Karula Co.,LTD.

The Company selects store locations based on internal profitability-focused criteria after carefully examining trade area population, traffic volume, competitive store conditions, rent levels, and other factors. When no property matching these conditions can be found, opening stores as planned becomes difficult. In addition, changes in the surrounding location environment after a store opens may adversely affect performance. The Company continues to pursue a dominant store-opening strategy centered on "Marumatsu" in the Tohoku and northern Kanto regions, and any lost store-opening opportunities are directly linked to its medium- to long-term growth strategy.

The Company opens stores mainly by leasing land and buildings, and pays security deposits, guarantee deposits, and construction cooperation funds at the time of opening. If a landowner becomes insolvent, there is a risk that continued use of the land or recovery of claims may become difficult. Furthermore, if the Company terminates a lease early for its own reasons and cannot introduce a replacement tenant, it may be forced to forfeit the security deposits and guarantee deposits, resulting in a loss.

Due to the growth of the prepared/takeout food (nakashoku) market and other factors, existing store sales across the entire restaurant industry have been trending downward, and the Company is similarly affected. Because existing stores account for a high proportion of total sales, a decline in existing store sales directly reduces company-wide sales. The Company is working to maintain sales through menu revisions, store renovations, and profitability-focused new store openings, but has not achieved a fundamental solution.

In the areas where "Marumatsu" operates, competition is intensifying not only with Japanese- and Western-style family restaurants and fast food outlets, but also with convenience stores, delivery operators, and prepared/takeout food businesses. If competitive dynamics intensify further and the Company's relative competitiveness declines, performance may be adversely affected through rising procurement costs and decreased customer traffic. The Company strives to maintain its competitiveness through thorough cost reductions and a product lineup that makes use of seasonal ingredients.

The Company procures funds mainly through financial institution borrowings to acquire its head office, factory, and some store sites, and as of the end of FY2025 (ending February 2025), the interest-bearing debt ratio reached 42.5% of total liabilities and net assets. Current borrowings are mainly fixed-rate long-term loans with five-year terms, but future new borrowings could see higher funding costs depending on financial institutions' lending stance and interest rate trends, potentially affecting performance.

For the Company, whose basic management policy is "fulfilling customer satisfaction," securing and developing human resources is a key management challenge. While the Company is working to strengthen new graduate and mid-career hiring, introduce a management-by-objectives system, and enhance training programs, if it cannot secure and develop sufficient personnel to support new store openings, it may be forced to revise its store-opening plans, potentially affecting performance.

The functions of food manufacturing and processing as well as delivery to all stores are concentrated at the head office factory and distribution center in Tomiya City, Miyagi Prefecture. If an unforeseen event such as an earthquake or fire occurs in this area, logistics and production functions could be impaired, disrupting operations at all stores and potentially causing a material impact on performance. The annual securities report does not specify concrete countermeasures such as the establishment of backup facilities.

If hygiene-related problems occur—such as food poisoning incidents, the use of unauthorized additives by suppliers, or reputational damage arising from hygiene issues at other companies in the same industry—customer attrition and administrative penalties could affect performance. The Company implements thorough hygiene management based on HACCP, undergoes hygiene inspections guided by public health centers, and conducts regular checks based on its own cleanliness manual, but the risk remains ongoing amid growing consumer concern over food safety.

As a restaurant operator, the Company is subject to a wide range of legal regulations, including the Industrial Safety and Health Act, the Fire Service Act, the Food Sanitation Act, the Food Recycling Act, and the Act on Maintenance of Septic Tanks. If these regulations are tightened, new costs such as capital expenditures may arise, potentially adversely affecting performance. Continuous monitoring of and response to regulatory trends is required.

While the Company strives to comply with laws and regulations in conducting its business, the annual securities report explicitly states that litigation risk cannot be entirely ruled out. If litigation arises, in addition to damages or settlement costs, damage to the brand image could affect performance. Details of specific litigation cases or countermeasures are not disclosed in the annual securities report.