Kura Sushi USA, Inc. (NASDAQ:KRUS) First Quarter 2023 Earnings Presentation January 5, 2023
Kura Sushi USA, Inc. underperforms earnings expectations. Reported EPS was $-0.21 EPS and expected $-0.18.
operator: Hello, ladies and gentlemen, thank you for your patience. Welcome to Kura Sushi USA, Inc.’s first quarter 2023 earnings conference call. At this point all participants are in listen-only mode. We will also take questions after the presentation. Please note that this call has been recorded. We have President and Chief Executive Officer Jimmy Uva on the conference call today. Jeff Uttz, Chief Financial Officer. and Benjamin Pauten, Senior Vice President, Investor Relations and Business Development. I’d like to pass the call over to Mr. Poten.
Benjamin Poten: Thank you, operator. Hello everyone. Thank you for your participation. By now everyone should have access to his first quarter 2023 earnings release. Available in the IR section of www.kurasushi.com. A copy of our earnings release is also included in our 8-K filed with the SEC. Before I begin my formal remarks, I would like to remind everyone that some of today’s discussions include forward-looking statements as that term is defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance. They should not be overly relied upon. These statements are also subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations.
Please refer to our SEC filings for further information on risks that may affect our future results of operations and financial condition. Also on today’s conference call, we will discuss certain non-GAAP financial measures that we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. In addition, reconciliations to comparable GAAP measures are available in earnings releases. Anyway, I’d like to give Jimmy a call.
Jimmy Uva: Thank you Ben. And thank you very much for joining us today. We are pleased to report another strong quarter, exceeding the industry average in terms of traffic growth, confirming two strong restaurant openings and delivering restaurant-level operating margins above the pre-pandemic period. Our performance is underpinned by the unwavering support of our loyal guests and the warm welcome of our new fans. We are delighted that you choose to dine with us. His three goals for this year are to continue the rapid expansion of the unit, to grow into G&A, and to deliver excellent operations and incredible results that are why our customers choose us for dining out. maintaining value.
First quarter sales were $39.3 million, more than 30% higher than last year’s first quarter revenue. Earlier in September, he faced headwinds from adopting 8% pricing, but saw his 6.9% sales growth at a similar rate. This 6.9% comp figure is broken down into 4% from traffic and 2.9% from price and mix. We are particularly pleased with the traffic growth, which averaged over 700 basis points per month over the casual dining segment. As we mentioned in our previous earnings call, we believe there is a great opportunity to bring in new guests because price cuts from local sushi restaurants are much more aggressive than we are.
The increase in traffic across casual dining during this period, which has suffered from a decline in traffic, only highlights the opportunities created by unparalleled value advancements. We are pleased to report that labor costs as a percentage of sales are 60 basis points below the prior year period. While this is a temporary benefit, it can be a long-term tailwind for operational efficiency. Ongoing inflation pushed the cost of sales to sales ratio 160 basis points higher than in the prior year. And that’s the main reason why restaurant levels have declined year-on-year.
However, it is difficult to predict when we can expect easing commodity prices. We do not expect this inflation to be permanent and are optimistic that we can achieve the margin prices seen in the previous fiscal year as we enter a more normalized environment. As Jeff said on the last earnings call, his new primary focus as CFO was managing general and administrative expenses. Growing companies have the investments in people and infrastructure they need to support their growth, and we won’t compromise. However, this does not mean that there are no savings opportunities, and pursuing these savings is a top priority. Since its IPO, it has said the best possible profitability is to leverage his G&A costs against its increasingly large store base.
This leverage is a multi-year process, but we made significant progress on this conference call, as evidenced by an improvement of over 100 basis points in our general and administrative expenses to sales ratio compared to the prior year. I am proud to be We were particularly impressed with the team’s efforts to control costs and the leverage they achieved during a period of continued inflation of underlying items.His G&A strategy for our company has been to reinstate existing contracts. Negotiate and be efficient. This will help keep new hires to a minimum. Our support center employees have listened to this opportunity and are proud of the company-wide collaboration that made this possible. Look to development. In the first quarter, he opened two new locations at his Mall of America in Bloomington, Minnesota and his two locations in Jersey City, New Jersey.
