Flash Report on the Consolidated result for the third quarter ended November 30, 2006

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1 Flash Report on the Consolidated result for the third quarter ended November 30, 2006 January 9, 2007 Listed Company Name: LAWSON, INC. Code No.: 2651 (URL Company Representative: Takeshi Niinami, Representative Director, President & CEO Contact: Kenji Morimoto, Senior Vice President, Financial & Accounting Office Tel.: (03) Items pertaining to prepan of quarterly consolidated financial statements, etc. 1Application of simplified accounting method: The Company and its significant subsidiaries adopted a simplified method for calculating tax expense, etc. 2Differences in accounting treatments applied compared to previous consolidated fiscal year: None 3Change in the scope of consolidation and application of the equity method: None 2. Consolidated Performance for the current third quarter period (from March 1, 2006, to November 30, 2006) (1) Consolidated operating results Note: s below one million yen are truncated. Total operating revenues Operating income Ordinary profit Million % Million % Million % 213, ,448 (1.9) 35,637 (1.0) Previous 3rd Quarter 203, , , Last fiscal year 268, , , Net income Net income per share Fully diluted income per share Million % 17,545 (4.2) Previous 3rd Quarter 18, Last fiscal year 22, Notes: Percentages for total operating revenues, operating income, ordinary profit and net income show increase (decrease) from previous period. [Qualitative Information, etc., on the Progress of Operating Results (consolidated)] During the third quarters of the Company s fiscal year 2007 the nine-month period from March 1 to November 30, 2006 the Japanese economy continued to follow a leisurely recovery trend. This was evidenced by a year-on-year increase in the nation s GDP for the July-September quarter on both a nominal and real basis, thanks to the contribution of the corporate sector led by capital investment and exports. Over the same period, however, the GDP deflator remained in the minus column, and consumer spending also shrunk for the first time in two quarters. Thus, the full-scale economic recovery has not yet arrived. Another notable factor in the nine-month reporting period was the continued polarization in the economic activity levels. Compared with three major metropolises, i.e., Kanto, Kinki and Chubu region, economic recovery was sluggish in countryside. Regarding the business performance of the LAWSON Group during the September November quarter, urban regions centered on three major metropolises showed strong results while local regions were comparatively sluggish. Additionally, owing to a structural problem that has been affecting the whole convenience store industry, i.e., the opening lots of conventional stores by the major convenience store chains, the LAWSON Group s stores recorded a decline in the average number of customers per existing stores per day. As a result, existing store sales for three-month period declined by 98.6%. However, thanks to the appearance of the first fruits of our efforts to attract more female and senior customers, the margin of sales decline was smaller. With regards to merchandise strategy, we introduced some of the specialist product know-how employed in our NATURAL LAWSON into regular LAWSON. For instance, we launched a new product line within our established Gohantei series, and a new lineup of rice balls (onigiri), both of them emphasis on healthy ingredients. In counter top food, we were successful with a promotional campaign for Japanese-style oden -- in which we set the price of almost oden items at a uniform 70 per piece -- and we also introduced other new counter top food products. These efforts were rewarded year-on-year growth in sales. With regard to store opens, we maintained our focus on increasing the number of customers through appealing to wider customer category. For this purpose, we concentrated on designing merchandise assortment for stores in each marketing district that matched the specific preferences of local customers. We worked to maximally leverage the merits of the system of analyzing data on an individual store charts (a system that we had been trying out at certain stores since fiscal 2006). We selected particularly successful examples of these profiles, and applied a further 1

