Kura Sushi USA, Inc. (NASDAQ: KRUS) Q3 2025 Earnings | 07/09/2025

Kura Sushi USA, Inc. held its Q3 2025 earnings call, discussing recent performance and strategic initiatives. The company is actively focusing on enhancing customer experience, optimizing operations, and expanding its market reach.

Q3 2025 Financial Highlights:

• Total Sales: Reached $74 million, compared to $63.1 million in the prior year period.

• Comparable Sales Growth: Negative 2.1%, with positive price and mix of 0.8% offset by negative traffic of 2.9%. The company noted sequential monthly improvement in comp performance throughout the quarter.

• Cost of Goods Sold (COGS): Improved to 28.3% of sales (from 29.2% in Q3 2024) due to pricing and supply chain efforts.

• Labor Costs: Increased to 33.1% of sales (from 32.6% in Q3 2024) due to high single-digit wage inflation, partially offset by pricing and operational efficiencies.

• Restaurant-Level Operating Profit Margin: Was 18.2%, down from 20% in the prior year due to higher labor, occupancy, and other costs.

• Adjusted EBITDA: Increased by 20% to $5.4 million, compared to $4.5 million in the prior year quarter, despite higher operating costs.

• Balance Sheet: Ended the quarter with $93 million in cash, cash equivalents, and investments, and no debt.

Strategic Initiatives and Outlook:

• Unit Development: Opened three new restaurants in Q3 (Arizona, Washington, Texas) and two more subsequent to quarter-end (Texas, Utah), achieving its fiscal year 2025 guidance of 14 new restaurants. Five units are currently under construction.

• Market Expansion: Significant progress in developing new markets (smaller DMAs) like Des Moines, Richmond, and Tulsa, with properties under negotiation. The goal is to reach a 50-50 split between new and existing markets by fiscal 2027 to reduce sales cannibalization.

• IP Collaborations: Lined up a record seven to eight IP collaborations for fiscal 2026, ensuring no interactions between campaigns (unlike a 4-5 month gap in fiscal 2025). The company is investing in a dedicated role and a new International Property Committee to maximize these unique opportunities and drive traffic. Upcoming campaigns include Demon Slayer, One Piece, and Kirby (Nintendo).

• Reservation System Rollout: Completed the system-wide rollout of its new reservation system ahead of schedule (by early June), receiving positive feedback from guests and team members. While early to quantify, it's expected to be a significant comp driver and improve operational efficiencies. Initial data shows over half of reserved guests are seated within two minutes of arrival.

• New Menu Option: Introduced a new "light rice" option, offering guests more control over their meal experience with smaller rice portions. This is expected to drive higher plate consumption and improve COGS.

• G&A Management: Expects general and administrative (G&A) expenses to be below 13% of sales for the full fiscal year 2025, driven by purposeful slowing of hiring and better allocation of work. The company aims for further G&A leverage in fiscal 2026 and beyond.

• Tariff Impact: Acknowledged recent tariff headlines, particularly concerning Japan (from where 45% of their basket comes). While the monetary impact is not yet quantified, the company is working with suppliers to minimize effects and views pricing as a last resort. They hope the 25% tariff is not the final number.

• Restaurant Margin Outlook: While fiscal 2025 restaurant-level operating profit margin is unlikely to reach 20%, the company is confident in returning to 20%+ in fiscal 2026, supported by increased IP campaigns, the full-year impact of the reservation system, and positive comparable sales growth.

• New Store Productivity: The class of 2025 restaurants are performing stronger than 2024, especially with successful openings in new Pacific Northwest markets like Linwood.