TAKUMA-PathfindersAn investment research platform
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June 17, 2013

7483

DOSHISHA CORPORATIONTSE 1stSectionSummary of Business Results for the Fiscal Year ended March 31, 2013

On May 16, DOSHISHA CORPORATION (hereinafter “DOSHISHA” or the “Company”) held its
Business Results Meeting for FY3/13. The following is a summary of the meeting.

Summary of FY3/13 Consolidated Business Results
As seen in Table 1, net sales and incomes decreased in FY3/13. Among the major factors for the
decline was the blowback from the one-time demand of LCD TVs as a result of the transition fromanalog to digital TV broadcasting, sluggish retail sales caused by unstable, unseasonable weather,and an increase in costs triggered by rapid changes in the Company’s operating environment―allof which exceeded projections. Consequently, following an inventory adjustment, the rapid
depreciation of the yen, and a one-time increase in advertisement budget, gross profit fell by 4.8%
YoY while SG&A expenses rose by 5.3% in the same period, resulting in a 23.7% YoY decrease inoperating income.

【Table 1】 FY3/13 Consolidated Business Results Summary

Consolidated

FY3/12（\ million）

Actual

FY3/13

Ratio toNet Sales

Forecast
on Oct. 31

ActualRatio toNet Sales

YoY Chg

102,619100.0%

102,000

99,221100.0%-3.3%

Product Development Model

54,60253.2%

51,80050,251

50.6%

-8.0%

Wholesale Model

45,59744.4%

47,60046,033

46.4%

1.0%

Others

2,419

2.4%

2,600

2,937

3.0%

21.4%

Gross Profit

25,35424.7%

25,40024,129

24.3%

-4.8%

SG&A Expenses

16,48716.1%

17,20017,368

17.5%

5.3%

Operating Income

8,866

8.6%

8,200

6,761

6.8%

-23.7%

Ordinary Income

8,917

8.7%

8,300

7,395

7.5%

-17.1%Net Income

5,001

4.9%

5,100

4,491

4.5%

-10.2%Net Sales

Note: Company financial data, complied by Trias Corporation

This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

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June 17, 2013

Trends by Business Segment
Product Development Model Business:¥50,251 million (-8.0% YoY)

Given the ongoing blowback from the one-time demand generated by the transition to digital
broadcasting, TV sales declined by some ¥5 billion YoY. In addition, with NB makers clearing
inventory, it became difficult to maintain profitability in this line of business. In contrast, sales of LED
lights, functional and stylish electric fans, and low-energy heaters, remained strong. Moreover, thebusiness recorded higher sales in special-function shampoos (featuring a good price-to-function
balance), hyaluronic acid essence cosmetics, diamond jewelry, Beaujolais Nouveau, campaign
wines, edible decoration package series, and new-category offerings such as shoes, sandals, mugbottles and stainless tumblers.
Wholesale Model Business: ¥46,033 million (+1.0% YoY)
This business line performed well, posting sales growth in high unit price/high discount gifts―which
was buoyed by successful special sales campaigns held at underutilized retailer floor space―aswell as Buddhist ceremonial goods and reciprocal gift-giving products. Among premier brandproducts, handbags continued to post strong sales from the previous term. In addition, while initialsales of brand-name wristwatches appeared to slip below that posted in FY3/12, it managed tostage a solid recovery in the latter half of 2H FY3/13.
Others
As for net sales by sales channel, sales from discount consumer appliance stores and home centers
declined by 19.1% and 13.4% YoY, respectively, due to the one-time demand blowback. However,sales from other channels―including drugstores, 100-yen shops and Internet-based marketinggrew steadily, rising 25.7%, 10.3% and 9.1%, respectively.
Although merchandise and finished goods listed in the consolidated balance sheets increased by¥1,155 million, this was a result of delivery of spring merchandise, and thus accumulated inventory
declined on a YoY basis.

