours out of3 million hours in the preceding period. The important aspect is for frontline staff
to get a real sense of the reduction in work burden. Going forward, we willcontinue to advance efforts by positioning the introduction of order support
systems at each store and the adjustment of ordering and delivery frequency as
the important pillars for the current period.
As for the progress status for PB, as of the first quarter, the figures are moving
steadily in line with the budget toward our commitment of 250 billion yen. This iscontributing to improvements in gross profit margin.
In particular, we will incorporate PB into the renovations of existing roadsidestores, allocate new items to regular shelves, and narrow down the product items.
We believe these efforts will also contribute to profit margins in the second quarterand after. For PB, the production of some new products has been delayed, but
we are progressing toward achieving our target of 250 billion yen for the current
period.
The respective measures will vary in intensity depending on the time axis. While
there are measures that we can implement immediately, we are in theexperimental phase in the current period with regard to product development. In
the medium- to long-term, we will need to strengthen the financial and digital
aspects in order to respond to changes in the customers. While we are making
smooth progress toward that, it does not necessarily mean that we will complete
the measures in the current period and produce significant results.
On the other hand, short-term measures are in place to recover the shortfall in
the first quarter.
Q4. Is the current gross profit margin the result of price competition with ourcompetitors?
A: We are continuing to advance the price competition efforts from the preceding
period, so the profit margin reflects these efforts.
Q5. Concerning the financial business, could you be more specific on thechanges to majica in the future? Also, could you tell us what “Financial
Products/Member Store Business” under operating profit refers to?
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Pan Pacific International Holdings Corporation
November 10, 2021

A: A major change to majica is that the majica balance has also become usable
outside the Group through Visa. Another change is in the top-up methods. Wewill launch top-up from bank accounts and postpaid top-up, which had not beenpossible before. We hope that enabling the instant issuance of credit cards
through the majica app will stimulate greater use of credit cards.
The materials state that operating profit from the majica money business is 3
billion yen. We aim to achieve this through income from merchant fees with theuse of majica outside the Group through Visa Prepaid, as well as through income
from fixed fees from customers when they use the postpaid top-up service.
Q6. As it will be necessary for card issuance to be prioritized at the beginning,should investment in systems and other areas be considered a stumbling blockat the start?
A: We are planning to carry out the investment during the current period, and thishas been included in the business plan.
From the next period and after, we are reviewing the costs necessary for member
acquisition. However, since UCS is currently operating with budget of several
billions yen to acquire members, we aim to proceed through integration between
groups.
Q7. Concerning gross profit margin, could you tell us about the actual resultsfor Q1 and outlook for Q2 and after in relation to other variable factors excluding
the revenue recognition standards?
A: With regard to gross profit margin, Gelson’s generates a very high profit marginamong the overseas operations. Although profit margin is falling for North
America as a whole, Gelson’s is leading the figures. However, as its sales areabout 20 billion yen, it is not at a level for boosting the gross profit contribution tothe Group as a whole.
On the other hand, although domestic purchasing in North America was impacted
by negative factors such as soaring material costs, the entry of Gelson’s has
mitigated this impact to just about 0.8 points.
In Japan, the decline in the sale of seasonal products in August affected both thediscount store business and the GMS business. Profit margin fell due to the drop3Pan Pacific International Holdings Corporation
November 10, 2021

in sales in two seasonal product categories—clothing, and sporting and leisuregoods.
With regard to expansion of PB, we are at the stage of implementing during thefirst quarter, so they are not contributing sufficiently to give a strong boost tooverall gross profit yet. However, the impact of PB cuts across many different
areas. In the aspect of countering competitors, we believe it is effective in halting
the drop in gross profit.
As for the outlook from the second quarter and after, profit margin is higher thanthat in the previous year, and we believe this is partly the result of the gradually
emerging effects of PB. We are expanding PB with the aim of reaching the initial
target of contributing to improvements in gross profit by about 0.4% against theoverall.
As for Gelson’s contribution to profit, soaring material costs year-on-year for thewhole of North America will have an impact, so we anticipate that it will be difficult
for the profit margin for the North America business for the current period to
exceed that of the preceding period.
Q8. Has the disposal of clothing and sporting and leisure goods as a result of
the poor weather in August been completed?
Also, is PB the main measure for recovery from the second quarter onward?
Could you tell us if there are other measures?
A: We suppressed purchasing due to forecasts of poor weather, since thebeginning of August. Rather than disposing of the products that are regular goodsellers every year, we are holding them to sell in the next fiscal year. Apart fromthese, we are discounting and carrying out sales as usual for other sell-out
seasonal products. We will not hold inventory as a result of this slump. In thediscount store business, inventory for existing stores in the first quarter fell by
about 1.5 billion yen year-on-year.
PB is progressing smoothly when compared against the target for the current
period, but we believe additional efforts are needed to achieve recovery in thesecond quarter and after. An example is the 100-Day project, which has continued
to produce results. The results for the regular shelves in this project are also4

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November 10, 2021

producing effects in other stores in the first quarter. We will continue to expand
the roll-out, move forward with the introduction of products, and strengthen theproducts themselves. The strengthening of products spans diverse areas, but an
example that we are implementing is the acceleration of efforts to capture event
demand.
Q9. The aim for FY2023 is to achieve operating profit of 100 billion yen. Does
this goal remain unchanged?
A: This figure was established before the COVID-19 pandemic struck. It includes
the recovery of inbound demand, and while we have no comment at this point,
we will monitor the situation closely including the recovery of inbound demand,then provide an explanation of the situation.
Q10. Regarding the North America business, are the sales and operating profit
levels for Gelson’s higher than expected?
A: We perceive these to be progressing smoothly. On the other hand, if there arerebound to the reopening, it will give negative impact on the coming fourth quarter.
Note that operating profit of 1.6 billion yen does not reflect goodwill amortization.
Q11. With the intensifying price competition in Japan and abroad, will it bepossible to achieve the annual profit settings? Concerning SG&A in the second
quarter and after, will it be pushed back and reported later than planned in the
yearly plan?
A: Price competition is always ongoing in the discount store business, so it has
been incorporated into the plans. On the other hand, due to the impact of soaring
material costs, there are sections where price increases are anticipated goingforward. Hence, we will continue to monitor the impact on profit margins.
We have incurred less SG&A than expected. Within SG&A, there are parts
deferred to another period and parts used in accordance with the situation.
Therefore, rather than using all the remaining allocation, we will consider andassess the appropriateness for the final allocation.

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