SAC'S BAR HOLDINGS INC.

Due to the declining birthrate, aging population, population decline, and sluggish growth in real wages, consumer spending on bags, accessories, and other goods may shrink over the long term. Since the majority of net sales depends on the domestic retail business, failure to capture changes in consumer demand and values may affect net sales and profitability. The Company addresses this through strengthening the brand power of PB (private brand) and NPB (non-private brand) products, enhancing the EC business and BtoB transactions, and diversifying its revenue base through overseas market expansion.

Since the products handled are strongly influenced by fashion and lifestyle trends, failure to properly capture diversifying consumer preferences and changing trends may lead to poor sales, the accumulation of dead stock, and increased discount sales, thereby reducing profitability. The Company has built a trend analysis framework utilizing store and EC sales data as well as social media information, while also diversifying its brand portfolio to reduce dependence on any specific category.

In a business model centered on tenant store openings in shopping centers, station buildings, and similar locations, if the number of suitable properties falls short of plan or sales after opening fall below forecasts, this may affect net sales and profitability. When closing unprofitable stores, temporary cost burdens may also arise depending on restoration costs and the status of recovery of security deposits and guarantee deposits. The Company addresses this by clarifying store opening and closing criteria and regularly reviewing its store portfolio based on store-level profit and loss management.

Security deposits and guarantee deposits placed with numerous leased stores account for a certain proportion of total assets, and if a landlord developer or similar party becomes insolvent, all or part of these deposits may become unrecoverable, potentially affecting the Company's financial position and cash flows. The Company works to reduce recovery risk by confirming the creditworthiness of developers at store locations, monitoring balances of security deposits and guarantee deposits, and diversifying business partners.

The Company relies on a business practice in commercial facility stores whereby sales proceeds are deposited with the facility operator and settled at a later date; if a developer or similar party experiences financial deterioration or bankruptcy, part or all of the deposited funds may become unrecoverable, potentially affecting the Company's financial position. Credit risk is managed through regular monitoring of balances and financial condition by counterparty, and consideration of revisions to settlement terms.

In production at overseas partner factories and sales operations in overseas markets, changes in political and economic conditions, conflicts, terrorism, the spread of infectious diseases, and changes in labor or environmental regulations may affect business performance through disruptions to production and logistics, increased procurement costs, and constraints on store operations. The Company addresses this through diversification of production bases and procurement sources, strengthened quality and delivery management based on long-term partnerships with business partners, and enhanced information-gathering systems regarding local conditions.

In M&A transactions and business or capital alliances, if the prior estimates of the target company's business value, synergy effects, and integration costs diverge from actual results, or if PMI (post-merger integration) does not proceed smoothly, the expected improvements in earnings and corporate value may not be realized, potentially affecting business performance and financial position through the recognition of impairment losses and similar effects. The Company works to reduce integration risk through the use of external specialists in deal selection and through the accumulation of PMI expertise and establishment of related systems.

Securing and developing personnel—including sales staff as well as those responsible for merchandise planning, digital marketing, and supply chain management—is fundamental to competitiveness, and a shortage of personnel capable of handling online operations or a decline in employee engagement may affect brand value and business performance. The Company addresses this by promoting human resource strategies aligned with management strategy, developing a workplace environment that respects diversity and encourages challenge, and enhancing training, evaluation, and compensation systems.

System failures or cyberattacks and unauthorized access affecting core business systems, POS systems, e-commerce sites, and membership information management systems may significantly affect business performance and corporate value through disruption of store operations and payment/EC order processing, as well as damages, administrative sanctions, and loss of social trust resulting from leaks of personal or confidential information. The Company addresses this through the establishment of backup systems and recovery procedures, formulation of information security policies and employee training, and strengthened management of outsourcing partners.

The Company is subject to various laws and regulations, including those related to consumer protection, the environment, recycling, and antitrust matters, and any unforeseen violation of these regulations may affect operating results through restrictions on business activities, incurred costs, and loss of social trust. The Company conducts ongoing compliance management through the identification, evaluation, and monitoring of material risks by the Board of Directors, the Compliance Committee, and internal audits, along with the implementation of necessary countermeasures.