Eternal Hospitality Group Co.,Ltd.

The restaurant industry is a mature market, and cross-industry competition for customer acquisition against prepared foods and convenience stores is intensifying amid the increasing selectiveness of personal consumption. A further deterioration in the market environment could lead to a decline in existing-store sales, which may affect the Group's business results and financial condition. The Group is responding through menu revisions and the aggressive opening of new directly-operated stores.

Because the business model relies heavily on chicken as its primary ingredient, simultaneous outbreaks of avian influenza could make it difficult to secure chicken supplies, potentially forcing the suspension of operations. In addition, reputational damage arising from avian influenza outbreaks could cause consumers to avoid chicken. The Group addresses this risk by securing procurement routes from multiple domestic production areas, but responding to simultaneous multiple outbreaks would be difficult.

There is a risk that food ingredient prices could surge due to sudden changes in supply and demand, such as rising grain prices associated with soaring crude oil prices, higher vegetable prices due to abnormal weather, and government-imposed safeguard measures. A rise in ingredient costs, particularly for chicken, would directly pressure profitability and may affect the Group's business results and financial condition. The Group is addressing this through diversification of procurement routes.

Securing capable personnel is essential for stable growth. If personnel recruitment and training fail to keep pace with the expansion of directly-operated stores and Camarade franchise member companies, this could lead to a decline in service quality and delays in store opening plans. The Group is working on promoting part-timers and temporary staff to employee status, actively hiring mid-career and new graduate employees, and developing personnel with an emphasis on corporate philosophy education. As of July 31, 2025, the Group employed 12,248 part-timers and temporary staff, representing a substantial scale of workforce to secure.

As of July 31, 2025, the Group employed 12,248 part-timers and temporary staff, who are indispensable to store operations. If the eligibility criteria for mandatory social insurance enrollment for part-time workers are expanded in the future, this could lead not only to increased insurance premium burdens but also to difficulty securing personnel due to a decline in the number of job seekers. Similarly, stricter or expanded labor regulations could lead to increased statutory welfare costs and higher costs associated with strengthening staffing systems.

If Camarade chain franchise stores of "Torikizoku" fail to provide services in accordance with the Group's guidance, or if hygiene management issues arise, brand value could be impaired, potentially affecting the Group's business results and financial condition. In addition, if the number of franchise companies and stores declines due to a general contraction of the restaurant market or deterioration in franchisee performance, royalty income and other revenues could decrease. The Group provides guidance on hall operations, kitchen operations, hygiene management, and other matters based on the Camarade agreement.

Directly-operated "Torikizoku" stores are mainly concentrated in three market areas: the Kansai, Kanto, and Tokai regions, with a sauce factory and head office functions located in Osaka Prefecture in the Kansai region in particular. If a natural disaster such as an earthquake occurs in these areas, this could result in the suspension of operations due to damage to store facilities or the sauce factory, disruption of head office functions, and a significant decline in customer traffic due to deterioration in the consumption environment. Substantial costs may also be incurred if large-scale repairs become necessary.

If a serious incident such as food poisoning occurs, or if errors in product labeling such as misrepresentation of origin or tampering with expiration dates occur, this could significantly affect the Group's business results and financial condition due to a decline in social trust. The Group has obtained business permits and filed notifications for food hygiene managers based on the Food Sanitation Act, and is working to strengthen hygiene management at each store; however, management including that of ingredient suppliers is also necessary, making it difficult to completely eliminate this risk. The Group is focusing company-wide on developing and strengthening its internal systems.

If store profitability deteriorates significantly due to changes in the external environment and diverges substantially from business plans, impairment losses on fixed assets and lease assets may need to be recorded, which could affect the Group's business results and financial condition. The Group's store expansion is primarily based on leased properties, and as of July 31, 2025, the balance of leasehold and other guarantee deposits amounted to ¥2,073,147 thousand (9.7% of total assets). There is also a concomitant risk that guarantee deposits may become uncollectible due to deterioration in the financial condition of lessors.

Overseas business expansion is one of the Group's medium-term growth strategies, but various risks exist, including differences in laws and regulations, political, economic, and social conditions, culture, religion, and business customs across countries, as well as exchange rate fluctuations. If unforeseen problems arise and make it difficult to recover investments, this could affect the Group's business results and financial condition. The Group seeks to mitigate these risks by building good relationships with local partner companies and by understanding the business environment and gathering information through coordination among relevant departments.