<Japanese Equity Report>

IR Street Report - Premium -February 9, 2024

July 16, 2014

WATTS (TSE Standard, 2735) FY8/24 Q1 Operating Results
Significant year-on-year increase in profits, supported by successful measures
implemented to counter rising raw material prices.
<Brief summary><Overview of FY8/24 Q1 results>◼ The Company reported sales of 14,813 million yen (+0.8% YoY) and operating profit of 190 million yen (+203.0%), showing
growth in both sales and profits. Store openings and closures progressed generally according to plan. The combination ofhigher gross margins and lower costs resulted in a significant increase in profits.
◼ As of the end of Q1, the gross margin stood at 38.2%, showing a notable improvement from 37.6% in the same period lastyear. This improvement can be attributed to various strategic initiatives, including the continued proactive introduction ofhigher-priced products and a decrease in the proportion of low-margin food products, alongside an increase in the proportionof household items.
◼ In the 100-Yen shop business, the Company opened 60 shops, reaching 37.5% of the annual plan of 160 shops, which is afavorable result. Additionally, it closed 25 shops, accounting for 20.8% of the plan to close 120 shops. Both shop openings
and closings were consistent with the pace of the same period last year. The total number of shops was 1,804 as ofNovember 30, 2023. Furthermore, it is progressively introducing higher-priced products, expanding from 3,275 items at theend of the previous fiscal year to a total of 4,259 items at the end of Q1.

◼ There was no major progress in overseas operations other than the closure of 3 shops in Thailand. While the Company aims
to enhance profitability through measures like closing unprofitable shops and expanding wholesale operations, given theongoing depreciation of the yen, the primary focus remains on boosting profitability in domestic 100-Yen shops. As such,significant changes are unlikely in the near term. In other domestic household business, the Company opened 1 Buona Vita,a household brand, and 1 Real, a discount store.
◼ The business forecasts remain unchanged from the initially projected figures. Against the business forecasts, sales stood at49.8% of the H1 plan and 25.1% of the full-year plan, while operating profit reached 79.2% of the H1 plan and 38.0% of the
full-year plan, indicating particularly favorable progress in profits. The exchange rate trend has remained relatively stablesince October of last year, and there are limited factors driving further increases in costs beyond the already elevated levels
seen last year. Given that the cumulative monthly sales up to the end of January have reached 101% of the same-store sales
total, it appears reasonable to conclude that there is a level of certainty regarding the attainment of the H1 profit forecast.

Stock price data (February 5, 2024 closing price)
Stock price590 yenShares issued

13,458,800 shares

Market cap

7,941 million yen

PER (est.)

29.15 times

PBR (actual)0.67 times

Dividend yield forecast %2.54%

Performance (Figures for FY8/24 are the Company’s estimates)(Million yen)

Sales

YoY(%)

Operatingprofit

YoY
(%)

Recurringprofit

YoY
(%)

Net
incomeYoY(%)EPS(¥)

Dividend(¥)

ROE(%)

FY8/2359,3091.6

621-37.7

648-43.5

250-67.9

18.46

15.0

2.1

FY8/24 (E)59,100-0.4

500-19.6

400-38.3

270

7.8

20.05

15.0

-

FY8/23 (Q1)

14,6997.1

62-77.3

67-77.8

215

35.9

15.88

-

-

FY8/24 (Q1)

14,813+0.8

190

203.0

197

191.6

90-58.0

6.79--1

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IR Street Report - Premium -February 9, 2024

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<Other Topics in Q1>◼ Monthly same-store sales at 100-Yen shops slightly increased from the previous year, at 100.7% in the first threemonths from September to November. The current figure exceeds both the same period of the previous fiscalyear, which was 99.2%, and the June-August period of last year, the immediately preceding quarter, also at99.2%.

◼ The gross margin as of Q1 increased significantly from 37.6% in the same period last year. This was due to theactive introduction of higher-priced products, as well as the effect of remodeling to increase the lineup ofhousehold items at large roadside shops, where food product sales account for a high proportion of total sales. Inaddition, full-function self-checkout registers are being introduced to improve settlement operations.
◼ Net income attributable to owners of parent decreased largely YoY, but this was due to a one-time gain on
adjustment of income taxes related to reorganization among consolidated subsidiaries in the previous fiscal year.
◼ The acquisition of treasury stock announced on July 10, 2023 reached its maximum limit in December 2023
(440,000 shares, equivalent to 3.2% of the total number of shares issued), and the planned acquisition wascompleted (total acquisition cost: 260 million yen). As of January 31, 2024, the Company retired all of its acquiredshares.
◼ It introduced a restricted stock compensation plan through the disposal of treasury stock as of December 13,2023. We hope that the Company will manage its business with a focus on its shareholders, aiming to enhance
its reputation in the stock market.
◼ The stock price, however, continued to decline due to the announcement of the financial results in October lastyear, and the closing price as of October 31 was 552 yen, but since then the price has started to recover and theclosing price as of February 5 was 590 yen. The Company's P/B ratio is still at the undervalued level of just under
0.7 times. Considering the Tokyo Stock Exchange's increasing efforts towards addressing the "P/B ratio below
1x" issue, there is no surprise that there is growing anticipation for further improvement in its P/B ratio in thefuture.

<Full-year Forecasts: Priority is placed on improving profitability>*Reprinted from the previous report

FY8/24 full-year forecasts◼ The Company forecasts sales of 59,100 million yen (-0.4% YoY), operating profit of 500 million yen (-19.6%YoY), recurring profit of 400 million yen (-38.3% YoY), and net income attributable to owners of parent of 270
million yen (+7.8% YoY), expecting a decrease in sales and profits. The theme for this fiscal year is to improve
profitability. The Company has been actively closing unprofitable shops while at the same time curbing shop
openings to a certain degree to both improve existing store operations, which has been an issue, and improve
profitability. The Company plans to open 160 new shops, down about 30% from the previous fiscal year, andclose 120 shops, up 20% from the previous fiscal year. By opening more than 90% of its shops on aconsignment basis, the Company will increase the ratio of low-cost, highly profitable shop model. On the other
hand, sales growth for the consignment-type model is limited due to the small monthly sales per shop. While theintroduction of higher-priced products is expected to improve profitability, investments such as renovations andthe introduction of full-function self-checkout registers are concurrently taking place this fiscal year, leading to an
anticipated decline in profits. Net income is expected to increase from the previous fiscal year, as impairment
losses are expected to trend downward due to the closure of unprofitable shops.
◼ As of October 26, 2023, the Company's P/B ratio (actual) was 0.63x, indicating a situation commonly referred toas a "P/B ratio of less than one." Despite the Company's estimated cost of equity being in the range of 4-5%, theROE based on this year's forecast is 2.3%, with the ROE currently lower than the cost of equity. The Company
perceives this situation as a challenge and is actively working to enhance the P/B ratio. Measures include thepreviously mentioned initiatives to improve profitability, ongoing treasury stock acquisition, and proactive efforts
in investor relations.

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IR Street Report - Premium -February 9, 2024

July 16, 2014

<Latest Press Releases>
The following are the major press releases disclosed by the Company since the announcement of Q1
FY8/24 results.
(Click on the image below to check the news on the IRSTREET.)◆ IR information page of theCompany

IR news mail service(Jump to the IR STREET)

Registrations
here

https://www.irstreet.com/new/en/brand/index.php?brand=238&contents=brand_newsrelease

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