TSI HOLDINGS CO., LTD.
1Q Financial Results Briefing for the Fiscal Year Ended February
2020
July 4, 2019

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

[Event Type]Earnings Announcement[Event Name]

1Q Financial Results Briefing for the Fiscal Year Ended February 2020

[Fiscal Period]

FY2019 Q1[Date]

July 4, 2019

[Number of Pages]

14[Time]

10:00 – 10:38(Total: 38 minutes, Presentation: 20 minutes, Q&A: 18 minutes)[Venue]Aoyama Building, 6F
1-2-3 Kita-Aoyama, Minato-ku, Tokyo, 107-0061[Venue Size]

100 m2[Participants]

70[Number of Speakers]

4
Shinichi Uetadani
Masaaki Oishi
in charge
Mitsuru Naito
Kohei Yamada[Analyst Names]*Kuni Kanamori

President and CEO
Director who has administrative headquarter
Manager of Finance and Accounting Division
Manager Corporate Communications &Investor Relations Office/AdministrativeHeadquarters
SMBC Nikko Securities Inc.

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A.

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1Question & Answer

Moderator: Thank you very much. We just announced our medium-term plan 3 months ago, so weexplained that this time we are focusing on our performance over the past 3 months. I would also like toanswer questions about the progress of the medium-term management plan. Please ask any questions youhave.
Kitagawa: Kitagawa of the Senken Shinbun. Thank you very much.
Having a global presence is a priority investment area. What concrete plans are there in this area?
Uetadani: There are several things. One is considering the development of HUF in China. However, as aresult of selling the Beijing Tsubomi subsidiary, I felt that if we wanted to do business in China, we would
have to form a firm partnership. We are currently in discussions with several potential partners. We are
currently in discussions with which partners will be deployed and in which area. So, this has not been
completed yet. No figures are available, but this is one area where we are proceeding.
Then, as I said before, MARGARET HOWELL. This has gone from the United Kingdom to the United States,and has been wholesale-only. We’re going to open a directly managed store and brand it in the U.S.A. andexpand it a little more than that in the U.S.A. The British team has been visiting New York, looking for apotential store for a long time. However, land prices have soared too high, and we are carefully looking forlocations for new store openings.
Therefore, HUF and MARGARET HOWELL, both of which are based in other countries, are steadily
developing their businesses, as I mentioned last time.
In addition, there’s the Company's Apuweiser-riche brand, which was launched last year mainly through ecommerce. It’s been rolling out in T-Mall. So, we’re researching the Chinese market a little bit now. We havesome sales here. We are still moving closer to test marketing. We’re looking at a variety of things, such assize.
In addition, there are several other potential partner companies that we have, particularly women's brands
or select businesses in China. We have been discussing this issue since last year. I don't want to fail, so I'mlooking for a good partner. When I come to talk about it, I must go to the local area to see if I can dobusiness with their factories, stores, and management styles, to see if the elements to do business are there.
Can they take care of the brand? There are some areas where we have expanded the number of stores andthey slashed the prices. I am working on these issues.
However, as you know, the Chinese market is now extremely cold. Some of them are now a bit cautious. I
am doing this carefully. We are also considering brands other than HUF and MARGARET HOWELL, and are
advancing discussions with candidates for concrete partners.
Another is PEARLY GATES. This is our top golf brand. This business is already underway in South Korea, and isestimated to be worth around 10 billion yen on a local retail basis. It's a good scale. We’re working with apartner company, so Korea is very successful. In order to bring this to the U.S., we have begun to participate
in exhibitions. This will start at the beginning of this year.

