AXAS HOLDINGS CO.,LTD.

The Retail Business operates in a highly competitive environment, competing with all sales channels that handle lifestyle products. Market trends may lead to price competition or a decline in the number of customers visiting stores, which could affect the Group's financial position and business results. The Group seeks to differentiate itself by creating added value through proposal capability, speed, specialization, and originality, but there is no guarantee that these risks can be completely avoided.

The Wholesale Business and EC Unit import products from overseas, resulting in transactions denominated in foreign currencies such as US dollars and euros. A rapid depreciation of the yen or a prolonged trend of yen depreciation could increase the effective purchase cost of goods, potentially deteriorating the gross profit margin. Although the Group is taking measures such as reviewing selling prices, there is no guarantee that exchange rate risk can be fully passed through to prices.

The Group has a product lineup of seasonal goods that are strongly affected by summer and winter climate conditions, and sales trends may be influenced by unpredictable and uncontrollable weather fluctuations. In addition, if disasters cause damage to areas surrounding stores, smooth business operations may be hindered, potentially affecting the Group's business, financial position, and business results. Because demand for seasonal products tends to be concentrated within a specific period, the business structure is particularly susceptible to the effects of climate change.

If circumstances arise that violate relevant laws and regulations, corporate activities may be restricted. In addition, management costs may increase due to the need to respond to legal amendments, new regulations, and the securing of qualified personnel. Although the Group conducts its business activities with due attention to relevant laws and regulations, it faces the risk that changes in laws and regulations could affect its business, financial position, and business results.

As of the end of the current consolidated fiscal year, the balance of bank borrowings, corporate bonds, and lease obligations totaled ¥12,081 million. If long-term or short-term interest rates rise, an increase in borrowing costs could affect the Group's business, financial position, and business results. Bank borrowings and other liabilities may further increase as the Group pursues its growth strategy, entailing the risk of an expanding financial burden in a rising interest rate environment.

The consolidated subsidiary Axas has entered into working capital facility and syndicated commitment line agreements with its counterparty financial institutions, which are subject to certain financial covenants. If these covenants are breached, the Group's financial position and other aspects could be affected. Although these agreements are intended to enable stable and flexible procurement of ordinary working capital, the risk of covenant breaches could materialize if business performance deteriorates.

If store profitability changes due to intensifying competition or unforeseen shifts in trading areas, it may become necessary to recognize impairment losses on fixed assets. If impairment losses are recognized, extraordinary losses will be recorded, affecting the financial position and business results. This risk continues to be recognized as an ongoing risk under the application of the "Accounting Standard for Impairment of Fixed Assets."

The Group holds customers' personal information through the handling of various credit cards, and if an information leak occurs, it could give rise to issues of social credibility and compensation claims from individuals, potentially affecting the financial position and business results. Although the Group has established regulations based on the Act on the Protection of Personal Information, conducts employee training, and implements information system security measures, these measures cannot completely eliminate the risk of leakage. The Group is also addressing the management system for specific personal information related to the My Number system.

International geopolitical risks are rising, including US-China relations, the situation in Russia and Ukraine, and the situation in the Middle East, and if a war or conflict occurs, events affecting business partners or logistics may occur. In the Wholesale Business and EC Unit, which import products from overseas, there is a risk that supply chain disruptions and rising procurement costs could affect the financial position and business results. Due to the increasing complexity of multilateral relations, it has become difficult to predict and manage such risks.