To our Shareholders. Notice of the 19 th Ordinary General Meeting of Shareholders. June 12 th, Stock Code:3092

Transcription

1 June 12 th, 2017 To our Shareholders Stock Code: Nakase 2-chome, Mihama-ku Chiba START TODAY CO.,LTD. President and representative director YUSAKU MAEZAWA Notice of the 19 th Ordinary General Meeting of Shareholders You are cordially invited to attend the 19 th Ordinary General Meeting of Shareholders of START TODAY CO.,LTD. (hereinafter the Company ), which will be held as described below. If you are unable to attend the meeting, you may exercise your voting rights in writing. Please review the reference materials for the General Meeting of Shareholders contained herein and exercise your voting rights in the manner described hereafter. All votes must be received by 5:00 p.m., Monday, June 26 th, Yours sincerely 1. Date and Time 1:00 p.m., Tuesday, June 27 th, Venue Makuhari Messe 2-1, Nakase, Mihama-ku, Chiba International Conference Halls 3. Matters Matters to be Reported 1. Report of the Business Report, the Consolidated Financial Statements, and Auditors Reports of the Accounting Auditor and the Audit & Supervisory Board for the Consolidated Financial Statements, for the 19 th Fiscal Year (from April 1, 2016 to March 31, 2017) 2. Report of the Non-consolidated Financial Statements for the 19 th Fiscal Year (from April 1,2016 to March 31, 2017) : Matters to be Resolved Agenda No. 1 Appropriation of surplus Agenda No. 2 Partial amendments to the articles of incorporation Agenda No. 3 Appointment of 9 Directors Agenda No. 4 Changes in remuneration of Directors End For those attending, please submit the enclosed Voting Rights Exercise Form at the reception desk on arrival at the meeting. Modifications to the Reference Document concerning the General Meeting of Shareholders, Business Report, Financial Statements, etc. if any, will be posted on the Company s website.( 1

2 19 th Fiscal Year Business Report I. START TODAY Group's Business at a Glance (1) Progress and results ( April 1, 2016~ March 31, 2017 ) FY 2015 (Results) FY 2016 (Results) YoY (%) Total Transaction Value 159,500 (100.0%) 212,090 (100.0%) +33.0% Net Sales 54,422(34.1%) 76,393(36.0%) +40.4% Gross Profit 50,085(31.4%) 69,213 (32.6%) +38.2% Operating Profit 17,756 (11.1%) 26,284 (12.4%) +48.0% Recurring Profit 17,883 (11.2%) 26,442(12.5%) +47.9% Net Income 11,988(7.5%) 17,035(8.0%) +42.1% (million yen) ( ) % against the total transaction value "Make the world a better place, bring smiles to the world - this is START TODAY group's corporate philosophy. We have strived to work towards this vision by operating one of the biggest fashion EC websites in Japan "ZOZOTOWN", as well as the fashion media, "WEAR". During FY2016, we have seen the domestic Japanese apparel and accessories market have gradually been shrinking due to stagnation in the domestic consumption. Tending to improve employment and income environment, though still Japanese consumers are economizing their amount of consumption due to unpredictable Japanese economy which hinders the improvement in business confidence and consumer mind. That said, the field of vision has continued to expand steadily within the fashion EC market where we operate in, due to the aggressive omni-channels strategy of department stores, micro BtoC and CtoC players, and social commerce services, joining our market. Under such circumstances, our group has concentrated on increasing the number of unique users, as well - 2 -

3 as the conversion rate (the ratio of purchases made by our unique users) by enhancing user and client brand s satisfaction with better usability of ZOZOTOWN. In particular, we have accelerated the openings of new shops on our platform, have done effective point promotions, and have utilized the CRM system which had been replaced in the last fiscal year for proactive communications with customers. In addition, we started offering deferred payment services (payment deadline is 2 months after the order settlement) in November 2016 to diversify our payment options. From these efforts, our total transaction value in FY2016 was 212,090 million yen (+33.0% YoY) net sales resulted as 76,393 million yen (+40.4% YOY), and the gross profits resulted as 69,213 million yen (+38.2% YOY). Due to the change in sales mix, the growth in ZOZOUSED, as well as increase in other sales, the gross profits (to the total transaction value) resulted as 32.6% (+1.2 points, YOY). SG&A expenses for FY2016 was 42,928 million yen (+32.8% YoY), allowing the impact of SG&A costs towards the total transaction value to decrease by 0.1 point to 20.2% (YoY). PR costs increased by 0.2 point on YOY basis to 2.7% towards the total transaction value. On the one hand, fixed cost burden has decreased owing to the rise in the transaction value, together contributed to the overall level drop in the SG&A ratio. Consequently, the operating profit for FY2016 was 26,284 million yen (+48.0% YOY) and the operating profit margin increased by 1.3 points on YOY basis to 12.4% Recurring profit was 26,442 million yen (+47.9% YoY), and the net income was 17,035 million yen (+42.1% YoY). Also, we recorded goodwill impairment loss of our consolidated subsidiary aratana, Inc. After careful consideration, we recorded 1,483 million yen as impairment loss which is equivalent to the total amount of undepreciated balance of the goodwill of the company. In addition, we recorded 855 million yen of loss from revaluation of investment securities due to the significant decrease of its net asset value. [2]Compared to the Original forecast FY2016 ( Original forecast) FY2016 (Results) (million yen) Compared to forecast Total Transaction Value 195,000 (100.0%) 212,090 (100.0%) +8.8% Net Sales 69,030 (35.4%) 76,393 (36.0%) +10.7% Operating Profit 22,140 (11.4%) 26,284 (12.4%) +18.7% Recurring Profit 22,150 (11.4%) 26,422 (12.5%) +19.4% Net Income 15,260 (7.8%) 17,035 (8.0%) +11.6% ( ) % against the total transaction value - 3 -

