ARATA CORPORATION

Industry restructuring in the daily necessities and cosmetics wholesale industry and the entry of foreign-affiliated retailers may lead to a decline in the evaluation of logistics functions and necessitate expansion into new business areas. Temporary increases in depreciation expenses and logistics-related costs associated with capital investment in large-scale distribution centers and similar facilities may affect business performance. In response, the company continues to develop its nationwide logistics network while consolidating and closing existing centers to reduce inventory and compress costs, aiming for early recovery of investment costs.

The fourth quarter (January to March) tends to show lower sales and profits compared to other quarters due to the rebound effect from December stockpiling of daily necessities and the reduced number of business days in February. In the fourth quarter of FY2026 (ending March 2026), operating profit was ¥1,852 million, accounting for only 14.0% of the full-year total of ¥13,207 million, confirming a structural imbalance. Major environmental changes such as natural disasters or consumption tax rate changes could significantly alter quarterly trends, and the company addresses this by reviewing product and sales policies at management meetings and the Board of Directors.

The number of live pets may decrease due to a shortage of dogs and cats resulting from a decline in the number of breeders, a decrease in the number of pets kept due to a rising proportion of aging pets, and the occurrence of zoonotic diseases. Since sales of pet food and supplies are linked to fluctuations in the pet population, there are concerns about the impact on business performance. In response to the recent decline in the number of dogs kept, the company is working to offset the decline in sales through initiatives such as enhancing the functionality of pet food and supplies.

Changes in sales incentive systems resulting from manufacturers' changes in sales strategy may affect business performance. In addition, if a manufacturer defaults due to civil rehabilitation proceedings or similar events, there is a risk of recording inventory valuation losses and being unable to return goods. The company seeks to mitigate this risk by strengthening credit management of suppliers, focusing on accounts payable and inventory management.

If receivables become uncollectible due to deterioration in a customer's business performance or bankruptcy, business performance may be affected. While the company has established a management system including designation of customers requiring caution based on credit research agency data, credit limit management, and provision for doubtful accounts, the risk of occurrence increases during economic downturns. For customers of concern, the company seeks to mitigate risk through measures such as resetting transaction limits, obtaining guarantees, and arranging credit insurance.

The company holds numerous tangible and intangible fixed assets, including goodwill recorded through corporate acquisitions, and if profitability declines or market value falls significantly, impairment processing may become necessary, potentially resulting in extraordinary losses. The company seeks to mitigate this risk by strengthening profitability improvement efforts in coordination with head office for branch offices experiencing deteriorating earnings.

Much of the company's sales activities and merchandise management rely on network systems, and system outages or information leaks caused by natural disasters, accidents, computer viruses, cyber attacks, and the like may affect business performance. As cyber attack methods become increasingly sophisticated and elaborate, the risk of system downtime due to unauthorized access and information leakage to outside parties is increasing. The company has established a distributed management system for daily operational data using multiple backup centers, enabling rapid recovery and business continuity.

Since the company has numerous locations nationwide, a large-scale disaster could paralyze logistics functions or cause system failures, potentially disrupting product supply. This risk has actually materialized in the past, such as during the Great East Japan Earthquake and recent major typhoons and torrential rains. As a BCP measure, the company has established a system in which distribution centers in other areas cover for affected centers, along with a system to prevent system failures through nationwide distributed backup centers.

Damage to logistics networks and the entire supply chain caused by abnormal weather, as well as rising costs associated with the transition to a decarbonized society, may affect business performance. As a social infrastructure handling daily necessities, the company positions climate change risk as an important issue and has established response measures and targets in its Long-Term Management Vision 2030.

If it becomes difficult to secure and develop the necessary personnel due to the progressing labor shortage caused by Japan's declining population, changes in employment conditions, and increased labor mobility, this may affect business continuity. The company promotes a human resources strategy based on three pillars: