Kura Sushi USA, Inc. — Fiscal 2021 Form 10-K
Reporting period: Fiscal year ended August 31, 2021. The filing reports annual results, not standalone fourth-quarter results. Kura Sushi operates technology-enabled revolving sushi restaurants; it had 32 locations at year-end and opened a 33rd in San Francisco in October 2021.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $64.9 million | $45.2 million |
| Operating loss | $10.0 million | $16.5 million |
| Net loss | $10.3 million | $17.4 million |
| Net loss per share | $1.21 | $2.08 |
| Cash used in operating activities | $7.1 million | $13.0 million |
| Capital expenditures and other investing cash outflows | $14.7 million | $14.8 million |
- Sales rose 43.7%, reflecting more restaurants operating at full capacity after pandemic-related restrictions, seven FY2021 openings versus two in FY2020, and higher off-premises sales. Management said sales remained substantially below pre-pandemic levels during the year.
- Operating loss narrowed; operating margin improved to negative 15.4% from negative 36.5%. Restaurant-level operating profit, a non-GAAP measure, was $3.2 million, or 4.9% of sales, versus a $0.7 million loss, or negative 1.6%. Adjusted EBITDA, also non-GAAP, was a loss of $10.9 million, or negative 16.8% of sales, versus a $13.0 million loss, or negative 28.8%.
- FY2021 labor costs included $9.3 million of employee retention credits; general and administrative expenses included another $1.0 million. These credits materially affect comparisons and are not ordinary operating revenue. The company also recorded $1.8 million for a wage-and-hour litigation settlement.
- Comparable restaurant sales increased 16.2%, compared with a 37.8% decline in FY2020. AUV was $2.138 million, versus $1.942 million. The company’s comparable base was 20 restaurants in FY2021 and 14 in FY2020.
- Food and beverage costs were 31.9% of sales versus 32.6%; labor and related costs were 25.3% versus 41.3%; occupancy costs were 10.9% versus 14.1%. The labor ratio benefited substantially from retention credits, while other costs rose to 16.1% from 14.8%, partly due to new-unit setup costs.
- At year-end, cash and cash equivalents were $40.4 million, current assets $57.5 million, and current liabilities $20.0 million. Working capital was approximately $37.4 million. The company had no outstanding borrowings under its $45 million revolving facility with its parent, Kura Japan; it repaid $17 million borrowed during the year.
- Financing cash flow was $53.0 million, primarily reflecting $53.5 million in net proceeds from a July follow-on offering. Total liabilities were $86.8 million, including $71.5 million of operating lease liabilities and $1.5 million of finance lease liabilities. The company leases its restaurant and office properties.
Changes, outlook and risks
- All 32 restaurants were operating at full indoor dining capacity at fiscal year-end. Management reported staffing shortages after restrictions lifted and provided $1.2 million in retention and new-hire bonuses.
- The CARES Act employee retention credits totaled $10.3 million in FY2021. At filing, the company had received $8.0 million in refunds after year-end; it could not estimate when remaining refunds would arrive. The balance sheet included $12.0 million of employee-retention-credit receivables.
- The July 2021 equity offering funded growth and working capital and repaid the Kura Japan facility borrowing. Management said cash, operating cash flows, and available credit should cover lease obligations, capital spending, and working capital needs for at least 12 months.
- Management expects to continue opening restaurants at locations it believes can become profitable, but gave no quantified sales, earnings, unit-opening, or margin guidance. Long-term growth objectives are not guarantees.
- Principal uncertainties include renewed COVID-related restrictions and changing customer behavior, labor availability and wage inflation, food and seafood costs, supplier concentration, competition, execution and profitability of new restaurants, geographic concentration in California and Texas, and reliance on Kura Japan for licensed intellectual property, services, equipment and credit.
- JFC supplied 58% and Wismettac 27% of FY2021 food and beverage costs. Kura Japan held 76% of combined voting power, making the company controlled and creating potential conflicts of interest.
- A $1.75 million settlement was reached in a California wage-and-hour class action, with $1.78 million accrued including payroll taxes. Court preliminary-approval hearing was scheduled for May 9, 2022. No long-lived-asset impairment was recorded; an $8.4 million valuation allowance was recorded against deferred tax assets.
Investor verification points
- Check the sustainability of sales recovery and comparable-store growth, including the effects of full-capacity dining, new locations and pandemic-related comparisons.
- Separate recurring operating performance from employee retention credits, opening costs and litigation accruals; review the company’s non-GAAP reconciliations alongside GAAP losses.
- Track collection of the remaining employee retention credit refunds and operating cash flow versus ongoing restaurant investment and lease commitments.
- Review new-unit economics, construction spending and management’s ability to address labor shortages, wage pressure and supplier concentration.
- Confirm settlement approval and payment, and consider Kura Japan’s voting control, related-party arrangements and the company’s substantial operating lease obligations.
The financial statements received an unqualified GAAP audit opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to, and did not, express an opinion on internal-control effectiveness.