TSURUHA HOLDINGS INC. (3391) Q1 2027 Earnings Call Transcript

TSURUHA HOLDINGS INC Q1 Financial Results Briefing for the Fiscal Year Ending February 2027 July 8, 2026

Event Summary [Company Name]

TSURUHA HOLDINGS INC.

[Company ID]

3391-QCODE

[Event Language]

JPN

[Event Type]

Earnings Announcement

[Event Name]

Q1 Financial Results Briefing for the Fiscal Year Ending February 2027

[Fiscal Period]

FY2027 Q1

[Date]

July 8, 2026

[Number of Pages]

26

[Time]

16:00 – 17:06 (Total: 66 minutes, Presentation: 22 minutes, Q&A: 44 minutes)

[Venue]

Webcast

[Venue Size] [Participants] [Number of Speakers]

2 Jun Tsuruha Hideaki Kirisawa

Ryutaro Miyake Takamune Shibazaki

[Analyst Names]

Sho Kawano Toshio Takahashi Dairo Murata Hisahiro Yamaoka

President and Representative Director Director and Executive Officer, In charge of Group Sales and Product Management, and Supervisor of Welcia Holdings Co., Ltd. Executive Officer and Chief Financial Officer Executive Officer and Deputy Chief Financial Officer Goldman Sachs Mizuho Securities JPMorgan Securities Nomura Securities

Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

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Presentation Moderator: Thank you for waiting. It is now time to begin TSURUHA HOLDINGS INC.'s financial results briefing for Q1 of the fiscal year ending February 2027. We are joined today by Jun Tsuruha, President and Representative Director; Hideaki Kirisawa, Director and Executive Officer; Ryutaro Miyake, Executive Officer and Chief Financial Officer; and Takamune Shibazaki, Executive Officer and Deputy Chief Financial Officer. Let me briefly outline today's schedule. First, Mr. Tsuruha will provide a summary of our Q1 results and our initiatives for this fiscal year. After that, Mr. Miyake will walk you through the details of the financial results. We will then move to the Q&A session. We expect to conclude today's briefing at 5:00 PM. With that, I'll turn it over to Mr. Tsuruha. Mr. Tsuruha, please go ahead.

Tsuruha: I will now provide an overview of the Q1 financial results for the fiscal year ending February 2027. Thank you for joining us today. Please look at the table of contents. To make today's materials easier to understand, we refer to the former TSURUHA HOLDINGS as the TSURUHA Group and the former WELCIA Holdings as the WELCIA Group. Financial figures disclosed in the consolidated financial statements after the integration are referred to as TSURUHA HD consolidated.

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Please turn to page three. This page shows the consolidated financial highlights for TSURUHA HOLDINGS. Net sales were JPY636.8 billion, operating income was JPY24.2 billion, EBITDA was JPY39.4 billion, and net income attributable to owners of the parent was JPY13.4 billion. The prior-year figures are reference values based on the combined results of the two companies. We recorded JPY5.5 billion in goodwill amortization. Even so, operating income increased by about JPY3 billion YoY, up 14.6%. EBITDA also increased by JPY7.2 billion YoY, or 22.5%, reflecting strong business momentum. Net sales and gross profit both increased steadily. Seasonal products, particularly cosmetics and daily goods, performed well as temperatures rose from March onward. As a result, performance exceeded our internal plan. Our dispensing pharmacy business continued to grow at a near double-digit rate. The number of prescriptions dispensed increased, and the average prescription unit price also rose. SG&A expenses were well controlled and remained within our budget. Net income declined due to the absence of the JPY6.6 billion in gains on sales of investment securities that the TSURUHA Group recorded as extraordinary income in the previous year. We have set an annual target of JPY15 billion in the integration synergies for the first year. Progress has been in line with plan, and we are increasingly confident of achieving this target.