2 refined version to all our stores. With the aim of raising the accuracy of ordering by our franchisees stores, we further enhanced the support activities of supervisors who back up the forecast-based ordering at the stores Regarding our store-openings, as of the end of November 2006 our regular LAWSON stores reached 8,339 stores. Meanwhile, our new store formats, NATURAL LAWSON, which is based on keywords beauty and health, reached 73 outlets, and LAWSON STORE100, which targets seniors and housewives reached 76 stores. Both formats aimed at expanding our customer base. We actively opened new stores, particularly in the major metropolises, by selectively deploying a mixture of the three formats that match with the customer preferences of the district in which the store is located. The number of stores operated by SHANGHAI HUALIAN LAWSON CO., LTD., a Chinese affiliate under the equity method, was 281 at the 3rd Quarter closing date. As a result, the total number of stores operated by the LAWSON Group at the end of the reporting period was 8,769, of which 8,488 stores were in Japan and 281 overseas. In line with our strategies of adapting each store s lineup to the unique tastes of consumers in the local district, and of widening our loyal customer demographic to include senior citizens and female shoppers, we have introduced new concepts to our core LAWSON store chain in terms both of the products we sell and the layouts of our stores. This program, known as LAWSON PLUS, was commenced during the reporting period, and comprises the following two basic formats. In the suburban area, where rapidly aging, we are concentrating on offering product lineups and store layouts Senior-friendly LAWSON that satisfy the needs of seniors. In the urban area, we are experimenting with urban hybrid LAWSON stores. These stores incorporate know-how of selling fresh food that have proven successful at the outlets in our LAWSON STORE100 format. As a result, net sales reported by franchised stores increased 1.3% year-on-year for the reporting nine months to 1,052,039 million on a consolidated basis in line with an increase in the number of stores. Ordinary profit decreased 1.0% to 35,637 million, which is primarily due to increase in expenditure of promotion expense by proactive sales promotion measures, despite increase in franchise commissions from franchised stores and operating revenue of our subsidiary, Lawson ATM Networks, INC for the same period. Net income also decreased 4.2% for the same period to 17,545 million. Sales by product group throughout the all Lawson Group stores Fiscal period Previous 3rd Quarter March 1, 2005, to November 30, 2005 March 1, 2006, to November 30, 2006 Year-over-year comparison (%) Product group Sales (%) Sales (%) Processed foods 519, , Fast foods 237, , Daily delivered foods 116, , Nonfood products 163, , Total 1,038, ,052, Note: Above table includes sales of NATURAL LAWSON and LAWSON STORE100. 2

3 Number of stores by prefecture (As of November 30, 2006) Number of Number of Prefecture Prefecture Prefecture stores stores Number of stores Prefecture Number of stores Prefecture Number of stores Hokkaido 504 Saitama 330 Gifu 96 Tottori 79 Saga 59 Aomori 150 Chiba 289 Shizuoka 147 Shimane 71 Nagasaki 78 Iwate 172 Tokyo 882 Aichi 331 Okayama 119 Kumamoto 90 Miyagi 161 Kanagawa 484 Mie 78 Hiroshima 120 Oita 116 Akita 137 Niigata 111 Shiga 122 Yamaguchi 110 Miyazaki 82 Yamagata 57 Toyama 101 Kyoto 191 Tokushima 105 Kagoshima 108 Fukushima 98 Ishikawa 71 Osaka 833 Kagawa 95 Okinawa 127 Ibaraki 104 Fukui 80 Hyogo 473 Ehime 162 Total 8,488 Tochigi 104 Yamanashi 60 Nara 102 Kochi 61 *Shanghai 281 Gunma 71 Nagano 139 Wakayama 118 Fukuoka 310 *For reference Note 1: Above table includes stores of NATURAL LAWSON (73stores) and LAWSON STORE100 (76 stores). 2: For SHANGHAI HUALIAN LAWSON CO., LTD., an affiliate accounted for by the equity method, the numbers of stores as of the 3rd Quarter closing date (September 30, 2006) is reported. 3

