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/Administrative
Headquarters
SMBC Nikko Securities Inc.

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

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Presentation
Moderator: Good morning. I would like to begin the financial results briefing for the first quarter announced
yesterday.
First, Mr. Uetadani, President and Representative Director, will present the material in the handouts, andthen you can ask questions. I would like to answer your questions with the help of Mr.Oishi,Director who
has administrative headquarter in charge.
Please proceed, President.
Uetadani: Good morning. The overview will be explained as per this handout. If you have any detailed
questions, such as questions about individual brands, please wait until the question-and-answer session.

This is a two-page summary of overall profit and loss. The figures on the right-hand side of the table are acomparison with last year. Sales are up 9.4% and gross profit is up 10.9%. Operating income rose 72%.
Recurring profit rose 47%. Net income for the quarter was 427% of last year’s figure. This is a significant
increase in both sales and profits.
As stated in the Nihon Keizai Shinbun this morning, Ueno Shokai has made a major contribution to
consolidation this fiscal year. Thanks to these efforts, sales have risen. If we exclude sales from Ueno Shokai,

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sales declined by 3%, but with a 69% increase in operating profit. Ueno Shokai is also strong in theouterwear business, which is relatively weighted toward the second half of the fiscal year. Even excluding
Ueno Shokai, profits have increased significantly.
I’d like to add something about this page. The number of the increase of amortization of goodwill in midterm SG&A expenses mainly causes goodwill amortization of Ueno Shokai.
Moving on to extraordinary income. There is a big increase here. This includes the Callaway Apparel golf
deal that we announced the other day. After reaching an agreement with Callaway Golf Company, we wereable to develop the joint venture sufficiently. We sold the joint venture and generated a gain of about 1
billion yen on that sale.

The above is an overview of overall profit and loss.
I'll present this by brand. There are also quite a few brands and businesses that have been withdrawn, andI’ll explain a little about them separately.
In order of sales, highest first. Our top 10 is from nano·universe in first to HUF in 10th. The biggest moverfrom last time is AVIREX, in fifth. It’s Ueno Shokai's largest brand. It’s a military-style brand, but it’s included
here.
In the top 10 overall, sales are up about 10%. The gross profit margin improved by 1.1 percentage points.
Sales grew and gross profit grew further. The top 10 brands, as well as other brands, are included in thistotal. Despite sales growth, the gross profit margin is declining.
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In addition to AVIREX, the Ueno Shokai military brand I mentioned, about half of our business has a so-called
select shop format. In these specialty shops, we buy about 70% of the products from around the world andsell them after merchandising them properly. As procurement is of course the main focus, structurally thegross profit will not rise that high.
As a result, the gross profit margin of these other brands appears to be declining, and the majority of this isdue to the addition of Ueno Shokai's select store format. This business also contributed to net sales andprofits, so I think it is a very good business. It can be tough to reach conclusions from the gross profit figurein this kind of business. We are not particularly concerned about this, because there haven’t been any
unusual events causing a decline in gross profit.
Under this system, there are continuing brands and closed brands. Continuing brands are those that
continue from the previous fiscal year to the current fiscal year. As I announced, the big news in closed
brands was Tsubomi, which suffered a large deficit in China last year. This was successfully sold to a Chinesecompany. In addition, two brands that were withdrawn from the former Tokyo Style were excluded fromthe list. The remaining brands saw sales increase by 15.7%, and the gross margin seems to be declining
slightly. I don't think this will have a significant impact on our business.
Outside the top 10, total sales increased 9.4% and gross margin improved 0.8 percentage points. I believethat the first quarter has been on track, including the gross profit situation.
As an outline of the top 10 brands, gross profit has improved in general. Of these, the two brands withnegative gross profit were nano·universe and the eighth-place HUMAN WOMAN. As for nano·universe, bothsales and profits have been rising, so there is a clear profit contribution. One issue is that a portion of a costthat had to be recorded in the previous fiscal year has been incorporated into the current fiscal year, which
has had an impact of approximately 1 percentage point.
In addition, there has been some increase in inventory in nano·universe. Our method of accounting is towrite down inventory in the first quarter and recover the cost when the second quarter's sales have been
properly digested. Inventory write-downs have increased slightly.
Neither sales nor absolute gross profit is growing. The main reason for this was a small increase in inventoryof women's clothes, which grew very fast in the second half of last year.
Last year – and this wasn’t limited to nano·universe – the weather suddenly turned hot, and only summer
items sold. This left a big stock of spring items that we struggled to deal with. This year is the opposite.
Spring items are selling very well. However, because the temperature has not risen, summer inventory hasremained somewhat. That has led to an increase in inventory.
The current situation isn’t one where there are a lot of so-called spring coats still in the inventory and we’re
not sure what to do with them. The current inventory is summer clothes. I think the important thing going
forward will be timing: selling the products in-season. It’s difficult to predict, but I think there will be a coolsummer. Other factors are at play too. I think we’ll have to stay sharp in the second quarter, as summer
products are the main component of inventory. Currently, there are no serious concerns.
And while sales from the eighth-place HUMAN WOMAN have fallen by a few percentage points and thegross profit margin has declined slightly, we also appreciate that the current situation is extremely sound.
Last year, we celebrated the brand’s 20th anniversary, and both sales and profits grew significantly,
contributing to our excellent results. Seen in that context, this year’s results are understandable. Somemarkers have fallen slightly compared to last year's good results, but this is not a situation to worry about.
We are selling well, including our regional stores, so I think there is no particular problem.

