WORLD CO., LTD.

As of February 28, 2025, the ratio of borrowings to total assets reached 31.7%, and since the majority of funding is procured at variable interest rates without interest rate hedging, rising market interest rates could impact the financial position and cash flows. The syndicated loan carries financial covenants relating to the maintenance of net assets and profit, and if these are breached, the Company could lose the benefit of the term and be required to make immediate repayment. While the policy is to reduce borrowings over the medium to long term, if such reduction does not progress, financial expenses will continue to increase.

As of February 28, 2025, goodwill of ¥57,176 million arising from past M&A transactions, including the MBO in April 2006, is recorded on the consolidated statement of financial position, and this is a material item in the Group's financial structure. If the profitability of the target business declines, the difference between the carrying amount and fair value must be recognized as an impairment loss, which could have a material impact on the financial position and operating results. Impairment tests are conducted with each consolidated subsidiary as a cash-generating unit, but the risk of impairment arising from deterioration in market conditions or other factors cannot be eliminated.

The proliferation of SNS has diversified sources of information, making it more difficult than before to predict fashion trends. Consumer preferences have diversified, with a mix of low-price orientation and quality-focused orientation, and if the Brand Business, which accounts for the majority of revenue, is slow to respond to changes in preferences, this could lead to a decline in brand reputation and reduced sales. While the Group aims to address diverse preferences through the deployment of multiple brands and multiple channels, failure to respond in a timely and appropriate manner could affect the business and operating results.

Upward pressure on procurement prices continues due to rising labor costs in emerging countries including China, disruptions in global logistics networks, rising raw material prices, and the depreciation of the yen. Domestically, in addition to rising rents in urban areas, increased transportation costs, and rising labor costs, increased depreciation expenses associated with new store openings and system investments are also expected. While the Company seeks to absorb cost increases through pricing and other measures, if these measures are not effective, the financial position and operating results could be affected.

With the aim of optimizing its business portfolio, the Group is actively pursuing M&A through direct acquisitions, minority investments, and the use of investment companies, but success depends on identifying appropriate investment opportunities, competition with other companies, and negotiating power with sellers. If PMI (post-merger integration process) does not proceed smoothly after an acquisition, or if expected returns are not achieved due to deteriorating market conditions, the financial position and operating results could be affected. In the case of minority investments, there is also a risk that the management of the investee company may make management decisions contrary to the Company's intentions, or that the Company may be forced to sell its equity interest on unfavorable terms.

The Group holds a large amount of personal information on customers and employees obtained at directly-operated stores and e-commerce sites, as well as confidential information relating to management strategy and product development, creating a risk of information leakage due to unauthorized access, cyberattacks, human error, or other causes. While measures such as appointing information management personnel, establishing security systems, formulating internal regulations, and thoroughly educating employees are being implemented, if information leakage occurs, it could lead to claims for damages from customers and others, administrative penalties, and a decline in social credibility. With the expansion of e-commerce site operations, the volume and importance of personal information held is increasing.

Due to the declining working population in Japan and intensifying competition for talent, it is becoming difficult to secure, develop, and retain capable personnel such as management executives, IT engineers, investment personnel, designers, pattern makers, and sales staff. While the Company advocates a "people-centered management" philosophy and emphasizes investment in human resources, if it is unable to secure the necessary personnel or if securing them requires substantial expense, this could lead to a decline in business competitiveness and adversely affect operating results. Rising labor costs could also affect the financial position in terms of cost.

Given the Group's business structure, in which many products are manufactured overseas and sold domestically, procurement prices are directly susceptible to foreign exchange rate fluctuations (particularly yen depreciation against the US dollar). In addition, since the financial position and operating results of overseas subsidiaries and foreign currency-denominated assets and liabilities are translated into yen when preparing consolidated financial statements, exchange rate fluctuations affect consolidated results. There is no explicit disclosure regarding the implementation status of foreign exchange hedging, and the risk of increased costs remains if yen depreciation continues or progresses further.

Since the clothing and apparel accessories handled by the Group are classified as discretionary spending (luxury goods), they are likely to be subject to spending cuts when consumers become more cautious about household finances. As the majority of revenue is generated domestically in Japan, if a global economic slowdown caused by policies such as consumption tax increases, natural disasters, geopolitical risks, or rising raw material prices spreads to the Japanese economy, this could have a material impact on the Group's revenue. The business structure's high dependence on the domestic economy increases vulnerability to economic fluctuations.

If abnormal weather and global warming cause unusual weather conditions, natural disasters such as typhoons and torrential rains, pandemics, terrorism, IT system failures, or other events occur, this could result in losses such as reduced sales, manufacturing delays, and increased repair costs for logistics facilities due to partial business interruptions or damage to business partners. Climate change risk is recognized as a key management risk, and efforts are being made toward BCM, including the formulation of a BCP (business continuity plan), but some risks are already recognized as having materialized. In the highly seasonal apparel business, unusual weather directly affects sales, making this a risk that requires particular attention.