CAN DO CO.,LTD.

Directly-operated stores have a high proportion of in-shop stores, and FC stores are centered on multi-store development by corporate franchisees. Consequently, deterioration in the business environment of major mass retailers or corporate franchisees directly affects store opening/closing plans and business performance. In addition to increased costs from aggressive store openings, there is a risk that closure costs and losses may arise when existing stores are closed due to circumstances of the leasing counterparty. The Company seeks to reduce this risk through management of its store opening/closing plans, but vulnerability to changes in the external environment remains.

In the event of a major infectious disease outbreak, business performance may deteriorate due to harm to employees or due to closures or reduced operating hours at mass retailers where the Company operates as a tenant. If a natural disaster or unforeseen accident occurs, there is a risk of disruption to sales activities, distribution, and procurement activities, communication network failures, and suspension of business activities at each location. The Company has established disaster response and early recovery systems based on AEON Group standards, but there are limits to its ability to respond to events exceeding expectations.

Most daily necessities and processed foods are procured from domestic vendors, so direct foreign exchange exposure is minimal; however, the Company is indirectly affected by exchange rate fluctuations through products that domestic vendors produce or procure overseas. Subsidiaries procure and sell products through direct trade with overseas parties, and are more directly affected, including through fluctuations in logistics costs. The Company seeks to minimize this risk through hedging transactions and other measures based on internal regulations, but depending on the degree of exchange rate fluctuation, there is a possibility of an impact on consolidated business performance.

There is a risk that computer viruses, unauthorized access, and similar incidents could lead to leakage of confidential information or personal information, temporary system suspension, decreased sales, lost business opportunities, product backlogs, and repair costs. In public relations strategies utilizing social media and similar platforms, unauthorized access to the Company's website or related networks, or the spread of false information, could also affect its financial condition and business performance. The Company has implemented backup systems and measures to prevent unauthorized access, but risks arising from the increasing sophistication of cyber threats continue to exist.

Amid a continuing significant decline in the working-age population, securing excellent human resources has become an essential element in establishing the corporate foundation. If the Company is unable to secure the necessary personnel, this may adversely affect business development and performance. The Company strives to secure human resources by revising its evaluation and compensation systems and promoting part-time employees to full-time positions, but there is a risk that intensifying competition in the labor market could make this more difficult.

If store profitability declines due to a significant divergence between projected and actual sales, or due to the opening of competing stores, some fixed assets may become subject to impairment treatment, which could affect business performance. The 'Accounting Standard for Impairment of Fixed Assets' has been applied since the fiscal year ended November 2006, and the Company strives to diversify risk through scrap-and-build measures, including for unprofitable stores, and to improve the accuracy of budgeting and periodic verification. However, a sudden change in the external environment leading to declining profitability always carries an inherent risk of recording impairment losses.

Due to the continuation of the aggressive store opening policy, merchandise inventory volumes tend to increase along with the increase in store count, creating a risk that large amounts of stagnant inventory could arise from delayed response to consumer purchasing trends or market contraction. The Company seeks to control inventory through new product development utilizing POS data, prevention of stockouts, improvement of inventory turnover, and removal/disposal of obsolete products, but the accuracy of demand forecasting is a key factor affecting business performance. The occurrence of stagnant inventory directly affects Group performance through inventory valuation losses and disposal costs.

Various receivables arise, including deposits and guarantee money placed with lessors when opening directly-operated stores, sales proceeds deposited with developers at some stores, and accounts receivable from franchisees. If receivables become uncollectible due to the counterparty's bankruptcy or other business failure, this may affect business performance. The Company seeks to protect against this through credit management, recording of allowances for doubtful accounts in accordance with accounting standards, daily deposit of FC store sales proceeds, and receipt of order deposits, but the risk of deterioration in the business environment of business partners cannot be eliminated.

There is a risk that business performance could be affected by franchisees giving up management due to aging or lack of successors, intensifying competition among franchise stores, or damage to brand image caused by scandals at franchise stores. If the relationship of trust between the Group and franchisees is damaged, potentially leading to the termination of franchise agreements with many franchisees, the impact on business performance could be substantial. The Company promotes a collaborative structure through business policy briefings and store visits, but there are limits to controlling risks arising from the individual circumstances of each franchisee.

The Company may carry out organizational restructuring, M&A, alliances, divestitures, and similar activities aimed at strengthening its business. While it conducts careful investigation and consideration of the financial condition and earning capacity of target companies, there is a risk that if the initially anticipated effects are not achieved, the Company may be unable to recover its invested capital, affecting business performance. The Company seeks to reduce this risk through due diligence, but the possibility that expected synergies will not be realized due to changes in the business environment or difficulties in the integration process cannot be eliminated.