Kura Sushi USA - Q1 2024

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA Inc. fiscal first quarter 2024 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this call is being recorded. On the call today, we have Hajime “Jimmy” Uba, President and Chief Executive Officer, Jeff Uttz, Chief Financial Officer, and Benjamin Porten, Senior Vice President of Investor Relations and System Development. Now I'd like to turn the call over to Mr. Porten.

Benjamin Porten (SVP of Investor Relations and System Development)

Thank you, operator. Good afternoon, everyone, and thank you all for joining. I know everyone has access to our fiscal first quarter 2024 earnings release. It can be found at www.kurasushi.com in the investor relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC. Before we begin our formal remarks, we need to remind everyone that part of our discussion today will include forward-looking statements defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

We refer all of you to our SEC filings for a more detailed discussion of the risks that can impact our future operating results and financial condition. Also, during today's call, we will discuss certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of this additional information should not be considered in isolation from or as a substitute for our future results prepared in accordance with GAAP. The reconciliations to comparable GAAP measures are available in our earnings release. With that out of the way, I would like to turn the call over to Jimmy.

Hajime “Jimmy” Uba (President and CEO)

Thanks, Ben, and Happy New Year to everyone joining us today. Fiscal 2024 is off to an exceptionally strong start, with meaningful improvements in restaurant level operating profit margin and Adjusted EBITDA, as well as six new units opened to date, with another seven under construction. Our goals for this fiscal year remain the same as last year: maintain excellent operations, continue to rapidly grow the number of our restaurants, and leverage our G&A against an increasingly large restaurant base. I'm pleased to say that we are continuing to make excellent progress on all three, all three fronts. Total sales for the fiscal first quarter were $61.5 million, representing comparable sales growth of 3.8%, with traffic growth being responsible for 3.3% of our overall comp.

Sales momentum has accelerated since our last earnings call, as implied by the 110 basis points improvement over the blended September/October comps of 2.7%, with the improvement being driven entirely by traffic growth. Effective price was 9% during the fiscal first quarter. As of the first week of December, we dropped 7% in price, which we partially offset in January with pricing of approximately 1%. Our current 3% effective pricing is a return to our historical pricing cadence, which reflects our confidence in the ongoing normalization of our prime cost, as well as a strong strategic decision to best take advantage of current macro factors to maintain traffic growth and capture market share.

Commodity costs have seen a marked improvement over the prior year quarter, with our cost of goods sold as a percentage of sales coming at 29.8% for Q1 as compared to last year's 31.6%. Labor costs have largely remained, remained the same at 31.6% as compared to prior year quarter of 31.9%. Restaurant-level operating profit margins improved from 18.2% in the prior year quarter to 19.5%, and Adjusted EBITDA grew from $0.6 million to $1.8 million, representing year-over-year growth of approximately 200%.

It bears mentioning that much of the Adjusted EBITDA growth was driven by improvements in commodity costs, but it is truly encouraging to see such dramatic growth even while we face the underlying headwinds associated with full 404 SOX compliance and restaurant-level headwinds associated with a record number of new restaurant openings and units under construction. I believe this Adjusted EBITDA growth is only a taste of what we can expect in future years as we grow our unit base, mature as a company, and are even better able to leverage our G&A. In the fiscal first quarter, we opened four new restaurants in Pittsburgh, Pennsylvania; Flushing, New York; Tampa, Florida; and Naperville, Illinois. Subsequent to the quarter end, we opened two more new restaurants in Kansas City, Missouri, and Skokie, Illinois. Additionally, we have 10 units currently under construction.

Accordingly, we are excited to increase our unit opening guidance for fiscal 2024, which Jeff will expand on shortly. The incredible reception that we've seen as we establish ourselves in new markets demonstrates the truly national coast-to-coast portability of Kura Sushi... and the performance of new units in existing markets is confirming our expectations that the massive consumer appetite for sushi is more than enough to sustain our infill brands. It's been a couple of months since we launched a new version of our rewards program, and I'm very pleased to be able to share that early momentum that we discussed in our previous earnings call has remained just as strong.

The installation rates for new members are approximately triple what they are with the previous program, and given that these are all new users, we expect greater engagement on a per user basis and overall conversion of the previous rewards program. While it is still very much early days in terms of the new reward program and our earnings are highly leveraged, we expect to give more concrete updates in future earnings calls in terms of newly unlocked opportunities and its potential to drive incremental revenue. Our current IP collaboration, Peanuts, has been very well received by our guests. Our next brand collaboration is SPY x FAMILY, and we believe the pipeline for the remainder of the fiscal year is the strongest one we've ever had.

As we enter the new year, I would like to thank all of our team members, both at our restaurants and at our corporate support center, for all of their hard work, which has allowed us to, allowed us to share great news quarter after quarter on our earnings call. With that, I'll turn it over to Jeff to discuss our financial results and liquidity. Jeff?

Jeff Uttz (CFO)

Thank you, Jimmy. For the first quarter, total sales were $51.5 million, as compared to $39.3 million in the prior year period. Comparable restaurant sales performance as compared to the prior year period was positive 3.8%, with regional comps of 9% in our West Coast market and 1.3% in our Southwest market. Turning now to costs. Food and beverage costs as a percentage of sales were 29.8%, as compared to 31.6% in the prior year quarter, largely due to pricing and the easing of commodity inflation. Labor and related costs as a percentage of sales decreased to 31.6% from 31.9% prior year quarter.