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Please turn to the next page. This section shows the performance of our private-brand products. Private-brand sales grew by double digits in both the TSURUHA Group and the WELCIA Group. For TSURUHA HOLDINGS, consolidated, private-brand products accounted for 12.3% of net sales, and performance remains strong. Following the integration, we began introducing selected private-brand products from each group across both businesses. In June, we also launched our new private-brand line Karada to Kurashi ni, +1. Although the development and launch of some products have been delayed due to recent raw-material supply concerns, the overall impact has been limited. This fiscal year, we are focusing on rebranding our existing private-brand products under the new line. Through this initiative, we will continue to expand the number of SKUs under Karada to Kurashi ni, +1.

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Please turn to the next page for our organizational integration. For store development, we have shifted from company-based planning to a nationwide structure divided into six regional blocks. This enables us to optimize store development across the entire group. We are also reviewing store banners and dominant strategies by region and by individual store. Going forward, we will open stores under the banners that best leverage the strengths of each area while further reinforcing our dominant strategy. We are also promoting talent exchange among nearby operating companies. For example, TGN and Pupule Himawari, both headquartered in Hiroshima, are sharing sales initiatives and operational know-how. As a result, Pupule Himawari has returned to operating profitability from an operating loss in the same period last year. We believe there is still significant room for further improvement, and we aim to accelerate growth by creating organizational synergies beyond MD. Turning to systems, we have strengthened our integration framework for consolidating our core systems. We are integrating organizations across each functional area while advancing preparations for system integration. This will be a key driver of additional synergies in Phase ll. We consider this a top priority and will move forward swiftly while ensuring careful execution. In merchandising, we have been moving quickly to integrate our organizations and strengthen our postintegration structure. For private-brand development, which will be a key driver of our medium- to long-term growth, we are combining the expertise of both companies while expanding awareness of our new brand, Karada to Kurashi ni, +1. We are also making rapid progress on TGMD initiatives aimed at MD integration. Synergies are already emerging steadily, and at this stage, we do not see any significant issues.

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Please turn to the next page. This section covers our logistics initiatives, including a joint-delivery initiative in the Shikoku area. As shown in the store delivery map on the left, we previously operated two separate delivery trucks. We have now consolidated these into a single truck, thereby reducing delivery costs and improving logistics efficiency. In other regions as well, we are working with logistics partners and vendors through round-table discussions to address upcoming logistics challenges together. By the end of Q1, we had already identified most of the initiatives needed to achieve the JPY15 billion in the integration synergies planned for this fiscal year. However, seasonal factors and external conditions still create some uncertainty. For that reason, we will provide a further update on the synergy progress when we report our Q2 results. That concludes my overview of our Q1 results and our post-integration initiatives. Thank you for your attention Moderator: Thank you, Mr. Tsuruha. I will now turn it over to Mr. Miyake for the detailed financial results. Mr. Miyake, please go ahead.

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Miyake: Please turn to page seven. This section covers the results of the TSURUHA Group. Net sales were JPY285.6 billion, operating income was JPY17.4 billion, and net income attributable to owners of the parent was JPY11.5 billion. Operating margin reached 6.1%, significantly exceeding both the prior year and our internal plan. EBITDA increased by JPY5.0 billion YoY, up 29.5%. Net sales increased as daily goods and cosmetics benefited from rising temperatures. Within the TSURUHA Group, we reviewed our promotional activities, reduced unnecessary promotions, and further advanced our EDLP initiatives. As a result, gross profit margin improved. SG&A expenses also declined, supported by the integration synergy effects such as lower utility costs. We also maintained strict control over personnel expenses and other cost items, reducing the SG&A ratio by 1.1 percentage points and contributing to higher profitability. As Mr. Tsuruha mentioned earlier, net income was essentially unchanged, reflecting the absence of the approximately JPY6.6 billion in gains on sales of investment securities that the TSURUHA Group recorded in the previous fiscal year.

