Risk Factors

An investment in securities involves a high degree of risk. All investors should carefully consider the risk factors listed in the reference form and summarized below, in addition to the other information in this investor relations website before investing in Inbrands’s securities. In general, investing in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the securities of U.S. issuers or issuers in other countries with highly developed capital markets. Inbrands’s business, financial condition, results of operations and prospects may be materially adversely affected by any of these risks.

1) Risks related to the Company

• We may not be successful in our strategy for growing through acquisitions of new businesses and brands.
• Integrating the businesses we acquire involves risks and difficulties.
• We may not be able to open and operate new Own Stores or expand our Franchise Store or Multibrand Client network successfully.
• We may not be able to maintain the value of our brands or operate and develop new brands successfully.
• If we are prevented from using effectively or protecting any of our brands, our activities, financial condition and operating results may be negatively affected.
• We may not be able to maintain our strong historical growth or to increase our operating and administrative structure in order to support our future growth.
• Our acquisitions may suffer from limitations or not be approved by the Brazilian Antitrust System (Sistema Brasileiro de Defesa da Concorrência – SBDC).
• We may not adapt efficiently to the changes in fashion trends and to our clients’ preferences.
• Eventual problems in the relationship with our Franchise Store network may have a negative impact on our operations and results.
• The growth of our revenues and results depends partly on our efficient capital allocation, acquisitions, rental agreement renewals, opening of new Own and Franchise Stores, as well as on the amount, timing and form of investments.
• The real estate rental market for the fashion retail industry is highly competitive and this competition may lead to less profitable rental conditions, in case we are not successful in executing or renewing rental agreements in strategic, high-visibility locations under favorable terms.
• Most of our brands’ Own and Franchise Stores are located in shopping malls frequented by our target audience, and our ability to attract customers to our brands depends on maintaining the stores in those locations, as well as on opening new Own and Franchise Stores in other shopping malls frequented by our target audience.
• We depend on few distribution centers to distribute our products.
• The operation of the property where our headquarters and one of our distribution centers is located, in the city of São Paulo, may be affected if we do not obtain new operation licenses.
• The eventual loss of members of our senior management and/or certain professionals responsible for the creation or management of our brands, and the inability to attract and maintain qualified employees, may produce a significantly adverse effect on our activities, financial condition and operating results.
• Unfavorable decisions in legal or administrative proceedings may have adverse effects on our business.
• Foreign exchange fluctuations in the countries from which we import goods or inputs may affect our businesses negatively.
• There are risks for which we do not have insurance coverage.
• Issues related to our information technology systems, or the inability to update them, may have a negative impact on our operations and our inventory control.

2) Risks related to the Company’s direct or indirect controlling shareholder or controlling group

• Our Company‘s management may be influenced by our current controlling shareholders and their interests may conflict with those of our minority shareholders.

3) Risks related to the Company’s shareholders

• We may not be able to pay dividends or interest on equity to shareholders who own our common shares.
• The volatility and lack of liquidity of the Brazilian capital markets may limit substantially our investors’ ability to sell our common shares at the price and time they desire.
• Additional fund raising through an offering of shares or securities convertible into shares may dilute our shareholders’ stock holdings.
• The exercise of a subscription warrant issued by the Company will result in the dilution of the percentage held by our shareholders in our capital stock.

4) Risks related to the Company’s suppliers

• If we are not able to obtain inputs or outsource the manufacture of certain products we sell, or if this outsourced manufacture is unsatisfactory or does not meet our deadlines, we may not be able to supply our Own and Franchise Stores, and our sales and margins may fall, thus affecting our results negatively.
• We do not have the power to interfere, control or demand exclusivity from our suppliers and outsourcing service providers.
• We are exposed to the volatility of our input costs, which may make us susceptible to suffer adverse impacts on our activities, financial condition and operating results.

5) Risks related to the Company’s customers

• We are exposed to risks related to our customers’ default.

6) Risks related to the Company’s industry

• The fashion retail industry is sensitive to decreases in the purchasing power of consumers and unfavorable economic cycles.
• The Brazilian fashion retail industry is characterized by intense and growing competition.
• Our sales and operating results may be affected by the seasonality of clothing item sales.
• Climate changes or extended seasons may have a negative impact on our operating results.

7) Risks related to the regulation of the sectors in which the Company operates

• The properties we occupy or may come to occupy are subject to obtaining specific operational licenses.
• Market risks to which we are exposed
• The federal government has exercised, and continues to exercise, a significant influence over the Brazilian economy. The Brazilian political and economic conditions have a direct impact on our business and may produce a material adverse effect on our operating results and financial condition.
• Inflation, along with the Brazilian federal government’s efforts to fight it, may contribute significantly to economic uncertainty in Brazil and lead to an increase in the volatility of the Brazilian securities market, consequently adversely affecting the market value of our shares and our financial condition.
• Developments and the perception of risk in other countries, particularly in the United States, in Europe and in emerging countries, may affect us negatively.
• Exchange rate instability may have an adverse effect on our financial condition and operating results, as well as on the market value of our common shares.