4 (2) Consolidated financial position Total assets Net assets Capital adequacy Net assets per share Million Million % 400, , , Previous 3rd Quarter 375, , , Last fiscal year 375, , , (3) Consolidated cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at the end of the year Million Million Million Million 44,336 (33,431) ( 837) 70,508 Previous 3rd Quarter 45,819 (45,779) ( 7,777) 68,847 Last fiscal year 46,932 (55,282) ( 7,794) 60,440 [Qualitative Information, etc., on the Fluctuation of Financial Conditions (consolidated)] For the financial positions in the third quarter ended November 30, 2006, compared from the previous fiscal year-end, total assets increased by 25,251 million and net assets increased by 17,055 million (compared to 179,006 million as the figure of the previous fiscal year-end, adding minority interests to shareholders equity). As a result, capital adequacy was 47.9%. Cash flow analysis Net cash provided by operating activities for the third quarter ended November 30, 2006 increased to 44,336 million. This is due to posting income before income taxes for the same quarter period of 30,719 million and increase in accounts payable (trade and due to franchised stores) as well as in deposits received. Net cash used in investment activities increased to 33,431 million, due to acquisition of fixed assets and marketable securities, etc., despite proceeds for redemption of marketable securities. Net cash used in financing activities posted 837 million, mainly due to payment of 9,822 million by cash dividends paid, despite income of 9,020 million from the sales of treasury stocks. As a result of the above, cash and cash equivalents at the end of the reporting period registered an increase of 10,067 million from the previous term-end, to 70,508 million. 4

5 3. Forecast Consolidated Performance for 2007 fiscal year(from March 1, 2006, to February 28, 2007) We have revised our earnings forecast that was announced on October 11, 2006 when the interim financial results were released. Total operating revenue Operating income Ordinary profit Net income 2007 fiscal year Million Million Million Million Previous forecast (A) 286,000 45,300 45,300 22,900 Revised forecast (B) 286,000 45,300 45,300 21,400 change (B A) (1,500) % Change (6.6) Reference: Forecast net income per share for the 2007 fiscal year: yen Background to the revision We will post special losses of 2 billion yen as a cost to cancel the lease contract of the existing system, following the implementation of the next genen system. In addition, we expect our loss on removal of fixed assets to increase by 0.5 billion yen from our initial projection accompanying store closures. Together with the cancellation cost of the lease contract, special losses are expected to amount to 2.5 billion yen. For details, please refer to LAWSON Announces Increased Special Losses, Revises Full-Year Forecast which was released today. Note: The above-mentioned forecast is based on the information, which is able to get hand at present, and including a potential risk and uncertainty. Therefore, actual achievements may differ from these forecasts due to many factors. 5

6 Reference: Non-consolidated Performance for the current third quarter period (from March 1, 2006, to November 30, 2006) (1) Non-consolidated operating results Note: s below one million yen are truncated Total operating revenues (Total net sales of Lawson stores Operating income Ordinary profit including franchised stores ) Million % Million % Million % 193,679 (1,046,027) 2.8(0.8) 35,199 (1.5) 35,507 (0.1) Previous 3rd Quarter 188,436 (1,037,860) 4.6(3.1) 35, , Last fiscal year 248,041 (1,360,495) 3.6(2.4) 43, , Net income Net income per share Fully diluted income per share Million % 18,330 (2.0) Previous 3rd Quarter 18, Last fiscal year 22, Note: Percentages for total operating revenues (Total net sales of Lawson stores), operating income, etc. show increase (decrease) from previous period. (2) Non-consolidated financial position Total assets Net assets Capital adequacy Net assets per share Million Million % 393, , , Previous 3rd Quarter 368, , , Last fiscal year 368, , , (3) Forecast Non-consolidated Performance for 2007 fiscal year(from March 1, 2006, to February 28, 2007) We have revised our earnings forecast that was announced on October 11, 2006 when the interim financial results were released. Total operating revenues (Total net sales of Lawson stores including franchised stores ) Operating income Ordinary profit Net income Annual dividend Year-end per share 2007 fiscal year Million Million Million Million Previous forecast 258,000 44,900 44,600 23, (A) (1,400,000) Revised forecast 258,000 44,900 44,600 21, (B) (1,400,000) change (B A) (1,500) - - % Change (6.4) Reference: Forecast net income per share for the 2007 fiscal year: yen Background to the revision Same as the reason mentioned above. Note: The above-mentioned forecast is based on the information, which is able to get hand at present, and including a potential risk and uncertainty. Therefore, actual achievements may differ from these forecasts due to many factors. 6

