Earnings Call: Q4 2026

Apr 9, 2026

Good afternoon. My name is Egawa, and I am responsible for finance and accounting. Thank you very much for joining our briefing on the financial results for the fiscal year ended February 2026. First, I'll provide an overview of our consolidated results for the full year of fiscal year 2025. In Japan, inflation and the weaker yen have kept prices elevated, further strengthening consumers' tendency to economize and to be more selective in their spending. Against this backdrop, we have worked across the AEON Group to address these challenges. Our focus has been on providing products and services that help address the challenges people face in their daily lives. These initiatives have delivered clear results. Operating revenue increased 5.7% year-on-year to JPY 10,715.3 billion, marking the fifth consecutive year of record highs. As for profit, improvements in labor productivity through in-store DX and measures to restrain growth in SG&A expenses as part of our earnings structure reforms contributed to higher profitability. Operating profit rose 13.8% year-on-year to JPY 270.4 billion, and ordinary profit increased 8.4% to JPY 243.0 billion. Both were record highs. In addition, in order to enhance capital efficiency at the group level, we are accelerating business structure reforms. While various costs were incurred as part of these actions, we absorbed the increase in cost through the step acquisition gain associated with the consolidation of Tsuruha in January. As a result, profit attributable to owners of the parent company increased 167.5% year-on-year to JPY 72.6 billion. This slide shows the five-year trend of our key performance indicators. Operating profit has increased at a compound annual growth rate of 11.6%, which is well above the 5.3% compound annual growth rate of operating revenue. Next, I'll explain results by segment. Operating revenue increased in all reportable segments. On the profit side, five segments delivered higher profits, excluding the supermarket, DS, and financial services segments. In particular, the shopping center development business and the services and specialties stores business posted significant profit growth and led us to record highs. This was achieved by strengthening experience-based content and responding to changes in lifestyles and preferences driven by shifts in the business environment. In addition, GMS delivered double-digit profit growth due to expense structure reforms, including expansion of private brand sales and improved labor productivity through in-store DX. Next, I will explain sales trends for Topvalu, our private brand. In our five-year midterm management plan that began in fiscal year 2021, we set out to transform our approach from intermediating and recommending products available in the market to creating and offering unique value available only from AEON, and we have promoted the expansion of private brand products. At the same time, Japan's economy shifted into an inflationary phase from around 2022. As prices rose, demand increased for private brand products that offer relatively strong price competitiveness. In this environment, we strengthened development and sales expansion of our private brand. These efforts have gained support from customers in both quality and price, and Topvalu sales in fiscal year 2025 expanded by 10% year-on-year to approximately JPY 1.2 trillion. We will continue to expand Topvalu and increase its sales mix to drive growth in gross profit amount and improve gross margin in our retail businesses. Next, I will provide an overview of segment performance, starting with the GMS business. By entity, AEON Kyushu, AEON Hokkaido, and Can Do contributed to profit growth. At AEON Kyushu and AEON Hokkaido, revenue and profit increased, supported by strengthened pricing actions aligned with customer needs, expansion of Topvalu, and expense structure reforms such as higher labor productivity through in-store DX. At Can Do, its core 100 yen variety goods segment performed steadily amid heightened consumer efforts to protect household budgets. In addition, profitability improved through standardized store operations and productivity gains from expanded self-checkout, resulting in a substantial increase in profit. Looking ahead, we will further strengthen our earnings structure by raising the private brand ratio, expanding joint procurement and utilization of process centers, leveraging AEON Group scale, and advancing DX in store operations and corporate functions. Next is AEON Retail. In fiscal year 2025, we further advanced DX in stores and back-office operations. At the same time, we set labor cost ratios by store and worked to optimize labor-hour control. As a result, we lowered the SG&A ratio. However, the gross margin declined due to strengthened pricing actions aligned with customer needs. Overall, revenue increased while profit decreased. From the second half onward, initiatives to strengthen reasons to visit our stores, such as revitalization measures and the shift toward SPA models in apparel and home furnishing categories, have begun to address key challenges, including customer traffic and the number of items per basket. In our revitalization measures, we expanded specialty store models tailored to local characteristics to acquire new customers, and we strengthened development in sales of AEON original products with higher value added. In addition, we made environmental investments to improve customer