This decrease is due to sales leveraging from increased traffic and pricing, which was largely offset by increased training costs associated with new store openings and general wage increases. Occupancy and related expenses as a percentage of sales were 7.6%, compared to the prior year quarter, 7.3%, due to incremental pre-opening rents associated with a greater number of units under construction. Depreciation and amortization expenses as a percentage of sales increased to 4.8%, as compared to the prior year quarter's 4%, largely due to the additional newly opened units, as well as the accelerated depreciation of assets that are being replaced due to planned remodels.

Other costs as a percentage of sales increased to 14.7%, compared to 13.5% in the prior year quarter, due mainly to pre-opening costs associated with a greater number of store openings, as well as an increase in marketing costs and general cost inflation. General and administrative expenses as a percentage of sales decreased to 16.7%, as compared to 16.9% in the prior year quarter, due to greater sales leverage, which was largely offset by incremental public company costs and recruiting and travel costs associated with new unit openings. Operating loss was $2.8 million, as compared to an operating loss of $2.2 million in the prior year quarter, largely driven by incremental other costs, depreciation and amortization, and occupancy associated with the greater number of unit openings and units under construction.

Income tax expense was $38,000, compared to $10,000 in the prior year quarter. Net loss was $2 million, or $0.18 per share, compared to a net loss of $2.1 million, or $0.21 per share in the prior year quarter. Restaurant level operating profit as a percentage of sales was 19.5%, compared to 18.2% in the prior year quarter. Adjusted EBITDA was $1.8 million, compared to $0.6 million in the prior year quarter. Turning to our cash and liquidity. At the end of the fiscal first quarter, we had $64.2 million in cash and cash equivalents and no debt. And lastly, I would like to update and reaffirm the following guidance for fiscal year 2024.

We now expect total sales to be between $239 million and $244 million. We now expect to open between 12 and 14 units, with average net capital expenditures per unit of approximately $2.5 million. And we continue to expect general and administrative expenses as a percentage of sales to be approximately 14.5%. Now, I'll turn it back over to Jimmy.

Hajime “Jimmy” Uba (President and CEO)

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions.

Benjamin Porten (SVP of Investor Relations and System Development)

...As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English. Thank you for your attention.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Joshua Long with Stephens. Please proceed with your question.

Joshua Long (Managing Director)

Great. Thank you for taking my question. Just curious if you could share a little bit more about the unit development pipeline and what seems to be a nice strengthening in that. I know in the prior call, you talked about the potential for upside to the unit, the, you know, new unit development pipeline for the year. That seems to be coming into fruition. Just curious if this is a function of site selection, maybe if permitting has gotten any better, anything you could share there in terms of just how the new stores are coming together?

Benjamin Porten (SVP of Investor Relations and System Development)

Sure. Thank you, Josh, for your first question. Please allow me to speak in Japanese, then it's gonna translate for me. So, as Jimmy mentioned in the prepared remarks, we have seven units under construction. We're extremely pleased to be able to say that three of those are pretty far into construction. And so we're very happy with where we are. It's one of the reasons that we were confident in terms of raising our guidance. In terms of, you know, the permitting delays that we've mentioned in the past fiscal year, those have meaningfully eased, and so we're very happy with the rollout and how smooth it's been this year.

Joshua Long (Managing Director)

Great. That's very helpful. Thank you. And, you know, thinking maybe more about the performance of newer stores, it sounds like that's pretty strong. Could you give a little bit of extra context or color in terms of just how the results for the quarter performed versus your expectations? I know there's always going to be a little bit of difference in between what you all see and how we model it, but, I'm thinking particularly in terms of just kind of how average weekly sales growth was growing through the quarter.

You know, maybe if at some point we kind of get away from looking at this on a multiyear stack comparison, I know we're getting further away from kind of COVID and some of those disruptions, but just curious if you're starting to see any sort of normalization there and any sort of commentary you could share on how new store performance is unfolding?

Benjamin Porten (SVP of Investor Relations and System Development)

Hi. In terms of new restaurants, we, you know, fiscal 2023 has been a record year. This year we've already opened 6th to date, and so we've had a lot of new openings. In terms of the major new markets that we've hit, we've entered Minneapolis, we've opened a couple restaurants in New York. We hit Pittsburgh. We're in Tampa. It's been, you know, a pleasure really to see how warm the reception has been in each of these markets. And every time we open it, every time we enter in a new market, it's just a, you know, a confirmation of the portability of our concept, and so it's really encouraging for us. In terms of the existing markets, we've opened a couple in New Jersey, Chicago, the Atlanta area, and those are all doing very well as well.

As Jimmy mentioned in the earlier prepared remarks, there's abundant appetite for sushi across the United States, and so we feel very confident, but not only in terms of our existing markets or our new markets, which are gangbusters, but in filling our existing markets as well. So, in terms of the multiyear stacks, we're not... If I'm being, if we're being totally frank, we're not internally doing a multiyear stack anymore. We've returned to normalcy, and so we're very pleased to be able to say that.

