J. Front Retailing
Earnings call for the third quarter (Q3) of the fiscal year ending February 28, 2021
Date and time: 15:30 - 16:15 on Monday, December 28, 2020

Q. Concerning the impact of the current spread of COVID-19 on sales trend, I would like toknow about more detailed situation of each store including the number of customers
and strong and weak items. There seems to be a positive report that traditional New
Year’s foods (osechi in Japanese) sell well. How do they perform actually? And during
the year end and new year holidays when many customers visit your stores and you
should capture sales from them, how will you achieve both safety and security andsales?
A. I will provide an overview including the current situation. On a store-by-store basis, terminal
stores such as the Tokyo and Umeda stores are struggling affected by the 3rd wave of
COVID-19. The Sapporo store is also affected by the 3rd wave. It has a high rate of inboundsales but showed a recovery trend in September and October. However, the spread of
COVID-19 starting in early November adversely affected customer traffic and sales. On theother hand, the stores with a high rate of loyal customers are on a gradual recovery trend but
they are at a standstill currently.
On a customer group basis, gaisho sales are strong because stock prices are relatively
strong. They purchase big-ticket items and products with high asset value, which may beaffected by a voluntary ban on travel. For volume class customers, apparel sales are sluggish
but sales of seasonal items such as osechi, Christmas cakes and gifts continue strong.
During the year end and new year holidays, as we have released, we will act based onsafety and security. In the past, it was internally reported how many customers had lined up
before opening at the beginning of the year. This season, however, we will take measures toavoid three Cs, including earlier and dispersed bargain sales and sales of lucky bags online
and by lottery in advance in some stores.

Q. With regard to cost reduction, you have worked on cost management until now. What
additional items are you thinking of reducing? I think the new Medium-term Plan, which
will be announced in April next year, is under discussion. And are you discussing
additional cost reduction, which is needed partly due to the current 3rd wave ofCOVID-19? I would like to know what you think about costs including the next
Medium-term Business Plan.
A. As you said, we have worked on cost reduction and incorporated some measures in the budget
for H2. Therefore, we will not be able to reduce ¥0.5 billion or ¥1 billion with one or twomeasures excluding costs proportional to sales. In December, the management of the holding1company and operating companies told us to review all cost items and thoroughly manage
costs. The original plan in October contained sales promotions, etc. for H2 based on arecovery trend unlike until Q2. However, as the situation has changed suddenly, we will takecost reduction measures again. This fiscal year is the launching pad for the new Medium-term
Business Plan, which will start in the next fiscal year. So firstly, I think it is important to ensure
the current performance. At the same time, we are discussing the Medium-term Business Planand Outside Directors say we need “speed and thorough implementation.” I recognize we havealso received similar advice from investors. I recognize it is crucial to accelerate structuralreform in terms of costs as well as the current cost reduction.

Q. When you announced Q2 results in October, you said factors contributing to atemporary increase in SGA in H2 include ¥0.4 billion of cost of the transfer of the Real
Estate Business to Parco, ¥1.4 billion of cost of Shinsaibashi PARCO and ¥0.6 billion ofthe effect of a change in accounting method for annual membership fee of the Creditand Finance Business. How were they actually in Q3?
A. Looking at each segment, sales of Department Store differed from our guidance released inOctober and fell below our plan. Parco is difficult to purely compare to the previous fiscal year
due to the transfer of Real Estate and opening of Shinsaibashi PARCO. In Q3, however, there
was an effect of reduction of cost of sales. Particularly, cost of measures to maintain sales
floors, which was factored in because some of their suppliers are smaller compared toDepartment Store, fell below expectations. Q3 results of the Credit and Finance Business,including the effect of a change in accounting method for annual membership fee and cost
reduction during the same period, were almost the same as our guidance.
The point of Q4 forecast is the extent to which Department Store sales will recover inJanuary and February. By complementing with cost reduction of Department Store as well as
the Parco Business and associated businesses including Daimaru Kogyo whose electronic
device department performs well thanks to nesting demand, we will aim to meet ourconsolidated earnings forecast for H2.
Q. I don’t know the extent to which the effect of COVID-19 was reflected in Department
Store sales but sales decrease was 23.2% against your Q3 forecast of 18.6% decrease.
Is this decrease below your target within the margin of error in terms of consolidated
business profit? You expect sales to decrease by 11.3％ in Q4. Though the bar for 4Q
last year is lower, will you be able to make up for the gap with the measures you
explained before? I am afraid it will become just a goal to strive for.
A. It is difficult to forecast Department Store sales precisely. As we cannot expect a significant
sales recovery, we will complement with cost reduction of Department Store and otherbusinesses and Parco and associated businesses. In Q3, business profit was above our2

internal plan. We will aim to achieve business profit (¥0.95 billion) for entire H2 including Q3.

Q. Was business profit in Q3 above your internal target?
A. Exactly.

Q. SGA of the Department Store Business of Daimaru Matsuzakaya Department Storesincreased to ¥25.3 billion in 3Q from ¥24 billion in 2Q. Were there any factors in suchincrease from Q2 to Q3? I think you control SGA as tightly as before, but at the sametime, do aggressive factors also increase? I would like to know that.
A. The basis is different between Q2 and Q3. Unlike Q2, we took measures to capture sales. We
were in no situation to take such measures in Q2, but for example, we invested cost to holdgaisho events in Tokyo and Osaka, and in addition, we strengthened sales promotions througha tie-up with Rakuten Card. We continue to manage costs thoroughly, and at the same time,
we spend money where needed in order of priority. In Q4, while tightly controlling the inflow
and outflow of money, we will strive to ensure profit.
Q. You said Parco’s Q3 performance was above your plan. Concerning whether this upward
trend will continue, how shall I see the next Q4?
A. As for Parco’s results in Q3, tenant sales in stores are disclosed on a monthly basis. Revenueof the entertainment business has recovered to almost the same level as the previous year
partly because restrictions on the number of seats, etc. were gradually eased starting in
September. And as I said before, cost was reduced and cost of measures to maintain sales
floors also fell below expectations. Unless we are asked to voluntarily refrain from operating
stores, we expect our performance to gradually recover in Q4. However, as the impact of the
3rd wave of COVID-19 is unforeseeable, the situation does not allow optimism.
Concerning what growth we will aim for, including the transfer of the Real Estate Business, inthe next fiscal year and beyond, we are discussing currently and would like to show it later.
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