PAL : Consolidated Financial Results for the Fiscal Year Ended February 28, 2021

Consolidated Financial Results

for the Fiscal Year Ended February 28, 2021

[Japanese GAAP]

April 13, 2021

Company name: PAL GROUP Holdings CO., LTD.

Stock exchange listing: Tokyo Stock Exchange

Code number: 2726

URL: http://www.palgroup.holdings/

Representative: Ryuta Inoue, President and Representative Director

Contact: Toshio Fujii, Executive Officer and General Manager of Finance and Accounting Department

Phone: [phone]

Scheduled date of ordinary general meeting of shareholders: May 26, 2021

Scheduled date of commencing dividend payments: May 27, 2021

Scheduled date of filing securities report: May 28, 2021

Availability of supplementary briefing material on financial results: Not available

Schedule of financial results briefing session: Scheduled (for analysts and institutional investors)

(Amounts of less than one million yen are rounded down.)

1. Consolidated Financial Results for the Fiscal Year Ended February 28, 2021 (March 1, 2020 to February 28,

2021)
(1) Consolidated Operating Results			(% indicates changes from the previous corresponding period.)
		Net sales			Operating profit	Ordinary profit		Profit attributable to
					owners of parent
		million yen		%	million yen	%	million yen	%		million yen	%
	Fiscal year ended	108,522	(17.9)	1,383	(84.7)	1,052	(88.5)			270	(96.1)
	February 28, 2021
	Fiscal year ended	132,163		1.3	9,067	14.3	9,168	17.1			7,028	47.6
	February 29, 2020
(Note) Comprehensive income: Fiscal year ended February 28, 2021: ¥7 million [(99.9)%]
		Fiscal year ended February 29, 2020: ¥6,858 million [42.5%]
		Basic earnings		Diluted earnings	Rate of return on	Ordinary profit to	Operating profit
		per share			per share	equity		total assets	to net sales
		yen		yen		%			%		%
	Fiscal year ended	6.16		―		0.6			1.0		1.3
	February 28, 2021
	Fiscal year ended	159.74		―		15.9			10.0		6.9
	February 29, 2020

(Reference) Equity in earnings of affiliates: Fiscal year ended February 28, 2021: ¥(287) million Fiscal year ended February 29, 2020: ¥158 million

The Company conducted a stock split as of March 1, 2020, at a ratio of 2 shares for each common share. Therefore, basic earnings per share is calculated on the assumption that this stock split was conducted at the beginning of the previous fiscal year.

(2) Consolidated Financial Position

	Total assets	Net assets	Equity ratio	Net assets per share
	million yen	million yen	%	yen
As of February 28,	108,186	44,351	41.0	1,009.69
2021
As of February 29,	94,954	46,627	49.1	1,059.78
2020

(Reference) Equity: As of February 28, 2021: ¥44,351 million As of February 29, 2020: ¥46,627 million

The Company conducted a stock split as of March 1, 2020, at a ratio of 2 shares for each common share. Therefore, net assets per share is calculated on the assumption that this stock split was conducted at the beginning of the previous fiscal year.

(3) Consolidated Cash Flows

Net cash provided by

Net cash provided by

Net cash provided by

Cash and cash

(used in) operating

(used in) investing

(used in) financing

equivalents at end of

activities

activities

activities

period

million yen

million yen

million yen

million yen

Fiscal year ended

1,450

(1,188)

10,098

63,088

February 28, 2021

Fiscal year ended

14,705

(3,543)

(4,068)

52,727

February 29, 2020

2. Dividends

Annual dividends

Total

Dividends to

dividends

Payout ratio

1st

2nd

3rd

Year-

net assets

quarter

quarter

quarter

Total

paid

(consolidated)

end

(consolidated)

-end

-end

-end

(annual)

yen

yen

yen

yen

yen

million yen

%

%

Fiscal year ended

―

0.00

―

100.00

100.00

2,199

31.3

5.0

February 29, 2020*

Fiscal year ended

―

0.00

―

25.00

25.00

1,098

405.8

2.4

February 28, 2021

Fiscal year ending

February 28, 2022

―

0.00

―

50.00

50.00

56.3

(Forecast)

*The Company conducted a stock split as of March 1, 2020, at a ratio of 2 shares for each common share. Therefore, "100.00 yen" presented above as the year-end dividend for the fiscal year ended February 29, 2020 amounts to

50.00 yen per share under the condition after the stock split.

