My name is Yoshida, and I'd like to thank you for joining us today for the earnings briefing. First, I would like to begin by offering my sincere apologies. As publicly announced on September 1st, we confirmed the mislabeling on the expiration date, such as rice balls at 25 MINISTOP stores, a subsidiary of our company. As a company engaged in the food business, ensuring food safety and security is one of our most important responsibilities. I apologize for the actions that betrayed the trust of our customers and many others. MINISTOP is implementing comprehensive measures to prevent any recurrence, and as a group, we will make every effort to strengthen governance and restore your trust. Today, I'll provide an overview of our first-half financial results and progress on our key initiatives, followed by a detailed report on the first-half performance from Mr.
Egawa, our Executive Officer in charge of Finance and Business Management. As you can see on this slide, we delivered strong performance in the first half. We achieved growth in both revenue and profit at all levels. Operating profit reached a record high for the first half, continuing the strong momentum from the first quarter. Regarding net profit attributable to the parent company, the first quarter recorded a loss due to factors such as losses related to the M&A of a financial subsidiary in Vietnam and one-time tax impacts associated with domestic restructuring. However, the second quarter saw a recovery, resulting in a net profit for the first half overall.
Turning to the current consumer landscape, some reports point to an upward trend in the economy and resilient personal consumption, citing factors such as the Nikkei Stock Average reaching a new high, GDP growth driven by personal consumption, and upward revisions to personal consumption in the monthly economic report. However, we believe the actual economy from the consumer perspective has not yet reached that phase. As a retailer, AEON is always in close touch with consumers. In addition to analyzing consumption trends, we place great importance on hearing directly from both our frontline employees and customers. We are committed to understanding the real economic situation in people's daily lives and responding to their needs. The CPI for food, which makes up the largest share of household spending, has remained around 7%-8%.
This doesn't indicate healthy growth, but rather reflects the fact that people have little choice but to accept price increases. This is often referred to as the polarization of consumption. During this year's Obon holiday period, however, spending was more cautious, with fewer people traveling or returning home and more people choosing affordable, nearby, and quick activities. On the other hand, as exemplified by supporting favorite artists or characters, there is a strong desire to spend on leisure and hobbies, reflecting a tendency to seek relief from stress and anxiety. We observe that many people face this dilemma, experiencing not only financial but also significant mental stress. In daily life, people want to maintain their standard of living as much as possible. During leisure time, they want to enjoy hobbies and entertainment without worrying about high prices.
We aim to meet these needs through our business activities while also expanding corporate profits. In response to heightened cost consciousness in daily life, we'll continue improving products, focusing on our private brands. Since the latter half of last fiscal year, our group policy has focused on emphasizing affordability through TOPVALU BESTPRICE, which helps us ensure overall gross profit. TOPVALU sales exceeded JPY 590 billion in the first half, setting a new record high and continuing double-digit growth. During the half-year period, we renewed 460 items. We enhanced value through price reductions and extra volume promotions, offering customers more for less. We are also developing alternative products that provide new value for items affected by issues such as price surges and supply shortages. For example, our new alternative product called Is It Chocolate?, made from sunflower seeds instead of scarce, expensive cacao, has been very well received.
This month saw price increases on over 3,000 national brand products for the first time since April. However, as announced at our recent press conference, we implemented price cuts on 60 TOPVALU items starting October 1st. Furthermore, we plan to launch a price reduction campaign next week for national brand products, sharing the benefits of bulk purchasing across the group. AEON MALL plays a central role within the group in providing leisure and special outing experiences. We have actively created reasons for families with children to visit, not only serving as a summer escape. The second quarter marked the hottest summer on record. AEON MALL has promoted its role as a cooling shelter, which serves as a heat refuge facility.
Efforts include expanding Mokuiku Hiroba, a wooden playground where children can play safely and free of charge, and introducing Chikyu no Niwa, or Garden on Earth, an indoor playground operated by AEON Fantasy, where children can learn about nature and sustainability through play. These initiatives focus on providing safe and comfortable spaces for children to play during extreme heat. By actively holding events that met local needs, we served as an alternative for those unable to travel or go on outings. This drove the number of customers in the second quarter up by 3% year-on-year, with specialty store sales also rising by 6% to boost overall revenue. These initiatives drove revenue and profit growth across all stages of the business in the second quarter, following the first, marking a record high operating profit for the quarter.
This month, we opened two new domestic malls for the first time in two years: AEON MALL Suzaka in Nagano Prefecture and AEON MALL Sendai Uesugi in Miyagi Prefecture. While these two malls differ significantly in location and scale, both have enhanced entertainment and community functions, following the strong results in the first quarter, creating spaces not just for shopping but for enjoyable and immersive experiences. By increasing foot traffic to malls, we aim to boost not only the malls' profits but also the revenues of the GMS stores, specialty stores, and service providers within the facilities, as well as companies like AEON Financial Service, which handles card payments. This will drive growth not only for the malls but also for other group businesses, including GMS, specialty stores, and financial services.