7 Fiscal period Consolidated Balance Sheet Previous 3rd Quarter (As of November 30, 2005) (As of November 30, 2006) Last fiscal year (As of February 28, 2006) Account item (Assets) % % % Current assets Cash and bank deposits 69,347 70,009 60,940 Accounts receivable due from 11,753 10,762 13,338 franchised stores Marketable securities 23,467 29,383 19,651 Merchandise inventories 1,693 1,936 1,573 Accounts receivable other 16,761 19,190 21,578 Deferred tax assets 3,380 3,265 3,188 Other 11,559 15,291 12,227 Allowance for doubtful accounts (81) (86) (81) Total current assets 137, , , Fixed assets Property and store equipment at net book value Buildings and structures 71,819 78,583 74,593 Furniture, fixtures and equipment 18,039 16,224 18,271 Land 5,188 6,094 5,236 Other 1,057 1,570 1,169 Total property and store equipment net 96, , , Intangible fixed assets 15, , , Investments and other Investments in securities 2,539 2,338 2,538 Lease deposits 90,067 88,494 89,928 Deferred tax assets 9,192 10,634 11,046 Deferred tax assets for land revaluation 3,330 3,330 3,330 Other 25,597 32,661 26,339 Allowance for doubtful accounts (4,636) (4,446) (4,462) Total investments and other 126, , , Total fixed assets 237, , , Total Assets 395, , ,

8 Fiscal period Previous 3rd Quarter (As of November 30, 2005) (As of November 30, 2006) Last fiscal year (As of February 28, 2006) Account item (Liabilities) % % % Current liabilities Accounts payable trade 72,046 73,162 63,169 Accounts payable due to 2,955 2,271 3,416 franchised stores Account payable other 10,485 12,244 13,415 Income taxes payable 5,761 4,414 10,323 Deposits received 47,702 51,305 44,614 Accrued employees bonuses 1,594 1,411 2,544 Provision for use of LAWSON PASS points Other 4,610 4,661 3,391 Total current liabilities 145, , , Long-term liabilities Allowance for employees 2,568 3,401 2,816 retirement benefits Allowance for retirement benefits to executive officers and corporate auditors Deposits received from franchisees and lessees 51,664 50,086 51,336 Allowance for impairment loss on leased property Other Total long-term liabilities 54, , , Total Liabilities 200, , ,

9 Fiscal period Previous 3rd Quarter (As of November 30, 2005) (As of November 30, 2006) Last fiscal year (As of February 28, 2006) Account item (Minority Interests) Minority Interests 3, , (Shareholders Equity) Common stock 58, , Capital surplus 41, , Retained earnings 84, , Land revaluation difference (4,854) (1.2) - - (4,854) (1.3) Net unrealized gain on available-for sale securities Foreign currency translation adjustments Treasury stock-at cost (9,362) (2.5) - - (9,144) (2.5) Total Shareholders Equity 171, , Total Liabilities, Minority Interests 375, , and Shareholders Equity (Net assets) Owners' equity Common stock , Capital surplus , Retained earnings , Treasury stock-at cost - - (847) (0.2) - - Total Owners' equity , Valuation and translation adjustments Net unrealized gain on available-for-sale securities Land revaluation difference - - (4,854) (1.2) - - Foreign currency transaction adjustments Total Valuation and translation adjustments - - (4,278) (1.1) - - Stock options Minority Interests - - 4, Total net assets , Total Liabilities, net assets ,

10 Consolidated Statement of Income Fiscal period Previous 3rd Quarter (From March 1, 2005 to November 30, 2005) (From March 1, 2006 to November 30, 2006) Last Fiscal year (From March 1, 2005 to February 28, 2006) Account item Percentage Percentage Percentage Operating revenues 152, , , Net sales reported by franchised stores Previous 3rd Quarter: 988,549million : 995,726million Last fiscal year: 1,295,704 million Total net sales of Lawson stores including franchised stores Previous 3rd Quarter: 1,038,448million : 1,052,039million Last fiscal year: 1,361,731million (100.0) (100.0) (100.0) Net sales 50, , , Total operating revenues 203, , , Cost of goods sold 36,350 (72.3) 41,361 (72.9) 48,296 (72.5) Gross profit on sales (13,952) (27.7) (15,413) (27.1) (18,348) (27.5) Operating gross profit 166, , , Selling, general and administrative expenses 130, , , Operating income 36, , , Non-operating income 1, , , Non-operating expense 1, , Ordinary profit 35, , , Special gains 1, , Special losses 4, , , Income before income taxes 32, , , Income taxes 13, , , Minority interests in earnings of consolidated subsidiaries Net income 18, , ,