3. Consolidated Financial Results Forecast for the Fiscal Year Ending February 28, 2022 (March 1, 2021 to February 28, 2022)

(% indicates changes from the previous corresponding period)

	Net sales		Operating profit	Ordinary profit	Profit attributable	Basic earnings
		to owners of parent	per share
	million yen	%	million yen	%	million yen	%	million yen	%	yen
First half	63,000	39.5	1,850	―	1,700	―	800	―	18.21
Full year	134,000	23.5	7,400	434.8	7,100	574.3	3,900	1,340.4	88.79

* Notes

1. Changes in significant subsidiaries during the period under review (changes in specified subsidiaries resulting in changes in scope of consolidation): No
2. Changes in accounting policies, changes in accounting estimates and corrections of errors
3. 1. Changes in accounting policies due to the revision of accounting standards: No
   2. Any changes other than 1) above: No
   3. Changes in accounting estimates: No
   4. Corrections of errors: No
4. Total number of issued shares (common shares)
5. 1. Total number of issued shares at the end of the period (including treasury shares):

	As of February 28, 2021	46,272,000 shares
	As of February 29, 2020	46,272,000 shares
2) Total number of treasury shares at the end of the period:
	As of February 28, 2021	2,346,134 shares
	As of February 29, 2020	2,274,644 shares
3) Average number of shares during the period:
	Fiscal year ended February 28, 2021	43,928,952 shares
	Fiscal year ended February 29, 2020	43,997,450 shares

The Company conducted a stock split as of March 1, 2020, at a ratio of 2 shares for each common share.

Therefore, the total number of issued shares at the end of the period, the total number of treasury shares at the end of the period, and the average number of shares during the period are calculated on the assumption that this stock split was conducted at the beginning of the previous fiscal year.

• These consolidated financial results are not covered by the audit procedure conducted by a certified public accountant or audit corporation.
• Explanation of the proper use of financial results forecast and other notes
  The statements regarding financial results forecast in this report are based on the information that is available, as well as estimates, assumptions and projections that are believed to be reasonable at the time of publication, and do not guarantee the achievement of the projections. Therefore, there might be cases in which actual results differ from forecast values.

Appendix
1. Overview of Consolidated Operating Results	2
(1)	Overview of Consolidated Operating Results for the Period under Review	2
(2)	Overview of Consolidated Financial Position for the Period under Review	2
(3)	Overview of Consolidated Cash Flows for the Period under Review	3
(4)	Outlook for Fiscal 2022	4
2. Consolidated Financial Statements	5
(1)	Consolidated Balance Sheets	5
(2)	Consolidated Statements of Income and Comprehensive Income	7
(3)	Consolidated Statements of Changes in Net Assets	10
(4)	Consolidated Statements of Cash Flows	12

1

1. Overview of Consolidated Operating Results

1. Overview of Consolidated Operating Results for the Period under Review

1. Overview for the Fiscal Year Ended February 28, 2021

During the fiscal year ended February 28, 2021 (March 1, 2020 to February 28, 2021), the Japanese economy deteriorated rapidly with significant decline in consumption and production due to the spread of the coronavirus disease (COVID-19) infection. Economic activity resumed gradually after the first state of emergency was lifted, with signs of a moderate recovery, due partly to government policies designed to stimulate demand. However, a second state of emergency was declared in January 2021, and the outlook is uncertain as of April, with the Stricter Measure to Prevent the Spread of the Virus measures introduced.

Under such a business environment, the Company made every effort to strengthen EC sales to make up for the decline in customer traffic, while securing the health and safety of its employees. The Company focused on introducing its products in various digital media such as Instagram and took measures including awarding extra points and offering limited time sales. As a result, EC sales increased by more than 35% year on year. However, the impact of the temporary closure from April to May in 2020 and the reduction in store operating hours that continued subsequently was extremely significant. Consequently, in the Apparel Business, net sales decreased by 22.2% year on year to ¥75,540 million, and in the Miscellaneous Goods/Accessories Business, net sales decreased by 5.9% to ¥32,904 million.

