Seven & i Holdings Co., Ltd. (3382) Earnings Call Transcript & Summary

Good morning, everyone. My name is Isaka, President and Representative Director of Seven & i Holdings. I would like to express my sincerest gratitude for your continued understanding and support regarding our company's operational activities. I would also like to thank you for taking the time off your busy schedules to participate in today's financial results presentation covering the first half of fiscal year 2021. In order to prevent the spread of COVID-19, today's financial results presentation will be held in teleconference form. We ask you for your understanding. Page 2 contains today's agenda. We will start by discussing the results for the first half of fiscal year 2021, after which, we will be discussing the revision to the full year forecasts, a revision made taking into account the company's performance through the end of the first half of the fiscal year. Lastly, we will be discussing our vision for the Seven & i Group going forward. I would like to start with the results for the first half of the fiscal year. Please turn to Page 4. This page discusses the monthly trend in year-on-year changes in existing store sales for each business category. Shown on the upper left corner is the convenience store business in Japan and in the United States. The orange line represents existing store sales for 7-Eleven Japan, which declined year-on-year in July, partially as the result of unseasonable weather. However, the sales performance for June and August showed a year-on-year growth. The green line represents existing store sales for 7-Eleven, Inc. The period between April and June corresponds to the second quarter for 7-Eleven, Inc. April marked the apex of the impact of COVID-19, with the year-on-year sales decrease as a consequence of the declaration of a national state of emergency in March and the subsequent emergence of shelter-in-place orders. However, starting in May, we have been registering year-on-year sales growth. The graph on the upper right corner deals with the superstore business. Regarding food supermarkets, we continued delivering year-on-year sales growth by addressing demand from consumers who want to make purchases without leaving the house as a result of COVID-19 and from customers making bulk purchases, et cetera. Apparel tenants, et cetera, struggled and sales for Ito-Yokado, including tenants, remained in line with last fiscal year. In terms of food sales, however, Ito-Yokado delivered year-on-year growth, surpassing that of our food supermarkets. Our results for the department store and specialty store businesses are shown on the bottom-left corner. Sogo & SEIBU closed 4 stores at the end of August. Clearance sales associated with these store closings positively impacted sales. As a result, the graph shows a slight recovery trend. However, the situation remains difficult. The recovery for Seven & i Food Systems, which operates the Denny's restaurant chain, has been slower compared to other industries, and so has the recovery for the specialty store business as a whole. The e-commerce business, shown on the bottom right, continues delivering a strong performance. We also increased capacity at the IY Net supermarket dark store, which has registered double-digit growth. Please turn to Page 5. This page deals with the consolidated financial results. Starting from the left and in order, shown here are the results for the first quarter, for the second quarter and the cumulative results for the first half of fiscal year 2021. Sales and profit both declined year-on-year during the first half of the fiscal year primarily on account of COVID-19. However, in terms of progress vis-a-vis the plan we announced back in July, revenues from operations, operating income and net income attributable to owners of parent all met and exceeded our estimates. First, we registered JPY 2,788.4 billion in revenues from operations in the first half of the year, a year-on-year drop of 15.8%. On a quarterly basis, in the first quarter, this was primarily due to the temporary closure of large-scale facilities and specialty stores in the domestic market and due to shorter business hours. In the second quarter, this was due to lower fuel sales in the overseas convenience store business. We registered JPY 179.7 billion in operating income in the first half of the fiscal year, a year-on-year drop of 12.4%. This performance exceeded our plan by JPY 15.7 billion. On a quarterly basis, we registered JPY 71.3 billion in the first quarter, a year-on-year drop of 21%. However, we registered JPY 108.3 billion in the second quarter, recovering to a year-on-year drop of 5.6%. Special losses in the first half of the fiscal year came in lower than expected, et cetera, allowing us to deliver JPY 72.5 billion in net income attributable to owners of parent, a year-on-year drop of 34.5%. This performance exceeded our plan by JPY 16.5 billion. On a quarterly basis, in the first quarter, we booked special losses associated with COVID-19. Consequently, we delivered JPY 13.9 billion in net income attributable to owners of parent, a significant year-on-year drop of 73.2%. However, we registered JPY 58.5 billion in the second quarter, a year-on-year increase of 0.1%. Please turn to Page 6. This page discusses year-on-year change by business segment. On the left, we have revenues from operations. As you can see, we registered a year-on-year decrease