Kura Sushi (KRUS) Q2 2026 Earnings Call Transcript

Image source: The Motley Fool.

Date

Tuesday, April 7, 2026 at 5 p.m. ET

Call participants

- President and Chief Executive Officer — Hajime Jimmy Uba

- Chief Financial Officer — Jeff Uttz

- Senior Vice President, Investor Relations and System Development — Benjamin Porten

Full Conference Call Transcript

Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President, Investor Relations and System Development. And now I would like to turn the call over to Mr. Porten. Please go ahead.

Benjamin Porten: Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal second quarter 2026 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I'd like to turn the call over to Jimmy.

Hajime Uba: Thanks, Ben, and thank you to everyone for joining us on our call today. Entering this fiscal year, we knew that the second fiscal quarter will be critical regarding our ability to accomplish our stated goals, expectations and full year guidance. As some of you may have seen in this afternoon's release, our fiscal second quarter was quite strong. We have a lot of good news to share today, including better-than-expected comparable sales and record-breaking labor leverage. So let's jump right in. Total sales for the fiscal second quarter were $80 million, representing comparable sales growth of 8.6% with 4.3% positive traffic and 4.3% of price on the mix.

To provide an update on our goal of flat to slightly positive full year comparable sales. Our year-to-date comparable sales growth as of the end of the first half of fiscal 2026 is now 3%. While Q2 is the most favorable quarter in the fiscal year from a comparative perspective, considering our performance to date, we now expect modestly positive full year comps. Cost of goods as a percentage of sales were 30.4% as compared to the prior year quarter 28.7%. The tariff situation remains largely unchanged for us and the [ minorities ] due to the changes in tariff types have been offset by commodity inflation.

We continue to expect full-year COGS to be approximately 30%, ever as a percent of sales improved by a remarkable 410 basis points from last year's 34.8% to 30.7%, driven by operational initiatives and better sales leverage. Opportunity from labor initiatives scale alongside seasonal leverage, and it's unusual to see this level of impact in the first half of the fiscal year. Given our progress to date, our initial goal of improving labor as a percentage of sales by 100 basis points has proven to be conservative. Moving on to unit development. In the second quarter, we opened one new restaurant in [indiscernible].

Subsequent to quarter end, we opened four more restaurants, Orange and Union City, California, Goodyear, Arizona and Wellington, Florida. The openings from fiscal '26 are shaping up to be just as strong as fiscal 2025, which was the strongest vintage in recent memory. We currently have 8 units under construction. As some of these have very recently broken ground, our expectation for new openings in fiscal '26 remains at 16 units. On marketing, it's clear that our strategy of reemphasizing our IP collaborations is working. Our [ Kirbi ] collaboration was just as successful as we had hoped and Nintendo is an excellent partner. [indiscernible] evergreen popularity was one of the reasons for our strong performance in February.

Our current [ IV ] collaboration [indiscernible] coinciding with the release of the third season. Our next collaboration is with Tamagotchi as part of its 30th anniversary celebration followed by [indiscernible]. They are making meaning introduction of [indiscernible] in our reward program. This is the most meaningful evolution in the reward program since its introduction, and we have to work to create something that will delight both new guests and long time [indiscernible]. Turning to the reservation system. I'm pleased to report that -- it was members using the reservation system, a much higher visitation rate than [indiscernible]. Our two running [indiscernible] under the accuracy of our wait times estimates.

And we feel the reservation system has succeeded in addressing the biggest pain point for our guests. We believe that there is further opportunity by raising awareness of the ability to place reservations and [indiscernible] completely. To this end, after opening up reservation to non-reward members, we were able to grow the number of reservations paced by over 30%. On these robots, we continue to expect to retrofit the majority of the 50 restaurants that have the space to accommodate them by the end of the fiscal year. If they have mentioned that our expectation to improve labor by 100 basis points for fiscal '26 does not contemplate the impact of the [indiscernible] robots.

We expect the robot to deliver an incremental 50 basis points benefit in fiscal '27 over wherever we land at the end of this fiscal year. It's my pleasure to be able to report such a strong quarter, and I would like to thank our team members at our restaurants and support center for making this possible. Before I turn the call over to Jeff, I want to take a moment to address our announcement today and recognize and thank him personally. It has been an invaluable partner to me and to Kura Sushi over the past 4 years. His strategic insight and financial leadership have been instrumental in our growth journey as a public company.

While we will miss his expertise on the partnership, we are grateful for everything he has contributed to our success. This, on behalf of everyone at Kura, we would like to wish you the best of luck and success in your future endeavors.

Jeff Uttz: Thank you, Jimmy, for those kind words. It's been an honor and a privilege to serve as CFO of Kura Sushi over the past 4 years. I'm incredibly proud of what we've accomplished together as a team, and I'd like to thank Jimmy, the Board and every member of the Kura family for their partnership and their trust. Now let me walk you through our fiscal second quarter financial results. For the second quarter, total sales were $80 million as compared to $64.9 million in the prior year period. Comparable restaurant sales growth compared to the prior year period was 8.6%, with 4.3% from traffic and 4.3% from price and mix.

Comparable sales growth in our West Coast market was 7.2% and 9.7% in our Southwest market. Effective pricing for the quarter was 4.5%. As a reminder, beginning in the first quarter of fiscal 2027, we will no longer provide regional breakdowns for comparable sales as regional comps are largely determined by the timing of infills, and we do not believe they are indicative of overall company trends. Turning now to costs. Food and beverage costs as a percentage of sales were 30.4% compared to 28.7% in the prior year quarter due to tariffs on imported ingredients.

