I'm Egawa, in charge of Finance and Business Management. Thank you all for joining us today for our presentation of the third-quarter financial results for the fiscal year ending February 2026. Now, let's begin the presentation of our third-quarter results. First, I'll give you an overview of consolidated results for the first nine months. During this period, various initiatives proved successful, including expanding sales of our private brand TOPVALU through various campaigns and implementing our largest-ever Black Friday event in November. As a result, operating revenue rose 3.7% year-on-year to JPY 7,749.4 billion. This is a record high for this period. Regarding profit, we continue to improve labor-hour productivity through store DX and construction reforms to further improve profitability. As a result, operating profit increased by JPY 27.1 billion year-on-year to JPY 144.7 billion, also setting a new record high for the same period.
Ordinary profit increased by JPY 25.0 billion year-on-year to JPY 127.1 billion. Regarding net income, we recorded a loss due to one-time factors. These include business restructuring and losses in the first quarter from our Vietnamese financial subsidiary. However, it improved by JPY 6.5 billion year-on-year. Please turn to the next page. This shows the five-year trend for key performance indicators. As you can see, operating revenue and operating profit have shown steady growth. Please turn to the next page. Next, we'll explain performance by segment. Operating revenue increased year-on-year in all reporting segments. In terms of profit, six segments, excluding discount stores and international businesses, saw profit growth.
In particular, the shopping center development business, which maintained strong performance from the beginning of the period and exceeded the previous year's figure by over JPY 10 billion, along with significant profit improvements in the GMS business, health and wellness, and services and specialty store business, contributed to the record-high profit. Please turn to the next page. This graph plots the year-on-year change in operating profit by segment on a quarterly basis. As shown, while shopping center development, services and specialty stores, and financial services showed an upward trend, GMS and supermarket experienced a downtrend in this third quarter. We'll explain the details by segment later, but this is due to the retail business strengthening its pricing strategy ahead of the peak year-end shopping season, aiming to increase the number of customers and items per transaction. We plan to recover in the fourth quarter.
Although the retail business faced some challenges in the third quarter, the continued strong performance of the shopping center development and the services and specialty store business combined with the recovery of the financial services business since the second quarter, resulting in consolidated operating profit for the first nine months reaching a record high. We see this as the result of Aeon Group's overall strength as a multi-format operator. Please turn to the next page. Before we move to segment results, let me share TOPVALU sales. As prices rose and customers became more cost-conscious, we focused on expanding sales of TOPVALU products, especially the Best Price line of price-appealing products to help household budgets. In September, we implemented a volume increase promotion for 106 items, and in October, a price reduction promotion for 60 items. These initiatives have been very well received by our customers.
As a result, we have seen strong sales growth across all TOPVALU lines, including GreenEye , which has contributed significantly to increased consolidated sales and gross profit. From this slide on, I'll explain the results by segment. First, the GMS business. In the third quarter, ahead of the full-scale year-end sales season, we strengthened our pricing strategy to drive customer traffic and increase items per basket. This helped us secure sales. But higher costs could not be fully absorbed by gross profit, so profit declined year-on-year. In contrast, on a cumulative basis through the third quarter, operating revenue expanded steadily, supported by stronger sales of TOPVALU products, large-scale sales events, and effective app and point-based promotions. In addition, the steady rollout of store DX initiatives and ongoing reforms to our cost structure significantly reduced operating losses.
By company, Aeon Retail achieved a cumulative loss decrease of JPY 2.8 billion compared to the same period last year. We'll discuss this company next. At Aeon Kyushu, although the gross profit margin decreased due to the strengthened pricing strategy, this was offset by an increase in the number of customers, resulting in a year-on-year increase in profit of JPY 1 billion. At Aeon Hokkaido, operating profit decreased slightly due to a decline in the gross profit margin and weak apparel sales. At Kandu Company, profitability improved due to steady sales of 100 yen goods against a backdrop of heightened cost consciousness and increased sales of high-preference items, leading to improved operating profit with an increase of JPY 900 million compared to the same period last year.
