JICHODO Co.,Ltd.

Many of the Group's products are produced at overseas production sites, and production is currently concentrated in the People's Republic of China and Myanmar. If political, social, natural disaster, or other factors in either country disrupt production activities, it will become necessary to transfer production to other regions; if such transfer cannot be carried out smoothly, this may adversely affect business results and future business development. Diversification of overseas production sites is being promoted, but concentration risk remains at this time.

The Group has a high ratio of import procurement, and procurement prices are directly or indirectly linked to the US dollar and the Chinese yuan, so foreign exchange fluctuations affect procurement costs. Although risk is hedged through forward foreign exchange contracts, this risk cannot be completely avoided, and depending on exchange rate movements, business results may be adversely affected. In particular, during periods of yen depreciation, rising procurement costs become a factor that squeezes profit margins.

The Group engages in derivative transactions to address foreign exchange fluctuation risk related to import transactions, and accounts for gains and losses at fair value. Valuation gains and losses are recorded due to fluctuations in exchange rates and the Japan-US interest rate differential at each fiscal period-end, which may affect business results. Although these transactions were introduced for hedging purposes, they carry the inherent risk of unexpected valuation losses depending on market conditions.

The Group adopts a build-to-forecast production approach based on demand forecasts, calculating production volumes by taking into account past performance and market trends. However, if demand forecasts prove inaccurate due to sudden changes in market conditions or unusual weather, this may lead to increased inventory and reduced profit margins from clearance sales, adversely affecting business results. Demand for apparel is highly susceptible to seasonality and weather, making the risk of forecast error structurally difficult to eliminate.

The Group holds shares in financial institutions and business partners related to sales and procurement, and thus bears the risk of stock market price fluctuations. In a declining stock market, valuation losses may arise on held shares, which could adversely affect the Group's financial position and business results. Some of these holdings appear to have the character of cross-shareholdings, and changes in valuation amounts according to market conditions directly affect financial figures.