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In other brands, things were a bit tougher than last year for second-place NATURAL BEAUTY BASIC. We havefocused on enhancing the MD system to sell products that can sell well rather than on raw sales. Despite aslight decline in sales, gross profit is stable and inventory has been kept low. If we look at the inventory level,
it is around 70% of the level of the previous year, so I think there is no particular problem. Compared to lastyear, sales are 98%, but gross profit is 102% and operating profit is 108%. I understand that this has almost
recovered.
In addition, although sales in MARGARET HOWELL appear to be declining slightly, sales in the first quarter
declined slightly, due to halting orders from some of our suppliers. During the first half of the fiscal year, I
think the balance sheet will remain healthy, and performance will compare well with last year.
Fourth-place PEARLY GATES is selling very well this year, on its 30th anniversary. Our traditional products
are selling well, and both unit prices and customer numbers are rising.
AVIREX was established as a brand this year. All employees, including the President, have been able to serve
customers on the sales floor at any time. In that sense, it is a company that is very strong in the field. We
now see this as a stable business.
Last year, ROSE BUD was undergoing significant structural reforms, but the reason for the decline is that weclosed unprofitable stores and relocated them. The current situation is that we are steadily recovering. The
gross profit margin improved 3.7 percentage points, and current inventory is 68% of what it was last year.
Therefore, while there are still some areas that cannot be predicted, we will almost certainly return toprofitability this fiscal year. Profits are also rising steadily.
Then seventh-place STUSSY. Last year, there were changes in U.S. policy, and it was difficult to make auniquely Japanese project. As a result of the elimination of the distinctive Japanese lines that had beendeveloped, such as Kids, we have fallen far below last year's levels. In the first half of the year, it has almost
resolved, and it seems things will return to normal conditions. As predicted, there’s been a fall in sales,
which we’ve been working on. This is also on-track: there is gross profit without a reliance on clearance
sales.
I talked about HUMAN WOMAN earlier, so I’ll move on.
Next is UNDEFEATED. This is a brand centered on sneakers. Sales and gross profit also improved, as theCompany steadily opened new stores. The reason why sales are improving is that sales of limited-edition
sneakers, such as Nike and Adidas, jump. This is a purchased product, and the sneakers themselves are nothigh-margin products. The reason why gross-profits is improving is that share of apparel items of
UNDEFEATED, of course, is just the brand, is rising..
Lastly, HUF. This is a U.S.-based business. This is a deliberate strategic shift that is causing sales to decline. In
the U.S., we will move away from wholesalers that sell to mass retailers and switch to directly managed
stores, with the key point being to become a brand-first business. These results have the effect of curbing
reliance on wholesalers.
We’re reducing the number of wholesalers and increasing the number of directly managed stores. Our
business in Japan is growing steadily. Domestic sales grew approximately 50% compared with the previous
fiscal year. As a result, the gross profit margin improved. The first quarter is on track. However, the U.S.based HUF itself has not completely switched to a directly managed business, and it is still heavily weighted
towards the wholesale business. As a result, we may not be able to control fluctuations in sales. I’m paying
close attention to this. The rebranding itself is proceeding steadily.
The overview of the results is as follows.
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Please see the next page and the fifth page for the comparison of sales at existing stores and all stores. We
are undertaking big changes, moving along with the overall trends of the industry, I think. Blue is existing
stores; red is all stores.

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Page six above shows performance by sales channel, and this is a trend that has continued. The department
store channel has seen decreased sales and, as a result, e-commerce and other sales channels increasing.
A number of department store brands were withdrawn last year. This is almost the end of the reduction.
Actually, the decline in the proportion of department store sales is largely due to the large increase in thenumber of brands such as Ueno Shokai that do not sell in department stores at all.
E-commerce is rising, making up 18.5% of the total. When we made a report at the time of theannouncement of the fourth quarter of the previous fiscal year, we explained that e-commerce accounted
for more than 20% of the total. Every year, the first quarter has a lower proportion of e-commerce. The
number of customers who purchase at stores tends to be high, affecting the proportion of e-commerce, but
it is increasing compared to the previous year. The figure for e-commerce sales itself is growing steadily.
Overseas sales have declined. This is the effect of withdrawing from Tsubomi. Despite the losses, sales werelarge. It's a big impact. Overseas, we are steadily advancing our policy of investing in the long-term growthof digital and overseas businesses as part of our medium-term plan. I don't believe that overseas markets
have come to an end for us.
Next is in-house e-commerce, which is often asked about. There has been growth here.
Moderator: In-house e-commerce sales are up 11.7%. For third-party e-commerce, it’s 20%. Both figures
showed a double-digit increase.

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Uetadani Today, the Company's own EC ratio is 27.1%. However, with the exception of nano·universe,
which has a high ratio of third-party e-commerce sales, about 35% of our e-commerce business is currently
conducted by our own e-commerce companies.

The next page includes store numbers.
This concludes the presentation based on the presentation materials.

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