TSI HOLDINGS CO., LTD.
Q1 Financial Results Briefing for the Fiscal Year Ending February 2021
July 3, 2020

Event Summary[Company Name]TSI HOLDINGS CO., LTD.

[Event Type]Earnings Announcement[Event Name]

Q1 Financial Results Briefing for the Fiscal Year Ending February 2021

[Fiscal Period]

FY2020 Q1[Date]

July 3, 2020

[Number of Pages]

14[Time]

10:00 – 11:10(Total: 70 minutes, Presentation: 30 minutes, Q&A: 40 minutes)[Venue]Webcast[Venue Size][Participants]

64[Number of Speakers]

1
Shinichi Uetadani

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Presentation
Moderator: Good morning. Thank you for taking time despite your busy schedule today.
We will begin our financial results briefing for Q1, which we announced yesterday. First, we will give you apresentation from our President, Mr. Uetadani, for about 25 minutes, and then we will proceed to thequestion and answer session.
So, first of all, please listen to the explanation from President Uetadani.

Uetadani: Good morning. I'm very sorry to have kept you waiting for 10 minutes due to our mistake. Now, I
would like to start the explanation in the live so as not to run overtime.
First of all, regarding the response to COVID-19. As you can see on the screen, we have basically closed ourstores in response to requests from the government and local governments. More than half of the employees
raised concerns. So we should issue the policy quickly not to make our stores or subsidiaries be anxious.
At the same time, as stated at the bottom of this section, we declared that we would compensate all
employees for their special leave, or so-called compensation for holidays, before closing our stores. As a result,when the store resumed operations, I think it would have been good for everyone to smoothly return to thestore.

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The following is an overview of profit and loss. As can be seen here, we would like to see the YoY rate ofchange in net sales on the right-hand side, which is almost half, at 50.6%, compared to the previous fiscal year.

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The breakdown is described on the following page.
This is by channel, and the top row is department stores, followed by commercial facilities, as we say, thestation buildings, and then the roadside stores. I would like to see this YoY change, the third column from theright. Department stores and commercial facilities account for nearly 30%. It may seem that the composition
ratio is much lower than other companies in the industry, but basically, our brand composition is fairly urbanoriented, and many brands in Tokyo, which was the slowest to cancel the emergency declaration, haveresulted in a decline in sales. I think this cannot be helped.
This is e-commerce under it. This is a breakdown, in-house websites, others, and third parties. Here it is
written as total EC, e-commerce. E-commerce increased by 15.5%. While it can be said that growth has beensmooth, it may seem that the growth has not been even more moderate. Dividing these websites into ourown sites and others, our own websites increased by 70.7%, while third-party e-commerce malls did not growand amounted to 95.0% of the previous fiscal year. This is because we have been focusing considerably on
our own websites since last year, and in this period, many e-commerce malls have been more focused on
bargain sales. We are also conducting sales to consume our inventory, but because we were not going to do
any excessive discounts or excessive sales during this period, we didn't see much growth during this period.
Instead, at the present time, customers made purchases on our own websites, and the figures may seem to
be moderate, but we think this would have been good for the Group as a whole. The result was 50.6%.
Returning to the previous page, sales were 50.6% due to this, but the gross profit below that figure was 36.8%,
which fell more than sales. This was because of the previous infection in China. First, spring products producedin China were delayed. By the time they came in, Japan became self-restraining mode, and more and more
stores were closed. As a result, the sales period for Spring products became very short.