Consolidated Forecasts for FY3/14 and Key Initiatives
As Table 2 shows, the Company projects an increase in consolidated net sales and incomes in
FY3/14, driven by the implementation of priority initiatives to accelerate the rollout of profit-oriented
products and other strategic programs.

This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

All rights reserved.

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TAKUMA-PathfindersAn investment research platform
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【Table 2】 FY3/14 Consolidated Business Forecasts

Consolidated（\ million）

FY3/13 (Actual)

Net Sales

FY3/14 (Forecast)

1H

2H

Full Year

1H

2H

Full Year

YoY Chg

46,98452,23799,22150,50056,500107,000

7.8%

Product Development Model

23,411

26,83950,251

25,08029,24054,3208.1%

Wholesale Model

22,36823,66446,03323,94026,05049,990

8.6%

Others

1,204

1,733

2,937

1,480

1,210

2,690

-8.4%

Gross Profit

11,78012,34924,12912,20013,90026,100

8.2%

SG&A Expenses

8,532

8,835

17,368

8,650

9,450

18,100

4.2%

Operating Income

3,247

3,513

6,761

3,550

4,450

8,000

18.3%

3,550

4,450

8,000

8.2%

2,200

2,700

4,900

9.1%

Ordinary Income

3,370

4,025

7,395

Net Income

2,043

2,448

4,491

Note: FY3/14 forecasts announced on May 16, 2013

Key Initiative 1
1. Accelerate development of profit-oriented products[Responding to yen depreciation and consumption tax increase]
The cost of imported goods is increasing with the continued depreciation of the yen, a factor that
defies cost management control. And while retailers are fully cognizant of its impact, they have been
forced into a situation in which they cannot condone raising prices on these goods. This means
DOSHISHA must restructure its product lineup in order to sustain profitability. Fortunately, newproduct development, product refinements, and product upgrades are what the Company excels in.
It is now aiming to generate profit by maximizing its extensive knowledge base and corecompetences, and to accelerate the pace of new product development. We thus see a performancerebound occurring from 2H FY3/14 with the rollout of new products well on its way by that time.
[Decentralizing production to reduce China risk]
In light of the existing situation in China, there are valid concerns regarding rising raw material prices
and the ability to secure a stable supply of products. In order to reduce the risks associated with
China, the Company will be moving into Vietnam, Bangladesh, Thailand, Myanmar and other Asian
countries to establish production sites.
2. Increase ratio of in-house development and new retail accounts
In an economic environment in which the only constant is change, it is imperative to develop
products and private-brand goods that meet through specialized expertise the proprietary needs ofmajor clients. DOSHISHA boasts a sales network consisting of some 3,500 companies, and it plans
This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

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June 17, 2013

to reinforce ties to its major clients by working with them not only on a division level, but also on an
entire-company basis.
3. Reforming earnings structure and reducing SG&A expenses
The Company aims to reduce costs by revamping its distribution system through such measures asdeveloping an in-house product shipment regime and constructing external storage facilities on its
own.
Key Initiative 2
1. Product Development Model BusinessIn order to differentiate itself from the competition and enhance competitiveness, the Company isaiming to enhance and expand this business line by organizing divisions along product categories inwhich it commands high market shares and related areas, enabling these units to focus on andspecialize in these markets as growth drivers. By doing so, DOSHISHA believes it can achieve its
goal of establishing a growth regime of 50 divisions, each generating ¥5 billion in sales. From
FY3/13, a Marketing Project Team was established, a unit consisting of specialized staff that will
identify new product categories to enter as well as assess and select the appropriate products todevelop. This business line will also expand its handling of licensed brands from abroad, effectively
developing synergy between these products and the diverse lineup of products unique to theCompany that it already manufactures and sells.
2. Wholesale Model Business
DOSHISHA has enabled retailers to maximize floor space dedicated to special annual events―
including midsummer and yearend gift giving periods, as well as Christmas sales―with proposals to
promote local or regional foods such as ramen noodles from throughout Japan during downtime
periods. These promotions are bearing fruit, and the Company aims to continue offering suchpromotions. It has also embarked on a new initiative, the parcel delivery of gifts; as a result, it can
now deliver perishable delicatessen foods, including hams and fruits, directly to customers. While
the parcel system can only handle single-item gifts at this time, the plan is to expand this to variety
assortment gifts-―an area in which it excels―in the near future. As for brand-name products,
DOSHISHA, given its past performance, is recognized for its strong share of sales in markets
outside of department store and distributor sales. Companies are not only supplying new brandproducts as a result, other firms are negotiating with DOSHISHA to license their trademarks, and it is
now aggressively moving to enter into partnerships to rollout additional brands.

