Aeon Co., Ltd. (8267) Earnings Call Transcript & Summary

I'm Egawa, in charge of Finance and Business Management. Thank you very much for taking the time out of your busy schedules to join our IR Day. I would also like to express our sincere gratitude for your continued support of our company. We are currently in the final year of our medium-term management plan covering fiscal years 2021 through 2025. In addition, we plan to announce our new medium-term plan for fiscal year 2026 to fiscal year 2030 in April. While today is not the occasion to discuss the specific details of that new plan, we believe it is important before it begins to first share the perspectives that form the basis of our thinking. This includes our current view of the environment, how we interpret the changes around us and the key challenges we recognize as the starting point for future discussions. Over the past 5 years, the environment surrounding the retail industry has changed significantly, diversifying consumer behavior, the rapid advancement of digitalization and shifts in cost structures following the COVID-19 pandemic. These factors have substantially altered the fundamental assumptions on which our group operates. In response to these changes, Aeon has worked as an integrated group to advance structural reforms and strengthen profitability. Today's sessions will focus on the GMS business, the supermarket business and merchandising and logistics. We understand that these areas are of particular interest to many analysts and investors. These are also core businesses and functions that have a major impact on the group's overall capital efficiency and corporate value. For that reason, the executives responsible for these areas will take the stage and provide their perspectives directly. In today's session, we'll look back on the 5 years of the current medium-term plan, share the management challenges we recognize today and discuss how we intend to address these issues as we move into fiscal 2026 and beyond. From the standpoint of finance, it's extremely important that business leaders face these challenges directly and clearly explain how they intend to address them. This is essential for maintaining and further strengthening the trust we have built with the capital markets. Discussing growth without a clear recognition of issues would, in our view, make it difficult to advance in a direction that improves capital efficiency or enhances corporate value. For that reason, today's speakers will talk not only about past achievements, but also about areas where results were not sufficient as well as issues that remain challenges today as openly and candidly as possible. As the executive responsible for finance, my role is to continuously assess whether the initiatives of each business are leading to improved profitability, stronger cash generation and returns that are appropriate relative to invested capital and reflect those assessments in our management processes. In that sense, today's discussions represent an important step in that ongoing evaluation. Through today's IR Day, we hope you will gain a clear sense of where the Aeon Group stands today, the challenges we recognize and how we are preparing for the next stage of our growth. Although our time today is limited, we have scheduled Q&A sessions after each presentation. Your candid feedback and questions provide extremely valuable insights for strengthening both our management and our dialogue with the capital markets. We would greatly appreciate your honest views. That concludes my opening remarks. Thank you very much.

