H2O Retailing : Consolidated Financial Statements for the Third Quarter of the Fiscal Year Ending March 31, 2023

Consolidated Financial Statements for the Third Quarter

of the Fiscal Year Ending March 31, 2023 (Japanese accounting standards)

February 6, 2023

Corporate Name : H2O Retailing Corporation

Securities Code : 8242 (Tokyo Stock Exchange)

URL : http://www.h2o-retailing.co.jp/en

Representative : Naoya Araki, President and Representative Director

Contact : Gaku Watanabe, Managing Executive Officer

TEL : [phone]

Scheduled date of filing of the financial report : February 10, 2023

Scheduled date of dividend payment : ー

Preparation of supplementary materials : Yes

Briefing session on quarterly financial results : Yes (for institutional investors and analysts）

(Figures are rounded down to the nearest million yen.)

1. Consolidated Business Results of the Fiscal Year ending March 31, 2023 （From April 1, 2022 to December 31, 2022）

（1）Consolidated operating results (Cumulative total)			(Percentages indicate year-on-year changes.)
	Net Sales			Operating Profit		Ordinary Profit	Profit attributable
				to owners of parent
	Millions of yen	%		Millions of yen	%	Millions of yen	%	Millions of yen	%
3Q of FY2023	474,896	27.9		9,481	-	11,642	478.5	10,957	(15.3)
3Q of FY2022	371,303	-		720	-	2,012	-	12,937	-
Note : Comprehensive income 3Q of FY2023 21,089 million yen, 68.8% ,	3Q of FY2022 12,490 million yen, 949.3%

Note : The Company has applied "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and other standards from the beginning of the first quarter of FY2022. As for 3Q of FY2022, the percentage change from the same period of the previous fiscal year in net sales is not shown due to the significant impact on net sales.

	Net Income	Net Income per
	per Share	Share(Diluted)
	Yen	Yen
3Q of FY2023	89.93	89.25
3Q of FY2022	104.56	103.84

（2）Consolidated financial position

		Total Assets	Net Assets	Owner's Equity Ratio
		Millions of yen	Millions of yen	%
3Q of FY2023		714,346	268,092	34.2
FY2022		654,558	260,938	36.2
Reference : Owner's equity	3Q of FY2023 244,545 million yen, FY2022 236,844 million yen

2. Dividends

		Annual Dividends
	First	Second	Third	Fiscal Year-	Total
	Quarter	Quarter	Quarter	End
	Yen	Yen	Yen	Yen	Yen
FY2022	-	12.50	-	12.50	25.00
FY2023	-	12.50	-
FY2023(Forecast)				12.50	25.00

Revision to recently disclosed dividends forecast : No

3. Forecast of Consolidated Business Results for the Fiscal Year ending March 31, 2023 （From April 1, 2022 to March 31, 2023）

	Net Sales		Operating Income	Ordinary Profit	Profit attributable to	Net Income
		owners of parent		per Share
	Millions of yen		％	Millions of yen	％	Millions of yen	％	Millions of yen		％	Yen
Full Year	640,000	23.4	9,000	-	10,000	326.3	11,000	11.4	89.27

Note : Revision to recently disclosed consolidated business results forecast : No

Note : The Company has applied "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and other standards from the beginning of the first quarter of FY2022.

Consolidated gross sales, which is equivalent to net sales up to FY2021 excluding the effects of

changes in accounting policies, amounted to 980,000 million yen (up 24.3% year on year) for the full year.

These financial statements have been prepared for reference only in accordance with accounting principles and practices generally accepted in Japan.

Notes

(1) Changes in significant subsidiaries during the period

(changes in specified subsidiaries resulting in the change in scope of consolidation) : No

1. Adoption of special accounting methods for preparing quarterly consolidated financial statements : No
2. Changes in accounting policies, changes in accounting estimates or restatements

1. Changes in accounting policies due to changes in consolidated accounting standards : No
2. Changes other than (a) : Yes
3. Changes in accounting estimates : No
4. Restatements due to correction : No

1. Number of shares issued and outstanding (common stock)

1. Number of shares issued at the end of the period (including treasury stock)

3Q of FY2023	125,201,396 shares
FY2022	125,201,396 shares

(b) Number of shares of treasury stock at the end of the period

3Q of FY2023	8,828,092 shares
FY2022	1,989,253 shares

(c) Average number of shares during the period

3Q of FY2023	121,851,187 shares
3Q of FY2022	123,730,782 shares

Note : These consolidated financial results are outside the scope of audit by certified public accountants or auditing firms.

