GEN Restaurant (GENK) - 2024 Q4 - Annual Report

Expansion Plans - As of December 31, 2024, GEN Inc. operates 43 company-owned restaurants across multiple states, with plans for continued expansion into new markets[21]. - The company plans to open 10 to 13 new locations in 2025, with a long-term goal of opening 10 to 12 new restaurants annually starting in 2026[27]. - GEN Inc. is introducing international expansion into South Korea with at least two company-owned locations slated to open in 2025[28]. - The company opened six new restaurants in 2023 and 2024, indicating ongoing expansion efforts[59]. - The company plans to continue expanding into new markets, which may lead to unpredictable operating results due to unfamiliarity with local conditions and consumer preferences[62]. Financial Performance - New restaurants opened in 2022 generated an average Payback Period of approximately 1.9 years, equating to an ROI of over 50%, while those opened in 2023 and 2024 had a Payback Period of approximately 2.2 years and an ROI of about 45%[22]. - The average Net Build-Out Costs for new restaurants increased from approximately $1.9 million in 2022 to$ 2.2 million in 2024, with a target of less than $3.0 million going forward[29]. - The percentage of sales for food costs increased from 32.2% in 2023 to 33.0% in 2024, while payroll and benefits costs decreased from 31.4% to 30.9%[58]. - The company’s growth strategy may be impacted by future changes in tax laws or effective tax rates, potentially reducing net returns to stockholders[59]. - The average restaurant sales and comparable restaurant sales may not increase at historical rates, impacting overall business performance[66]. Cost Management - During 2024, Sysco accounted for approximately 76.3% of food costs, highlighting the company's reliance on key suppliers for food products[35]. - The company has established a strong supplier network, with Pacific Global and Wise Universal providing significant portions of total operating expenses and food costs[34]. - The company has experienced inflationary pressures affecting costs for food, labor, and utilities, which may impact revenues and results of operations[55]. - Labor costs are a primary component of operating expenses, and increases in minimum wage could adversely affect profitability[115]. - California's minimum wage has increased routinely over the past three years, significantly impacting labor costs[122]. Regulatory and Compliance Risks - The company is subject to various federal, state, and local regulations that could delay restaurant openings or operations[43]. - Compliance with evolving nutritional labeling laws may incur additional costs and operational challenges for the company[96]. - The company is subject to various federal, state, and local regulations that could affect its ability to open new restaurants[127]. - Compliance with environmental laws may result in significant fines and penalties for noncompliance[130]. Market and Economic Conditions - Economic conditions, including unemployment and consumer confidence, significantly influence consumer discretionary spending, which could adversely affect restaurant traffic and sales[63]. - Economic conditions, such as low consumer confidence and high unemployment, could lead to decreased sales as consumers dine out less frequently[88]. - Intense competition in the restaurant industry may impact the company's financial condition, with competitors increasing their product offerings and opening new locations[84]. Operational Challenges - The company may face challenges in successfully expanding operations due to uncertainties in site selection and market conditions[60]. - The company faces risks related to supply chain disruptions, as reliance on a limited number of suppliers could lead to increased costs and shortages[77][81]. - The company may need to invest more in advertising and promotional activities in new markets to build brand awareness, potentially affecting profitability[62]. - The company relies on technology and equipment for restaurant operations, and mechanical failures could result in significant operational disruptions and financial losses[98]. Internal Controls and Governance - The company has completed remediation of two material weaknesses in internal control over financial reporting as of December 31, 2024[60]. - The company identified two material weaknesses in its internal control over financial reporting in 2023, which were remediated in 2024[185]. - The company may incur additional costs if it fails to maintain effective internal controls, which could adversely affect its financial reporting and market confidence[192]. - The company is classified as an "emerging growth company" and a "smaller reporting company," allowing it to follow reduced disclosure requirements[187]. Tax and Financial Liabilities - GEN Inc. anticipates future payments under the Tax Receivable Agreement to total approximately$ 99.6 million based on an assumed Class A common stock price of $12.00 per share[145]. - Payments under the Tax Receivable Agreement will be 85% of the net cash tax savings realized by GEN Inc., which could significantly reduce available cash for reinvestment or dividends[144]. - The actual amount and timing of payments under the Tax Receivable Agreement will vary based on multiple factors, including stock price and tax attributes[146]. - Future changes to tax laws could materially and adversely affect the company and reduce net returns to stockholders[153]. Cybersecurity and Data Privacy - The company has faced past security breaches and cyber incidents, highlighting the need for effective cybersecurity measures[200]. - The company is subject to numerous privacy laws, which may require significant changes to data handling practices and incur additional costs[207]. - The company has a risk management program focused on cybersecurity, with oversight from the Board of Directors[214]. Management and Leadership - The company has co-CEOs, which may lead to management challenges and affect operational efficiency[198]. - The company is dependent on the continued service of its senior management team, and their departure could adversely impact business prospects[198].