At My Basket, which we are strategically strengthening, we are expanding market share by leveraging its proximity to customers and relatively affordable prices, even as the number of customers at convenience stores and supermarkets struggles to grow amid the rise of the frugal mindset. It has achieved revenue and profit growth across all profit levels, generating stable earnings. By strengthening offerings like rice balls, bread, and prepared foods, leveraging its price advantage over convenience stores, both the number of customers and average per customer have increased, driving up average daily sales. We opened 64 new My Baskets in the first half, expanding our total to 1,262 stores as of the end of August. We are also reinforcing our store development organization and aim to expand by opening more than 200 stores annually starting in fiscal 2026. The GMS business made the largest contribution to our first-half profit growth.
Although it recorded a JPY 200 million loss in the first half, this represents a JPY 8 billion improvement in profitability compared to the previous year. AEON Retail, in particular, achieved a significant improvement in performance and reduced its operating loss by JPY 4.5 billion. In addition to further streamlining our cost structures through new DX tools and company reorganization, we are also addressing the challenge of enhancing profitability. Under the strategies of strengthening our food business and specializing in non-food sectors, we are increasing the expertise of each sales floor and working to enhance appeal. We are also promoting a vertically integrated SPA model for TOPVALU in apparel and home furnishing. By improving factory utilization rates through consolidation of factories and materials, we achieved cost reductions exceeding JPY 2 billion in the first half, exceeding our initial targets.
Unlike many companies withdrawing from the GMS format, we are committed to evolving it. Amid increasing time constraints for dual-income households and narrowing mobility ranges for the growing elderly population, we see strong potential in offering one-stop access to daily essentials like food, clothing, and household goods. We believe the GMS format's value proposition should be pursued. We are now seeing the effects of our cost structure reforms, which began in the second half of last fiscal year, particularly on the expense side. We are moving forward with two key initiatives. The first is improving work efficiency through ongoing digital transformation in stores and better use of process centers. The second is streamlining operation through new management tools and stronger focus on labor hour efficiency at the store level. Work hour management is now more closely tied to operating gross profit rather than overall revenue.
Labor productivity has improved by approximately 5% even in our retail businesses, including GMS, supermarkets, discount stores, and health and wellness, which have been significantly impacted by higher wages. While current performance remains solid, we expect that price will become an even more important factor for customers when choosing stores and brands. Cost increases, primarily in labor and utilities, will undoubtedly continue. Even as costs rise, we believe it's important to avoid passing on cost increases to customers and instead find ways to lower prices sustainably. Structural reforms are necessary to generate the resources needed to offer better value, and effectively leveraging the scale of the group is key to enhancing competitiveness. While TOPVALU is performing well, we believe there is still significant room for growth. There are disparities in the TOPVALU sales mix among group companies, and we will work to correct this.
Furthermore, companies that have recently joined the group, such as Fuji, are rapidly advancing TOPVALU's introduction, with sales exceeding 200% year-on-year. The shipment volume from Craft Delica Funabashi, our process center in the Kanto region that started operations last June, is expected to grow to more than JPY 10 billion this fiscal year. Progress in the first half has been largely on track with this plan. As a result, the gross profit margin for delicatessen products at AEON Retail stores in the Kanto area has improved by 1.8 percentage points compared to other regions, contributing to gross profit improvement. We are currently expanding this model to other regions, rolling out the SPA model for food products to other regions.
This fiscal year, with an eye on our next medium-term management plan, we are pushing forward with deeper and more transformative structural reforms, focusing on building a more competitive business structure. As part of this effort, the full acquisition of AEON Delight and AEON MALL was completed in July, and we are now moving into the phase of creating synergies. The new drugstore alliance between Tsuruha, Welcia, and AEON is also progressing as planned. To achieve early synergies post-merger and realize new growth strategies, Welcia has begun piloting a new format called Drug & Food. This model retains Welcia's strengths, including its prescription dispensing capabilities and core drug offerings, while integrating AEON Retail's food merchandising expertise, logistics systems leveraging AEON Global SCM, and My Basket store operations. This integration enabled rapid implementation. Two pilot stores opened in late August, testing the format under different market conditions.
Designed as a model to convert existing stores and enhance profitability, the initiative is progressing favorably. In August, we announced that we had signed a basic agreement to begin discussions on the management integration of supermarket operations in the Greater Tokyo area and the Kansai region. The plan is for the following integration to take place in March next year. In the Greater Tokyo area, MaxValu Kanto, Daiei's Kanto operations, and AEON Market will merge their operations. In the Kansai region, Daiei will concentrate its management resources in Kansai and integrate its management with Kohyo. As a result, the revenue scale of USMH in the Tokyo metropolitan area is expected to exceed JPY 1 trillion. We will further advance management leveraging this scale, which will give us the number one share in the area, and work to develop a new store format that offers both affordability and quality.
In the Kinki region, the integrated company, with annual revenue of about JPY 300 billion, will take the lead in expanding market share. While solidifying its foundation through this integration, it will develop new growth strategies. Amid rapidly changing business environments, the need for a swift operational review and structural transformation is growing. We intend to continue reorganizing group companies and streamlining business operations, focusing on leveraging scale and optimizing management in each region to reshape the group's profit structure. That concludes my remarks.
