J. Front Retailing
Q & A summary at results presentation
for the fiscal year ended February 28, 2019
Date and time: 16:30 – 18:00 on Tuesday, April 9, 2019
【Overall business】
Q: Could you tell me why you expect business profit for the current year to slightly
decline in 1H and increase by 20% in 2H? There seems to be a clue in SGA on page
26 of the results presentation materials. What costs will come to an end in 2H, andconversely, what costs will remain in 1H?
A: The Department Store Business has many cost increase factors in 1H. Operational costs
will increase due to replacement of POS systems and we will incur extra depreciation of
the north wing of the Shinsaibashi store. In the meantime, the new main building of theShinsaibashi store will open late September and operating income will increase more in2H.
Concerning other businesses, Daimaru Kogyo expects effect of strengthening of ordertaking system in 2H. The design and construction contracting business will have profit
increase factors mainly in 2H because it will report construction sales related to the newmain building of the Shinsaibashi store in 2H.
Q: Is only the design and construction contracting business under upward pressure
on costs such as labor shortage and rising material costs as described on page21? Or are the core businesses including the Department Store Business, the Realestate Business, and the Parco Business also in such upward phase?
A: Upward cost pressure is not just limited to the design and construction contractingbusiness. The Department Store Business also faces continuing price rises. We estimate
YoY increase factors of about ¥2 billion including home delivery costs, fuel costs, andutility costs in FY2018. We expect similar cost-push factors of around ¥1.5 billion inFY2019. We face unprecedented upward cost pressure.
【Department Store Business】
Q: SGA seems to remain at quite high levels in 2H of the previous year and 1H of thisyear. Can I expect this SGA to decline in this 2H and next year? In seeing yourgrowth, profit increase effect is important and are costs expected not to decline somuch?
A: It is true that upward cost pressure is increasing. In the meantime, as a matter of course,1

we will continue efforts to reduce costs. We strive to overhaul personnel structure andoptimize costs in the plan for the current fiscal year. For example, with regard to the newmain building of the Shinsaibashi store, we are planning to decrease about 250 posts. We
will curb persistent increase in labor costs. Personnel expenses will decrease throughthese efforts. As for ad expenses, we will spend aggressive costs for promotion for new
openings and new loyalty point programs while reviewing and streamlining existing
advertisement. With these combined efforts, we will keep balance. In that sense, we will
infinitely strive to reduce costs.
SGA of the Department Store Business excluding effect of application of IFRS16 isexpected to increase by ¥0.8 billion in FY2019. Though there are some cost increase
factors, we are planning to reduce personnel expenses by ¥1 billion. Our policy that theentire Group will absorb cost increase factors, if any, or strive to reduce costs in all areas
without exceptions.
【Parco Business】
Q: How did or will compensation income from the redevelopment of Shibuya increasein the previous year and the current year? Will it change after opening Shibuya
Parco?
A: Shibuya Parco receives compensation for the redevelopment project and it will open infall 2019 after receiving compensation according to the closing period. We received
compensation in the previous year and the amount to be received in the current year issmaller compared to the previous year.
We will receive compensation for real estate transaction associated with redevelopment
when the development is advanced in FY2019.
Q: We understand that concerning San-A Urasoe West Coast Parco City, which will
open in summer 2019, Parco is positioned to plan and operate the store. Parco has
49% ownership, which is not so large. Could you tell me about its income/revenue
structure and impacts of opening costs?
A: Parco will receive 49% of profit after tax of San-A Parco, which is the same as its
ownership percentage, as a separate item under operating profit. Dividend payment will
start next fiscal year when performance for the current year is recognized. Its effect on
operating profit is a small portion of license fee.
【Other businesses】
Q: Profits of J. Front Design & Construction and Daimaru Kogyo were far below their2initial plans and had a significant negative impact on consolidated businessperformance. All companies are forecast to increase business profit in theguidance for the current fiscal year. In the past, however, there were many cases
where your forecasts were not achieved. Therefore, I would like to confirm with you
whether these goals can be achieved. If not achieved, what will you do?
A: We assumed that we would definitely have a market for construction and interior
decoration works including those for the Olympics. We drew up a budget last year
factoring in already decided orders and additional orders. However, we could not record
some due to late completion of construction and we could not achieve initially expected
profit margins due to soaring labor costs and material costs. In light of these factors, I
think we have developed a fairly accurate budget. As for the design and construction
contracting business for the current year, orders of approximately ¥15 billion associatedwith the new main building of the Daimaru Shinsaibashi store have been determined. Inaddition, an order for hotel interior work has been determined. Accordingly I think we havebudgeted with great accuracy.
Daimaru Kogyo improved performance two years ago because they received manyorders for electronic devices and vehicle-related products. However, their results for theprevious fiscal year fell far below the plan due to fewer orders for electronic devices
because of fiercer competition and lower margins. Since the top management changed
and they strive to strengthen their order receiving system, we recognize they will be able
to achieve the plan.