I'm Furusawa, and I oversee the GMS business. Thank you for joining us today. First, I would like to express my appreciation for your continued support. Today, I'll outline our future initiatives for the GMS business. As shown on the screen, I'll cover 3 areas: the evolution of GMS, our recognition of key challenges amid environmental changes and our strategic initiatives going forward. While I'll refer primarily to Aeon Retail as a concrete example, the issues are common across the GMS operating companies and many initiatives will be pursued collectively. Let me begin with the evolution of GMS. From fiscal year 2019 to fiscal year 2024, operating revenue increased to 115%, supported by business expansion through mergers and integrations. However, the operating margin improved by only 0.3 percentage points. We clearly recognize this as a challenge. Prior to 2018, we undertook the GMS structural reforms, but we were unable to build merchandise assortments that resonated with customers. This led to issues such as inventory accumulation, longer inventory turnover days and increased markdown losses. In response, beginning in fiscal year 2019, we launched a revival plan, prioritizing structural reforms directly linked to profitability, including inventory optimization and cost structure reform while responding to COVID-related challenges. This helped establish a more resilient foundation. From fiscal year 2023, we shifted our focus toward revitalization and renewed growth. While continuing structural reforms, we worked to increase traffic and sales by expanding and enhancing food and health and beauty care sales floors, which offer shorter turnover cycles and faster capital recovery. At the same time, we began developing new sales floor models for apparel as part of our demand reform initiatives, and we accelerated the revitalization of existing assets. These efforts were positioned as reforms aimed at the next stage of growth. As a result of these initiatives, we have entered a phase in which we can accelerate the growth of the GMS business. From fiscal year 2025, I assumed responsibility for my predecessor, Executive Officer, Mr. [ Ide ]. Since taking office, I believe that accelerating GMS growth requires a clear understanding of environmental changes and a decisive response to them. We view these changes both as risks to business continuity and as opportunities for business growth, and we intend to address both proactively. Among the key challenges we recognize, several require particular attention. Even food, which has driven growth to date, may face market contraction amid population decline and demographic aging. We must take this possibility seriously. For food to continue growing, it will be essential to capture share from adjacent industries, including food service. At the same time, unless we rebuild the nonfood areas of apparel and home furnishing, we will not be able to fundamentally improve the retail profit structure, which remains the core of the GMS format. In addition, as the central consuming generation shifts toward younger customers, winning support from younger customers is an absolute requirement for sustainable growth. Alongside productivity improvement, securing new sources of earnings and developing new formats that incorporate them is an urgent priority. We share this recognition across the entire GMS organization and are moving with a unified sense of purpose. Based on this, the vision we aim for in the GMS business is to realize a new comprehensive offering. We'll create a new one-stop value proposition that integrates products, sales floors, services, experiences and spaces. We believe that one-stop convenience has become a distinctive strength unique to us. And by maximizing this value, we can establish a clear competitive advantage. Within each category of this new value, our aim is to become a strong specialist that comes first to customers' minds. By adding to deliciousness and enjoyment, the value sought by local customers will become a community gathering place rooted in each region. This vision forms the backbone of our new GMS strategy. Specifically, we'll promote: one, reform of the profit structure in the retail business; two, maximizing earnings of the shopping center developer business; three, establishing new earnings businesses; and four, building the foundations that enhance execution. We'll take a zero-based approach and reexamine long-standing practices and assumptions, identifying what to stop and what to change and carry out fundamental remodeling. Using the resources and personnel thus generated, we will drive reforms in both the retail and shopping center development businesses as dual engines. We recognize that reinvesting the profits generated by these reforms into new earnings businesses, our next growth engine and thereby shifting the portfolio is critically important. From here, I'll outline the direction of each reform. The first and main pillar is reform of the retail business profit structure. Our top priority is reforms in apparel and home furnishing. Beginning with apparel, we recognize the fundamental issue lies in an overall lack of marketing capability. In particular, we have not sufficiently understood our customers or fully grasped the competitive environment. We must begin by acknowledging and reflecting on this shortcoming. Based on this recognition, we have identified 3 major directions for reform. Through innovation in sales floor models, product reform and the creation of new earnings streams, we aim to transform the overall profit structure of apparel and acquire new customers. For the sales floor model, we'll evolve our approach from the customers' perspective, enhancing specialization across both merchandise and sales floor presentation. At the same time, we'll optimize selling space in line with shifts toward growth categories. In particular, we'll reinforce seasonal and occasion-based category events, one of the core strengths of GMS, and accelerate their rollout to existing stores. In addition, we'll strengthen our merchandise strategy along 2 axes, SPA and exclusive products. We'll continuously develop and launch SPA products in the basic category as well as introduce new merchandise development initiatives. We'll also strengthen the development of products and services tailored to multi-format operations. Furthermore, by creating and expanding new revenue sources and growth areas such as the share rental business, we will reform the profit structure and improve overall apparel earnings. As one concrete example of these initiatives, the new sales floor model, which began with Funabashi in fiscal year 2023 has been expanded to 32 stores by fiscal year 2025. In November last year, we implemented a comprehensive revitalization at Aeon Style Kurashiki. As a result, apparel sales increased to 120% year-on-year and sales per square meter improved significantly, leading to a market enhancement in sales floor productivity. As for product reform, in December last year, we launched the Topvalu X accelerant recovery wear innerwear. In this month, we are expanding the series with loungewear. We'll work to capture a leading market share going forward. Sales volumes have grown steadily since launch, and we intend to continue developing and rolling out a steady stream of products that combine compelling price and value. Regarding the establishment of new sources of earnings, we'll develop product concepts centered on the basics domain that enhance the convenience of one-stop shopping, enabling customers to casually purchase fashionable items even in small stores and within food sales floors, and we'll expand these initiatives by leveraging our scale. Next, turning to our initiatives in home furnishing. The fundamental issue is that Aeon Retail has not sufficiently defined the scope and positioning of this area. Similar to apparel, a lack of marketing capability has created a needs gap with customers, resulting in a continued loss of shares to competitors. We will clearly decide what Aeon should consistently develop and proceed with reforms to both the sales floor model and products to change the profit structure of home furnishing. First, we'll firmly determine the appropriate assortment domains and SKUs and optimize sales floor area. In parallel, we need to rebuild the price matrix that earns customer support. Based on this, we began verifying a sales floor model in fiscal year 2024 that reorganizes departmental domains to match the market. We are also pursuing new initiatives and reallocated floor space, for example, expanding into the entertainment domain, and we'll take on the challenge of developing merchandise that attracts new customers. For our core HOME COORDY, we will accelerate SPA product development to evolve into a highly specialized format. We aim for a 100% composition of PB and exclusive products, and we will rebuild the brand concept accordingly. By strengthening the structure centered on the strong