HOUSE OF ROSE Co.,Ltd.

The domestic cosmetics market is mature, with shipment volumes flat to slightly increasing, while new entrants into the natural-oriented cosmetics field are increasing. If competing products erode the competitiveness of the Company's products, or if the Company fails to respond to changes in the competitive environment, this could affect its business results and financial condition. As a countermeasure, the Company is pursuing "

The Company outsources manufacturing of its private-brand products to OEM manufacturers under a fabless model. Should manufacturing capacity decline due to natural disasters, accidents, cyberattacks, or similar events, or should raw material prices surge due to geopolitical risk, or should an OEM manufacturer go bankrupt, this could disrupt the stable supply and quality of products. In response, the Company has established a management framework involving regular on-site inspections, receipt of monthly manufacturing reports, and contractual controls.

Manufacturing and sale of cosmetics and quasi-drugs require licenses under the Pharmaceutical and Medical Device Act. Should the Company's license expire, be revoked, or be suspended due to administrative disposition in the future, this would disrupt its core business activities. In addition, delayed response to amendments to or the establishment of laws such as the Act against Unjustifiable Premiums and Misleading Representations, the Act on the Protection of Personal Information, and the Act on Promotion of Subcontracting Small and Medium-sized Enterprises' Interests could also restrict business activities. The Company strives for early identification of regulatory trends through collaboration with outside experts and information exchange with industry associations.

Amendments to or new establishment of laws and regulations concerning cosmetics ingredients could disrupt product development and manufacturing plans. In addition, if a new product fails to match market needs or a product defect occurs, this could lead to liability for damages or to loss of credibility with, and termination of contracts by, department stores and other retail partners. In response, the Product Planning and Development Department leads efforts to exchange information with industry associations, conduct on-site inspections of OEM manufacturers, and build a system for rapid response by consolidating customer feedback.

The Company's directly-operated stores are mainly located in department stores and shopping centers, and there is a risk that recovery of security deposits could become difficult due to declining foot traffic, deteriorating management, or bankruptcy of these host facilities. There is also a risk of a decrease in the number of retail outlets carrying the Company's products or changes in trading terms in the Wholesale Business, as well as risk of contract termination by franchise partners (Curves Japan). To respond to changes in consumer behavior, the Company is expanding its E-Commerce Business and conducting cross-functional, integrated reviews of its business strategy.

If profitability declines significantly and the value in use of fixed assets decreases, the Company must recognize an impairment loss for the difference between the recoverable amount and the carrying amount, which could affect its business results and financial condition. The Company groups assets primarily by store as the basic unit, and for stores showing deteriorating trends, monitors store-level profit and loss on a monthly basis and formulates and implements improvement measures.

The Directly-Operated Store Product Sales Business is centered on consultative selling and is highly dependent on human labor. If the Company is unable to recruit and develop the necessary personnel, this could lead to declining staff motivation and lower customer satisfaction. A rise in the turnover rate due to harassment incidents and staff shortages in the Relaxation Salon Business and Curves Business could also affect business results. Under its medium-term management plan, the Company has set forth the goal of "creating a workplace that is easy to work in" and is promoting personnel system reforms, expansion of recruitment channels, and anti-harassment measures.

Data such as core systems and customer management systems are managed at external data centers. Should data leak out due to increasingly sophisticated and diversified cyberattacks or unforeseen events such as natural disasters, this could result in claims for damages, loss of credibility, and suspension or restriction of business activities. In response, the Company has established an information security policy, implemented technical measures, and conducts regular training and awareness-raising activities.

The Company holds a large volume of personal information across its stores and customer information management systems. Should an information leak occur, the Company could face claims for damages and a decline in credibility that adversely affects sales activities. The Company addresses this risk by establishing customer information management regulations, ensuring thorough management through internal audits, strengthening coordination among relevant departments, and thoroughly educating employees.

Wacoal Holdings Corp. holds 21.2% of voting rights and is the largest shareholder, with the Company positioned as an equity-method affiliate of Wacoal Holdings Corp. Although management is fully independent, the proportion of voting rights held by Wacoal Holdings Corp. may change in the future, and relationships such as merchandise procurement from and dispatch of officers by the Wacoal Group could affect the Company's business operations. The Company's policy is to continue to ensure sufficient mutual independence going forward.