In the meantime, as a matter of course, we will organize a system in which otheroperating companies compensate when the demand forecast changes.
【Overall Medium-term Business Plan】
Q: According to the composition of operating profit for each fiscal year during theperiod of the Medium-term Business Plan on page 29 of the presentation materials,
the “Credit and Finance and Other” are planned to significantly grow. I think thesesegments’ profit share will also grow, and as a matter of course, the actual profit
amount is expected to also increase. Could you explain about to what extent it isbuilt up as a business model and how probable it is at this point?
A: Actual operating profit of the “Credit and Finance and Other” for FY2021 in the chart will
be around ¥10 billion, comprising existing businesses of ¥ 8 billion and new businesses of¥2 billion. ¥8 billion will be generated by existing major businesses including the Credit
and Finance Business, the staffing service business, and the design and construction
contracting business. Since it is difficult to expect new businesses to contribute greatly, I3

think how existing businesses will generate ¥8 billion will be the key.
The businesses we would like to greatly grow include the Credit and Finance Business,the staffing service business, and the design and construction contracting business. We
position these businesses, which have high market potential, as ”three key businesses”
and we will focus our personnel allocation as well as investment on them as one of thestrategies in the current Medium-term Business Plan.
The important tasks of the Credit and Finance Business include reduction of operation
costs, merchant acquiring to earn more commissions, review of outsourcing contracts toreduce costs, and issue of new cards to increase cardholders.
The purchase record of the holders of the cards issued by the company indicates thatthe usage rates of those in their 50s and older are very high but that the usage rates of
those in their 30s and 40s are getting lower. In the meantime, the company is affiliatedwith Rakuten Card and posted sales of about ¥12 billion, of which 77% were generated by
the holders in their 20s to 40s. Based on these current conditions, by issuing new
attractive cards as the Group, we would like to attract customers in their 20s and 30s. Thisis the direction of our card strategy.
The staffing service business has been based on the Kansai region but currently there
is a great need mainly in the Tokyo area. Therefore the first key is to strengthen thestaffing service business in the Tokyo area. The second is to employ foreign people. With
increasing inbound tourists, labor supply of foreign workers including interpreters forms agreat market. The third is to expand recruitment instead of the past core temporary
staffing service. These markets are expanding and we strive to reinforce the business.
There is a fairly large market for the design and construction contracting business.
However, we face issues including recruitment, rising labor costs, and soaring materialcosts. If we can control these issues severely and select orders successfully, I think wewill be able to operate the business at a stable profit level. Particularly, the company isstrong in high quality interior works and we have a good chance to expand the market. We
would like to expand the market by strengthening human resources.
Q: According to the chart of business profit in the Medium-term Plan on page 30, youseem to expect business profit to increase by around 20% in FY2020. Opening ofthe new main building of the Shinsaibashi store and Shibuya Parco may almost
explain it. However, if other factors including cost reduction effects due to newsystems and other reasons are expected to appear in FY2020, I would like to know.
A: In FY2020, the new main building of the Shinsaibashi store will start full operation andgreatly contribute to profits. Sales to inbound tourists still have great potential to grow.
4Concerning gaisho business mainly for affluent people, I believe consumption of productsthat have high asset value has enough room for growth.
There are some new development projects in the Real Estate Business and they willgenerate revenue. In the Parco Business, Shibuya Parco will start full operation inFY2020. In addition, Kinshicho Parco, which opened in March 2019, and San-A UrasoeWest Coast Parco, which will open this summer, will also generate revenue. I think theentertainment business, which struggled, will increase revenue partly due to opening oftheater in Shibuya Parco and increase in young customers. We would like to put theCredit and Finance Business on a track to recovery in FY2020. We would also like tomake the design and construction contracting business and the staffing service businesssteadily profitable. With these efforts, I think we will be able to steadily step up toward thegoal for FY2021.
Q: Concerning streamlining of existing businesses using RPA, actually how muchcost is reduced? And how much effect will appear during the remaining period of
the Medium-term Plan? I would like to know about your projections about them.
A: We began to use RPA three years ago and the Group has a shared service company that
undertakes back-office services for Daimaru Matsuzakaya Department Stores andassociated operating companies. Simple tabulations are almost made by RPA. Initially weasked vendors to introduce RPA and provide guidance. Currently, however, we havefound out that we can do this by ourselves within the Group. Accordingly our employees
operate robot technologies and strive to use RPA for all operations. We would like tospread RPA to sales locations of gaisho business and department stores to streamline
operations. In the meantime, cost reduction figures generated by RPA are person-hours
and it is difficult to reflect them in cost reduction efforts. However, we strive to increase
profitability and streamline human resources by taking on many back-office services fromassociated operating companies.
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