LOOK HOLDINGS INCORPORATED

Approximately 50% of the Group's net sales are derived from the domestic market, and fluctuations in the level of personal consumption in Japan directly affect sales and earnings. If unexpected changes in the external environment occur, such as sudden shifts in fashion trends, there is concern about adverse effects on business performance. As countermeasures, the Group works to accurately grasp consumer needs and develop new brands, while also expanding its lineup of accessory items (such as leather products) that are less susceptible to trend changes, thereby seeking to reduce this risk.

Abnormal weather, such as a cool summer or warm winter, may reduce purchasing intent for seasonal products, potentially affecting business performance. Natural disasters such as typhoons, earthquakes, and floods, as well as the spread of infectious diseases, can disrupt the business operations of customers and the production systems of partner factories, and lead to sluggish consumption in affected areas. The Group has established a management framework through the development of crisis management regulations and the appointment of managers responsible for oversight, and continues to implement infection prevention measures, telework, and staggered commuting hours as part of its response to COVID-19.

Approximately 50% of net sales are generated by overseas subsidiaries, and approximately 85% of products sold domestically are manufactured or procured overseas, resulting in an extremely high degree of dependence on overseas operations. Significant fluctuations in exchange rates, political or economic turmoil, changes in laws and regulations, and social disruptions such as epidemics, terrorism, or war in key overseas markets or procurement locations could have a material impact on business performance. The Group seeks to reduce this risk through broad overseas expansion that avoids dependence on specific countries or regions, and through hedging via forward foreign exchange contracts.

The performance of overseas subsidiaries, which account for approximately 50% of net sales, and the overseas procurement and manufacturing costs, which account for approximately 85% of products sold domestically, are directly exposed to exchange rate fluctuations. Significant fluctuations in major currencies could put pressure on earnings from both the sales and cost sides. While forward foreign exchange contracts are used as a risk mitigation measure, the portion not covered by such contracts remains exposed to the impact on business performance.

If unforeseen quality issues or product liability incidents occur with respect to products sold, this could damage the company's and its brands' image and affect business performance. Given the high proportion of manufacturing conducted at overseas factories, thorough quality control is a critical issue. The Group seeks to reduce this risk by establishing quality control systems, including a "Quality Control Manual," "Inspection Control Regulations," and "Quality Labeling Control Regulations."

In addition to its original brands, the Group operates brands based on exclusive import distribution agreements or license agreements. If these agreements cannot be continued due to unforeseen circumstances, business performance could be affected. Excessive dependence on specific import brands or licensed brands carries the risk of creating earnings vulnerability. The Group reduces its dependence on any single agreement by developing multiple core brands in parallel.

The Group holds a large amount of customers' personal information through shops in commercial facilities, directly-operated stores, and e-commerce. If information leakage occurs due to an unforeseen incident, this could damage social credibility and corporate image, and lead to a decline in sales and the occurrence of damages, thereby affecting business performance. The Group thoroughly implements operations based on internal regulations and management manuals, including the appointment of an information management officer, and has strengthened security in telework environments through authentication and encryption of communication channels.