comfort and enhance the asset value of entire facilities, steadily contributing to higher gross profit. In the digital domain, in our online supermarket business, where usage continues to expand, we increased shipment capacity and promoted pickup services. These efforts helped grow revenue and reduce logistics costs, and the business returned to operating profitability. Furthermore, operating revenue from Retail Media doubled year-on-year, and we will continue to strengthen this area. Next is the supermarket business. As announced in December, we are advancing area reorganization in the Metropolitan Tokyo area and the Kinki region with an effective date of March 1st, 2026. A new company, AEON Food Style, has already started in Kantō, and the renewed Daiei has launched in Kinki. As a result, for USMH, we now expect to realize the previously stated JPY 1 trillion supermarkets concept in Kanto within fiscal year 2026. To address the key challenge of improving profitability, we have begun reforms in supply chain management and process centers to maximize scale benefits across the group. At the same time, My Basket, our urban small format supermarket chain, expanded to 1,323 stores and achieved higher revenue and profit, supported by strong demand from urban consumers. As consumers' value-conscious behavior is expected to continue, we will accelerate initiatives to transform our earnings structure, similar to the GMS business by increasing the private brand sales mix, expanding joint procurement and utilization of process centers, and advancing DX in order to build a structurally sound model that can secure gross profit even while strengthening price competitiveness. Next is the discount store business. Demand for this format has increased under inflation. In addition to expanding Topvalu, we strengthened value pricing through private brand products unique to the DS business. As a result, same-store sales and customer traffic remained steady throughout the year, and sales increased 4.6% year-on-year. On the other hand, profit decreased due to the impact of one-time costs associated with growth investments, such as new store openings and revitalization renovations. In addition, the brand integration from A-Kode to Big-A was fully completed during the fiscal year. Looking ahead, we will further develop and expand DS exclusive private brand products, strengthen fresh and delicatessen offerings to increase customer traffic and visit frequency, improve markup to enhance profitability, and increase efficiency in store operations. We aim to achieve higher profit in fiscal year 2026. Next is the health and wellness business. At Welcia, we grew the top line by expanding stores with dispensing pharmacies and by increasing the food sales mix, including opening drug and food stores as a new store format. In addition, profitability improved through expanded sales of private brands, including our in-house brand and Topvalu, and through greater efficiency in in-store operations, resulting in a significant increase in profit. Moreover, by making Tsuruha Holdings a consolidated subsidiary on January 14th, we included its operating profit for the fourth quarter, which contributed significantly to the increase in profit in the health and wellness business. Since the integration in December, PMI aimed at early synergy creation between Tsuruha and Welcia, including promoting personnel exchanges, has been progressing steadily. Next is the financial services business. Operating profit declined slightly due to the absence of gains on receivable securitization recorded in the previous year. However, the balance of operating receivables expanded steadily both in Japan and overseas. In addition, AEON Pay, our proprietary code-based payment service, expanded the number of locations where it can be used to 4.15 million, an increase of 1.11 million from the beginning of the fiscal year. Membership increased by 3.92 million to 12.08 million, steadily expanding our customer base. Overseas, we secure profit growth by expanding receivables balances and strengthening credit and collection systems using AI and other technologies. In particular, in the Malay region, especially Malaysia, consumer activity remained robust, backed by a favorable economy. Personal loans and installment financing expanded steadily, resulting in double-digit profit growth. Looking ahead, we will leverage data assets originating from retail. In Japan, we will expand deposit balances and transaction volume for our proprietary payments. Overseas, we will further expand receivables balances. At the same time, we will build credit and collection systems utilizing AI and DX to improve profitability across the segment and aim for further growth. Next is the shopping center development business. Aeon Mall, our core company, achieved higher revenue and profit, and operating profit reached a record high. In Japan, we proposed cool share solutions during extreme heat and strengthened experience-based content such as play facilities for children, providing solutions aligned with customer needs. These initiatives increased visitor traffic and sales of specialty tenants remained solid. In particular, at renovated malls, specialty tenant sales increased 9.1% year-over-year, significantly outperforming malls that were not renovated. In addition, restraint in SG&A expenses such as electricity expenses also contributed to the substantial increase in revenue and profit. Overseas, specialty tenant sales