Financial Results Briefing Materials(with comment)

I am Oota, the head of the planning Section.

Thank you very much for taking time out of your busy schedule to attend today's financial results

briefing.

I will begin by explaining the results for the first quarter of the fiscal year ending February 2023.

President Suzuki will then present the progress of the key issues and the earnings forecast.

As previously announced, today's briefing will be held in two parts, and a separate ESG briefing

will be held at 5:00 PM after the financial results briefing, so please attend.

1

This section describes the consolidated financial results for the first quarter of the fiscal year

ending February 2023. The respective numerical results are as shown.

First, in terms of external factors, the lifting of priority measures to prevent the spread of the

disease in late March stimulated economic activity, and Golden Week, the first consecutive

holiday in three years with no restrictions on activities, saw a greater number of visitors than the

previous year in all regions of Japan.

On the other hand, rising prices for energy-related and food items pushed the YoY rate of increase

in the consumer price index above 2% in April for the first time in seven years, and these are

becoming an increasing burden on households.

As for the weather, low temperatures continued throughout the country until early March, but

mid-March brought spring weather in the Kanto region and westward. Late March and early April

saw low temperatures again, with some days in Kanto as cold as January for maximum

temperatures. Although temperatures rose nationwide from mid to late April, they dropped again

from early May onward, mainly in the Kanto and western regions. During the first three months

of the quarter, cyclical temperature changes made the weather difficult to deal with for efficient

sales of spring/summer products.

Against these external factors, we pushed forward with strengthening our product appeal and sales

power and were able to appropriately control expenses, such as advertising and rent, resulting in

record-high sales and respective profits for the first quarter.

2

This section describes sales by business segment. The respective numerical results are as shown.

In the mainstay Shimamura business, in order to evolve brand power, we expanded the product

lineup of our own brand PB (Private Brand) and the jointly developed brand JB with suppliers

(Joint Development Brand), strengthening functionality in PB and trend proposals in JB. We also

actively developed new influencer projects and character products.

In the Avail business, sales increased by strengthening the promotion of JB and character products

and proposing total coordination on the sales corners and in sales promotions. In addition, the

expansion of the sales corners and assortment of interior products led to an increase in the number

of customers visiting the store.

The Birthday Business performed well, expanding its lineup of mainstay JBs and developing new

JBs in swim goods, rain goods, and strollers.

At the new JB “Cottoli”, the launch of gift sets for newborn products led to the development of

new demand.

In the Chambre business, sales of sandals, backpacks, and hats increased due to demand for going

out. In interior goods, character slippers and cushions did well, while in kitchen and lunchware

products, JB cooking utensils and tableware did well.

In the Divalo business, sales of sandals and sneakers were strong as demand for going out

increased, and sales of pumps and business shoes also recovered due to a rebound in commuting

and occasional demand. In wear and fashion accessories, which we have expanded to handle, we

have strengthened our proposals on how to dress for the occasion.

In the Si meng le business, which operates in Taiwan, sales of Japan-planned PB and JB products

were strong in March, and high temperatures boosted sales of summer wear. But from April

onward, low temperatures and the rapid spread of the novel coronavirus infection caused a sharp

drop in personal consumption, resulting in a substantial decline in sales.

3

This section provides a breakdown of consolidated SG&A expenses.

Personnel expenses increased 4.5% YoY due to a 5.6% wage increase in April but were contained

at 12.2% of sales. This is mainly due to the use of tablet terminals introduced in all stores last year,

which have helped standardize the sales corners and reduce store operations.

Advertising expenses decreased 4.4% YoY. By increasing the weight of digital sales promotion

while optimizing the balance between newspaper inserts and web flyers, we were able to keep the

ratio to sales low at 1.9%.

Operating expenses increased 3.3% YoY. Display fixtures increased 26.3% YoY as the Avail

business introduced new display fixtures to strengthen sales power of JB and character products.

In addition, EDP expenses increased 12.4% YoY due to the promotion of DX, one of the

initiatives for this fiscal year.

Equipment costs increased 3.2% YoY. Rents decreased 0.7% YoY, mainly due to the closure of

unprofitable stores. On the other hand, utilities expenses increased significantly by 28.4% YoY

due to higher electricity rates.