Note : Explanation regarding the appropriate use of forecast

The above-mentioned forecast is based on the information available to the company at present,

and including a potential risk and uncertainty. Actual achievements may differ from these forecasts due to many factors.

H2O Retailing Corporation(8242)

Consolidated Financial Statements for the Third Quarter of the Fiscal Year Ending March 31, 2023

1.Consolidated Financial Results

Following the business integration through a share exchange with Kansai Super Market Ltd. in December 2021, Kansai Food Market Ltd., Kansai Super Market Ltd., and Kansai Super Premium Co., Ltd. were included in Superarket Business segment. The consolidated results for the previous year does not include the above three companies, and only their balance sheets as of December 31, 2021 are included in the consolidated balance sheet.

▶Sales

Consolidated net sales of 3Q of FY2023 was ¥474,896 million, increased by 27.9% YOY. Consolidated gross sales, which is equivalent to net sales up to the fiscal year before the application of Accounting Standard for Revenue Recognition, excluding the effects of changes in accounting policies, amounted to ¥734,786 million, increased by 29.6% YOY. In Department store Business segment, sales increased significantly due to a strong perfomance of Hankyu Main Store. In Supermarket Business segment, consolidated sales increased significantly since the new consolidation of Kansai Super Market Ltd. started from 4Q of FY2022.

▶Operating Profit and Ordinary Profit

As a result of an increase in gross profit due to higher sales and controlling selling, general and administrative expenses less than planned in Department store Business segment, operating profit was ¥9,481 million (operating profit of ¥720 million in the previous fiscal year), more than 13 times YOY, and ordinary profit was ¥11,642 million, increased by 478.5% YOY.

(Department store business)

With the impact of the COVID-19 easing and society returning to pre-COVID-19 levels, domestic sales remained strong throughout the period. Furthermore, due to a recovery in inbound sales, existing store sales in 3Q (October-December) exceeded the pre-COVID-19 level. At Hankyu Main Store, sales of women's fashion, in particular, performed well with the increase in commuting and opportunities to go out. Sales of high-end items such as watches and luxuries also increased. Hanshin Umeda Main Store celebrated its grand opening of entire building in April, 2022. Efforts to strengthen the value of experiences centered on food, which is offered on four floors, resulted in a wide range of customers visiting the store.

Selling, general and administrative expenses increased compared with the previous fiscal year due to the decrease of the transfer to extraordinary losses related to COVID-19 infection, the increase of depreciation cost with the opening of the Hanshin Umeda Main Store and heating and lighting expenses rise. Selling, general and administrative expenses were lower than planned by reducing costs such as advertising expenses while improving efficiency, despite the increase of sales commission cost due to sales increase.

As results of above, gross sales was ¥365,102 million, increased by 29.3% YOY and operating profit was ¥7,854 million, increased by 640.7% YOY.

H2O Retailing Corporation(8242)

Consolidated Financial Statements for the Third Quarter of the Fiscal Year Ending March 31, 2023

(Supermarket business)

Gross sales was ¥315,565 million, increased by 39.7% YOY and operating profit was ¥4,555 million, increased by 16.0% YOY.

Existing store sales from October to December for Izumiya Co., Ltd, Hankyu Oasis Co., Ltd. and Kansai Super Market Ltd. remained at the same level as the previous year since the spend per customer increased due to the impact of price increase at three companies in spite of the number of customers decreased from the previous year by easing of the impact of COVID-19.

Regarding stores, one store was opened and six stores were remodeled.

Izumiya Co., Ltd. and Hankyu Oasis Co., Ltd. worked to improve profits through thorough chain- store operation, such as measures to increase sales and improve gross profit margin by restructuring merchandising, improve gross profit margin by purchasing integration, reduce labor costs by reviewing store operations, and review other expenses.

Existing store sales year-on-year for Izumiya Co., Ltd. were 96.8% (95.5% for number of customers and 101.3% for spend per customer), and those for Hankyu Oasis Co., Ltd. were 93.3% (94.6% for number of customers and 98.6% for spend per customer) due to the easing of the impact of COVID- 19 infection, the downturn after the previous year's increase in demand for eating at home, and the impact of rising prices on consumer sentiment.