remained solid in China and ASEAN countries through initiatives aligned with local annual events. Higher percentage rent income supported higher revenue and profit. In Vietnam, positioned as our most important area, double-digit profit growth was achieved, supported by the country's economic growth. In China, we captured the benefits of government measures to stimulate consumption and sales of digital products such as home appliances and smartphones performed well. Next is the services and specialties stores business. Aeon Entertainment and Aeon Fantasy, both of which posted significant profit growth, led this segment, and the segment overall achieved double-digit profit growth. At Aeon Entertainment, we responded to rising demand for experiential value and to the expansion of Oshikatsu fan activity demand. At the same time, to build a business model less dependent on the movie lineup, we expanded live viewing businesses such as music concerts and sports. As a result, box office revenue from non-movie content increased 23.3% year-on-year, and attendance rose 27.3%. Furthermore, we expanded the introduction of self-ordering and focused on increasing food and beverage sales. As a result, operating profit increased substantially to a record high. At Aeon Fantasy, the core prize category performed well. In addition, amid the normalization of extreme heat and heavy rainfall, reducing safe places for children to play, we advanced new formats such as Chikyu no Niwa and Nobikko in the playground business. These initiatives were effective, and operating profit rose to more than 1.4 times that of the previous year, reaching a record high. Next, I will explain the international business. Growth in our ASEAN businesses, led by Aeon Vietnam, drove the overall international business to higher revenue and profit. In Aeon Vietnam, which we position as our most important area, both existing and newly opened stores performed well, supported by the country's strong economic growth. Not only food, but also apparel and home furnishing categories significantly contributed to gross profit growth, resulting in a substantial increase in revenue and profit. In October 2025, we opened Aeon Vietnam's first mid-size shopping center in Tân An, a key provincial city in the Mekong Delta, and it has also been performing well. We will continue to aim for further growth by expanding store openings through a multi-format strategy. In China, consumer sentiment remained weak due to the real estate downturn. In addition, during the fourth quarter from October to December, sales of seasonal products struggled due to a warm winter. As a result, revenue and profit decreased. On the other hand, in Hunan, performance improved as business scale expanded with the opening of a second store. In Hubei as well, profit increased due to new store effects and improved profitability. Next, I will explain our outlook for fiscal year 2026. For fiscal year 2026, we forecast operating revenue of JPY 12.0 trillion, up 12.0% year-on-year. We forecast operating profit of JPY 340.0 billion, up 25.7%, ordinary profit of JPY 290.0 billion, up 19.3%, and profit attributable to owners of the parent of JPY 73.0 billion, up 0.4%. At present, crude oil prices are rising amid the ongoing situation in Iran. We believe that consumers' tendency to economize and to be more selective in their spending will strengthen further going forward. Even under these changing circumstances, we will continue to execute our initiatives to strengthen pricing strategy and improve productivity without wavering. In fiscal year 2026, we will work to improve profitability in our retail businesses through strengthening our food offering. At the same time, we will pursue the expansion of the health and wellness business under our Life Store vision and further evolve the shopping center development and entertainment businesses that drove profit growth in FY 2025, aiming for a substantial increase in operating profit. Next, I will explain our investment plan. For FY 2026, we plan investment of approximately JPY 580.0 billion. We will continue to strengthen investment in Vietnam, which we aim to make our second growth pillar after Japan. In addition, to address the priority issue of improving profitability in our retail businesses, we will begin stepping up investment in supply chain management, process centers, and DX. Furthermore, by allocating investment to utilize existing assets, such as revitalization initiatives, we will enhance competitiveness by leveraging our already extensive asset base, even as construction costs rise. For My Basket, we will accelerate store openings to expand share in the metropolitan area. Finally, I will explain dividends. For fiscal year 2026, we plan an interim dividend and a year-end dividend of JPY 7.5 per share each. This consists of the fiscal year 2025 year-end dividend of JPY 7.0 per share, plus a commemorative dividend of JPY 0.5 per share for the 100th anniversary of our incorporation. This results in a total annual dividend of JPY 15.0 per share. This concludes our explanation of the results for the fiscal year ended February 2026 and our outlook for the next fiscal year. Thank you very much for your attention. Good afternoon. I am Yoshida, President. I would like to share several priority initiatives for fiscal year 2026, focusing on the key points. As for our new mid-term management plan for the group, we plan to share further details in May. Earlier, Egawa, who oversees