J. Front Retailing
Q & A summary
Earnings call for the third quarter (Q3) of the fiscal year ending February 28, 2022
Date and time: 15:30 – 16:15 on Tuesday, December 28, 2021

Q. You told your Q3 performance was almost as planned internally and I would like to know
differences in business profit between segments, if any.
A. Each segment performed almost as planned. However, the performance of Daimaru Kogyo, which isincluded in the Other segment, was below plan partly affected by the production adjustments of its
suppliers and customers due to a lack of semiconductors in its core automotive and electronic device
businesses.
Q. On page 4 of your presentation material, you state that sales of luxury and high-priced items
were strong but that the recovery of spending on volume zone items was slow. However, thesales trend as a whole seems to be improving quarter by quarter. I would like to knowchanges in, for example, categories other than luxury and high-priced items, if any. And
during the year end and New Year holidays when customer traffic is increasing, whatmeasures will you take, particularly for the first sale in the New Year?
A. Sales of terminal stores, which had been relatively delayed in recovering, and the Sapporo store,
which had been affected by the increasing number of infected people in the same period last year,
greatly improved in November though they did not recover rapidly in October. As for the latest
Christmas sale, both customer traffic and sales significantly increased. From the year end and New
Year holidays and January to February, we would like to take solid measures for “earning Q4”
including, for example, events to attract customers, which we could not hold last year.
Q. I would like to ask you about the gross margin ratio of Daimaru Matsuzakaya Department
Stores. According to page 6 of your supplementary information to financial results, it
decreased again with a rate difference of -0.43 points from last year. I guess the gross margin
ratio decreased because gross sales were around one percentage point below plan. And is it
because of cost reduction that business profit was almost as planned?
A. Profit margin in product sales decreased from the previous year even in Q3 alone. It was in aroundmid-22% range before the COVID-19 pandemic, and in the low-21% range in Q3 alone. Sales are on
an improvement trend but profit margin has not improved. For the future, how we will increase
profitability including business model transformation and the conversion into fixed-term lease is ouressential challenge. In the short term, however, we will aim to ensure profit through cost control.
Q. Sales of Shibuya PARCO increased greatly compared to other stores. What factors affected
that? Do you have room to apply these success factors horizontally to other stores of Parcoand the Department Store?
A. Two stores including Shinsaibashi PARCO and Shibuya PARCO perform steadily. Shibuya PARCO
operates luxury brand boutiques with a view of the world different from that of the Department Storeand thereby it enjoys strong sales. On the other hand, I do not think we can apply the same to otherstores without change. It is one of key issues in the Medium-term Business Plan but I recognize that
we need to rearrange floors mainly in urban stores to meet the needs of each area and market
instead of just replacing brands.
Q. Do you mean that Daimaru Matsuzakaya Department Stores ensured profit as planned throughcost reduction?
A. That’s right.
Q. With respect to Daimaru Matsuzakaya Department Stores’ cost reduction, what were more
effective areas than others, if any? I would also like to know your future outlook and what you
1think about costs.
A. Of the areas of cost reduction in Q3, the streamlining of real personnel expenses was more effective
than originally planned. Our immediate outlook is to thoroughly control costs in Q4 and beyond.
Meanwhile, in terms of structure, we aim to “reduce fixed costs by ¥10.0 billion” in the current
Medium-term Business Plan and the Department Store is working to reform its organizational andhuman resource structure as well as to change its business model. In Q4, we are proceeding withmeasures that will lead to the reduction of fixed costs in the next fiscal year and beyond. I think thespecific amounts of money will be announced at our earnings announcement in April. And we would
like to step up streamlining efforts and strive to improve our bottom line according to plan.
Q. Concerning SGA of Daimaru Matsuzakaya Department Stores, you said you had controlled
personnel expenses. However, actual personnel expenses rather increased QoQ and theexpenses in Other seem to be well controlled. I would like to know details.
A. Outsourcing expenses are included in Other. The sum of personnel expenses and outsourcing
expenses are managed as “real personnel expenses” associated with store operation. The reductionof fixed costs have a great effect on the reduction of direct personnel expenses while outsourcingexpenses are controlled by streamlining temporary staff during period and bringing outsourced
operations in-house.
Q. Business profit of Parco in Q3 was almost the same as Q1 but that of the Department Store
exceeded Q1’s level. I know the Department Store has more seasonal factors but I thinkbusiness profit of Parco should have a little more improved. I would like to know the reasons
why the recovery of gross sales of the SC Business was weak.
A. Shibuya and Shinsaibashi perform steadily but suburban stores continue to relatively struggle. Somestores decreased gross sales by double digits. The recovery of flagship stores including Ikebukuroand Nagoya remained slow. The Department Store has a gaisho customer base but Parco does not.
So its recovery is slow at present.
Q. What do you think will change this situation?
A. The point will be the recovery of Ikebukuro and Nagoya, which are large-scale urban stores. We areplanning large-scale renovations in the next fiscal year and beyond. In some stores, pop-up shops
operate in spaces from which their tenants withdrew. However, we take a rather political approach.
Instead of simply replacing brands, we will renovate to make the stores more attractive, and by doing
so, we will aim to gain more support from customers and improve revenue.
Q. Do you mean that the tenant vacancy rate is increasing?
A. Some tenants withdrew but pop-up shops and others occupy their spaces. So there is no vacancy.
Q. I would like you to ask about some figures. The profit figures of the Department Store for Q3
alone are different from the figures obtained by subtracting those for cumulative Q2, whichwere announced last time, from those for cumulative Q3. Your presentation materials haveretroactive adjustments of Daimaru Matsuzakaya Department Stores on its last page. Are
there any changes from Q2 in calculation?
A. I do not recognize such changes. On page 10, we disclosed the retroactive adjustments of Daimaru
Matsuzakaya Department Stores for H1 results due to the merger of Daimaru Matsuzakaya Sales
Associates (“DMSA”). Their impact is shown there. If you have any questions, please ask later.
<Supplemental information>
H1 results in the summary of the financial results for the first six months of the current fiscal year are
before retroactive adjustments due to the merger of DMSA into Daimaru Matsuzakaya Department
Stores (in September). However, H1 results in the summary of the financial results for the first ninemonths of the same fiscal year (cumulative Q3, March to November) are after such retroactive
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adjustments. Therefore, they differ from the sum of the results for cumulative Q2 (March to August)and those for Q3 alone (September to November).
Retroactive adjustments to information on Department Store and Other segments
due to the merger of DMSA（Millions of yen）