Selling, general and administrative expenses were lower than both the previous year and forecast due to efforts to reduce personnel and other costs in the context of thorough chain-store operation, while utility expenses increased at both companies.

Kansai Super Market Ltd. promoted measures based on three categories, "health management" (health counseling by visiting public health nurses etc.), "productivity improvement" (installation of sliding shelves, expansion of steam convection systems etc.), and "education" (store manager training sessions for head office and all store managers, etc).

Existing store sales year-on-year for the cumulative third quarter were 98.3% (97.6% for number of customers and 100.7% for spend per customer), while existing store sales year-on-year from October to December period were 101.9%. The three stores remodeled during the current fiscal period (Makino store, Keihan Owada store, and Eiwa store) performed well with a year-on-year sales increase by 8.8% for the period from October to December.

Selling, general and administrative expenses were lower than both the previous year and forecast due to a review of expenses for consumables etc., while utility costs soared.

The food manufacturing subsidiaries, HANKYU delica i, Inc. and Hankyu Bakery Co.,Ltd. reported increases in wholesale sales to supermarket companies and specialty store sales, resulting in an increase in profit.

(Shopping Center business)

Gross sales was ¥27,494 million, decreased by 20.9% YOY and operating profit was ¥1,681 million, increased by 341.3% YOY.

In H2O Shopping Center Development Co., Ltd., which operates management of tenants and sales of apparel and home products at Izumiya stores, gross sales decreased due to closure of direct operation area and operating profit increased because of cost reduction by operational efficiency.

Oi Development Co., Ltd, which operates the business hotel, increased in gross sales and profit since occupancy rate improved and remained above 90% from October to December as business and travel activities recovered.

(Other business)

Gross sales was ¥26,623 million, increased by 10.5% YOY and operating loss was ¥2,318 million (operating loss of ¥2,618 million in the previous year).

The subsidiaries in the other businesses, excluding the Company as a holding company, posted an operating profit increase of ¥601 million, reflecting an increase in sales due to a reduction in the number and duration of COVID-19 related closed stores compared to the previous year.

▶Profit attributable to owners of parent

The Companies recorded extraordinary income of ¥8,857 million including gain on sales of noncurrent assets of ¥4,974 million and gain on sale of investment securities of ¥3,819 million and extraordinary losses of ¥3,906 million including loss on store closings and others of ¥1,405 million and loss on retirement of noncurrent assets of ¥1,085 million. As a result, profit attributable to owners of parent was ¥10,957 million, decreased 15.3% YOY.

2. Forecast of FY2023

There are no changes to the consolidated forecasts for the full year from those announced on

November 2, 2022.

H2O Retailing Corporation(8242)

Consolidated Financial Statements for the Third Quarter of the Fiscal Year Ending March 31, 2023

Consolidated Financial Statements
(1) Consolidated Balance Sheets		(Millions of yen)
	FY2022	3Q of FY2023
	(as of March 31, 2022)	(as of December 31, 2022)
Assets
Current assets
Cash and deposits	34,724	65,474
Notes and accounts receivable -trade	59,906	83,365
Merchandise and finished goods	21,002	22,181
Work in process	231	140
Raw materials and supplies	1,405	1,219
Accounts receivable - other	7,398	6,532
Other	5,368	6,114
Allowance for doubtful accounts	(311)	(474)
Total current assets	129,725	184,554
Non-current assets
Property, plant and equipment
Buildings and structures, net	122,490	128,534
Machinery, equipment and vehicles, net	2,903	2,924
Land	162,462	164,876
Construction in progress	2,220	1,329
Other, net	11,167	11,394
Total property, plant and equipment	301,245	309,059
Intangible assets
Goodwill	2,197	1,817
Other	14,245	16,400
Total intangible assets	16,443	18,217
Investments and other assets
Investment securities	104,231	102,123
Long-term loans receivable	16,044	13,194
Guarantee deposits	73,074	73,090
Retirement benefit asset	4,156	4,861
Deferred tax assets	10,495	10,274
Other	1,943	1,752
Allowance for doubtful accounts	(2,802)	(2,780)
Total investments and other assets	207,143	202,514
Total non-current assets	524,832	529,792
Total Assets	654,558	714,346