finance and accounting, explained our fiscal year 2025 results. While there were differences in performance among businesses, the shopping center development business, the health and wellness business, and the Vietnam business led the group to higher revenue and profit, and we were able to secure a record high operating profit. We see that our multi-format group portfolio functioned effectively. On the other hand, in our retail businesses, especially GMS and supermarkets, challenges remain in shifting the business model under inflation. We see two key challenges. First, how to turn retail, especially food retail, which accounts for the majority of group earnings, onto a clear improvement trajectory. Second, how to further accelerate growth in our strongly performing businesses. We will advance initiatives with these two challenges in mind. In fiscal year 2026, we will focus on the five areas shown here. First, on improving profitability in food retail. We view the prolonged and normalized rise in prices as a social issue. In this environment, price competition on the front lines of food retail is intensifying. With continued cost inflation, it is difficult to secure gross profit given pressure on both selling prices and procurement costs. On the cost side, rising labor and logistics costs and foreign exchange rates are structural factors that compress profitability. In addition, labor shortages driven by an aging population and declining birth rate are becoming more serious. These are issues for the entire industry, and we believe companies that can overcome them will be able to significantly expand share. In Japan, as the population declines, population shifts are occurring with concentration in the metropolitan area and some regional cities. In particular, the metropolitan area is one of the few growth markets in Japan and is also the country's largest market. To achieve sustainable growth under these conditions, we recognize three priorities for food retail, in particular. One, strengthening product capability and the supply chain to balance price competitiveness with profit capture. Two, establishing store operations that enable labor saving and high productivity. Three, expanding share in the metropolitan area. I will explain four initiatives. Some of this overlaps with Egawa's explanation, but first, Topvalu. Last year's sales were JPY 1.2 trillion, continuing double-digit growth. As for the situation in the Middle East, although a two-week ceasefire was recently agreed, electricity cost increases due to the Strait blockade that lasted for more than a month are already expected. This will be during the period from May to July. Given this uncertainty, we expect consumers' household defense mindset to continue. This value-conscious consumer environment is a tailwind for private brands. We believe Topvalu can and should further increase its support as a reliable choice for consumers. We will further accelerate the shift from national brands to private brands and aim for Topvalu sales of JPY 1.4 trillion in fiscal year 2026. In addition, the current average gross margin gap between Topvalu and national brands is around 5%-6%. By using sales growth as leverage, we will further expand this gross margin. We expect the single-year profit contribution in fiscal year 2026 from higher Topvalu sales and an expanded gross margin gap to increase by more than JPY 20.0 billion. To achieve this, first, we will work with contract manufacturers to expand unit sales volume and reduce costs. We define products with annual sales of JPY 1.0 billion or more as mega items, and we plan to double the number of such items in fiscal year 2026. By realizing sales volumes that competitors cannot match, we will help improve manufacturers' cost structures and in turn, improve our gross margin. Second, we will expand Topvalu categories. While the market is growing, there are categories such as yogurt and rice crackers, where we have not yet launched strong hero products. We will prioritize development in these areas. In addition, we will promote Bestprice offerings and process fresh foods such as produce, seafood, and meat. By expanding our assortment, we will build a broader base for sales growth. For national brands, which strongly influence customers' price perception, we will also advance cost reduction. Group-wide Joint Procurement is an area where scale can be readily converted into profit. We will strategically expand products for which we strengthen pricing competitiveness, so-called key value items. By improving efficiency across the entire supply chain, such as stabilizing manufacturers' production planning through consolidated demand and optimizing logistics, we will improve cost structures. We target expanding group Joint Procurement to JPY 1.5 trillion by fiscal year 2030, approximately 1.7x the current level. As a first step, we aim to raise it to JPY 900.0 billion in fiscal year 2026, and we expect this to contribute an increase of around JPY 5.0 billion. For both private brands and national brands, we must not treat cost reduction as merely cutting costs. By allocating the resources created to strategic price investments, we can secure profit while offering competitively strong pricing. Regarding cost increases in the food domain, there is no doubt that labor and logistics costs will continue to rise and fundamental measures are required. Labor costs in food retail account for roughly half of SG&A. In cashier operations, we have