11 Common stock Capital surplus Consolidated Statement of Changes in Net Asset (From March 1, 2006 to November 30, 2006) Owners equity Valuation and translation adjustments Retained earnings Treasury stock Total Owners equity Net unrealized gain on availablefor-sale securities Land revaluation difference Foreign currency transaction adjustments Total Valuation and translation adjustments Stock options Minority Interests Total net assets Balance at the end of previous period 58,506 41,520 88,355 (9,144) 179, (4,854) 105 (4,053) 3, ,006 Change of items During the period Dividends from surplus (9,822) (9,822) (9,822) Net income 17,545 17,545 17,545 Purchase of treasury stock at cost (0) (0) (0) Exercise of stock options (11) Sales of treasury stock at cost 753 8,267 9,020 9,020 Net changes of items other than owners (240) 15 (224) equity Total change of items during the period 741 7,723 8,297 16,762 (240) 15 (224) ,055 Balance at the end of the 3rd Quarter 58,506 42,261 96,079 (847) 196, (4,854) 121 (4,278) 71 4, ,062 11

12 Consolidated Statements of Cash Flows Previous 3rd Quarter (From March 1, 2005 to November 30, 2005) (From March 1, 2006 to November 30, 2006) Last Fiscal year (From March 1, 2005 to February 28, 2006) Operating activities: Income before income taxes 32,289 30,719 38,722 Depreciation of fixed assets 15,159 15,512 20,894 Increase in provision for allowance for retirement ,009 benefits to employees Loss from disposal of fixed assets 2,000 2,277 2,755 Loss on impairment of longlived assets 1,876 1,649 2,708 Interest received (287) (447) (396) Other-net (329) (629) (267) Increase in accounts receivable due from franchised stores (1,421) (2,576) (430) Decrease (increase) in accounts receivable-other 2,337 2,402 (2,477) Increase in accounts payable trade and due to franchised 8,463 8, stores Increase (Decrease) in accounts payable other (2,751) (1,171) 394 Increase in deposits received 7,432 6,690 4,344 Decrease in lease deposits from franchisee and lessees (670) (1,249) (998) Other net (1) (601) (540) Subtotal 64,856 62,008 65,768 Interest received Interest expenses paid (7) (25) (10) Income taxes paid (19,315) (18,079) (19,217) Net cash provided by operating activities 45,819 44,336 46,932 12

13 Investing activities: Payment for purchase of marketable securities Proceeds from redemption of marketable securities Payment for acquisition of property and store equipment Previous 3rd Quarter (From March 1, 2005 to November 30, 2005) (From March 1, 2006 to November 30, 2006) Last Fiscal year (From March 1, 2005 to February 28, 2006) (40,513) (48,583) (44,709) 25,060 43,351 33,075 (20,401) (19,392) (28,630) Payment for acquisition of intangible fixed assets (5,853) (2,420) (9,257) Other net (4,072) (6,385) (5,760) Net cash used in investing activities (45,779) (33,431) (55,282) Financing activities: Proceeds from sales of treasury stock - 9,020 - Cash dividends paid (7,971) (9,822) (8,187) Other 193 (36) 393 Net cash used in financing activities (7,777) (837) (7,794) Net increase (decrease) in cash and cash equivalents (7,736) 10,067 (16,143) Cash and cash equivalents, beginning of year 76,584 60,440 76,584 Cash and cash equivalents, end of the 3rd Quarter (year) 68,847 70,508 60,440 13

1.Consolidated Operating Results

1.Consolidated Operating Results (1) Results and Forecasts for Major Financial Indicators (Billions of yen) FY2008 2008.11 YOY 2009.2 YOY 2009.11 YOY FY2009 2010.2 (Forecast) Total net sales 1,155.5 107.7%