Across the entire GMS business, we will drive a recovery in the fourth quarter by implementing measures aligned with customer needs amid inflation, such as increasing the proportion of private brands and refining key value items. Please go on to the next page. Next, let me tell you about Aeon Retail. Although cumulative profits improved, the third quarter saw a year-on-year JPY 1.6 billion decrease in operating profit. This was due to a decline in the gross profit margin as we strengthened our pricing strategy, along with increased costs associated with revitalization efforts aimed at enhancing the vertically integrated model covering planning, production, and retail operations under one structure for home furnishing and strengthened customers' motivation to visit our stores.
To boost customer motivation, we are accelerating initiatives including introducing the latest Glam Beautique model at Aeon Style Dainichi Store and transforming the Livestock section at Aeon Itami Store into Meat Park to create more appealing stores. While profitability temporarily suffered, these initiatives enabled us to exceed last year's same-store sales across all lines, not only in food but also in apparel and home furnishing, which had struggled until the first half of the year during the third quarter. The number of customers and items purchased also showed an improving trend. Regarding costs, we achieved a cumulative sales-to-SG&A ratio improvement of 1.5 percentage points year-on-year and 1.7 percentage points in the third quarter, driven by streamlining headquarters and company staff and advancing Store DX. Please turn to the next page. Next, I'll talk about the supermarket business.
In the third quarter, stronger pricing initiatives increased items per basket and supported sales growth. However, gross profit was insufficient to absorb SG&A expenses, resulting in a decline in profit. On a cumulative basis through the third quarter, we achieved both revenue and profit growth. At USMH, profitability was pressured in the third quarter by a lower gross margin as well as higher labor and logistics costs, leading to a year-on-year decline in profit. That said, supported by integration synergies from Inageya, profit increased on a cumulative basis through the third quarter. In My Basket, which operates small-format urban supermarkets, the store network expanded to 1,289 locations as of the end of November. We also promoted the use of shared group assets, including the expansion of best-selling prepared foods from the Craft Delica Funabashi Process Center serving the Kanto area.
Looking ahead across the supermarket business as a whole, we will optimize sourcing for fresh and prepared foods to reduce markdowns. These steps aim to bring in more customers while protecting our price competitiveness and profitability. Furthermore, we will leverage group synergies by increasing the sales proportion of TOPVALU products, expanding the use of process centers, and horizontally deploying store DX initiatives pioneered by GMS, aiming for a return to larger profitability. Please see the next page. Next, I'll talk about the discount store business. Operating profit remained flat in the third quarter, but cumulative profit decreased by JPY 200 million compared to the same period last year. Amid rising demand for the discount store format due to inflation, we focused on expanding TOPVALU sales while also developing and promoting discount store business exclusive private brand products. Both same-store sales and customer traffic remained solid.
At Aeon Big, revenue increased through expanded private brand sales and initiatives to boost bulk purchasing, driving higher customer numbers and average spending per customer. Furthermore, profitability improved through store DX, labor-saving fixture implementation, and utilization of our in-house microprocessing center, resulting in double-digit profit growth. Meanwhile, Big-A, which operates small-format stores in the Tokyo metropolitan area, saw increased revenue but decreased profit. This resulted from a decline in gross profit margin due to strengthened pricing strategies combined with revitalization efforts, including the brand integration of A-Colle into Big-A. This brand integration is scheduled for completion within the current fiscal year. For the discount store business, starting in the second half of the fiscal year, we will continue to strengthen our pricing strategy while further accelerating the introduction of private brand products to secure gross profit margins.