As a result of the above, net sales for the fiscal year ended February 28, 2021 decreased by 17.9% year on year to ¥108,522 million. In terms of profit, the gross profit margin decreased by 1.7 percentage point year on year to 54.6%. Operating profit decreased by ¥7,683 million year on year to ¥1,383 million, ordinary profit decreased by ¥8,115 million year on year to ¥1,052 million, and profit attributable to owners of parent decreased by ¥6,757 million year on year to ¥270 million.

2) Sales Results by Segment for the Fiscal Year Ended February 29, 2020

Segment	Amount (million yen)	Changes from the previous
fiscal year (%)
Apparel Business	75,540	77.8
Miscellaneous	32,904	94.1
Goods/Accessories Business
Other	77	83.1
Total	108,522	82.1

3) Status of Stores for the Fiscal Year Ended February 29, 2020 (March 1, 2020 to February 28, 2021)

Number of stores as of February 28, 2019	926 stores
Number of new stores	72 stores
Number of closed stores	66 stores
Number of stores as of February 29, 2020	932 stores

1. Overview of Consolidated Financial Position for the Period under Review (Assets)
   Current assets increased by ¥14,123 million compared with the end of the previous fiscal year, due mainly to increases in cash and deposits by ¥10,360 million, merchandise and finished goods by ¥1,879 million, and

2

notes and accounts receivable - trade by ¥875 million. Non-current assets decreased by ¥892 million compared with the end of the previous fiscal year, due primarily to decreases in investment securities by ¥1,040 million, intangible assets by ¥141 million, and leased assets, net by ¥129 million, despite an increase in deferred tax assets by ¥505 million.

(Liabilities)

Current liabilities increased by ¥16,177 million compared with the end of the previous fiscal year, due mainly to increases in short-term borrowings by ¥13,206 million and notes and accounts payable - trade by ¥3,875 million. Non-current liabilities decreased by ¥670 million compared with the end of the previous fiscal year, due primarily to decreases in long-term loans payable by ¥748 million and lease obligations by ¥94 million, despite an increase in retirement benefit liability by ¥203 million.

(Net assets)

Net assets decreased by ¥2,276 million compared with the end of the previous fiscal year, due mainly to decreases in retained earnings by ¥1,929 million and valuation difference on available-for-sale securities by ¥184 million.

(3) Overview of Consolidated Cash Flows for the Period under Review

Cash and cash equivalents (hereinafter "cash") at the end of the fiscal year ended February 28, 2021 increased by ¥10,360 million compared with the end of the previous fiscal year to ¥63,088 million, due mainly to cash provided by financing activities in the amount of ¥10,098 million. Cash flows for the fiscal year ended February 28, 2021 are as follows.

(Net cash provided by (used in) operating activities)

While cash provided by operating activities was ¥14,705 million for the previous fiscal year, cash provided by operating activities amounted to ¥1,450 million for the fiscal year ended February 28, 2021, due mainly to an increase in trade payables by ¥3,947 million, a decrease in profit before income taxes by ¥8,099 million to ¥504 million, and an increase in inventories by ¥1,892 million.

(Net cash provided by (used in) investing activities)

While cash used in investing activities was ¥3,543 million for the previous fiscal year, cash used in investing activities amounted to ¥1,188 million for the fiscal year ended February 28, 2021, due mainly to proceeds from sales of investment securities of ¥830 million, purchase of property, plant and equipment of ¥1,747 million, and payments for asset retirement obligations of ¥204 million.

(Net cash provided by (used in) financing activities)

While cash used in financing activities was ¥4,068 million for the previous fiscal year, cash provided by financing activities amounted to ¥10,098 million for the fiscal year ended February 28, 2021, due mainly to a net increase in short-term borrowings of ¥13,206 million and cash dividends paid of ¥2,199 million.

