Yoshiharu Global Co. (NASDAQ:YOSH) is a fast-growing Japanese restaurant operator that has established itself as a leading ramen restaurant chain in Southern California. The company's mission is to bring its high-quality Japanese ramen and cuisine to the mainstream, providing customers with a comforting and delightful dining experience.

Business Overview

Yoshiharu was founded in 2016 with the idea of introducing a modernized Japanese dining experience to customers across the world. The company specializes in Japanese ramen, having gained recognition as a top ramen restaurant in Southern California within just six months of its debut. Yoshiharu currently owns and operates 8 restaurant stores, with an additional 5 new restaurant stores under construction or development as of June 30, 2023.

The company takes pride in its warm, hearty, smooth, and rich bone broth, which is slowly boiled for over 12 hours. Customers can taste and experience the supreme quality and deep flavors of Yoshiharu's broth. Combining the broth with fresh, savory, and high-quality ingredients, Yoshiharu serves the perfect, ideal ramen, as well as offering customers a wide variety of sushi rolls, bento menu, and other favorite Japanese cuisine. The company's acclaimed signature Tonkotsu Black Ramen has become a customer favorite, with its slow-cooked pork bone broth and freshly made, tender chashu (braised pork belly).

Yoshiharu's mission is to bring its Japanese ramen and cuisine to the mainstream by providing a meal that customers find comforting. Since the inception of the business, the company has been making its own ramen broth and other key ingredients such as pork chashu and flavored eggs from scratch, upholding the quality and taste of its foods, including the signature texture and deep, rich flavor of its handcrafted broth. Moreover, Yoshiharu believes that slowly cooking the bone broth makes it high in collagen and rich in nutrients. The company also strives to present food that is not only healthy, but also affordable.

Growth Strategies

Yoshiharu has pursued a disciplined new corporate-owned growth strategy, having expanded its concept and operating model across varying restaurant sizes and geographies. The company plans to leverage its expertise in opening new restaurants to fill in existing markets and expand into new geographies. While Yoshiharu currently aims to achieve in excess of 100% annual unit growth rate over the next three to five years, the company acknowledges that this level of growth is subject to various risks and uncertainties beyond its control, such as landlord delays, competition in existing and new markets, and the overall decrease in commercial real estate due to macroeconomic decline.

In addition to new restaurant development, Yoshiharu is focused on delivering consistent comparable restaurant sales growth. The company believes it will be able to generate future comparable restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience, new menu offerings, and restaurant renovations. Yoshiharu also plans to manage its menu and pricing as part of its overall strategy to drive traffic and increase average check. The company is exploring initiatives to grow sales of alcoholic beverages at its restaurants, including the potential of a larger format restaurant with a sake bar concept.

Yoshiharu also intends to heighten its brand awareness through targeted local marketing efforts and plans to increase its investment in advertising. The company is exploring the development of instant ramen noodles, which it would distribute through retail channels, and is considering partnerships with grocery retailers to provide small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine.

Financials

For the fiscal year ended December 31, 2022, Yoshiharu reported annual revenue of $9,214,779, a net loss of $3,040,364, annual operating cash flow of -$4,591,656, and annual free cash flow of -$6,062,807.

In the first half of 2023, the company generated revenue of $4,689,043, a net loss of $2,164,018, and used $2,548,260 in operating cash flow. Yoshiharu's free cash flow for the first six months of 2023 was -$1,040,797.

The company's revenue growth in the first half of 2023 was driven by the opening of one new restaurant in July 2022, which contributed $0.4 million in sales. The remaining $0.3 million increase in revenue was attributed to sales growth at Yoshiharu's existing restaurants. The seven restaurant locations that were open throughout 2022 experienced a 9% increase in average monthly sales during the first half of 2023 compared to the same period in the prior year.

Yoshiharu's net loss widened in the first half of 2023 compared to the same period in 2022, primarily due to increased general and administrative expenses related to the hiring of additional administrative employees, higher professional services, and corporate-level costs to support the company's growth plans and the construction/development of new restaurants. The company's operating cash flow and free cash flow also declined, reflecting the higher net loss and increased investment in new restaurant openings.

Liquidity

In September 2022, Yoshiharu completed its initial public offering, raising approximately $10.3 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses. The company believes the expected cash flow from operations and the IPO proceeds will be adequate to fund operating lease obligations, capital expenditures, and working capital obligations for at least the next 12 months.

As of June 30, 2023, Yoshiharu had $3.4 million in cash and $800,000 in outstanding borrowings under its $1.0 million line of credit. The company also had $1.2 million in bank notes payable, $432,663 in EIDL loans, and $700,454 in a Restaurant Revitalization Fund loan.

Risks and Challenges

Yoshiharu faces several risks and challenges in its pursuit of rapid expansion and growth. The company's ability to achieve its targeted new restaurant growth rate is subject to various factors beyond its control, including landlord delays, competition in existing and new markets, and the overall decline in commercial real estate development due to macroeconomic conditions.

The company also faces the risk of not being able to maintain or improve its comparable restaurant sales growth, as it is dependent on factors such as consumer recognition of its brand, changing consumer preferences, overall economic trends, and its ability to operate restaurants effectively and efficiently.

Yoshiharu's limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of its new restaurants make the company susceptible to significant fluctuations in its results of operations. Additionally, the company has incurred operating losses and may not be profitable in the future.

The restaurant industry is highly competitive, and Yoshiharu faces competition from a wide range of competitors, including other Japanese-focused restaurants, as well as broader fast-casual and casual dining establishments. The company's dependence on its senior management team and other key employees also poses a risk, as the loss of one or more key personnel could have an adverse effect on its business, financial condition, or results of operations.

Outlook

Yoshiharu has not provided any specific financial guidance for the full year 2023. However, the company remains committed to its growth strategies, including pursuing new restaurant development, delivering consistent comparable restaurant sales growth, increasing profitability, and heightening brand awareness.

Despite the challenges and risks, Yoshiharu's experienced management team, dedication to growth, and focus on delivering a high-quality dining experience position the company for continued expansion in the rapidly growing Japanese cuisine market in Southern California and beyond.

Conclusion

Yoshiharu Global Co. is a fast-growing Japanese restaurant operator that has established itself as a leading ramen restaurant chain in Southern California. The company's focus on providing a modernized and comforting Japanese dining experience, combined with its disciplined growth strategies and experienced management team, make it an intriguing player in the rapidly expanding Japanese cuisine market. While Yoshiharu faces several risks and challenges, its commitment to quality, innovation, and expansion suggests it is well-positioned to continue its growth trajectory in the years ahead.