Kura Sushi USA, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended November 30, 2023; comparison is the three months ended November 30, 2022. Kura Sushi operates a technology-enabled Japanese restaurant concept. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change / context |
|---|---|---|---|
| Sales | $51.5 | $39.3 | Up 30.9%; comparable restaurant sales rose 3.8%, versus 6.9% previously. |
| Restaurant-level operating profit and margin | $10.1; 19.5% | $7.2; 18.2% | Company-defined non-GAAP measure. |
| Operating loss | $(2.8); (5.5)% of sales | $(2.2); (5.5)% of sales | Loss widened by $0.7. |
| Net loss | $(2.0); $(0.18) per share | $(2.1); $(0.21) per share | Net loss improved by $0.04. |
| Adjusted EBITDA and margin | $1.8; 3.4% | $0.6; 1.6% | Company-defined non-GAAP measure. |
| Operating cash flow | $2.4 | $0.5 | Cash generation improved. |
| Cash and cash equivalents | $64.2 at Nov. 30 | $69.7 at Aug. 31, 2023 | Short-term investments were an additional $7.0. |
- Sales growth was primarily driven by 12 restaurants opened after November 30, 2022 and menu price increases. The company opened four restaurants during the quarter; its restaurant count rose to 54 from 42 a year earlier.
- Food and beverage costs fell to 29.8% of sales from 31.6%, and labor costs to 31.6% from 31.9%. Other restaurant costs increased to 14.7% of sales from 13.5%, while restaurant depreciation increased to 4.8% from 4.0%.
- Interest income rose to $0.8 from $0.1, primarily reflecting investment of proceeds from the April 2023 stock offering. Income tax expense was $0.04; the company maintained a full valuation allowance against its net deferred tax assets.
Liquidity, cash flow and obligations
- Cash declined by $5.5 during the quarter. Investing activities used $8.0, including $9.4 in property and equipment spending, partly offset by $4.5 of short-term investment redemptions. Financing activities provided $0.1.
- Current assets were $82.0 and current liabilities $31.1 at November 30. The company reported no borrowings under its $45.0 revolving credit facility from majority stockholder Kura Japan; the full $45.0 remained available.
- Total liabilities included $124.2 of operating lease liabilities. The company also disclosed $43.3 of restaurant operating leases not yet commenced and, after quarter-end, leases with $6.7 of associated liabilities expected to commence in fiscal 2024.
- Contractual obligations for restaurant construction and operating purchases totaled $9.1, expected to be paid within 12 months. Management said cash, investments, operating cash flow and facility availability should fund lease obligations, capital expenditures and working capital for at least the next 12 months.
Outlook, commentary and risks
- No numerical sales, earnings or opening guidance was provided. Management expects inflationary and other cost pressures to level out in fiscal 2024.
- The company said it has partially offset food, labor, construction and energy cost pressures through pricing, productivity improvements and supply-chain initiatives. It cautioned that pricing flexibility, guest behavior and cost increases may limit the effectiveness of those actions.
- The company recorded a $0.205 litigation accrual, included as an add-back in Adjusted EBITDA. Separately, a previously settled California wage-and-hour class action had court approval; the company said the parties were awaiting signature of an amended judgment. Management stated other ordinary-course proceedings were not expected to have a material adverse effect, while noting claims could adversely affect results.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether comparable-sales growth, menu pricing and new restaurant openings can sustain sales growth as comparable sales slowed from 6.9% to 3.8%.
- How restaurant-level margins and GAAP operating results develop as food, labor, occupancy, depreciation and other costs change; assess the company’s non-GAAP definitions and adjustments alongside GAAP results.
- The pace and returns of expansion relative to capital spending, lease commitments and the $9.1 of near-term contractual obligations.
- Liquidity and access terms for the related-party $45.0 revolving facility, including its availability through April 10, 2025.
- Updates on the $0.205 litigation accrual and the status and final disposition of the previously settled class action.