achieved a 25%-30% reduction through self-checkout. However, in other labor-intensive areas that account for the majority, such as manufacturing, processing, and shelf stocking, we have not yet fully addressed the issue. We see significant room to improve productivity. To solve these challenges, we intend to prioritize investment in logistics and process centers. Through this, we aim to deliver fundamental cost structure reform. As a first step, mainly in the metropolitan area, we will promote shared use of existing centers within the group and maximize the utilization of existing assets to quickly improve store productivity. As a second step, we will implement more fundamental initiatives. We will create an optimal logistics and process center network for each area, taking into account store networks, merchandising initiatives, and existing center capacity, and we will prioritize investment accordingly. This would require substantial investment if supermarket specialist companies pursued it individually. By planning across formats at the Aeon Group level, we will generate scale and share the benefits with our operating companies. Next, our metropolitan area strategy. Today, I will focus on My Basket. In fiscal year 2025, My Basket achieved higher revenue and profit at every profit level. It has grown into a format that can generate stable profits. Last year, we opened a record 129 stores, expanding to 1,323 stores. Average daily sales per store have recently reached JPY 720,000, bringing us to a level that is competitive even compared with convenience stores. Going forward, we will accelerate growth further through two pillars: enhancing earning power and rapid store openings. In particular, through reforms in logistics and process centers, we must establish a supply structure for ready-to-eat and delicatessen products, which are in high demand in the metropolitan area. By doing so, we aim to realize an earnings structure targeting daily sales of JPY 800,000 per store. We have strengthened our store development capabilities since the year before last, and we intend to firmly achieve 2,500 stores by fiscal year 2030. We aim to build a business of 2,500 stores with JPY 800,000 in daily sales per store. We have established a mechanism to thoroughly simplify and standardize operations so that we can maintain store management standards even while continuing rapid openings. In addition, because all stores are directly operated, we can run the business without constraints such as generational changes of franchise owners. Next, the health and wellness business. This may also have been discussed in Tsuda's presentation. In fiscal year 2025, even excluding the impact of Tsuruha's consolidation, Welcia on a standalone basis achieved higher revenue and profit. As we expanded stores with dispensing pharmacies and increased the food sales mix, the top line grew, and cost structure improvements advanced, steadily strengthening the earnings base. This field tends to focus on seniors, but interest and needs are rising across all generations. At the same time, health and wellness products and services are relatively expensive, and income disparities tend to surface in this area. In particular, medical services are insufficient in many regional areas, and we believe this format will play an increasingly important role. The newly integrated Tsuruha Holdings has more than 5,600 stores nationwide where customers can purchase OTC products and daily necessities in a single stop, providing an overwhelming customer touchpoint, more than twice that of its competitors. In these stores, a total of 50,000 health professionals, including pharmacists and registered sales clerks, are on staff. We expect an environment in which these professionals will be able to function even more effectively. By positioning this as a format that can broadly meet local residents' needs, we aim to build a model capable of achieving higher profitability. Regarding integration synergies, as announced, we plan to create approximately JPY 50.0 billion over the next three years. In fiscal year 2026, we aim to generate JPY 15.0 billion of synergy from this plan. As I mentioned, amid insufficient medical services in regional cities, drugstores are increasingly expected to function as life infrastructure, and strengthening food offerings has become essential. We are raising food offerings to increase customer traffic and improve store profitability. At the seven stores where we piloted this model last year, customer traffic increased to 117% versus pre-revitalization levels. Food sales increased to 132%, and total store sales increased to 116%, confirming clear results. In fiscal year 2026, we will expand the rollout of this model to around 100 stores with sales floor areas of 825 sq m or more. By fully leveraging Aeon's procurement and development capabilities and our infrastructure, such as logistics and process centers, we aim to build this into a stable, competitively strong format. Next, enhancing the value of existing assets. In fiscal year 2025, the shopping center development business achieved significant profit growth. In particular, Aeon Mall, our core company, recorded higher revenue and profit. Operating profit grew 131% to JPY 68.4 billion, renewing record highs. In Japan as well, as Egawa explained earlier, we proactively created reasons for visits for families with children, in addition to serving as a destination for escaping the heat. As shown on the slide, specialty