This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

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June 17, 2013

Mid-Term Management Plan
Given the Company’s rapidly evolving operating environment and its performance thus far,
DOSHISHA is revising its mid-term management plan: it now expects consolidated net sales
projected for FY3/16 to decline from ¥150 billion to ¥130 billion, while consolidated operating
income slips from ¥13 billion to ¥11 billion. It remains committed to its ultimate goal of net sales of¥250 billion generated through 50 divisions, but will achieve this through steady, less ostentatious
progress rather than rapid, yet ultimately unstable leaps forward.

Q&A Session
Q1. Describe in greater detail plans to revamp your distribution system to pare costs.
A1. Up until now, deliveries of packages from warehouses to client-retailers were outsourced to an
external parcel delivery firm on a single-item basis. We believe we can slash transportation costs bychartering delivery vans and sorting packages by region ourselves, and extending this service to ourclients as well. While we currently have two warehouses, one in Osaka and another in Tokyo, we
realized that our delivery methods were not entirely efficient. To improve efficiency, we are in theprocess of optimizing and standardizing the packages we ship. Of the ¥17.3 billion in SG&A
expenses incurred in FY3/12, some 30% came from distribution costs. We plan to initiate our
distribution reforms in 2H of this term.
Q2. You said that the product development and sales regime is to include component analysis
functions for cosmetics. Does this mean you plan to make cosmetics?
A2. No, there are no plans to become a cosmetic maker. The crux of our profit-oriented productdevelopment strategy is to manufacture products that are in high demand and sell them quickly.
Getting into cosmetics invites too many problems; you have to deal with the Pharmaceutical Affairs
Act, and it demands a huge investment in work and cost. We acquired an analysis lab three years
ago and used it as a base to launch our Health & Beauty Division. We turned a profit last year, but
our only goal at this time is to focus on accelerating our product development process and sell
products that are in demand.
Q3. You cited inventory adjustment and depreciating yen as causes of the gross margindecrease in FY3/12. Could you elaborate on this a bit?
A3. Our 3Q gross margin last term was 25.7% versus 24.7% this term; for the Q4, it was 21.9%
versus 23.7%―a drop-off of 1.8%. This decline was due primarily because inventories for fall andwinter items were cleared in Q4. Moreover, while we set aside a foreign exchange reserve forThis Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

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TAKUMA-PathfindersAn investment research platform
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June 17, 2013

foreign procurements for both the 1H and 2H, there are certain products that need to be procured at
the last minute, meaning these latter items are what were impacted by the rapid depreciation of theyen―and this is what is squeezing our gross profit margin. We are currently negotiating our
procurement of fall and winter items, and we intend to incorporate a risk hedge to offset further forex
volatility. As a result, we should see a recovery in our gross profit margin in this term.
Q4. Why did SG&A expenses increase despite the decline in revenues?
A4. Our SG&A expenses rose some ¥880 million over the full year. Among the primary factors forthis were the rise in distribution and labor costs. Higher labor costs were caused by an increase in
payroll, following the hiring of new university graduates and an increase in product development
personnel. We also spent over ¥100 million for our advertising budget to produce and promote
Indefinie, our special-function shampoo, on TV. Our ad budget is not expected to rise this term
mainly because the commercial has already been produced and expenses will be limited mostly to
air-time fees.
Q5. How did the main product for the Product Development Model Business perform in FY3/13,
last term, and what are its performance prospects for FY3/14, this term?
A5. We believe that plummeting TV sales have bottomed out. Meanwhile, sales of LED lighting roseby 50% YoY in last term, and we project a 30% increase in this term as well. Sales of electric fanshave also jumped by 35%, and the forecast calls for another 10% rise in this term. While sales of ourlifestyle products declined in last term, we plan to increase sales in this term by expanding our
product lineup in newly developed frying pans, home electronics and home goods.