in revenues from operations for all segments as a result of COVID-19. In particular, the overseas Convenience store operations segment was impacted by shelter-at-home orders and by lower fuel sales volume resulting from a drop in the price of crude oil. This led to a year-on-year decrease of over JPY 300 billion in revenues from operations. The graph on the right shows operating income. While we secured a year-on-year operating income increase in the overseas Convenience store operations segment and in the Superstore segment, we registered year-on-year declines in all other segments as a result of COVID-19, et cetera. We registered a decrease in revenues from operations in the overseas Convenience store operations segment resulting from lower fuel sales volume. However, an improvement in the metric of cents per gallon led to a significant increase in gross profit and ultimately to an increase in operating income. In particular, the department store and specialty store businesses were significantly impacted by temporary closures and shorter business hours during the first quarter. As such, these businesses struggled significantly. I would now like to discuss trends for the major operating companies that comprise the Seven & i Group. I would like to start with 7-Eleven Japan. Please turn to Page 7. The waterfall chart on the left shows the year-on-year change in operating income. We registered a year-on-year operating income decrease of JPY 14.1 billion as a result of a drop in sales and gross profit margin due to COVID-19. Additionally, the impact of royalties revision, which we started in March, was a decrease of approximately JPY 5 billion. We also estimate the impact of COVID-19 as a decrease of approximately JPY 12 billion. The graph on the right shows year-on-year trends in SG&A expenses for the first half of the fiscal year. We increased the efficiency of sales promotions thanks to a shift to sales promotions using our mobile apps. We established stricter standards for new store openings, curbed land and building rent through the closure of unprofitable stores, et cetera, and optimized salaries and wages through work style reform and accounting reform, et cetera. Through these, we carried out cost structure reforms aimed at reducing head office expenses, achieving a year-on-year reduction in total SG&A expenses in the first half of the fiscal year for the first time. Going forward, we will continue reviewing the cost structure and aim to increase efficiency. Please turn to Page 8. The line graph on the left shows year-on-year existing store sales growth, while the vertical bar graph shows the year-on-year change in gross profit margin. As I mentioned at the beginning of today's presentation, while we registered year-on-year sales growth for existing stores in the months of June and August, we registered a significant year-on-year decrease of 5.1% in July due to the impact of unseasonable weather. As a result, existing store sales decreased 1.4% year-on-year in the second quarter. Furthermore, while these are preliminary estimates, we registered a rush demand ahead of the tobacco tax hike in October, and this partially contributed to a year-on-year sales growth of 2.4%. In terms of gross profit margin, the resurgence of COVID-19 cases in July once again led to a reduction in people's mobility. Consequently, products with high gross profit margins, like soft drinks, rice balls, sandwiches, et cetera; as well as counter-fried food products, et cetera, struggled. This led to a year-on-year gross profit margin decrease of 0.1%. The graph on the right shows a year-on-year comparison in terms of sales, the number of customers and average spending per customer. While we are seeing a gradual recovery in the number of customers, this number remains lower on a year-on-year basis. Offsetting this is an increase in average spending per customer. Even into the second quarter, this metric continues trending significantly above last fiscal year's results. I will be discussing the details on the next page. Please turn to Page 9. There have been notable changes in purchasing behavior on the part of customers as a result of COVID-19. Working from home, demand from customers who want to make purchases without leave the house, online drinking parties at home, et cetera, these indicate a more strategic approach to shopping on the part of customers spending time at home. Consequently, there has been an increase in the number of customers, who, rather than only purchasing products for same-day consumption, also purchase items for the following day and the day after that. This has contributed to the increase in average spending per customer. Even after the lifting of the state of emergency at the end of May, sales for delicatessen products, frozen foods, wine, et cetera, continue growing. The table on the right shows the top categories in terms of the change in year-on-year sales for the month of August. The categories highlighted in orange should correspond to important categories with expanded sales space in the new layout fiscal year 2021 version which I will be discussing on the next page. Please turn to Page 10 which contains an outline of the new store layout. As I mentioned last time, in addition to the new store layouts we have introduced thus far, we will be further addressing the needs of customers consuming meals at home. In order to address the needs of all dinner tables, we will be offering the