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Please turn to the next page. This section covers the results of the WELCIA Group. Net sales were JPY351.2 billion, operating income was JPY12.2 billion, and net income attributable to owners of the parent was JPY7.4 billion. Both revenue and profit increased. EBITDA grew by JPY2.2 billion YoY, up 14.5%. Seasonal products performed well as temperatures rose, and customer traffic initiatives centered on food products proved effective. As a result, net sales exceeded our expectations. Gross profit benefited from the integration synergies. However, gross profit margin declined due to promotional activities and the NHI drug price revision in the dispensing pharmacy business. Although SG&A expenses were well controlled, operating income came in slightly below our expectations. Nevertheless, operating income increased by 41.0% YoY, demonstrating a clear improvement in profitability. Customer traffic initiatives centered on food products proved effective. In Q1, customer traffic at existing stores increased by 3.1%. Based on these results, we began reviewing our promotional activities in May. We will continue to accelerate our approach while maintaining an appropriate balance between pricing and customer traffic.

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Please turn to the next page. This page shows the trends in existing stores' net sales, customer traffic, and spending per customer. In Q1, existing stores' net sales increased by 4.3%, exceeding our plan. The key drivers differed somewhat between the TSURUHA Group and the WELCIA Group. For the TSURUHA Group, growth was driven primarily by higher spending per customer, reflecting the review of unnecessary promotions. For the WELCIA Group, initiatives centered on food products drove an increase in customer traffic.

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Please turn to the next page. This section shows the product-category results for the TSURUHA Group. The synergies contributed to an improvement in merchandising gross profit, and we estimate that approximately 0.5 percentage points of the improvement came from these effects. OTC pharmaceuticals were broadly flat YoY, as the prior year still benefited from demand related to COVID19 and influenza. Daily goods performed well, driven by strong sales of insecticides as temperatures rose. Large-size laundry detergent products also remained popular, supporting steady growth. Cosmetics followed a similar trend, with UV-care and skincare products performing well as temperatures increased. Food products were broadly flat YoY. The prior year benefited from special demand for rice, while lower unit prices this year resulted in broadly flat sales. Dispensing pharmacies continued to deliver solid sales growth. However, gross profit margin declined due to the NHI drug price revision.

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Please turn to the next page. This section covers the product-category results for the WELCIA Group. Beginning this fiscal year, we reorganized WELCIA's product categories to align them with those of the TSURUHA Group. Please refer to the notes for details of the major category changes. Sales trends were broadly similar to those of the TSURUHA Group, including strong demand for seasonal products. Gross profit benefited from the synergies in pharmaceuticals and daily goods. However, food products were affected by promotional activities, while the other segment were impacted by weaker demand for masks and baby-related products. As a result, overall gross profit margin declined by 0.2 percentage points. Gross profit for dispensing pharmacies was also affected by the NHI drug price revision. We will continue to strengthen our role as a community dispensing pharmacy while working to improve profitability.

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Please turn to the next page. This section shows the breakdown of SG&A expenses. Overall, SG&A expenses remained within our internal budget. Even with wage increases of approximately 4%, the personnel expense ratio remained stable, which we believe reflects improved productivity. Promotion expenses declined slightly due to delays in the launch of certain private-brand products. We do not expect a significant increase in these expenses going forward. Utility expenses decreased by just under JPY400 million YoY, supported by the integration synergies. As of the end of Q1, we have not seen any cost impact from Middle East-related price increases.

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Please turn to the next page. This section shows the breakdown of SG&A expenses for the WELCIA Group. As with the TSURUHA Group, disciplined control of SG&A expenses kept spending within budget. In the previous fiscal year, depreciation included approximately JPY1.0 billion related to existing goodwill. Even excluding that amount, cost control remained effective.

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Please turn to the next page. This section covers the performance of our dispensing pharmacy business. Both the TSURUHA Group and the WELCIA Group continued to achieve double-digit growth in dispensing sales. The dispensing sales ratio continued to increase. On a combined basis, dispensing sales accounted for 19.6% of net sales, with a gross profit margin of 34.5%, and dispensing pharmacies represented 58.7% of all stores. Gross profit margin declined due to the NHI drug price revision.