3

(Reference) Cash flow-related indicators

	Fiscal year	Fiscal year	Fiscal year	Fiscal year	Fiscal year
	ended February	ended February	ended February	ended February	ended February
	28, 2017	28, 2018	28, 2019	29, 2020	28, 2021
Equity ratio (%)	48.8	46.4	47.5	49.1	41.0
Equity ratio based
on market value	78.1	84.3	83.2	70.6	69.4
(%)
Interest-bearing
debt to cash flows	251.7	382.2	175.7	111.2	2,004.3
ratio (%)
Interest-coverage	38.7	43.1	83.1	129.1	12.2
ratio (times)
Equity ratio: Equity / Total assets
Equity ratio based on market value: Market capitalization of shares / Total assets
Interest-bearing debt to cash flows ratio: Interest-bearing debt / Operating cash flows
Interest-coverage ratio: Operating cash flows / Interest payments

(4) Outlook for Fiscal 2022

The number of patients with the coronavirus disease (COVID-19) has been increasing again since the lifting of the second declaration of a state of emergency, and this situation is expected to exert a substantial impact during the first half of fiscal 2022. Meanwhile however, vaccinations have begun, and the situation is anticipated to settle down somewhat during the second half of the fiscal year. Accordingly, we forecast net sales to increase by 23.5% year on year to ¥134,000 million, operating profit to increase by 434.8% to ¥7,400 million, ordinary profit to increase by 574.3% to ¥7,100 million, and profit to increase by 1,340.4% to ¥3,900 million.

4

2. Consolidated Financial Statements

(1) Consolidated Balance Sheets

			(Millions of yen)
		As of February 29, 2020	As of February 28, 2021
Assets
Current assets
Cash and deposits		52,727		63,088
Notes and accounts receivable - trade	6,435	7,310
Merchandise and finished goods		7,829		9,709
Raw materials and supplies	18	31
Other		830		1,826
Allowance for doubtful accounts		－	(0)
Total current assets		67,842		81,966
Non-current assets
Property, plant and equipment
Buildings and structures, net	6,022	6,078
Machinery, equipment and vehicles, net		3		2
Land	546	546
Leased assets, net		972		843
Other, net	234	206
Total property, plant and equipment		7,780		7,677
Intangible assets	690	549
Investments and other assets
Investment securities	2,769	1,728
Guarantee deposits		13,017		12,925
Deferred tax assets	2,308	2,813
Other		794		804
Allowance for doubtful accounts	(247)	(279)
Total investments and other assets		18,641		17,992
Total non-current assets	27,112	26,220
Total assets		94,954		108,186

5

(Millions of yen)

As of February 29, 2020

As of February 28, 2021

Liabilities

Current liabilities

Notes and accounts payable - trade

Short-term borrowings

Current portion of long-term borrowings Accrued expenses

Income taxes payable

Provision for bonuses

Provision for bonuses for directors (and other officers)

Provision for sales returns

Provision for point card certificates

Other

Total current liabilities

Non-current liabilities

Long-term borrowings

Retirement benefit liability

Provision for retirement benefits for directors (and other officers)

Long-term accounts payable - other

Lease obligations

Asset retirement obligations

Deferred tax liabilities

Other

Total non-current liabilities

Total liabilities

Net assets

Shareholders' equity

Share capital

Capital surplus

Retained earnings

Treasury shares

Total shareholders' equity Accumulated other comprehensive income

Valuation difference on available-for-sale securities

Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive

income

Total net assets

Total liabilities and net assets

		20,814			24,688
		1,794		15,000
		4,698			5,198
		2,440		2,482
		276			88
		1,737		1,642
					14
		427
		0		0
		314			468
		3,500		2,599
		36,004			52,181
		8,515			7,766
		1,046		1,250
		134			126
		49		29
		762			667
		1,743		1,795
		4			2
		65		13
		12,323			11,652
		48,327		63,834
		3,181			3,181
		4,469		4,469
		40,969			39,040
		(2,088)	(2,172)
		46,531			44,518
		183			(0)
		(22)	(21)
		(65)			(144)
		96		(166)
		46,627			44,351
		94,954		108,186