new layout fiscal year 2021 version, allowing customers to find liquor products, delicatessen, beverages, precut vegetables and desserts, all in one easily visually identifiable place. We will be introducing this new layout at 8,000 stores in the second half of fiscal year 2021 alone. This translates into an average of 40 to 50 store layout renovations per day. The table on the right contains the results at our 43 pilot stores and at 173 stores in which the new layout was introduced in the week of September 7. We have already achieved a considerable level of awareness at our 43 pilot stores, leading to higher sales compared to the area average, with a significant difference of JPY 27,000. Regarding the 173 stores in which the new layout was recently introduced, while we only have 2 weeks' worth of data, these stores have shown higher sales compared to the area average, with a difference of JPY 15,000. Daily life products with expanded sales spaces and displayed in open cases, primarily the liquor products, desserts and delicatessen products as related purchases, have been delivering strong sales growth. We will be expanding coverage to all eligible stores by the first half of fiscal year 2022. Please turn to the next page, which shows the income trend for franchised stores. The vertical bar graph shows the trend in the monthly income amount for franchised stores, while the line graph shows a year-on-year income comparison. Between fiscal years 2016 and 2020, this shows the 1-month average for each fiscal year; and starting in fiscal year 2021, the 1-month average per quarter. In the past, we have enacted a number of measures in order to improve sales and profits for franchise stores. Starting in September 2017, we enacted a 1% reduction in royalties. We also started the introduction of the fiscal year 2020 version of new layouts in the fall of 2018. These yielded results. And while these are only averages, franchised store income continues growing on a year-on-year basis. In the first quarter of fiscal year 2021, income for franchise stores was impacted by COVID-19, dropping 5% year-on-year. However, in the second quarter, income for franchised stores grew year-on-year. The table on the right shows changes in franchised store profit for the month of August. In terms of overall profit, we registered an increase of JPY 71,000 year-on-year. The major factors for the change are as shown on the table. New royalties revision enacted in March had a positive impact of JPY 41,000. The ethical project and the development and sales promotion of daily life products that can now remain fresh for longer periods of time contributed to the reduction of product waste and had a positive effect on franchised store profits of JPY 36,000. Stores started charging for shopping bags, and the head office started supporting costs associated with providing disinfectants as part of COVID-19 countermeasures, leading to a reduction of supply expenses. This made a positive contribution of JPY 52,000. Additionally, we carried out support to franchised stores during the first quarter within the context of COVID-19. Annual profit at 7-Eleven franchised stores increased by approximately JPY 700,000 over the past 5 years. However, these are average figures, so we will be keeping a close eye on business conditions at each individual franchise store while continuing to provide support. Please turn to Page 12. The graph on the left shows the trend in the easing of staff shortages. The vertical bar graph shows the number of applicants to job offerings for part-time work on the company's website. The number of job applications remains high, more than twice as many as in the pre-COVID-19 period. As a result, despite the fact that these job listings can be listed for free, the number of recruiting stores on our website has shown a year-on-year decrease trend starting in April. Stores have therefore been able to secure staff. The graph on the right shows the monthly trend in the number of stores involved in the business hours shortened trial. The sector colored dark orange at the top shows stores earmarked for trials. The middle section shows the stores undergoing trials, and the light orange section at the bottom shows stores with a changed business hours contract following the execution of the trial. As you can see, the number of stores, including stores earmarked for trials, is decreasing gradually after peaking at 1,000 stores in early spring. We are registering increased motivation from franchisees thanks to the strengthening of communications with franchised stores starting last year, to a royalties revision starting in March, to the head office offering economic and material support in response to COVID-19, and to the easing of staff shortages, et cetera. Please turn to Page 13, which contains examples of measures for sustainable growth going forward. We will be promoting improvements in store productivity through the use of technology and we'll be providing new customer experiences. Following tests at directly operated stores, we began the introduction in September 2020 of semi-self-checkout counters at franchised stores. We will be making this service available at all stores by the first half of fiscal year 2022. We carried out tests in Hokkaido and refined the new inspection system, allowing us to finally start making it available nationwide starting this fall. Compared to the traditional inspection process which had to be