10-Q: Yoshiharu Global Co. Reports First Quarter 2024 Results with Revenue Growth and Reduced Operating Losses

Yoshiharu Global Co. saw a 13.4% increase in revenue and a reduction in operating losses in the first quarter of 2024 compared to the same period in 2023.

Summary

• Yoshiharu Global Co. reported a revenue of $2.8 million for the three months ended March 31, 2024, a 13.4% increase compared to $2.5 million in the same period of 2023.
• The company's net loss for the quarter was $876,205, an improvement from the $1,144,489 loss in the first quarter of 2023.
• Restaurant operating expenses totaled $2.6 million, up from $2.4 million in the prior year, primarily due to the opening of three new restaurants.
• General and administrative expenses decreased by 13.2% to $0.9 million, reflecting management's efforts to control costs.
• The company's cash balance decreased to $1.36 million from $1.46 million at the end of the previous quarter.
• Yoshiharu is pursuing a growth strategy that includes new restaurant development, comparable sales growth, increased profitability, and heightened brand awareness.
• The company has 11 operating restaurants and 6 more under development or acquisition as of March 31, 2024.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is revenue growth and reduced losses, there are also concerns about profitability, internal controls, and a Nasdaq notification. The company is also pursuing a capital raise which is a sign of potential financial stress.

Positives

• The company experienced a significant increase in revenue, indicating strong demand for its offerings.
• The reduction in net loss demonstrates improved operational efficiency and cost management.
• The decrease in general and administrative expenses shows effective cost control measures.
• Restaurant-level operating income nearly doubled, highlighting improved profitability at the store level.
• The company's expansion strategy is progressing with the opening of new restaurants.
• Yoshiharu is actively exploring new revenue streams through franchising and retail partnerships.

Negatives

• The company continues to operate at a net loss, although it has improved compared to the previous year.
• Operating expenses remain high, particularly in labor and food costs.
• The company's cash balance decreased slightly, indicating a need for careful cash management.
• The company has identified material weaknesses in its internal controls over financial reporting.
• The company received a notification from Nasdaq for failing to file its 10-Q on time.

Risks

• The company may not be able to successfully implement its growth strategy due to various factors, including competition and macroeconomic conditions.
• The company's ability to maintain or improve comparable restaurant sales growth is uncertain.
• The company's limited number of restaurants makes it susceptible to significant fluctuations in results.
• The company has incurred operating losses and may not be profitable in the future.
• The company depends on its senior management team and the loss of key personnel could have an adverse effect.
• The company's operating results are tied to the success of future franchise partners.
• The company may face negative publicity or damage to its reputation.
• Minimum wage increases and mandated employee benefits could increase labor costs.
• The company could face infringements on its intellectual property rights.
• Challenging economic conditions may affect consumer confidence and discretionary spending.
• The company may fail to secure guests' confidential information.
• The company has material weaknesses in internal controls over financial reporting.
• The company is facing a potential delisting from Nasdaq due to late filing of its 10-Q.

Future Outlook

The company aims to achieve over 100% annual unit growth rate over the next three to five years, generate future comparable restaurant sales growth, drive high profitability, and heighten brand awareness. They also plan to initiate franchise sales in 2024 and explore partnerships with grocery retailers.

Management Comments

• Management believes that the expected cash flow from operations and the proceeds from the sales of equity to Alumni pursuant to our equity line agreement will be adequate to fund operating lease obligations, capital expenditures and working capital obligations for at least the next 12 months and thereafter.
• Management has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment.
• Management of the Company believes that these material weaknesses are due to the small size of the Companys accounting staff.

Industry Context

The company operates in the competitive restaurant industry, specifically within the Japanese cuisine sector. The company is leveraging the growing consumer appetite for Asian cuisine to expand in existing and new markets. The company is also exploring new revenue streams such as franchising and retail partnerships, which are common strategies in the restaurant industry.

Comparison to Industry Standards

• The company's revenue growth of 13.4% is a positive sign, but it is important to compare this to the average growth rate of similar restaurant chains.
• The company's net loss, while improved, is still a concern and should be compared to the profitability of other companies in the sector.
• The company's restaurant-level operating income of $224,572 should be benchmarked against industry averages to assess its operational efficiency.
• The company's average unit volumes (AUVs) of $1,054,111 should be compared to the AUVs of similar restaurant concepts to evaluate its performance.
• The company's general and administrative expenses as a percentage of sales should be compared to industry benchmarks to assess its cost management.
• The company's expansion plans should be compared to the growth strategies of other restaurant chains to evaluate its competitiveness.

Related Party Transactions

• The company had a due to related party balance of $81,097 as of March 31, 2024, with APIIS Financial Group, a company owned by James Chae.
• Compensation to James Chae was $42,154 for the three months ended March 31, 2024.
• Effective October 2021, JJ transferred IP assets to James Chae, and then Mr. Chae contributed 100 % of the equity interests in each of the Entities to Yoshiharu Holdings Co.
• In December 2021, the Company received subscriptions for the sale of 670,000 shares of class A common stock to investors for $2.00 per share, many of whom are friends and family of James Chae.
• Immediately prior to the IPO in September 2022, the Company exchanged 1,000,000 shares of class A common stock held by James Chae into 1,000,000 shares of class B common stock.

Stakeholder Impact

• Shareholders may be concerned about the company's continued net losses and the material weaknesses in internal controls.
• Employees may be affected by the company's cost-cutting measures and potential restructuring.
• Customers may be impacted by changes in menu offerings or restaurant locations.
• Suppliers may be affected by the company's purchasing decisions and payment terms.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company needs to submit a compliance plan to Nasdaq within 60 days to avoid delisting.
• The company needs to address the material weaknesses in its internal controls over financial reporting.
• The company needs to continue to execute its growth strategy, including new restaurant development and franchise sales.
• The company needs to manage its cash flow carefully and ensure it has sufficient liquidity.
• The company needs to file the requisite financial statements required by the SEC.

Key Dates

Keywords

ramen, Japanese cuisine, restaurant, expansion, revenue growth, profitability, franchising, financial results, operating expenses, net loss