SUNDAY CO..,LTD.

Under the Large-Scale Retail Store Location Law, opening or expanding stores with sales floor space exceeding 1,000 square meters requires notification to local municipalities, and regulations aimed at protecting the local environment may prolong the store opening process, potentially affecting store opening plans. In addition, if a leased store is closed before the expiration of its lease term due to poor performance or other reasons, there is a risk of incurring burdens under the lease agreement, such as remaining rent payments, penalty fees, and forfeiture of security deposits. The Company strives to address this by coordinating with local municipalities and residents.

In the home center industry, competition with other business formats such as drugstores and supermarkets is intensifying, and changes in purchasing behavior resulting from competitors' store openings may affect business performance. The Tohoku region, which serves as the Company's business base, has a relatively high population decline rate, and overall consumer spending may continue to shrink. Regional disparities in income and employment conditions, as well as unseasonable weather such as cool summers or warm winters, also affect sales trends. These factors create a risk that the appropriateness of purchasing and sales plans will affect business performance.

Because store operations consume large amounts of energy, tightening of environmental regulations and heightened social demands may result in energy costs and countermeasure costs exceeding expectations. In addition, unseasonable weather such as cool summers or warm winters caused by climate change may reduce demand for seasonal products, creating a risk that sales will fall short of plans. The Company is working to promote energy conservation and shift to renewable energy based on the AEON Decarbonization Vision.

The Company relies partly on bank borrowings for capital expenditure and working capital, and if interest rates rise rapidly and substantially, this may affect business performance and financial condition through increased interest expenses, among other factors. In particular, during periods of sudden changes in the interest rate environment, there is a risk that increased funding costs will pressure earnings. The annual securities report does not specify concrete hedging measures or other countermeasures.

The Company applies accounting standards for impairment of fixed assets, and if assets requiring newly recognized impairment losses arise in the future, this may affect business performance and financial condition. As the store network expands, the Company holds a large amount of fixed assets, and the emergence of underperforming stores or changes in real estate market conditions could increase impairment risk. The annual securities report does not specify concrete countermeasures.

The Company holds a large amount of personal information, including that of its proprietary card members, and if such information were to be leaked, it could result in loss of social trust, decreased revenue, and liability for damages, potentially affecting business performance. The Company has established an information management system based on its personal information protection management regulations, conducts employee training, and requires outsourcing partners to sign confidentiality agreements and obtain Privacy Mark certification. However, the risk of leakage due to cyberattacks or internal misconduct cannot be completely eliminated.

Because the Company concentrates its store operations in the Tohoku region, natural disasters such as earthquakes, tsunamis, and typhoons, as well as unforeseen accidents, could cause physical damage to stores and facilities, significantly impeding sales activities and distribution/procurement operations. This includes cases where human casualties occur, creating a risk of material impact on business performance and financial condition. The Tohoku region has experienced large-scale earthquake and tsunami damage in the past, resulting in a business structure with high geographic concentration risk.

Consumer concern regarding food safety and quality assurance has increased due to incidents such as mislabeling and foreign object contamination, and if trust in the food products offered by the Company were to decline for any reason, sales across the entire store, including the food department, could decrease. The food department serves a core function in attracting customers, and a loss of trust poses a risk of wide-ranging impact on business performance and financial condition. The annual securities report does not provide specific details of the quality control system.

The Company handles imported products from overseas, and fluctuations in exchange rates may increase the cost of goods and logistics costs, or hinder product procurement, potentially affecting business performance and financial condition. In periods of yen depreciation, increased import costs pose a risk of directly pressuring earnings. The annual securities report does not specify concrete hedging measures or other countermeasures.

The Company uses computer systems and networks for the majority of store and head office operations, and if a system failure occurs due to unforeseen events such as natural disasters, this could impede product sales and procurement, potentially affecting business performance and financial condition. The Company strives to reduce this risk by conducting regular backups and implementing security measures, but this does not guarantee complete business continuity in the event of cyberattacks or large-scale disasters.