performed on each product individually, the new inspection process is performed on each delivery container, reducing product inspection time by 90%. It also obviates the process of raising and lowering these very heavy delivery containers, reducing the physical strain on staff. Nationwide development will be completed by the end of fiscal year 2021. Finally, we have SEJ's online convenience store. We are currently carrying out trials for this service at approximately 300 stores. We started this trial in Hokkaido and later expanded it to Hiroshima prefecture. Furthermore, we also began trials in Tokyo from July of this year. From October 22, we will be improving our system to allow real-time inventory synchronization, and we will be continuing these trials. We will consider expanding the area scope and the number of stores while carrying out these trials. We would like to expand this initiative to 1,000 stores as soon as possible. Next fiscal year, we will aim to achieve further growth by improving work efficiency through DX and enhance user experience. Next, I would like to discuss 7-Eleven, Inc. Please turn to Page 14. While we registered a year-on-year decrease in operating income during the first quarter, we were able to grow operating income by JPY 2.2 billion in terms of the cumulative results for the first half of the fiscal year thanks primarily to an improvement in fuel gross profit during the second quarter. The line graph on the right shows existing store sales growth, and the vertical bar graph shows year-on-year change in gross profit margin. We registered a significant sales decline following the declaration of a national state of emergency in mid-March. However, starting in May, we are seeing continued year-on-year growth. While these are preliminary figures, these indicate year-on-year existing store sales growth of 3.3% in September. On the other hand, gross profit margin decreased year-on-year as high-margin products, like fresh foods and counter beverages, struggled in terms of sales. Page 15 deals with fuel. Shown on the left is the price of crude oil. As you are aware, the price of WTI went into negative territory for a brief period in April, falling significantly during the second quarter. On the other hand, as shown by the vertical bar graph on the right, cents per gallon, which indicates the gross profit amount per gallon, rose significantly year-on-year by $0.18 per gallon. People's mobility was restricted as a result of shelter-at-home orders imposed because of COVID-19. Consequently, as shown on the line graph, fuel sales volume decreased significantly. However, this decrease was offset by the aforementioned improvement in cents per gallon. Consequently, cumulative gross profit for the first half of the fiscal year increased significantly by USD 184 million year-on-year, or 24.6%. Please turn to Page 16. As in Japan, in the United States, COVID-19 has brought about significant changes in consumption behavior on the part of customers. While stores struggled in terms of the number of customers, in addition to demand from people staying home, we saw an increase in the number of customers who chose to shop at 7-Eleven stores near their home in order to avoid having to shop at crowded supermarkets away from home. These customers buy necessities in bulk, resulting in a sustained year-on-year increase of 20% in terms of average spending per customer. In particular, frozen foods, liquor products, daily necessities, family-sized ice cream and large beverages, et cetera, are showing strong results. The trend of customers purchasing products at 7-Eleven, that they would previously buy in supermarkets, is becoming more pronounced. The graph on the right shows the trend in monthly sales for the delivery service, 7NOW. Monthly sales for August were slightly over 5x the number of sales for the month of January before COVID-19. The number of transactions per day per store now exceeds 25, with an average spending per customer of $15.50, close to 2.5x the amount of in-store sales. As of the end of August, we had expanded this service to 1,800 stores. We plan to expand this service to approximately 2,000 by the end of December. Page 17 deals with Speedway. On the morning of August 3, Japan Standard Time, we entered a contract with the Marathon Petroleum Corporation for the acquisition of Speedway. The deal is expected to be finalized in the first quarter of next fiscal year. Teams were established to execute a plan towards a smooth post-merger integration. An executive steering committee was established, centered around the top brass at each company. Below that, an integration management office was established, overseeing each team, as shown here. All integration planning teams will include members from both the 7-Eleven and Speedway organizations. And all activities will be conducted in compliance with U.S. antitrust regulations. Starting on Page 18, we will be discussing the group's food strategy. The graph on the left shows changes in the macro environment. The 2 line graphs represent household spending and food spending, with the values for the year 2008 as a baseline of 100. Household spending is in a downtrend while food spending is on the rise. As shown by the vertical bar graph, the size of the food market continues growing, expanding from JPY 66 trillion in 2008 to JPY 75 trillion in 2018. However, as shown on the graph on the right, the share associated with Seven & i