Garden Co., Ltd.

Amid destabilizing international conditions and logistics disruptions, raw materials such as energy resources and foodstuffs have been rising in price globally. Exchange rate fluctuations, reduced harvests due to abnormal weather, and social disruptions such as terrorism and war are factors driving price volatility, and a significant increase in food procurement costs in the restaurant business could affect operating results and financial condition. The Company is addressing this through supplier diversification and other measures, but fundamental solutions remain limited.

In FY2025 (ended February 2025), the number of employees leaving reached a high level of 54, with a turnover rate of 18.62%, as irregular working conditions including late-night operations make it difficult to retain staff. Failure to meet recruitment plans or staff shortages due to turnover could hinder business continuity and expansion, while further increases in labor costs from amendments to various labor laws and minimum wage hikes could affect operating results and financial condition. The Company is implementing measures such as reduced working hours and enhanced part-time hiring, but this remains a structural challenge for the industry as a whole.

Incidents damaging the brand image of restaurant operators—such as the spread of videos depicting part-time employee misconduct ('baito terror') or unsanitary behavior, and slander on social media and restaurant review sites—have occurred frequently across the industry. The Company itself has experienced false posts and video uploads, and has responded through legal counsel with disclosure requests and takedown applications; however, depending on the speed and scale of information spread, this could result in significant losses such as a decline in share price or reduced customer traffic. While preventive measures such as security camera installation and employee training have been implemented, complete prevention remains difficult.

Due to Japan's accelerating population decline, reduced dining-out opportunities amid heightened cost-consciousness, and intensifying low-price competition, the business environment surrounding the restaurant industry is expected to remain challenging going forward. Because barriers to entry in the restaurant industry are low, leading to a high number of new entrants, price competition amid weak personal consumption is expected to intensify further. The Company is pursuing differentiation through clarifying its brand concepts and strengthening service and product capabilities, but further intensification of competitive conditions could affect operating results and financial condition.

In FY2025 (ended February 2025), sales of the Ikkakuya brand totaled ¥10,258,841 million (Note: figure derived from the original in thousand-yen units, converted to approximately ¥10,259 million), accounting for 63.0% of sales by brand, indicating an extremely high degree of dependence on a specific business format. If external factors such as worsening domestic and overseas economic conditions, rising food costs, or reputational damage related to the ramen business were to disrupt this business, the impact on overall performance would be substantial. The Company is working to diversify its business portfolio through new store openings and franchise expansion of Yamashita Honki Udon, but its current level of dependence remains high.

Founder and President and Representative Director Ken Kawashima has extensive experience in business development including M&A, and plays a central role in determining overall management policy and strategy. He has also provided personal guarantees for the lease agreements of certain stores, and if he were to become unable to continue his involvement in management, this could have a material impact on business continuity and operating results. The Company is advancing delegation of authority and cultivation of capable personnel, but currently remains highly dependent on this specific individual.

Given the nature of the restaurant business, if hygiene issues such as food poisoning occur, the Company could face a business suspension order for a certain period under the Food Sanitation Act, as well as customer attrition due to reputational decline. The Company has established hygiene management manuals at each store and conducts regular hygiene inspections by external specialist firms, but thorough management remains a challenge across its multi-store operations, including franchise locations. The occurrence of hygiene issues could have a broad impact on business expansion, operating results, and financial condition.

The Company sources 100% of the soup, ramen sauce, and noodles used for Ie-kei menu items in the Ikkakuya format from Gift Co., Ltd., with dependence on this company reaching 22.9% of total purchases (FY2025, ended February 2025). Since Gift Co., Ltd. also operates a competing Ie-kei ramen chain, prior consultation is required for new store openings, and there is a risk that store opening plans may go unmet in cases where opening is not approved. The Company is advancing research and development of original noodles and soup in preparation for potential supply disruption, but establishing an alternative procurement system remains a work in progress.

As of the end of FY2025 (ended February 2025), interest-bearing debt (including borrowings, bonds, and lease obligations) accounted for 36.0% of total assets, indicating a high degree of reliance on financing from financial institutions. If a rapid rise in market interest rates or a change in financial institutions' lending stance were to make borrowing or refinancing difficult, deteriorating cash flow or increased interest expense could affect business performance and financial condition. Borrowings from Mizuho Bank and Bank of Yokohama are subject to financial covenants, and breach of these covenants carries the risk of acceleration of debt and a requirement for lump-sum repayment.

In September 2023, it was confirmed that the head office's file storage server had been infected with ransomware following unauthorized external access; while an investigation by a specialist firm found no evidence of data leakage, this incident represents an instance where cyberattack risk actually materialized. Should personal information ever be leaked, the resulting decline in trust could lead to reduced sales and the incurrence of damages, affecting operating results and financial condition. The Company has implemented recurrence prevention measures such as migrating file servers to the cloud, requiring regular password changes, and conducting IT literacy training, but continuous response to increasingly sophisticated cyber threats is required.