My name is Takamasa Nagamine, and I assume the role of Senior Executive General Manager of the Financial Strategy Unit at J. Front Retailing this March. Thank you very much for taking time out of your busy schedule to join us today. I will begin by presenting an overview of the FY 2024 results and the FY 2025 forecast. For FY 2024, J. Front Retailing reported consolidated growth in sales of JPY 1,268.3 Trillion , and revenue was JPY 441.8 billion, both showing year-on-year increases. As a result, business profit rose 20.7% year-on-year to JPY 53.4 billion. Operating profit increased 35.2% year-on-year to JPY 58.1 billion, and the profit attributable to owners apparently reached JPY 41.4 billion, up 38.5% year-on-year, marking record highs in each profit level. In comparison with the forecast announced in October, gross sales, revenue, and all profit indicators exceeded the forecast.
Notably, business profit, which we regard as a key indicator of core earnings, reached JPY 52 billion, achieving the final year target of our three-year medium-term business plan, which began in FY 2024, two years ahead of schedule. Due to our performance significantly exceeding expectations, we have decided to increase the year-end dividend per share by JPY 8 from the forecast announced in October. This represents a JPY 10 increase year-on-year, bringing it to JPY 30 per share. When combined with the interim dividend, the total annual dividend will be JPY 52, representing a year-on-year increase of JPY 16. Next, I'll explain performance by segment. The department store business, SC business, and developer business all recorded year-on-year increases in both revenue and profit. Starting with the department store business, sales were driven primarily by the luxury segment, which we have been strategically strengthening.
In Japan, consumption by affluent customers remained strong, and Gaisho sales continue to show stable growth, primarily driven by higher spending per customer. Inbound demand temporarily slowed in the middle of the fiscal year due to sharp foreign exchange fluctuation and the impact of Nankai Trough earthquake early warning. However, it rebounded strongly, with January marking the highest monthly sales on record. As a result, inbound sales grew into a market exceeding JPY 130 billion for the department store business over the full year. In the SC business, urban locations such as SHIBUYA PARCO and the SHINSAIBASHI PARCO steadily captured both domestic and international demand, resulting in double-digit growth in transaction volume. Entertainment offerings such as theater performances, music events, and character cafes also contributed positively. In addition, the inbound transaction volume exceeded JPY 46 billion.
Despite rising cost pressures across both the department store and SC businesses, we successfully drove solid top-line growth, which translated into steady profit growth. Slide 5 outlines the main factors for changes by segment. In the developer business, J. Front Design & Construction performed well, boosted by strong orders for hotel interior work and the department store renovation project. Additionally, J. Front City Development recorded a gain of JPY 2.5 billion from the sales of owned properties, which also positively contributed to business profit. On the other hand, the payment and the finance business saw higher revenue, but lower profit. Following the launch of the new GINZA SIX Card in March last year, we issued the new PARCO Card in February, earlier than the initially planned. This led to upfront cost related to consolidating group credit card operations, which impacted profitability.
Next, major store sales of Daimaru Matsuzakaya Department Stores are shown on Slide 6. On an existing store basis, sales grew strongly throughout the fiscal year with our five core stores recording double-digit sales growth even compared to pre-COVID-19 levels. At the Nagoya store, a major renovation project, which began in March last year to complete in fall 2025, is underway, spanning eight floors and being carried out in two phases. With the first phase opening in late November last year, the renovation has steadily attracted new customers. However, some areas are still closed due to ongoing construction. We anticipate that the store will reach its full potential starting this fall. Slide 7. One of the key growth drivers for department stores is inbound demand. In FY 2024, inbound sales more than doubled compared to pre-COVID levels.
By country, sales to Chinese customers rose 50% compared to FY 2019, with their share of the total inbound sales steadily increasing to 65%. This growth was primarily driven by higher spending per customer. However, the number of Chinese customers has only recovered to about 80% pre-COVID levels. We believe there is still growth potential as international flights continue to recover and increase. The SG&A expenses for Daimaru Matsuzakaya Department Stores in FY 2024 are shown on this slide. Compared to the previous year, personnel expenses increased by JPY 2.3 billion, including wage hikes and higher bonuses linked to improved performance. Commission rose by JPY 2 billion due to increased sales, and renovation-related repair and labor cost grew by JPY 1.4 billion. In total, SG&A expenses increased by JPY 6.1 billion.