4 Towards the guidance we announced on April 28 th, 2016, the Total Transaction Value was 8.8% overachieved, Net Sales was 10.7% overachieved, Operating Profit was 18.7% overachieved, Recurring Profit was 11.6% overachieved, and Net Profit was 11.6% overachieved. Factors contributing to the completion of our initial plan were success in implementing several sales measures to expand the transaction value of ZOZOTOWN business. We revised our forecast for FY2016 on April 19 th 2017, and the consolidated business result for this fiscal was in line with the revised forecast. Since our group only operates within a single business segment, rather than introducing business results per segment, we have indicated the results for each type of business that we undertake. [3]YoY comparison of each business segment Business Unit Total Transaction Value (million \) FY 2015 (April 1, 2015 ~ March 31, 2016) Ratio (%) Total Net Sales Transaction (million \) Value (million \) FY2016 (April 1, 2016 ~ March 31, 2017) Ratio (%) Net Sales (million \) Total Transac tion Value YoY (%) Net Sales YoY (%) ZOZOTOWN (Purchased Stock) 137, , , , (Consignment) (ZOZOUSED) 7, ,958 12, , Total 146, , , , B to B 13, ,256 6, , ZOZOFURIMA Others - - 3, , Total 159, , , , The ZOZOTOWN Business Our ZOZOTOWN business is divided into 3 segments, the "Consignment business", the Purchased stock business", and the ZOZOUSED business. For the consignment business, we take care of the inventory which is sent from our brands, and contract sales. For the purchased stock business, we purchase fashion merchandise from the brands, storing it and selling it as our own inventory. For ZOZOUSED, we purchase second hand apparel from our individual users, then re-sell it as our inventory

5 We understand that the important factors when managing our EC website are, increasing the number of buyers, having users spend more of their fashion budget on ZOZOTOWN, therefore aim to create an attractive website for both our users and clients, the brands. The total transaction value of ZOZOTOWN Business for this fiscal year was 204,972 million yen (+40.3% YoY), and its Net Sales resulted as 68,322 million yen (+42.4% YoY). We accelerated the openings of new shops on our platform to deal with diversifing user needs, effectively implemented promotion activities such as coupon campaigns with brands, offered the wider range of payment options, all of which led to the increase in the transaction value. Enhancing brand recognitions of many shops opened in the last fiscal year also led to the transaction expansion. Changes in KPIs for ZOZOTOWN Business are as follows

6 [4]KPIs for ZOZOTOWN Business FY2015 FY2016 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Number of Shops On ZOZOTOWN (Note1) (Purchased Stock) (Consignment) Number Of Total Buyers(Note2) 3,603,196 3,698,254 4,034,742 4,477,350 4,832,558 5,252,541 5,783,381 6,324,033 (Active Member) 2,401,421 2,401,317 2,522,500 2,686,926 2,844,171 3,059,991 3,421,440 3,893,156 (Guest Buyer) 1,201,775 1,296,937 1,512,242 1,790,424 1,988,387 2,192,550 2,361,941 2,430,877 Annual Purchase (Note 2,4,5) Annual Pieces(Note2,4) Number of Shipment(Note3) Average Retail Price(Note 3,5) Average Purchase Amount Per Shipment(Note3,5) The Ratio of Shipment Volume to the total Purchase volume(by Access Terminal)( Note3) 44,279 46,135 47,140 47,937 48,644 48,556 48,275 46, ,007,626 3,330,674 3,901,739 4,871,419 4,652,101 5,391,093 5,886,580 6,931,318 5,041 4,522 5,939 4,922 4,468 3,855 5,236 4,474 9,605 9,277 10,651 9,189 8,680 7,941 10,143 8,955 PC 38.7% 36.9% 33.4% 31.3% 29.7% 28.1% 24.6% 22.3% Smart Phone 60.4% 62.3% 66.0% 68.2% 69.9% 71.6% 75.2% 77.5% Feature Phone 0.9% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.2% - 6 -

7 (Notes) 1. As at the end of the each quarter period 2. Data is based on 12 months-period prior to the fiscal year ending date 3. Figures are quarterly basis 4. Indicators are per active user basis 5. Japanese yen basis. During FY2016, we introduced 194 new shops including "GAP", "BLUE LABEL / BLACK LABEL CRESTBRIDGE", "Vivienne Westwood", "SPINNS", and "Francfranc". We have 954 shops as of the end of March, 2017 (867 shops as of the end of March, 2016). By trying aggressive new shop opening and PRs including point typed promotions with our client brands, we were able to boost our user base. As a result, the number of total buyers as of March 2017 (April 2016 ~ March, 2017) was, 6,324,033(+1,846,683buyers, YoY). The annual purchase amount per active member was 46,417 Yen (-3.2% decrease YoY), and the annual purchase pieces resulted as 10.3 pieces (+9.3% increase YoY). The annual purchase amount showed a downward trend on YoY basis, however, this is because of increasing proportion of new users whose annual purchase amount are relatively lower than those of existing users. This always happens when acquiring new users at a good rate, so when it is limited to the existing users only, the annual purchase amount is still growing. Speaking about existing active member status, the annual purchase amount was 61,770 Yen (+6.7% increase YoY, +1.4% increase QoQ), and the annual purchase pieces resulted as 13.6 pieces (+20.2% increase YoY, +3.7% increase QoQ). For FY2016 Q4, the average retail price resulted as 4,474 yen, which was 9.1% decrease on YoY basis. The main factor causing such the decrease in the average retail price was the drop in the price of nondiscounted items due to successive opening of new shops that had relatively low price points. In terms of the average purchase amount per shipment, we have seen the similar trend of the average retail price movement which has a direct impact on the purchase amount. However, the downward trend was limited because average purchase pieces per order has been increasing owing to the diversified item lineup and the improvement in user interface. Let us take a closer look at our consignment business, purchased stock business, and ZOZOUSED business : - 7 -

