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Thank you very much for your continued support.

We would like to report on the financial results for the second quarter of FY2024 as well as our management overview announced on August 14.

Overview of results for the first half and upward revision of the forecast

For the January-June 2024 period, revenue was 191.4 billion yen (up 21.6 billion yen year on year), business profit* was 11.9 billion yen (up 6.3 billion yen year on year), operating profit was 12.0 billion yen (up 9.1 billion yen year on year), and net income was 6.3 billion yen (up 5.7 billion yen year on year). We captured strong demand for eating out, and our existing stores performed well. Moreover, results were boosted by new store openings and brand conversions beyond our expectations. As a result, both sales and profits rose.
Assuming that the strong trends will continue in the second half, we have revised our earnings forecasts upwards. The revenue, business profit, operating profit and net income forecasts were 375.0 billion yen, 17.0 billion yen, 15.0 billion yen and 7.5 billion yen, respectively. The revised forecasts are now 395.0 billion yen, 25.0 billion yen, 24.0 billion yen and 13.0 billion yen, respectively.
Accordingly, we have revised the dividend forecast from 10 yen per share to 17.5 yen. The 7.5 yen per share increase in the forecast will be paid as an interim dividend.

*Business profit is calculated by deducting the cost of sales and selling, general and administrative expenses from revenue

Breakdown of results in the first half

(1) Overview of existing stores

Enhancing our existing stores is our priority in our growth strategies. To achieve this goal, we have been focusing on sales and marketing strategies, including menus and promotions, and the performance of our existing stores has been steadily improving.
Dine-in sales in the first half rose 14% year on year. Take-out and delivery sales increased 9%.

Our basic policy for growing our existing stores involves enhancing human capital and implementing store-centered management.
An initiative representative of this has been assigning more staff to work during peak hours. As a result, the table turnover rate improved, leading to a 13% rise in sales from the first half of the previous fiscal year. The labor cost percentage improved 2 percentage points. While labor hours increased, operating profit rose 16%.

In addition to improving the table turnover rate, our operation strategy is focused on enhancing service and quality, which has contributed to increased sales. Specifically, we are promoting online interviews and improving the efficiency of the recruitment process. As a result, the number of people hired increased 20% year on year. Additionally, the retention rate increased chiefly due to enhanced education and training programs. The number of employees rose 10% year on year.
We have implemented a point system for part-time employees, rewarding those who work on weekends and at other times when additional staffing is required at restaurants. This system has made it easier to secure the necessary human resources. We appropriately allocate staff to accommodate the increasing number of guests in order to maximize sales and profits and enhance service and quality. The number of guest complaints has decreased, and the number of praises increased 30% from last year.

With the inflation that has followed the COVID-19 pandemic, we have entered an era where profit cannot be achieved simply by reducing costs. It is becoming increasingly important to accommodate different lifestyles. As I mentioned earlier, we are shifting our focus from cost reduction to store-centered management. We are implementing a performance incentive system and revising the evaluation system to motivate restaurant managers, systematically helping them run their restaurants independently and reach objectives. We are enhancing our education and training systems to improve employees’ skills based on their individual capabilities. In our customer service training, we aim to ensure that each employee considers the perspectives of the customers. We are actively increasing wages by raising the base pay for full-time employees and revising the hourly rates for part-time workers.
We believe that these initiatives will create a virtuous cycle. Improving employees’ motivation and sense of belonging will lead to better service, and this, in turn, will increase customer satisfaction, the guest count, and the average check, resulting in increased revenue. The improvement of employee satisfaction and development which will be achieved by investing in human capital will be the source of the Company’s growth. We will increase our investment in human resources.

(2) Status of store development initiatives

The table below shows new store openings and the performance of initiatives aimed at increasing sales at the existing stores (brand conversions, remodeling, lead signs (guiding signage) and store signs) in the first half of the fiscal year, along with their impact on sales and guest count. There was steady progress in all of the initiatives, and they all contributed to revenue in the first half.

(3) Menu and promotion strategies

In addition to the operation strategy and store development initiatives, the menus and promotions contributed to an increase in same-store sales. We offered fair menus tailored to the unique features of each brand, including menu items that offer great value for money, seasonal ingredients and items that cannot be prepared at home. The menus contributed to increasing the guest count (up 9% year on year) and the average check (up 3% year on year). We enhanced the grand menus and revised the prices of certain items to improve gross profit.
We raised advertising expenses to attract more customers. We conducted a campaign featuring Demon Slayer characters at multiple brands. This campaign successfully attracted young families. Additionally, Gusto worked to promote the joy of eating out and to attract guests, including bringing television personality Hiromi on as a special advisor to create menu items for Gusto. In the second half, we will use both digital and analog media and increase advertising expenses 46% year on year. We will also enhance promotions implemented at individual restaurants.