These cost increases were offset by strong top-line performance, resulting in 30% year-on-year increase in business profit for the department store business. Trends of PARCO's major store tenants are shown on this slide. Urban locations such as SHIBUYA PARCO and SHINSAIBASHI PARCO have excelled in attracting inbound demand. Each store has effectively utilized PARCO's unique content and creativity, which has enabled them to effectively capture both domestic and international demand, resulting in a significant increase in transaction volume. The consolidated balance sheet is shown on Slide 10. Interest-bearing liabilities, excluding lease liabilities, were reduced by JPY 23.8 billion from the end of the previous fiscal year to JPY 190 billion. The next slide shows the consolidated cash flow results.
Investing cash flow increased by JPY 41.9 billion year-on-year, reflecting active investing activities such as a large-scale renovation of the Matsuzakaya Nagoya store and the acquisition of shares related to the south building of Daimaru Shinsaibashi store. Next, I'll explain the FY 2025 earnings forecast. Please see Slide 12. Currently, the employment environment is improving, and many companies are expected to implement significant wage increases. Additionally, with a rise in the stock market, Japan's household financial assets have surpassed JPY 2,200 trillion, and the number of affluent and ultra-affluent individuals continues to grow. As for inbound demand, while recent trends show some volatility due to exchange rate fluctuation and geopolitical risks, our view remains unchanged. From a medium to long-term perspective, this segment holds significant growth potential for our business model.
On the other hand, we believe it is important to closely monitor the potential impact of the new tariff policies recently announced in the U.S. on the global economy. In particular, if these effects extend across industries, especially in broad-based sectors such as the automotive industry, there is a concern that this could pose a risk of economic downturn across Japan as a whole. If these developments lead to increased risk aversion in the capital market, we must also be mindful of the potential for market downturns, diminished asset effects, and continued elevated prices, all of which could worsen consumer sentiment and pose a downside risk to consumption. Taking these current conditions into account, we forecast consolidated growth sales for FY 2025 to increase 3.8% year-on-year to JPY 1,316 billion. Business profit is expected to show a slight increase, reaching JPY 54 billion.
However, due to the absence of one-time gains recorded in the previous year, such as the JPY 8.5 billion step acquisition gain, operating profit is projected to decline 14.1% year-on-year to JPY 50 billion. As for dividends, we plan to rebalance the interim and year-end dividend, and raise the total annual dividend by JPY 2 per share year-on-year to JPY 54. The outlook by segment is shown on this slide. In the department store business, we anticipate steady growth in domestic demand, driven by spending from affluent customers and implementation of various initiatives. Although there is some uncertainty regarding inbound consumption, which saw rapid expansion last fiscal year, we aim to maintain the same level as the previous year by leveraging the Osaka-Kansai Expo effect and strengthening CRM activities targeting overseas customers.
Business profit is projected to increase by JPY 2.1 billion to JPY 36.1 billion, and operating profit is expected to increase by JPY 6 billion to JPY 35.7 billion. In the SC business, we will pursue market expansion by advancing structural reforms of underutilized buildings. Notably, SHIBUYA PARCO will undergo a major renovation in the first half of this fiscal year. This will be its first significant update since it was rebuilt and reopened in 2019. Although this renovation and rising personnel expenses will have an impact, business profit is expected to show a slight increase. However, due to the absence of the reversal of provisions for store closures recorded in the previous year, operating profit is projected to decline. The payment and the finance business has been burdened by upfront costs associated with the consolidation of cards within the group.
But we expect a shift to both revenue and profit growth this fiscal year due to the consolidation effect and an increase in margin fees through measures to promote card usage. Conversely, the developer business is expected to post declines in both revenue and profit. This is due to the absence of one-time gains, such as the sale of owned properties and large-scale department store renovation orders recorded in the previous year. Sales forecast for major Daimaru Matsuzakaya Department Stores are as shown on this slide. We expect all core stores, excluding the Umeda store, to achieve year-on-year sales growth. At the Nagoya store, a large-scale renovation project is currently underway and is scheduled for completion this fall. As the effects begin to materialize, we are forecasting double-digit sales growth. On the other hand, the Umeda store has already announced a major renovation project.
Construction is scheduled to begin in late October this year, and due to the closure of the upper floors, we expect a double-digit sales decline in the second half. Next, the forecast for SG&A expenses at Daimaru Matsuzakaya Department Stores is as shown on the slide. SG&A expenses are expected to increase due to several factors, such as higher personnel costs stemming from wage increases and higher bonuses, increased commissions linked to sales growth, advertising expenses related to the operation of official shops for Osaka-Kansai Expo and strengthening inbound demand, as well as the recognition of right-of-use assets associated with commercial operations at The Landmark Nagoya Sakae, which is scheduled to open in summer 2026. The consolidated balance sheet forecast is as shown in the slide.
