WDI Corporation

There is a risk that costs may be recognized ahead of revenue when the Company cannot secure properties meeting store-opening criteria or when multiple stores are opened simultaneously. In addition, if the number of underperforming stores increases due to changes in the business environment, costs associated with store closures and deterioration in performance may occur. The Company Group addresses this by conducting trade-area surveys and investment feasibility studies, and by limiting new store openings to properties that satisfy certain conditions.

The Company Group operates leading domestic and overseas brands as a franchisee. If a franchisor refuses to renew a contract upon its expiration, the Group may no longer be able to continue operating stores under that brand, which could have a material impact on its business performance. Although the Group strives to build favorable relationships with each franchisor, contract renewal also depends on the counterparty's intentions.

If misconduct or deteriorating profitability occurs at stores operated by franchisees—57 domestic and 3 overseas—brand image damage or a decline in royalty income may result. If troubles with franchisees escalate into litigation, there is also a risk of having to refund franchise fees or store design fees, or bear damages. The Company Group provides operational support such as supervisor visits and group training sessions, but there have been no lawsuits filed by franchisees since the Group's establishment.

The restaurant business has low barriers to entry, leading to numerous new entrants, and the market in Japan is expected to shrink due to the declining birthrate and aging population, intensifying competition. If intensifying competition with rivals causes existing store sales to decline or leads to withdrawal from underperforming stores, business performance could be affected. The Company Group differentiates itself by focusing on the key theme of "building trusted brands," leveraging its multi-format brand portfolio, and researching and developing new business formats.

Direct damage to stores and repair costs arising from natural disasters such as earthquakes and typhoons, or from terrorist acts, as well as temporary store closures and significant changes in consumer behavior during the spread of infectious diseases such as COVID-19, may affect business performance. As the Company Group operates in multiple regions both in Japan and overseas, it is exposed to a wide range of external factors, including geopolitical risks.

Procurement prices for food ingredients may fluctuate significantly due to poor crop harvests caused by unfavorable weather, government-imposed safeguard measures, or tariff increases. Rising raw material costs pose a risk of directly squeezing the profitability of the restaurant business. The Company Group takes measures to secure multiple procurement routes, but it is difficult to completely avoid price fluctuations caused by external factors.

WDI CORPORATION, the holding company, is a Japanese entity, and since the financial statements of overseas affiliates denominated in local currencies are translated into yen, fluctuations in exchange rates affect consolidated business performance. In addition, foreign-currency-denominated loans to overseas affiliates may generate significant foreign exchange gains or losses. Although the Group formulates budgets taking global conditions into account, it may be difficult to respond to unexpected currency fluctuations.

As of the end of the current consolidated fiscal year, the ratio of interest-bearing debt (borrowings) to total assets stood at a relatively high level of 25.3%. As the Group currently procures funds mainly at fixed interest rates, it will not be affected by interest rate fluctuations for a certain period; however, future increases in borrowing rates could raise the financial burden and affect business performance and financial condition. The Company Group is working to reduce its interest-bearing debt.

If the profitability of fixed assets such as stores declines significantly due to changes in the external environment, the Company may recognize impairment losses in accordance with the "Accounting Standard for Impairment of Fixed Assets," which could have a material impact on business performance and financial condition. In addition, the balance of leasehold and guarantee deposits stood at ¥1,891 million at the end of the current consolidated fiscal year, and if these become uncollectible due to deterioration in the financial condition of property owners, this would also affect the Group's financial condition.

The Company Group relies on information systems for operations such as food ingredient procurement, store operations, and order processing. If a system failure occurs due to program defects, computer viruses, or external cyberattacks, this could hinder efficient restaurant operations and timely food delivery, resulting in the loss of important data and incurring response costs. In the event of a personal information leak, there is also a risk of loss of public trust and claims for damages.