Superstores in the Tokyo metropolitan area has decreased by 0.6 points in 5 years as a result of a decrease in the number of stores due to the closure of Ito-Yokado stores, et cetera. Up until now, we had operated under a very inefficient model premised on the opening of standard-type stores for each operating company for Ito-Yokado, York Mart and SHELL GARDEN. This is also the reason why we had been curbing the opening of new stores. Please turn to Page 19. Despite this, food products are a very significant strength for the Seven & i Group. Food accounts for 60% of the group's domestic sales of approximately JPY 8 trillion. In the Tokyo metropolitan area, superstore sales and food sales at Ito-Yokado, York Mart and at SHELL GARDEN, combined, amounted to JPY 554 billion. These results put us on par with large food supermarkets. Additionally, as shown on the graph to the left, existing store sales at each operating company are trending higher than the figures provided by the Japan Chain Stores Association. We, therefore, believe our stores have earned a certain level of support from customers during the COVID-19 pandemic. We believe the Tokyo metropolitan area to be a very important market for Japan, which has entered a trend towards a population decline. As it stands, the population in the Tokyo metropolitan area is still on a growth trend. And even from a long-term perspective, the speed of the population decline is expected to be the slowest nationwide in the Tokyo metropolitan area. On the other hand, it is an area with a high population density. So the number of households with elderly residents is expected to increase significantly. Additionally, customers are also very diverse in terms of age, economic efficiency and lifestyle. Furthermore, the number of food supermarkets per population is also low compared to the national average. We, therefore, believe there are plenty of opportunities to open new, small-scale neighborhood stores. Against this backdrop, we would like to promote the Tokyo metropolitan area food strategy based around the following 3 initiatives and further strengthen Seven & i Group's strengths. I will be discussing the details starting on the next page. Please turn to Page 20. I would first like to discuss store formats. We will be integrating the know-how from Ito-Yokado's Shokuhinkan, and from THE PRICE into York and establishing 4 formats corresponding to location and surrounding commercial area. We believe that making full use of these 4 store formats will make it possible for us to open stores in a flexible way, allowing us to address various location needs. Additionally, in order to obtain the support of customers with diverse lifestyles in the Tokyo metropolitan area, it is imperative for us to be discerning in the use of high-quality ingredients and to offer original products. By utilizing common infrastructure shared by the various operating companies that comprise the Seven & i Group, we will be building an efficient product manufacturing system and supply system. Starting with the preparation of ingredients. By preparing and processing ingredients in a joint location and then transporting them to stores from each group component, this allows us to reduce the space required to process food in small-sized stores in urban areas. This allows us to free up more sales space. Through the efficient division of labor with our stores, we will be promoting an increase in productivity and in quality. Lastly, I would like to discuss product proposals. Please turn to Page 21. We will be promoting the development of new merchandising tailored to the relevant commercial areas while sharing the aforementioned common infrastructure. We will be offering handmade, fresh and convenient products, tailored to the needs of customers in the Tokyo metropolitan area, which has a high preponderance of 2-income households and single households. We will be offering high-quality products, leveraging a high degree of freshness, made available to customers in sales floors with a lively aspect. The table on the right shows year-on-year sales results for the month of August for each model store format. Each store shows a significant growth compared to an average year-on-year sales growth of 9.9% across all York stores. While it is true this is partially due to COVID-19, even a year after they were remodeled, the Azusawa and Nakamachi stores show year-on-year sales growth significantly above the average for York stores. We find this encouraging. Going forward, we want to improve management efficiency and offer new customer experiences by strengthening collaboration with Ito-Yokado's food business, with SHELL GARDEN and with York-Benimaru. We will also consider collaboration with 7-Eleven in terms of last-mile efforts. Page 22 deals with our operations at Ito-Yokado. While our results were influenced by a transfer of special losses associated with fixed costs, et cetera, starting in the fourth quarter of last fiscal year, Ito-Yokado has delivered operating income growth for the third consecutive quarter. We registered a year-on-year increase of JPY 2.4 billion in operating income during the first half of the fiscal year to JPY 2.9 billion. In particular, during the second quarter, the transfer of special losses associated with fixed costs stood at around JPY 100 million, and operating income increased by JPY 1.6 billion year-on-year, primarily thanks to sales growth associated with food products