TSI HOLDINGS CO.,LTD.

The Group's core fashion and apparel products are highly susceptible to trends, and sudden shifts in trends directly affect sales and inventory. While the Group works to enhance and differentiate its product planning capabilities through market information gathering, delays in responding to changing consumer needs could adversely affect operating results.

A decline in purchasing intent due to economic fluctuations or a decrease in personal disposable income affects sales, while unpredictable weather changes such as prolonged rainy seasons, cool summers, warm winters, and typhoons can lead to sluggish sales and increased inventory disposal costs. In addition, the risk of flood damage and store closures caused by intensifying weather events such as torrential rains and typhoons is increasing, raising concerns about a compound impact on operating results.

While store openings are pursued based on analysis of trade area conditions, location factors, and store profit/loss projections, if planned store openings cannot be realized as planned, or if a large number of store closures occur due to brand discontinuation or the consolidation of unprofitable stores, operating results may be affected. Since a shrinking store network directly leads to a reduction in sales scale, the precision of store opening strategy is a key factor affecting business performance.

The Group sells products using intellectual property rights held by overseas partners, and while it currently maintains generally favorable business relationships, if contracts are terminated, canceled, or their terms changed, business continuity could be affected. In addition, if a third party files a claim for damages or an injunction against the sale of a newly planned product, there is a risk of financial loss and damage to the corporate image.

The Group holds a large amount of personal information in the course of customer management for in-store and web sales, and if such information were to leak externally, it could lead to a loss of customer trust and legal liability, potentially affecting operating results. Although the Group is working to strengthen its management systems, it remains difficult to completely eliminate risks such as cyberattacks and internal misconduct.

As the Group depends on materials and product supply from domestic and overseas business partners as well as on logistics networks, if natural disasters or man-made disasters such as conflicts in the Middle East, Ukraine, or Russia occur, the supply chain could be affected, leading to a slowdown in business and product supply. Exchange rate fluctuations associated with such conflicts are also explicitly noted as a factor affecting procurement costs and profitability.

If the resurgence of COVID-19 or a new virus infection leads to government or local authorities requesting that people refrain from going out, restricting business operations, or requesting temporary closures, store sales could decline significantly. To address the risk of supply chain disruption caused by the spread of infections overseas, the Group is strengthening EC operations and reducing product inventory through revisions to production planning and inventory management.

The Group recognizes that changes in the global environment due to climate change bring significant changes to people's daily lives and economic activities, and could have a material impact on business operations, management strategy, and financial planning. As a countermeasure, the Group has established a Sustainability Committee, an advisory body to the President and Representative Director, and announced its endorsement of the TCFD recommendations in October 2022. It has also conducted scenario analysis under two patterns—a 4-degree rise and a 1.5-degree rise—and has set and disclosed greenhouse gas reduction targets.

Although the Group maintains a thorough quality control system for its products, if unforeseen quality issues or accidents arising from product liability occur, the resulting damage to the corporate image and the burden of expenses such as compensation for damages could affect operating results. Given the nature of apparel products, which involve production of many varieties across multiple production sites, ensuring thorough quality control remains an ongoing challenge.

There is a default risk arising from the financial failure of issuers of bonds held by the Group or of business partners. While the Group works to avoid or mitigate this risk by strengthening its management systems, if such a risk were to materialize, it could affect the Group's operating results. Continuous monitoring of the creditworthiness of business partners is essential.