Kura Sushi USA, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended August 31, 2022. This is an annual report, not a standalone fourth-quarter filing; the filing text does not provide a clear Q4-only financial breakdown. Amounts below are in U.S. dollars.
Business context
Kura Sushi operates a technology-enabled revolving sushi restaurant concept. At year-end it operated 40 restaurants in 12 states and Washington, D.C., up from 32 a year earlier. It opened eight restaurants in FY2022. Kura Sushi, Inc. (Kura Japan) owns 75% of combined voting power and provides certain services, supplies, and licensed intellectual property.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $141.1 million | $64.9 million |
| Comparable restaurant sales growth | 81.9% | 16.2% |
| Average unit volume | $3.825 million | $2.138 million |
| Operating loss | $0.8 million | $10.0 million |
| Net loss | $0.8 million | $10.3 million |
| Net loss per share | $0.08 | $1.21 |
| Adjusted EBITDA (non-GAAP) | $9.2 million | $(10.9) million |
| Adjusted EBITDA margin (non-GAAP) | 6.5% | (16.8)% |
| Cash from operating activities | $23.7 million | $(7.1) million |
| Cash used in investing activities | $28.2 million | $14.7 million |
| Cash and cash equivalents at year-end | $35.8 million | $40.4 million |
FY2022 restaurant-level operating profit was $29.9 million, or 21.2% of sales, versus $3.2 million, or 4.9%, in FY2021. This is a company-defined non-GAAP measure and excludes certain corporate and other costs; it is not equivalent to consolidated operating profit.
Food and beverage costs were 30.1% of sales (31.9% in FY2021); labor costs were 31.2% (25.3%); occupancy costs were 7.0% (10.9%); and other restaurant costs were 12.4% (16.1%). General and administrative expenses were 15.8% of sales, down from 24.2%. The filing attributes much of the improvement in expense ratios to higher sales and resulting leverage; labor comparisons were also affected by FY2021 employee retention credits.
At August 31, 2022, total assets were $201.4 million, total liabilities $108.1 million, and stockholders’ equity $93.3 million. Current assets were $42.4 million and current liabilities $25.3 million. The company had no borrowings under its $45 million revolving credit facility, all of which remained available. Finance lease liabilities were $0.5 million. Operating lease liabilities totaled $90.3 million and are separate from borrowings; the filing reports $145.7 million of undiscounted future operating lease payments.
Changes and notable items
- Sales more than doubled, primarily reflecting unrestricted indoor dining compared with pandemic-related restrictions in FY2021, as well as eight new restaurant openings. Comparable sales growth and AUV also increased substantially.
- Operating and net losses narrowed markedly, but the company remained loss-making under GAAP.
- Operating cash flow improved to $23.7 million, while investing outflows rose with restaurant development and capital spending. Cash declined by $4.6 million during the year.
- FY2021 included $10.3 million of employee retention credits ($9.3 million in labor costs and $1.0 million in G&A) and a $1.78 million accrued wage-and-hour litigation settlement. These items make year-over-year cost comparisons less representative of underlying operations.
- FY2022 capital investment included $26.8 million of property and equipment purchases. Average cash build-out cost for FY2022 openings was approximately $2.2 million per restaurant, net of landlord allowances.
Outlook, risks, and contingencies
Management expects to continue opening restaurants where it believes they can be profitable, but gives no quantified FY2023 sales, earnings, or opening guidance in the supplied filing text. It identifies a long-term U.S. potential of more than 290 restaurants and states an aim to maintain an average annual restaurant growth rate of 20% for a five-year period beginning in FY2019; achievement and timing are uncertain.
Management expects inflationary pressures on food, labor, construction, and energy costs, along with supply-chain pressures, to continue into FY2023. Menu price increases and operational initiatives have partly offset these costs, but may not fully do so and could affect traffic. COVID-19-related restrictions or changes in consumer behavior remain possible risks. Other material risks include expansion execution and new-unit profitability, labor availability and wage increases, food safety, long-term lease commitments, reliance on concentrated suppliers, automated equipment and cybersecurity, and dependence on Kura Japan. JFC supplied 52% and Wismettac 25% of FY2022 food and beverage costs.
A California wage-and-hour class action settlement of $1.75 million, plus estimated employer payroll taxes, received preliminary court approval in July 2022; final approval was scheduled for November 18, 2022. The filing does not report the outcome of that later hearing. Management stated that other ordinary-course legal proceedings were not expected to have a material adverse effect. The company reported no long-lived-asset impairment in FY2022.
KPMG issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to attest to internal control effectiveness. Kura Japan’s 75% voting control and the dual-class share structure are relevant governance considerations.
Investor verification priorities
- Review the drivers and sustainability of the 81.9% comparable-sales increase and $3.825 million AUV, including the effect of reopening comparisons and new-store sales.
- Track whether sales and restaurant-level profitability can absorb continued food, labor, construction, and energy inflation without damaging traffic or margins.
- Assess cash needs against planned openings, capital spending, and the $90.3 million operating lease liability, including leases not yet commenced.
- Confirm final court approval and payment details for the $1.75 million wage-and-hour settlement.
- Monitor supplier concentration, reliance on Kura Japan, and the terms and availability of the related-party credit facility and intellectual-property arrangements.
- Distinguish GAAP losses from management’s non-GAAP Adjusted EBITDA and restaurant-level profit measures when assessing performance.