As for the forecast for consolidated cash flow, we plan to actively invest in CapEx such as store renovations and property development, primarily in the department store and developer businesses. Nevertheless, we expect to secure positive free cash flow. In addition, we aim to improve our medium to long-term return on capital by achieving growth accompanied by profitability, optimizing our capital base, and strengthening shareholder returns. Under this policy, we have decided to conduct a share buyback program with a maximum amount of JPY 15 billion. The maximum number of shares to be acquired is 11.5 million, which is expected to represent 4.45% of the total number of shares outstanding, excluding treasury shares. That concludes my presentation. Thank you.
I am Keiichi Ono from J. Front Retailing. Thank you very much for joining us today despite your busy schedule. I will explain the progress of our medium-term business plan and provide some updates. Please refer to Slide 22 of the presentation materials. First, let me review a few points. The group aims to become a value co-creation retailer by 2030 or later. The keywords for achieving this goal are the three values and three synergies as one, as listed here, which we have previously explained. First, I would like to review FY 2024 results. One of the initiatives was from the perspective of area. New complex facilities will finally open next fiscal year. We strategically renovated two core stores, Matsuzakaya and PARCO, in the Sakae area of Nagoya.
On the other hand, in Shinsaibashi, Osaka, we successfully incorporated two surrounding properties in our group's redevelopment plan to strengthen the current collaboration between Daimaru and PARCO. Next page. I believe I have mentioned that we also promote a group customer strategy. With that in mind, we first need to expand our group customer assets. For fiscal 2024, we have started issuing new PARCO Cards and the GINZA SIX Cards through JFR Card. To date, we have already acquired 15,000 new card members. Daimaru Matsuzakaya has launched a full-scale CRM system for inbound travelers. Although it was introduced in February of this year, we are already connecting with more customers than we anticipated. We are also pursuing a strategy of owning content and services within our own group to grow without being tied to stores.
The business succession fund, Pride Fund, which we announced in March last year, made its first investment in one company in the last fiscal year. We are delighted to announce that we have entered into a joint venture agreement with Komehyo to launch a reuse business called MEGRÜS. Third, Chiikawa is an eye-catching character for a trendy pork ramen restaurant. PARCO has already started developing its own IP business. While we were able to implement this transformation for future growth, we also achieved a record profit for the current fiscal year thanks to a favorable external environment. Every profit category reached record highs as well. However, as I have mentioned previously, I believe that the performance in FY 2024 was significantly influenced by strong external factors.
In particular, our group, which is centered on department stores, has been able to achieve a strong performance thanks to the tailwind of inbound sales. We believe it would be overly optimistic to assume that the current situation will continue, partly because our previous investment and other measures have not been fully realized. On the other hand, we feel very encouraged by the robust growth in PARCO's earnings. I will elaborate later, but as well as the growth of transaction volume of inbound travelers, exceptionally stable growth will be a major topic of discussion. Additionally, the construction and interior design business of J. Front Design & Construction reported business profit of JPY 3.7 billion for FY 2024, a 2.5-fold increase from the previous year. This includes our Matsuzakaya Nagoya special project within the group, which are the one-off demand.
Maintaining the same level of performance in the next fiscal year and beyond might be challenging. But J. Front Design & Construction's interior design capabilities have received high praise from large hotels and select brands. We are confident that this business will be a major driving force for future growth. Page 28. As I explained earlier, we were able to achieve the business profit target for the final year of this medium-term business plan in FY 2024. Based on this, we have set new targets for FY 2026, the final year of the plan. Since this medium-term business plan is positioned as a period of transformation, we continue to prioritize business profit as a key management indicator. We revised business profit upward to JPY 56 billion and kept ROE unchanged at 8.0% or higher, and revised ROIC upward to 6.0% or higher. The breakdown by segment is as follows.
The middle column shows the updated FY 2026 target. For the department store segment, the target is JPY 33 billion for FY 2026. The actual result for FY 2024 was JPY 33.9 billion, and the target for FY 2025 is JPY 36.1 billion. However, as mentioned earlier, due to the impact of Umeda project, the profit for FY 2026 will remain at the level of JPY 33 billion. On the other hand, the SC and the developer segment, where expected profit levels have risen further, are projected to make up the difference and drive additional gains. As a result, the consolidated business profit target was set at JPY 56.6 billion. This slide shows our cash allocation. In FY 2024, we increased cash inflows. We plan to use them for business growth and investment in human resources. Here, we have redefined our thought for cash allocation and our priorities.