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Please turn to the next page. This section shows our store openings and closures. TSURUHA HOLDINGS consolidated opened 36 stores and closed 47 during the quarter. As of the end of May, the total number of stores stood at 5,665. We completed 99 store renovations. Please refer to the table for additional details.

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Please turn to the next page. This is an overview of the balance sheet. Because both the end of May and the end of February fell on holidays, cash and deposits were temporarily higher than usual. On an adjusted basis, cash and deposits were approximately JPY120 billion, which we believe represents an appropriate level. That concludes my explanation of the detailed financial results. From page 18 onward, the appendix contains performance data for each operating company. Please refer to those pages as needed. Thank you for your attention.

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.Question & Answer

Moderator [M]: We will now move on to the Q&A session. Before asking your questions, please state your company name and your name. Please limit your questions to the financial results and the content of the presentation. Each person may ask up to two questions. If you have two, please ask them consecutively. Several participants have already raised their hands. We will unmute you one by one, so please keep your hand raised and wait until it is your turn. Thank you. Kawano [Q]: This is Kawano from Goldman Sachs. Thank you very much. I have two questions. My first question is just for confirmation. TSURUHA significantly outperformed the plan, while WELCIA came in slightly below plan. If possible, could you give us some indication of how much the consolidated results exceeded the plan, particularly on the profit side? Looking at the factors behind the stronger-than-expected performance, my impression is that the TSURUHA Group contributed more than expected. Rather than the integration synergies exceeding expectations, it seems that both the TSURUHA Group and the WELCIA Group managed expenses very effectively, while the TSURUHA Group also unified its promotional strategy across the Group. Could you elaborate on what drove the strong Q1 performance beyond the synergy effects? My second question is about utility expenses. I assume these will increase going forward. How should we think about this from Q2 onward? Those are my two questions. Tsuruha [A]: Thank you for your questions. Let me start with your first question. Regarding the difference between the TSURUHA Group and the WELCIA Group in Q1, both groups benefited from the synergies generated through TGMD. Given that both groups had access to the same synergies, the biggest difference was how they approached promotions. The TSURUHA Group reduced aggressive promotional campaigns compared with the previous year, eliminated unnecessary promotions, and adopted a unified Group-wide approach with a stronger focus on profitability. In other words, promotional spending was kept under control. By contrast, the WELCIA Group strengthened promotions with the aim of increasing customer traffic. As a result, operating income came in slightly below plan. However, existing-store sales and customer traffic both grew more strongly than in the TSURUHA Group. Beyond the synergy effects, I would say the biggest differentiating factor was each group's promotional strategy. Turning to your second question on utility expenses, the outlook remains somewhat uncertain. However, at this point we have not received any significant requests for price increases from utility providers. We also expect subsidies to help contain utility costs. We will continue monitoring the situation closely, but at this stage we do not see utility expenses as a major concern. Rather, product price increases are already taking place, so our focus will be on responding to those appropriately. Kawano [Q]: If possible, could you give us a sense of how much operating income exceeded the plan for the Group as a whole? Regarding synergies, you mentioned an improvement of about 0.5 percentage points for the TSURUHA Group, which I estimate translates to roughly JPY1.4 billion to JPY1.5 billion. For the Group as a

