Yahoo Finance Kura Sushi USA Inc (KRUS) Q2 2024 Earnings Call Transcript Highlights: Navigating Headwinds ...
Total Sales: $57.3 million for the fiscal second quarter.
Comparable Sales Growth: 3% increase.
Traffic Growth: 5.9% increase.
Commodity Costs: 29.6% of sales.
Labor Costs: 32.8% of sales, up from 31.0% in the prior year quarter.
G&A Expenses: Decreased to 14.3% of sales from 16.2% in the prior year quarter.
Operating Loss: $1.7 million, compared to a loss of $1 million in the prior year quarter.
Net Loss: $1 million, or $0.09 per diluted share.
Adjusted EBITDA: $2.9 million, up from $2.3 million in the prior year quarter.
Cash and Cash Equivalents: $56.8 million at the end of the fiscal second quarter.
Guidance for Fiscal Year 2024: Total sales expected to be between $243 and $246 million; 13 to 14 new units; G&A expenses as a percentage of sales to be between 14% and 14.5%.
Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Total sales for the fiscal second quarter were $57.3 million, representing comparable sales growth of 3%.
Traffic growth of 5.9% is a meaningful acceleration over the prior quarter's profit, which was up 3.3%.
Kura Sushi USA Inc opened 10 restaurants to date, putting them well on track for their new unit guidance of 13 to 14 openings this fiscal year.
Adjusted EBITDA dollars grew by 23%, demonstrating strong operational performance.
The company has successfully introduced new projects and the operations teams have effectively implemented them.
Negative Points
Labor as a percentage of sales was 32.8% compared to 31.0% in the prior year quarter, indicating increased labor costs.
Severe weather impacted the entire industry, including Kura Sushi USA Inc, which affected their fiscal second quarter results.
Commodity costs continued to be higher than desired at 29.6% of sales.
Pre-opening costs were meaningfully higher due to accelerated openings, contributing to increased expenses.
Operating loss was $1.7 million compared to an operating loss of $1 million in the prior year quarter, largely driven by incremental costs associated with a greater number of unit openings.
Q & A Highlights
Q: Can you discuss the consumer environment and recent trends, especially considering industry slowdown concerns? A: The company representative highlighted a meaningful acceleration in traffic growth, with a 5.9% increase and a 940 basis points spread compared to the casual dining industry. Despite severe weather impacts, the company is pleased with the results and confident in the non-structural nature of the labor cost increase. They expect to see the usual seasonal leveraging of labor.
Q: Any surprises in new markets in terms of consumer reception? A: The company representative mentioned that new markets have all been hits, with no surprises. Performance differences in geographic areas were mainly due to weather impacts.
Q: What are your thoughts on restaurant margin pressure and visibility for the second half of fiscal 2024? A: The company representative believes that the restaurant-level operating profit margins will improve in the second half of the year, as pre-opening labor headwinds are largely behind them. They also anticipate seasonal sales leverage and are excited about upcoming promotions, including a partnership with Dragon Ball, which could be the biggest promotion ever.
Q: How long does it typically take to open a new restaurant once ground is broken? A: Historically, it has taken about five months, but recent trends show a slight acceleration, with openings closer to four months.
Q: Can you provide details on the impact of the rewards program promotion in December and January? A: The company representative did not provide specific redemption rates but expressed satisfaction with the traffic for the quarter, despite weather noise in January.
Q: What was the weather penalty for the quarter? A: The company faced about eight days of weather impact, with significant operating days affected in January and February.
Q: Can you discuss the Dragon Ball promotion and its potential impact? A: The company is extremely excited about the Dragon Ball promotion, viewing it as a significant opportunity to drive traffic and engage guests.
Q: What explains the increase in unit growth guidance, and is the 20% growth target still valid for the future? A: The company representative stated that the 20% growth is a floor, with actual growth closer to 25%. They are confident in continuing this trend, supported by a strong management pipeline and improved permitting processes.
Q: Are there any incremental expenses added to the other cost line item due to the DoorDash partnership? A: The impact of DoorDash in Q2 was not significant, and the company expects the partnership to be margin neutral or accretive. Other costs were also impacted by pre-opening costs associated with new store openings.
Q: Can you quantify the penalty from adverse weather on labor costs? A: The company had about $700,000 in incremental pre-opening costs compared to the prior year, with the majority attributed to labor. The eight days of weather impact also contributed to labor cost increases.
This article first appeared on GuruFocus.