First, we continue to allocate funds significantly in business investment and growth investment. Second, we invest in human resources. Third, we prioritize shareholder returns adhering to our shareholder return policy. Fourth is debt repayment. We manage cash according to these priorities. Regarding the breakdown of our investment plan shown in the right side, we have raised strategic investment from JPY 50 billion to JPY 65 billion. However, we continue to actively consider large-scale M&A that exceeds this framework. Now, I'll introduce our initiatives for FY 2025 and beyond. Although we have raised our target levels, the basic framework for our current medium-term business plan remains unchanged. The strategy is built on three pillars: two growth strategies, deepening retail, and the evolution of synergies, and strengthening management base. Based on these three pillars, we implement ambidextrous management for further expansion, concentrating on our seven key cities, which represent our strengths.
Let's begin with the deepening of retail, starting with the department store business. As I have mentioned before, we believe that stabilizing the inbound tourist market is an extremely important factor. Last fiscal year, we saw a sharp depreciation of the yen and a surge in last-minute demand in May and June due to successive price hikes by luxury brands. Given this, we anticipate a decline during the current fiscal year in response. Concerning the effects of Osaka-Kansai Expo, department stores expect the duty-free sales to remain slightly lower than the previous year. We continue to actively promote inbound CRM initiatives. Starting in February, we have reached out to customers who have made two or more tax-free purchase totaling JPY 1 million or more at Daimaru Matsuzakaya Department Stores with the aim of connecting with them.
As a result, we were able to connect with approximately 400 VIP customers in the past two months, and we have already seen repeat visit. We'll further strengthen these initiatives during the Osaka-Kansai Expo. Our fundamental approach is to ensure that the impacts of the Osaka-Kansai Expos are not limited to a one-time boost in FY 2025, but instead contribute to future growth.
Next, I will discuss Gaisho. Although the stock market has been showing significant instability recently, we believe that sales will continue to grow steadily against the backdrop of the polarization and consumption. However, our fundamental view is that we must engage with the Gaisho market more proactively. This fiscal year, we'll promote new reforms in Gaisho sales, focusing on area coverage, digital initiatives, talent development, and content. For example, in terms of area coverage, the group believes that the presence of a substantial number of department stores nationwide is a strength that our group can leverage. As some neighboring prefectures and cities are seeing department stores and luxury brands withdraw, we intend for each of our stores to actively step up efforts to capture demand in these underserved areas. Next is PARCO. Inbound transaction volume reached JPY 46.2 billion, up 78% year-on-year.
When compared to FY 2019, this figure is approximately seven times higher. However, as you know, the new Shinsaibashi PARCO had not opened yet in FY 2019, and the Shibuya PARCO only opened in November 2019, so the sales for this period were limited. Please consider this when comparing the figures. What is particularly noteworthy is the chart on the right. This shows the monthly transaction volume, and the gray line represents the monthly duty-free sales of Daimaru Matsuzakaya. Last August and September, when the yen rose sharply, the department store duty-free sales fell significantly. In contrast, PARCO saw almost no impact on its inbound sales. It may be partly because the unit price of PARCO products is lower compared to department stores, but PARCO's strength lies more in areas such as Japan mode fashion and IP content.
We believe that the strong sense of purpose they provide is a major reason behind the current inbound performance. Incidentally, duty-free sales at department stores in March decreased year-on-year, while PARCO's inbound transaction volume continued to grow steadily during the same month. Next, I would like to discuss PARCO's transition to a new stage of growth considering these circumstances. The first point is to accelerate the renovation of our core stores. Internally, we refer to this as Building Frame Reform, and we have been working to reassess the value of our stores themselves. Now, we are in a position to undertake the first major renovations of our key revenue-generating stores, SHIBUYA PARCO and SHINSAIBASHI PARCO, since their opening. Another area of growth for IP content is the opening of more Chiikawa Ramen Buta restaurants and starting our IP content ventures in areas such as games and manga.
These initiatives will be pursued with an eye toward potential overseas expansion as well. Next, I would like to discuss group synergies, starting with the Nagoya Sakae area. Earlier, I mentioned the renovation of Matsuzakaya PARCO in Nagoya Sakae, and we have already announced the opening of a new commercial facility. Additionally, we believe that collaboration in non-technical aspects will further enhance the effectiveness of these initiatives. This spring, we established a dedicated organization for co-prosperity with communities in the Nagoya area. Under the leadership of this team, we will strengthen our relationships with external players and local governments in the region. The key point is non-technical collaboration. Currently, JFR Card has expanded its network of affiliated stores to 114 in the Sakae area alone, but we believe that this is insufficient. Therefore, we aim to build more substantial and meaningful partnership in this area. Next is Osaka.