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It seems to be inconsistent with the fact that we didn't offer any excessive discounts in the e-commerce I justmentioned, but we naturally do not keep our inventory in stock, and the warehouse nearly exceeds thecapacity. Therefore, in the ordinary year, we will give almost no discounts in this period, but this year we give
discounts. The result is that the gross profit was worse than the sales, depending on the brand.
Although SG&A expenses were 68.3% and variable costs were kept down, fixed costs remained. As a result, it
was 68%, which was not proportional to sales.
Of course, the declines were in advertising expenses, travel expenses, and sales-linked rent and commission
for the sale. These were kept down.
In addition to this, compensation for absence from work and compensation for the entire amount of lost work
for all employees have been made before, and any reduction or waiver of rent has been allocated to someextraordinary losses.
As a result, SG&A expenses amounted to 68%, and we regret that operating income was JPY1.9 billion lastyear, but this fiscal year we recorded a negative operating loss of JPY6.4 billion. I am very sorry.
Ordinary income was also similar at negative JPY6.1 billion, resulting in an enormous loss of approximately
JPY10 billion with the addition of an extraordinary loss of approximately JPY3.3 billion due to the temporary
suspension of operations and other extraordinary losses mentioned earlier. I'm really sorry.
So far, it is about the current situation in Q1, and I would also like to talk about what we have to do during
this period and at the same time from now on.

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We divide what we are doing into five categories: A, B, C, D, and E, and draw up the fields in which we areworking. The top row is for sales, middle for gross profit, bottom for operating profit, and SG&A expenses.
The left side is something that we will conduct during the first half of the year. I believe that we must take thisopportunity in the second half of the fiscal year on the right, and in some cases throughout the next fiscal
year.
The first thing we did was to make a plan for cutting SG&A costs mentioned in A. Due to COVID-19, in the firsthalf of the year, of course, we planned to be in red. We had already imagined at the beginning of the springthat the second half would not be able to return easily. Therefore, we have been working to reduce the breakeven point by reducing JPY4 billion for the entire year, centering on fixed costs for all operating companies,
holdings, and functional companies. Before Golden Week holidays, we are working on the goal of reducing
the break-even point.
In the first half of the fiscal year, there are many items that will not be completed in time, but from the second
half of the fiscal year this will not be around JPY4 billion, of course, but it will be effective. We began to do
this.
Now, it is a reduction in purchasing. Of course, we have not made any complaints to our business partners,
such as our unnecessary cancellations, so as far as we are able to do so, but especially in the latter half of the
fiscal year, we have restrained our purchasing to 70% in principle. There are some brands that are in time,some are not in time, and there are many brands that can be carried over to the next season or Spring, andsome brands that are not used well. We have managed to hold down the purchase of 70% in total.
However, the situation varies depending on the brands, for example, our sports and golf businesses are nearly
returning, so we are selectively controlling the procurement of these brands by returning them to 80%, 90%,
and 100%. Since this is an emergency situation, we reduced purchasing a little throughout the Company andthe purchase of only some brand return to the normal level, if possible. In this way, we first did this A and B.
On that basis, we are currently in the process of formulating a new medium-term plan. Our original strategy,
namely, full-price sales and brand enhancement, digitization, and overseas operations, remains unchanged.
However, we are significantly changing our expectations. We are aiming to a business that decreases sales
and increases profits, rather than increasing sales and profits, by focusing our investments on businesses
intensively in order to increase profits. This is not an environment in which unnecessary goods are made or
unnecessary store openings are made.
Therefore, we have switched to a policy of not pursuing scale, even though we make profits. We have beendrafting this plan urgently, and we would like to announce it in some way during the first half of the fiscal year.
D and E on the right are the parts corresponding to the outline of this plan. First of all, we intend to promote
digitization in earnest. Not in the near future, but in a very short period of time, about half of the sales,
including 50% digitization, e-commerce, and omni-commerce, will come back and forth with digital.
We have been making a ratio of proper price sales our most important KPI since the past, and we are aimingthat it will be over 80%, and it means we will make only products that can be sold at a regular cost. In this way,
we aim to achieve significant digitalization by switching from production to sales.
In order to achieve this, indirect departments must be small so that their operations will work. For this reason,
we intend to carry out organizational structural reforms quite boldly. This is not only a matter of course, but
we will review the current system of a wholly owned spin-off company on a zero basis, such as integrating
existing organizations or separately assigning functions that have been staggered across the group, and also
we will consider the contents.