My name is Egawa, and I'm responsible for finance and business management. Thank you all for joining us today at the financial results briefing for the first half of the fiscal year ending February 2026. Let me begin with an overview of our consolidated results for the first half of the fiscal year.
During this interim period, efforts such as expanding sales of our private brand TOPVALU and various initiatives leveraging group assets implemented during the record-breaking heat wave proved successful. Operating revenue reached JPY 5,189.9 billion , a 3.8% increase compared to the same period last year. This marks the fifth consecutive period of record-breaking results. Regarding profits, we focused on further improving profitability by implementing pricing strategies aligned with customer needs, enhancing labor productivity through store DX, and advancing cost structure reforms. As a result, operating profit increased by JPY 19.5 billion year-on-year to JPY 118.1 billion , setting a new record high for an interim period. Ordinary profit increased by JPY 16.6 billion year-on-year to JPY 06.4 billion .
Regarding net profit attributable to the parent, while the first quarter recorded a loss due to factors such as the impact of tax-effect accounting related to business restructuring, we recovered in the second quarter. Cumulatively, profit turned positive, and we secured higher earnings. This shows the five-year trend for key performance indicators. As you can see, operating revenue and operating profit have shown steady growth. Next, let me walk you through our segment performance. Operating revenue increased year-on-year in all reporting segments. On the profit side, the GMS business significantly reduced its operating loss, while the supermarket, the health and wellness, the shopping center development, and the services and specialty store businesses all achieved double-digit growth, contributing to the overall increase in operating profit.
Before we move on to the segment-by-segment overview, let me first highlight the sales performance of TOPVALU, which significantly contributed to the growth in both operating revenue and operating profit. Amid rising prices and an increasing frugal mindset among consumers, AEON is strengthening sales of TOPVALU products, particularly its price-focused BESTPRICE line, in order to support customers' daily lives and household budgets. As a result, the group recorded double-digit growth in sales compared to the same period last year. As described above, in addition to the price-focused BESTPRICE brand, our mainstream TOPVALU line, which emphasizes value, the Green Eye brand also recorded solid net sales growth. We're seeing growing customer support for our products thanks to their strong balance of price and quality. Moving forward, we'll continue to refine our product development and expand TOPVALU sales to further strengthen that trust.
Now, I would like to explain the results by segment. Let me begin with the GMS business. Although we remained in the red with an operating loss of JPY 200 million in the first half, we achieved a substantial improvement of JPY 8 billion year-on-year. During the three months of the second quarter, record-breaking heat persisted, creating a challenging consumption environment as consumers were fleeing from non-essential outings. However, thanks to various cooling initiatives launched under the COOL de ACTION campaign and strong sales in the food category, same-store sales remained solid. Furthermore, the apparel division, which faced challenges in the first quarter, began to recover. This turnaround was driven by initiatives responding to temperature changes, such as the summer apparel sale implemented in June and the expansion of late-summer merchandise offerings in August.
On the profit side, while costs for raw materials, logistics, labor, and energy continued to rise, accelerating store DX enabled us to partially offset the impact of these increases. Labor productivity at major companies reached 105.8% year-on-year, while total labor hours were 96.2% of the previous year's level. By a corporate entity, AEON Retail achieved a JPY 4.5 billion improvement in profit compared to the same period last year. Let me walk you through the details of this company on the next slide. AEON Kyushu saw increased growth investments such as new store openings and large-scale revitalization projects. However, profitability improved due to increased operating revenue, primarily from food sales, productivity gains from DX, and cost reductions from energy-saving investments, leading to higher profits. AEON Hokkaido and AEON Tohoku saw profit declines. Weak non-food sales led to lower gross profit margins, which could not absorb increased SG&A expenses.
Kandu saw both increased revenue and profit. This was driven by steady sales of 100-yen goods amid heightened awareness of the need to maintain living standards, as well as expanded sales of high-preference items. Across the entire GMS business, progress in pricing strategies, store DX, and cost structure reforms has been yielding results in strengthening profitability. However, we recognize that further promotion of vertically integrated operations, similar to the SPA model, in the underperforming non-food sector, as well as the expansion of specialty store formats and stronger brand and product development, remain key challenges. This slide provides an overview of AEON Retail. Although this first half recorded an operating loss of JPY 3.6 billion, this represents a JPY 4.5 billion improvement compared to the same period last year. This outcome exceeded expectations and reflects solid progress.
Notably, profitability improved significantly at stores revitalized through aggressive investments since fiscal 2023, leading to substantial profit growth and helping to reduce overall operating losses. On the sales front, our inflation-responsive pricing strategy, including expanding TOPVALU sales and strengthening prices centered on key value items, proved effective. Same-store sales remained robust at 102.1% compared to the same period last year. Furthermore, following the reorganization of the company structure implemented at the beginning of the period, we reduced overlapping tasks between regional offices and redeployed over 300 corporate staff to the field. This reinforced frontline capabilities and reduced head office expenses. As a result, the SG&A ratio improved by 1.5 percentage points compared to the same period last year, enhancing management efficiency. Furthermore, stores accelerated DX initiatives to improve labor productivity.