At the same time, we will choose products that attract customers, even if it means focusing on a single key item. We will improve pricing, make back office work more efficient, and cut logistics costs by improving truck loading efficiency. These efforts aim to secure an increase in profits for the full fiscal year. Please see the next page. Next, I'll discuss the health and wellness business. Operating profit for the first three quarters increased by JPY 4.6 billion compared to the same period last year. At Welcia, both the sales of products business, led by strong food sales, and the dispensing pharmacy business, performed steadily, resulting in revenue growth. On the profit side, profitability improved through expanded sales of private brands like TOPVALU and Karada Kurashi Welcia and streamlined store operations, resulting in an operating profit increase of approximately 1.2 times compared to the same period last year.
Furthermore, the evolved drug and food model stores, with six locations open by the end of November, have gotten off to a strong start. This is evidenced by an increase in customer numbers and food sales, along with confirmed growth in dispensing and H&BC sales. Please see the next page. Next, I'll explain the financial services business. For the cumulative third-quarter period, revenue increased due to the expansion of loan balances both domestically and internationally, as well as the growth in domestic financial income driven by changes in the interest rate environment. On the profit side, although funding costs rose due to higher interest rates, profitability improved. We achieved this by controlling credit-related costs. We improved credit approval and collection accuracy using AI and other technologies. As a result, profit increased by JPY 2.0 billion compared to the same period last year.
In the domestic business, financial revenues from banking increased, but operating profit remained flat due to factors such as higher deposit interest expenses and general administrative expenses. Meanwhile, Aeon Pay surpassed 10 million members, steadily strengthening its customer base. In overseas operations within the Mekong Region, against the backdrop of a delayed economic recovery, while the volume of consumer loans declined in Thailand, a core country, revenue and profit increased due to strong performance in auto loans and other areas. In the Malay Region, Malaysia saw increased bad debt-related expenses, particularly among younger customers. However, this was offset by growth in transaction volume and outstanding balances for installment sales of medium and large motorcycles, leading to increased revenue and profit. In the Greater China Region, despite the sluggish Hong Kong 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 control measures, including reductions in credit-related expenses and sales promotion costs. Please see the next page. Next, let me explain the shopping center development business. Cumulative operating profit for the first nine months increased by JPY 10.6 billion year-on-year to JPY 49.3 billion. Aeon Mall, our core company, achieved record-high operating revenue and profits at each level for the period. In Japan, mall foot traffic increased, driven by various initiatives such as Black Friday events, the introduction of attractive products, and strong performance at amusement and cinema specialty stores. In addition, electricity costs at existing malls declined as we shifted to market-linked electricity pricing and expanded locally produced and consumed solar power installations. These efforts improved profitability and contributed to solid growth in both revenue and profit. Overseas, specialty store sales remained robust across all countries of operation.
Higher commission-based rent income also supported increases in both revenue and profit. Please turn to the next page. Next, the services and specialty store business. Cumulative operating profit for the third quarter reached JPY 20.8 billion, a year-on-year increase of JPY 4.2 billion. At Aeon Entertainment, hit Japanese films and anime in the third quarter resulted in a 68.8% increase in attendance compared to the same period last year, with cumulative attendance also increasing by 41.5%. For the full year, annual attendance is expected to exceed the previous record set in fiscal 2019. In addition to the increase in attendance, the expansion of self-order systems boosted food and beverage sales, leading to significant revenue and profit growth and record-high profits. At Aeon Fantasy, the prize department, a core business in Japan, and the medal department, which has a high composition ratio and profitability, both performed well.
Furthermore, in China, profit improvement measures proved effective, significantly reducing losses and resulting in consolidated operating profit around 150% compared to the same period last year. Next, let me talk about international business. Operating profit for the first nine months was JPY 5.7 billion, a slight decrease compared to the same period last year. Aeon Vietnam achieved substantial revenue and profit growth, leading the ASEAN business. This was driven by successful initiatives such as key value items to increase the number of customers and strategies to integrate online and offline channels, capitalizing on the growth of the e-commerce market. In Malaysia, consumer behavior emphasizing essential goods accelerated due to rising inflation rates in food and dining expenses. Amidst this environment, Aeon Malaysia saw steady performance in food sales, but apparel and home furnishing were sluggish, resulting in increased revenue but decreased profit.