Labor and related costs as a percentage of sales were 30.7% as compared to 34.8% in the prior year quarter due to operational efficiencies, pricing and better sales leverage, partially offset by low single-digit wage inflation. Occupancy and related expenses as a percentage of sales were 8.1% compared to the prior year quarter's 7.9%. Depreciation and amortization expense as a percentage of sales were 5.2% as compared to the prior year quarter's 5.1%. Other costs as a percentage of sales were 14.5% as compared to the prior year quarter's 13.5% due to higher promotional and utility costs. General and administrative expenses as a percentage of sales were 13.7% as compared to 16.9% in the prior year quarter.

Fiscal second quarter 2026 includes $1.2 million of litigation expenses as compared to $2.1 million of litigation expenses in the prior year. Operating loss was $2.2 million compared to an operating loss of $4.6 million in the prior year quarter. Income tax expense was $51,000 as compared to $38,000 in the prior year quarter and net loss was $1.7 million or negative $0.14 per share compared to a net loss of $3.8 million or negative $0.31 per share in the prior year quarter. Adjusted net loss, which excludes the litigation expense, was $502,000 or negative $0.04 a share as compared to adjusted net loss of $1.7 million or negative $0.14 per share in the prior year quarter.

Restaurant level operating profit as a percentage of sales was 18.2% compared to 17.3% in the prior year quarter. Adjusted EBITDA was $5.5 million as compared to $2.7 million in the prior year quarter. And at the end of the fiscal second quarter, we had $69.7 million in cash, cash equivalents and investments and no debt. And lastly, I'd like to update and reiterate the following guidance for fiscal year 2026. We now expect total sales to be between $333 million and $335 million. We expect to open 16 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit continuing to approximately $2.5 million.

And we now expect G&A expenses as a percentage of sales to be approximately 12%, excluding litigation expense. And we now expect full year restaurant-level operating profit margins to be between 18% and 18.5%. And with that, I'd like to turn it back over to Jim.

Hajime Uba: Thank you, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.

Operator: [Operator Instructions]. And the first question comes from the line of Andrew Charles with TD Cowen.

Andrew Charles: I was a bit surprised following the big 2Q same-store sales beat that revenue guidance was inched up. You're looking at consensus forecast, it looks like you're blessing the back half at the midpoint. So does that reflect conservatism in the back half of the year? Or perhaps you can comment on what you're seeing with the new store productivity as well?

Hajime Uba: Thank you, Andy, for your first question. But please allow me speaking Japanese. [Foreign Language].

Benjamin Porten: [Interpreted] Charles or Andrew Charles, my grandfather's name is Charles. Andrew, this is Ben. In terms of the guidance that we provided, it really -- it incorporates the better-than-expected performance of Q2. But just given there's a war going on and we don't know how it's going to play out. We felt it was prudent in terms of our guidance just to add the upside from Q2, but not to extrapolate further from that. It doesn't reflect conservatism or pessimism. It's just prudence.

Andrew Charles: Okay. Fair enough. And then curious, what drove the improvement in mix to roughly flat? What are you seeing there in terms of attachments or beverages, et cetera, that helped improve that performance?

Hajime Uba: [Foreign Language].

Benjamin Porten: [Interpreted]. The biggest factor would be our guests are eating more plates per person. Our interpretation is that this is a reflection of the success of the IPs. When we have compelling IPs, people are that much more incentivized to go for that 15th plate or to hit the spending threshold for our giveaways.

Andrew Charles: And Jeff, all the best in your new role.

Operator: The next question comes from the line of Todd Brooks with Benchmark StoneX.

Todd Brooks: Congrats on a really great quarter. And Jeff, best of luck in your next stop here. So 2 questions, if I may. One, you talked about the margin leverage in this business and kind of the ability to claw your way back towards a 20% restaurant level operating margin without any sort of tariff relief. I think at a recent conference, Jimmy, you talked about some successful negotiations with some suppliers. We saw outsized labor leverage here. I guess, where are we in that journey? And when would you kind of think Kura has the ability to get back to that 20% level?

Hajime Uba: [Foreign Language].

Benjamin Porten: [Interpreted]. Todd, this is Ben. So we're very pleased with how the negotiations between [ Jinny ] and our suppliers went. Unfortunately, we've seen higher-than-expected inflation in some of our seafood inputs separately from tariffs. And so the upside to Jimmy's negotiations have largely have been offset. We're thinking of it in terms of thanks to the negotiations, we're able to continue to maintain our expectation of, give or take, 30% COGS for the full year. And so we don't expect that to be accretive to a margin opportunity.

The biggest would be, as we look to next year, as Jimmy mentioned in his prepared remarks, the [ DISH ] robots, we expect an incremental 50 basis points in terms of leverage -- or I'm sorry, in terms of labor improvement. And next year, we have a -- previously, we've been saying a 50-50 split between new and existing markets that's actually shifted even more in our favor to 55-45. These -- the new markets have no impact to cannibalization. And so that will be a tailwind for fiscal '27. And all things equal, new markets outperform. And so between those things, we feel very confident in our ability to get back to that 20% without tariff relief.

Todd Brooks: In the near future.

Benjamin Porten: In the near future, correct.

Todd Brooks: Perfect. And then my follow-up question, I'll jump back in queue. If -- and I think, Jimmy, when you were kind of rolling through it, you talked about some future IP partnership