To our stockholders
We will continue aiming to realize new dreams of you and me while working hand in hand with every single one of our customers in changing communities and collaborating with business partners and government administrative bodies.
"Changing stores, changing communities" is a key theme at Izumi. We have pursued store building that anticipates the future of communities based on the perception that "a store is a town." LECT (Nishi-ku, Hiroshima City), which we opened in 2017, is a new business model created as we continue to ask ourselves what we need to do to make customers happy. Amid the growth of online shopping, we intended LECT to be a place that allows the experience of diverse activities around the concepts of culture, food and living rather than simply the purchase of products. Not only did we seek to expand the range of products, but also to create a space where people can come together for experiences and a place that stimulates the senses. This is the true essence of a physical store, making it a third place where people can be themselves that is not work and school or home. It is also a space that middle-aged and older men, few of whom have used shopping centers in the past, can come to easily by themselves in addition to visiting with family and friends. As a result, LECT has performed well with approximately 7 million visitors during its initial fiscal year, and initiatives aimed at further progress are continuing in its second year onward.
The extensive know-how that we have refined through our development of youme Town to date is what has guided the success of LECT. When we began the first phase of the youme Town business model in 1990, we attracted local tenants with a focus on community revitalization. In the second phase from 1996, we increased store size, opened stores in Kyushu, and promoted the entry of nationwide tenants. In the third phase from 1998, we expanded our store opening area to Shikoku and work on full-scale "town planning" with a high-level of public interest by bringing in banks, post o ces , and other tenants that provide public services. LECT, which could also be described as the fourth phase, came to fruition as the culmination of this history. Going forward, the Izumi Group will continue to conceive of next-generation stores, conscious of creating communities with vitality and a uent lives f or customers.
The Japanese economy in the previous fiscal year witnessed continued growth led by the corporate sector and an improvement in the hiring environment, vertheless, the environment for the retail industry remained challenging as consumer purchasing power was weak and the orientation toward lifestyle maintenance further strengthened alongside with sluggish wages and rising prices.
In response to these changes, the Izumi Group implemented measures to increase customer satisfaction. In terms of stores, we opened LECT, described above, in April 2017, youme Town Gotsu (Gotsu, Shimane Prefecture) in May 2017, and youme Mart Fukutsu (Fukutsu, Fukuoka Prefecture) in February 2018. youme Town Gotsu took over a commercial facility that has been well-known in the local community for many years, maintaining its function as lifestyle infrastructure at the same time as defending employment and contributing to the local economy. Moreover, in April 2017, we completed the full renewal of youme Town Hamasen (Minami-ku, Kumamoto City), which had remained closed since the Kumamoto earthquake in April 2016, and we opened the demolished and rebuilt youme Mart Tatuda (renamed from youme Mart Kusunoki, Kita-ku, Kumamoto City, operated by Youme Mart Co., Ltd.) This achieved the resumption of operations at all damaged stores.
In terms of our merchandise, we promoted our strategy of "good products at low prices," which seeks a competitive product range both in terms of quality and price. Reviewing sales trends, sales in the food segment, which had been sluggish in the first half due to such factors as a downtown in market conditions in the fruit and vegetable division, recovered in the winter. Demand for celebratory occasions such as White Day and Mother's Day, demand for gifts such as summer gifts, and early inclusion of demand for school backpacks and other three generation consumption in conjunction with the summer homecoming season remained steady. In the second half, apparel and household goods recorded positive figures.
As the food supermarket youme Mart business model has increased its profile owning to new store openings and M&As, it was separated from large-scale supermarket operations through organizational restructuring. We reorganized the business into the Chugoku Mart Division and the Kyushu Mart Division for each trading area and also established a new Group Supermarket Division to control the food supermarket subsidiaries. We have in place the structure for optimal store operation and the comprehensive business expansion of food supermarkets.
In the fiscal year ended February 28, 2018, the Izumi Group recorded sales and pro t growth, achieving an all-time high business performance as a result of promoting cost reductions and curbing losses addition to diverse initiatives focused on increasing customer satisfaction.
In February 2018, we acquired the operation rights for The Mall Shunan in Kudamatsu City, Yamaguchi Prefecture and The Mall Himeji in Himeji City, Hyogo Prefecture from Seiyu GK. We plan to completely refurbish them both and to open them as youme Town Kudamatsu (tentative name) in fall 2018 and youme Town Himeji (tentative name) in winter 2018. We will continue to leverage Izumi's unique revitalization know-how to promote the building of stores loved by local people and strive to maintain employment and revitalize local economies with a regional focus. In April 2018, the Izumi Group concluded a business alliance with Seven & i Holdings CO., Ltd. ("Seven & i"). Seven & i operates over 60,000 stores in Japan and overseas, including convenience stores, general supermarkets, department stores, food supermarkets, and specialty stores, as well as operating diverse businesses including financial services and IT services. Seven & i and Izumi complement each other geographically in the same business, and the takeover of stores from Seiyu and the business alliance with Seven & i can be effective measures to benefit from having a larger scale and enhancing dominance. Going forward, we will seek to improve business efficiency and increase profits through the effective utilization of each other's management resources and management know-how.