Q1
Department
StoreGross sales
114,793
Revenue
39,700SGA
25,479Business profit(loss)(929)
Operating profit(loss)(3,979)FY2021Q2
H1
Department
Department
Other
OtherStoreStore
17,987
132,957
18,726
247,750
15,806
46,783
15,651
86,484
5,370
28,5895,545
54,069224(578)268(1,507)
193
(586)
246
(4,566)

Other
36,714
31,457
10,916492
439

Q. According to page 4 of your presentation materials, a decrease in domestic sales compared toFY2018 shrank (improved) in these three months. How much did SGA decrease compared toFY2018?
A. Compared to FY2019, Q3 SGA decreased by ¥4.2 billion in real terms. As I do not have at hand dataon comparison to FY2018, I would like to answer later.
<Supplemental information>
In Q3 (September to November) of FY2018, SGA of Daimaru Matsuzakaya Department Stores(excluding the Real Estate Business) was ¥29.9 billion. In Q3 (September to November) of FY2021,
SGA decreased by ¥4.6 billion compared to FY2018.
Q. You severely expect that sales will not recover to the level before COVID-19 even if COVID-19ends. Unless sales recover, you should continue cost reduction next year and beyond. It isgood to recover sales through reopening. But what cost level compared to FY2018 will you
aim for in the next fiscal year and beyond?
A. As you mentioned, we do not assume that sales will completely recover to the level before COVID-19.
We strive to “reduce fixed costs by ¥10.0 billion compared to FY2019” in the current Medium-term
Business Plan as well as to constantly save costs. We expect to reduce fixed costs by ¥3.7 billion inthe current fiscal year against the plan of ¥3.0 billion reduction. For the next fiscal year, we plan toreduce by ¥4.0 billion. We will work hard to improve our bottom line as well as to recover sales.
Q. When classifying your department store users by age, are there any differences between suchgroups? For example, compared to before COVID-19, do you see a sluggish recovery in acertain age group or see a change among young people?
A. In GINZA SIX, the share of customers in their 20s to 30s is increasing to almost 50% currently from40% in FY2019. Also in the Department Store’s gaisho, the share of young customers in their 20s to
40s is increasing though I think it is partly because older people avoid going out.
Q. What will be found if Parco’s customers are also analyzed by age? Parco seems to have arelatively larger share of young customers compared to the Department Store. While youngcustomers are increasing in the Department Store, sales recovery is delayed in Parco whose
main customers are young people. How should I understand that?
A. For Parco, we have not conducted a detailed analysis, but as I said before, there are great differences
between stores in sales improvement. Shibuya PARCO and Shinsaibashi PARCO perform steadily,and in the Department Store, the share of customers in their 20s to 40s is relatively increasing in
GINZA SIX and gaisho. Expanding our customer base is imperative. And we will share goodpractices, if any, between the Department Store, Parco and their suppliers and we will continue tomake efforts to expand and deepen our customer base.
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<Supplemental information>
On page 43 of the presentation of FY2021 Q2, we disclosed the retroactive adjustments of FY2020
results by segment including the retroactive adjustments due to the merger of Daimaru Matsuzakaya
Sales Associates(“DMSA”) by Daimaru Matsuzakaya Department Stores(in September). However,after the close scrutiny of the contents, we revised the results in FY2020, as follows (revised figuresare underlined);

FY2020 results of Daimaru Matsuzakaya Department Stores after retroactive adjustments are asfollows;
Daimaru Matsuzakaya Department Stores data
retroactively adjusted to reflect the merger of DMSA(Millions of yen)

Gross sales
Revenue
SGA
Business profit (loss)
Operating profit (loss)

Q1
58,381
23,927
16,336(4,039)(21,758)

Q2
118,461
44,47824,272
1,857
3,246

H1176,842
68,40540,609(2,181)(18,512)

FY2020
Cumulative Q3
Q3
120,320
297,163
41,015
109,421
25,54866,157183(1,997)387(18,124)

Cumulative Q4Q4137,060
434,223
50,134
159,555
27,174
93,331306(1,691)(412)(18,537)*The Real Estate Business was transferred to Parco in September 2020. In the disclosed information for FY2020, however, the non-consolidatedfigures of Daimaru Matsuzakaya Department Stores for H1 of the same year have not been retroactively adjusted to reflect the impact of the transferof the Real Estate Business (Segment information has already been retroactively adjusted). In the FY2020 data above, the figures for H1 have also
been retroactively adjusted to reflect the impact of the transfer of the Real Estate Business.

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