8 a. Consignment business The transaction value for the consignment business in FY2016 was 191,903 million yen (+39.6% YoY), which accounts for 90.5% (86.2% for FY 2015) of the total transaction value. Net sales was 55,253 million yen (+40.5% YoY). As of March 2017 we have 947 shops (843 shops as of March 2016). b. Purchased stock business The transaction value of the purchased stock business in FY2016 was 193 million yen (-72.1% YoY), which is accounts for 0.1% (0.4% for FY 2015) of the total transaction value. Net sales was 193 million yen (-72.1% YoY), which is equivalent to the transaction value. As of March 2017 we have 7 shops in this form (24 shops as of March 2016). c. ZOZOUSED The transaction value of the ZOZOUSED business in FY2016 was 12,875 million yen (+61.8% YoY), which is accounts for 6.1% (5.0% for FY2015) of the total transaction value. Net sales was 12,875 million yen (+61.8% YoY), which is equivalent to the transaction value. 2. The B to B Business With respect to our EC consulting business, we operate the brands' individual EC sites on a consignment basis. The transaction value for FY2016 was 6,220 million yen (-53.2% YoY), which accounts for 2.9% (8.3% for FY 2015) of the total transaction value. Net sales (which is equal to consignment fees) was 1,338 million yen (-58.9% YoY). The brands have their demands, wanting the gather more users, while improving the ratio of transactions, as well as linking their off line stores with their websites. Therefore we are intentionally growing out of our original model. As a result, the transaction value arising from this business model decreased significantly from the last fiscal year, though this trend is totally in line with our strategic policy. As of March 2017, we are currently building and operating 27 websites (35 shops as of March 2016). 3. ZOZOFURIMA business The flea-market typed business is where we operate our App ZOZOFURIMA, which is a platform for users to purchase and sell fashion related items. The transaction value for FY2016 was 898 million yen (+681.7% YoY), and net sales resulted as 0 yen. YoY comparison of net sales is not covered here because the result will become negative number due to an effect from returned product transactions

9 We plan to terminate ZOZOFURIMA Business on June 30 th, Others This includes sales related to the ZOZOTOWN business (membership fees, revenues from shipping fees, cash-on delivery fees) as well as other revenues from our subsidiaries. In FY2016, this accounted for 6,731 million yen of the net sales (+110.9% YoY). The factors increasing other revenues are change in shipping policy as well as paid membership program. We have also focused efforts on our fashion platform "WEAR", through which we aim to help magnify the entire fashion market. Continued business development to boost its user base and contents led to the solid growth of 6.5 million app downloads, and 7 million monthly active users as of March (2) Capital investments In FY2016, to accommodate the increase in transaction and website access, we have added logistics equipment and added server capacity, which resulted in a total capital investment of 1,107 million yen. (3) Capitalization None applicable

10 (4) Issues we need to address The key issues we need to address include: 1. Getting more people interested in and excited about fashion, 2. Having a steady supply of inventory and increasing the number of brands, and 3. Strengthening our fulfillment and EC system. 1. Getting more people interested in and excited about fashion To boost EC penetration of the apparel and accessories market, we need to take advantage of respective strengths of both the offline and online stores, increase the number of people who enjoy fashion, and thereby helping to expand the entire fashion market. We also developed WEAR, an app that specializes in fashion, as a tool for achieving this goal. We will continue to develop WEAR, so that it will be more widely recognized as the go to service for fashion styling searches. 2. Having a steady supply of inventory and increasing the number of brands In order to sustain transaction value growth, it is essential that we obtain sufficient inventory from our brands. We have had great relationships with all our existing clients; nevertheless we are still missing out on sales opportunities due to a lack of supply. Therefore, it is key that we continue to focus on strengthening our relationships with our clients to secure enough stock to meet latent demand. Offering an even wider range of brands that caters to diversity of tastes is also important in carving out a dominant position in today's market. 3. Strengthening our fulfillment and EC system Taking into consideration the potential increase in the products that we will handle, we start to discuss a further expansion of our logistics capacity and an improvement in operational efficiencies. And regarding hardware, we will regularly update the system so that we can cope with the growth in users and the significant increase in access therefrom

11 (5) Shift in profit and loss Division Net Sales (million yen) Recurring Profit (million yen) Net Income (million yen) Earnings per Share (yen) Total Assets (million yen) Net Assets (million yen) FY2013 The 16 th Term FY2014 The 17 th Term FY2015 The 18 th Term FY2016 The 19 th Term (Consolidated results for FY2016) 38,580 41,182 54,422 76,393 12,429 15,139 17,883 26,442 7,797 8,999 11,988 17, ,188 41,351 34,916 55,720 19,227 26,244 17,932 29,868 (Notes) 1. The earnings per share is calculated based on the average number of shares outstanding for the period. 2. The Company started applying the Accounting Standard for Business Combinations (ASBJ Statement No.21, September 13, 2013) therefore Net income is equal to Net income attributable to Parent Company beginning this fiscal year. 3. The company conducted a one-for-three stock split on October 1, Earnings per Share are calculated on the assumption that such the stock split occurred in the beginning of FY