Joshua Long (Managing Director)

Great. Thank you. That's, that's helpful. Then one last one for me. In terms of the food deflation or just the overall COGS basket that you talked about in your pre-prepared remarks, I think also in the past, there was conversation around the potential to reinvest in food quality or, you know, other areas if, you know, the food cost margin went materially below 30%, was just as a kind of a starting point. So I realize it's probably early on in, the old process and there's still a little bit of fluidity there, but could you just remind us how you're thinking about the food cost line and when and where some of the, you know, pivot points or, you know, thought process might lie in terms of the potential for seeing leverage or maybe reinvesting in that line item?

Jeff Uttz (CFO)

... Hey, Josh, it's Jeff. Yeah, the 30% number that you know on the COGS line is something that we're very happy with. It's something that we would like to see a little bit lower, and it has become gotten lower. In terms of deflation, just to give you the numbers of what we've seen this year, year-over-year, our deflation was about 4%, and sequentially, quarter-over-quarter, our deflation was about 2%. So that deflation, combined with the price increases that we took over last year, and as Jimmy mentioned, we did take about 1% on January 1st. We believe that with the price increases and the deflation, that we're gonna be successful in having that COGS number show up even below 30%. But as we've mentioned in the past, there's a floor to that.

You know, if that COGS number were to get somewhere at 27-28, that may be a little bit too low, and then you do risk hurting your food quality, which is not something we're gonna do. So as long as we can keep that number in the very, very high 20s or right around 30%, we're gonna be happy.

Benjamin Porten (SVP of Investor Relations and System Development)

Got it. In terms of reinvesting that, some things that we've done is materially you know, significantly improved the quality of our core proteins, especially tuna and salmon. Very pleased to be able to say that we've done that while also lowering our COGS basket or COGS costs, and so that's really been pretty remarkable for us. One other thing that we like to do is our LTOs. For example, in December, we did a crab fair. You know, very high quality crab. Winter is crab season in Japan, and this was one of the most popular LTOs ever. And I you know, I think our guests really, really enjoyed it and sort of appreciated that we were giving back to our guests through crab.

Joshua Long (Managing Director)

Great. Thank you so much.

Jeff Uttz (CFO)

Thanks, Josh.

Benjamin Porten (SVP of Investor Relations and System Development)

Thank you, Josh.

Operator (participant)

Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Please proceed with your question.

Jeremy Hamblin (Senior Research Analyst)

Thanks, and congrats on the strong results. I wanted to just come back, as there, there's a little bit of breakup in the audio in some of the commentary around menu pricing as well as same-store sales color. Apologies for going back over some of this, but I wanted to make sure that I understood, you know, A, kind of the cadence of comps color that you shared throughout Q1. And then, two, I think what I heard on the menu pricing was that you're carrying 3% overall in Q2. And then, you know, kind of the comp on the West Coast versus, you know, the other regions or in the Southwest region. If we could start with that, that would be great.

Jeff Uttz (CFO)

Yeah. So the pricing that we ran, Jeremy, in Q1 was 9%. We did take the one. We left a 7% pricing in December, and then we took the 1% in the beginning of January. So we're currently at 3% pricing. We're very, very happy with where the comp number came out, and what we really want to point everybody back to is that traffic number. The traffic of 3.3% that we saw in Q1, and as you know, listening to conference calls still, you know, throughout the year, very few concepts have been able to have positive traffic. And we looked at that number, and as long as we can keep people coming back in the door and keep our existing guests coming back, we're gonna be very happy.

That's one of the things that we can control through great service and great food quality. We continue to do that, and we believe that our guests are gonna keep coming through that door and keep that traffic positive. If we can do that, we're very positive that we can, it's gonna be a good year for us.

Benjamin Porten (SVP of Investor Relations and System Development)

Just to add on the cadence, given that the audio broke up a little bit, we gave September and October comps last earnings call. It was 2.7%. And, you know, so you can assume that the comps for November were much stronger given that we came in at 3.8% for the full quarter. And given that we didn't take any price during that quarter or, you know, the, the acceleration was driven solely due to traffic. So back to Jeff's earlier point, we're, we're very, very pleased to see that we're operating, executing so well that more guests than ever are coming in through our doors.

Jeremy Hamblin (Senior Research Analyst)

Got it. I think there was some commentary on the West Coast versus the Southwest market comps also. Just want to clarify.

Benjamin Porten (SVP of Investor Relations and System Development)

Yeah, give me one second. I have the numbers here.

Jeremy Hamblin (Senior Research Analyst)

Great.

Benjamin Porten (SVP of Investor Relations and System Development)

I just don't remember off the top of my head, sorry. 9% in the West Coast and 1.3% in the Southwest market.

Jeremy Hamblin (Senior Research Analyst)

Got it. And so then just coming back to the comp overall, in terms of where the menu pricing was, you know, traffic up really strong, 3.3%. Are you still seeing a little bit of reduction then in average plate consumption? And is that... Go ahead.

Jeff Uttz (CFO)

Sure.

Benjamin Porten (SVP of Investor Relations and System Development)

On a sequential basis from Q4 to Q1, plate consumption per person has actually gone up, and on a year-over-year comparison, it's about flat. And so we're really happy with where plate consumption is.

