XEBIO HOLDINGS CO., LTD.

The Group operates a retail business for sports and leisure products primarily within Japan, and deterioration in economic conditions or the employment environment could lead to sluggish sales and increased credit loss risk in the credit card business. In addition, population decline due to the falling birthrate may bring about a mid- to long-term contraction of the sports market itself through the shrinkage of school club activities, raising concerns about a structural impact on the Group's business performance. Since sports and leisure products are not classified as daily necessities, high sensitivity to economic conditions is a distinctive risk factor.

Abnormal weather events such as rising temperatures, reduced snowfall, sudden torrential rain, and cool summers reduce opportunities to use leisure products such as golf, camping, ski, and snowboard equipment, and also directly affect apparel consumption trends. The recent acceleration of climate change has made it difficult to forecast demand for seasonal products, posing a risk of disruption to inventory management and procurement planning. The Group has not disclosed specific countermeasures, and diversification of product mix remains a challenge.

The Group positions its sales-floor employees as "Sports Navigators," and the stable recruitment of personnel with specialized sports knowledge and customer service skills is an important factor in business growth. If the Group is unable to recruit specialized personnel engaged in sports equipment sales services and equipment processing operations as planned, this could result in a decline in service quality and disruption to store operations, potentially affecting business performance. Against the backdrop of intensifying competition in the labor market, the difficulty of securing highly specialized personnel is increasing.

The Group depends on internal and external information systems and networks for core operations such as store POS systems, product ordering, and sales management, and in the event of a failure due to natural disasters, power outages, computer viruses, hackers, or similar causes, business continuity could be significantly disrupted. A system failure could result not only in lost sales opportunities but also in damage to customer data and a direct impact on earnings due to business suspension. The Group has not disclosed specific redundancy or recovery arrangements in its securities report.

The Group holds large volumes of personal information through the XEBIO Card credit card business, point card members, digital point members, and other services, and faces the risk of information leakage due to unauthorized external access, human error, or inadequate management by outsourcing partners. Should a leak occur, it could result in a loss of public trust and claims for damages, potentially having a material impact on business performance. As countermeasures, the Group has established policies and regulations in line with Ministry of Economy, Trade and Industry guidelines, conducts employee training, and implements leak-prevention measures.

The Group directly or indirectly imports some of its sports products and apparel from overseas, primarily from Asia, resulting in a structure in which a weaker yen increases procurement costs and squeezes gross profit margin. Given the high proportion of imported products, exchange rate fluctuations carry market risk that directly affects profitability through procurement costs. Specific countermeasures such as hedging instruments are not disclosed in the securities report.

The Group operates numerous stores nationwide, and if impairment accounting becomes necessary for stores with declining profitability or for held assets (including investment securities) whose substantive value has declined, this could affect business performance. In addition, security deposits and guarantee deposits placed with lessors at the time of store openings carry a credit loss risk arising from deterioration in the counterparty's creditworthiness. A combination of changes in the economic environment and a decline in the customer-drawing power of commercial facilities could result in a compounded financial impact.

The Group's head office functions are concentrated in Koriyama City, Fukushima Prefecture (XEBIO Co., Ltd.) and within Tokyo (Victoria Co., Ltd. and Golf Partner Co., Ltd.), and in the event of a large-scale earthquake, typhoon, fire, power outage, communications failure, nuclear power plant accident, or similar event, the suspension of head office functions could severely disrupt business continuity across the entire Group. In addition, the supply chain, which depends on production at overseas factories primarily in Asia, carries the risk of disruption due to political conditions or natural disasters in the producing countries. The geographic concentration of head office functions constitutes a vulnerability from a BCP perspective.

The Group conducts retail and wholesale business overseas, and may face a variety of risks including cultural and religious differences, political instability, differences in local business practices (such as accounts receivable collection), changes in legal systems and tax regulations, labor disputes, and terrorism, war, and infectious diseases. These risks are difficult to predict, and if they materialize, they could not only worsen earnings in the overseas business but also affect the Group's overall business performance. The Group has not disclosed specific risk mitigation measures in its securities report.

The Group has transactions subject to the Act on Promoting Fair Trade in Subcontracting (the "Subcontract Act") in connection with the outsourcing of production for original products, and in the event of a violation, there is a risk of losing public trust due to a recommendation from the Japan Fair Trade Commission and public disclosure of the company name. In addition, if labor-related compliance violations occur, such as employment issues, harassment, or human rights violations, this could damage the corporate image and give rise to litigation, potentially affecting business performance. As countermeasures, the Group conducts training on the Subcontract Act, has introduced a checking function into its ordering system, and works to ensure appropriate labor management.