tenant sales increased. Support for malls as a convenient, nearby place to enjoy has grown, and operating profit increased 126%. With electricity costs expected to rise due to the Middle East situation, we believe the value of malls as places to cool down and as places to play will be even higher than last year. We will connect visits to shopping, dining, and services to improve earnings. Given these favorable conditions, we aim for double-digit profit growth in the shopping center development business again in fiscal year 2026. Under inflation, construction costs are rising. In this environment, owning many existing assets that were built in the past at overwhelmingly low costs means that the value of those existing assets is, in effect, increasing. At the same time, what each shopping center is expected to provide in its community changes with the times and with shifts in the surrounding environment. We will reassess asset potential from the perspective of whether the current facilities are fully leveraging location value, and we will pursue remodeling. To that end, we will shift investment toward revitalization of existing assets. We believe the shopping center development business has the potential to provide solutions to social issues such as widening regional disparities in children's experiences, and the loss of places and opportunities to play due to climate change represented by extreme heat. We see this as an opportunity to establish a position as essential regional infrastructure. In addition, through the full ownership of Aeon Mall, we can flexibly transfer existing assets within the group. We also aim to apply the shopping center development business's accumulated know-how, such as leasing capabilities, store design, and construction expertise to the revitalization of group assets. Next, the Vietnam business. In fiscal year 2025, we maintained a strong growth pace, including double-digit increases in revenue and profit for the second consecutive year. We believe there is significant room for further growth. Considering the risk of future contraction in the domestic market, we believe it is essential to increase the earnings weight of our overseas businesses. Among them, we position Vietnam as our top priority country due to its significant growth potential, and we will make it a next-generation growth driver. From fiscal year 2026 onward, we will accelerate store openings in retail. In addition, through multi-format expansion, including finance and services, we will aim to expand market share. Currently, we have approximately 50 stores in total across GMS and supermarkets. By actively securing profits, we plan to open 37 stores in fiscal year 2026. Although we will incur significant startup costs due to multiple store openings, we plan to maintain profit growth. Finally, business structure reforms. Our group consists of approximately 300 companies. Through past M&A, there are companies with overlapping functions and businesses that generate chronic losses. For this reason, since last year, we began internal reorganization and business rationalization. We are assessing these initiatives not only from a financial perspective, but also based on their strategic importance to the group. While some initiatives will involve one-time expenses, we expect profit improvement on the scale of JPY 30.0 billion over three years, and we also expect improved capital efficiency through the resolution of excess liabilities. Of this, we expect profit improvement effects of JPY 10.0 billion in fiscal year 2026. We will advance the portfolio rebuilding to enhance the group's profitability, capital efficiency, and capacity for growth investment. Today, based on our fiscal year 2025 results, I have focused on the initiatives we will prioritize in fiscal year 2026. These initiatives will shape our next phase of growth. That is all from me. Thank you very much. What are the concrete measures for utilizing existing assets? We believe that this is the right time for the group to make more effective use of existing assets. This applies not only to Aeon Mall, but also to supermarket businesses. Construction costs have approximately doubled over the past five years, and an increasing number of developers have been suspending or canceling new development projects. By contrast, the existing assets held by our group are carried at relatively low book values, which allow us to revitalize them with significantly less investment than would be required for new stores. Our fundamental approach is to refresh the content and transform the functions of the facilities themselves. In the supermarket business, we are promoting revitalization as part of a challenge to adopt new business models. As for Aeon Mall, we plan to advance revitalization accompanied by functional transformation, such as revising the tenant mix to increase the weighting of service-oriented tenants and converting common areas into spaces that encourage longer stays. What impact does the situation in the Middle East have on domestic and overseas operations, and what is the outlook going forward? While there remains a degree of uncertainty regarding the outlook for the situation in the Middle East, we recognize that the area where cost impacts are most likely to materialize is electricity expenses. Gasoline prices, supported by government subsidies, are relatively stable at present. Electricity costs are the area where we expect the clearest impact. Higher fuel prices from