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whole, could you give us a rough indication of how much has been realized against the annual target of JPY15 billion? Tsuruha [A]: We have not disclosed our Q1 plan, but broadly speaking, operating income exceeded the plan by approximately JPY2 billion to JPY3 billion. As I mentioned earlier, there are still uncertainties heading into Q2, including product price increases and the potential impact on utility costs. We need to see how those factors develop before assessing the results for Q2. Kawano [Q]: Regarding the synergies, do you have a sense of how much has been realized at the Group level? Tsuruha [A]: Our annual synergy target is JPY15 billion, and based on our progress so far, we are increasingly confident of achieving that target. That said, synergies are expected to be weighted toward H2 of the fiscal year, so it is not simply a matter of dividing JPY15 billion by four and assuming JPY3.75 billion in Q1. The actual amount is somewhat lower than that, but it is still ahead of our original expectations. You can think of it as broadly in line with plan, with a modest upside. Kawano [M]: Thank you. Moderator [M]: Thank you. We will now take the next question. Takahashi [Q]: This is Takahashi from Mizuho Securities. Thank you for the presentation. I have two questions. My first question is similar to one I asked about three months ago. Another three months have passed, and rather than focusing on the numerical synergies you discussed today, I would like to ask about the on-theground integration between TSURUHA and WELCIA, such as shared logistics, the alignment of commercial initiatives across regions, and other operational areas. From Mr. Tsuruha's perspective, where have you seen the most tangible progress? Conversely, are there any areas where you feel the pace of integration needs to accelerate? I would appreciate any thoughts you can share. My second question relates to synergies beyond merchandise gross margin and utility costs, which Mr. Miyake explained earlier. During Q1, were there any other areas where you felt synergies were already contributing to results, or where you have a strong sense, they will emerge in line with your plan? I would appreciate any insight you can share. Tsuruha [A]: Thank you for your questions. Let me start with your first question. Among our various integration initiatives, the greatest progress has been in merchandising. Within TGMD, particularly in procurement and private-brand development, integration has progressed very smoothly, and we are seeing strong momentum. As for challenges, we do not see any major issues at this point. Our target is to complete the integration of our core systems in approximately three years. Once that is achieved, we expect the integration of our operations and organizational structures to accelerate significantly. Our key priority now is to prepare thoroughly for that transition by working closely together and carefully planning the integration. So far, we have not encountered any major issues. Turning to your second question, we are also seeing synergies beyond the supply chain and utility costs, although they are relatively modest in scale. Examples include efficiencies in store-development materials, store fixtures, and system integration within the dispensing pharmacy business. We have a number of initiatives under way in these areas. That said, supply-chain synergies account for roughly 80% of the total, so our primary focus remains on ensuring that we fully realize those synergies.

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Takahashi [M]: Understood. Thank you very much. Moderator [M]: Thank you very much. We will now take the next question. Matsuo [Q]: This is Matsuo from SMBC Nikko Securities. Thank you for the explanation. I have two questions related to synergies and operating expenses. First, the level of SG&A control was stronger than I have seen historically at the WELCIA Group. The TSURUHA Group also achieved strong cost control. If both groups can sustain this level of cost control, operating income could increase significantly. Could you share your view on the sustainability of SG&A control going forward? Second, regarding merchandising synergies, you mentioned that the TSURUHA Group benefited by around 0.5 percentage points. Turning to utility costs, how much were you able to reduce costs in Q1? Was the result broadly in line with your plan, or did electricity and other utility costs come in better than expected? You already explained the merchandising side, so I would appreciate your perspective on cost-related synergies relative to your plan. Kirisawa [A]: Thank you for your questions. Let me address your first question. In Q1, both the TSURUHA Group and the WELCIA Group achieved strong control over SG&A expenses. Productivity initiatives, including the digitalization of store operations, improvements to our automated ordering systems, and measures to address rising personnel expenses and labor shortages, have begun to deliver results. These are structural improvements rather than temporary cost reductions, so we believe this level of SG&A control is sustainable. Miyake [A]: Let me take your second question. As mentioned earlier, utility expenses decreased by approximately JPY0.4 billion YoY. It is difficult to isolate the portion attributable purely to the synergies, because not all of the reduction was driven by synergy effects. That said, we expect a certain portion of these benefits to continue through Q4, broadly in line with our plan. Matsuo [Q]: One follow-up. Earlier, you mentioned that operating income exceeded the plan by approximately JPY2 billion to JPY3 billion in Q1, and I assume much of that outperformance came from SG&A control. Based on your comments, it sounds as though this level of cost control is broadly sustainable unless something unexpected occurs. Is that understanding correct? Miyake [A]: We do expect some cost increases going forward, so it would not be appropriate simply to annualize the Q1 results. Our intention is to continue managing costs carefully while responding flexibly to changes in the business environment. Matsuo [M]: Understood. Thank you very much. Moderator [M]: Thank you very much. We will now take the next question. Murata [Q]: This is Murata from JPMorgan Securities. Thank you for the detailed explanation. I have two questions, both of which follow up on earlier questions. My first question concerns gross margin. The TSURUHA Group is performing very well, but the WELCIA Group appears to be running well below the gross margin level implied by your April plan.

