Genky DrugStores Co.,Ltd.

The sale of pharmaceuticals requires permits and registrations from each prefecture, and there is a risk that business activities may be restricted by legal amendments. The 2014 revision of the Pharmaceutical Affairs Law effectively enabled internet sales of over-the-counter drugs, and intensified competition is expected from new entrants from other industries. Depending on future trends in legal amendments, this could have a material impact on the business performance of the Group.

New store openings or floor space expansions exceeding 1,000㎡ are subject to review and regulation by prefectures and other authorities. Even for the company's core format, the 300-tsubo R Store (standardized drugstore format) (under 1,000㎡), coordination with local municipalities, nearby residents, and local retailers may be required. If store openings cannot be achieved as planned due to legal regulations or other factors, this may affect the business performance of the Group.

The sale of pharmaceuticals legally requires the assignment of pharmacists or registered sales clerks according to risk classification. The Group strives to train personnel internally through its own education programs using external lecturers and internet-based correspondence courses, but if the securing of pharmacists and the number of registered sales clerk examination passers do not proceed as planned, this may impede store opening plans.

The Group holds personal information and confidential information of customers, business partners, officers, and employees, and strives to manage such information through internal rules established by information managers. However, if a leak of personal information were to occur, it could result in a loss of social trust and claims for damages, which may affect the business performance of the Group.

As of June 20, 2025, the Group operates a total of 480 stores, comprising 157 stores in Aichi Prefecture, 138 in Gifu Prefecture, 88 in Fukui Prefecture, 67 in Ishikawa Prefecture, and 30 in Shiga Prefecture, adopting a strategy of concentrated store openings in specific areas. Before a dominant area is formed, advantages in advertising costs and logistics costs cannot be obtained, and if securing store locations proves difficult, store expansion may become dispersed, leading to higher costs. In addition, if the distance between stores is too short, cannibalization among the company's own stores may occur, potentially leading to a decrease in net sales and profit.

Funds for capital expenditures and leasehold deposits associated with store openings are primarily procured through borrowings from financial institutions, and the ratio of borrowings to total assets has reached 26.9% (as of June 20, 2025). Depending on future interest rate trends, financial expenses may increase and affect business performance, and interest-bearing debt may further increase as store opening plans progress.

If profitability declines at stores or other facilities owned by the Group, impairment accounting may need to be applied to the relevant assets or asset groups, requiring impairment losses. The recognition of impairment losses may directly affect the business performance and financial position of the Group.

The Group develops and sells PB (private brand) pharmaceuticals, cosmetics, sundries, food, and other products, and pays close attention to quality control and appropriateness of labeling, among other matters. However, if an accident or other issue arising from a PB product were to occur, it could result in a loss of customer trust, damage to brand image, and claims for damages, which may affect business performance. Similar risks apply to food products in the event of hygiene issues such as food poisoning.

The Group works to diversify dependence on specific regions and business partners in order to maintain stable procurement and price negotiation power, but there are limits to such diversification due to ongoing consolidation within the supplier industry. If part of the procurement route is interrupted, or if procurement prices fluctuate due to changes in crude oil and raw material prices, this may affect the business performance of the Group.

Although the Group has established disaster prevention management regulations and disaster response manuals, if physical damage occurs to store facilities and other property due to natural disasters such as major earthquakes or typhoons, sales activities and distribution/procurement activities may be impeded, affecting business performance. In addition, if system failures occur due to power outages, software or hardware defects, computer viruses, unauthorized network intrusions, or other causes, business activities may also be disrupted.