price competitive hero items, we'll work to expand both sales and profits. As a concrete example of home furnishing initiatives, starting in fiscal year 2024, we began verification at Aeon Style Dainichi, and the model has expanded to 7 stores by fiscal year 2025. At Dainichi, sales rose to 130% year-on-year and sales floor efficiency per square meter also improved. The newly introduced entertainment domain is helping us acquire younger customers, functioning as a traffic driver to the upper floors. We believe this can generate positive spillover effects for the entire facility. Alongside the expansion of the enhanced leisure model, we are also building home HOME COORDY street within the general merchandise areas and the food sales floors, deploying high-frequency HOME COORDY items such as kitchenware and sundries to strengthen one-stop shopping value and enhance customer convenience. Through these product reforms, we'll clarify focus areas, rebrand and strengthen SPA product development with the goal of achieving 100% PB and exclusive products. Next, food and health and beauty care. We have been addressing these challenges since before last year, and we have been building destinations centered on fresh and delicatessen where we can compete and differentiate ourselves. With deliciousness as the absolute premise, we'll pursue experiences and enjoyment that only the GMS can provide. As a sales floor that embodies this strategy, in the meat category, we introduced a new MEAT PARK sales floor, combining the fun of choosing experiential elements and convenience, starting last October at Aeon Style Itabashi. Sales there have increased significantly to 130% year-on-year. In health and beauty care, to differentiate ourselves from drugstores, we are building a beauty destination and attracting younger customers. We'll enhance the experiential value unique to physical stores and strengthen the development and rollout of distinctive private brand and exclusive products. We introduced this enhanced beauty sales floor in October at Aeon Style Dainichi as well, where beauty sales have grown to 115% year-on-year, with a particularly strong increase in younger customers. As I mentioned earlier, the key is to horizontally deploy the critical success factors of these sales floor models to existing stores. We'll continue to refine them through repeated verification and improvement, always from the customer's perspective. Through these product reforms, we aim to elevate the value we provide to the point where we become the first brand that comes to mind for customers in each category. By way of example, as a category positioned to capture share from the food service market, we have made pizza a company-wide focus this fiscal year. In fiscal year 2025, sales have expanded to 150% year-on-year as we actively work to capture share from the home delivery pizza market. We are confident in the outstanding quality and taste of this product, and we sincerely hope you will have the opportunity to try it. As demonstrated by the pizza example, our most important objective is to continuously create categories in which we become top of mind for customers, not only in food, but across our business. Going forward, key food categories include yakitori, fresh desserts, cut fruit, service counter seafood and sushi. In nonfood, we see opportunities in areas such as school supplies, umbrellas and various fashion accessories. The functional accelerant line mentioned earlier is another example. Our core product development principle is how many reason-to-visit items we can create, items that give customers a reason to choose our stores, and we will advance these efforts proactively. We will then further refine our expertise in categories where we can be top-of-mind for customers and selectively evolve them into strong specialty format businesses. For example, in the growing share rental market, we operate LULUTI, a rental dress business, Doublefocus, a merchandise line to acquire younger customers, and Aeon Smile, a life support service addressing the needs of an aging society. In light of environmental changes, these specialist businesses grounded in customer perspective and market trends have begun to produce results. These are integrated merchandising and sales specialist businesses, and we will strengthen their creation and development as part of the reform of the retail profit structure, thereby changing the overall profit structure of the retail business. The second reform is maximizing earnings in the shopping center developer business, which we will drive in tandem with the retail business as twin pillars. Our key challenge is improving the profitability of our older box type stores, which account for nearly 60%. However, these properties are located in strong trade areas with established customer bases. We believe that revitalizing these assets presents a significant opportunity to transform our profit structure. Our reform directions are threefold: revitalization, rebirth and selective scrap and build. Based on market conditions and regional needs, we'll remodel entire facilities and create community gathering places. Most recently, at Ichikawa Colton Plaza, which we inherited from Daiei, we reopened it last November in a rebirth format. By developing new sales floors that align our latest Aeon Retail merchandise with local demand, sales have increased by approximately 30%, reaching 130% compared with pre-succession levels. Through fiscal year 2024, we have introduced the [indiscernible] format in 14 locations, mainly for new stores and box type revitalizations. Built around the concepts of community, commodity and one-stop convenience, while further study is needed on profitability, the format has gained solid customer support, although further refinement of profitability remains an important task. To further establish this model, we formed a dedicated project team this fiscal year to revisit it once more. We are planning additional pilots from fiscal year 2026. And while checking and establishing profitability, we aim to expand to around 40 locations by fiscal year 2030 and position it as our next growth format. The third reform is the establishment of new earnings businesses. As a concrete example, let me discuss our retail media business. We have not been fully utilizing our store spaces, GMS asset as a revenue-generating asset for the future, and we believe it is important to put them to work for earnings. Our direction is to leverage all assets, spaces, sales floors, customer traffic, shopping centers, our membership base, apps and e-commerce, and organically connect them, enhance advertising value and strengthen the business of converting space in profit. Anchored in our physical stores, we will link advertising, sales floors and information to improve customer experience value, increase product sell-through and feed insights from data analysis and sharing in the next initiatives. As one example, our collaboration this fiscal year between our prepared foods Karaage brand, [indiscernible] and Coca-Cola produced approximately double year-on-year sales for both parties. The co-purchase rate also rose sharply, contributing to branding and the growth in sales and profits for both. In this way, we will build a win-win ecosystem that circulates benefits among customers, business partners and ourselves and expand the business. The fourth reform is building the foundations to enhance execution. Given the declining working population and persistently rising costs, it is clear that the traditional business model will no longer be sustainable. We recognize that we are reaching the limits of prior cost structure reforms. As I mentioned in the framework of the GMS reforms, it is essential to revisit long-standing practices and assumptions from a zero-based perspective and remodel business operations to raise productivity. We see 4 major directions for reform, reducing indirect costs, cutting headquarters and head office costs, digital transformation of the supply chain, incorporating new domains such as RFID, radio frequency identification, strengthening training systems by expanding the job scope per employee and accelerating in-store digitalization to eliminate on-site pain points and improve operational efficiency. The labor hours created through these initiatives will be shifted to customer value-creating activities and tasks such as customer service and new businesses. Through this, we will drive growth. Finally, on March 18, we will showcase our initiatives at Aeon Mall Tsudanuma South, which will grand open as a store that incorporates the key elements of the new GMS model with reforms in products, merchandising and sales floors. While we are still in a transitional phase and in the midst of evolution, we would very much like you to see the sales floors and products firsthand and experience our initiatives directly. That concludes my explanation of the GMS initiatives. Thank you for your attention.

