HEIWADO CO.,LTD. Q4 FY2025 earnings call

Corporate Vision & Mid-Term Plan Context

• 2025 February fiscal year is the first year of the 5th Mid-Term Management Plan
• Corporate vision: Become a community-focused comprehensive lifestyle creation company unique to Heiwado, strengthening the core retail business to drive mutual growth between the company and local community development

1. Customer Acquisition via Catering to Parenting Generation Needs

• Targeting the 30-40 year old parenting generation with strategic initiatives: adjusted pricing for frequent-purchase items, expanded large-pack food offerings, reformed direct operated food/clothing/home goods sections including full store renovations, and attracted popular tenants for this demographic
• Deployed dedicated planning managers at large stores to run year-round sustained customer events
• Implemented price-focused strategies: maintained or lowered prices on private label brands "E-WA!" and "Kurashi-more", and adjusted size/price for Key Value Items (KVI) to match parenting generation needs
• Early results: Existing 30-40 year old customers increased spending, with average customer spending up 5.3% year-over-year and total segment sales up 1.6% year-over-year; stores that added popular tenants (e.g. Muji, Loft, Gong cha) saw higher than average customer growth across all age groups

2. Expanding the HOP Economic Zone Based on Dominant Strategy

• Dominant strategy: Build a core large store, with smaller Friend Mart food supermarkets and medium-sized GMS stores in the surrounding area to deepen market penetration in target regions
• Opened 3 new stores in the Tokai region, 1 new store in the Keihan area, and rebuilt the Friend Mart Nagahama Gion store in Shiga Prefecture (Heiwado's founding region, where roughly half of all stores are located)
• Continued store rebuilding for older locations in Shiga, adjusting formats to match current trade area needs (e.g. converted multi-story GMS to small food-focused format with residential upper floors at prime station locations, retaining full-line GMS format for areas that demand full clothing/food/home offerings)
• Result: Despite increased competition from discount stores and drug stores, food supermarket sales share in Shiga Prefecture is up 8% vs 2019 levels
• Expanded omnichannel and alternative shopping options: Existing home delivery, mobile sales, and net super services; developing small-format Friend Mart Smart stores for small trade areas in dominant regions, with plans for future expansion in Osaka and Kyoto metropolitan areas
• Added community-focused offerings: Launched a gym & studio "Furatto Puratto" at Al Plaza Tsuruga to turn large stores into community gathering spaces
• Expanded social contribution initiatives: Trained 15,045 in-store dementia supporters to assist vulnerable customers, partnered with Shiga Bank on a comprehensive collaboration agreement, and supported local events including the 2025 Shiga National Sports Festival

3. Promoting Cost Structure Reform Including Productivity Improvement

• Expanded use of consolidated distribution centers: Added a new Process Delica Center in 2023, complementing existing centers in Kyoto Kumiyama and Shiga Taga, to address in-store labor shortages
• Distribution center benefits: Expanded product variety for all store sizes (especially small stores with limited labor), reduced in-store work time, improved labor productivity, and grew rice and bakery product sales significantly
• Labor management results: Total working hours have dropped ~15% since before 2017, while individual employee wages have increased with no large overall increase in total personnel costs, and labor productivity per hour per employee continues to rise
• Resolved Logistics 2024 problems: Eliminated excessive truck waiting times via GPS and reservation systems, switched processed food ordering from same-day to 2 days in advance to stabilize truck capacity and reduce waste
• Joined the SM Logistics Research Association with over 20 other food supermarkets (including Life, Okuwa, Mandai) to collaborate on solving remaining industry logistics issues like palletization and empty truck utilization

Consolidated Results:

• Total operating revenue: 444.8 billion yen, up 19.4 billion yen year-over-year
• Operating profit: 13.3 billion yen
• Ordinary profit: 14.6 billion yen
• Net profit attributable to parent shareholders: 10.7 billion yen
• Result: Increased revenue and increased profit

Standalone (Parent Company) Results:

• Total operating revenue: 403.6 billion yen, up 22.7 billion yen year-over-year (includes 2.6 billion yen gain from absorbing consolidated subsidiary Maruzen), 106% of prior year
• Operating profit: 10.3 billion yen, down 0.6 billion yen year-over-year
• Ordinary profit: 12.1 billion yen, down 0.2 billion yen year-over-year
• Net profit: 8.8 billion yen, increased year-over-year
• Result: Increased revenue, decreased operating/ordinary profit, increased net profit

Product Segment (Existing Store Standalone, Year-over-Year):

• Food: 104.3%, with fresh food reaching 105.1% — strong growth driven by increased customer count
• Apparel: 98.5%, negative growth due to unseasonable temperatures hurting seasonal product sales
• Home-related goods: 100.3%, slight growth; seasonal products (e.g. bedding) underperformed, offset by growth in daily necessities, drug products, and pet supplies

Consolidated Subsidiaries:

• Bestone and National Maintenance: Large revenue growth (revenue eliminated in consolidation, profit contribution positive); Bestone revenue up over 20% vs 2022 from expanded distribution center use
• Heiwado (China) and Direct Shop: Decreased revenue
• Five Star: Decreased profit due to higher personnel costs

• For the 2026 February fiscal year, Heiwado plans total consolidated capital expenditures of 20 billion yen, maintaining the elevated investment level seen over the past 2 years
  • Capital expenditure breakdown: 5.2 billion yen for new stores (2.5 billion yen allocated to 2026+ opening projects; 4 new stores planned for 2025 in Shiga Prefecture), 7.1 billion yen for renovation and repairs, 5.0 billion yen for IT investment (increased to address security risks and build out data infrastructure for data-driven management)
• Full-year consolidated performance guidance:
  • Operating revenue: 456.0 billion yen, 2.5% higher than the prior fiscal year
  • Net profit: 10.8 billion yen, 0.7% higher than the prior fiscal year
• Full-year standalone performance guidance:
  • Operating revenue: 425.0 billion yen, 5.3% higher than the prior fiscal year
  • Net profit: 10.2 billion yen, 15.5% higher than the prior fiscal year
• Guidance assumes continued progress on sales and productivity improvement initiatives under the 5th Mid-Term Management Plan

• Increasing competitive pressure in core Shiga Prefecture, with large numbers of discount supermarkets and food-focused drug stores entering the market, putting pressure on market share
• Standalone gross profit came in below plan, driven by: strategic planned gross margin reductions from pricing for the parenting generation, further unplanned gross margin declines from expanded distribution center use, poor supply-demand balance and markdown control that lowered fresh food gross margins, and higher than expected raw material price increases that compressed margins when selling prices were held stable
• Persistent labor shortages at store locations, which limits in-store processing capacity
• Ongoing industry-wide logistics challenges (including remaining issues like palletization) even after addressing core Logistics 2024 problems
• Unseasonable temperature conditions negatively impact seasonal apparel and home goods sales, as seen in the 2025 fiscal year

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