SEKICHU CO.,LTD.

Demand for home centers, car accessory specialty stores, and bicycle specialty stores is significantly affected by economic conditions such as climate conditions, economic trends, and consumption trends. Intensifying competition with other retailers in the same or different industries is an additional factor causing fluctuations in sales and profit. Changes in these compound external environmental factors may affect business performance and financial condition.

The Company operates stores mainly in Gunma and Saitama Prefectures, as well as in Tochigi, Tokyo, Chiba, and Nagano Prefectures, and adopts scrap-and-build as its basic strategy. However, there is concern that profitability could deteriorate due to new store openings by competitors, among other factors. In particular, the opening and closing of large-format stores can significantly affect increases and decreases in earnings, and closures may in some cases result in substantial losses. Although store opening plans are formulated after examining profitability from various angles, fluctuation factors cannot be completely eliminated.

Since the Company's business is conducted mainly through physical stores, natural disasters or force majeure accidents could cause shortages of merchandise supply or damage to store facilities, potentially disrupting continued business operations. Regarding fire, the Company thoroughly implements preventive measures based on the Fire Service Act, but if a fire occurs, it could result in regulatory action, damages claims, loss of human resources, and damage to fixed assets and inventory. In addition, the spread of infectious diseases such as COVID-19, and surges in procurement prices or supply disruptions caused by war, conflict, or terrorism in production regions, may also affect business performance and financial condition.

In conducting consumer transactions at home centers, car accessory specialty stores, and bicycle specialty stores, if the Company sells defective products or products that do not conform to contract terms, it may become subject to public regulation as well as incur product liability or non-performance damages. Furthermore, a decline in sales due to loss of consumer trust may affect business performance and financial condition.

The various systems necessary for business operations are centrally managed using computer equipment at data centers, and measures such as dual power supply and communication line systems, seismic reinforcement construction, and prevention of unauthorized access have been implemented. However, if equipment is damaged by a natural disaster or accident, if communication lines or power supply malfunction, or if a failure occurs due to unauthorized intrusion or employee error, business operations could be disrupted, potentially affecting business performance and financial condition. The Company itself recognizes that complete risk avoidance is not possible.

The Company is subject to a wide range of laws and regulations, including business licensing requirements for home centers, car accessory specialty stores, and bicycle specialty stores, as well as the Antimonopoly Act, the Consumer Safety Act, tax laws, and environmental recycling-related regulations. Failure to comply with these laws and regulations could lead to restrictions on business activities or increased costs. Changes in the regulatory environment may also affect business performance and financial condition.

If profitability declines due to significant changes in the business environment, such as intensifying competition or a decline in market prices, with respect to fixed assets owned by the Company, impairment accounting treatment may become necessary. Recognition of impairment losses may directly affect business performance and financial condition. Given the Company's business structure, which involves holding a large amount of fixed assets such as large-format stores, there is a risk that such effects could materialize.

In opening stores, the Company enters into lease agreements with store landlords, and there are properties for which security deposits and similar amounts have been provided. If the landlord's circumstances, such as bankruptcy, disrupt the continuation of the lease agreement or result in an inability to recover such deposits, this may affect business performance and financial condition. For the Company, which operates stores at multiple locations, landlord credit risk represents a potential financial concern.