Jeremy Hamblin (Senior Research Analyst)

Got it. And then I wanted to shift gears to your labor costs. And, you know, you had some nice 30 basis points of leverage year-over-year. I think minimum wage in California on January 1 is up about 3.2%. But wanted to get an outlook of, you know, what you're thinking about, Jeff, on kind of the labor market here in calendar 2024, as we're moving forward, are you seeing a little bit less pressure? I think there's also, you know, in April, you know, the impact of the potential large scale fast food, you know, wage laws that are going into effect, the $20 wage.

But just wanted to get a sense for what you were expecting and, you know, again, pretty nice leverage that you got on a 3.8% comp.

Hajime “Jimmy” Uba (President and CEO)

I'm happy to answer this question, Josh, Jamie.

Benjamin Porten (SVP of Investor Relations and System Development)

In past earnings calls, we've mentioned that about I think that until about Q3 of last year, the year-over-year labor inflation was about 10%. It has since moderated to mid-single digits, and that is including the annual minimum wage increases in California. With the 1%-ish pricing that we took as of January, we believe that that's enough to offset the labor increases and really keep our margins flat year-over-year. You'd asked about AB 1228, previously known as the FAST Act. We're very pleased to be... I think we're pretty much the only concept that is saying that we see this as an opportunity.

In terms of our California markets, our employees are already making wages that are competitive with the $20 that people are going to be making at QSR. And so, you know, obviously QSRs need to take an aggressive price to be able to offset that. And so we see this as a meaningful opportunity to grow market share. As you know, up until now, the conversation has really been: Do we go to Kura Sushi or do we go to other casual dining places? Now it's: Do we get a combo meal at the burger place or do we get Kura Sushi? And that's one of the reasons that we're running 3% prices. We really want to demonstrate to the world at large, not just our existing guests, how great a value Kura Sushi is.

Jeremy Hamblin (Senior Research Analyst)

Got it. That's a great point. Last one for me, and I'll hop out of the queue. Just wanted to ask about, you know, some of the recent collaborations, right? You've partnered with Peanuts and Snoopy, you know, in December here into January. Wanted to get a sense for how that promotion was performing. Seems to, you know, be generating a decent amount of buzz.

Benjamin Porten (SVP of Investor Relations and System Development)

Yeah, we're really pleased with the December results. And, you know, Peanuts collaboration is certainly a big part of it. Our PR team gets better and better with every collaboration that we cycle through. And this time, they did a really spectacular job with what we call the space collaboration. Not just the toys or the animes, but you know, we had photo ops where the restaurants were decked out like a Charlie Brown Christmas. We had little big Snoopy figures on our Mr. Fresh cones, and those would go mysteriously missing. And so our guests were, you know, a part of that. You know, you really can't get higher praise than that. Certainly not encouraging guests to do that, but it was nice to see people were so excited about it.

As Jimmy mentioned, earlier, you know, we've got Spy Family, as our next collaboration, and then we've got two more after that for the remainder of the fiscal year. This is the best pipeline we've ever had. I could not be more excited. I wish I could tell you what they were right now, but you're gonna have to wait until the next call.

Jeremy Hamblin (Senior Research Analyst)

Great. Thanks for taking all the questions, and, best wishes.

Benjamin Porten (SVP of Investor Relations and System Development)

Of course. Thank you. Thank you, Jimmy.

Operator (participant)

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Sharon Zackfia (Partner and Group Head of Consumer)

Thanks for taking the question. Jeff, I have to confess, I was a little surprised that you raised revenue guidance this early in the fiscal year, so. But I'm curious on, behind the million-dollar raise, was it not anticipated in initial guidance? Was it the opening schedule better, or is it just in the business?

Jeff Uttz (CFO)

Hey, Sharon, you're cutting out a little bit on my end, but I think I got the gist of your question. So as Jimmy mentioned earlier on one of the questions that was asked, the cadence of the opening is going quicker than we've expected, which is why we decided to raise the guidance. We feel that we're gonna have some more operating weeks and have an additional unit come in at the end of the year, which is why we raised it $1 million and not more than that. To talk about some of the things that have been happening with the openings in the markets that we're opening in.

We have seen some of the permitting problems that we did have last year ease, and some of the site selection has been really good, and landlords are excited about getting us in. And I was talking to our Chief Development Officer recently, in fact, last night, and he was telling me that these landlords are getting their work done quicker because they want to get us in, and they're excited about having Kura Sushi as part of their portfolio. And the quicker that they can get their work done, the quicker that we can get our work done and we can get open. And we're seeing that happen, which is why we raised the guidance a little bit. Wanted to get through the first quarter and kind of see how that played out.

We thought that that's how it would be, but we wanted to get through the first quarter and kind of watch what happened before we, we raised the guidance. So that's, that's why we are where we are now.

Sharon Zackfia (Partner and Group Head of Consumer)

Very helpful. And then on the traffic improvement you saw in November, pretty meaningful. We can all kind of do the math. And then is there anything in particular you attribute November to or in hindsight, that you attribute the prior two months to be in a little bit than November?