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You mentioned pricing activities on food products and the impact of the NHI drug price revision. My question is why the gap versus plan widened so much over the past three months. Did you end up taking a more aggressive pricing approach than you had originally expected? The drug price revision should have been reasonably foreseeable, so I would appreciate your thoughts on why the deviation became this large. Also, achieving the planned gross margin now appears quite challenging for both H1 and the full year. Realistically, should we expect some downside? I would appreciate your comments on the outlook for the WELCIA Group's gross margin. That is my first question. My second question concerns synergies. My understanding has been that the JPY15 billion target for this fiscal year mainly reflects the elimination of overlapping functions, with supply-chain synergies, NB, PB, and logistics, contributing roughly equally. My question is whether logistics is progressing smoothly because the elimination of overlapping functions is proceeding as planned. Regarding NB procurement, the TSURUHA Group's operating companies differ in product assortments. Could you comment on the progress of standardizing those areas? That is all for my second question. Speaker [A]: Let me address your first question regarding the WELCIA Group's gross margin. As you noted, the WELCIA Group's gross margin came in below plan. Compared with our initial assumptions, we adjusted our pricing and promotional activities in response to customer traffic trends. However, those adjustments were not sufficient, which resulted in gross margin coming in below plan. We are now taking steps to get back on track by placing greater emphasis on gross profit in absolute terms, although we are still below our original expectations. That said, as I mentioned earlier, SG&A expenses have been well controlled, and overall operating income was only slightly below plan. We intend to get back on track beginning in Q2. Kirisawa [A]: Let me take your second question on the synergies. Just to confirm, you are asking whether NB, PB, and logistics contribute roughly equally within the JPY15 billion synergy plan. Is that correct? Murata [Q]: Yes, and also how Q1 progressed relative to that plan. Kirisawa [A]: As Mr. Tsuruha explained earlier, most of the JPY15 billion comes from merchandising and supply-chain synergies. Within the supply chain, NB is where we are seeing synergies first, followed by PB, with logistics contributing later. At this stage, NB accounts for the largest share of the synergies, followed by PB and then logistics. That is how the synergies are developing at this stage. Murata [Q]: Thank you. Regarding NB, I assume this mainly relates to merchandising integration. The TSURUHA Group's operating companies differ in format, location, and store size, which naturally affects product assortments. Is the standardization process progressing smoothly? Kirisawa [A]: Historically, the MD approaches of the WELCIA Group and the TSURUHA Group have been quite different, and many differences still remain today. Within the TSURUHA Group, however, we had already begun standardizing MD in food and other categories before the integration, and that work has continued to progress steadily. Between the WELCIA Group and the TSURUHA Group, we will gradually move forward with MD standardization, and we expect additional synergies to emerge as that process advances.