This included introducing self-checkout registers for non-food items and expanding the scope of the AI-powered demand forecasting and ordering system AI Order to additional departments. Next, let me discuss the supermarket business. Operating profit for the first half increased by JPY 2.8 billion year-on-year to JPY 12.9 billion. Throughout the period, same-store sales and the number of customers remained generally robust due to expanded sales of TOPVALU products and price appeal for key value items. However, August saw a slight decrease due to the decline in demand for disaster prevention-related products following the Nankai Trough Earthquake temporary information issued last year. For My Basket, our urban compact supermarket format, we expanded our store count to 1,262 locations as of the end of August. We are seeing tangible growth in customer preference for this store model, which effectively meets the needs of urban residents.
At MINISTOP, we deeply apologize for the significant concern and inconvenience caused to our customers and stakeholders by the recent discovery of improper labeling of certain in-store prepared foods. However, during this interim period, our strong fast food segment contributed to both sales and profit growth, resulting in increased revenue and earnings. At USMH, we are advancing structural reforms to enhance management efficiency, including establishing centralized purchasing systems across subsidiaries and integrating back office functions to realize scale advantages, which have been difficult to achieve. Next, let me talk about the discount store business. Operating profit for the first half decreased by JPY 300 million compared to the same period last year. Amid rising demand for discount formats due to inflation, we focused on expanding TOPVALU sales while developing and promoting the private brand products unique to the discount store business.
This resulted in steady growth in both same-store sales and customer traffic. AEON Big recorded increased net sales and profits, while Big A, which rolls out smaller stores in the Tokyo metropolitan area, saw increased net sales but decreased profits. During this interim period, the company implemented revitalization projects at 51 stores, including the brand integration of Acole into Big A. This profit decline was mainly due to temporary cost increases associated with these growth investments, but we expect the effects of these investments to materialize in the second half of the fiscal year. Moving forward in the second half, we'll continue to strengthen our pricing strategy while further accelerating the introduction of private brand products to secure gross profit margins. Concurrently, we will review pricing strategies for national brand products and rigorously manage prices.
Furthermore, we aim to secure profit growth by promoting store operational efficiency through improvements to management systems and material handling processes, as well as revisions to delivery methods. Let me now turn to the health and wellness business. Operating profit for the first half increased by JPY 4.2 billion year-on-year to JPY 22.7 billion . At Welcia, both product sales, driven by food items, and prescription dispensing, supported by an increase in the number of prescriptions filed, performed solidly, leading to higher revenue. Furthermore, profitability improved through expanded sales of private brands such as TOPVALU and Karada-Kurashi Welcia, along with enhanced store operational efficiency, resulting in a roughly 20% increase in operating profit compared to the same period last year. Next, I'll explain the financial services business. During the first half, revenue increased due to steady growth in various transaction volumes and receivables balances, both domestically and internationally.
However, operating profit decreased by JPY 500 million compared to the same period last year, primarily due to increased expenses associated with the expansion of operating receivables in the Malaysia region. In the domestic business, while financial income from the banking business increased, operating profit rose only slightly due to factors such as higher deposit interest expenses. Regarding AEON Pay, both membership numbers and transaction volumes grew steadily, contributing to the strengthening of our customer base. Regarding overseas operations in the Mekong region, revenue decreased in Thailand, a core country, due to a decline in transaction volumes for personal loans and other products against a backdrop of delayed economic recovery. However, overall revenue for the region increased due to business expansion in Cambodia and the consolidation of Post and Telecommunication Finance Company Limited in Vietnam as a subsidiary.
On the profit side, earnings increased as efforts to refine credit standards and strengthen collection systems reduced credit-related expenses. In the Malay region, against a backdrop of a robust economic environment, consumer loans and credit card businesses performed well in Malaysia. However, higher credit loss provisions and related costs associated with the expansion of consumer loans led to higher revenue but lower profits. We plan to strengthen cost control from the second half of the fiscal year onwards. In the Greater China region, despite a sluggish economy, operating revenue remained flat year-on-year due to strengthened credit screening and ongoing credit management. However, significant profit growth was achieved through cost containment, including reductions in credit-related expenses and promotional costs. We'll continue to pursue growth in transaction volumes and operating receivables, both domestically and internationally.
Concurrently, we will advance the refinement of credit management through digital technologies such as AI and strengthen our debt collection framework. Next, let me discuss the shopping center development business. Operating profit for the interim period increased by JPY 5.5 billion year-on-year to JPY 32.8 billion. AEON MALL, our core subsidiary, achieved record-high interim operating revenue and operating profit. Domestically, in addition to actively revitalizing existing malls, as explained earlier by President Yoshida, enhanced cool share events during the intense heat wave and strong performance by amusement and cinema companies boosted mall foot traffic. Furthermore, increased duty-free sales driven by demand from visitors to Japan also contributed to the growth in revenue and profit. Overseas, operations across all countries resulted in increased revenue and profit, with the overall overseas business achieving record-high profits. Next, I would like to discuss the services and specialty store business.