This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

All rights reserved.

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TAKUMA-PathfindersAn investment research platform
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June 17, 2013

 Key Stock Indicators and Financial Data
No. of Shares Issued
No. of Treasury Stock
Market Value (\mn)
BPS (\)ROE (%)ROA (%)PER (times）
PCFR(times)
PBR (times)
Share Price (\)
Unit Share (shs)Mar. 2013
37,375,636
Mar. 201384,334
Jun 17, 2013
52,027Mar. 2013
1,319.41
Mar. 2013
9.5
Mar. 2013
7.5
FY3/14 fcst.
10.6
Mar. 2013
10.4
Mar. 2013
1.1
Jun 17, 2013
1,392
Jun 17, 2013
100
Average Daily Volume (shs) Jun 17, 2013
104,321
The Company conducted a 2 for 1 stock split,
effective on Arpil 1, 2013.

Total Assets (\mn)
Mar. 2013 61,560
Shareholders' Equity (\mn)
Mar. 2013 49,202
Interest-Bearing Debt (\mn)
Mar. 2013 2,709
Equity Ratio (%)
Mar. 2013
79.9
Ratio of Interest-Bearing Debt (%) Mar. 2013
5.5
Free Cash Flows (\mn)
Mar. 2013 4,020
ROE=Current Net Income÷Average Shareholders' Equity
of beginning of term and term end
ROA=Current Net Income÷Average Total Assets
of beginning of term and term end
PCFR=Maket Value÷(Current Net Income+Depreciation)
Average Daily Volume=Ave. Daily Volume for the last 12 m/s
Ratio=Interest-Bearing Debts÷Shareholders' Equity
Free Cash Flows=Operating CF+Investment CF

Consolidated
Operatin Ordinary
Net Sales
Net Income EPS (\)
DPS (\)(\million）
g
IncomeFY3/0980,898
5,014
5,131
2,558
140.9445.00
FY3/1086,629
7,701
7,593
4,293
236.5455.00
FY3/11
93,494
7,698
7,614
4,395
242.2055.00
FY3/12 102,619
8,866
8,917
5,001
274.91
60.00
FY3/1399,221
6,761
7,395
4,491
241.3460.00
2Q FY3/14 fcst.
50,500
3,550
3,550
2,200
58.99
15.00
FY3/14 fcst. 107,000
8,000
8,000
4,900
131.4030.00
Note: FY3/14 forecasts announced on May 16, 2013
*1 The calculation of dividend per share for the fiscal year ended March 31, 2013
is not retrospectively adjusted.

 Share Price Charts and RSI
（Yen）

2,000

300
Close share price

1 month moving average

3 month moving average

RSI [days]（Right）

250

1,500
200

1,000

150
RSI
100
70

500

50
30
0

0

Source: Prepared by Trias Corp. with Bloomberg data.
Note: RSI, Relative Strength Index, is the index representing the ratio of overbought or oversold share prices.
In general, over 70 in RSI shows overbought share price range, while below 30 shows oversold share price range.
RSI=averaged share price appreciation for N days÷(averaged share price appreciation for N days
+averaged share price decline for N days) x100

This Memo is for reference purposes only and is not intended as a solicitation for investment. The contents contained herein areprepared based on reliable
information that already exists in the public domain. The Company, however, does not guarantee complete accuracy. Any pinionrinformation contatined in the
Memo is relevant as of the day of the Information Meeting and/or Company Visit, although the views and/or facts may be altered without prior notification.
Final investment decisions shall be made by investors themselves based solely on their own judgment and responsivility.
Copyright © 2013

Trias Corporation

All rights reserved.

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