12 (6) Description of our key businesses Business Unit ZOZOTOWN business B to B Business ZOZOFURIMA Others Business areas The ZOZOTOWN business consists from the Consignment business, the Purchased stock business, and the ZOZOUSED business. (Consignment) A tenant-like consignment business model where brands open stores on ZOZOTOWN, but we manage their respective inventory within our logistics center. (Purchased Stock) We purchase inventory from each of the brands, keep it as our own stock, and resell it. (ZOZOUSED) We purchase second hand fashion items from our individual users, keep it as our own inventory, and resell it as used clothing. Using the system and fulfillment operations we have built in-house especially for fashion, we operate EC sites for individual brands. We develop systems, design websites, take care of fulfillment, undertake marketing, and everything else necessary for the EC business on the behalf of the brands. The smartphone App is called ZOZOFURIMA, which is a market place business where users can buy and sell fashion related items. This business plans to be terminated on June 30 th, Other sales include sales related to the EC business, such as membership fees, revenues from shipping fees, and cash on delivery fees. (7) Main business offices 1. START TODAY CO., LTD. Headquarters Logistics Center (ZOZOBASE) 2. Subsidiaries Crown Jewel, Inc. START TODAY Engineering Mihama district, Chiba City, Chiba Prefecture Narashino City, Chiba Prefecture Shibuya Ward, Tokyo Shibuya Ward, Tokyo aratana Inc. Miyazaki City, Miyazaki Note: 1. Bracket, Inc. has been excluded from subsidiaries due to the transfer of its all shares

13 (8) Workforce 1. Total number of employees working in the group Number of Employees 800 Change from FY2015 (Notes) 1. This includes full-time employees as well as contract employees. 2. 1,755 part-time employees are not included in this figure. +17 employees 2. Total number of employees working at START TODAY Co., Ltd Number of Employees Change from FY2015 (March 31, 2016) Average Age Average Retention employee Years (Note) 1. Assigned employees and part-time employees (1,051 staff) are not included in this figure. (9) Important updates regarding the parent company and subsidiaries 1. Relationship to the parent company None applicable. 2. Important updates about subsidiaries Name of Company Crown Jewel, Inc. Share Capital 99,000 (thousand yen) START TODAY s Voting Power 100.0% Main Business Specializes in fashionable second-hand clothing and accessories. START TODAY Engineering 280,000 (thousand yen) 100.0% System and App developments specialized in smartphones and tablet applications. Develops and provides, aratana Inc. 99,000 (thousand yen) 100.0% EC websites, Web marketing, Web security, And EC related Apps

14 (Notes) 1. ZOZOTOWN HONGKONG CO., LIMITED was voted by the Board of Directors to begin liquidation procedures at the Board meeting held in March Therefore it is not listed above. 2. None of our subsidiaries are designated wholly-owned subsidiaries. 3. Bracket, Inc has been excluded from subsidiaries due to the transfer of its all shares. II. Overview of the Company's Shares (1) Amount of shares 1,287,360,000shares (2) Shares outstanding 311,644,285 shares (excl. 10,708,115 own shares) (3) Number of shareholders 7,362 (4) Major shareholders Shareholders Investment to Our Company Number of Shares Held (shares) Shareholding Ratio (%) YUSAKU MAEZAWA 121,417, JAPAN TRUSTEE SERVICES BANK, Ltd. (Trust Account) THE MASTER TRUST BANK OF JAPAN, Ltd. (Trust Account) GOLDMAN SACHS AND COMPANY (Regular Account) 8,021, ,916, ,453, STATE STREET BANK AND TSUST COMPANY ,047, THE BANK OF NEW YORK ,647, SAJAP 3,634, Nomura Securities Co., Ltd. 3,480, THE BANK OF NEW YORK NON-TREATY JASDEC ACCOUNT 3,446, JAPAN TRUSTEE SERVICES BANK, Ltd.(Trust Account5) 3,309,

15 (Notes) 1. We did not include our treasury shares (10,708,115shares) when calculating shareholding ratios. III. New Share Acquisition Rights None applicable IV. Directors (1) Names of Directors and Auditors (as of March 31, 2017) YUSAKU MAEZAWA KOJI YANAGISAWA AKIKO OISHI TAKANOBU MUTO MINEKI OHKURA KOTARO SAWADA TOSHIAKI SHIMIZU Name Positions and responsibilities Other important roles CEO CFO (In charge of Strategic planning and business administration division) Director (In charge of HR division) Director (In charge of EC business operation) Director (In charge of Logistics management department / fulfillment division) Director (In charge of Corporate image & strategy division) Director (In charge of Hospitality & Marketing division) Director of START TODAY Engineering Director at COLOPL, Inc., Grown Jewel, Inc, and aratana Inc. Director of Crown Jewel, Inc. CEO of START TODAY Engineering Director of aratana Inc. Director of Crown Jewel, Inc. KOJI ONO Director Director at Diamond Heads Inc. SEIJI HATAKEYAMA Statutory Auditor Auditor at START TODAY Engineering JUNICHI MOTAI Auditor SHICHIRO HATTORI Auditor CEO of Accounting Assist Co., Ltd Auditor at VOYAGE GROUP, Inc.,and Vision Inc. UTSUNOMIYA SHIMIZU ATORNEYS AT LAW JUNKO UTSUNOMIYA (Lawyer) Auditor Auditor at Solasto Corporation Director at Adventure Inc. (Notes) 1. Koji Ono is an External Director of our company. The Company has appointed and registered him as an independent executives stipulated by the Tokyo Stock Exchange 2. Auditors, Seiji Hatakeyama, Junichi Motai, Junko Utsunomiya are External Auditors. The Company has appointed and