We launched the Skylark Points Program on May 16. The number of times the app has been downloaded, the number of members and the point award rate are increasing steadily. The point program has also been used as an incentive program for employees. We will promote the use of the program in our CRM activities, including the development of products and services that capture the segmentalized needs of customers and various promotions.

(4) Delivery

We ran a number of campaigns to promote the delivery service, resulting in a strong 13% year-on-year sales increase in the second quarter.
The service is categorized into three types to improve efficiency and maximize earnings: (i) orders taken and delivered by Skylark, (ii) orders taken by Skylark and delivered by a third party, and (iii) orders taken and delivered by a third party. The service types that individual stores are engaged in are determined by their capacity and location. Type (ii), where orders are placed through Skylark and fulfilled by a third party, is a new scheme. The goal of this scheme is to offer services to current customers and subcontract delivery, which can be costly, to Uber and Wolt. The scheme has been implemented by 732 stores.

(5) Progress of DX

DX initiatives are progressing as scheduled. DX initiatives are resulting in the company-wide productivity improvements. These improvements include the enhancement of customer convenience, improvement of floor service productivity, the increased efficiency of restaurant operations, the digitalization and automation of factories, the improvement of the operational efficiency of the headquarters and the development of digital transformation human resources.

Progress of ESG Initiatives

The environmental initiatives include the launch of the Komamedori Project at all Syabu-Yo restaurants. In this project, we provide coupons to guests who order an all-you-can-eat shabu-shabu menu item and do not leave any food unfinished to reduce food waste. The project benefits the customers, the environment and the Company. We have endorsed the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD*) and have joined the TNFD Forum, an international organization.

Our contributions to society include a donation of approximately 27 million yen by the Company and Taiwan Skylark to aid the victims of the East Taiwan Earthquake in April. The donation included an in-store donation, a matching donation and a donation from Bamiyan sales.

Regarding external ESG assessments, we have been selected to be a constituent of the SOMPO Sustainability Index for the second consecutive year. We have received a high ESG rating, 4.7 out of 5, from international ESG assessment agency FTSE Russell, and we have been selected to be a constituent of the FTSE Blossom Japan Sector Relative Index for the third consecutive year. We are ranked sixth out of approximately 1,400 listed companies in Japan.

*An international framework for evaluating the impact of corporate activities on the environment and disclosing evaluation results

Medium-term management plan progress

(1) Status of preparations at existing stores

The growth of existing stores is crucial for achieving the profit target in the medium-term management plan. The initial operating profit forecast for 2024 was 15.0 billion yen. The growth of existing stores was expected to contribute 7.7 billion yen to this. We have revised our forecast of how much the growth of existing stores will contribute to operating profit to 15.7 billion yen in consideration of the strong performance in the first half. This increases the operating profit forecast to 24.0 billion yen. The operating profit target for 2027, the final year of the medium-term management plan, is 32.0 billion yen. The revised forecast for 2024, 24.0 billion yen, exceeds the target for 2025. We are steadily progressing to the achievement of this target ahead of schedule.

(2) Status of store development initiatives

One of the growth strategies in the medium-term management plan is to open 300 stores in Japan in the three-year period from 2025 to 2027. We are recruiting and developing the necessary human resources to open a significant number of new stores in and after the next fiscal year. Our findings show that sales and profits at new stores are higher than those at existing stores. In 2022 and 2023, new stores' annual sales, EBITDA and EBITDA margin were 60%, 170%, and 8 percentage points higher than existing stores. The strong performance of new stores is attributed to the Group’s repeatable strengths, including the Group's enhanced ability to analyze new store openings, its strong recruiting capabilities and decreased construction investment.

In 2024, we plan to open 43 stores. We aim to open 100 stores in 2025. We have already confirmed 32 new store openings, so we are making steady progress to this goal.

Our store opening strategy involves opening stores in four types of location: highly commercially busy districts, station fronts, places with multi-brand store opening capacity, and shopping centers. From our diverse brand portfolio, we select the most suitable brand for each location and develop highly profitable stores. As I have mentioned before, many of the recently opened stores have been highly profitable. We aim to meet our targets by utilizing data analysis and best practices.

Social conditions and the economic environment can change dramatically. We will respond flexibly to changes in the market. In challenging situations, we will not rigidly adhere to our store opening targets. Instead, we will flexibly make decisions to most effectively implement our store opening strategy.

We ask for the continued support of all our stakeholders moving forward.

Makoto Tani  Chairman and CEO
Minoru Kanaya  President and COO
SKYLARK HOLDINGS CO., LTD.
August 14, 2024

FY2024 Q2 Skylark Financial Results Presentation Material