j-Group Holdings Corp.

The environment surrounding the restaurant industry is expected to remain challenging going forward, due to persistently high raw material costs, rising utility, logistics, and construction costs, and chronic labor shortages. If customer traffic declines due to changes in commercial flow at commercial facilities, station-front areas, and commercial clusters, or due to competition with surrounding facilities, sales at existing stores may decline and affect business performance. The Group is working to maintain and expand existing-store sales through service quality improvements, menu changes, interior and exterior renovations, and format conversions.

The Group is advancing a portfolio shift from large-scale general izakaya to specialty, small-format, and suburban stores, primarily in the Tokai, Kanto, and Kansai regions, but it may not be able to secure sufficient store locations to meet planned opening numbers. In addition, if new store openings become concentrated near the fiscal year-end due to delays in interior construction work or delays in the completion of host commercial facilities, there is a risk that profit may be temporarily depressed due to the resulting one-time costs. The Group carefully considers location characteristics, lease terms, sales forecasts, and investment profitability of candidate sites before deciding on store locations.

The Group's policy is to continue expanding its business through a multi-format strategy and to keep developing new formats, but it may fail to develop formats that are accepted by customers due to changes in market needs and consumer preferences. Failure in format development could lead to the stalling of new store opening plans or a decline in the competitiveness of existing stores, affecting the business outlook and business development. The Group addresses this through format development and adaptation of existing formats tailored to location characteristics and customer/regional needs.

At the time of new store openings or format conversions, consumable expenses for fixtures and equipment and sales promotion costs arise temporarily, and a large number of openings or openings concentrated near fiscal year-end can be a factor depressing profit. At the time of store closures, losses on disposal of fixed assets and penalties associated with the cancellation of lease and rental agreements may arise. The Group strives to minimize the impact on cash flow and business performance through the timing of withdrawal and the sale of interior fixtures and equipment.

If market conditions fluctuate due to supply-demand changes such as poor crop harvests caused by unfavorable weather or the government's invocation of safeguard measures, rising ingredient costs or procurement difficulties may affect business performance. The same risk applies if consumers move away from eating out due to concerns about food safety. The Group avoids dependence on specific ingredients through its multi-format business development and is actively working to ensure the safe and stable procurement of ingredients.

The Group operates its business under business licenses obtained pursuant to the Food Sanitation Act, but if a food poisoning incident or similar event occurs, it could significantly affect business performance through food disposal, revocation of business licenses, business suspension orders, damages claims, and loss of credibility. The Group addresses this by thoroughly implementing daily management based on in-store food hygiene management manuals, confirming hygiene management status through internal audits, and establishing a food hygiene committee that conducts regular in-house training.

As of the end of February 2025, interest-bearing debt stood at ¥5,800 million, and the ratio of interest-bearing debt to total assets of ¥9,813 million was a high 59.1%. Since capital expenditure funds are primarily raised through borrowings from financial institutions, a rise in interest rates could increase interest payment burdens and affect business performance. The Group strives to maintain an appropriate level of interest-bearing debt while comprehensively considering economic conditions, interest rate trends, and financial balance.

As of the end of February 2025, lease deposits amounted to ¥922 million (9.4% of total assets), and there is a possibility that all or part of these deposits may not be returned upon store closure if the lessor's financial condition deteriorates. In addition, when the Group terminates an unprofitable store's lease early for its own reasons, deposits may not be returned depending on the terms of the lease agreement. Since the Group's basic policy is to open stores through leased properties, this risk is structurally expected to continue.

Jiro Nitta, Chairman and Representative Director, has played a crucial role since the company's founding in formulating management policies, determining management strategy, and developing business formats and locations, and if he becomes unable to carry out his duties, it could affect business performance and business development. The Group is working to transition to an organizational structure that does not rely excessively on him, through enhancing its organizational structure and delegating authority based on job responsibility and authority regulations, but as this transition is still in progress, the risk remains. The Group states that the degree of dependence will relatively decrease as human resource development and enhancement progress.

The Group strives to have external experts conduct advance checks and to obtain trademark registrations for the names used at each store, but it may face claims from third parties for invalidation trials of trademark registrations, damages, injunctions against trademark use, or injunctions against business operations. If such claims are upheld, the Group may be forced to change store names or business formats, and payment of damages could affect business performance. Because the Group operates a large number of stores and formats through its multi-format development, the scope of trademark management is broad and requires continuous monitoring.