Pan Pacific International Holdings Corporation
February 10, 2022

Overview of Q&A Session at Analysts Briefing for Q2 FY June
2022
This document provides an overview of the Q&A session at the analysts briefing for thesecond quarter results. Questions and answers have been edited for clarity.

Q1. With regard to the discount store business, how effective have the various
reform measures been, such as store measures, merchandise (MD), andprivate brands (PB)? Has the policy for the next one to two years becomeclearer?
A: We can see the change in the numerical figures for PB. The COVID-19
situation improved at the end of the year as compared to August, but, more thanthat, there have been changes in the substance and we have felt a good level ofactivity on the frontlines.
The policy has become clearer for on-site areas such as sales and MD. There isa need to carry out some “multiplication” in these areas, such as considering how
to combine digital technologies with finance. We are holding ongoing discussions
to review our policies on pricing, based on our projections of the labor sharing
ratio, labor productivity, and future price increases.
Q2. With regard to the GMS business, what is your vision for how the current
preliminary preparations will contribute to profitability from next year onward?
A: With regard to this fiscal year, we originally forecasted having a difficult time in
the first half of the year and were very conservative when making our projections
at the budget stage. Compared to the first half of the year last year, when figuresincreased significantly due to the COVID-19 pandemic, the current numbers havedeclined, but we are preparing a schedule to make up for it in the second half ofthe year.
We will discover better ways of doing things as we undertake preparations toward
the next fiscal year, so we may move somewhat slowly. Initially, we were being
propelled by the discount store business.
Particularly in the first half of the year, gross profit margin fell as a result of price1

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February 10, 2022

reductions. What we learned from this is that GMS very much has its own way of
doing business. Rather than compete in the low-price range, for middle- and highpriced items, we will stress their value, while for things that should be presented
as inexpensive, we will present them as being inexpensive.
As various renovations are ongoing, we share the common understanding acrossthe company that new GMS cannot be achieved without advancing a three-part
reform that includes not only the renovation of stores, but also products and sales
personnel.
If we are successful, it would eliminate the need to compare gross profit margins
with the discount store business. From the second half of the year to next fiscalyear, we aim to come up with an approach for how to increase gross profit in adifferent way from the discount store business.
Q3. What are the reasons behind narrowing down the GMS renovations fromlarge-scale to small-scale stores? If large-scale renovations are notaccompanied by products and human resources, they would also beineffective, so we may as well do it on a small scale—is that the stance behind
this approach?
A: For large-scale GMS, we have refurbished each of the different patterns.
There have been successes and failures in the renovations, but our stance is thatthey must be accompanied by products and human resource development. If thespeed of progress for these three elements is aligned, we will also carry out
reforms for the large-scale stores. Until then, as a kind of short-cut, we will try to
do whatever we can to improve the current figures.
Q4. With Gelson’s joining the group, what are the inventory levels for thediscount store business and GMS business? How are the valuation reserves
doing as compared to a standard year?
A: Consolidated inventory has increased by about 13.8 billion yen. Of this, 12billion yen is from new stores. Gelson’s inventory is about 5 billion yen. As forexisting stores, inventory for the discount store business fell by approximately 5billion yen due to improvements in the stock turnover rate.
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Pan Pacific International Holdings Corporation
February 10, 2022

Valuation reserves have increased by several hundreds of million yen year-onyear. We will implement the measures of product revision/abolition and “interestexpiration date” in the second half of the year, aiming to return to the level of theprevious fiscal year.
Q5. Selling, general and administrative (SG&A) expenses have been kept
down by about 7.1 billion yen against the forecast of business results. What isthe breakdown for this amount? Will the cut-off error or other factors lead to anincrease in the second half of the year? Alternatively, is there room for furtherrestraint?
A: Of the approximately 7.1 billion-yen difference between actual and forecasted
SG&A expenses, approximately 5 billion yen of that is due to the discount store
business. Success in controlling SG&A expenses is the greatest factor. The cutoff error will not have an adverse impact on the second half of the year.
Q6. With regard to the success in controlling SG&A expenses in the discountstore business, could you tell us what the breakdown in the reduction ofexpenses is?
A: A significant element in the reduction of expenses is personnel expenses.
Please think of it as us using less than planned due to successful efforts to limit
spending.
Other elements include the impact of a reduction in allocation costs, brought
about by limiting expenses associated with the Holdings.
Q7. If you continue to limit expenses in the second half of the year, will it bepossible to achieve a reduction of about 10 billion yen over the original plan for
the whole fiscal year?
A: We will use SG&A expenses depending on the situation.
We have set out the target of achieving operating profit of 85 billion yen, which
was the forecast for the whole fiscal year. Based on a comprehensive
assessment, we will use what we need to use and limit the portions that can be3

Pan Pacific International Holdings CorporationFebruary 10, 2022

limited.
Q8. Concerning the response to inflation, what are the measures that seem
effective, and what are the areas that require modifications or response in thefuture?
A: Concerning our response to price increases, we are conscious of the following
four points within the company: controlling SG&A expenses, rebuilding the valuechain, developing high-gross profit products that feel reasonably priced, andcontrolling appropriate selling prices. On top of that, we also feel that there arestill many areas in MD, the GMS business, and the overseas business that weshould put creative efforts into.
As our roots and origin lie in being a discount retailer, we are good at measures
such as controlling SG&A expenses and adjusting selling prices. Therefore, wewill continue doing what we have always done in a straightforward manner. Inaddition to that, we will put in place medium-term measures in areas such as therebuilding of the value-chain.
Q9. No changes were made to the plans for the whole fiscal year. Do you
consider the improvement of margins and limiting of expenses more important
for achieving the target operating profit than the uncertain top line? What is thestance and direction with regard to the plan?
A: While there is, of course, a need to consider the top line, it is not realistic toraise it rapidly in existing stores. We consider it more practical to take theapproach that you have mentioned.
Since we are supposed to achieve our targets, we shall respond as necessary inthe short-term.
Q10. The operating profit fell short of the plan by 900 million yen. Which were
the businesses that failed to reach the target?
A: A significant portion of the shortfall came from the GMS business.

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