In the GMS business, profitability has been sluggish for several years. Among top line growth, margin mix improvement and structural cost reform, which area is the highest priority?

Our highest priority is a fundamental redesign of the sales floor and the earnings structure, especially in apparel and home furnishings. Today, sales area allocation, actual demand and customer needs are misaligned. Correcting this mismatch is by far our most critical task. At the same time, we are working to improve gross margin by redesigning our product development process and optimizing sell-through, markdowns, pricing and inventory turnover. These end-to-end processes will be rebuilt using AI and related technologies. As labor and other costs continue rising, we'll mitigate those pressures while steadily improving the profitability of our existing businesses. Ultimately, we aim to shift the profit structure of the retail business itself.

You plan to revamp the apparel sales floor. Will you reduce sales area? How the roles with specialty stores and product mix direction evolve?

We are not planning a major reduction in sales area. The focus is on refreshing the assortment. We are underrepresented in brands for younger customers. So we will broadly expand casual categories, casual wear, accessories, footwear and bags, innerwear and loungewear, while reducing areas with persistent underperformance. Regarding roles with specialty stores, some categories operate as stand-alone specialty formats, while others such as GFoot and Topvalu collection operate on integrated sales floors. Rules will differ by department with some strengthened as SVA type areas and others organized around trend-driven assortments. Our direction is a unified and coherent sales floor. At Aeon Mall Funabashi, we shifted layouts from industry-based classifications to scenes and occasions. This revealed gaps between our assumptions and customer needs. We are addressing these one by one, including rebalancing space. Aeon Style Kurashiki added missing categories, loungewear, casual wear for older adults and men's daily wear, and optimized the layout based on customer feedback. We will continue evolving this model.

You have improved productivity using self-checkout and AI ordering. Where do you see the next areas of medium- to long-term productivity gains?

Over several years, we have built the foundation for a more efficient model. AI ordering, AI pricing and self-checkout have delivered major labor hour reductions. Hardware investments are now largely complete, so we will pivot to software and operational improvements. Priorities include increasing AI ordering accuracy and employee proficiency, enhancing online supermarket operations, order picking, assortment, UI, UX and reducing indirect costs at headquarters. A dedicated DX and operations reform team has been established. Process center development will take time, but by advancing initiatives in parallel, we expect further productivity gains.