In Shinsaibashi, we aim to firmly establish our presence as a commercial leader. Therefore, as I mentioned earlier, we have included two nearby properties in our redevelopment projects. By including them, we intend to develop what we call a JFR village in the Shinsaibashi area. Two years ago, we established a developer company called J. Front City Development. The primary focus of this initiative is to strengthen our developer business functions, but we also aim to leverage their expertise and knowledge to take on the challenge of developing non-commercial facilities, especially in the Shinsaibashi area. In short, rather than just simply expanding the commercial floor space, we also seek to create non-commercial facilities. This approach will ultimately contribute to further enhancing the Shinsaibashi area and activating collaboration across our entire group.
On the other hand, while Shinsaibashi is an area where we are pursuing expanded impact, we view Umeda as an area where we pursue efficiency. As already mentioned, we believe that by reducing floor space, we can implement more drastic measures and develop distinctive stores. We plan to start renovations in the second half of FY 2025 after the conclusion of the World Expo, with full operations expected to resume around FY 2030. As for profit growth, we aim to achieve an increase of JPY 1.5 billion to JPY 2 billion compared to FY 2024. This slide is about strengthening the group's management base. Given the current changes in the market environment, we believe that resilience is becoming increasingly important. In short, we need to improve productivity.
However, when it comes to enhancing human productivity, our goal is not to generate the same level of revenue with fewer people, as was often the case in the past. Instead, we aim to generate greater revenue with the same number of employees. As we discussed at IR Day last December, we plan to advance our human resource strategy to achieve growth through sales expansion. The remaining two points are explained on the next slide. Page 39. We established the group system philosophy in FY 2024 aimed at improving operational efficiency through DX. While this may sound long overdue, it marks the beginning of a group-wide initiative with the agreement of all operating companies to unify systems by adopting shared infrastructure and standardizing system usage across the group. By unifying the previously disparate systems and conducting joint purchasing from external suppliers, we believe we can first reduce system operating costs.
We will start with this initiative in FY 2025 and work toward DX transformation of our businesses. In addition, the goal for the reorganization and integration of the design and construction and building management businesses, on the right side, is set for March 2026. The integration of these two companies, J. Front Design & Construction and PARCO SPACE SYSTEMS, will enhance our top-line performance. By effectively utilizing the human resources of both companies and integrating their skills and know-how, we seek to leverage the strengths that have been recognized externally, as mentioned earlier, to drive future growth. In terms of ROIC by business, these two companies stand out as having high potential within the group, so we have high expectations for them from that perspective as well. Finally, let me discuss our financial strategy.
While capital costs and funding costs are currently very high, we aim to pursue profitability that exceeds them. At present, we estimate the WACC to be between 5% and 5.5%, while the consolidated ROE is targeted to exceed this at 6% or more. We estimate the cost of shareholders' equity to be between 7.5% and 8%, and the consolidated ROE is aimed to exceed this at 8% or more. Please note the WACC by business segment is currently unchanged, as we have decided to review it for each medium-term business plan period. Page 41 covers shareholder returns. We continue to base our policy on a dividend payout ratio of 40% or higher. For FY 2024, we plan an annual dividend of JPY 52 per share, and for FY 2025, JPY 54 per share.
Following the JPY 10 billion share buyback in FY 2024, we plan to conduct a JPY 15 billion buyback in FY 2025. This concludes my explanation of the progress and partial update of our medium-term business plan. Going forward, we will remain focused on value co-creation with our stakeholders and strive to achieve sustainable growth for the company. Thank you for your attention.
Now let us move to Q&A session.
This is Shigeoka of Daiwa Securities. Thank you very much for your presentation. I would like to ask three questions. First, you showed FY 2025 business environment awareness on Page 12. Please let us know the prospects of inbound sales and the domestic sales in more detail. I would like to know about the growth in domestic sales as well. How much do you incorporate that disruptive tariff impact by Trump administration in your FY 2025 plan? I assume it is smaller than your initial projection. Please give us some colors. That varies by business. Can we answer from the department store business?
Yes. Let me explain year-on-year sales growth in FY 2025 for the department store segment by customer. Total sales will be up by 4.2%. Gaisho sales will be up 6.4%, and domestic cash sales will be up by 5.1%. Duty-free sales will be down by 2.6% as explained. Domestic cash sales are expected to grow significantly by 5.1% versus 0.5% in FY 2024. The Nagoya store will open in stages in FY 2025 and make a positive contribution to top-line growth. Our official store at the Osaka Expo will also boost sales. We expect that our four stores in Kansai region will benefit from the Osaka Expo.