4

This section provides a breakdown of the consolidated balance sheet.

Current assets increased 12.3% YoY. The main factor was a 14.2% increase in the sum of cash

and deposits, accounts receivable, and marketable securities compared to the end of the same

period last year. There is no change in the policy of increasing the weight of cash and deposits.

Merchandise inventories increased 4.2% from the end of the same period last year. Inventory at

the end of the first quarter was also maintained at an appropriate level as each business was able

to hold down inventories of winter products at the end of the previous fiscal year and digested

spring products inventories smoothly in the first quarter.

Total liabilities increased 6.7% YoY. The main factors were an increase in accrued income taxes

and an increase in accrued consumption taxes.

5

This section describes sales at existing stores as well as the number of customers and customer

spend for all stores.

Comparable store sales increased YoY in all three businesses. The number of customers and sales

per customer have also been increasing, and the strengthening of product appeal and sales power

is steadily yielding results.

Next, we will discuss the results of the Shimamura business. The number of customers increased

1.2% YoY. We increased customer motivation to visit our stores by expanding PB and JB,

planning new influencer project, and developing character products.

In advertising, the Group expanded video advertising for PB and JB and aggressively introduced

new sales promotion media and urban area store support, which led to the acquisition of new

customers.

The number of items purchased increased 1.3% YoY. This was due to the strengthening of

coordinated proposals for JB and influencer project as well as the expansion of the department

handling character products, which were launched all at once in flyers, leading to bulk purchases.

Unit price per item increased 0.6% YoY. This was due to the enhanced development of higher-

priced products, especially the PB “CLOSSHI PREMIUM”, and the control price reduction of

winter products for the March.

6

This section describes the results of the Shimamura business with respect to gross profit, price

reduction, and inventory.

Gross profit increased 3.5% YoY, up 0.2% in percentage terms.

Gross profit improved due to price reduction controlled by appropriate inventory control. In

addition, sales of bargain item in a flyer were down 29.2% YoY, and sales that do not rely on

bargain item were also strengthened.

Price reduction value was down 20.5% YoY, or 2 percentage points in percentage terms. The

price reduction decline was due to appropriate control of winter/spring seasonal products to curb

excess inventory and the use of a short-term production cycle to produce additional hot-seller

products in a short-term production.

In addition, the limited-time discount was set at zero this quarter, compared to eight in the same

period of the previous year. Short-term production accounted for 23.8% of total wear, down 4%

YoY. This is due to delivery delays associated with the Shanghai lockdown. However, the

women's teens division was able to maintain the same level as the previous year at 59.6%,

enabling a stable supply of trendy products, resulting in a 5.4% YoY increase in sales in this

division.

In the Birthday business, inventory increased 12.4% YoY, which was a reaction to the inventory

shortfall at the end of the year due to strong sales of summer products in the same period of the

previous year.

7

This is Suzuki, the President. I will explain the results of our key challenges for this term.

In strengthening the product appeal of the Shimamura business, we worked to evolve the PB and

JB brands. As a brand percentage of the first quarter, PB, JB, and FIBER series together

accounted for 29.6% of total sales.

First, in PB “CLOSSHI”, we strengthened the product appeal of standard items.

In wear, we developed a new series of blouses and pants that can be used for both business and

everyday wear, called “ON DEMO OFF DEMO”, have become hot-seller products, partly due to

a recovery in business demand.

In addition, “COTTON FROM USA”, which performed well last year, and the “WITH BI” series

of T-shirts performed well, with new designs being developed.

In practical products, sales of “FIBER DRY” underwear, socks, and slippers increased, while

bags, shoes, and interior products from the “Four Commitments” series also performed well.

In our efforts to move into the higher price range, we promoted the product development of

“CLOSSHI PREMIUM”. “Easy care and clean knitwear” that pursues functionality, such as

room-drying, and “THE SUPER COOL series” of mattress pads and rugs, which are twice as cold

as our standard, became hot-seller products.

The Market Research Department, which is in charge of product development, took the lead in the

development of both products, evolving them from last year in terms of functionality, comfort,

and ease of use, and communicating the appeal points to customers in an easy-to-understand

manner through web videos and in-store sales promotions, which led to an increase in sales.