and as the result of structural reforms. The table on the top right corner shows a breakdown of this year-on-year operating income increase of JPY 2.4 billion for the first half of the fiscal year. We derived a profit growth of JPY 2.8 billion from stores that implemented structural reforms. We believe the attractiveness of one-stop shopping in large-scale facilities, allowing customers to find all the products they need in one place, is making a comeback. These are located in prime locations. And by further improving the assortment and quality of the products we offer, we will be earning the preference of our customers during the COVID-19 pandemic. On the other hand, we are gradually implementing our business structural reforms. In June, we transferred 20 Shokuhinkan and THE PRICE stores to York. In our reorganization efforts, which we carried out in July, we carried out the optimization of head office personnel, targeting approximately 200 people. Additionally, we introduced selective retirement age options and offered support for employees changing careers. We are making steady progress towards the plan we announced last year towards the optimization of 1,700 employees over a 3-year period. Page 23 deals with our operations at Sogo & SEIBU. While SG&A expenses decreased by JPY 20.6 billion as a result of the transfer of special losses associated with fixed costs and the curbing of sales promotions, this wasn't enough to offset a top line decrease. As such, operating losses worsened by JPY 2.5 billion year-on-year and stood at JPY 3.6 billion. As shown on the table on the right, flagship stores in the Tokyo metropolitan area, which had driven results for Sogo & SEIBU, struggled significantly due to COVID-19. On the other hand, 2 stores in which we carried out property management through remodeling and 4 stores we closed at the end of August, represented a positive operating income factor of approximately JPY 900 million. Additionally, corporate sales targeting new customers in the midst of the COVID-19 pandemic made a positive operating income contribution of approximately JPY 600 million. Going forward, we will continue carrying out efforts towards strengthening our framework and towards attracting new customers. Additionally, Sogo & SEIBU's ability to address wealthy customers is one of its strengths, and we will be enacting measures to respond to environment changes through the use of digital technology to host live commerce events and VIP parties, et cetera. Next, I would like to discuss the revision of the full year forecasts. Please turn to Page 25. In light of the company's progress up until the end of the first half of fiscal year 2021, we issued a revision to the full year forecasts. We raised our revenues from operations forecast by JPY 67 billion to JPY 5,759 billion. We raised our operating income forecast by JPY 18 billion to JPY 340 billion. We raised our ordinary income forecast by JPY 14 billion and not more, taking into account an increase in interest expenses associated with financing related to the acquisition of Speedway, et cetera. We reevaluated our special loss forecast in light of the results for the first half of the fiscal year and raised our net income attributable to owners of parent forecast by JPY 18.5 billion to JPY 138.5 billion. Additionally, we have changed the exchange rate forecast for the U.S. dollar from JPY 108 to JPY 107. Page 26 contains the forecasts by business segment, with revenues from operations on the left and operating income on the right. We have raised the revenues from operations forecast for overseas CVS operations by JPY 89 billion as we reevaluated product sales growth at existing stores and reevaluated a decrease in fuel sales volume, et cetera. While we raised the revenues from operations forecast for our Superstore operations, which have posted robust sales, by JPY 13 billion, we have lowered the forecast for department store operations and specialty store operations, which have struggled significantly. We have raised the operating income forecast for overseas CVS operations, Superstore operations and for financial services. We lowered the operating income forecast for specialty store operations. Regarding financial services, we raised the operating income forecast by JPY 6.6 billion primarily thanks to the curbing of SG&A expenses in the bank and nonbank categories. Regarding specialty store operations, we lowered the operating income forecast by JPY 9 billion primarily on account of the restaurant business, the sales recovery for which is taking longer than anticipated. Please turn to Page 27, which contains the forecast for the major operating companies. For 7-Eleven Japan, in light of the conditions up until the end of the first half of the fiscal year, we have lowered the existing store sales growth premise from plus or minus 0% to a decrease of 1%. However, by advancing our efforts to curb SG&A expenses, and including the effects of the new layout fiscal year 2021 version, we have left the operating income forecast unchanged at JPY 240 billion. For 7-Eleven, Inc., in light of recent robust product sales at existing stores, we have raised the existing store sales growth premise from 0.4% to 0.9%, an increase of 0.5%. We have also raised the gross profit margin premise from a decrease of 1% to a decrease of 0.8%. On the other hand, regarding fuel, we do not forecast a significant improvement in cents per gallon like the one we