KOURAKUEN CORPORATION

Net sales of ¥29,404,657 million (approximately ¥29,405 million when converted from the thousand-yen figure disclosed) for FY2026 (ending March 2026) are entirely attributable to the Ramen Business, resulting in an extremely high degree of dependence on a single business. If this business is disrupted by external factors such as domestic economic downturn or stagnation, deterioration of the power supply situation leading to store closures or reduced operating hours, or by problems specific to the Company, business performance will be directly affected. The Company seeks to stabilize its business foundation by thoroughly maintaining quality, service, and cleanliness (QSC) standards across all stores.

Of directly-operated store sales in FY2026 (ending March 2026), Tohoku accounted for 40.1% and Kanto for 49.7%, with approximately 90% concentrated in these two regions. Because the Company continues to employ a dominant store-opening strategy, changes in consumer preferences or the emergence of competition from the Company's own stores could force a change in business strategy. The Company is pursuing, in parallel, an increase in market share through dominant store openings in existing trade areas and the cultivation of new customer segments through station-front store openings.

Key ingredients such as noodles and gyoza are produced under a concentrated production system based at two plants: the Koriyama Plant in Koriyama City, Fukushima Prefecture, and the Odawara Plant in Odawara City, Kanagawa Prefecture. In the event of an unforeseen occurrence, there is a risk that production capacity could decline substantially. In addition, if store-opening plans do not proceed as planned, a decline in plant utilization rates and an increase in interest-bearing debt balances could pressure business performance. The Company states that no disruptions have currently arisen in production or logistics, but responding to increased production volume and rising logistics costs accompanying future store expansion remains a challenge.

If raw material prices rise sharply due to abnormal weather or a global food shortage caused by international conflict, the Company's profitability could be affected. While price pass-through in response to cost increases from inflation is progressing, price competition that transcends industry boundaries is intensifying, and depending on the extent of pass-through, profit margins could decline. The Company is working to build a system that enables the procurement of high-quality ingredients from around the world at lower cost.

The current number of partners (temporary employees) is approximately 2,500, and further increases are expected in proportion to future store expansion. In new market areas where brand recognition has not sufficiently penetrated, if the Company is unable to secure partners in a timely and appropriate manner or provide adequate skills training, this could impede the execution of store-opening plans and lead to a decline in service quality and customer satisfaction. The Company strives to improve human capability through a tiered education system and carefully programmed on-the-job training (OJT).

In addition to hygiene problems specific to the Company, business performance could be materially affected by chain reputational damage from mishandling by other food service operators, the use of unauthorized additives by ingredient manufacturers, or food safety issues such as BSE, foot-and-mouth disease, or pesticide residue. The Company implements quality and safety measures based on HACCP principles in addition to statutory food hygiene inspections, but it is difficult to completely eliminate risks arising from external causes.

In addition to competition with other ramen operators, the Company faces broad-based competition from Japanese, Western, and Chinese restaurants, fast food chains, convenience stores, supermarkets, and delivery businesses. Price pass-through in response to cost increases from inflation is intensifying price competition that transcends industry boundaries, and competition has also arisen in securing favorable store locations and excellent personnel. The Company strives to improve customer satisfaction and increase new customer acquisition and repeat rates under the motto of "high quality, low price," but the risk of margin decline due to rising costs continues.

The Company procures funds for store construction costs and lease deposits and other store-opening expenses mainly through borrowings from financial institutions, and if interest rates fluctuate sharply, business performance could be affected through an increase in financial expenses. While funds for new store openings are planned to be financed from internal funds, there are also concerns about the impact on business performance if newly opened stores fail to generate revenue as planned and it takes time to recover the capital invested.

The Company's main store-opening areas are the Tohoku and Kanto regions, but if store performance declines significantly due to changes in the external environment or other factors, the Company may recognize impairment losses on the fixed assets of the affected stores. As the Company operates 346 directly-operated stores and the scale of store fixed assets is large, the impact on business performance in the event impairment losses are recognized could be correspondingly significant.

If stores concentrated in the Tohoku and Kanto regions or the production plants in Koriyama and Odawara are struck by large-scale natural disasters such as earthquakes, floods, or typhoons, damage to store and plant facilities and disruption of social infrastructure and logistics could make normal business operations difficult. In addition, if reputational damage occurs due to inappropriate posts or images published on the internet, this could affect brand image and social credibility and worsen business performance regardless of the truth of the content. The Company has also implemented information security measures against the risk of personal information leakage, but in the event of a leak, this could lead to damages claims and a decline in corporate image.