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There are other ways of entering a new market. We’re considering several options, with a plan to buy acompany with a local distribution network, or find an agent, and try to work in partnership with that agent. I
don't think it's easy to do this by ourselves. Both of these proposals are now under consideration.
Largely speaking, this is the state of affairs in overseas markets.
Moderator: Thank you very much. So, if you have any other questions, please.
Kanamori: SMBC Nikko Securities Co., Ltd. My name is Kanamori. I'd like to ask you three points, basically,about the numbers.
First of all, is this better or worse than your projections for the first quarter? Your company sees big
movements in profits in the first and second quarters. Please tell me first about this.
The second question concerns the inventory. I think it is growing. Isn't this bad for this second quarter?
Please confirm the background and details about this increase in inventory.
Third, what is your current status of SG&A expenses? I can't see the actual state of selling, general andadministrative expenses. Excluding special factors, additions, and departures, the growth in SG&A expenses
is currently low relative to sales growth. Why is this? Or I think that the focus of growth is moving. Is theCompany entering a stage where the growth of SG&A expenses will accompany the growth in sales?
Uetadani: The results are pretty much as we expected. Naturally, we were expecting the contribution of
Ueno Shokai, and we were expecting gross profit to improve due to the absence of business withdrawals.
In contrast, the remaining businesses are not as wonderful, as I mentioned earlier. I feel that we are only
just where we want to be in our current fiscal year's sales and profit growth plans. Almost on-track.
As you pointed out, We can know about performance at the end of the second quarter because theinventory is accumulated by valuation loss. As for the outlook up to the second quarter, I think we’ll be able
to meet our expectations on a roughly profit basis at the moment.
The sale of Beijing Tsubomi has sold as planned. Until this was done, the cash outflow would have continued
to accumulate a deficit all the time. There's no big bomb there now. The store situation in June seemed tobe quite straightforward. So whether we can achieve our projections for the second quarter or not depends
on whether we will be able to properly switch products on sale basis to ones on a proper basis in July andAugust. So far, I think in that sense, whether it’s good or bad, it is on-track. It looks very good in comparison
with last year, but that doesn’t mean I am overly optimistic.
Then there’s the inventory. Actually, as I mentioned earlier, the total inventory was about 112% of last year.
Moderator: Consolidated data is around 119%.
Uetadani: Excuse me. It is growing a little. Most of it is nano·universe. The fact is that the women’s
inventory in nano·universe has increased considerably.
As mentioned earlier, there is a tendency for inventory to be relatively large, because when you step on thegas a bit, the inventory suddenly jumps a lot. In the case of nano·universe, this is particularly good. As I said,
summer inventory is the main item. So far, I'm looking at how well we can move stock.
In the case of nano·universe, it’s heavily weighted towards the so-called outlet segment. We say that theentire brand and the entire group are pro and premium. Nano·universe is a relatively mass-market brand. InSupport
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3that sense, the sales channel should be quite typical. Of course, we don't allow any predictions at all. I’m still
thinking about reducing the inventory.
TSI Groove & Sports, which has PEARLY GATES and other assets, has more in inventory than expected. We’reexpecting growth in PEARLY GATES, so the Company has a large inventory to support that. Their sales aregood. Inventory is not as large as nano·universe, but it is somewhat increased.
So then, what caused the increase? Jack, a street-wear company that is developing STUSSY and HUF, haslaunched its own shoe brand, Herschel, resulting in a slight increase in its inventory. This is an unavoidable
situation because it is a new business.
The big thing is nano·universe, and women's summer products. I hope we can reduce the inventory.
Finally, SG&A expenses.
Oishi: SG&A expenses are roughly in line with expectations. I don't feel that they are affected by thewithdrawn companies or the emerging companies.
For most of the year, the ratio of SG&A expenses to sales has been 52% to 53%. The ratio in the first quarter
will be very high. This is currently 52.9%, so I believe that this will decline a little further.
For this reason, we have unified the rules for the use of selling, general and administrative expenses,
particularly expenses, throughout the Company. For example, for Ueno Shokai, which has newly entered thegroup, the economies of scale discount is obtained by unifying the insurance costs and so-called
infrastructure costs, vendors, and business partners. This is the case. I believe that there will be no majorchanges in the Company.
Uetadani: Excluding Ueno Shokai, SG&A expenses were 95.6% of the previous year's level, so there was noincrease in SG&A expenses.
Excluding Ueno Shokai and excluding withdrawn businesses, gross profit is growing, relative to sales.
Excluding Ueno Shokai, selling, general and administrative expenses are declining. SG&A expenses do notswell in proportion, except for the impact of the withdrawn businesses.
Moderator: Current figures include not only Ueno Shokai, but also Beijing Tsubomi in the previous year, andcomparing organically, are 95.6% of last year’s figures.
So, if you have any other questions, please.
Hanai: Mr. Hanai, Nihon Keizai Shinbun. Thank you very much.
Please tell us about the number of stores. Domestically, the number of stores opened and closed is higher
than the number of stores opened. Could you tell us the brands that opened and closed many stores, andthe brands that closed many stores? How does this compare to overseas businesses?
I believe you explained about HUF. Is that the main brand? Could you tell me about that?
Moderator: I will answer this question. The Company opened 19 stores and closed 7 stores in Japan.
Changes are shown in the table in the handout.
HUF saw the most activity in this fiscal year. We have opened three HUF and Herschel stores in the last
three months and three UNDEFEATED stores. I feel that there will be one or two more stores opened at atime. We will not open 10 stores, at once for a single brand as was done before.
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Excluding the impact of the transfer of 50 stores to Beijing Tsubomi, March to May is typically when newstores open, and few stores close, so I hope you will appreciate this.
Moderator: I would like to conclude the financial results briefing. Thank you very much today.
Uetadani: Thank you very much. [END]______________
Document Notes
1.
2.

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Portions of the document where the audio is unclear are marked as follows: [Inaudible].
This document has been translated by SCRIPTS Asia.

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