In spring 2019, we will take over the operation of Ito Yokado Fukuyama (Fukuyama City, Hiroshima Prefecture) with plans to refurbish and open it as youme Town Fukuyama (tentative name). We will also promote mutual access for e-money, consolidation of purchasing and joint opening of stores in the west Japan region.
In order to realize our dream of one trillion yen in operating revenue by fiscal 2022, which has been our goal to date, we initiated a three-year Medium-Term Management Plan running until fiscal 2020 with the current fiscal year as the first stage. The three core strategies are our growth strategy, under which we will open 40 stores over three years through establishment of new stores and M&As, strengthening competitiveness to enhance the added value of our stores and products, and human resource development through the development of skills and the active participation of women.
In order to achieve these goals dramatically, we have set out a conceptualization of conduct for all employees. The first concept is "deep analysis." Through the "deep analysis" of change in the world and change in our customers, we will change the forms of our stores and services and create new value. The second concept is "evolution." This concept calls for innovation and growth based on entirely new perspectives rather than comparisons with the previous year or an accumulation of conventional practices. The third concept is "thinking for yourself." While implementing plans in the workplace, employees will constantly ask why and analyze why the results turned out how they did. If employees can be bold in taking on challenges and learn even when they fail, they should acquire practical skills. The fourth and final concept is "ensure dominance." By developing our dominance in the Chugoku, Shikoku, and Kyushu areas, we will continue to demonstrate overwhelming advantages. We will open new stores and promote M&As in limited areas and work to enhance our brand image and increase efficiency.
Today's society is undergoing a succession of changes that have never been experienced before, such as the declining birthrate, aging of the population, declining population, and advances in AI and IoT. Old ways of thinking may halt our advance to the "New Izumi" of being a trillion-yen company. As part of our human resource development, we will promote radical changes in the conduct of every single employee to ensure the realization of our medium-term management plan.
This fiscal year marks the first year of the medium-term management plan. With regards to the stores, we acquired management rights from the joint company Seiyu GK. and will renovate large stores to open youme Town Kudamatsu (tentative name, Kudamatsu city, Yamaguchi) and youme Town Himeji (tentative name, Himeji city, Hyogo) in fall and winter 2018. We will also newly open three food supermarkets, youme Mart Jono (tentative name, Kitakyushu city, Fukuoka), youme Mart Kita (tentative name, Takamatsu city, Kagawa), and youme Mart Kume (tentative name, Okayama city, Okayama). As a result of expanding and deepening our dominance in the western Japan regions as well as steadily executing the 3 strategies of the medium-term management plan, we forecast that the consolidated operating result for the fiscal year ending February 2019 will include operating revenue of ￥749,400 million (up 2.7% year on year) and operating profit of ￥37,100 million (down 3.6% year on year).
Our management philosophy represents an unwavering set of guidelines. Our most fundamental goal is to "Be No.1 in customer satisfaction". In addition, in accordance with the phrases from our corporate philosophy " Be a company with an exciting future" and "Be a company worth working for", we strive to maintain an environment where employees feel invigorated by their work. Izumi's strengths are linked to our management philosophy and serve as the base for our growth.
First is our decision to limit strategic development to our dominant market of Western Japan. We have a deep geographical familiarity with Western Japan and our store operations are locally oriented. Second is our review and improvement of stores to ensure a high level of competitiveness.
By opening new stores and rejuvenating existing ones, we continue to increase our appeal as a comfortable place to spend time for both customers from the local community and the wider community. Third is our employees' high level of motivation. Delegating authority to onsite employees leads to greater motivation.
Our management vision behind our medium-term management plan, "strive to be Japan's No.1 high quality regional GMS", does not mean pursuing growth only in profit and number of stores. Izumi has a creed known as the "Four Dreams". Supporting the dreams of customers, communities, tenants, and employees is our own dream. In addition to these four dreams, we emphasize returning profits to shareholders and increasing dividends while balancing cash reserves with investments.
We take pride in the fact that becoming Japan's No.1 honest company by moving forward with all stakeholders is our mission, and here we swear a commitment to doing our best by this goal. We ask for your deeper understanding and continuing support moving forward innovating every day to make our dreams come true.