16 registered Seiji Hatakeyama, Junichi Motai, and Junko Utsunomiya as independent executives stipulated by the Tokyo Stock Exchange. 3. Auditor Junichi Motai is a qualified CPA and CTA, therefore has considerable expertise in financing and accounting. 4. Changes made after the end of this fiscal year regarding positions of directors and auditors, responsibilities and important positions held at other companies are as follows. Name YUSAKU MAEZAWA KOJI YANAGISAWA KOTARO SAWADA TOSHIAKI SHIMIZU Positions, responsibilities, and important positions held at other companies. Before After CEO President and Representative Director CFO Executive Vice President and CFO Director Director (In charge of Corporate (In charge of Marketing image & strategy division) division) Director Director (In charge of (In charge of Hospitality Hospitality & Marketing division) division) The date of the change (2) Summary of contents of liability limitation agreement Pursuant to Article 427, Paragraph 1 of the Companies Act of Japan, the Company has concluded agreements with the External Director and each Auditor, limiting their liability to the amount prescribed under Article 423, Paragraph 1 of the Companies Act of Japan, which will be carried out in good faith and with no gross negligence

17 (3) Remuneration paid to Directors and Auditors Remuneration for this fiscal year. Number of provided Positions members Amount of remuneration Directors (million yen) (External Directors) (-) (- million yen) Auditors 4 36 (million yen) (External Auditors) (3) (30 million yen) Total ( million yen) Note: 1. The total amount of remuneration paid includes a provision to accrued bonuses to directors for this fiscal year (1,200 million yen for 7 directors). (4) External Directors 1. External Directors who serve as executive officers of other companies, and our relationship with such companies: Our External Director KOJI ONO is a Director at Diamond Heads Inc. Our Company does not have capital ties or business relations with Diamond Heads Inc. Our Auditor SEIJI HATAKEYAMA is an Auditor at START TODAY Engineering. START TODAY Engineering is a subsidiary of the company.. Our Auditor, JUNICHI MOTAI, is the CEO of Accounting Assist Co., Ltd. He is also the Auditor of VOYAGE GROUP, Inc and at Vision Inc. Our Company does not have capital ties or business relations with the following firms: Accounting Assist Co., Ltd., VOYAGE GROUP, Inc., Vision Inc. Our Auditor JUNKO USTUNOMIYA is lawyer at (JUNKO MORITA under commercial registration and family registration) UTSUNOMIYA SHIMIZU ATORNEYS AT LAW. She is also the Auditor of Solasto Corporation, a Director at Adventure Inc. Our Company does not have capital ties or business relations with the following firms: UTSUNOMIYA SHIMIZU ATORNEYS AT LAW, Solasto Corporation and Adventure Inc

18 2. Main activities during FY2016 KOJI ONO (Director) Name (Position) SEIJI HATAKEYAMA (Auditor) JUNICHI MOTAI (Auditor) JUNKO UTSUNOMIYA (Auditor) Main activities He has attended 19 out of 19 of our Board meetings during this fiscal term.having a wealth of experience and extensive knowledge in the fashion industry such as art direction and branding for products and corporations, he has given us excellent, sound advice. He has attended 19 out of 19 of our Board meetings during this fiscal term. Having years of experience in the field of human resource and personnel management, and as a Director and Auditor for several companies, as well as expertise as a labor and social security attorney, he has provided valuable input. He has also attended 19 out of 19 Auditor meetings during this fiscal term, consulting on and discussing important matters concerning audits. He has attended 18 out of 19 of our Board meetings during this fiscal term.having expertise as a CPA, he has given us excellent advice and shared his extensive knowledge in financial affairs and accounting. He has also attended 19 out of 19 Auditor meetings during this fiscal term, consulting on and discussing important matters concerning audits. She has attended 19 out of 19 of our Board meetings during this fiscal term. Having a wealth of expertise as a lawyer, she has shared with us her extensive knowledge on law and compliance. She has also attended 19 out of 19 Auditor meetings during this fiscal term, consulting on and discussing important matters concerning audits. V. Accounting Auditor (1) Name of our accounting Auditor Limited liability KPMG AZSA LLC (2) Compensation paid to the accounting Auditor in FY Compensation paid to the accounting Auditor in FY2016 :28,000 (thousand yen) 2. Compensation to be paid to the accounting Auditor by our company and subsidiaries. Total amount of other property benefits:28,000 (thousand yen)

19 (Notes) (1) The reason the Board of Audits agreed to the remuneration towards the Accounting Auditor The Board of Audits of the company report with necessary material when they receive information from the Directors, departments involved, as well as the Accountant Auditors, and also consider whether the remuneration for the current period is fair based on the Auditor plans and execution circumstances, obtain agreement based on the Paragraph 1, Article 399 of the Corporation Law. (2) Under the audit agreement between the Company and its Accounting Auditor, compensation for audits pursuant to the Companies Act and audits pursuant to the Financial Instruments and Exchange Law are not strictly separated, and otherwise cannot be separated. Consequently, the above amount reflects total compensation for the fiscal year under review. (3) Summary of the liability limitation agreement Pursuant to Article 427 Paragraph 1 of the Companies Act, we have executed liability limitation agreements with our accounting Auditor, which limits its obligations to compensate for damages as stipulated in Article 423 Paragraph 1 of the Companies Act to the amount stipulated by law, insofar as there is no intent or gross negligence. (4)Policies regarding the dismissal and non-reappointment of the accounting Auditor If it is determined at the board of Auditors meeting that any one of the following applies to the accounting Auditor, interferes with the performance of its duties, and is not remedies in a timely manner, and if every Auditor agrees, they may propose the dismissal or non-reappointment of said accounting Auditor at the shareholders meeting. 1. If the accounting Auditor has infringed upon the Companies Act, the Certified Public Accountants Act, etc. and thus disciplinary action has been taken against or is imposed upon by the supervisory authorities. 2. If it is deemed that Article 340 Paragraph 1 of the Companies Act applies. 3. If, having taken all of its capabilities including its audit quality, quality management, independence into consideration, it is deemed that the accounting Auditor cannot sufficiently perform its duties or is inadequate

