http://www.doshisha.co.jp/7483

Doshisha
Masayuki Nomura
President and COO, Doshisha Corporation

Increase profits by improving
gross profit margin◆Summary of 1H FY3/18 Consolidated Results
End of 2Q FY3/17
Consolidated(\ million)
ActualNet sales

Composition
ratio

End of 2Q FY3/18

ActualComposition
ratio

YoY

ChangeReference

Pct. Change

5/8/17
forecast

ChangePct. Change

50,921100.0%

50,426100.0%

(495)

-1.0%

52,500(2,073)-3.9%

Product Development
Model Business

23,49046.1%

23,935

47.5%

444

1.9%

25,500(1,564)-6.1%

WholesaleModel Business

25,912

50.9%

24,918

49.4%

(993)

-3.8%

25,350

(431)

-1.7%

Others

1,519

3.0%

1,572

3.1%

53

3.5%

1,650(77)-4.7%Gross profit

13,02325.6%

13,469

26.7%

446

3.4%

13,550

(80)

-0.6%

SG&A expenses

9,567

18.8%

9,700

19.2%

132

1.4%

9,850

(149)

-1.5%

Operating income

3,455

6.8%

3,769

7.5%

313

9.1%

3,700

69

1.9%

Ordinary income

3,327

6.5%

3,882

7.7%

555

16.7%

3,700

182

4.9%

Net income

2,211

4.3%

2,645

5.2%

434

19.6%2,450

195

8.0%

*

From 4Q FY3/17, a portion of net sales that had been classified and measured under the Product Development Model Business has
been transferred to the Wholesale Model Business, in accordance with changes to the internal management method. Segment
information disclosed for the end of 1H FY3/17 was prepared based on the measurement method following the change.

For the first half of FY3/18, Doshisha reported consolidated results as follows: net sales of ¥50,426 million(down 1.0% year on year); gross profit of ¥13,469 million (up 3.4%); selling, general and administrative
expenses of ¥9,700 million (up 1.4%); operating income of ¥3,769 million (up 9.1%); ordinary income of¥3,882 million (up 16.7%); and, net income of ¥2,645 million (up 19.6%).
The main factors in the decline in net sales were sluggish sales of high-end brand products in theWholesale Model Business and a slump in sales of TVs and LED lighting in the Product Development
Model Business. The increase in profits was primarily due to lower purchase costs resulting from purchase
The copyright to this publication is owned by the Securities Analysts Association of Japanprice negotiations with manufacturers. The reductions in cost exceeded an increase in selling, general andadministrative expenses, resulting in growth in both operating income and ordinary income.
The gross profit margin was 26.7%, which was the highest in the past 10 years on a half-year basis.
However, the selling, general and administrative expenses ratio was also at a record high of 19.2%, due toan increase in logistics and sales promotion expenses.

◆1H FY3/18 Net Sales by Channel
Sales grew in the discount store and hardware store channels due to the spread of in-house developedproducts. The online channel saw an increase in sales of household goods, summer goods, interior storage
products, and brand products; however, sales were only 4% higher year on year due to a decrease in salesof TVs and LED lighting. Sales to large electronics retailers decreased due to lower sales of luxury brandwatches and TVs.

◆1H FY3/18 Overview by Segment
Our operations are largely divided into two business segments: the Product Development Model Businessand the Wholesale Model Business.
The Product Development Model Business plans, manufactures, and sells original Doshisha products. TheWholesale Model Business is a comprehensive sales proposal business, which is primarily focused on
selling and planning sales promotions for leading domestic and overseas brands and products sourced
from major manufacturers in Japan. The product range in the Wholesale Model Business includes
well-known luxury brand watches, bags, and other items, traditional mid-year and year-end assorted gift
packs arranged by Doshisha using merchandise sourced from leading domestic suppliers, and nationalbrand (NB) processed products.

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Product Development
Business Model

Wholesale
Business Model

Famous brands

OtherNB processing(¥ billion)*Figures in ( ) are composition ratio
Figures in [ ] are percent change year on year

60
600

52.6
526

23.7

40400

(45.2%)

268

13.4(25.5%)0

End of 2Q FY3/16

504
50.4

23.4

259

(50.9%)[-3.5%](23.4%)[-11.5%]14.0(27.5%)[+4.5%]End of 2Q FY3/17[-1.0%]

23.9(47.5%)[+1.9%]

11.9(25.6%)(51.0%)[-3.2%](46.1%)[-1.2%]

13.4

20200

*509
50.9

10.9249(49.4%)[-3.8%](21.8%)[-7.7%]

13.9(27.6%)[-0.5%]End of 2Q FY3/18

From 4Q FY3/17, a portion of net sales that had been classified and measured under the Product Development Model Business has
been transferred to the Wholesale Model Business, in accordance with changes to the internal management method. Segment
information disclosed for the end of 1H FY3/17 was prepared based on the measurement method following the change.

