Kura Sushi USA, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended August 31, 2023 (not a standalone Q4 report). The company operates a technology-enabled Japanese revolving-sushi restaurant concept. It reported 50 restaurants at fiscal year-end and opened 10 during the year.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $187.4 million | $141.1 million |
| Comparable restaurant sales growth | 9.5% | 81.9% |
| Average unit volume | $4.3 million | $3.8 million |
| Operating income (loss) | $0.3 million | $(0.8) million |
| Net income (loss) | $1.5 million | $(0.8) million |
| Operating margin | 0.2% | (0.5)% |
| Net margin | 0.8% | (0.5)% |
| Adjusted EBITDA and margin | $14.3 million; 7.7% | $9.2 million; 6.5% |
| Restaurant-level operating profit and margin (non-GAAP) | $41.1 million; 21.9% | $29.9 million; 21.2% |
Sales rose 32.8%, primarily from 10 new restaurants and menu price increases. Food and beverage costs were 30.2% of sales, roughly flat year over year; labor costs improved to 30.2% from 31.2%. Other restaurant costs increased to 13.3% of sales from 12.4%, with inflation cited in advertising, repairs, utilities and supplies. General and administrative expense rose 25.8% to $28.0 million, but fell to 15.0% of sales from 15.8%.
Cash and liquidity: Operating cash flow was $18.1 million, down from $23.7 million. Investing cash outflow was $49.9 million, including $39.1 million for property and equipment; financing cash inflow was $65.8 million. Year-end cash and cash equivalents were $69.7 million, with $8.5 million in short-term investments. Current assets were $89.4 million and current liabilities $29.1 million. The company reported no borrowings on its $45 million revolving credit facility, all of which remained available, and stated its available resources should fund needs for at least 12 months.
Debt and leases: No revolving-credit borrowings were outstanding. Finance lease liabilities were $0.1 million. Operating lease liabilities totaled $119.5 million, with $196.1 million of undiscounted operating lease payments; these lease obligations are significant fixed commitments.
Changes, outlook and notable items
- Net income turned positive from a prior-year loss, while operating income also moved into positive territory. Interest income rose to $1.5 million, largely because offering proceeds were held in cash and short-term investments.
- In April 2023, the company raised $64.3 million net through a follow-on offering of 1.265 million Class A shares, diluting existing holders.
- Management expects to open 11–13 restaurants in FY2024. It expects revenue and restaurant operating costs to rise with expansion, and G&A to increase to support growth and compliance. Management expected inflationary cost pressures to level out in FY2024, while noting that cost inflation and the ability to offset it remain risks.
- FY2023 comparable sales growth slowed materially from the unusually high 81.9% prior-year rate. The company cautions that new-store openings, seasonality, weather and quarterly fluctuations can make results uneven.
- A California wage-and-hour class action settlement of $1.78 million received final court approval in November 2022 and was funded in December 2022; the final distribution report was filed in July 2023, with an amended judgment still awaiting signature. Management said other ordinary-course litigation was not expected to have a material adverse effect.
- Key risks include inflation and labor costs, execution and profitability of new restaurants, geographic concentration in California and Texas, supplier concentration, food safety, equipment and cybersecurity failures, and dependence on majority owner Kura Japan for licensed intellectual property and certain services. Kura Japan held 70% of combined voting power. No dividends are planned for the foreseeable future.
- 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 opine on internal-control effectiveness.
Important facts for investors to verify
- Whether the planned FY2024 openings are achieved on schedule and within the disclosed approximate FY2023 cash build-out cost of $2.56 million per restaurant.
- Whether comparable sales, traffic and AUVs remain resilient as price increases moderate and the prior-year comparison normalizes.
- How food, labor and other operating costs affect restaurant margins, and whether the FY2023 improvement in labor percentage is sustainable.
- Use of the offering proceeds, cash burn and capital needs alongside substantial lease commitments and continued expansion.
- Current status and any further financial consequences of the wage-and-hour settlement, and developments in other litigation or contingencies.
- Supplier concentration and related-party arrangements, including Kura Japan’s control, licensing relationship and shared services.