Thank you. How about the tariff impact by Trump administration?
Let me give you an overview. Put simply, we do not know. We cannot even predict what tomorrow will bring. We should not overreact over ups and downs. Rather than being affected by the immediate changes, we believe that we should pursue what we should do. As I said before, we strengthen the management base of the group so that we will be able to navigate the rough waters like a strong ship. We will deepen our retail business and evolve synergies so that we can move forward with a powerful motor under any circumstances. On the contrary, we are faced with an extremely uncertain future, and I would like to know your view. We continue to monitor the external environment closely and prepare countermeasures, but our priority is to pursue what we should do.
You said that FY 2024 was a little too good, or that it was a year with many favorable conditions. When you made the budget plan earlier, I assume that you did not take President Trump's tariff actions into consideration at all. But in April, we observed various development. Is that the background why you expect to see a slight decrease in inbound sales? Or is it because the resulting FY 2024 were too good?
Inbound sales in the department store business were a little too good last year, supported by a sharp depreciation of the yen and rush to buy before the price revisions of luxury brands. I think the reactionary downturn will be considerable.
The latest duty-free sales have been close to JPY 300 million per day, when the yen is in the mid-140s against the dollar, or slightly stronger. Simply converting that to a yearly figure would amount to over JPY 100 billion, and we expect a further increase from the impact of the Chinese New Year, Chinese National Day, summer holidays, and other Asian holidays. It will also be boosted by Osaka Expo as well. Considering all these factors, I do not think that achieving JPY 127 billion is a difficult target. I currently recognize that we need to put inbound CRM in place to achieve the FY 2026 target of JPY 130 billion.
Thank you very much. It was very clear. The second question is about the medium-term business plan. Business profit is revised up to JPY 56 billion. I assume that is based on the steady progressing FY 2024.
However, a downward impact on business profit from the advancement of major renovations of the Daimaru Umeda store is described as JPY 4 billion on the lower part of the slide. I assume that the major renovations of Daimaru Umeda store were already planned when you made the previous announcement. So if you add that back to the previous budget that you announced one year ago, business profit would be JPY 60 billion. Is my observation correct? Do you think a figure of JPY 56 billion is a bit conservative? In other words, a bare minimum target, or do you think it is a challenging target?
Originally, it was not included. Simply calculated, we aim to achieve JPY 60 billion, and your observation is correct. As I answered the previous question, it is hard to say whether this is a stretch target or an easy target under the current environment. So I take a little more time to judge and prepare additional measures if necessary.
Understood. Thank you. Given the current environment is tumultuous, I fully understand it hard to formulate the plan. The third question is about The Landmark Nagoya Sakae. An increase in depreciation expenses is incorporated. Please let us know the annual expenses relating to this, to the extent you can disclose. Do you plan to post a profit contribution as a positive impact from FY 2025, as well as the expenses?
This is Inagami. The specifics about N325, The Landmark Nagoya Sakae, including the exact timing of the opening, the name of tenants, et cetera, will be announced in the second half of the year.
As of today, we plan to start operation in the summer of 2027. The opening will be in FY 2026. Due to IFRS reporting, expenses will be posted in FY 2025 onward. As it will be in full operation in FY 2027, business profit contribution for the full year will be about JPY 1.5 billion. The full contribution in the Nagoya area is described as JPY 5 billion plus alpha on the slide. As we said in the Q2 results meeting, the contribution from the renovation of Matsuzakaya Nagoya will be about JPY 3 billion, and the opening of the facility will add another JPY 1.5 billion, making JPY 5 billion. Plus alpha depends on synergy to be generated. Nagoya PARCO has been performing well recently, so including them would likely deliver strong results. The contribution from a fully operational N325 would be approximately JPY 1.5 billion.
Thank you very much. That's all from me.
Are there any other questions? Now we'd like to take questions from the Zoom webinar participants.
Ms. Kanamori of SMBC Nikko Securities, over to you.
This is Kanamori of Nikko Securities. I have two broad questions, but first, let me ask a follow-up to Ms. Shigeoka's question. From what months in FY 2025 will expenses be recorded?
In the material, it is shown in the SG&A analysis for the department store business. We will begin to book expenses from the first half of FY 2025. It is included in the SG&A of Daimaru Matsuzakaya Department Stores in the first half and the second half shown on Page 17. This will be recognized from FY 2025.
I see. Did you start to book them in March?
In the first half of the fiscal year.
Understood. When you said that the contribution in business profit was JPY 1.5 billion, is it the expected increase under full operation exactly? I see. Thank you very much.
