TRIAL Holdings, Inc.

The Company's growth strategy is centered on a dominant strategy, strengthening store openings in unentered areas, and renovation of existing stores. However, intensifying competition, difficulty securing land, rising construction costs, and increasing competition for talent due to a shrinking labor population may slow the pace of store openings. Costs may exceed projections due to rising hourly wage rates, and if execution of the growth strategy falls short of plan, this could affect the Group's business, financial condition, and results of operations. Although the Company implements active recruitment activities and diverse training programs as countermeasures, this does not guarantee that personnel recruitment and development will proceed as planned.

While the domestic market is expected to shrink due to the declining birthrate and aging population, competition is intensifying across industries and business formats, including supermarkets, GMS (general merchandise stores), and drugstores. If competitors expand their discount-format store networks, the Group's low-cost operations and differentiation strategy leveraging IT and AI may fail to be effective. Deterioration of the competitive environment would directly affect existing-store sales, profitability, and new store opening plans.

Procurement prices of raw materials for private-brand products and prepared foods are affected by weather, supply-demand fluctuations, and exchange rate movements, while rising crude oil prices are a factor driving up packaging material costs, utility costs, and logistics costs. In addition, logistics costs are expected to rise due to the so-called "2024 problem" (regulations capping truck drivers' working hours). If the Group is unable to appropriately pass on these cost increases to selling prices, or if doing so results in a loss of competitiveness, this could have a material impact on profitability.

The Group positions information assets as its "fourth asset" and manages related risks through the formulation of an information security policy and oversight by the Information Security Committee. However, if a system failure occurs due to a cyberattack, unauthorized intrusion by a computer virus, employee error, or facility damage caused by a natural disaster, this could damage the Group's social credibility and disrupt business continuity. Because the business foundations of both the distribution/retail and Retail AI businesses depend on IT systems, the scope of impact from such failures could be extensive.

The Group holds and manages a large volume of customer personal information across its businesses, including the distribution and retail business, and has established a management framework based on its "Personal Information Protection Regulations." However, if an unforeseen external leak occurs, this could result in damages claims from affected individuals and a loss of social credibility, potentially having a material impact on the Group's business, financial condition, and results of operations. The Retail AI business is also subject to regulations such as the Radio Act and the Personal Information Protection Act, and compliance risk exists due to potential legal amendments or changes in interpretation.

As the Group handles a wide range of food products, including fresh food and prepared foods, occurrences such as food poisoning, foreign object contamination, or mislabeling of allergens could result in regulatory action, product recalls, voluntary sales suspensions, and substantial costs. The spread of inappropriate information via social media could compound these risks, leading to a rapid decline in brand trust. Although the Group maintains a management framework based on HACCP and quality management certifications, along with regular inspections and employee training, these measures do not guarantee complete prevention.

The Retail AI business recorded consecutive segment losses through the previous consolidated fiscal year, and upfront investment continues in areas such as new product development, improvement of existing products, engineer personnel costs, and acquisition of tangible fixed assets. Given the rapid pace of technological innovation in the retail-tech market, upfront investment beyond expectations may be required, and if productization and market penetration do not proceed as planned, recovery of invested funds may become difficult, potentially affecting the Group's overall financial condition and results of operations. Because this investment structure presumes stable cash flow from the distribution and retail business, it also entails risk arising from the interdependence between the two businesses.

IoT devices used in the Retail AI business (such as Skip Cart) rely on procurement from China, and disruptions to the supply chain caused by U.S.-China trade friction, Japan-China political and diplomatic issues, or infectious disease outbreaks could result in stagnation of device procurement and reduced business opportunities. Tight global semiconductor supply could also make stable procurement from partner factories difficult. While the Group is considering risk hedges such as diversifying procurement routes, a fully redundant alternative procurement system has not yet been established.

As of the end of the current consolidated fiscal year, the majority of the Company's shares are held by founder and Chairman Hisao Nagata and asset management companies controlled by his relatives (T.H.C Co., Ltd. and Heroic Investment Co., Ltd.). The major shareholders' shareholding and voting policies may differ from the interests of other shareholders, posing a risk that could materially affect the outcome of resolutions at shareholders' meetings. In addition, the tradable share ratio stood at only 25.4% as of the end of the current consolidated fiscal year, raising concerns about adverse effects on share supply-demand balance due to reduced liquidity.

The Group holds numerous fixed assets, including store equipment and real estate, and if future cash flows from these assets decline, impairment losses may need to be recognized. In particular, if store sites, buildings, and equipment acquired under the store expansion strategy generate returns below projections, this could have a material, albeit temporary, impact on the Group's financial condition and results of operations. Similar risk also exists with respect to assets acquired through M&A and other investment and financing activities.