Life Foods Co.,Ltd.

The food service industry is trending toward contraction due to sluggish consumption trends and the expansion of home-meal replacement (nakashoku), while competition is intensifying as major companies open large numbers of stores and lower prices. In recent years, companies operating chains in the same format as the Company's core business format, "The Meshiya," have emerged, increasing the number of competing stores. Future market trends, competitor movements, and changes in customer needs may affect business performance.

Raw material prices, particularly rice prices, remain elevated, and utility costs and labor costs (driven by labor shortages) continue to rise, which could have a material impact on the Company's business performance and financial condition. In the 39th fiscal period (FY2025, ended February 2025), the Company was also affected by price increases, with net sales falling 6.2% year on year to ¥9,783,103 thousand. If the Company is unable to absorb these cost increases, there is a risk that profitability could deteriorate further.

The Company's business performance has fluctuated significantly, with ordinary losses recorded in three of the past five fiscal periods. Although the Company secured ordinary income of ¥414,888 thousand in the 39th fiscal period, it incurred extraordinary losses of ¥116,000 thousand, including impairment losses (compared to ¥469,987 thousand in the previous period). Business performance will continue to be affected by future impairment losses on unprofitable stores and by trends in new store openings, closures, and business format conversions. The number of stores at fiscal year-end has declined from 117 in the 35th fiscal period to 92 in the 39th fiscal period, continuing a trend of store network contraction.

Upon store closure, penalties and sublease losses may arise from the mid-term cancellation of leased properties, and there is a risk that security deposits paid may not be recoverable depending on the lessor's financial condition. Business format conversions may also result in the disposal of store equipment. In addition, if properties meeting the Company's store-opening criteria (investment payback period, profit contribution, etc.) cannot be secured, store opening plans may fall short of targets, potentially causing the Company to miss growth opportunities.

The Company primarily opens stores in the Kansai and Chubu regions, and there is no guarantee that its business format, menu, and "taste" will gain consumer support in other regions. While the Company has been expanding its store-opening targets from suburban arterial-road locations to urban in-building formats and small-catchment-area locations along residential roads, the profitability of each location depends on prior surveys. If expansion outside existing regions is unsuccessful, it may become difficult to recover initial investments, potentially affecting business performance.

If the supply volume of raw materials (particularly rice) declines due to poor crop harvests caused by adverse weather, business performance may be affected both in terms of securing volume and procurement prices. The Company addresses this by making immediate menu changes leveraging the characteristics of its cafeteria-style format, but if societal demands for food safety increase, procurement of ingredients could become less smooth or procurement costs could rise. Because the menu is extensive and the variety of ingredients used is wide-ranging, procurement risk is diversified, but the management burden is also high.

The Company's dependence on K Teion Foods Co., Ltd. for procurement has remained at high levels, at 48.0% in FY2024 (ended February 2024) and 45.3% in FY2025 (ended February 2025). If issues arise in the relationship with this company, or if an unforeseen event such as an accident occurs at its distribution center, store operations could be significantly disrupted. The Company does not operate its own logistics network and entrusts food delivery entirely to vendors. While the Company aims to establish a procurement system involving multiple food trading companies, it recognizes that a rapid reduction in this dependence would be difficult.

The Company operates a labor-intensive business in which many dishes are prepared in-store, requiring personnel with store management capabilities—including ordering over 300 types of ingredients—and a certain level of culinary skill. Against the backdrop of the declining birthrate, aging population, and labor shortages, if the Company is unable to secure the necessary personnel or if training does not proceed smoothly, this could lead to a decline in service quality and further increases in labor costs, potentially affecting business performance.

The Company's core business format, "The Meshiya," is characterized by a cafeteria-style format in which customers select their own dishes, and the Company operates related derivative formats such as "Meshiya Shokudo" and "Sanuki Seimen." If consumer dining styles and preferences change and the cafeteria-style format loses support, the competitiveness of the core business format could decline, potentially having a material impact on business performance. The emergence of companies operating chains in the same format has also made it a challenge to maintain differentiation.

Even as the normalization of socioeconomic activity progresses, the recovery of nighttime demand at stores has been sluggish, and the outlook remains uncertain. In the 39th fiscal period (FY2025, ended February 2025), net sales declined 6.2% year on year to ¥9,783,103 thousand, with sluggish nighttime customer traffic weighing on earnings despite the recovery in inbound demand and other factors. If nighttime demand does not recover in earnest, the recovery in net sales may be delayed, potentially hindering improvement in business performance.