20 VI. Corporate Governance and Company Policies (1) Ensuring sound business operation We have ruled in our Board meetings on the "structure that ensures sound business operation" as stipulated in the Companies Act and in the Ordinance for Enforcement of the Companies Act (the first resolution was on July 17, 2007, and thereafter revised on April 30, 2008, June 13, 2008, May 17, 2011 and on April 30, 2015). Summary is provided below: 1. Structure ensuring that the execution of duties by our Directors and employees is in compliance with the laws and regulations and the articles of incorporation. a. To ensure that the execution of duties by our Directors and employees are in compliance with the laws and regulations and the articles of incorporation, the CEO appoints the CFO as the General Manager of Compliance. Moreover, we will build and maintain a compliance structure by organizing a Compliance Committee with our CEO as chair to discuss important issues regarding compliance, thereby preventing any acts that may be considered a violation and any inappropriate dealings to help ensure legislative compliance of our Directors and employees. b. Establish an internal reporting system (a helpline) in order to report acts that may be in noncompliance with laws and regulations as well as the company regulations, etc. in order to detect and correct misconduct, etc. as early as possible. Any matters reported to the helpline will be investigated by the Compliance Committee, and if any behavior that requires remedy is discovered, the Compliance Committee will decide on and implement without delay, by corrective and preventive measures. c. The internal audit body will investigate the compliance structure and the presence of any matters that may not be in compliance with laws and regulations as well as the articles of incorporation, and report such findings to the Board and to the Auditors. d. The Board of Directors will regularly review the compliance structure, and make efforts to identify and remedy any issues. e. The board of Auditors shall audit the effectiveness and functions of the internal control system in order to identify issues in their early stages and to remedy them

21 2. Structure for storing and managing information related to the performance of duties by Directors. a. Any documents in relation to the performance of Directors' duties will be appropriately stored/managed as a hard copy or on an electromagnetic media in accordance with the "Information System Management Regulations" and "Document Management Regulations". b. Our Auditors may access such documentation at any time. 3. Regulations and structure for managing risk of loss a. Our CFO shall be in charge of risk management, and our Directors, administrative chief, and Directors of respective departments will identify and evaluate the various risks, and take measures to avoid, mitigate, and hedge risks in accordance to "Risk Management Regulations". b. The internal audit body will investigate each organizations risk management status, and report such findings to the Directors meeting and Board of Auditors. c. The Board of Directors shall regularly reexamine the risk management structure and make efforts to keep abreast of and remedy any issues. 4. A structure ensuring the efficient performance of our Directors a. The roles and responsibility of the Directors and the employees in each division will be clarified by our "Board of Directors Regulations", "Organization Regulations", "Division of Duties Regulations", and "Administrative Authority Regulations". Moreover, the "Board of Directors Regulations" will also define matters to be discussed by the Board, and the scope of matters the Board may make decisions on to create a structure that enables the efficient performance of duties by the Board. b. The CEO will create the mid-term management plan and annual management plan, and shall seek the Board's approval. The Board of Directors in each division shall draft detailed measures and a structure that enables the efficient performance of duties based on such plans approved by the Board. c. The CFO shall regularly report on the progress of the mid-term and annual management plan to the Board, and the Board of Directors shall identify and remedy any causes that inhibit the implementation of such measures and efficient operation of business

22 5. Structure ensuring the sound business operations of our company as well as our subsidiaries (hereafter collectively referred to as the "Group"). a. START TODAY will assign 1 Director or Auditor from START TODAY to its subsidiary to monitor and supervise or audit the performance of duties by the Director of such subsidiary. The Strategic Planning and Business Administration Division shall be in charge of the business operation, the establishment of the compliance structure and risk management structure as well as the subsidiaries' business management in accordance with the relative company management regulations. With respect to the business management of subsidiaries, their autonomy will be respected, however, the subsidiary shall regularly report to START TODAY regarding its current status, and seek START TODAY 's approval with regard to any important matters. b. The internal audit body shall internally audit the business management status and business activities of the Group's subsidiaries. 6. Matters concerning the framework, insurance of effectiveness of such employees, and independence from such Director in case the statutory Auditor request for employees' assistance in the execution of their duties. a. Should the statutory Auditor request for employees' assistance in the execution of their duties, the board of directors and Auditors shall deliberate and appoint an employee(s) for this purpose. During the term in which the statutory Auditor requires assistance, the right to command such employee(s) shall be transferred to said Auditor, and such employee(s) shall not be directed by other Directors. b. Personnel change, personnel evaluation, and disciplinary action concerning such employee(s) assisting the statutory Auditor shall be agreed to by the Board. 7. Structure for our Directors and employees of the Group to report to our Auditors and other Auditors. a. The Group's Directors and employees shall report any matters that may pose a significant loss to the company, misconduct, or any activities that infringe on laws and regulations and/or articles of incorporation, as well as any important matters that need to be deliberated on and decided by the Board, important accounting policies, accounting standards and change thereof, enforcement of