Operating profit for the interim period reached JPY 16.8 billion, an increase of JPY 2.4 billion compared to the same period last year. AEON Delight saw increased revenue and profit due to steady growth in new facility management contracts and energy-saving related construction projects. AEON Entertainment saw a significant expansion in operating profit due to increased attendance driven by hit films across Japanese, international, and animated titles. At AEON Fantasy, our core price and metal departments, which have high proportions and profitability, performed well domestically. Additionally, in China, where the company had been struggling, profit improvement measures proved effective, significantly reducing losses. As a result, consolidated operating profit increased substantially, rising to more than 1.2 x the level recorded in the same period last year. Furthermore, amid Japan's prolonged heat wave, indoor play facilities gained customer preference as safe and secure places for children to play.
This contributed to attracting customers to stores and also helped generate synergies within the group. Next, let me discuss the international business. Operating profit for the first half was JPY 4.8 billion, a slight decrease compared to the same period last year. At AEON Malaysia, although sales increased due to event initiatives, operating profit remained flat due to increased costs associated with growth investments and store revitalization. At AEON Vietnam, sales remained strong at both existing and new stores against a backdrop of economic growth, and higher profit was secured by offsetting increased expenses from accelerated store openings. In China, amid a sluggish consumer mindset due to economic stagnation, insufficient adaptation to changing customer demand led to decreased sales and profits. Within this context, AEON Hubei, which continues to perform well, expanded its business steadily against the backdrop of advancing urbanization, resulting in increased profits.
Despite ongoing challenges in China, we will strive to improve profitability in the second half by strengthening sales efforts around major sales events such as Respect for the Aged Day, Mid-Autumn Festival, and Christmas, while strictly controlling labor and promotional expenses. Finally, I would like to explain the full year earnings forecast. At this point, there are no changes to the full year earnings forecast. In the second quarter, following the trend from the first quarter, our pricing strategies responding to changes in customer consumption behavior, accelerated DX initiatives, and cost structure reforms proved effective. As explained, both operating revenue and operating profit reached record highs.
For the second half, with major sales events such as AEON Black Friday in the third quarter, Christmas and year-end New Year in the fourth quarter ahead, we will aim to achieve the full year earnings forecast by further accelerating the existing trends and addressing challenges specific to each segment. Regarding net income attributable to owners of the parent company, we anticipate the impact of fully consolidating AEON MALL and AEON Delight, along with the consolidation of Tsuruha, and the expected gain from step acquisition accounting. However, at this point, we have conservatively determined that it is not appropriate to incorporate these effects into our earnings forecast. Furthermore, we plan to advance structural reforms and upfront investments this fiscal year. Should the likelihood of fluctuations in net income increase, including due to these initiatives, we will disclose this information at an appropriate time.
This concludes our explanation of the first half results for the fiscal year ending February 2026 and our performance outlook. Thank you very much for your attention.
Could you elaborate on the objectives and current progress of your structural reforms?
This is Shikata. I'll take this question. AEON has grown into a JPY 10 trillion revenue company through a series of mergers and acquisitions, and today comprises over 300 group companies. However, when we look at each entity individually, disparities in growth potential become apparent. My mission is to revisit our business portfolio and identify ways to enhance the performance of each company, ultimately transforming our overall profit structure. We are pursuing this through two key approaches. First, as a result of past mergers, we have identified overlapping functions and businesses across group companies that have remained unaddressed.
These redundancies are placing a burden on capital efficiency and profitability, and we are now working to consolidate them. Second, we are conducting a thorough assessment of underperforming companies, particularly those with recurring losses, to understand the root causes and determine whether structural reforms are feasible or whether the industries they operate in have future growth potential. In terms of progress, we have already taken steps such as restructuring our supermarket operations in Eastern and Western Japan and making AEON MALL and AEON Delight wholly owned subsidiaries. Given the scale of our group, we are committed to driving improvements company by company.
Could you share your fundamental approach to managing AEON's business portfolio? How do you view the diversity of businesses within the group? And could you also comment on how this ties into the AEON Living Zone concept and the company's core philosophy?
This is Yoshida.
I'll take that question. Given the current social environment, available solutions, and our asset base, we believe there are three core pillars that should anchor AEON's business portfolio going forward. The first is food retail. Despite its inherently low-margin nature, food retail remains central to our portfolio due to its overwhelming store footprint and its significant contribution to group revenue. In today's inflationary environment, the key challenge is how we can continue to deliver value to consumers while maintaining profitability. The second is the health and wellness business. This sector is supported by strong social demand and a large market size. Fortunately, through our alliance with Welcia, Tsuruha, and AEON, we have the scale to make this another strategic axis of growth. The third is a cluster of businesses centered on the shopping center development and entertainment business.