6

1. Consolidated Statements of Income and Comprehensive Income Consolidated Statements of Income

					(Millions of yen)
		Fiscal year ended	Fiscal year ended
		February 29, 2020	February 28, 2021
Net sales			132,163			108,522
Cost of sales	57,776		49,284
Gross profit			74,386			59,237
Provision for sales returns	(0)		(0)
Gross profit - net			74,386			59,237
Selling, general and administrative expenses
Advertising and promotion expenses			3,073			3,537
Provision for point card certificates	314		153
Transportation and storage costs			4,142			4,302
Provision of allowance for doubtful accounts	(0)	0
Salaries, allowances and bonuses			18,729			15,982
Provision for bonuses	1,737		1,642
Provision for bonuses for directors (and other			427			14
officers)
Retirement benefit expenses	140		161
Provision for retirement benefits for directors (and			4			4
other officers)
Welfare expenses	3,404		3,345
Rent expenses			19,895			15,841
Lease expenses	143		123
Other			13,307			12,745
Total selling, general and administrative expenses	65,319		57,853
Operating profit			9,067			1,383
Non-operating income
Interest income			1			1
Royalty income	5		25
Rental income			14			12
Share of profit of entities accounted for using	158			－
equity method
Subsidy income related to COVID			－			33
Other	69		61
Total non-operating income			249			135
Non-operating expenses
Interest expenses			112			117
Provision of allowance for doubtful accounts	17		32
Share of loss of entities accounted for using equity			－			287
method
Other	18		28
Total non-operating expenses			148			465
Ordinary profit	9,168		1,052
Extraordinary income
Gain on sales of investment securities			－	333
Total extraordinary income			－			333

7

				(Millions of yen)
		Fiscal year ended	Fiscal year ended
		February 29, 2020	February 28, 2021
Extraordinary losses
Loss on retirement of non-current assets	162		87
Impairment loss		387			793
Loss on sales of shares of subsidiaries and	10			－
associates
Other		3			1
Total extraordinary losses	564		882
Profit before income taxes		8,604			504
Income taxes - current	2,134		682
Income taxes - deferred		(557)			(448)
Total income taxes	1,576		233
Profit		7,028			270
Profit attributable to owners of parent		7,028		270

8

Consolidated Statements of Comprehensive Income

					(Millions of yen)
		Fiscal year ended	Fiscal year ended
		February 29, 2020	February 28, 2021
Profit			7,028			270
Other comprehensive income
Valuation difference on available-for-sale			(124)			(184)
securities
Foreign currency translation adjustment	(1)	0
Remeasurements of defined benefit plans, net of			(42)			(59)
tax
Share of other comprehensive income of entities	(1)	(19)
accounted for using equity method
Total other comprehensive income			(169)			(262)
Comprehensive income	6,858		7
Comprehensive income attributable to
Comprehensive income attributable to owners of	6,858		7
parent
Comprehensive income attributable to non-			－			－
controlling interests

9

1. Consolidated Statements of Changes in Net Assets Fiscal year ended February 29, 2020

(Millions of yen)

		Shareholders' equity
			Retained		Total
	Share capital	Capital surplus	Treasury shares	shareholders'
	earnings
				equity
Balance at beginning of	3,181	4,469	35,811	(2,088)	41,373
period
Changes during period
Dividends of surplus			(1,869)		(1,869)
Profit attributable to			7,028		7,028
owners of parent
Purchase of treasury				(0)	(0)
shares
Disposal of treasury		0		0	0
shares
Net changes in items
other than shareholders'
equity
Total changes during period	－	0	5,158	(0)	5,157
Balance at end of period	3,181	4,469	40,969	(2,088)	46,531

(Millions of yen)

	Accumulated other comprehensive income
	Valuation	Foreign		Total	Total net assets
	Remeasurements	accumulated
	difference on	currency
	of defined	other
	available-for-	translation
	benefit plans	comprehensive
	sale securities	adjustment
		income
Balance at beginning of	308	(19)	(23)	265	41,639
period
Changes during period
Dividends of surplus					(1,869)
Profit attributable to					7,028
owners of parent
Purchase of treasury					(0)
shares
Disposal of treasury					0
shares
Net changes in items
other than shareholders'	(124)	(3)	(42)	(169)	(169)
equity
Total changes during period	(124)	(3)	(42)	(169)	4,988
Balance at end of period	183	(22)	(65)	96	46,627

10

Fiscal year ended February 28, 2021

(Millions of yen)

		Shareholders' equity
			Retained		Total
	Share capital	Capital surplus	Treasury shares	shareholders'
	earnings
				equity
Balance at beginning of	3,181	4,469	40,969	(2,088)	46,531
period
Changes during period
Dividends of surplus			(2,199)		(2,199)
Profit attributable to			270		270
owners of parent
Purchase of treasury				(83)	(83)
shares
Disposal of treasury					－
shares
Net changes in items
other than shareholders'
equity
Total changes during period	－	－	(1,929)	(83)	(2,013)
Balance at end of period	3,181	4,469	39,040	(2,172)	44,518

