10-Q: Yoshiharu Global Co. Reports Increased Revenue but Continues to Face Losses in Q2 2024

Yoshiharu Global Co. saw a significant increase in revenue driven by new acquisitions, but net losses persisted in the second quarter of 2024.

Summary

• Yoshiharu Global Co. reported a revenue of $6.1 million for the six months ended June 30, 2024, a 30.9% increase compared to the same period in 2023.
• The revenue increase was primarily due to the acquisition of three Las Vegas restaurants in April 2024.
• The company's net loss for the six months ended June 30, 2024, was $1.98 million, an improvement from the $2.16 million loss in the same period of 2023.
• Restaurant operating expenses increased to $5.7 million, up from $4.3 million in the prior year, driven by the new acquisitions and overall growth.
• General and administrative expenses decreased to $2.0 million from $2.2 million, reflecting management's efforts to control costs.
• The company's loss per share was $1.48 for the six months ended June 30, 2024, compared to $1.77 in the same period of 2023.
• The company had 1,242,722 shares of class A common stock and 100,000 shares of class B common stock outstanding as of August 19, 2024.

Sentiment

Score: 5

Explanation: The document shows a mixed picture with strong revenue growth offset by continued losses and internal control issues. The company is growing but needs to improve profitability and internal controls.

Positives

• Revenue increased by 30.9% year-over-year, indicating strong growth.
• The acquisition of three Las Vegas restaurants has significantly boosted revenue.
• Net loss decreased by 8.5% year-over-year, showing improvement in profitability.
• General and administrative expenses decreased by 9.5%, demonstrating effective cost management.
• The company is actively pursuing new restaurant development and franchise opportunities.

Negatives

• The company continues to operate at a net loss, despite increased revenue.
• Labor costs increased by 38.8%, impacting overall profitability.
• Rent and utilities expenses increased by 38.5%, also impacting profitability.
• The company has identified material weaknesses in its internal controls over financial reporting.

Risks

• The company may not be able to successfully implement its growth strategy if it cannot identify appropriate restaurant locations or expand in existing and new markets.
• The company may not be able to maintain or improve its comparable restaurant sales growth.
• The restaurant industry is highly competitive, which could impact the company's performance.
• The company has incurred operating losses and may not be profitable in the future.
• The company depends on its senior management team and other key employees, and the loss of key personnel could have an adverse effect on the business.
• The company's operating results and growth strategies will be closely tied to the success of its future franchise partners.
• The company may face negative publicity or damage to its reputation, which could arise from concerns regarding food safety and foodborne illness.
• Minimum wage increases and mandated employee benefits could cause a significant increase in labor costs.
• The company could face infringements on its intellectual property rights and be unable to protect its brand name, trademarks, and other intellectual property rights.
• Challenging economic conditions may affect the business by impacting consumer confidence and discretionary spending.

Future Outlook

The company aims to achieve in excess of 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 sales of franchises in 2024 and are exploring the development of instant ramen noodles and partnerships with grocery retailers.

Management Comments

• The company is led by experienced and passionate senior management who are committed to our mission.
• 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.

Industry Context

The company operates in the rapidly growing Asian cuisine market, which provides opportunities for expansion in both existing and new U.S. markets, as well as internationally. The company is also exploring new revenue streams such as franchising and retail partnerships.

Comparison to Industry Standards

• The company's revenue growth of 30.9% is strong compared to the overall restaurant industry, which has seen moderate growth in recent periods.
• However, the company's continued net losses are a concern, as many established restaurant chains aim for profitability.
• The company's labor costs as a percentage of sales at 45.3% is higher than the industry average, which is typically around 30-35%.
• The company's general and administrative expenses as a percentage of sales at 32.8% is also higher than the industry average, which is typically around 10-15%.
• The company's AUV of $1,088,764 is comparable to other fast-casual restaurant chains, but there is room for improvement.
• Comparable companies such as Noodles & Company and Shake Shack have similar growth strategies, but they have achieved higher profitability and better cost control.

Related Party Transactions

• The company loaned money to APIIS Financial Group, a company owned by James Chae, with a balance of $1,157,800 as of June 30, 2024.
• Compensation to James Chae was $95,879 for the six months ended June 30, 2024.
• The company issued a $600,000 promissory note and a $1.2 million convertible note to Mr. Jihyuck Hwang in connection with the acquisition of three Las Vegas restaurants.

Stakeholder Impact

• Shareholders may be concerned about the continued net losses despite revenue growth.
• Employees may be impacted by the company's growth and expansion plans.
• Customers may benefit from the company's expansion and new menu offerings.
• Suppliers may see increased business due to the company's growth.
• Creditors may be impacted by the company's debt obligations.

Next Steps

• The company plans to continue pursuing new restaurant development.
• The company plans to initiate sales of franchises in 2024.
• The company is exploring the development of instant ramen noodles.
• The company intends to explore partnerships with grocery retailers to provide small-format Yoshiharu kiosks in stores.

Key Dates

Keywords

ramen, Japanese cuisine, restaurant, revenue, net loss, restaurant expansion, franchise, EBITDA, operating expenses, financial results