Even in times of rising prices, people still seek enjoyment and emotional fulfillment. We see it as our role to provide those experiences. Together, these three pillars, food, health of body and mind, and enjoyment, should account for approximately 70% of our earnings. The profits generated from these core businesses will be reinvested into our overseas operations. In particular, we aim to shift the portfolio balance by increasing the weight of high-growth markets such as Vietnam, positioning the international business as a stronger driver of future growth.
How do you view the strengths of My Basket? It appears to be well received by consumers, and new store openings continue steadily. It also seems to be favorably regarded by property owners. How do you evaluate its positioning? Additionally, as other companies are also planning to expand small-format stores, how does My Basket differentiate itself and generate sustainable profits in this space?
This is Yoshida again. I'll take this question as well. My Basket is positioned as a strategically important growth driver within AEON's portfolio, particularly in the context of Japan's demographic shifts. While the overall population is declining, the Tokyo metropolitan area continues to grow due to urban migration and aging trends. This makes it the most promising market in terms of population potential. In this environment, My Basket is a format that aligns well with both the business landscape and evolving consumer needs. Its success stems from a combination of convenience and value. While its proximity to consumers is similar to convenience stores, it offers a stronger sense of affordability and a product assortment closer to that of a supermarket, enabling one-stop shopping. One of its key strengths is the high share of TOPVALU products, which allows us to deliver quality at significantly lower prices.
For example, while national brands sell a cup of instant noodles for around JPY 230 -JPY 260 , our best-priced product is priced at about JPY 130, offering value that many urban consumers had not experienced before. To further enhance its appeal, we are working across the group to optimize the supply of delicatessen products and prepared foods to My Basket, which we believe will lead to even higher daily sales per store. Unlike franchise-based convenience stores such as MINISTOP, which face challenges like aging store owners and succession issues, My Basket operates entirely under a directly managed model. This gives us full control over operations and scalability. The key challenge is maintaining operational consistency amid rapid expansion. We've addressed this through systematization, standardized manuals, and the establishment of training centers.
With this infrastructure, we built a framework where new staff can be trained effectively in just half a day, enabling us to support a steady rollout of up to 200 stores annually. We are placing emphasis on business model development. Please provide a more detailed explanation of the ongoing structural reforms. As Executive Officer Shikata mentioned at the first quarter results briefing, the focus at that time was on optimizing staffing levels around the cash registers and efforts to align staffing to appropriate levels had already started around the fourth quarter of the previous fiscal year. He also noted that there was still room for further cost reduction in areas such as shelf allocation work and in-store food preparation.
Could you elaborate on how much progress has been made in these areas as of the second quarter?
While GMS has clearly improved its labor productivity, the pace of improvement in SM appears more limited. Should we expect that it will take more time for SM to show similar progress?
This is Shikata. Let me share my view on that. As part of our structural reform initiatives, we have taken a data-driven approach to labor cost optimization at the store level. If we break down store labor costs into three roughly equal components, checkout operations, in-store food preparation, and shelf stocking backroom tasks, the first area we addressed was checkout. This segment is highly sensitive to fluctuations in customer traffic, making labor cost stabilization particularly challenging. By introducing self-checkout systems, we were able to structurally reduce labor costs in this area by approximately 10%, which represents one-third of the 30% allocated to checkout operations.
Our next focus is in-store food preparation, which accounts for another 30% of labor costs. In 2024, we launched the Craft Delica Funabashi Process Center, decentralized food preparation. This facility now supplies 180 stores in the Kanto region, including not only GMS, but also My Basket and USMH. Starting in September, USMH stores began receiving shipments, and in the second half of the fiscal year, we plan to expand this initiative to supermarkets, streamlining logistics and reducing in-store workload. The remaining 30%, shelf stocking and backroom operations, is being addressed through digital transformation. AEON Retail has taken the lead by introducing handheld devices that allow staff to complete tasks on the shop floor without returning to the backroom. We've also automated work scheduling using AI, significantly reducing planning time. As a result, labor productivity has improved to 105%, a 5 percentage point increase.
While we continue to raise hourly wages by around 7% annually for part-time and hourly staff, our productivity gains have outpaced labor cost inflation, which stands at 103%. We are committed to deepening these reforms further, with the goal of applying these productivity-enhancing measures across all formats, including supermarkets, where improvements have been slower to materialize. My Basket has increasingly taken on the role of a CVS killer in urban markets, thanks to its convenience and value proposition. However, looking ahead, competition is intensifying. Players like OK Store and Lopia are pushing even lower price points and have significantly improved the prepared food offerings in recent years. In addition, PPIH is expected to launch small-format fresh discount stores in the three major metropolitan areas within the next three years.
Following its acquisition of Seiyu, Trial is also expected to enter the small-format business, although on a slightly delayed timeline.
Given that these formats and customer segments overlap with My Basket, how confident are you in maintaining market share over the next few years? What is your strategy to stay competitive in this increasingly crowded urban retail landscape?