I'm Hide responsible for the Supermarket business. While the supermarket business spans a wide range, today, I'd like to focus on one of its strategic pillars, the capital region strategy. Before doing so, I'll briefly look back on the overall business and then highlight the key initiatives of U.S.M.H, where I have assumed the role of President and CEO since May as well as selected points on our strategic small format operator, My Basket. Looking back over the past 5 years, operating revenue in the supermarket business has exceeded JPY 3 trillion annually, supported by organic growth and business integrations with Fuji and Inageya. However, operating profit varies among the companies. While some have steadily delivered higher revenue and profit at the segment level, we still see stagnation due to factors such as a rising SG&A ratio. There remains considerable room to improve both gross profit and SG&A, and it is essential that we accelerate reforms while enhancing execution. As for our view of the environment, we recognized dramatic changes such as inflation, demographic change, including population decline, climate and geopolitical shifts and a weaker yen. Against these dramatic changes, we'll proceed with a clear understanding of the challenges, clarify our current position and issues and execute reforms. Let me turn to our regional shift initiatives. As we have previously explained, our group has been promoting management integration with the aim of becoming the #1 retailer in each region, rooted in the daily lives of local customers and contributing to local communities, and we've advanced management integrations accordingly. Food has strong regional characteristics, and we have managed our business with careful attention to such differences. As already communicated, the East-West reorganization of the supermarket business will take place on March 1. MaxValu Kanto, Daiei's Kanto business, and Aeon Mall have integrated management in the East, while Daiei and KOHYO have integrated management in the Kinki region at the same timing. We plan to provide further details through a formal announcement. Within our regional shift program, the most important priority is the capital region strategy. Needless to say, the Tokyo Metropolitan area remains a growth market with an outlook for population increase and a high proportion of younger consumers. Trends change rapidly and new needs emerge daily. The market also evolves quickly and competition is intense. In this market, through a multi-format approach, U.S.M.H's 4 chains with physical stores, My Basket, and the online business, Green Beans, we intend to address the full spectrum of customer needs and expand our share. This slide shows the basic business policy introduced this fiscal year when I assumed responsibility for the GMS business. In the face of significant environmental change under inflation, we are executing a growth strategy centered on building stores that earn customers' support, together with the supporting foundations and cost structure reform. We have also specified focused items under both the growth strategy and the profit structure reform. In particular, this fiscal year, we have emphasized value, defined as quality relative to price, B equals P over Q. We are pursuing both elements and implementing price strategies commonly across companies. Each company has revised its price structure and strengthened sales through KVC, key value categories, and KVI, key value items. Recognizing that cross-format competition will intensify further, we have also begun establishing new growth formats. Allow me to reflect on U.S.M.H, which is central to the metropolitan strategy. Since its launch in 2015, U.S.M.H has worked to build common functions and infrastructure so that its 4 companies: Maruetsu, KASUMI, MaxValu Kanto and newly added in fiscal year 2024, Inageya, can each leverage their strengths. We have undertaken a variety of new initiatives. However, in terms of group synergies, our efforts remain largely superficial. As a result, we failed to translate them into growth and competitiveness. We take this to heart. Accordingly, upon my appointment in May, we launched a 100-day reform plan, and within the first 100 days, set strategic directions for reform. From March onward, we will advance reforms in tandem with organizational function reviews and reorganization. Specifically, we will unify KVI, KVC across the 4 companies, jointly procure new seasonal and topical products and leverage the Aeon Group's best resources to drive traffic and basket size. Starting in Maruetsu, we are introducing WAON POINT, thereby capturing demand within the Aeon Living Zone and expanding membership. While strengthening collaboration among the 4 U.S.M.H companies, we are also deepening ties with Aeon Holdings. As shown here, we are particularly moving towards shared use of logistics centers, shared use of points and as Mr. Furusawa noted earlier today, initiatives in retail media. Looking ahead to the next fiscal year, which starts in March 2026, we'll further develop our basic policies and promotion framework through 3 reform strategies. First, for area strategy, we'll shift from company or banner-based strategy and management to area-based management. Second, for store strategy, given the variety of store sizes in the metropolitan area, we'll build store models aligned to 100 subo, approximately 330 square meters, 300 subo, approximately 990 square meters, and 500 subo plus, approximately 1,650 square meter formats. For structural reform, we'll move away from company-specific or U.S.M.H-specific partial optimization toward overall optimization. In fiscal year 2026, we'll begin functional integration, reviewing functions and, in parallel, moving toward Aeon Group standardization across product, logistics, IT, HR and accounting, including back-office integration. At U.S.M.H, we are firmly executing new growth models outlined in the basic supermarket business policy. This fiscal year, across both urban and rural areas, we are focused on strengthening fresh and delicatessen and on revitalization with a low price emphasis. In our sales floor and operations reforms, we have reset categories in line with market growth rates, narrowed SKUs by raising per SKU productivity and reviewed staffing and store organization. As a result, the top line has grown sharply, and we are seeing solid traction in sales. As I will note later, by advancing upstream supply chain reforms from logistics to process centers, we will work to increase total gross profit while raising the top line and, in parallel, reduce SG&A. Another concrete initiative is the redevelopment of the Aeon Food Style format. This is an approximately 300 subo model, primarily for dense urban areas. Last month, we opened MaxValu Express Sagamiono. Initial results have been steady from the first month. That said, the current deployment is under the MaxValu banner, and we position Sagamiono as a zero number pilot store. The site is a little over 200 subo, smaller than the 300 subo concept, so not all elements are in place. Going forward, centering on fresh and delicatessen, we will pursue merchandising that leverages the strengths of the 3 companies: MaxValu Kanto, Daiei and Aeon Market. The 300 subo Aeon Food Style model aims to deliver a sense of freshness, energy, fun and affordability. We will strengthen fresh, tasty and especially convenient delicatessen offerings and enhance proposals targeting family households. Over the next 5 years through fiscal year 2030, we intend to complete revitalization across the entire Aeon Food Style chain. This fiscal year, we are prioritizing the 23 wards of Tokyo and preparing to revitalize around 20 stores. We plan to announce details of the first new Aeon Food Style store shortly, ahead of the March opening, and we invite you to see it. For U.S.M.H overall, in fiscal year 2026, we are planning roughly 15 new stores and a little over 40 store renewals. These plans are currently under validation. Let me turn to My Basket, which plays a key role in our metropolitan multi-format strategy. Since opening its first store in 2005 as a small trade area format that delivers low prices and quality every day to urban consumers, My Basket has pursued reforms focused on sales floor efficiency and increasing shopping frequency under 4 concepts: near, low price, clean and friendly. It has since grown into a format capable of stable growth and profit generation. As at the end of February 2025, My Basket has exceeded 1,200 stores. To improve management and logistics efficiency, brand recognition and the reproducibility of this store model, we have limited the trade area to the metropolitan region and pursued dense area-based openings rather than scattered isolated dots. We are reinforcing our dominant presence, particularly in Tokyo's 23 wards, Yokohama and Kawasaki, areas with little scope for large-format openings, while also expanding into Saitama, Chiba and the Tama area. Looking ahead, we will raise new store openings from the current level of about 100 per year currently to 150 and then 200 per year. And as already announced, we will establish a 2,500-store network by fiscal year 2030. From next fiscal year, we'll strengthen the organizational capabilities for site development and construction to support this high velocity opening plan. In addition to new openings, My Basket is also revitalizing existing stores, many now more than 5 years old. As with supermarket and the food sections of GMS, priorities include expanding frozen food space, expanding delicatessen and rolling out self-checkout systems, including cash capable and cashless units. For example, since My Basket launched 20 years ago, household spending on frozen foods has expanded to roughly 2.4x its level at the time. In response to the significant market shift and rising customer demand, we are resetting categories. By introducing both cashless and cash accepting self-checkout systems and redeploying labor from register operation to customer service, even small stores can support customers effectively with lean staffing. A further strength of My Basket is its use of group assets that would be difficult for a stand-alone operator. In addition to handling competitively priced private brand products, My Basket optimizes its assortment by leveraging best sellers from Aeon Group's GMS and supermarket businesses. Using the group supply chain, it has begun receiving popular delicatessen items from Aeon Food Supply's crafted delicatessen line, thereby improving daily sales and sales per square meter. Leveraging group scale, we are also reducing costs on national brands, including logistics. From this fiscal year, we have further advanced group-wide joint promotions and joint products such as Black Friday, tailored for supermarkets and for My Basket, aligned with seasonal events to enhance differentiation. We'll continue to customize and deploy group assets to raise customer satisfaction and lower costs. Store operations are equally critical. My Basket pursues simplification, standardization and 3-shift operational optimization, enabling each part-time and hourly associate to perform their complete tasks. This supports lean staff store operations and enables high velocity openings. One core mechanism for operational standardization is our initial training center. These are store adjacent facilities that handle recruitment, onboarding orientation and pre-assignment training. We previously operated 3 locations: Yokohama, Shinjuku and Iidabashi. But in light of store expansion, we have opened a new hub in the Funabashi area to better serve employees in Tokyo's Eastern wards and Chiba. Over 2 days, the training center provides classroom instruction, register training, work rules and customer service education and on-the-job training in the co-located store, including register operation, customer service and shelf maintenance tasks such as front-facing and replenishment. I have covered key points of the U.S.M.H initiatives and of My basket. Importantly, this applies equally to the supermarket business as a whole. We'll intensify the development of strong hero items and signature products while reallocating and developing talent across U.S.M.H companies. We'll integrate functions across the supply chain, joint promotions, joint procurement products, commercial flow integration and optimization and maximize group synergies through the use of shared Aeon assets and services such as Topvalu and iAEON. Over the next 2 years, we'll make the necessary investments in digital systems to standardize processes and lift productivity. Aeon, U.S.M.H and each company will coordinate closely to promote reforms, and, together with My Basket and Green Beans under the Metropolitan strategy, will return cost reductions to more customers, and through a reinforced supply chain mechanism, deliver value products sustainably. Because the supply chain program includes elements that require time, not all effects will appear immediately. We believe the initiatives in the metropolitan area will extend beyond the metropolitan strategy and diffuse across the group. In this medium-term plan, we'll firmly advance logistics reform and the process center strategy and make information systems and digital investments, including productivity improvements to further amplify group synergies at Aeon Food Style and Shinsei Daiei. We'll continue to fulfill our accountability through earnings announcements, shareholder meetings and other reforms where we can report progress. That concludes my presentation. Thank you very much.

