ABC-MART,INC.

If a state of emergency is declared due to the spread of a new infectious disease, domestic consumption could decline by 10-20%, and if the Kanto region, which accounts for 40% of all stores, were to suspend operations altogether, more than half of domestic net sales would be affected. Overseas, if a lockdown were to occur in South Korea, which accounts for approximately 20% of consolidated net sales, more than half of the stores would face operational difficulties, resulting in a significant decline in sales. As countermeasures, the Company is strengthening online sales, reinforcing store openings outside the Kanto region, and expanding store openings in residential areas.

The Group operates more than 1,000 stores domestically, more than 300 stores in South Korea, and more than 60 stores in Taiwan. If a large-scale natural disaster damages stores, warehouses, or factories, losses to fixed assets and merchandise could occur. Over the medium to long term, a Tokyo-metropolitan direct-hit earthquake or a Nankai Trough earthquake is forecast, and a considerable degree of risk is considered to exist. As countermeasures, the Company is strengthening cloud operation of core business systems, establishing an emergency contact network utilizing SNS, and advancing partial decentralization of head office functions by installing satellite offices at large-format stores.

Approximately 30% of consolidated net sales is derived from overseas sales, of which South Korea accounts for approximately 20%. As such, there is a risk that performance could deteriorate due to changes in political and economic conditions or boycotts of Japanese products. In addition, 90% of domestically produced proprietary products are manufactured at overseas contract factories (approximately 50% in Southeast Asia and approximately 50% in China), and if political conditions in these regions deteriorate significantly, there is a possibility that the supply of merchandise could be disrupted. Furthermore, due to the U.S. tariff policy in 2025, if additional tariffs are imposed on components imported by the U.S. subsidiary, this could affect overseas gross profit.

Approximately 30% of consolidated net sales is derived from overseas sales, and if the yen appreciates against local currencies, sales and profits will decline. In addition, the majority of imports of domestically produced proprietary products are settled in U.S. dollars, with annual foreign currency demand of approximately USD150 million to USD200 million. Accordingly, a one-yen depreciation of the yen against the U.S. dollar increases cost of purchases by ¥150 million to ¥200 million. Currently, the Company has not entered into any forward exchange contracts, and large fluctuations in exchange rates could impact gross profit.

If problems related to environmental impact, occupational health and safety, or human rights occur at overseas contract manufacturing factories, there is a risk that the Group could be subject to recommendations to suspend business activities, costs for pollution remediation, and liability for damages, among other burdens. This could also adversely affect the Group's social reputation. As a countermeasure, the Company requires factory audits at all factories, adopts recommended audit programs such as BSCI, SA8000, and WRAP, and conducts regular audits on a semi-annual to annual cycle.

Over the medium to long term, there is a concern that the domestic shoe market could shrink due to population decline and the super-aging society, which could affect store opening strategy and business performance. In addition, there is a risk that the supply-demand balance of merchandise could fluctuate due to changing trends, such as increasing demand for sneakers driven by the global preference for casual styles, combined with sluggish demand for leather and business shoes. As a countermeasure, in addition to expanding domestic market share, the Company aims to expand share in the sports apparel and outdoor markets, and appropriately reviews strategies for each product category.

If a system failure occurs due to a large-scale disaster or an unknown computer virus or cyberattack, service operations could become difficult, potentially having a material impact on the Group's financial position and business results. In addition, if confidential information such as customer information (including personal information) or trade secrets is leaked or lost, the Group could be required to address the situation, including payment of damages, which could adversely affect business performance and reduce customer trust. As countermeasures, the Company has implemented cloud migration of core systems, redundancy of communication lines, regular system maintenance, and vulnerability response through software updates.

The Company hires nearly 200 new employees domestically each year; however, if recruitment difficulties or rising turnover rates occur, this could affect store opening strategy and store operations. In addition, the Group employs a cumulative total of more than 10,000 people, and if force majeure events make store operations difficult over the long term, maintaining employment could become impossible. As countermeasures, the Company utilizes diversification of employment types (such as regular employees working shortened hours), region-based recruitment of personnel, enhancement of recruitment and training programs, and a "Welcome Back" system that encourages the re-employment of former employees.

The Company applies impairment accounting with each store treated as an independent cash-generating unit. If profitability declines due to changes in the business environment or if land prices of owned real estate decline significantly, the Company could recognize impairment losses on tangible fixed assets or on intangible fixed assets such as goodwill and trademark rights acquired through corporate acquisitions. Given that the Group owns numerous stores, factories, and warehouses both domestically and overseas, a wide range of assets could be subject to such impairment.

As with the fashion industry, the shoe industry experiences seasonal fluctuations in sales, with sales concentrated in the first quarter (March to May) and the year-end/New Year period (December to January). Meanwhile, because more store openings occur in the first and third quarters, more expenses are recorded during those periods, resulting in a tendency for operating income to fluctuate by quarter. In terms of cash flow, expenditures from financing and investing activities increase in the first and third quarters, when tax payments (April and October), dividend payments (May and November), and new store openings overlap. As a countermeasure, the Company seeks to improve inventory turnover through the development of seasonal sales strategies and detailed merchandise planning.