Now let me start with my questions. The first question is about the fourth quarter results. Daimaru Matsuzakaya Department Stores has made a downward revision for the full year business profit plan, but I suppose you could have achieved the original plan if you had aimed for it. Probably, you brought forward certain costs into the fourth quarter for various purposes, as you had already told us.
Could you specify the expense items you brought forward with the uncertain outlook for the new fiscal year? This is the first point I want to ask in relation to Daimaru Matsuzakaya's fourth quarter results. Should I continue? Okay. I have a similar question about PARCO. I know property taxes are incurred in the fourth quarter, but I think the profit decline in the fourth quarter was greater than this tax impact.
Since the renovation of Shibuya PARCO started in March, according to your website, I thought that no notable expenses associated with this renovation were incurred during the quarter under review. Could you elaborate on the reason for the drop in fourth quarter profit? Next is the payment and finance business. I do not think it was profitable in the fourth quarter. I understand that you are currently incurring costs and offering shopping points to acquire card members for the new PARCO and GINZA SIX Cards. But considering your earlier explanation that you had already acquired a large number of new card members, does that mean you enhanced your acquisition activities a bit in the fourth quarter? I think you are still offering more shopping points than usual, so should I expect that certain associated costs will be incurred in this first quarter as well?
Or if you took focused action to guide customers to the new cards in the fourth quarter, perhaps costs incurred in the first quarter will be lower. I would appreciate your guidance on how I should distinguish fourth-quarter activities between one-time costs and potentially recurring costs. There are many points included, but this is my first question. I will stop here.
Let me explain how we incurred expenses in relation to the profit decrease in the fourth quarter. There were some one-time expenses brought forward as investments for the future and investments to generate early results. Specifically, there are digital safety and security investments, and facility-related investments such as renovating employee facilities and switching to LED lighting in the backyard. In addition, we increased bonus payments as we have recorded the highest profit in that fiscal year. This was to reward our employees for their hard work.
One major one-time investment was JPY 700 million for the Nagoya store. Other than that, the money was used as upfront investment, as Ms. Kanamori mentioned.
This is Kawase from PARCO. Thank you for your question. As you said, the fourth quarter revenue was slightly affected by the renovation of SHIBUYA PARCO, which had just started. On the expenditure side, there was an increase related to the advanced financial management project and updating the in-store payment system. Also, in terms of personnel expenses, PARCO also provided bonuses in the fourth quarter to reward and support employees for their financial well-being and other purposes. Those expenses were posted in the fourth quarter as well. Finally, let me answer your question about JFR Card. The issuance of the new PARCO Card was originally scheduled for March 2025.
However, by bringing this forward to February 2025, promotional costs and point costs have been incurred. An even greater factor than this was the system-related development costs, which were recorded in FY 2024. This was a one-time cost of about JPY 800 million, including various miscellaneous costs.
Thank you. Let me clarify one point with Mr. Kawase about the costs related to the advanced financial management project for PARCO. Is this something that was recorded as a lump sum cost in the fourth quarter?
I mean, we moved it to the fourth quarter.
Okay. So this is effectively a one-time cost?
Yes, that is correct.
Thank you. My second question is about the Daimaru Umeda store. You mentioned that the major renovations of the Umeda store will reduce business profit by JPY 4 billion in the next fiscal year.
However, you also said that this will increase business profit by JPY 1.5 billion-JPY 2 billion in the fiscal year ending February 2031, which seems a significant fluctuation. Could you tell us what is expected to happen between those years, or is a significant negative impact only expected in the next fiscal year with business profit turning positive in the following years? I would like to know if you have any plans for it. Thank you.
Let me explain the factors behind the change in business profit for the Umeda store by fiscal year. In FY 2025, demolition of the upper floors will begin in the third quarter, and full-scale demolition will be carried out in the fourth quarter. We'll continue store operations until mid-FY 2025, and business profit is expected to decrease by JPY 1.1 billion year-on-year. The biggest business profit decrease will be in FY 2026.
In the first quarter of FY 2026, the upper floors will be fully returned, and then full scale construction of the fourth, fifth, and ninth floors will start. We estimate a decrease of JPY 3.8 billion here. This is the largest profit decrease, and the decrease will be minor in the following years. In FY 2027, the upper floors will open, and we expect a positive business profit from FY 2028 with an increase of business profit of JPY 4.4 billion from FY 2027 to FY2028. After that, additional business profit is expected in FY 2029 with the opening of other floors.
Okay. Can I assume that the sales floors will be basically returned, but they will not completely disappear. Instead, some of them will be relocated. The major reasons for the profit decrease will be due to the return, demolition, and associated sales decline.