What will be different in the next medium-term plan given past challenges of low profitability businesses?

Low operating margins remain our biggest challenge. The last 5 years have shown the limits of our previous approach. We'll scrutinize new store investments and prioritize revitalizing existing stores. Inflation has raised construction costs and breakeven sales. The Aeon Group holds benchmark assets in the Tokyo Metropolitan area centered on U.S.M.H, assets competitors cannot easily replicate. We will leverage this strength to maximize value. Revitalization must extend beyond the front end into the supply chain, digital, logistics and process centers, so margins and SG&A become structurally manageable.

U.S.M.H was formed over 10 years ago, yet profitability remains challenged. How will you drive cultural and organizational transformation?

Past initiatives were individually optimized and urgency was not fully shared. We identified negative legacies, including investments without returns. Upon taking office, I launched a 100-day reform plan and strengthened communication via monthly joint morning meetings. We clarify what must change and how the organization should evolve. I also explained Aeon Group's DNA and philosophy monthly, reinforcing shared understanding. Senior management is aligned. As the mindset spreads, we are confident U.S.M.H will be reborn.

Why is My Basket strongly supported? What challenges lie ahead in expanding to 2,500 stores?

Price competitiveness is the biggest driver, supported by convenience. To double the store count, infrastructure, process centers and back-office functions must be expanded. Rising costs require improvements as well. We will leverage group assets to generate synergies across My Basket, supermarkets and health and wellness companies.

My Basket generated around JPY 8 billion. Is the model complete? And are you considering franchising?

We are not considering franchising. Despite strong recent performance, the model is not yet mature. Process center capacity is insufficient for larger scale. So rapid acceleration would not be appropriate. We will continue reforms while anticipating change.

What organizational updates support cross-company growth at U.S.M.H?

Some headquarters functions were consolidated, but full integration is needed. Historically, 5 headquarters existed in parallel. We aim for a single integrated system. Information infrastructure has been insufficient and logistics was siloed by company. Investments in logistics, process centers and digital will create a shared platform.

