| 1. | Qualitative Information regarding the Financial Results for the Quarter |
| | (1) | Explanation of Business Performance |
During the first three months of the current fiscal year, the Japanese economy seems, on the one hand, to have been at a standstill in terms of corporate earnings and capital investments, etc., but the income environment is gradually recovering with continued improvement in the employment situation and other conditions. However, personal consumption in Japan is sluggish as the future of the economy remains uncertain due to the slowdown in China’s economic growth resulting from trade friction between the US and China, as well as instability on the international political stage, such as the UK’s withdrawal from the EU.
As for the restaurant industry, despite a gradual improvement in personal consumption, the business environment remains harsh due not only to the increase in distribution expenses and the cost of food but also to intensified competition to attract customers from other types of businesses, such as convenience stores.
Under such circumstances, according to the basic precept of our group, “to enjoy rapid growth and become a local, public institution that acts in all good faith, with a sense of humility,” we are working to expand our business with the goal of opening 25 new Pepper Lunch restaurants and 210 new Ikinari! Steak restaurants. We have also been making ongoing efforts to strengthen our systems that enable us to provide safe and reliable products to our customers.
As a result of these business activities, net sales for the first three months of the current fiscal year were ¥17,588 million (an increase of 33.1% over the same period of the previous year), operating income was ¥178 million (a decrease of 76.8% from the same period of the previous year), ordinary income was ¥195 million (a decrease of 72.5% from the same period of the previous year), and net income attributable to shareholders of the parent company was ¥585 million (an increase of 61.8% over the same period of the previous year).
Performance by segment is as follows:
In the Pepper Lunch business, in addition to our original points card, we also launched a “free-drink” service for Rakuten Points Card andd-Points Card holders (used by more than 100 million people) in order to increase usage. Furthermore, in February we started to phase out the use of plastic straws and replace them with paper straws, etc. as part of our support for environmental issues.
In the Pepper Lunch business overseas, we opened a store on Manhattan’s Broadway in March, “The Fast Food Steak House” [PEPPER LUNCH], our first directly-managed store in New York.
Additionally, equipment sales and other revenue generated from the opening of new restaurants, as well as royalty income, etc. in overseas FC totaled ¥94 million (an increase of 7.9% over the same period of the previous year).
As a result, net sales for the first three months of the current fiscal year were ¥2,037 million (an increase of 14.2% over the same period of the previous year), but segment profit fell to ¥ 295 million (a decrease of 8.5% from the same period of the previous year) due to the cost of refurbishing existing stores and an increase in recruitment costs for full and part-time employees associated with the growth in store numbers. In addition, the opening of 14 new stores (9 of which are located overseas) brought the total number of Pepper Lunch restaurants to 478.
In the Restaurant Business we have been working to improve sales and profits in existing stores through initiatives such as the introduction of seasonal products on the menu, with individual stores promoting various business lines such as “Sumiyaki Steak Kuni” in the steak line, “Kodawari Tonkatu Katsukitei” in the pork cutlet line, and “Gyutan Sendai Natori” in the tender beef line.
However, net sales for the first three months of the current fiscal year fell to ¥333 million (a decrease of 16.7% from the same period of the previous year) while segment profit was ¥4 million (a decrease of 86.6% from the same period of the previous year), due in part to the change in businessline-up for Ikinari! Steak. In addition, the total number of restaurants in the Restaurant Business is now 15.
| | (iii) | Ikinari! Steak Business |
Beginning in February, our Ikinari! Steak Business has teamed up with Sinsiarge, Inc., the company that operates “Dokodemo Shashoku” (a food service that delivers to companies) and has also taken part in the “Marvel Studio 10th AnniversaryTie-Up Campaign” (March 20 – March 31). In addition, the restaurant at Narita Iinaka was the 400th Ikinari! Steak restaurant to be opened. To celebrate, we held various promotions including athree-day limited offer of a 300g Wild Steak for ¥1,000 (excl. tax) from February 13 to February 15; a ¥0.5 per gram discount on a “Fillet & Rib” steak platter in a time-limited Ikinari! Steak fair from February 22 to March 21; and a ¥1 per gram discount on three types of rib steaks from March 22 to March 24. In a new initiative, we launched two types of “curry products” in certain restaurants.
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