saw during the first half of the fiscal year. We have formulated a conservative gross profit forecast for fuel in light of the delay in the recovery in terms of fuel sales volume. In light of this, we have raised the operating income forecast by USD 140 million. We have changed the exchange rate forecast, so the equivalent amount in Japanese yen is JPY 14.1 billion. Regarding Ito-Yokado and York-Benimaru, we took into account an expected shift towards price sensitivity on the part of customers in the second half of the year and a climate of uncertainty associated with COVID-19 heading into the year-end shopping season. Additionally, we also have planned a strengthening of investment in the second half of the fiscal year in the form of remodeling, et cetera, towards growth for the next fiscal year and beyond. As such, we have raised the operating income forecast by JPY 2 billion for each company. In light of the conditions, up until the end of the first half of the fiscal year, we have lowered the existing store sales growth and gross profit margin forecast for Sogo & SEIBU. However, by carrying out efforts to curb SG&A expenses, we have left the operating loss forecast unchanged. Lastly, I would like to discuss our vision for the Seven & i Group going forward. Please turn to Page 29. The current slide was republished from the presentation materials for the first quarter of fiscal year 2021. We are seeing a significant change in the values and actions of customers amid the COVID-19 pandemic. We believe this change will not be temporary, as we do not believe society will be able to go back to the way things were in pre-COVID-19 times. Similar to DX, we believe changes for a lot of things will accelerate going forward with COVID-19 as the catalyst. Against this backdrop, what should the Seven & i Group to be aiming for? And where should we be headed toward? We believe there is a need for each business to rethink its purpose and enact the necessary measures. Even against the backdrop of the COVID-19 pandemic, as I mentioned today, this allowed us to once again realize that our strength lies in food products. In order to further enhance this strength, we will be promoting the Tokyo metropolitan area food strategy and aim to increase the resilience of the value chain. Additionally, we will also be further strengthening the collaboration with 7-Eleven Japan regarding product development. On the other hand, regarding businesses that are struggling, we will go beyond stopgap measures and carry out comprehensive business reform from a mid- to long-term perspective. Also, we would like to increase efficiency and to realize labor savings through the promotion of DX while simultaneously allotting human resources to tasks that can only be performed by humans. Through this, we would like to further deepen our connection with our customers. Page 30 discusses the target status for the Seven & i Group. Our convenience store operations in Japan and in the U.S. remain our growth pillar. However, we announced the acquisition of Speedway in August, and more than before, the overseas convenience store business will increase in importance going forward. As a result of the emergence of synergies following the completion of the deal, we believe the overseas convenience store business' share of the company's consolidated results will continue increasing going forward. At the same time, against the backdrop of COVID-19, in North America as well, we will be seeing changes in the way customers use convenience stores. Like the perception towards convenience stores in Japan changed after the 2011 Tohoku earthquake, we also feel this to be a historic tipping point for convenience stores. Additionally, like I discussed today, we want to gather together the know-how of each operating company that comprises the Seven & i Group in the fertile market that is the Tokyo metropolitan area. By promoting the Tokyo metropolitan area food strategy, we want to further enhance our strength when it comes to food products. Going forward, we want to advance the collaboration with SHELL GARDEN, the sharing of infrastructure with Ito-Yokado foods and with York-Benimaru, and the collaboration with 7-Eleven Japan in the last mile domain. On the other hand, regarding large-scales facilities which are struggling, we are seeing reassuring signs from stores that have reevaluated the content offered to customers. Like suburban stores like SEIBU Tokorozawa or Ito-Yokado Tama Plaza, et cetera, we would like to take a proactive approach towards incorporating property management towards collaborating with the Seven & i Group's specialty stores, like Akanchan Honpo, THE LOFT and Denny's, and towards attracting high-quality outside tenants and specialty stores in order to fully utilize our premium locations and maximize the attractiveness of one-stop shopping. Lastly, in light of a resurgence in COVID-19 cases in July, uncertainty heading into the year-end sales season and the planned completion of the acquisition of Speedway in the first quarter of fiscal year 2022, we have refrained from announcing the company's medium-term management plan during today's financial results presentation. We would like to assess the situation with COVID-19 and announce the new medium-term management plan after next spring. For this reason, we ask you for your understanding. This concludes today's financial results presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]