In China, consumer sentiment deteriorated due to the real estate downturn and intensifying price competition. Combined with the impact of the long Mid-Autumn Festival holiday shifting demand into the fourth quarter, this resulted in decreased revenue and profit. Although the overall China business continues to face challenging conditions, Hubei achieved increased profits and Hunan improved profitability against the backdrop of advancing urbanization. In Hong Kong, significant profit improvement was achieved through a recovery in food sales, strong set sales in home furnishing, and controlled SG&A expenses. December sales faced headwinds in the first half of the month due to warmer-than-usual temperatures and an unfavorable calendar with one fewer Sunday. However, performance recovered in the latter half, resulting in a solid overall outcome.
During the year-end and New Year period, the largest sales season of the year, shopping center development and services exceeded expectations as events and promotions were implemented across our nationwide mall network to attract customers from our broader area, following the abolition of the provisional gasoline tax rate. In addition, within the general merchandise store business, apparel and food led year-end and New Year sales, while the discount store business, as well as China and ASEAN operations, performed well at the start of the year. Overall, the Aeon Group has made a solid start. Finally, I'll explain the revision to our earnings forecast disclosed yesterday. Please turn to the next page. As disclosed yesterday, the company is making Tsuruha Holdings Incorporated a consolidated subsidiary as of January 14th through a tender offer.
This will have a significant impact on our performance, leading to the revision of our full-year earnings forecast as stated. The figures for operating revenue and profit at each stage reflect the consolidation of the fourth-quarter results of Tsuruha following its consolidation as a subsidiary. In addition, we plan to record a gain on step acquisition arising from the consolidation of Tsuruha as extraordinary income. For the revisions, operating revenue has been revised upward by JPY 200 billion, operating profit and ordinary profit by JPY 5 billion each, and net profit by JPY 20 billion to JPY 30 billion. By utilizing the gain on step acquisition to be recorded this time, we intend to accelerate the pace of our business structure reforms and carry this momentum forward into the new medium-term management plan starting next fiscal year.
This concludes our explanation of the third-quarter results for the fiscal year ending February 2026 and our performance outlook. Thank you very much for your attention.
I know the third quarter isn't typically a strong profit quarter, so it may be a somewhat detailed question. That said, since you've revised the full-year forecast, could you walk us through overall performance versus the original plan and explain the variation in results across segments?
This is Egawa. Let me address your question. For the cumulative results through the third quarter, operating revenue exceeded the prior year across all segments. That said, we observed some shifts in trend compared to the first half. Versus our initial plan, the shopping center development business delivered record-high profits both domestically and internationally, outperforming expectations. The health and wellness business also exceeded projections, driven by strong performance in both product sales and dispensing operations.
Conversely, although the supermarket business delivered revenue and profit growth, intensified pricing strategies led to a slight erosion in gross margin, resulting in a minor shortfall against plan. Looking ahead to the fourth quarter, we expect profitability to improve through structural reforms such as accelerated DX initiatives, greater utilization of process centers, and enhanced group synergies. In the international business, Vietnam continued to perform well, whereas Malaysia posted somewhat soft results, and recovery in China remains delayed due to weak consumer sentiment. Overall, compared to the assumptions at the start of the fiscal year, the international business is trending slightly below expectations.
In the earnings forecast revision you announced yesterday, Tsuruha is included. Assuming Tsuruha has been consolidated for three months, the JPY 50 billion upper revision to operating profit feels relatively modest to me.
Were other businesses revised downward to offset this, or are you factoring in items such as goodwill amortization? Also, since there are still one to two months left in the fiscal year, is this JPY 50 billion increase based on a conservative assumption? You mentioned earlier that year-end and New Year's performance has been solid, so I'd appreciate it if you could explain the background behind the operating profit increase being limited to JPY 50 billion.