Hajime "Jimmy" Uba (President and CEO)

11月から。マーケティングでいうと、少し特別なことを、あの、してます。あの、今回Punchhのね、あの、切り替えがあったんで、このマイグレーションのためのラストプッシュみたいな、そういったのを、あの、いくつかやって、まあ、それがトラフィックの、あの、アップに、あの、貢献したと思います。で、12月も、あの、今回、二回来てもらったら、あの、1月に20%っていう新しいPunchhを使った、新しいトライアルもね、11月以降積極的にやってるんで、まあ、この辺りが、あの、トラフィックの獲得にはね、今現在貢献してるんで、非常に、あの、満足してます。

Benjamin Porten (SVP of Investor Relations and System Development)

We would attribute the acceleration in traffic in November largely for our new rewards program. We're very pleased with its capabilities. Part of it was, you know, in November, we were just making a push to migrate more of our existing users, sort of a final push. And so we had, you know, a promotion around that. In December, we started a promotion where... This is the first time we've ever done this, and something that we could only do because we have a rewards program that can track this kind of thing where, but we did an offer where if you come twice in December, you get a 20% off, a 20% off coupon for January.

And so that was very good for drawing, driving traffic in December. And obviously, you know, it's gonna be a traffic driver in January as well when people come to redeem that coupon.

Sharon Zackfia (Partner and Group Head of Consumer)

That's great. The robotic dishwasher, which I know we're all very excited about. I think it tested in the spring. I'm just wondering if that's still on plan and went really well. What could the timeframe look like for a rollout into new units going forward?

Benjamin Porten (SVP of Investor Relations and System Development)

Yeah. So we are still on pace for a test in spring. I'm very much looking forward to it. I think the technology is largely ready. It's just a matter of getting it battle tested. There's a... It's a little bit tricky to go from the prototype to the mass market model, just, or the mass produced model, just given that there are some material changes. And so I think it's safe to assume that it's gonna be at least 12 months from when the mass produced model is finalized. And, you know, at that point, I can get the actual parts list and bring it to the regulatory organizations, but that's a pretty opaque process, and so it would probably be, you know, 12 months minimum from testing.

And then, you know, it would just be the timing for which stores we can, you know, plan ahead in terms of the layout to accommodate the robot dishwasher.

Sharon Zackfia (Partner and Group Head of Consumer)

Thank you, and Happy New Year.

Benjamin Porten (SVP of Investor Relations and System Development)

Thank you. Happy New Year.

Hajime "Jimmy" Uba (President and CEO)

Thank you. Thanks, Sharon.

Operator (participant)

Thank you. Our next question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Jeffrey Bernstein (Equity Research Analyst)

Great. Thank you very much. A couple of questions on the comp trend. The first one, I think for the fiscal quarter, you did a 3.8%, and I think you said the pricing was 9%, and the traffic, if I heard right, was a 3.3%. So that would imply, I guess, a -8% or so mix. And I think you said the plates were flat. So I guess it sounds like an ongoing, maybe non-sushi, check management. I'm just wondering how you think about that negative offset, whether you see that as a concern or whether that concern is abating, kind of that missing component of, you know, presumably the meaningfully negative mix shift, kind of how you think about that.

Hajime "Jimmy" Uba (President and CEO)

うん、まず、あの、ネガティブのプライス、ミックスに関して、我々はコンサーンを持ってません。あの、繰り返して我々が言ってる通り、まずトラフィックね、お客さんを我々のレストランのドアの前に連れてくるところをメインに考えて、先ほどから説明しているマーケティングとか、すべてそれに関してやってます。で、あと、あの、まあ、そういった、お客さんがね、あの、チェックサイズを、こう、コントロールできることとか、に関して、我々は、まあ、ネガティブなことを考えてません。あの、これら、これも我々のサービスモデルによって、お客さんが受ける便利さの一つと思ってますんでね。お客さんがコンフォタブルなレベルのスペンディングに合わせて貰って、多く、あの、Kura Sushiに来る機会を減らさずに来てもらえると。うん、これは逆に便利だと思って るんで、引き続き、あの、そこに着目せずにね、トラフィックを取得することに、注力していきたいと思ってます。

Benjamin Porten (SVP of Investor Relations and System Development)

So in terms of the negative mix, it's certainly there, but it. We don't really think of it as a concern. Our focus remains traffic. Our marketing is geared around that. Our overall strategy is geared around that. We think that that's the hardest part and, you know, really where we shine brightest, especially in comparison to our peers. In terms of average check management, we think of that actually as a unique feature for guests, that that comes from our service model. You know, guests can come in no matter what their budget is, and that's one of. You know, we never price people out, and that's one of the reasons that our traffic's doing so strongly.

But in spite of, you know, that, that mix pressure, our restaurant-level operating profit margin is 19.5%, a meaningful improvement over the 18.2% last year. And so our thought again is, you know, traffic is our focus. We can leverage our fixed costs against traffic, and that, that gets us the margins that we like.

Hajime "Jimmy" Uba (President and CEO)

まあ、一方で、あの、実は十二月のクラブフェアは少し高価格帯の商品やったんだけど、まあ、そちらの売れ行きもいいんで、あの、引き続き、あの、気にしないと言いながらも、もちろん、あの、上げるような努力は、あの、当然して行きたいと思ってます。お客様がコンフォタブルに、あの、もっと使ってもらえるようなキャンペーンはして行きたいと思ってます。

Benjamin Porten (SVP of Investor Relations and System Development)

That being said, of course, you know, we love it when our guests do have greater attachment in our side menu items, et cetera. And so we do have some promotional campaigns in the pipeline that are geared towards improving guest spend.