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As many companies say, this time's telework has resulted in a considerable amount of wasteful work in our
Company, and we are trying to use this time to promote digitization, not only in management and indirect
work, but also in the work of designing our clothes and creating patterns, so-called "DX." We are currently
working to create a workflow that advances digitization and standardization, and really specializes only increative work, and to achieve this on a zero-based basis without sanctuary, including corporate restructuringaccording to the organization.
We will formulate and announce a medium-term plan based on these results during the first half of the fiscal
year. I wasn't just waiting, but I'm preparing for it during this period.

I would like to introduce some of the specific measures that have already been taken.
At the beginning of the fiscal year, regardless of whether or not there is a shock to COVID-19, our businessstructure is close to the two points described above. We will carefully select businesses that will survive in the
midst of digitalization and globalization, and invest in those businesses, keeping the high ratio of proper pricesales described above, and then revise our business structure on a zero basis as a result.
As for the two main points of organizational restructuring and reforming the earnings structure, I explained
this earlier. We have already formed a project team with a focus on our next generation, rather than our
existing generation, and have begun a zero-based design.
There are a number of things that have already been implemented and started at the present time by carefully
selecting businesses with future potential at the bottom point. We acquired shares in Efuego Corp. It's written
in the top circle, and it's a snowboard and skateboard e-commerce firm called Tactics, a digital native company
in the US. We acquired this company.

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7Skateboards, snowboards, and the communities surrounding these areas are built in digital spaces, and they
have been a very long-standing team that can capture customers and do business there. During the lockdown
in the US they have grown by more than 200%.
The first reason for acquiring this company is that there is a highly skilled digital team, so it's a global whole,including business in the US and Japan. This team is entrusted with our digital division, HUF, which now has
another major operation in the US, to the team of this Tactics company.
We cannot even begin to compare our company to Walmart, but Walmart bought an e-commerce firm called
Jet.com, and the team is now heading the whole of Walmart's digital, and the digital strategy is very successful.
I'm thinking about something similar to that.
This team has begun to lead our US digital marketing and now digitization. In the future, I would like to makeuse of them in other countries as well. One of these is the digital-related sector.
Next, the second ETRÉ TOKYO is the D2C brand. This brand isn't really a big one, but it's a D2C-style brand thatsells almost 100% of products that they make by communicating with their customers in full digital.
This team is also a very good team, and we intend to use this platform to expand the D2C-type business, notjust the brands they are doing, but also from now on. The contract has already been completed, and we arepreparing to take over the business in August.
Next, the golf business is performing well, there is a gear called PING, and we have started the apparel of the
US golf club brand.
Next, we began to digitize our salespeople and introduce tools for our salespeople to serve customers online.
The following pages describe this process in detail.
At the bottom, we decided to withdraw from the Natural Beauty department store brand, which has thelongest history and high name recognition.
At the same time, we have decided to withdraw from the Hong Kong business because we believe it is difficult
to continue to invest in the current situation, not just in COVID-19, but also in the issue with China as an
example. We are taking these actions one by one.

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8This page provides a brief explanation of the digital customer service.
As they have been introduced in the media, this is to allow the sales staff to provide services for e-commercecustomers in real time by using chat and other functions: “Please use this product when you are like this.” It
looks like this, but in fact, it is like this. This is a system where you can experience things like having a
conversation in a real shop digitally.
As it is still a little short, we need to verify the figures in the future, but as a result of doing this, conversion
rate, or purchase rate, that means the percentage of customers who come to see products and ultimately buy
them is 11.5%. In the conventional e-commerce, the rate was about 1%, which is more than 10 times higher
than the rate depending on the approach taken. It's a little short, so it really does not matter whether it goes
10 times, but today, as a feel, it's a result that customers can buy the product if we provide good customer
service on the digital.
Then, the unit price will not decline, and they will be able to buy the products as a set. Moreover, by doing
this with a real salesperson who is a professional in customer service, they themselves can become service
persons, where they are digital hybrids, and the essence is that they can become service persons.
This was first introduced by a cosmetics company called Laline JAPAN. In the future, we will expand this tool
to other apparel businesses such as PEARLY GATES and Margaret Howell.
This is a tool for in-store sales staff to engage in digital customer service. In addition to this, several brands
have begun introducing a different web customer service solution called "Sorairo," in which sales staff andformer sales personnel specialize in digital customer service while making the service a contact center.