I'm Tsuchiya, responsible for merchandising and logistics. Thank you for being here today, especially in the rain. Following last year's IR Day, I would also like to offer remarks again this year. I'll first review progress under the current medium-term plan and look back on fiscal year 2025, and then briefly outline our merchandising and logistics policies. This slide shows progress on the key merchandising and logistics initiatives in the current medium-term plan. First, on aggregating demand for national brands. Aeon product procurement is on track to exceed JPY 1 trillion in total procurement for the first time this year and continues to grow. Second, on creating and proposing unique value products, as planned, private brands are set to reach JPY 2 trillion in sales this year, of which Topvalu will account for JPY 1.2 trillion, fully in line with the plan. Third, in building group food hubs, operations began at the Craft Delica Funabashi facility in June 2024. And we strengthened functions further by launching the new Niigata process center in April 2025. Fourth, on optimizing the supply chain. We are prepared to introduce a group-wide common product master. This is scheduled to go live in August 2026. Let me first reflect on fiscal year 2025. As you know, cost push inflation amid ongoing socioeconomic, climate and geopolitical factors increased essential living expenses and, in our view, weighed on quality of life. We aim to help alleviate that burden and help customers regain richness in daily living, eating well, staying healthy and enjoying life. Under inflation, our product work focused on the dual axis of price and value. On price, we executed price reductions, increased pack sizes and reformed the procurement process for private brands. These price and pack size initiatives increased sales for both national brands and private brands and earn customer support. Regarding the PB procurement process reform, we revisited how we source, scan the world for supply sources and examine the entire 7-step supply chain process to eliminate waste, asking which country offers the optimal option for each case and conversely, where another country might be superior and change procurement accordingly. As one example, best price tissues without our cartons removed were among the first products under that reform. By significantly improving the margin rate and reshaping the sales floor, we expanded gross profit. As shown here, gross margin rate rose by 13%, and we are showing this approach across teams as we develop our Topvalu product developers in world-class talent. We'll continue these efforts in fiscal year 2026. A second example on value concerns cocoa. With cocoa bean prices surging and broader issues around the cocoa industry, we codeveloped with an overseas supplier, a chocolate-like product that does not use cocoa. In June last year, we launched Choco ka, which uses sunflower seeds as its main ingredient. Although it contains no cocoa beans, it offers a taste, sweetness and smoothness like that of chocolate. It has earned strong repeat purchases. Roughly 8 months after launch, full-scale launch began in summer. Cumulative sales surpassed 1 million packs. We'll continue to meet diverse needs and deliver fun and excitement in daily life. For baby food, the Fun Fun Smile series draws on learnings from Sweden, a country advanced in child care. These products carry JAS organic certification and are developed largely in line with Codex standards. We expanded the lineup, such as easy-to-use weaning ingredients to support busy parents. Rice was a major topic in 2025. When the government announced the release of reserved rice through discretionary contracts last May, the group immediately bid for 20,000 tons. Beginning in June, we started sales in 4 stores nationwide and then expanded handling across 26 group companies. Many customers told us they were finally able to buy rice again. As rice distribution volumes decreased from 2024 and continued tightness was expected, we also imported U.S. grown Calrose rice. After pilot sales began in January last year, we rolled out Calrose rice Karoyaka nationwide in June. In 2025, we focused strongly on how to ensure stable rice supply for customers amid tight market conditions. Turning to logistics. In fiscal year 2025, to secure stable product supply within the group and optimize logistics efficiency, we launched 3 cross-docking centers and 1 process center. These initiatives have shortened store delivery distances and improved center operational efficiency. To further support metropolitan area stores, as Mr. Ide also mentioned, we started up a dedicated small supermarket distribution center in Kawaguchi, Saitama, in December 2025. Here, robots depalletize cases in sequence, which are then stored in shuttle racks for sequencing, and using our in-development warehouse execution system, automatically compute cart loading. Items are discharged in a calculated order and robots stack them. With [ rivers ] that pick 2 cases from vertical and horizontal directions, stacking is faster than manual work, an important advance amidst tightly work conditions. Robotics projected handed over from my predecessor has been progressing smoothly. Estimated results for fiscal year 2025 at Topvalu and Aeon product procurement are as follows: Topvalu sales are expected to reach JPY 1.2 trillion. Including specialty PBs and unique products, we are on plan. Joint procurement by Aeon product procurement is expected to exceed JPY 1 trillion for the first time, both figures surpass last year's levels. Let me touch on the relationship between Topvalu growth and overall figures. For the period from March 2025 to January 2026, total sales for the group were 104% of the prior year. Breaking this into the Topvalu and national brands, Topvalu sales were up 7% year-on-year and customer traffic up 1.2% year-on-year, thus driving overall results. As noted last year, Topvalu's margin rate has continued to rise. Versus March 2025, the latest February figure shows an increase of 0.7% overall. Especially in best price, where we pursued cost structure reforms to reduce COGS, margin rate expanded by 1.5%. We believe that expanding Topvalu lifts both sales and profit. Our policy framework is to create store sales floors through products that make customers say, this store is fun, exciting and a good deal by delivering competitively priced value-rich products. We will pursue 3 initiatives: one, promoting scientific rational merchandising; two, strengthening price strategy; and three, delivering value products and communication. First, to promote scientific rational merchandising, we will establish a group common product master. As noted last year, we are integrating dispersed product IDs across the group and mapping them to the international GS1 standard. This unified master will raise data accuracy for product information customers seek and expand what we can communicate, benefiting not only product analytics, but also customer-facing information. Consolidating registration work currently done separately by each company will improve group-wide efficiency and allow teams to focus more on their core work. We plan to start with 16 group companies around August to September 2026 and expand further in 2027. Here is the rollout schedule for the common product master. In August 2026, we'll introduce it for grocery, liquor, daily frozen and H and BC across 16 group companies. From 2027, we'll extend target categories to nonfood and expand participating companies. From fiscal year 2028 onward, our goal is to have it operating across all categories and preparations are underway. Second, on price strategy, we will reexamine the group supply chain and build an overall optimization scheme. Rather than simply cutting retail prices, we'll understand cost structures across the entire supply chain and act to realize value pricing. This started with Topvalu, and we'll broaden this approach so that everyone can execute it. We'll advance assortment commonization and commit to greater logistics consolidation. By repeatedly verifying results after execution, we'll establish the optimal group-wide scheme. Next, let me outline initiatives at the 3 function companies that underpin price strategy. Aeon Topvalu will work to grow sales from JPY 1.2 trillion in fiscal 2025 to JPY 2 trillion. Specifically: one, expand sales by clarifying competitive approaches by domain; two, strengthen adaptation to each format, such as drug stores and small supermarket; three, expand best price in the fresh to deliver value pricing; and four, offset cost increases by jointly procuring fresh delicatessen ingredients group-wide. First, we'll clarify 4 competitive domains for Topvalu. In the upper right quadrant, where support for national brands has declined and the Topvalu mix is 30%, for example, frozen vegetables and frozen fruit, where Topvalu accounts for around 90% of category sales at Aeon stores, we will compete strategically with Topvalu, raise mix ratio, revisit procurement processes and improve profitability. In the lower right quadrant, where NB support has declined, but the Topvalu mix remains low, we will expand sales floors and supply and compete across the entire category, including NB. Our goal is to raise the Topvalu mix and develop these into upper right quadrant categories. Because Quadrants 1 and 2 are growth domains for Topvalu, we will prioritize these in fiscal year 2026 and strengthen competitiveness. In the upper left quadrant are categories available only from Topvalu. Choco ka fall here. Next, adaptation for growing in-group formats, drug stores and small supermarket. In drugstores, following the integration of Tsuruha Holdings and Welcia Holdings, we are developing dedicated products and rebuilding the logistics setup. For urban formats, we are developing Topvalu items tailored to single-person households, including small-sized packs. For example, at My Basket, we are incorporating customer feedback such as make seasoning smaller so I can use them up. On sourcing ingredients for fresh delicatessen, as a countermeasure to rising input costs, we will expand group joint procurement for ingredients used in process centers. By consolidating procurement routes currently handled separately by each company's process center, we expect cost reductions. Beyond joint procurement of ingredients, we'll also review the entire supply chain for fresh delicatessen from product sourcing and manufacturing to logistics and sales. Turning to Aeon product procurement. We'll focus on 4 areas: one, supply chain reform; two, forward buying; three, commercial flow reform; and four, a new ECR and frozen strategy by region. Through these, we will pursue JPY 1.5 trillion by fiscal year 2030. On logistics reform, centered on Aeon Global SCM, also touched on by Mr. Ide, under today's cost environment, logistics costs will continue to rise if left unaddressed. We must share information that visualizes not only inventory and sales, but also future procurement plans. In tandem with the function companies, we'll strengthen and optimize joint procurement capabilities, secure capacity and drive labor saving as we scale, including investment in new centers and promote DX, including robotics. The prime DX goal here is inventory reduction. As inventory rises, logistics costs rise. We will invest in DX to optimize inventory levels. Finally, on value products and communication, let me share some Topvalu examples. Last year, together with Aeon Retail and MaxValu companies, we ran Cool Day Action, our extreme heat countermeasure campaign during a summer that was long and hot. As part of this, Topvalu implemented a heat countermeasure HQ promotion. Managing extreme heat is increasingly challenging. What sells in mid-summer is changing and as autumn shortens, some autumn items sell less. We are visualizing these changes through data and focusing on what to make and when to sell. This year, we will further evolve products and successfully launch new items such as drinkable ice slurries to be frozen before drinking and ready-to-eat frozen crispy chicken skin. A small, but telling example are Topvalu ice bar that splits into 2 sticks. Younger customers asked whether Topvalu had invented such a breakthrough product. In fact, this type of product has existed since the Showa era. It reminded us that items from past decades are new to today's generation. Second, our environmentally conscious initiatives. In line with Aeon's environmental guidelines, Aeon Topvalu targets a 30% reduction in fossil-based plastics by fiscal year 2030 versus fiscal year 2018. In fiscal year 2025, all products in development were environment conscious. We will continue drawing on external expertise to advance downsizing use of recycled materials and paper conversion. One of our biggest successes was making PET bottles rectangular. By changing the shape, we increased the number of bottles per case and reduce case size for the same volume leaders, thereby cutting costs and environmental impact. We will keep building such wins one by one. To communicate product value, we'll leverage group capabilities, specifically the skills of Aeon Demonstration Services. Without high-quality execution at the point of sale, service is incomplete. Aeon Demonstration Services aims to be a true professional organization that conveys product strength through demonstrations at a consistently high level. In 2026, we'll triple the number of so-called super pro demonstrators to 620, strengthening the team, and through customer experiences, driving both customer traffic and average spending per visit. Lastly, and as announced in the news release today, fiscal year 2026 marks Aeon's 100th year as a corporation. Aeon has continuously adapted to environmental change and pursued innovation with the aspiration to contribute to society. For this centennial milestone, we'll prepare offerings that embody Aeon's essence and convey our gratitude to customers who have walked with us. We look forward to sharing our thanks with many customers. That concludes my explanation of our merchandising and logistics strategies. Thank you very much.