Jeffrey Bernstein (Equity Research Analyst)

Understood. And then as we look forward, I think I pieced together from an outlook perspective on comps. Based on the September, October, it seems like the November was roughly a 6%. And, I guess if the pricing was similar, for sure, that's a nice uptick. So I'm just wondering, one, I wanted to confirm that was right. And then I think on December, I thought you said that you were really pleased. I wasn't sure if that was a reference to the overall comp, or how we should just think about the outlook, whether or not it's fair to assume a mid-single digit type comp sustains with still positive traffic and the pricing in that 3% range.

Trying to figure out the outlook first on the December and then kind of what we should be thinking about for the rest of the year based on those components.

Benjamin Porten (SVP of Investor Relations and System Development)

So yeah, in terms of the November coming in at about 6%, your math is right there. Looking at December, we did lap that 7% pricing in the first week, but as we said, you know, we were very pleased with our traffic performance, our overall comp performance. We're confident that with our, you know, ongoing traffic strength, our marketing efforts, the IP pipeline that we have, menu development, that we'll be able to maintain this very strong momentum through the remainder of the fiscal year. We're very happy.

Jeffrey Bernstein (Equity Research Analyst)

Understood. Now, that's encouraging, despite, I guess, concerns of a slowing consumer. So good to hear. My last question was just on the cost side of things. Just a clarification. I think you said the commodities were 4% deflation in the first quarter. I'm just wondering what the labor was for the first quarter and maybe the expectation for each of those for full year fiscal 2024.

Benjamin Porten (SVP of Investor Relations and System Development)

Right. In terms of labor, we've seen about mid-single digits in inflation year-over-year, but we were able to come in 30 basis points below the prior year, 31.6% against last year, 31.9%. So we're feeling that, you know, the operational efforts that we've made, the yeah, as well as the pricing that we've taken, all, you know, come into play there. And we're very pleased that we were able to not just stay flat but actually improve our labor margins.

Jeff Uttz (CFO)

In terms of food deflation, you are right, it's from Q1 of fiscal 2023 to this year, Q1, it was about a 4% deflation, and then sequentially, from Q4 of this past fiscal year to Q1, it was about 2%.

Jeffrey Bernstein (Equity Research Analyst)

Okay. And just to clarify, Ben, did you say, I mean, I know depending on how we look at restaurant margins, it varies, but based on your calculation, it was 100 basis points of expansion. But did you say that you expect the restaurant margins flat in fiscal 2024 with the 3% price for the rest of the year, or were you referring to the labor line? I think that prior question, someone was asking about labor, but I know you--I thought you had mentioned that you were comfortable with restaurant margins flat. So just wanted to clarify if you have any kind of forward-looking thoughts on the remaining three quarters from an overall margin perspective. Thank you.

Benjamin Porten (SVP of Investor Relations and System Development)

Yeah, if you look at our historical margins, they tend to lever pretty meaningfully every quarter. So you can just assume that, you know, the same as historically, they're going to continue to improve as we have greater traffic and greater sales that we can leverage against our fixed costs. The comment about, you know, the 3% pricing that we took, we thought was enough to offset, you know, not just our labor costs, but, you know, well, we've got a COGS tailwind. We do have some other costs, general inflation, but the 3% that we thought was enough to pretty much offset all those inflationary pressures.

Jeff Uttz (CFO)

And on the... I'll also add, too, Jeff, on the restaurant level operating profit as a percentage of sales, as I mentioned on my prepared remarks, we had 130 basis points of leverage there, from 18.2 to 19.5. So, you know, with a, a lot of tailwinds, our, our pricing, the commodity deflation, the easing of labor inflation. So the tailwinds have been great, this, this past quarter, and we fully expect that to continue for the remainder of the year.

Jeffrey Bernstein (Equity Research Analyst)

Sounds great. Thank you very much.

Jeff Uttz (CFO)

Thank you.

Benjamin Porten (SVP of Investor Relations and System Development)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Jon Tower with Citigroup. Please proceed with your question.

Jon Tower (Equity Research Analyst)

Great, thanks for taking the questions. Just a few from a... And I apologize if you might have hit this earlier. I've had a hard time hearing some of the stuff. But on the loyalty program, I'm curious, how have registrations hit versus your own expectations? And you know, how is it, it seems as if, per Ben's comments earlier, at least around the promotion in December, where you can come in twice and get 20% off in January. I don't know if that was only reserved for loyalty members or not, but you know, how is this working overall, the loyalty program to drive frequency, ticket, and/or frankly, any sort of customer insights that you might not have had previously?

Benjamin Porten (SVP of Investor Relations and System Development)

Yeah. So generally speaking, whenever we talk about a promotion, you can assume that it's limited to our rewards members. I don't know if you recall, in the last earnings call, it was November, and our rewards program had just been out for a couple of weeks, and we mentioned that the registration rate had doubled, as compared to the prior program. We sort of assumed that would level off, that was due to the initial excitement. But I'm not sure if you heard in today's call because the audio is a little bit garbled, but the registration has actually tripled in comparison to the last program. So it hasn't leveled off. It's actually accelerated. So I think it's very fair to say that it's far exceeded our expectations. We're very pleased with it.

