Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales for the fiscal second quarter were $57.3 million, representing comparable sales growth of 3%.
- Traffic growth of 5.9% is a meaningful acceleration over the prior quarter's profit, which was up 3.3%.
- Kura Sushi USA Inc opened 10 restaurants to date, putting them well on track for their new unit guidance of 13 to 14 openings this fiscal year.
- Adjusted EBITDA dollars grew by 23%, demonstrating strong operational performance.
- The company has successfully introduced new projects and the operations teams have effectively implemented them.
Negative Points
- Labor as a percentage of sales was 32.8% compared to 31.0% in the prior year quarter, indicating increased labor costs.
- Severe weather impacted the entire industry, including Kura Sushi USA Inc, which affected their fiscal second quarter results.
- Commodity costs continued to be higher than desired at 29.6% of sales.
- Pre-opening costs were meaningfully higher due to accelerated openings, contributing to increased expenses.
- Operating loss was $1.7 million compared to an operating loss of $1 million in the prior year quarter, largely driven by incremental costs associated with a greater number of unit openings.
Q & A Highlights
Q: Can you discuss the consumer environment and recent trends, especially considering industry slowdown concerns?
A: The company representative highlighted a meaningful acceleration in traffic growth, with a 5.9% increase and a 940 basis points spread compared to the casual dining industry. Despite severe weather impacts, the company is pleased with the results and confident in the non-structural nature of the labor cost increase. They expect to see the usual seasonal leveraging of labor.
Q: Any surprises in new markets in terms of consumer reception?
A: The company representative mentioned that new markets have all been hits, with no surprises. Performance differences in geographic areas were mainly due to weather impacts.
Q: What are your thoughts on restaurant margin pressure and visibility for the second half of fiscal 2024?
A: The company representative believes that the restaurant-level operating profit margins will improve in the second half of the year, as pre-opening labor headwinds are largely behind them. They also anticipate seasonal sales leverage and are excited about upcoming promotions, including a partnership with Dragon Ball, which could be the biggest promotion ever.
Q: How long does it typically take to open a new restaurant once ground is broken?
A: Historically, it has taken about five months, but recent trends show a slight acceleration, with openings closer to four months.
Q: Can you provide details on the impact of the rewards program promotion in December and January?
A: The company representative did not provide specific redemption rates but expressed satisfaction with the traffic for the quarter, despite weather noise in January.
Q: What was the weather penalty for the quarter?
A: The company faced about eight days of weather impact, with significant operating days affected in January and February.
Q: Can you discuss the Dragon Ball promotion and its potential impact?
A: The company is extremely excited about the Dragon Ball promotion, viewing it as a significant opportunity to drive traffic and engage guests.
Q: What explains the increase in unit growth guidance, and is the 20% growth target still valid for the future?
A: The company representative stated that the 20% growth is a floor, with actual growth closer to 25%. They are confident in continuing this trend, supported by a strong management pipeline and improved permitting processes.
Q: Are there any incremental expenses added to the other cost line item due to the DoorDash partnership?
A: The impact of DoorDash in Q2 was not significant, and the company expects the partnership to be margin neutral or accretive. Other costs were also impacted by pre-opening costs associated with new store openings.
Q: Can you quantify the penalty from adverse weather on labor costs?
A: The company had about $700,000 in incremental pre-opening costs compared to the prior year, with the majority attributed to labor. The eight days of weather impact also contributed to labor cost increases.