This is Egawa, and I'll continue with the response. Regarding Tsuruha's fourth-quarter figures, we have not yet received official data from Tsuruha due to restrictions on information sharing during the tender offer TOB period. Accordingly, the impact of consolidation is calculated based on our internal estimates. Amortization of goodwill is also incorporated on an estimated basis, offsetting part of the incremental profit.
Additionally, we need to account for downside risk in the consolidated fourth-quarter results given the range of uncertainties. For these reasons, the revision was made with a conservative stance, reflecting uncertainties in Q4 performance.
Personally, I feel the plus JPY 50 billion increase in operating profit in this revision is quite small. I understand that Aeon couldn't get detailed figures from Tsuruha due to the TOB process, but could you clarify how this JPY 50 billion increase was calculated? I assume it includes Tsuruha's profit contribution for the fourth quarter and three months' worth of Goodwill amortization. Could you break down those components? Also, net income appears higher because of the step acquisition gain being recorded as an extraordinary gain this time.
In arriving at that figure, in addition to the step acquisition gain from consolidating Tsuruha, there is also an impact from the reduction in external minority interests at Aeon Mall and Aeon Delight, which also contributed to net income. Were these items originally excluded from the plan? Could you clarify how much of these have been factored in the current revision?
This is Egawa. I'll take this one as well. At this point, we are refraining from disclosing a detailed breakdown of the incremental operating profit, such as the specific contribution from Tsuruha or the amount of Goodwill amortization. Conceptually, please understand that the revision was made with a conservative stance, reflecting uncertainties and downside risks in Q4 performance. As you correctly noted, the reduction in minority interest outflows from Aeon Mall and Aeon Delight is incorporated. Combined, these factors are expected to contribute approximately JPY 10 billion to profit.
Earlier, you mentioned that performance varied by segment, with the supermarket and international business being somewhat challenging. That said, I feel GMS wasn't particularly strong either. Looking at labor productivity, which you consistently disclose as a KPI, and the pace of improvement in labor costs, including the impact of wage increases, seem to be diverging from the trend observed from the second quarter. In the third quarter, were there any specific factors or obstacles that hindered productivity improvement? Looking ahead to the fourth quarter, should we expect conditions to become tougher compared with the momentum seen in the first and second quarters? You also mentioned that margins were affected by promotional activity, and I assume the same applies to GMS. My concern is that if promotions continue aggressively, margins may improve but productivity might not keep pace, which could lead the market to view the fourth quarter as challenging.
I'd appreciate your thoughts on this concern.
This is Shikata. I'll respond to your question. As you pointed out, the improvement in labor productivity for supermarkets and GMS appears to have slowed somewhat. In GMS, last year we faced challenges with pricing policies from the first half through Q3, which led us to shift our focus from gross margin ratio to gross margin amount starting in Q3 last year. At the same time, we implemented measures to reduce operating costs. As a result, this year's improvement builds on last year's initiatives, making the incremental improvement appear relatively smaller, even though we have achieved gains exceeding those of the prior year. We will continue to drive improvements in Q4. Currently, productivity gains are primarily driven by DX initiatives, particularly around checkout operations. However, we acknowledge that these improvements are approaching their natural ceiling.
Therefore, as second and third levers, we are advancing measures such as shifting in-store processing and deli preparation to process centers and reducing back office workload through AI-driven work schedule optimization. Looking ahead to the next fiscal year, we aim to further enhance labor productivity.
I'd like to ask about gross profit margin, mainly in the retail business, particularly GMS. Looking at Aeon Retail, the materials you provided show that the gross margin in the third quarter declined by 0.7 percentage points. You explain that this reflects a strategic strengthening of price competitiveness, but in some categories, did cost-conscious consumer behavior intensify to the point where you had to cut prices more than you had anticipated? How do you assess your level of control in that regard? If possible, could you break this down by category: food, non-food, apparel, and home furnishing, and explain what's happening in each area?
Looking ahead to the fourth quarter and beyond, do you see room to claw back some of the margin? And related to that, how are you currently viewing the state of consumer spending overall?
