Kura Sushi, Inc.

If hygiene issues such as food poisoning occur, there is a possibility of significant impacts including a decline in sales due to damage to the company's image, incurrence of damages compensation costs, and business suspension or revocation of business licenses. The Group places "food safety" at the core of its management philosophy and has implemented measures such as obtaining HACCP certification at the Kaizuka Central Kitchen, establishing a Hygiene Management Department, and introducing the patented antibacterial sushi cover "Sendo-kun" at all stores. The occurrence of food poisoning is explicitly identified as the most significant risk factor, and its impact on business continuity is extremely large.

If inappropriate ingredients are found to have been mixed in, there is a possibility of adverse effects on business performance and financial condition due to loss of social credibility. In addition, if raw material prices rise unexpectedly or procurement becomes difficult due to global fluctuations in food demand, sudden currency fluctuations, or fishing regulations, there is a risk of declining customer satisfaction. As countermeasures, the Group is pursuing traceability, diversifying and expanding sourcing regions, mandating quality inspections and regular reporting for all ingredients, and promoting its own and contracted aquaculture business through "KURA Osakana Farm Co., Ltd.," established in November 2021.

If malicious rumors spread and circulate on the internet, regardless of their veracity, the Group's brand and social credibility could be damaged, potentially adversely affecting business performance and financial condition. In the restaurant industry, information spreads extremely quickly through SNS and other channels, and once a brand image is damaged, considerable cost and time are required for recovery. The Group has adopted a policy of responding promptly when inappropriate conduct is discovered, but it is difficult to completely prevent malicious information dissemination by third parties.

The Group operates 79 stores through its US subsidiary "Kura Sushi USA, Inc." and 60 stores through its Taiwanese subsidiary "Asia Kura Sushi Co., Ltd.," and continues to pursue multi-store expansion; however, unexpected political, economic, or social changes in the countries where it operates could cause problems in business activities. As overseas business expands, there is a structural increase in country risk, regulatory risk, and local competitive risk. The Group conducts thorough market research (selection of candidate regions, review of relevant laws and regulations, etc.) to address this, but uncertainty cannot be completely eliminated.

While economic activity has largely returned to normal following the reclassification of COVID-19 to Category V, if unidentified variant strains emerge and government or local authorities impose business restrictions, or if consumer behavior becomes restrained, there is a possibility of a significant impact on business performance. The restaurant industry is a business format that tends to be directly and severely affected during the spread of infectious diseases, as demonstrated by past experience. As countermeasures, the Group is promoting the active introduction of the antibacterial sushi cover "Sendo-kun" and "Smart Kura Sushi" to create an environment where customers can dine with peace of mind and safety.

If suitable properties meeting conditions such as rent, trade area population, accessibility, and competitive store conditions cannot be secured when opening new stores, store openings may not proceed as planned, potentially adversely affecting business performance and financial condition. In addition, if the Group fails to secure and train personnel commensurate with its store opening plans, there is a risk of disruption to store operations. Amid worsening labor shortages across the restaurant industry as a whole, the feasibility of recruitment plans is an important constraint on business expansion.

Since some raw materials such as seafood are imported via trading companies, fluctuations in foreign exchange rates may affect raw material procurement prices, potentially adversely affecting business performance and financial condition. In addition, there is a risk that assets, liabilities, sales, and expenses will fluctuate when the foreign-currency-denominated financial statements of overseas subsidiaries in the US and Taiwan are translated into Japanese yen. As overseas business expands, exposure to foreign exchange risk is structurally set to increase further.

The Group outsources store management systems, including ordering of all ingredients, employee attendance management, and sales management, to external vendors; however, if a system failure occurs due to unforeseen circumstances such as a major disaster, power outage, equipment defect, or computer virus, it could disrupt store operations such as ingredient procurement and attendance management. The Group actively promotes IT adoption in the restaurant industry and has a high degree of dependence on its systems, meaning the business impact of a failure is relatively large. While the Group states that it has established a robust framework by outsourcing to reliable external vendors, management risks inherent in outsourcing also exist.

If legal regulations related to the restaurant industry, such as the Food Sanitation Act, the Food Recycling Act, and the Act against Unjustifiable Premiums and Misleading Representations, are tightened or amended, there is a possibility of adverse effects on business performance and financial condition. In particular, regulations related to food labeling, hygiene standards, and waste disposal tend to be strengthened alongside growing social concern, and an increase in compliance costs is anticipated. The Group has established its own standards, such as the elimination of four major additives, but responding to regulatory changes requires continuous monitoring and organizational preparation.

The Group provides deposits under lease agreements with store owners and lends construction cooperation funds to support owners' store construction; if amounts become unrecoverable due to an owner's bankruptcy or other reasons, there is a possibility of adverse effects on business performance and financial condition. Since construction cooperation funds are repaid in installments through offsetting against rent, there is an inherent risk of loss if an owner's financial deterioration becomes prolonged. This risk is based on business practices specific to the restaurant industry, and exposure to this risk expands as the number of store openings increases.