NATTY SWANKY holdings CO.,Ltd.

The Group operates exclusively under the single brand "Nikujiru Gyoza no DANDADAN" (a franchise-based gyoza dining brand), and if the brand becomes outdated, there is a risk of decelerating growth leading to a decline in sales. In addition to the maturation of the dining-out industry, the growth of the ready-to-eat (nakashoku) market, and intensifying competition, factors specific to the izakaya industry such as young people's declining interest in alcohol and the declining birthrate and aging population are also worsening the market environment. Since risk diversification through brand diversification has not been pursued, the Group faces a structural vulnerability in which damage to the single brand directly impacts the entire business.

Amid a worsening labor shortage stemming from Japan's overall declining working population, securing and developing excellent personnel is essential for the Group to continue expanding store openings, but this may prove difficult. In addition, under a store operation model that heavily utilizes part-time and temporary workers, if the scope of mandatory social insurance enrollment for short-hour workers expands or labor regulations are tightened, there is a risk that statutory welfare expenses and the cost of strengthening staffing systems will increase. Continued escalation of labor costs directly squeezes profitability and may affect the Group's financial position and operating results.

If issues related to food safety, such as foreign object contamination or food poisoning, occur, there is a risk that a decline in social trust will lead to customer attrition and reduced sales. The Group provides hygiene management training to employees and conducts store hygiene checks through external organizations, but this does not guarantee complete prevention. In addition, if serious errors occur in product labeling, such as misrepresentation of origin or falsification of expiration dates, this could similarly damage social trust and affect the Group's financial position and operating results.

The Group strives to reduce raw material costs by securing multiple procurement channels, but if raw material prices rise, there is a risk that profitability will deteriorate through an increase in the cost ratio. In the dining-out industry, raw material costs are a major component of cost of sales, and in a competitive environment where price pass-through is difficult, the impact on profit is significant. In particular, due to concentration on a single brand and single business format, dependence on specific raw materials (such as gyoza wrappers and meat) may be high.

The Group primarily procures funds for store openings, including store fixtures and leasehold deposits, through borrowings from financial institutions, and as of the end of January 2025, the interest-bearing debt dependency ratio stood at 22.3% of total assets. Some loan agreements include financial covenants, and if the conditions are breached, there is a risk of an increase in the borrowing interest rate or loss of the benefit of the grace period for repayment. In a future rising interest rate environment, an increase in the interest burden could affect the Group's financial position and operating results.

The Group has positioned aggressive new store openings as a pillar of its growth strategy, but there is no guarantee that properties meeting desired conditions can be secured or that construction schedules will be adhered to. If delays occur in securing properties or construction periods are extended, the planned acquisition of sales and profits will be pushed back, which may affect the Group's financial position and operating results. Furthermore, even after opening, there is a risk that store profitability as originally planned cannot be secured due to changes in the environment, such as the opening of competing stores or redevelopment around stations.

The Group conducts impairment testing with each store treated as an independent cash-generating unit, and if profitability declines significantly due to sudden changes in the external environment or a decision is made to withdraw from a store, an impairment loss will be recognized. As the balance of store assets increases along with aggressive store expansion, the emergence of unprofitable stores could lead to the temporary recognition of significant losses. In addition, leasehold and security deposits also carry a risk of becoming uncollectible if the financial condition of the lessor deteriorates.

In addition to expanding directly-operated stores, the Group also expands through franchise agreements, but if operational guidance does not adequately reach franchise stores, there is a risk that events adversely affecting the brand may occur. If food safety issues, customer service problems, or legal violations occur at franchise stores, this could damage the credibility of the brand as a whole, potentially affecting the financial position and operating results of the entire business, including directly-operated stores. Under a single-brand strategy, problems at franchise stores are structurally likely to spread across the entire group.

Representative Director and President Yuji Iishi and Chairman of the Board Ryuya Tanaka possess deep expertise in store operations, menu development, and recipe creation for "Nikujiru Gyoza no DANDADAN," and play important roles in driving the business forward. If, for any reason, these two individuals become unable to carry out their duties, there is a risk of a significant impact on business continuity. The Group is working to systematize its organization, develop personnel, and delegate authority, but resolving this dependence is expected to take a certain amount of time.

The Group is subject to a wide range of legal regulations related to the food service industry, including the Food Sanitation Act, the Basic Act on Food Safety, regulations on entertainment businesses, laws prohibiting drinking by minors, and the Road Traffic Act. If changes occur to these regulations, compliance costs will be incurred, and if the Group violates these regulations, there is a risk of restrictions on business activities and a loss of social trust. In managing personal information under the Act on the Protection of Personal Information, if a leak or unauthorized use occurs, this may affect the Group's financial position and operating results through claims for damages and other actions.