What has changed in PB strategy? How will operating company PBs be positioned?

Mainstream and Green-Eye PBs are growing 7% to 8% annually. Best price is growing even faster. We strengthened margins through disciplined cost measures and improved structure. Green-Eye continues to gain support, especially among younger customers. Value-added items such as Choco ka will continue. Standard items will be unified under Topvalu, while specialized areas such as high health value items will remain under each company's PB.

What is the long-term target for food PB mix? How will pruning and renewal be balanced?

Mix targets will be disclosed in the next medium-term plan, but the direction is to increase the mix. We must avoid a sales floor that feels entirely Topvalu and boring. The goal is a floor chosen because Topvalu is present. PB penetration varies, so we are building common logistics and system platforms to enable expansion. Reforms are progressing and PB handling is increasing.

What is the status of regional PB development?

Regional PBs remain a priority. Maxvalu Tokai has established a self-sustaining model, which is being rolled out in Aeon Kyushu and Aeon Tohoku. Regional buyers are learning PB development methodologies, including Topvalu processes.

How will logistics be segmented and shared? What is the schedule for capacity investments?

Logistics is a top priority. The schedule will be included in the medium-term plan. Distribution center roles will be clarified. Small format areas will focus on peace picking with narrow SKUs. Broader assortments require separate designs. System integration, ordering, forecasting, inventory optimization will build a common platform. Process centers, while requiring a multiyear commitment, will be developed with urgency. Labor shortages constrain in-store deli production, while central kitchen quality has improved. Our pack usage will be expanded.

How much impact will AI have on supply/demand, ordering and inventory optimization?

AI forecasting began with overseas stores Topvalu items. Despite initial resistance, AI proved more accurate than manual forecasts. AI is expanding in the procurement and will extend into logistics planning. Step by step, we are moving from individual optimization to end-to-end supply chain optimization.