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Murata [Q]: Thank you. One more point on gross margin for the WELCIA Group. Based on your comments, it sounds as though gross margin may fall short of plan, but you still expect to achieve the planned gross profit in absolute terms. Is that correct? Speaker [A]: Yes, that is correct for Q1. Our objective is to make up the shortfall over the remainder of the fiscal year, from Q2 through Q4. Murata [Q]: Even if gross profit falls somewhat short, strong control over SG&A expenses should keep overall profitability on track. Is that the right way to think about it? Speaker [A]: Yes, that's correct. Murata [M]: Thank you very much. Moderator [M]: Thank you very much. We will now take the next question. Nishizawa [Q]: This is Nishizawa from Bank of America. I also have two questions. First, regarding the WELCIA Group's gross margin, you mentioned earlier that you intend to get back on track from Q2 onward. To the extent you can share, could you give us some color on the specific areas you plan to adjust? Second, if I heard correctly, you mentioned that you would provide an update on synergies during H1. Now that about six months have passed since the integration, have there been any developments that were different from your initial expectations, either positively or negatively? Any insight you could share would be appreciated. Speaker [A]: Let me address your first question. Based on the Q1 results, the measures we plan to implement from Q2 onward are not anything out of the ordinary. They mainly involve reviewing our promotional activities and refining our pricing. We will continue to evaluate each initiative carefully and make steady improvements. Tsuruha [A]: Let me take your second question. Just to confirm, you are asking about the progress of our synergy initiatives and whether anything has developed differently from our original expectations. Is that correct? Nishizawa [Q]: Yes, exactly. I would like to understand whether anything has changed during H1. Tsuruha [A]: As I mentioned earlier, our synergy initiatives are progressing broadly in line with our plan. The primary driver continues to be procurement synergies, particularly improvements in NB purchasing terms and rebates. These are performing in line with our expectations, if not slightly ahead. As a result, synergy realization is following the pattern we originally anticipated, rather than being evenly distributed across the four quarters. At this point, we do not see any areas where synergies are materially below our expectations. That said, we will continue to monitor utility costs and negotiations related to product price increases, as these remain challenges for the industry as a whole. Even so, we intend to leverage the scale of the combined group and our stronger negotiating position. Overall, we believe integration is progressing smoothly, and we do not see any major issues at this stage. Nishizawa [M]: Thank you very much.

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Moderator [M]: Thank you very much. We will now take the next question. Yamaoka [Q]: This is Yamaoka from Nomura Securities. I also have two questions. First, regarding SG&A expenses. On pages 12 and 13, you show the SG&A breakdown for the TSURUHA Group and the WELCIA Group. Based on your earlier comments, may I confirm that labor-cost control was the primary driver of the improved efficiency? Looking at the breakdown, the Others category has remained almost flat, or even declined slightly, for both groups. Were there any particular items within Others that contributed to the improvement in cost efficiency? Second, regarding the TSURUHA Group's promotional strategy. You mentioned earlier that the Group avoids unnecessary promotions. Should we expect that approach to continue going forward? Speaker [A]: Let me address your first question. Personnel expenses increased in absolute terms for both the TSURUHA Group and the WELCIA Group compared with the previous year. However, because sales increased, the labor-cost ratio remained within our plan. As for the Others category, the main factor is that the previous fiscal year included certain FA-related and integration-related expenses. Those one-off expenses were not incurred this year, which is why the category appears broadly flat, or slightly lower, YoY. In that sense, the absence of those integration-related costs had a positive impact. Tsuruha [A]: Regarding your second question, our review of promotional activities will continue. We view promotions as something that must be carefully balanced. We strengthen promotional activities when we need to drive sales and customer traffic, but excessive promotions inevitably put pressure on gross profit. The appropriate promotional strategy also varies by region, the competitive environment, and whether a store is located in an urban or suburban area. While each operating company retains a certain degree of flexibility, we intend to strengthen centralized oversight across the Group. In Q1, we saw that even when the same promotional measures were implemented, the results differed from one operating company to another. That gave us a clearer understanding of how promotional activities can contribute to the synergy realization. Ultimately, it comes down to finding the right balance, and we will continue to manage our promotional activities accordingly. Yamaoka [M]: Understood. Thank you very much. Moderator [M]: Thank you. We have two more participants with their hands raised. After their questions, we will conclude the Q&A session. Kazahaya [Q]: This is Kazahaya from UBS Securities. Thank you for today's presentation. I also have two questions. First, regarding your sales and promotional strategies in Q1. From what we have heard today, it seems that the TSURUHA Group and the WELCIA Group adopted quite different promotional approaches. Could you explain the thinking behind that? Looking ahead, as MD becomes more integrated and synergies develop, how should we think about the promotional strategies of the two groups? Will they continue to operate independently, or do you expect them to become more aligned? My second question is about store openings and closures. The TSURUHA Group closed 24 stores in Q1, which is already more than half of the full-year plan of 44 closures. Should we understand that this is progressing in line with your plan?