23 Internal Audits, important monthly reports, and other important matters to Auditors in accordance to laws and regulations and corporate regulations. b. Measures should be taken so that the individuals that report on any of the aforementioned matters shall not be treated unfavorably. 8. Other structures that ensure that corporate Auditors will be able to conduct their audits effectively. a. In order for the Auditors to keep abreast of any important decision making processes, and business operation updates, the Auditors shall take part in the Board meetings and other important meetings, peruse important documents such as internal memos necessary for the performance of their duties and may request for further explanation from the Directors and employees. b. The Auditors shall take advantage of their independence and authority which arises from the "Board of Directors' Regulations" and "Auditing Standards" to ensure the effectiveness of their audits and shall ensure that a system is in place that allows them to conduct their audits effectively while working closely with the internal audit body and Accounting Auditor. c. The CEO shall meet regularly with the Auditors to communicate with and exchange ideas on how to address the company's challenges, discuss the status/environment of Auditors' audits, important audit challenges, etc. d. Should the Auditors request for advance payment or reimbursement of costs related to the performance of their duties, or request for payment regarding other costs incurred or monies owed from the performance of their duties, the company shall promptly comply with such requests. 9. Structure for eliminating of anti-social forces. We will not have any dealings with any anti-social forces that threaten public order and the company's healthy activities, and shall work closely with independent specialized institutions such as the policies and legal advisors to take a firm stand against undue claims, etc

24 10. System for ensuring reliability and appropriateness of financial reporting To preserve the credibility of our financial reporting, we will build, maintain, and put into effect an effectively functioning, internal financial reporting structure. (3) The overview of ensuring the structure under appropriate operation a. Compliance system The company will establish a counter (a help line) which includes the compliance committee as well as external lawyers, and the counter will be noticed to all employees through in-house intranet communications. Also, whistleblowers will not suffer from any disadvantageous treatment, managed in accordance with our internal rules and regulations. b. Regulation and other management systems which concern risks of loss. By controlling management regulations for risks of loss and information security as well as information system regulations, the Company established and maintains the risk management system. As a part of management, we held an educational work shop once for our employees during this the fiscal year to prevent inappropriate information control and confidential information efflux from taking place. c. Internal controls to ensure efficient execution of Directors duties Based on rules concerning the Board meetings, mutual meetings are held once a month, and extraordinary meetings are held when necessary. Meetings will be held for the purposes of making decisions on legal matters and other important business issues and overseeing operating performance, as well as encouraged communication among the Directors, and help the Directors to oversee the execution of one another s duties. d. The system in the interest of ensuring the appropriateness of operations of our Group By dispatching at least one Director or Auditor to our subsidiaries from the Company, we aim to manage the business properly. Based on the authority standard of approval which determines which items need pre-approval, and the subsidiaries act by discussing or reporting to the Company. e. Initiatives regarding the internal audits Based on the internal audit plan which is set by the internal audit office, we conduct internal audits concerning risk control management and execution of operations, then report results to the CEO when necessary. In addition, they exchanged information once a month with our Statutory Auditor, and once every fiscal quarter with the board of Auditors

25 f. Initiatives regarding the execution of the duties of Auditors The Auditors conduct audits by ensuring the effectiveness of Corporate Auditors operations through the board meetings and the management meetings (includes the Board of Directors and General Managers as members), as well as panel gatherings with the CEO and meetings with the internal audit office on a periodical basis, based on the audit standards and plans. (3) Policies regarding company's control We do not have any specific guidelines regarding the individual in control of the decision making of our company's financial and business policies. (4) Policies concerning decisions on the distribution of surplus funds We recognize that when the Company s profitability has exceeded the cost of capital, the corporate value increases, and we are able to satisfy our shareholders and all stakeholders. Our basic dividend payout policy will be determined after taking into consideration a wide range of indices such as our business performance, financial situation, future business and investment plans, and our internal reserve balance. More specifically, we plan to further improve our profitability, to maintain the return on equity (ROE) at 30%, and the amount that excesses our standard level will be given back to our shareholders as much as possible, while considering the improvement in liquidity as well. In principle, we plan to distribute surplus funds as dividends either once a year - at the end of the fiscal year - or twice a year, including the interim dividends. Decisions regarding interim dividends will be made in a Board meeting, while decisions regarding year-end dividends will be made at the general meeting of shareholders. The year-end dividend for FY 2016 is planned to be 16 yen per share, which is based on a payout ratio of 40%. The interim dividend in FY2016 was 6.7 yen per share, so the annual dividend comes out to be 22.7 yen per share. The company conducted a one-for-three stock split on October 1, 2016, thus the interim dividend is indicated by calculation of actually paid amount (20 yen per share) divided by 3 (becomes 6.7 yen). Again, in FY2017, we will be basing our calculations on a dividend payout ratio of 40%, thus the dividend per share will be approximately 29 yen per share

