Shirohato Co.,Ltd.

The Company has established financial covenants in its loan agreements with financial institutions, including a requirement that the interest coverage ratio not fall below 1. During the fiscal year under review, the interest coverage ratio fell to 1 or below, resulting in a breach of this covenant. Following discussions with the financial institutions, the Company has confirmed that no review of the credit limit, base interest rate, or spread will be conducted and that this does not constitute an event of acceleration of the loss of benefit of time. However, if conditions are revised or the benefit of time is lost in the future, this could have a material impact on the Company's business results and financial condition.

With the acquisition of the head office logistics center, the proportion of borrowings within liabilities has increased, and these borrowings are procured at floating interest rates. If significant changes occur in future interest rate conditions, this could affect business results and financial condition through increased interest expense. In a rising interest rate environment, there is a risk that the financial burden will expand further.

In addition to its own website, the Company operates stores on major internet shopping malls such as Rakuten Ichiba, au PAY Market, and Yahoo! Shopping, and relies on these platforms for a substantial portion of its sales. If mall operators change their policies in ways that unfavorably alter contract terms, or if continuing to operate stores becomes difficult, this could directly impact profitability.

In the innerwear-focused e-commerce market, existing competitors are present, and new entrants are expected to continue emerging. The Company strives to maintain competitiveness through the planning, development, and sales expansion of PB (private brand) and CB (collaboration brand) products, but if market share declines or selling prices fall due to price competition, this could affect business results and financial condition.

NB and PB products are mainly produced in Asian regions centered on China, and procurement costs are affected by foreign exchange fluctuations, whether directly or indirectly. In addition, selling prices for e-commerce sales to China, Singapore, and other countries are also affected by foreign exchange fluctuations, and geopolitical risk, social risk, credit risk, and other factors could affect operations and business results.

There is a risk that rising costs for raw materials, labor, and transportation in the Asian region, which is the main production area for NB and PB products, will be reflected in procurement costs. If cost increases cannot be passed on to selling prices, this could adversely affect business results through a decline in profit margins.

The Company holds a large volume of customer personal information and has established management systems including internal access authorization settings, personal information protection agreements with external contractors, and acquisition of Privacy Mark certification. However, if personal information is leaked externally due to unauthorized access from outside or unforeseen circumstances, this could impact business results in addition to damaging the Company's social credibility as a corporation.

The Company delivers products to customers through transportation companies, but delays in logistics network development in recent years have already resulted in increases in delivery costs. If delivery conditions deteriorate further in the future, this could lead to additional cost increases as well as customer attrition due to slower delivery speeds, affecting operations and business results.

Head office functions, order processing functions, and logistics functions are concentrated at the head office logistics center, and if a large-scale earthquake or other natural disaster occurs, there is a risk of significant disruption to information processing and product shipping operations. This concentration of functions in a single location creates high vulnerability in terms of business continuity planning (BCP), raising concerns about impacts on business results and financial condition.

As a mail-order business operator, the Company is subject to regulations such as the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, and the Unfair Competition Prevention Act. The legal system surrounding e-commerce in Japan is still being developed, and amendments or new legislation aimed at consumer protection may be enacted; depending on the content of new regulations, this could affect business operations and results.