<Product Development Model Business> Net sales: ¥23,935 million, up 1.9% year on yearInterior storage products performed strongly and OEM products for our business partners were successful.
In shoes, sales of licensed and private brand products grew significantly as a result of sales area proposals
adapted to suit various business formats and stores. Sales of other products also grew, including snowcone makers, which enjoy the top share in the market, and kamome fans, which won the Good DesignAward for two consecutive years, as well as outdoor goods and accessories, although TV and LED lighting
sales were weak.

<Wholesale Model Business> Net sales: ¥24,918 million, down 3.8% year on year
・Famous brands
Sales of mid-price-range and casual line brand products through specialist retailer and online channels
were favorable. Sales of brand accessories also grew, while sales of luxury brand watches declined.

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・NB processing
Sales were strong for daily necessities, a stuffed animal cushion in the shape of Doshisha’s character
Goroneko Summit, and congratulatory and condolence gifts, while sales of mid-year gift packs declinedslightly from the previous fiscal year.

<Other / Affiliated Companies> Net sales: ¥1,572 million, up 3.5% year on year

◆1H FY3/18 Topics

Business Strategy Review for 1H FY3/18
Continue to strengthen sales promotion!

Held the“Doshisha Fair”
for the media!
Attended byapprox. 50
companies

New product announcement
and company information
session!

Further cultivation ofniche product planning!

Featured on numerous
online news sites
Kanto Logistics
Center opened inNov. 2017

Launch of new businesses!

□ Funeral business□ Color contact lenses

Creation of a fall-and-wintersweets market
Brand ambassador
Yuuna Suzuki□ Gift cardbusinessIn the Sankei Shimbun
on Jan. 18, 2017

□ Launch of a new type of chocolate
containing L8020, developed throughan industry-academia partnership

Launched a baked sweet potato maker
to follow our summer snow cone makerWe are actively strengthening sales promotion, and during this fiscal year we have been working to build
relationships with the media with the aim of efficiently raising our product visibility. In September, we held
the Doshisha Fair, an event for the media where we announced our products to roughly 50 companies inattendance. Reports were posted on numerous online news sites, which led to more opportunities forexposure through TV shows and magazines, and for our products to be picked up by YouTubers.
The Kanto Logistics Center opened in November, and began receiving product shipments with a view
toward starting full-scale operations the following year.
Doshisha, which has established the basic strategy of achieving leading positions in niche markets, aims toexpand profits by constantly creating new niche markets. The baked sweet potato maker launched inThe copyright to this publication is owned by the Securities Analysts Association of Japan

September caused a stir when it appeared in the online news under the headline, “there’s a limit even toniche,” and has already sold out for the current fiscal year.
We have started four new businesses with a view toward establishing an “ONLY 1” business model.
Introduction of the gift card business in major GMS and discount stores is proceeding steadily. Sales ofcolor contact lenses in discount stores began in November. Regarding products developed throughindustrial-academia partnerships containing the L8020 lactic acid bacterium that prevents tooth decay, wehave decided to introduce tablets as a follow-up to our chocolate products. The refrigeration device
manufactured and sold by the funeral business is increasingly being adopted. This device is highly
regarded for its technology, which replaces the use of dry ice for body preservation, and for the cost savings
and reduced environmental burden it offers.

◆Consolidated Forecasts and Business Strategy for FY3/18
FY3/17

Consolidated(\ million)
1H

2H

FY3/18Full year

1H

2H

YoY
Full year

ChangePct. Change

Net sales

50,92156,093

107,015

50,42659,573110,000

2,984

2.8%

Product Development
Model Business

23,49025,63949,12923,93530,51454,450

5,320

10.8%

Wholesale
Model Business

25,91228,49054,40324,91827,38152,300(2,103)-3.9%

Others

1,519

1,962

3,482

1,572

1,677

3,250

(232)

-6.7%

Gross profit

13,023

13,207

26,23013,46914,33027,800

1,569

6.0%

SG&A expenses

9,567

9,582

19,1509,700

10,09919,800649

3.4%Operating income

3,455

3,624

7,080

3,769

4,230

8,000

919

13.0%

Ordinary income

3,327

3,795

7,122

3,882

4,117

8,000877

12.3%

Net income

2,211

2,559

4,770

2,645

2,704

5,350

579

12.1%

*From 4Q FY3/17, a portion of net sales that had been classified and measured under the Product Development Model Business has
been transferred to the Wholesale Model Business, in accordance with changes to the internal management method. Segment
information disclosed for the end of 1H FY3/17 was prepared based on the measurement method following the change.

