KOHNAN SHOJI CO.LTD.

The company faces risks of increased inventory and declining inventory turnover associated with the expansion of PB (private brand) product sales. If unexpected fluctuations in sales result in excess inventory, disposal costs or valuation losses may need to be recorded, which could affect business performance. The company is working to mitigate this risk by refining its procurement, sales, and inventory planning and strengthening inventory control.

The company procures capital investment funds through borrowings from financial institutions and other means, resulting in a relatively high dependence on interest-bearing debt. Future changes in interest rate conditions could increase procurement and financing costs, potentially affecting business performance. The company strives to maintain capital investment balanced with operating cash flow and to control interest-bearing debt.

The company intends to continue investing in new store openings to expand its business scale; however, changes in laws and regulations related to store openings could result in changes, delays, or cancellations of store opening plans. If stores cannot be opened as planned, this could hinder the establishment of the management foundation and affect business performance.

The company's product lineup includes highly seasonal items, and sales trends for seasonal products can fluctuate significantly due to unseasonable weather such as cool summers, warm winters, or prolonged rainy periods. If such conditions occur, sales may fall short of plans, potentially affecting business performance.

The company directly engages in the import of overseas products and foreign exchange transactions, and fluctuations in exchange rates can affect procurement prices as well as generate foreign exchange gains or losses, potentially affecting business performance. Although the company uses forward exchange contracts and other measures to mitigate this risk, complete hedging is difficult.

While the company's main base is the Kansai region, it is also expanding store openings into the Kanto region; however, there is a risk that competitive store openings by other companies in the same industry could worsen the profitability of existing stores. If store closures result in significant losses, or if delays in store opening timing or changes to plans become unavoidable due to contract issues with landowners or landlords, regulatory constraints, or increased costs when opening new stores, this could affect business performance. The company addresses this by simultaneously pursuing new store openings in existing trading areas, revitalizing existing stores, and closing unprofitable stores.

Since the fiscal year ended February 2007, the company has applied the "Accounting Standard for Impairment of Fixed Assets" and has recorded the necessary amounts as impairment losses in each consolidated fiscal year. Deterioration in store profitability or declines in real estate prices could necessitate the recording of substantial impairment losses, potentially having a significant impact on business performance.

If officers and employees fail to comply with laws, regulations, and other rules, if legal review is insufficient, or if preventive measures fail to be effective and misconduct occurs, this could affect business performance. The company places importance on corporate social responsibility and strives to raise compliance awareness, but complete elimination of such risks is difficult.