Following the end of the quarter, we opened a location in Philadelphia in late December. As you heard on our last earnings call, construction and permitting delays were a headache for the industry as a whole. And his two of these units were similarly plagued by unusually long opening delays. Having said that, we believe the worst is behind us as the rest of our pipeline of around €23 in our fiscal year is really survivor and usually gains further experience. Moreover, he is very pleased with the early performance of these three units. Great to see our restaurant move in the Mall of America. This further demonstrates cross-border mobility and shows that beyond demographics, Jersey City continues to show great potential for the East Coast market.
There are currently four units under construction, with more breaking ground later this month. With more restaurant openings expected in the second quarter, we are on track to meet the annual guidance (growth guidance) we provided on our last earnings call. Finally, we are very excited to announce that we have made significant progress implementing our new Waitlist app and rewards program platform. Testing is expected to begin later this quarter. The Waitlist app can have an immediate positive impact on customer satisfaction by improving wait time accuracy. We hope this will lead to an improvement in the rate of reduction in guest wait times. The new rewards program platform will not only give you more flexibility in how you reward your guests, but also enable you to more quickly leverage environmental data for targeted marketing.
Our leveraged program has been very effective in driving growth in frequency and average checks, but we are halfway through a data-powered program and the use of this data will open a new chapter in our marketing efforts. We therefore launched a targeted marketing campaign aimed at first-time customers in December. However, it is still too early to discuss its impact and we believe there is an opportunity to win new guests who have been discouraged by aggressive pricing seen among local fish competitors. of guests remains a key pillar of your marketing strategy for the fiscal year. I would like to note that we did a pricing around 7% in the first week of December before handing over to Jeff.
Finally, I would like to thank all the team members both in our restaurant and in our support center for their amazing work every day in creating the magic that is an amazing experience. Ask them to briefly discuss financial results and liquidity. Jeff?
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Jeff Utz: Thank you Jimmy. Total sales for the first quarter were $39.3 million, compared with his $29.8 million in the same period last year. Comparable sales growth compared to the same period last year was 6.9%, with regional comparisons of 10.3% in California and 2.1% in Texas. Looking at costs, food and beverage accounted for 31.6% of sales. This was due to food cost inflation, compared to 30% in the same period last year. This was partially offset by pricing implemented during fiscal 2022. The percentage of sales decreased to 31.9% from 32.5% in the same period last year. The decrease is due to efficiencies generated by the implementation of technical initiatives and sales leveraging fiscal 2022 pricing.
This leverage was partially offset by higher wages and an increase in the pre-opening workforce. His share of sales and related costs as a percentage was 7.3%, which was broadly flat compared to his 7.4% in the same period last year. Other expenses as a percentage of sales increased from 12.1% a year ago to 13.5% due to higher pre-opening costs, advertising and promotion costs, and repair and maintenance costs. General and administrative expenses as a percentage of sales decreased to 16.9% from 18% a year ago. In dollar terms, general and administrative expenses were $6.6 million, compared with $5.4 million a year ago. The increase was primarily due to compensation, partially offset by reductions in professional fees and premiums.
Operating loss was $2.2 million, compared with $1.3 million in the year-ago quarter. As a percentage of sales, the operating loss was 5.5% compared with his 4.2% loss in the same period last year. Income tax expense was $10,000, compared with $12,000 in the prior year period. Net loss was $2.1 million, or $0.21 per diluted share, compared with a net loss of $1.3 million, or $0.13 per diluted share, in the prior-year quarter. Restaurant-level operating profit as a percentage of sales was 18.2%, compared with 19.5% in the same period last year. Adjusted EBITDA was $0.6 million, compared with $0.8 million in the year-ago quarter. Look at cash and liquidity. At the end of the first quarter of the fiscal year, we had $26.9 million in cash and cash equivalents and no debt.
Finally, I would like to reaffirm the following guidance for fiscal 2023: Total revenue is expected to be between $183 million and $188 million. Average net capital expenditure per unit was approximately $2.5 million, with 9 to 11 new units built. Now let’s get back to Jimmy.
Jimmy Uva: Thank you Jeff. This concludes the prepared comments. If you have any questions, please feel free to contact us. Operator, please open the question column. As a reminder, Q&A sessions may be answered in Japanese before being translated into English. Please forgive me.
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