March to April are likely to be reflected from May through July. We have already factored in a certain level of increase. In response, we are accelerating energy-saving investments and have begun considering and implementing countermeasures. As for our overseas malls and stores, we have not observed any decline in customer traffic or sales at this point, and stable organic growth continues. Additionally, if rising electricity costs lead consumers to limit air conditioning use at home, the relative value of Aeon Malls, offering comfortable and climate-controlled environments, could increase. In that sense, while there are negative factors, we also see the potential for certain positive effects. The retail business showed signs of deceleration in the fourth quarter, and AEON Retail's gross margin, which was expected to recover in the fourth quarter, also came in somewhat weaker than anticipated. How do you reflect on the retail business overall, and what room do you see for improvement from a long-term perspective? We recognize that the fourth quarter remained a challenging period overall. In particular, the impact of a further strengthening of customers' price sensitivity was significant. At AEON Retail, we adopted a strategy of lowering prices and accepting a slight decline in gross margins in order to secure sales volume, and the effects of this approach extended through the fourth quarter. We do not see this situation as temporary. We believe a structural transformation is required. Beyond products themselves, it is necessary to transform the infrastructure that supports store operations and to fundamentally change the business model. Specifically, in the deli category, we will move away from relying solely on in-store processing and accelerate the use of process centers. In apparel, we will further promote specialization and quickly establish an SPA-type model, enabling us to build a structure in which we can control costs internally. Improvements to store operations alone have their limits, so by transforming the underlying infrastructure as well, we will work to improve profitability across the retail business as a whole. What is the required timeframe for system modifications in response to the government's consideration of reducing the consumption tax on food to zero, and what impact do you anticipate? We have experience with system modifications from past consumption tax revisions, and compared with those times, we believe the required cost for this round of system changes will remain within a manageable range. As for the impact, we do not assume that the entire reduction from the current 8% consumption tax will be spent solely on food. It is necessary to consider the possibility that some of the savings will be allocated to other areas of consumption, such as leisure. Given that our group operates a multi-format business model, we intend to respond from the perspective of capturing overall consumer spending rather than focusing exclusively on food. With regard to cashier systems and related modifications, at this stage, we are conservatively assuming a timeframe of around 4-6 months. AEON Retail's gross margin appeared weak in the second half. What is your thinking on pricing strategy in the new fiscal year? In addition, how do you plan to respond to rising cost inflation through food procurement and joint purchasing? With inflation expected to accelerate further amid developments such as the situation involving Iran, we believe it is important to clearly communicate our pricing to customers. In particular, within our Topvalu private brand, Bestprice products are seeing increased brand switching from national brands, which we view as an opportunity. While promoting price competitiveness through private brands, we will leverage the group's procurement scale for national brands and advance price optimization through joint purchasing. In apparel, reflecting on last year's challenges, we will thoroughly review our price lines and adjust them to the appropriate price points that better meet customer expectations. Following moves such as making Aeon Mall a wholly owned subsidiary last year, how will you proceed with decisions on listing versus delisting going forward? There is no change to our basic policy regarding listing and delisting. We place importance on what structure is optimal for each operating company at its stage of growth. Listing can be an option during phases where a company needs to raise funds for growth. On the other hand, businesses such as Aeon Mall and AEON Delight, which we strengthen as platforms and infrastructure for AEON, will be grown by utilizing them as common infrastructure for the group. We announced yesterday the decision to make G.green private. This decision was made to promote fundamental reform at the company and pursue business revitalization by operating it integrally with AEON Retail. This decision is fully consistent with our existing policy. What is driving the differences in outcomes among segments and between companies, and how does AEON manage control as a group? In retail, responsiveness to local regions is extremely important. Each region has its own characteristics in tastes and demand, and regional supermarkets are very strong in this respect. Leveraging such regional characteristics remains important, and we place emphasis on product development and assortments that respond to local tastes and needs. The largest factor behind the differences is the degree of utilization