Yoshida here. I'll take that question. We recognize that urban small-format stores like My Basket are increasingly playing the role of CVS disruptors. However, looking ahead, competition is intensifying, not only from players like OK and Lopia, which offer even lower price points and have significantly upgraded their prepared food offerings, but also from emerging formats such as PPIH's small-scale fresh discount stores expected to enter major metropolitan areas within three years. Trial and Seiyu are also likely to follow with small-format strategies. In this context, we believe My Basket's strength lies in its compact format.
Securing 3,000 sq m store space in Tokyo is virtually impossible, so the ability to operate profitably in smaller footprints is a strategic advantage. To increase the share of top-value products and improve operating margins, we are redesigning the business model to enhance rent adaptability. Without this, site selection becomes severely constrained. Our strategy is to build a high-density store network, with new locations opening as close as 400 m apart. While larger-format stores must consider competitive overlap, My Basket competes on density and proximity. Even if there is some impact from competitors, dominance through store concentration remains key. This dominance also enables operational synergies. As our store network expands, process centers become more effective. For example, My Basket can leverage USMH's process center, and those of AEON Retail could also supply My Basket. Offering GMS-level prepared foods in My Basket stores would significantly enhance competitiveness.
With over 1,200 stores and rapid expansion underway, we expect more competitive intersections with CVS formats. This may lead to new site opportunities, as is often the case when formats evolve. GMS gives way to discount store, and so on. Ultimately, we believe that the key to winning in this space is not just the standalone store format, but the strength of the group network. By leveraging group synergies, we can elevate product quality, streamline supply chains, and build a more profitable, scalable model.
You mentioned improvements in labor productivity, but what specific initiatives have contributed to the profitability recovery in the GMS segment? We understand that efforts are being made to strengthen non-food categories and promote community-based retailing in regional areas. Could you share any successful case studies, including those from outside metropolitan regions?
This is Shikata. I'll take this question.
We are taking two main approaches to improve profitability in our GMS business: strengthening our food offerings and specializing our non-food categories. First, in food, we're focused on expanding our TOPVALU lineup, which has driven both sales and customer traffic, achieving year-on-year growth of over 10%. In addition, we reinforced our delicatessen product offerings. Since the COVID-19 pandemic, the boundaries between eating out and eating at home have blurred, leading to increased demand for ready-to-eat meals. Delicatessen products meet this need and offer high profitability from a business perspective. We've leveraged our process center, Craft Delica Funabashi, to supply AEON Retail stores in the Kanto region, and have begun expanding the supply chain to My Basket and USMH. We test new items and scale up successful ones, using TOPVALU to attract customers and delicatessen to drive margin improvement.
Second, in non-food, we've been advancing the specialization of apparel since last year. For example, we've introduced two branded specialty formats: Doublef ocus, which targets younger consumers, and SELF+SERVICE, which promotes ethical consumption. In the second quarter, we added five new stores, bringing the total to 23. These stores have shown improvements in both sales and profitability, and we plan to continue expanding this model. In the home furnishing category, we're experimenting with enhanced leisure-focused formats, with model stores in Sagamihara in Kanagawa Prefecture and Yono in Saitama Prefecture. These stores have shown improved sales per square meter, and we plan to introduce three more in the second half. Our strategy is to use strong food offerings to attract foot traffic and then guide customers towards specialized apparel and leisure categories, transforming the GMS format into a more profitable and customer-centric model.
AEON MALL became a wholly owned subsidiary as of July 1st. While a new mall was launched this fall, could you share any updates on renovation initiatives for existing facilities or the development of new small-format brands?
This is Shikata. I'll also answer this question. With AEON MALL becoming a wholly owned subsidiary as of July 1st, our aim is to evolve it into a core entity within the group's real estate strategy. The newly opened malls in Suzaka in Nagano Prefecture and Sendai Uesugi in Miyagi Prefecture are designed not only as retail spaces but also as community hubs and entertainment destinations. Especially in light of recent extreme summer heat, these indoor venues have captured strong demand, with foot traffic now exceeding pre-COVID levels. Now that AEON MALL is delisted, we have great flexibility in reallocating real estate assets within the group.
Our strength lies in the breadth of real estate holdings across the AEON Group, while our challenge is that many of these assets remain underutilized. With construction costs rising, the key is how we can unlock value from these properties. By applying AEON MALL's expertise in development and operations to group-wide real estate assets, we aim to enhance asset value and contribute to a more integrated and profitable real estate strategy.
The first half appears to have progressed smoothly, but how would you assess performance relative to the full-year plan? Could you also comment on any differences in momentum across business segments?
This is Egawa. I'll address your question. Overall, the first half of the fiscal year progressed smoothly, with solid cost control contributing to improved performance across the retail segments.
Among the segments, health and wellness stood out, with both retail and pharmacy dispensing operations exceeding expectations in terms of sales and profit. The shopping center development business also performed strongly, benefiting from successful customer engagement initiatives during the extreme summer heat. Foot traffic and specialty store sales surpassed projections, resulting in record-high revenue and profit. GMS showed notable improvement, its operating loss reduced by JPY 8 billion . While it is not yet fully back in the black, the pace of recovery exceeded our expectations. On the other hand, the international business underperformed, primarily due to macroeconomic headwinds in China, which impacted results more than anticipated. Within the supermarket business, performance was mixed. My Basket and MINISTOP delivered strong results, while other formats in the supermarket business are expected to show improvement in the second half.