There has been no change in the FY3/18 forecasts announced at the beginning of the fiscal year. Weforecast increases in sales and profits: net sales of ¥110.0 billion (up 2.8% year on year), gross profit of¥27.8 billion (up 6.0%), selling, general and administrative expenses of ¥19.8 billion (up 3.4%), operating
income of ¥8.0 billion (up 13.0%), ordinary income of ¥8.0 billion (up 12.3%), and net income of ¥5.35 billion(up 12.1%).
By business segment, we forecast net sales of ¥54,450 million (up 10.8% year on year) in the ProductDevelopment Model Business and ¥52,300 million (down 3.9%) in the Wholesale Model Business.
For FY3/18, we plan to pay a full-year dividend of ¥50 per share, comprising an interim dividend of ¥25 anda year-end dividend of ¥25.
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◆Strategies by Segment for 2H FY3/18<Wholesale Model Business>
・Famous brands
Since the first half of FY3/18, we have been undertaking the structural reinforcement of our businesses byoverhauling our product composition to include more exclusive distribution brands and private brandproducts, which generate higher profits. Having a wide variety of brands allows us to propose brandportfolios to fit the characteristics of each business format or store, and to refresh sales areas according toeach season or event. In addition, we will take advantage of digital marketing to communicate directly with
consumers, thereby increasing brand visibility, attracting customers to stores, and promoting purchasing.
・NB processing
We will enhance our annual plans for standard products, such as souvenirs for tourists and gifts forhomecoming or visits, in addition to our existing mid-year and year-end gift packs. We are also entering themarket for traditional New Year’s food, said to be worth approximately ¥60.0 billion, which has been driven
by the shift toward nuclear families and smaller households in recent years, along with a demand for faster
meal preparation and a preference for eating at home. We consider this to be a promising area, due to its
strong affinity with the catalog sales platform and sales area proposals that we have developed for mid-year
and year-end gift packs.

<Product Development Model Business>
In a joint project with Radio Osaka (OBC), we have been working together with listeners to develop a mug
bottle for seniors. Advance sales were held at an event organized by OBC on November 23, which attracted
100,000 people. Since then, we have been pursuing sales expansion through ambassadors appointed fromeach region, as we move ahead with this groundbreaking initiative that involves consumers inmanufacturing and product sales.
Furthermore, in the second half of FY3/18, we will launch sales of garden decoration goods. Doshisha has
many standard seasonal products, such as snow cone makers, fans, and heaters, and holds the top market
share for Christmas decorations, in particular. We proposed a year-round retail space for garden
decorations under the “gardening” rubric, and sales have been strong, especially for hardware stores.
Securing retail space for these products as a year-round standard throughout both the winter and summer
seasons is a significant achievement, and we aim to expand our in-store share through more such projects
in the future.

<Sales Promotion Planning>
Even amid the rise of online sales, the existing brick-and-mortar retail industry still represents a large
market. In order to boost sales to that market, we will further step up in-store sales, taking “connection” as
our key word in sales promotion planning. By drawing on our communication abilities, along with our ability
The copyright to this publication is owned by the Securities Analysts Association of Japanto increase our brand visibility, attract customers to stores, and promote in-store sales, we create fun-filled
retail spaces that offer the kind of entertainment that is not available online. We aim to build win-win
relationships based on sales promotion rooted in real stores, as well as projects that connect to consumers
through word-of-mouth and internet culture.

<E-commerce Initiatives and Overseas Sales>
We will continue to focus efforts on e-commerce initiatives and overseas sales. In the e-commerce format,
we have launched a project with a view toward expanding transactions with Amazon, which we position as ahigh-priority business partner. In addition, our new transactions with ZOZOTOWN are performing steadily incategories such as watches, bags, and sandals. The official online sales website for Luminous storage andinterior goods operated by Doshisha has grown at a pace of over 130% year on year.
Overseas sales in FY3/18 are progressing at a pace already surpassing full-year results for the previous
fiscal year, thanks to execution of a purchase agreement with a major e-commerce company andpreparations for transactions with local dealers. We are actively participating in overseas trade shows as
one of our strategies to accelerate overseas sales growth in the future. Recently, we participated in the
Hong Kong Gifts & Premium Fair, Hong Kong Electronics Fair, THAIFEX (Thailand), CES (Las Vegas, US),and the Canton Fair (China). We will also strengthen sales promotion planning that reflects the regional
characteristics of each country. We will propose sales area design and sales promotion plans by adapting
successful cases from Japan, such as in-store demonstrations and street campaigns, to suit local culture andcustoms, and promote businesses that create added value so that Japanese culture takes root in local regions.

◆Question and Answer Session◆

Q1: What was the reason for building the Kanto Logistics Center?
A1: First of all, warehousing costs have been soaring in recent years. Having our own warehouse will
eliminate that cash outflow. Secondly, we can also reduce delivery costs by consolidating our warehouses,
which had been spread throughout the country.

Q2: How do you select products for overseas sales?
A2: In one case, we export products in response to inquiries from overseas customers who want to carryspecific products. Otherwise, when we sense a possibility, such as in areas that share common ground withJapan, we make an approach by exhibiting in trade shows in that country or region.
(Tokyo, November 16, 2017)

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