• Total Sales: $64.5 million for the fiscal first quarter.
• Comparable Sales Growth: 1.8% increase.
• Adjusted EBITDA Margin: 5.5%, a 210-basis-point improvement year over year.
• Cost of Goods Sold: 29% of sales, improved by 80 basis points year over year.
• Labor Costs: 32.9% of sales, up from 31.9% in the prior year quarter.
• Restaurant Operating Profit Margin: 18.2%, compared to 19.5% in the prior year quarter.
• Net Loss: $1 million or $0.08 per share, compared to a loss of $2 million or $0.18 per share in the prior year quarter.
• Adjusted EBITDA: $3.6 million, compared to $1.8 million in the prior year quarter.
• Cash and Cash Equivalents: $107 million with no debt.
• New Unit Openings: Six new units opened in the fiscal first quarter.

• Warning! GuruFocus has detected 1 Warning Sign with KRUS.

Release Date: January 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Kura Sushi USA Inc (NASDAQ:KRUS) reported strong Q1 results with positive comparable sales growth of 1.8% and six new unit openings.
• Adjusted EBITDA margin improved by 210 basis points year over year to 5.5%, demonstrating effective cost control.
• The company successfully opened new locations in smaller markets like Bakersfield, California, which exceeded expectations and supports future growth in similar markets.
• Technological initiatives, including a new reservation and self-seating system, are on track and expected to enhance guest experience and operational efficiency.
• Kura Sushi USA Inc (NASDAQ:KRUS) has a strong cash position with $107 million in cash and no debt, providing financial flexibility for future growth.

Negative Points

• Labor costs increased to 32.9% of sales, up from 31.9% in the prior year, driven by wage inflation and new restaurant openings in high labor cost markets.
• Restaurant operating profit margin decreased to 18.2% from 19.5% in the prior year, primarily due to wage inflation.
• Traffic was down 2.3%, which offset some of the positive sales mix improvements.
• The company faces a challenging comparison in Q2 due to the absence of IP collaborations, which could impact comparable sales.
• Despite positive Q1 results, the company provided conservative revenue guidance for fiscal year 2025, reflecting caution due to past guidance adjustments.

Q & A Highlights

Q: Can you provide insights into the trends driving mid-single-digit improvement in comps, particularly in your key markets? A: (Hajime Uba, CEO) The improvement was largely driven by successful IP collaborations with One Piece and Pikmin. While pricing remained flat, we saw significant improvement in mix due to food-focused marketing efforts, such as the Perfect Pair campaign, which combined udon bowls with other menu items, enhancing mix without reducing per-person plate consumption.

Q: How are you addressing the lack of IP collaborations in fiscal Q2, and what impact do you expect from the shift in your promotional strategy? A: (Benjamin Porten, SVP) We are focusing on cost control and profitability in Q2, given the absence of IP collaborations. This shift is a temporary adjustment as we transition to a new strategy. We expect stronger collaborations in the back half of the fiscal year, which should drive positive comps.

Q: Can you update us on food and labor inflation experienced in Q1 and your outlook for the rest of the year? A: (Jeffrey Uttz, CFO) Labor inflation was higher than expected at high single digits, but we anticipate labor leverage for the full year. Food and beverage costs were flat, and we don't expect significant inflation for the remainder of the year. We aim to maintain or improve our cost of goods sold as a percentage of sales.

Q: What is the expected impact of the new reservation and self-seating system on labor efficiency and customer experience? A: (Benjamin Porten, SVP) The system is expected to reduce labor costs by eliminating the need for dedicated hosts and improve customer satisfaction by addressing long wait times. We anticipate a meaningful impact on traffic as it allows better management of peak and shoulder periods.

Q: How does the shift to smaller DMAs affect your site selection and expected store volumes? A: (Hajime Uba, CEO) Our focus remains on cash-on-cash returns rather than specific store volumes. The standards for smaller DMAs are the same as for larger ones, and we are confident in achieving our financial targets in these markets.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.