(Millions of yen)

	Accumulated other comprehensive income
	Valuation	Foreign		Total	Total net assets
	Remeasurements	accumulated
	difference on	currency
	of defined	other
	available-for-	translation
	benefit plans	comprehensive
	sale securities	adjustment
		income
Balance at beginning of	183	(22)	(65)	96	46,627
period
Changes during period
Dividends of surplus					(2,199)
Profit attributable to					270
owners of parent
Purchase of treasury					(83)
shares
Disposal of treasury					－
shares
Net changes in items
other than shareholders'	(184)	1	(79)	(262)	(262)
equity
Total changes during period	(184)	1	(79)	(262)	(2,276)
Balance at end of period	(0)	(21)	(144)	(166)	44,351

11

(4) Consolidated Statements of Cash Flows

	(Millions of yen)
Fiscal year ended	Fiscal year ended
February 29, 2020	February 28, 2021

Cash flows from operating activities

Profit before income taxes

Depreciation

Impairment loss

Increase (decrease) in allowance for doubtful accounts

Interest and dividend income

Interest expenses

Subsidies for employment adjustment

Share of loss (profit) of entities accounted for using equity method

Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Increase (decrease) in provision for bonuses Increase (decrease) in provision for retirement benefits for directors (and other officers) Increase (decrease) in provision for bonuses for directors (and other officers)

Increase (decrease) in provision for sales returns Increase (decrease) in provision for loss on guarantees

Increase (decrease) in provision for point card certificates

Loss on retirement of property, plant and equipment

Loss (gain) on sales of investment securities Loss (gain) on sales of shares of subsidiaries and associates

Increase (decrease) in consumption taxes receivable payable

Increase (decrease) in retirement benefit liability Other, net

Subtotal

Interest and dividends received

Interest paid

Proceeds from subsidies for employment adjustment

Payments of retirement benefits for directors (and other officers)

Proceeds from compensation

Income taxes (paid) refund

Net cash provided by (used in) operating activities

		8,604		504
		1,878			1,896
		387		793
					32
		173
		(9)	(10)
		112			117
		-	(1,021)
		(158)			287
		(812)	(875)
		2,590			(1,892)
		3,859		3,947
		(70)			(94)
		3		4
					(413)
		101
		(0)	(0)
		(174)			-
		238		153
		166			88
		-	(333)
		10			-
		887		(1,728)
		87			123
		370		147
		18,247			1,726
		8		10
		(113)			(118)
		-	1,021
		(2)			(12)
		242			-
		(3,677)			(1,176)
		14,705		1,450

12

			(Millions of yen)
		Fiscal year ended	Fiscal year ended
		February 29, 2020	February 28, 2021
Cash flows from investing activities
Purchase of property, plant and equipment	(1,148)	(1,747)
Proceeds from sales of investment securities		-		830
Loan advances	(300)	(50)
Collection of loans receivable		55		-
Purchase of intangible assets	(230)	(84)
Payments of guarantee deposits		(1,081)		(674)
Proceeds from refund of guarantee deposits	1,150	741
Purchase of shares of subsidiaries and associates		(1,829)		-
Payments for asset retirement obligations	(158)	(204)
Other, net		(0)		-
Net cash provided by (used in) investing activities	(3,543)	(1,188)
Cash flows from financing activities
Net increase (decrease) in short-term borrowings	(1,856)	13,206
Proceeds from long-term borrowings		1,920		1,052
Repayments of long-term borrowings	(1,337)	(1,301)
Purchase of treasury shares		(0)		(83)
Proceeds from sales of treasury shares	0		-
Dividends paid		(1,869)		(2,199)
Repayments of installment payables	(388)	(79)
Repayments of finance lease obligations		(536)		(495)
Net cash provided by (used in) financing activities	(4,068)	10,098
Net increase (decrease) in cash and cash equivalents		7,094		10,360
Cash and cash equivalents at beginning of period	45,633	52,727
Cash and cash equivalents at end of period		52,727		63,088

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