This is Okada, General Manager of the Business Management Department. As you noted, GMS gross margin at Aeon Retail declined by 0.7 percentage points year-on-year in Q3. The primary factor was apparel, where intensified price appeal from August led to markdowns. However, these initiatives also delivered positive outcomes, including higher customer traffic and an increase in items per transaction. Apparel sales grew approximately 7% in Q3, with unit sales also rising. As a result, revenue growth contributed to cumulative profit improvement through Q3. While markdowns on winter merchandise drove a sharper-than-anticipated margin contraction in Q3, we plan to restore margins in Q4 through initiatives such as introducing spring merchandise.
On the progress of your business structure reforms, my understanding is that you've been reviewing a wide range of businesses and identifying those that require closer scrutiny or more aggressive intervention. Up through the third quarter, you've been rolling out measures at a fairly brisk pace. How is that speed and execution being evaluated internally? And if there are any remaining areas for improvement or key challenges going forward, I'd appreciate it if you could share those as well.
This is Shikata. Let me address your question. Looking back, we have executed a range of structural reform measures since spring.
Recently, these include the reorganization of the health and wellness business involving Tsuruha and Welcia, the restructuring of supermarket companies in the Kanto region centered on USMH, which was announced at the end of December, and the integration of Daiei and Kohyo in the Kansai region, advancing our regional shift strategy. Additionally, Aeon Delight and Aeon Mall were taken private and became wholly owned subsidiaries as part of structural reforms to drive growth. Beyond publicly announced initiatives, we have also implemented measures behind the scenes, including actions at subsidiary and sub-subsidiary levels. For some companies, we are pursuing liquidation, divestment, or integration, though challenges remain. Looking ahead, we are reviewing the optimal structure for subsidiaries, sub-subsidiaries, and even third-tier entities, with the aim of accelerating structural reforms further in the next fiscal year.
You mentioned that you plan to announce a new midterm management plan in April.
Under President Yoshida's leadership, a key theme of the current plan was to shift the profit mix toward the retail business away from the shopping center development and the financial services businesses, which had accounted for a relatively large share of consolidated profits, so that retail would contribute more than half of total profits. In practice, since around the second half of the fiscal year ended February 2025, you've been working on initiatives such as improving labor productivity, and it seems you are in the process of achieving a certain level of earnings improvement in GMS and supermarkets. I understand that several negative factors occurred simultaneously in the third quarter, but from our perspective, we would like to see these initiatives sustained in the next midterm plan rather than a one-off.
While I expect the company's position is that these improvements will continue, in the past, we've seen situations where efforts to capture customer traffic led to margin erosion, while costs remained high, resulting in weak profitability. If that pattern repeats, it would be difficult for market perception to improve. To be candid, I personally have the impression that the positive momentum we started to see may have lost some steam partway through. From my point of view, it may be necessary to further strengthen initiatives to improve retail profitability. With that in mind, where do you think additional emphasis should be placed to further enhance the profitability of the retail business, and how are you thinking about this as you prepare the next midterm management plan?
Shikata here. Our goal is to ensure that improvements in retail profitability are not temporary but sustainable and scalable.
Details will be shared in April, but conceptually, addressing inflation is becoming increasingly critical. While we maintain pricing strategies amid rising costs, the key is to strengthen our ability to preserve margins rather than simply sacrificing gross profit. Reflecting on the previous medium-term plan, early initiatives around private brand product strategies proved effective. In an inflationary environment, having strong private brand offerings is a significant advantage, contributing to revenue growth, increased customer traffic, and improved profitability. That said, we recognize this alone is not sufficient. The next focus is store operations reform, complemented by DX initiatives and upstream supply chain measures. We will advance reforms across the entire supply chain, including logistics and process centers, beyond in-store operations. This approach aims to build a business model with structural resilience and inherent flexibility, rather than relying solely on markdown-driven price elasticity. We intend to present this vision in April.