Kura Sushi USA, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended February 28, 2022. Amounts below are in millions of dollars unless stated otherwise. The company operates technology-enabled Japanese revolving-sushi restaurants.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Sales | $31.3 | $9.1 | $61.1 | $18.5 |
| Operating loss | $(1.9) | $(3.8) | $(3.1) | $(10.1) |
| Net loss | $(1.9) | $(3.9) | $(3.2) | $(10.2) |
| Net loss per share | $(0.19) | $(0.46) | $(0.32) | $(1.22) |
| Adjusted EBITDA, non-GAAP | $0.4 | $(4.7) | $1.2 | $(9.0) |
Sales increased 244.5% in the quarter and 230.5% year to date. The company attributed growth to unrestricted indoor dining compared with prior-year restrictions and six restaurants opened after February 28, 2021. Comparable restaurant sales rose 182.9% for the quarter and 167.8% year to date, against sharply negative prior-year comparisons. The comparable base was 25 restaurants.
Q2 operating loss margin improved to 6.0% negative from 41.8% negative; year-to-date it improved to 5.2% negative from 54.5% negative. Q2 restaurant-level operating profit, a non-GAAP measure, was $5.6 million (17.8% margin), versus a $1.3 million loss (14.8% negative margin) a year earlier. These comparisons reflect the recovery in sales and prior-year employee-retention credits and pandemic-related operating limits.
Cash, liquidity and obligations
- Cash and equivalents were $36.4 million at February 28, 2022, down from $40.4 million at August 31, 2021. Current assets were $46.0 million and current liabilities $20.8 million.
- Six-month operating cash flow was positive $9.7 million, compared with negative $8.9 million in the prior-year period. The 2022 inflow included collection of $8.0 million in employee-retention-credit refunds.
- Investing cash outflow was $13.2 million, including $12.3 million for property and equipment; financing cash outflow was $0.6 million. The company had no revolving-credit borrowings and $45.0 million available under its affiliate-provided credit line.
- Finance-lease liabilities totaled $1.0 million; operating-lease liabilities totaled $80.8 million. Additional operating leases not yet commenced represented $28.6 million at quarter-end, with a further $12.4 million entered into after quarter-end. The company also reported $4.0 million in construction and purchase commitments due within 12 months.
- Management said cash on hand, operating cash flows and available credit should fund lease obligations, capital expenditures and working capital for at least the next 12 months.
Outlook, risks and notable items
- The company expects to continue opening restaurants where it believes they can be profitable, but gave no specific sales, earnings or opening guidance. It opened three restaurants during the quarter and one more after quarter-end; 37 were operating as of the filing date.
- COVID-19 remained a risk: renewed outbreaks or variants could restrict dining, disrupt staffing or reduce demand. All restaurants were operating without government indoor-dining capacity restrictions as of the filing date.
- Food, labor and energy inflation may pressure margins. Management reported using menu-price increases and operational measures to offset costs, but noted pricing may be constrained by competition and customer response.
- Employee-retention credits: the company had filed for $12.1 million in refunds and received $8.0 million by the filing date; timing of the remaining approximately $4.1 million was uncertain. The prior-year quarter included $2.6 million of credits, affecting comparisons.
- A wage-and-hour putative class action had a $1.75 million settlement agreed; a $1.78 million liability, including estimated payroll taxes, was already accrued. Preliminary court approval was scheduled for May 9, 2022.
- The company recorded a full valuation allowance against net deferred tax assets, citing recent cumulative losses. It reported no material change in risk factors and said disclosure controls were effective.
Key facts for investors to verify
- Whether sales and comparable-store momentum persist as pandemic-related comparisons normalize, and how much growth comes from new locations versus existing restaurants.
- Whether labor, food and other inflation—partly offset by price increases—affects restaurant-level and GAAP profitability.
- Receipt of the remaining employee-retention-credit refunds and the related cash-flow impact.
- New-store investment returns and the commitments from long-term leases, including leases not yet commenced.
- Final court approval and payment terms for the wage-and-hour settlement.
- Liquidity and cash needs against ongoing losses, capital spending and lease obligations; the $45 million credit facility is provided by majority shareholder Kura Japan.