Kura Sushi USA, Inc. — Q1 FY2023 Form 10-Q
Unaudited quarter ended November 30, 2022; comparisons are with the three months ended November 30, 2021. The company operates technology-enabled Japanese restaurants featuring its revolving-sushi service model.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Sales | $39.3 million | $29.8 million |
| Net loss | $2.1 million | $1.3 million |
| Operating loss | $2.2 million | $1.3 million |
| Operating cash flow | $0.5 million | $10.6 million |
| Capital expenditures and other investing outflows | $9.3 million | $6.3 million |
| Cash and cash equivalents, quarter-end | $26.9 million | $44.4 million |
- Sales increased 31.8%; comparable restaurant sales rose 6.9%. Management attributed sales growth primarily to nine restaurants opened after November 30, 2021 and menu-price increases. The restaurant base grew from 33 to 42, including two openings during the quarter; another restaurant opened subsequently.
- Restaurant operating costs grew 35.5%, faster than sales. Food and beverage costs rose to 31.6% of sales from 30.0%; labor improved to 31.9% from 32.5%; other costs increased to 13.5% from 12.1%. Total operating expenses were 105.5% of sales versus 104.3%, and operating loss margin widened to 5.5% from 4.3%.
- Net loss increased 63.8% to $2.1 million; diluted loss per share was $0.21 versus $0.13. Adjusted EBITDA, a non-GAAP measure, was $0.6 million, with a 1.6% margin, compared with $0.8 million and 2.7%. Restaurant-level operating profit, also non-GAAP, was $7.2 million, or 18.2% of sales, versus $5.8 million, or 19.5%.
- Operating cash flow fell substantially from the prior period, which included an $8.3 million inflow related primarily to employee retention credits. Cash declined $8.8 million during the quarter, mainly reflecting investing outflows.
Liquidity, debt and commitments
- Quarter-end cash was $26.9 million; current assets were $35.0 million and current liabilities $24.5 million. The company had no borrowings on its $45 million revolving credit facility with Kura Japan, leaving the full amount available.
- Operating lease liabilities totaled $95.6 million, including $8.0 million current; finance lease liabilities totaled $0.4 million. The company also disclosed $45.3 million of restaurant operating leases not yet commenced at quarter-end and $9.2 million of additional lease liabilities associated with leases entered into afterward.
- Contractual obligations for restaurant construction and operating purchases were $7.5 million, expected to be paid in FY2023. Management said cash on hand, operating cash flow and facility availability should fund lease obligations, capital expenditures and working capital for at least 12 months.
Outlook, risks and notable items
- No quantified financial guidance was provided. Management expected inflationary and other cost pressures—including food, labor, construction and energy costs—to continue through the remainder of FY2023. Menu pricing, productivity improvements and supply-chain initiatives had partially offset pressures.
- Management cautioned that further cost increases may not be fully offset through pricing or efficiency measures, and higher prices could affect customer visits or spending. Supply shortages and freight costs were also noted.
- A California wage-and-hour class-action settlement of $1.78 million received final court approval in November 2022; the company deposited the funds with a settlement administrator in December.
- On December 28, 2022, the company filed a shelf registration statement covering up to $125 million of securities. This is an authorization to potentially offer securities, not evidence that an offering occurred. Deferred tax assets were fully valuation-allowed, primarily in light of recent cumulative losses.
Important facts for investors to verify
- Whether sales and comparable-store growth persist, and how much reflects new locations versus pricing and customer demand.
- Whether food, labor and other restaurant costs stabilize and margins recover as restaurant openings continue.
- Cash use, capital spending, new-store returns and liquidity against substantial existing and planned lease commitments.
- Any future securities offering under the shelf registration, including its size, terms and use of proceeds.
- Final distribution of the class-action settlement and any material developments in other legal matters.