Also, are there other costs involved here, such as restoring the property to its original condition?
Yes, from the 10th floor up, floors will be fully returned, and there will be some areas that we need to restore, but not all. On the other hand, the floors below that will be temporarily closed for renovation on a floor-by-floor basis. Naturally, some floors will see a decrease in profit. In addition, some of the floors will be relocated, and this will incur some costs. Those are the factors for the large profit decrease from FY 2025 to FY2026.
Can I assume that the biggest factor behind the change in profit will be fluctuations in sales, not in costs?
Yes. But for FY 2026, it is possible that both factors may exist according to the current schedule.
I am clear. Thank you very much.
Are there any other questions?
I am afraid we have reached the end of the scheduled time, so the next question will be the last one. Mr. Yamaoka of Nomura Securities, please unmute yourself to ask your question.
I am Yamaoka from Nomura Securities. Thank you for allowing me to ask the last question. I have two major questions. First, for the department store operations, you explained that you intend to expand Gaisho sales, and you also touched upon inbound sales and cash a little. Do you foresee any potential risks in scaling the Gaisho business? Please tell us more about your strategy for the Gaisho business, including whether there are any risks. This is my first question. The second question is about PARCO and SC. So far, you have already explained various reasons for the stagnant profits for this fiscal year, and I understood them.
Earlier, you said that you are gaining strength in qualitative aspects. So I thought it would have been possible to create a plan to increase profits even under such circumstances. What is the actual intention behind the plan for this fiscal year, especially for PARCO? Is there actually a little more potential, or should we look at the situation exactly as you explained? Anyway, I appreciate if you elaborate on it with a little more nuance. Thank you.
Thank you for your question, Mr. Yamaoka. Regarding the rate of increase in Gaisho sales, we will work on our efforts by categorizing them into short-term and medium-term initiatives. In this fiscal year, we will launch a medium-term Gaisho project, and we are now formulating a strategy to focus on four categories. Specifically, areas, human resources, content, and DX transformation.
For the improvement of short-term performance, we will focus on inactive accounts this year. We conducted a test trial in 2024 to activate inactive Gaisho accounts in the Tokyo metropolitan area, and the results turned out to be remarkable. We estimate that by introducing this initiative to all our stores and raising the number of inactive accounts by about 2.2 percentage points, we can achieve a positive effect of about JPY 5 billion in terms of sales. As for risks, it is difficult to assess the impact of the Trump tariffs now. But one risk in the existing Gaisho business is that the number of active accounts will decrease as existing customers age. So we must acquire new accounts. Under such circumstances, we are actively developing digital accounts, which differentiates us from competitors. We aim to leverage this advantage to improve our success rate.
As President Ono explained, we are expanding our Gaisho area to cover from Hokkaido to Kyushu, and we will steadily promote new account acquisition in those surrounding areas or promote a referral program with alliance partners for short-term account growth.
Thank you for your question. I am Kawase from PARCO. I am glad to hear you have expectations for our growth potential. That is exactly how we feel as well. We expect certain sales growth in FY2025. However, we expect to incur certain one-time expenses for safety and security investments related to store assets and other CapEx expenses. With that, we expect a slight increase in profit over FY 2024. Did I answer your question?
Are those expenses a considerable amount?
Yes, it will cost a fair amount.
I see. Can you tell us a specific number?
Well, I would like to refrain from providing those numbers today as I do not want to mislead you. We have the figures on hand that show which items increases in FY 2025 will be temporary and which ones are recurring compared to FY 2024. For instance, we expect that costs such as personnel expenses will not be limited to FY 2025, but will have to be absorbed as a recurring cost in the following years in the cost structure. We also have the total amount of one-time expenses for equipment and facilities. I would like to confirm with the administration team if we can share these numbers with you.
I see. So your vision of reaping solid profits from renovations and other benefits remains unchanged?
Actually, the investment CapEx I am talking about now is related to the safety and security of facilities, and some of it will cause a significant increase in some items on the PL. On the other hand, what we refer to as Building Frame Reform are mostly investments made by tenants. We invest in common corridors, et cetera, but for this part, we have already completed a fair amount of the work in Nagoya and Sendai in FY 2024. So we expect a revenue increase in FY 2025, but this increase would be offset by facility investment or CapEx.
I see. Thank you very much.
This concludes the Q&A session. If you have any additional questions, please contact our IR promotion team. This also concludes the financial results briefing for J. Front Retailing Co., Ltd.
Thank you very much for taking time out of your busy schedule to join us today