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We will introduce a brand with contact centers centered on Sorairo and promote the digitalization of storesand sales during the fiscal year under review.

Next, we are forecasting for the current fiscal year. We were trying to get a full-year forecast, but we couldn't
get it out. I am very sorry. At present, we are reducing our procurement in the second half, reducing costs,
and preparing products with shorter lead times as flexibly as possible. However, we are first preparing aforecast for the first half of the fiscal year.
As stated here, we expect to post an operating loss of minus JPY13.5 billion and an enormous deficit.
As the assumptions are described here, we do not assume the second wave of COVID-19. We do not expect
to return to the original forecast, but we do not expect that something close to a complete lockdown will
occur at this time.
On that premise, it is likely to return to approximately 80% and 90% of sales, including the current status. In
the first half of the year, we assumed it on the premise after opening the stores.
The other is that the profit is largely diminished in Q1 of the fiscal year, but for our brands, especially thosewith a high customer profile and a strong brand power, customers can continue to buy them. Instead offorcing them to sell spring products that they have not been able to put in the stores, we sell them in autumn,
for example, if they can sell them in Autumn. Then, we plan to sell the items that can be put around next
Spring clearly by turning them around next Spring. These products will be written down in the current fiscal
year and carried over to the next season.
This is the reason why gross profit declined in Q1. However, for spring items that were not sold out during thefirst half, we once wrote down the value of those items that we carry over, and this has resulted in
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considerable damage to gross profit. This means that we will not postpone, so we have incorporated thisenormous amount into our plan for the first half of the fiscal year.
In addition, The Company has decided not to pay dividends or repurchase treasury stock for the current fiscal
year in the future. Globally as well, there are a number of organizations that have set out to forgo such a
policy, but we would like to forgo it as we have posted such a huge deficit only in the first half of the fiscal
year.
Even if the amount of funds deteriorates significantly from our current expectations, we still have sufficient
funds. We have secured a borrowing limit of JPY30 billion, in addition to the regular credit line, and we havesecured funds that will allow us to carry over even if there is a period in which we have almost no sales, so it
is safe to worry about this. We must keep a strict watch on it. Rather, during this period, we will focus on the
major transformation of our business structure into a digital format.
These are the forecasts for the first half of the fiscal year.

Lastly, I would like to talk about our CSR initiatives.
Of course, we are making every effort to avoid waste and to switch to materials that have a low environmental
impact, as we have already mentioned, but I would like to introduce some of the things we have done in thisfiscal year, particularly from this perspective.
One of them is disposable gowns for medical use. We are also talking to our Yonezawa and Miyazaki plants,
as well as the nearby cooperative factories we usually work with, and are planning to produce approximately
two million medical gowns by October.

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11Our plant employees are also very motivated to contribute to society, and their productivity is risingtremendously.
In this case, we received orders directly from Ministry of Economy, Trade and Industry and Ministry of Health,Labour and Welfare at an early stage, and this uses special materials. A factory management company called
TSI Sewing, which is purchased directly from a manufacturer of materials that normally has a transaction withus, has taken the form of delivering directly to the government. We are proud that since there is nointervention from various vendors, the prices are low and we can deliver the products speedily. We would
like to continue this as long as we have requests.
Please see the right side.
Through Japan Heart, a non-profit organization, we provided our clothing to healthcare professionals. It isnatural that they need gowns and uniforms for medical use, but we heard that anyone working in a high-risk
infection location must replace all clothing under the gown every day. This was very difficult. We would like
medical workers to wear their favorite clothes from their favorite brand in a comfortable way and to provide
them, and they are really pleased. I would like to continue these activities in the future.
Then the lower left is about masks. We produce and distribute fabric masks to our employees, suppliers, andlocal residents of our plants, including distribution centers.
In Laline JAPAN just described, we provide hand creams to medical workers. There is a variety of things that
we can do.
That is all for my explanation.

[END]______________
Document Notes
1.
2.

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