Women’s “Easy care and clean knitwear” and “FIBER DRY” camisole innerwear received high

marks for functionality and comfort in “LDK the Beauty”, a magazine published by Shinyusha.

8

I will explain the JB initiative.

JB’s “SEASON REASON”, with its natural taste, and “HK WORKS LONDON”, with its

elegance taste, performed particularly well due to the rising demand for going out. In addition,

“hareiro”, which was launched last December and targets adult women, also enjoyed steady sales

growth.

As a result, JB accounted for 10.1% of net sales in the first quarter, 9.5% increase YoY in sales.

Next, we will explain the process of developing and commercializing a brand for JB, which has

grown to a total of 12 brands in all product categories. See the flow chart at the bottom.

First, determine the brand's main target with a “Positioning map”, then formulate the brand's

mission and define its role. Then, internal and external personnel involved in the brand gather for

a “Direction meeting” to share the brand's mission and concept.

Since JB involves multiple suppliers, buyers, and related departments, the direction meeting

makes it possible to promote products, sales corners, and sales promotions in a trinity. In the

“Joint business meetings” that follows, all participants will use product samples to discuss their

images and materialize their brand image.

Through the above efforts, JB has been able to achieve significant sales through the team play of

between our company and our suppliers, such as the commercialization of products with clear

concepts in each brand.

9

I will explain how we are strengthening the sales power of the Shimamura business.

First, in digital sales promotion, which we have been strengthening since last year, we focused on

web advertisement. A total of 18 web advertisements, mainly for PB, were distributed to promote

the appeal of the products with easy-to-understand explanations using video.

We also continued to be agile, moving up the timing of delivery to accommodate rising

temperatures. In the use of SNS, we have diversified the medium. For women’s teens, in addition

to “Shima-style” on Instagram, we have launched a new official Shimamura channel on “TikTok”.

In the distribution of digital flyers, we expanded the number of flyers posted on our flyer

distribution service, “Shufoo!” In March, we also undertook a complete renewal of our website

and application. This has expanded the volume of information distributed and linked it to the

online store.

In addition, in May, the Company was selected as one of 16 winner companies of the KinKi Kids'

CD debut 25th anniversary campaign. A Shimamura commercial is scheduled to be released this

year. Please look forward to it.

10

I will explain strengthening regional and individual store response.

First, in terms of regional response, we strengthened our response to Hokkaido and Okinawa, with

each exceeding the overall average of last year's sales.

In Hokkaido, the sports day season is concentrated from May to June and the temperature is low,

so we arranged for long-sleeved products and launched a limited flyer to coincide with the sports

day season. In Okinawa, the product lineup was centered on summer products as of March. Both

responses were highly effective, thanks to the collaboration between the Merchandise Department

and the Store Operations Department, where merchandise, the sales floor, and sales promotions

worked as a triumvirate.

In terms of individual store support, we have also strengthened our response to urban areas. From

this fiscal year, the number of supported stores has been expanded from 50 last year to 250, and

we have developed items exclusively for urban areas planned by JB and influencer project, mainly

for women’s teens and young adults.

In addition, by distributing flyers exclusively for urban areas through digital sales promotions and

linking them with sales corners creation, sales at these stores exceeded the average for all stores.

11

I will explain our efforts in the Avail business.

At Avail, we worked to strengthen our ability to propose trends centered on JB and to enhance our

character products.

With regard to JB, the three brands “CHIP CLIP”, “SUREVE”, and “RagOut” were widely

deployed from ladies' and men's wear to fashion accessories to expand the scale of sales and

increase recognition.

In addition, we have strengthened our total coordination proposals for JBs by changing the sales

floor layout, which is underway in all stores. As a result, JB accounted for 37.4% of net sales in

the first quarter.

In character products, we have strengthened the development of limited-edition products that can

be purchased only at Avail. Product offerings ranged from women's and men's wear to sundries,

and weekly launches via flyers and SNS continued.

In addition, as part of the ongoing changes to the sales floor layout in all stores, the event sales

corners near the entrance and the general merchandise sales corners around the cash registers are

being utilized as new sales corners for character merchandise.

In addition, in order to identify new characters, character planning meetings were held on a

regular basis where buyers from each department brought the latest information and ideas. This

initiative has given us the opportunity to launch our hot-seller characters in several departments at

once.

