Choushimaru Co.,Ltd. Q2 FY2025 earnings call

Core Strategic Priorities

• Two overarching annual priorities: further strengthening existing store growth, and stabilizing newly launched business formats
• Commitment to increased investment in productivity improvements and efficiency, with a focus on mechanization and labor saving centered on kitchen operations
• Four core strategic initiatives for the 2025 February Term: store development, DX promotion, talent acquisition, and new value creation in the U.S. market

Store Development Progress

• Opened two new-format stores in the first half: Sushi Gen, a fully reservation-only high-end sushi format in Ichikawa, Chiba (June 2024); Standing 鮨 Bar Yasuke, a standing sushi concept inside JR Akabane Station, Tokyo (July 2024); a third new format store, Choushimaru Miyabi at Ario Hashimoto, scheduled to open January 23, 2025, with a focus on food court-aligned takeout operations
• All three new formats are experimental and outside Choushimaru's traditional roadside store core, with management prioritizing getting these new formats profitable and scaled
• Completed remodels at 5 existing stores, targeting 10% sales growth post-remodel: Kyodo Store hit 108.4% of pre-remodel sales, and other remodeled locations exceeded 110% of pre-remodel sales

DX Promotion Progress

• Added new features to the En customer app: recommended menu display, waiting list functionality, and favorite store registration
• Planned app updates launching February 2025: automatic application of app points/coupons for pre-order credit card payments (eliminating in-store manual processing), and table-side payment functionality, which will be tested at pilot locations then rolled out to all stores
• As of January 6, 2025, the En app has 471,850 registered members, 163,000 average active users, and 32-33% of all checkout transactions go through the app
• Future app development will focus on features to attract new customers and drive word-of-mouth growth

Talent Acquisition & Retention

• Management notes growing labor shortages at the store level, so is diversifying recruiting to add channels targeting younger workers, in addition to existing channels focused on experienced mid-career candidates in their 40s
• Hiring limited-contract employees for workers with restrictions on availability/location, and increasing investment in internal promotions and employee referral programs
• Prioritizes training for inexperienced mid-career hires: developed a two-stage training route (initial training at a central training store, advanced regional training) before full store placement, to convert new hires to productive staff
• Training investments also support growing the pipeline of female store managers, as applications from women interested in sushi/restaurant careers have increased
• Improved retention benefits: added 12 scheduled store closure days (15 days per 5 months once the fiscal year schedule normalizes) to give workers 3-day consecutive blocks of time off; introduced GLTD (group long-term disability insurance) that covers a portion of lost income up to age 60/65 after sick leave benefits expire

Other Operational Initiatives

• Outreach mobile rotating sushi: 137 events held in H1 with 6,281 attendees, on track to more than double prior year full-year results; the current 3-person 2-lane team is at capacity with 6.14 million yen in sales in December 2024, so management is evaluating adding staff to meet growing demand
• U.S. market entry: a joint venture with Royal Holdings and Sojitz was established in March 2024; site selection for the first two locations is finalized, with operational movement expected in 2025, with further disclosures to follow once all three parties reach agreement
• SDGs/CSR: 4.9 tons of food donated to Chiba Food Bank across 35 donations since 2021; increased focus on promoting farmed fish (Aurora salmon, Miyabi sea bream) alongside traditional wild caught fish, with stable supply and quality as core priorities; 66 food education/ career education sessions scheduled for local primary/secondary schools through February, including 10 sushi-making hands-on sessions

Choushimaru operates 90 total stores across 1 Tokyo and 3 prefectures (Tokyo, Chiba, Saitama, Kanagawa) in Japan, with all segment performance reported by geographic region:

• Chiba Prefecture: Added 1 new store, with overall sales growing year-over-year alongside existing store expansion.
• Tokyo Prefecture: Added 1 new store, with existing store performance tracking positive year-over-year.
• Saitama Prefecture: No change in store count, total sales reached 103.4% of the prior year level.
• Kanagawa Prefecture: No change in store count, total sales reached 105.3% of the prior year level. For the half-year ended November 2024, total company-wide sales were 10.689 billion yen (105.1% of prior year, 98.2% of budget), operating profit was 0.618 billion yen (67.9% of prior year, 92.9% of budget), with an operating margin of 5.8%. Cumulative 2nd quarter existing store performance: sales, customer count, and average customer spending all exceeded prior year levels, with average customer spending up 6.5% from June 2024 price increases, while Q2 customer count was down 5.0% due to calendar timing of store closures and the Founder's Festival event.

• Full year 2025 February Term guidance is maintained at 17.738 billion yen in total sales, 1.057 billion yen in operating profit, for an operating margin of 6.0%
• Guidance assumptions: existing store sales growth of 2.0% year-over-year, 9 scheduled store closure days in the second half, a second half target cost of goods sold ratio of 39.5%, and one additional new store opening in the second half
• Management notes that while first half sales and operating profit missed budget, recent year-end/year-start performance has been solid, and the full year result remains on track
• Management's forward priorities for the rest of the term and into next fiscal year: continue growing existing stores, stabilize new format stores, and advance all current strategic initiatives as planned

• New format store launches are untested and outside the company's traditional core roadside restaurant business, bringing execution and profitability risk as the company works to bring these new concepts up to scale
• Persistent labor shortages at the store level create operational risk, even with expanded recruiting and retention initiatives
• Labor costs have risen sharply: a 30,000 yen uniform base pay increase in February 2024 plus rising casual daily wages increased total labor costs by 295 million yen year-over-year in the first half, which is the primary driver of lower year-over-year operating profit, and elevated labor costs will continue to pressure margins going forward
• Increased costs across multiple categories (legal benefits, app development/DX outsourcing, credit card processing, system maintenance, utilities, supplies, repairs) have driven a 287 million yen total increase in SG&A year-over-year, pressuring profitability
• The mobile outreach rotating sushi business is already at current capacity, and failure to add staff quickly enough will result in foregone revenue and unmet demand

The provided transcript does not include any content from the question and answer section of the earning call.