of private brands and group synergies. Topvalu sales have expanded from just under JPY 800 billion when I assumed office to approximately JPY 1.2 trillion now, about 1.5 times the level at the time. We believe this reflects that management teams across the group recognized the importance of private brands, understood that scale is necessary to make them a group strength, and executed accordingly. In logistics and procurement, while we have optimized by operating company, there is growing recognition that by running a cross-group horizontal approach, we have further room to improve efficiency. Even simply redesigning duplicative deliveries can produce a large improvement effect, and as we promote consolidation of logistics and procurement, the value of group synergies is becoming clearer. In addition, in private brand development, the presidents of major operating companies have continued initiatives to share product value through tastings. This has heightened awareness of unified group management centered on PB. As the scale of PB expands, collaboration with manufacturers also becomes easier, and we believe this will accelerate further going forward. From the third quarter onward, margin deterioration due to stronger promotions coincided with slower improvements in labor productivity, leading to a weaker fourth quarter. What are your short-term measures and timeframe to improve the profit mix? We recognize that the situation is not temporary and that a structural model change is necessary. Since the third quarter of last year, we have prioritized customer traffic by strengthening promotions, even if it meant accepting some pressure on gross profit. However, we reflect on the fact that we moved ahead before the earnings structure was sufficiently in place, which led to margin deterioration. Going forward, we will position Topvalu Bestprice as a price fighter to acquire customer traffic while securing appropriate margins for standard Topvalu items and national brands. By organizing products and pricing lines by category, we will work to improve the profit mix. Labor productivity improved to 104% year-over-year, but there are limits to further improvement. Therefore, we will go further by reducing in-store processing through process center utilization and by re-examining logistics and work processes themselves. We will promote a transition to a business model that can balance customer traffic and gross profit even in an inflationary environment. Since you became president, it appears that consolidation of subsidiaries and logistics investments have accelerated. Will it still take time for these measures to be realized? What is your sense of progress and what challenges were made in making group synergies visible? Compared with the past, it has clearly become easier to move forward and it has become easier to align the group. In the background, the top management of each operating company has come to share the recognition that under a future business environment where various costs rise amid inflation, it will be difficult to achieve sustainable growth through company-by-company optimization alone. Investments in private brand development, DX, and logistics cannot be made viable without a certain scale, and understanding is deepening that by working as one group, we can substantially change the cost structure. In logistics as well, we have formed projects to optimize across formats by region, and we are advancing design with the presidents of each company participating. Our experience since COVID, encountering sharp increases in electricity and labor costs through scale, has supported these initiatives. For Joint Procurement II, we intend to consult with manufacturers, clarify order volumes, link them to planned production, and expand these initiatives sustainably. The medium-term management plan that started in fiscal year 2021 fell short of targets for operating revenue and operating profit. For both revenue and profit, where were efforts insufficient, and which measures were more effective than expected? We recognize that results fell below the target figures we initially set in the medium-term management plan. In the background, the impact of environmental changes that exceeded our assumptions has been significant. For example, electricity costs alone have increased by more than approximately JPY 100 billion over the past five years, and labor costs have risen by a similar amount, resulting in additional costs totaling roughly JPY 200 billion. We ask for understanding that our performance reflects results achieved after absorbing these cost increases. At the same time, we do not attribute the outcome solely to environmental changes. We also recognize that there were areas where our efforts were not sufficiently decisive. In terms of what worked, strengthening private brands was a key success. Our policy of evolving the supply chain and cultivating AEON unique products became a major source of competitiveness in an inflationary environment. PB sales, which we set as a KPI at the outset, have now expanded to approximately JPY 1.8 trillion, and we believe we have achieved a certain level of success. On the other hand, the area that underperformed our assumptions was digital initiatives. While online supermarkets grew, we did not succeed in establishing an OMO model in which digital, including non-food e-commerce, and stores are fully integrated. We will incorporate these lessons into the next medium-term management plan.