As a result, characters accounted for 13% of net sales in the first quarter. Net sales were

approximately double those of the same period of the previous year.

12

I will explain the Birthday business initiative.

In Birthday, we worked to strengthen JB's product appeal and diversify its planning.

First, in strengthening JB's product appeal, we developed new products and expanded product

lineups under existing brands. At “futafuta”, the mainstay JB brand, a collaborative project with

the Ueno Zoo, panda-patterned products were launched and became a hot seller.

In addition, the JB assortment was expanded to include swim goods, rain goods, and strollers,

each of which performed well.

Sales of JB and “Cottoli” for newborns increased as the Company expanded its lineup of gift

items and captured new demand.

As a result, JB accounted for 25.7% of net sales in the first quarter.

Next, in diversifying our planning, we have strengthened our collaboration projects with

influencers. The opinions of mothers who wanted something like this were collected through

social networking and roundtable discussions, commercialized as JB, and the influencers

disseminated the information through Instagram Live and other means, which was very effective.

In addition, a collaboration project with a baby food researcher resulted in an increase in sales of

baby food, as recipes for baby food arrangements were published on the Birthday website.

13

I will explain risk factors and responses based on current social conditions.

First, with regard to the sharp rise in raw material prices, the impact on purchase cost in first

quarter was negligible. While individual products were affected, the markup rate was slightly

lower than last year, and gross profit was secured by controlling price reduction.

However, we expect the impact to intensify in the future, and we will be taking various measures

to address this issue.

First, in terms of pricing, we will maintain prices as much as possible in the price range that is the

volume, such as PB underwear and wear, which are our standard products.

At the same time, we will review the composition of products in the low price range and gradually

increase the composition of products in the high price range. In addition, trendy and functional

products will be enhanced in terms of design and functionality to allow for flexible pricing.

Regarding production, we will continue to reduce costs in cooperation with suppliers by utilizing

off-peak periods at factories, promoting fabric and line contracts, and reviewing countries of

production.

Next is the impact of the Shanghai lockdown on deliveries.

First, in May, deliveries of products were affected by 10% to 20% of total purchases. As a result,

distribution of some of the inserts during the Golden Week period was discontinued.

As for future actions, first of all, we were able to deliver most of the summer products that had

been delayed during the month of June. In addition, we will continue to promote the

diversification of production sites, which we have been promoting since last fall, in China and

ASEAN countries to reduce country risk.

14

I will explain the unauthorized external access that occurred on May 4 and our subsequent

response.

First, an overview of unauthorized access is shown below. After May 5, various services in stores

and online stores were resumed sequentially while confirming safety, and all services were

resumed on May 11.

At this time, there has been no leakage of customer information, including customer data, and the

impact on management and sales is minimal. We again apologize for the concern we have caused

to all concerned. The investigation into the cause of the occurrence and other matters is ongoing

in cooperation with the investigating authorities.

As for future cyber security measures, we are using the latest virus-responsive software to protect

against unauthorized access from the outside, and we are taking measures to minimize damage in

the event of an intrusion.

In addition, in order to respond to all types of cyber-attacks, we will base our security measures

on “zero-trust”, which is based on the premise of fundamentally bad, and the entire group will

work to improve our defenses and response capabilities.

15

I will explain our business forecast for the fiscal year ending February 2023.

Each numerical forecast is as shown.

Regarding the outlook for the domestic consumption environment for the fiscal year under review,

there is no change from the earnings forecast disclosed on April 4 as the future outlook is

uncertain. One of the reasons is that the inflationary trend is increasing daily due to rising energy-

related and food prices, although progress is being made in balancing the prevention of the spread

of Coronavirus infection and economic activity.

16

Finally, we will inform you of the disclosure information.

An ESG presentation will be held later today at 5:00 PM as the second part of the financial results

meeting.

If you are participating in the ESG Information Session, please leave the conference call after the

current session and join the ESG Information Session conference call by 5:00 PM after referring

to the materials already provided.

The schedule for disclosing financial results on the corporate website is as shown below. Each

will be disclosed on the corporate website this week.

17

This concludes our explanation of the financial results for the first quarter of the fiscal year

ending February 2023 and our full-year forecast of SHIMAMURA. Thank you very much.

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