We've observed growing alignment across AEON Group companies, particularly in the adoption of TOPVALU and WAON at the store level.
From your perspective as President, how would you assess the current level of group-wide awareness and shared mindset? Additionally, could you elaborate on areas where further integration or pursuit of group synergies may still be needed?
I'm pleased to hear that there's a growing sense of alignment and ownership among group companies within AEON. This is something I, Yoshida, am truly glad to see. Regarding TOPVALU, we're seeing a clear shift toward expanding its presence, and communication with operating companies has become much more active. We've established a TOPVALU summit where not only the holding company but also Presidents of operating companies participate directly in product development discussions. These sessions are highly interactive. Companies propose product concepts, consumption angles, and volume expectations.
For example, during one tasting session, we discussed a chocolate product made with sunflower seeds instead of cacao. The President of My Basket was present and noted that My Basket ended up being the top seller of that item. This collaborative approach has helped TOPVALU evolve into a brand with over JPY 1 trillion in annual sales. One of its key advantages is that it requires minimal branding investment, unlike typical private brands, which often need significant marketing spend to gain recognition. With TOPVALU, customer trust and awareness are already established, allowing products to perform well even without promotional costs. In this way, the company itself reinforces the sense of belonging to the AEON Group. We're also working to embed our core philosophy more deeply across the group, and I feel that this mindset is increasingly taking root.
A good example is Fuji, which joined the AEON Group and shifted from its original private brand to TOPVALU. As a result, sales of TOPVALU products at Fuji doubled, increasing by 200%. These kinds of outcomes demonstrate the power of group synergy and the potential for further expansion.
Labor costs were expected to rise by just under JPY 50 billion this fiscal year, with utility expenses increasing by around JPY 10 billion and logistics costs projected to remain flat. How does the first half progress compare to these initial cost assumptions?
Egawa speaking. I will answer this question. The outlook for labor, utility, and logistics costs remains consistent with our initial assumptions. Labor costs were projected to increase by just under JPY 50 billion for the full year, but actual spending in the first half has remained below 50% of that estimate.
We now expect the full-year increase to be around JPY 40 billion. For utility expenses, while the initial plan anticipated a JPY 10 billion increase, we are aiming to keep the full-year impact within a range of JPY 0 billion- JPY 5 billion or JPY 6 billion. Logistics costs are expected to remain flat compared to the previous fiscal year, as previously disclosed.
While Green Beans appears to be incurring higher initial losses in the first half, basket size remains strong at over JPY 10,000, and membership has reached 660,000. Would you consider this progress to be on track? How would you assess the current utilization rate of the Honda Customer Fulfillment Center, or CFC? With new CFCs planned in Hachioji, Tokyo, in 2026, and Kuki, Saitama, in 2027, should we expect continued or even expanded losses due to upfront investment? What is your current outlook on profitability over this period?
This is Shikata. Let me respond to that. As reported, Green Beans has surpassed 660,000 members and is progressing steadily. One notable metric is the basket size, which exceeds JPY 10,000, significantly higher than the typical JPY 7,000 seen in conventional online supermarkets. Another key performance indicator we focus on is repeat usage. In online grocery, basket size tends to grow with each purchase, and customers who shop five times are highly likely to become regular users. Therefore, driving customers to reach that fifth purchase is a critical KPI for us. We are actively working to convert our 660,000 members into loyal customers. In autumn next year, our Hachioji CFC will begin operations. Unlike our first CFC in Honda, which started from scratch, Hachioji will benefit from Honda's operational know-how and an existing base of 660,000 members.
To enable a smooth vertical launch in Hachioji, we have already established a spoke there. Rather than waiting for the new CFC to open and then build a customer base, we are leveraging the existing Honda CFC to deliver consolidated volumes to the Hachioji spoke. This approach helps us expand membership in advance, allowing the new site to start with an existing Green Beans user base, thereby minimizing initial losses and ensuring a more efficient startup.
Yoshida speaking. I'd like to supplement Shikata's answer. Defining the utilization rate of the Honda CFC is somewhat complex. The robotic system was designed to accommodate six modules, but currently only two are in operation. As demand increases, additional modules will be added incrementally. While this means the current utilization is below 40% compared to full capacity, we have intentionally avoided installing excess modules upfront.
The facility is designed to scale in line with actual operational needs, allowing us to optimize both capital efficiency and operational flexibility.
Following the development of the CFC in Kuki, what are the next steps in Green Beans' expansion strategy?
This is Yoshida. Let me respond to that. Our top priority is to fully utilize the capabilities of the Kuki facility in Saitama. Green Beans is designed as a dedicated online grocery solution for the Tokyo metropolitan area. Together with My Basket, Green Beans serves as a strategic channel for approaching the food market in urban Tokyo. We would like investors to view this as a dual-format strategy, leveraging both physical proximity and digital convenience to meet evolving consumer needs in the capital region.