26 Balance Sheet (As of March 31, 2017) (Million yen) Item amount Item amount (Assets) (Liabilities) Current assets 41,905 Current liabilities 22,985 Cash and deposits 18,849 Accounts payable - trade 21 Accounts receivable - trade 20,773 Deposits received for consignment sales 11,873 Merchandise 34 Accounts payable - other 3,194 Supplies 0 Accrued expenses 141 Advance payments - trade 0 Income taxes payable 5,302 Prepaid expenses 242 Accrued consumption taxes 1,151 Short-term loans receivable 801 Advance received 143 Deferred tax assets 726 Deposits received 174 Others 478 Provision for directors' bonuses 12 Provision for customer benefit program 833 Provision for sales returns 85 Provision for loss on order received 50 Non-current assets 12,965 Non-current liabilities 1,614 Property, plant and equipment 3,227 Provision for retirement benefits 948 Buildings 1,556 Asset retirement obligations 552 Vehicles 0 Others 113 Tools, furniture & fixtures 1,670 Total liabilities 24,599 Intangible assets 477 (Net assets) Trademark rights 11 Shareholders' equity 30,205 Software 284 Capital stock 1,359 Others 180 Capital surplus 1,328 Investments and other assets 9,260 Capital reserve 1,328 Investment securities 670 Retained earnings 39,276 Shares of subsidiaries and associates 4,883 Other retained earnings 39,276 Lease deposits 1,374 Retained earnings brought forward 39,276 Long-term loans receivable 220 Treasury shares 11,758 Deferred tax assets 2,112 Valuation and translation adjustments 65 Valuation difference on available-for-sale securities 65 Total net assets 30,271 Total assets 54,871 Total liabilities net assets 54,871 26

27 Item Statement of Income (April 1st, 2016 ~ March 31st,2017) amount (Million yen) Net sales 64,689 Cost of sales 789 Gross profit 63,900 Reversal of provision for sales returns 54 Provision for sales returns 85 Gross profit - Net 63,868 Total SG&A expenses 37,946 Operating profit 25,922 Non-operating profit Interest earned 17 Foreign exchange gains 63 Profit from recycling 20 Gain from lapsed points 31 Support fees of subsidiaries and associates 26 Non-operating expenses Rent income 464 Others Interest expenses 4 Rent payment Ordinary income 26,175 Extraordinary income Gains from sale of non-current assets 0 Gain on sales of subsidiaries and affiliates' stocks 112 Reversal of allowance for doubtful accounts Extraordinary loss Loss on sales and retirement of non-current assets 1 Loss on valuation of investment securities 183 Loss on valuation of stocks of subsidiaries and affiliates 3,203 3,388 Income (loss) before income taxes 23,323 Income taxes current 8,065 Income taxes - deferred 1,222 6,843 Net income 16,479 27

28 Shareholders' Equity Statement (April 1st, 2016 ~ March 31st,2017) Capital stock Shareholders equity Capital surplus Legal capital surplus Other capital surplus Retained earnings Other retained earnings Retained earnings brought forward (Million yen) Balance at beginning of current period 1,359 1,328 1,328 27,782 Changes of items during period Dividends of surplus 4,986 Net income 16,479 Purchase of treasury shares Net changes of items other than shareholders' equity Total Changes of items during the period Balance at ending of current period Treasury shares 11,493 1,359 1,328 1,328 39,276 Shareholders equity Shareholders' equity Total Valuation and translation adjustments Valuation difference on available-for-sale securities Total net assets Balance at beginning of current period 11,757 18, ,786 Changes of items during period Dividends of surplus 4,986 4,986 Net income 16,479 16,479 Purchase of treasury shares Net changes of items other than shareholders' equity 7 7 Total Changes of items during the period 0 11, ,485 Balance at ending of current period 11,758 30, ,271 28

29 Consolidated Balance Sheet (As of March 31, 2017) (Million yen) Item Amount Item Amount Assets Liabilities Current assets 45,641 Current liabilities 23,906 Cash and deposits 22,068 Accounts payable - trade 25 Accounts receivable - trade 20,858 Deposits received for consignment sales 11,536 Merchandise 1,177 Accounts payable - other 3,344 Deferred tax assets 805 Income taxes payable 5,757 Others 731 Provision for bonus 23 Provision for directors' bonuses 18 Non-current assets 10,079 Provision for customer benefit program 833 Property, plant and equipment 3,364 Provision for sales returns 85 Buildings 1,653 Provision for loss on order received 163 Vehicles 0 Others 2,118 Tools, furniture & fixtures 1,711 Non-current liabilities 1,945 Intangible assets 1,075 Asset retirement obligations 1,251 Good will 565 Asset retirement obligations 574 Software 313 Deferred tax liabilities 5 Others 196 Others 113 Investments and other assets Investment securities 2,783 (Net assets) 5,639 Total liabilities 25,851 Deferred tax assets 1,452 Shareholders' equity 29,461 Others 1,403 Capital stock 1,359 Capital surplus 1,328 Retained earnings 38,532 Treasury shares 11,758 Other comprehensive income Valuation difference on available-forsale securities Foreign currency translation adjustment Re-measurements of defined benefit plans Non-controlling interests 452 Total net assets 29,868 Total assets 55,720 Total liabilities and net assets 55,720 29

30 Consolidated Statement of Income (April 1st, 2016 ~ March 31st,2017) Item Amount Net sales 76,393 Cost of sales 7,148 Gross profit 69,244 Reversal of provision for sales returns 54 Provision for sales returns 85 Gross profit - Net 69,213 Total SG&A expenses 42,928 Operating profit 26,284 Non-operating profit Interest earned 0 Foreign exchange gains 64 Rent income 27 Profit from recycling 20 Gain from lapsed points 31 Others Non-operating expenses Interest expenses 4 Rent payment Ordinary income 26,442 Extraordinary income Gains from sale of non-current assets 0 Gain on sales of investment securities 103 Gain on sales of subsidiaries and affiliates' stocks Extraordinary loss Loss on sales and retirement of non-current assets 1 Loss on valuation of investment securities 885 Impairment losses 1,483 2,370 Income (loss) before income taxes 24,657 Income taxes - current 8,519 Income taxes - deferred 897 7,622 Net income 17,035 Loss attributable to non-controlling interests Profit attributable to owners of parent 17,035 (Million yen) 30