I think it's still a little bit premature to be discussing, you know, guest insights, but just engagement is great. The things that we can do, the kind of campaigns that we can deploy are at a completely different level. Certainly, the next earnings call will have a lot of good news that we'll be able to share with you. Yeah, and that, the visiting twice in December to get that 20% off in January, that's only for rewards members. In fact, the improved rewards platform is what enabled us to use that to actually do that for the first time.

Jon Tower (Equity Research Analyst)

Got it. Thank you. And just I know last quarter you'd also discussed the idea about communicating kind of some of the upgrades on the waitlist system and/or kind of the rolled out cell phone ordering at the table to consumers as a potential lever. Did you guys push that during the quarter at all? And if so, what was the uptake of either?

Benjamin Porten (SVP of Investor Relations and System Development)

Yeah. In terms of the waitlist app, attrition... So guest attrition has dropped from 25% to below 20%, a very meaningful improvement. Especially, you know, we're very, very happy with it, and we think it's one of the reasons that our traffic is continuing to improve. In terms of the mobile phone ordering, that is still limited to two restaurants. We're gonna start testing later this... The testing is complete. It's feature complete. Really, I think the biggest factor is that we've had some trouble figuring out exactly what to name it.

When we have a button called mobile ordering, I think our guests are assuming it's like a takeout button, and so we're changing it to smartphone ordering, which I think is a clearer explanation of exactly what it can do. And for people that are new to this on the call, this program allows you to use your cell phone to place orders as well, which doesn't sound very exciting until you've been at our restaurant with a party of four or more, and you're sitting on the outside, and you can't order from the panel, and you don't want to reach over people and grab stuff. And so we're very excited about this, especially in terms of, you know, mix.

We think it's a meaningful opportunity for side menu attachment rates to go up. And so, yeah, that's the rollout is starting in January, and it's gonna be on a rolling basis. Should be... My expectation is that it'll be done in the next two quarters, hopefully next quarter.

Jon Tower (Equity Research Analyst)

Got it. Thank you. And then just, I guess, following up on the US TAM. I know you, you've previously talked about the idea of getting to about 300 stores, and it seems like new store productivity, volumes, and certainly traffic, all seem to indicate that your brand is resonating particularly well with consumers, despite whatever the macro had been doing over the past 24 months and obviously prior to that as well. So I'm curious, you know, if and when you guys think about that number, you know, it appears dated at the moment. Do you guys have any more thoughts on where that should go over time?

Benjamin Porten (SVP of Investor Relations and System Development)

So it still remains a topic of discussion in terms of when we're going to commission the new white space study. Obviously, we know that people are excited for that, and so we're excited to share that with the street whenever we do decide to commission the white space study. We communicated many times in the past that the 300 units that we initially gave at the time of the IPO, we think is conservative. Not just because it was a conservative number to begin with, but because of the market fragmentation and the sheer number of restaurant closures in the Japanese segment as a result of COVID. We think that's fundamentally changed our opportunity in the United States. But, you know, again, as you mentioned, we're rolling along.

We've got 56 units against that initial 300, and so we're not in a rush necessarily. We don't see a need to see, you know, however many hundreds of units into the future. But I don't think anybody, certainly not anybody on this call, expects 300 to be our ceiling.

Jon Tower (Equity Research Analyst)

Got it. Thank you for taking the questions.

Benjamin Porten (SVP of Investor Relations and System Development)

Of course. Thank you, sir.

Operator (participant)

Thank you. Our next question comes from the line of Todd Brooks with Benchmark Company. Please proceed with your question.

Todd Brooks (Senior Analyst and Managing Director)

Hey, thanks for taking the question. Just a couple left here. Jeff, on the other cost line, given the success in accelerating the opening pipeline, is it safe to take the kind of Q1 level of spend and then obviously apply a little leverage as the volumes increase on the back half? But, how should we be thinking about that level of spend as we go forward through the year?

Jeff Uttz (CFO)

That's exactly how you should think of it, Todd. We're gonna continue our opening pace. As you know, we raised the guidance to 12-14 units, so we're gonna continue to open units as quickly as we can. So we're gonna continue to see those large pre-opening expenses. And that's really what impacted other costs the most throughout the quarter, was the pre-opening expenses associated with opening these restaurants. As you know, a lot of restaurant companies in the past have broken out pre-opening expenses as a separate line item on the financials, which is looked down upon now, so we don't do that. But you can see what our pre-opening expenses were and our Adjusted EBITDA reconciliation in the queue....

So as we continue to open restaurants and we have more top line, you know, revenue to get the leverage, you're thinking about it exactly right. It's gonna leverage a little bit, but they're still gonna remain elevated. I wouldn't think about a lot of leverage going forward necessarily this year on the pre-opening costs, but as we get through the year, you will get some and again, next year, more, and next year, more. Similar to G&A, really, is how I'm kind of thinking about it. Because, you know, unless we start opening 50 stores sometime, we're gonna continue to have enough stores where that additional revenue from the stores we have opened will significantly offset that. But right now, it is giving us some higher costs in the other cost line and in the labor line as well.