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Kirisawa [A]: Let me address your first question. The reason the TSURUHA Group and the WELCIA Group adopted different promotional strategies in Q1 is that MD has not yet been fully integrated. We have already begun aligning certain category and item-level initiatives. However, major elements such as shelf allocation and large-scale promotional campaigns have not yet been fully integrated. As a result, each group continued to address its own business priorities, which naturally led to different promotional approaches. Once MD integration is complete, promotional strategies will also become more aligned. Promotional strategy is an integral part of MD, so we do not expect the two groups to continue pursuing fundamentally different approaches. That said, our store network extends from Hokkaido to Okinawa, and regional competitive conditions naturally differ. We will therefore retain an appropriate degree of regional flexibility while moving toward a more unified promotional strategy across the Group. Tsuruha [A]: Regarding your second question, store closures are progressing entirely in line with our plan. Kazahaya [M]: Thank you very much. Moderator [M]: Thank you very much. We will now take the final question. Thank you for waiting. Please go ahead. Jinno [Q]: This is Jinno from The Nikkei. I have two final questions. First, regarding the Karada to Kurashi ni, +1 lineup launched in June. Your presentation materials showed two products. Why were those selected as the first products to be launched? As you move forward with the broader rebranding, which product categories do you plan to prioritize for the transition to the +1 brand? Second, I have a broader question. With inflation becoming more persistent, it seems that the WELCIA Group's recent price-focused promotional strategy has resonated well with consumers. At the same time, however, my impression is that maintaining gross margin may become increasingly challenging over the longer term. Looking ahead, aside from price promotions, what initiatives do you see as being important for sustaining customer traffic? For example, private-brand products or other measures that can support both customer traffic and profitability. Kirisawa [A]: Thank you for your questions. Let me address your questions. First, regarding the Karada to Kurashi ni, +1 products, there was no particular reason those items were launched first. Across pharmaceuticals, cosmetics, daily goods, and food products, each product team is developing new items, and we simply launched the ones that were ready first. That said, geopolitical developments in the Middle East have pushed up raw-material costs for certain products, and as a result, some items originally scheduled for an earlier launch may be delayed. Even so, we will continue introducing new products as soon as they are ready. Turning to your second question, price promotions remain an important way of supporting customers in an inflationary environment, but they inevitably put pressure on gross margin. To address that, we will leverage our private-brand portfolio, including Karada to Kurashi ni, +1, and AEON's Topvalu, to provide high-quality products at affordable prices while protecting profitability.

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In addition, we plan to integrate the TSURUHA Group and WELCIA Group mobile apps next year. Through the unified app, we aim to strengthen one-to-one customer engagement and make our promotional activities more effective, enabling us to generate higher profits with the same level of promotional spending, or achieve the same results with lower promotional costs. Over the medium to long term, we intend to offset the decline in gross margin associated with price-focused promotions in the current inflationary environment through these initiatives. Jinno [M]: Thank you very much. Moderator [M]: Thank you all for your many questions. That concludes today's Q&A session. With that, we will conclude the TSURUHA HOLDINGS INC.'s financial results briefing for Q1 of the fiscal year ending February 2027. Thank you very much for joining us today. [END]

Document Notes 1. 2. 3. 4.

Portions of the document where the audio is unclear are marked with [inaudible]. Portions of the document where the audio is obscured by technical difficulty are marked with [TD]. Speaker speech is classified based on whether it [Q] asks a question to the Company, [A] provides an answer from the Company, or [M] neither asks nor answers a question. This document has been translated by SCRIPTS Asia.

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