Our pre-opening costs are sprinkled throughout our P&L. They're not stuck in just one line. They're, they're in some labor, it's in occupancy. That's another reason the occupancy was high, too. Nobody asked about occupancy yet, but we have to start booking rent expense on restaurants when we take possession of the building. So when it takes four or five months to build the restaurant, we're having non-cash rent expense hit our books. And because of the accelerated openings, that's why you see our occupancy line a little bit higher than I think some people expected it to be this quarter as well. But it's a good thing. We're opening restaurants, and they're gonna start pushing through revenue and make profits. And we're excited to see this happening.

Todd Brooks (Senior Analyst and Managing Director)

That's very helpful. Thanks, Jeff, and agree that if it's tied to accelerated year-end openings, it's a great thing. Just one follow-up there, and then I'll hop back in the queue. Within the other expense, you talked about marketing costs being up. Is this just pre-opening marketing for new units, or is there something that you're doing additionally on the marketing side that would bump that cost line up?

Benjamin Porten (SVP of Investor Relations and System Development)

Hey, so as some context, last year in December, we started investing in targeted marketing search engine optimization with Google across its channels. It's been very cost-effective. We're very happy with it, which is why, you know, we've kept it as part of our marketing suite. But it, so this is really just a year-over-year comparison, given that we started in December. This was the first and last Q1 where we didn't have that cost last year. As of, you know, Q2, we're gonna be doing an apples-to-apples comparison. So it, it's not like we started something new in Q1. This is really just the tail of a year-over-year comparison.

Todd Brooks (Senior Analyst and Managing Director)

Perfect. Thank you both.

Jeff Uttz (CFO)

Thank you.

Hajime “Jimmy” Uba (President and CEO)

Thank you, Todd.

Jeff Uttz (CFO)

Thanks, Todd.

Operator (participant)

Thank you. Our next question comes from the line of George Kelly with Roth Capital Partners. Please proceed with your question.

George Kelly (Managing Director)

Hey, everyone. Thanks for taking my, my question here. So most of my stuff's been asked, but just one last one for you, related to CapEx. And I was curious, what's a good sort of percent of sales to use just generally for maintenance CapEx? I know it's 2.5, per restaurant, but wondering about maintenance CapEx. And if we look back over the last year or two, has there been kind of a post-COVID catch-up on, on some maintenance CapEx? Or just curious if there's been anything sort of, not normal, in the more recent periods.

Jeff Uttz (CFO)

So a couple things, George. Hi. So maintenance CapEx, we've said in the past, it runs about $100,000 per restaurant. Once a restaurant is open, your, your ongoing maintenance stuff, that we're capitalizing. And, in terms of catch-up, there's not necessarily so much of a catch-up, but when you look at our depreciation line on the P&L, what you're seeing is a lot of accelerated depreciation in there because we've done several remodels. We changed our logo sometime before I joined the company, but we haven't changed the signage yet, so we're changing a lot of our signage to the new logo. And when we make that decision and we have a date for when that sign's coming down, we have to accelerate the depreciation.

We also have a lot of protective equipment that we have in the restaurants for COVID that we kept on the books just so we made sure the COVID emergency was over, and now that it's over, we have to write those off as well. So there are several unusual things hitting our depreciation lines. But that's kind of how I think you should look at it. Like I said, $100,000 or so per restaurant per maintenance CapEx.

George Kelly (Managing Director)

Okay, sounds good. That's all I had. Thank you.

Jeff Uttz (CFO)

Thanks, George.

Hajime “Jimmy” Uba (President and CEO)

You're welcome.

Operator (participant)

Thank you. Our next question comes from the line of Mark Smith with Lake Street Capital Markets. Please proceed with your question.

Mark Smith (Senior Research Analyst)

Hi, guys. Similarly, I think most questions have been asked here, but just one for me. As we look at G&A, there's a little bit of litigation accrual. Did that fall in there, and was there anything else that was kind of one-time-ish? It looks like you're expecting some pretty good leverage there. Just wanted to see if there was anything else that was maybe one-time-ish in nature.

Jeff Uttz (CFO)

Yeah, the litigation accrual, $205,000, was the biggest one-time piece. And as you back that out, the number came to almost exactly where we expected it to come out for the quarter. The things you're gonna see going forward for the rest of the year, and we're... If you look at our guidance, we're projecting about 50 basis points of leverage, and we had 80 basis points last year.

The reason we're not expecting as much leverage this year is this is our first year, because this, this is our sixth year as a public company, which means that we now have to be 404(b) compliant, which has created quite a bit of additional auditor costs and some consulting costs to make sure that we are completely 404(b) compliant when we need to be. So the additional public company costs create a little bit of a headwind there, but you know what? 80 last year plus 50 this year, 130 basis points over two years is pretty good.

Mark Smith (Senior Research Analyst)

Excellent. Thank you.

Jeff Uttz (CFO)

Thank you.

Hajime “Jimmy” Uba (President and CEO)

Thank you, Mark.

Mark Smith (Senior Research Analyst)

Thank you.

Operator (participant)

Thank you. We have reached the end of our question-and-answer session. With that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.