Kura Sushi has spent several days scrambling to determine what the Trump administration’s latest tariffs mean for the brand.
The honest answer is the chain doesn’t yet know.
Earlier this month, the federal government introduced tariffs to counter what it perceived to be unfair trade practices from other countries. The idea is to make foreign-made goods more expensive so people and companies in the U.S. buy more American-made products.
The move significantly impacts several restaurants that import goods from other countries.
On Wednesday, Trump announced a pause on all tariffs except for China.
Kura Sushi hasn’t had a chance to meet with main suppliers and learn how much of these potential tariffs they’re going to pass along. However, a couple of top suppliers have told Kura Sushi that they plan to share the impact to some extent.
“But like I said it’s sort of been about a week,” CFO Jeff Uttz told investors during the brand’s Q2 earnings call. “So we haven’t been able to sit down with them and determine what that looks like.”
In terms of overseas purchases, Japan is one of the top countries of origin. Lowe noted that Japanese Prime Minister Shigeru Ishiba has expressed willingness to negotiate the tariffs with President Donald Trump. To a lesser extent, Kura Sushi purchases from Vietnam, which has also indicated an interest in negotiating.
“So a couple of countries that we do purchase from overseas seem very willing to come to the table,” Lowe said. “So the negative news of the tariffs coming out, we have received a few positive bits of information as it relates to our suppliers that we hope that once we get these lined up, we’ll mitigate the impact to our company in the future.”
Kura Sushi also believes it has a distinct advantage against mom-and-pop concepts because of its $100 million cash balance and access to another $45 million revolver.
CEO Jimmy Uba said that as much as the brand was shocked by the magnitude of the tariffs, he feels certain that “every other mom-and-pop Sushi restaurant was just as shocked, if not more shocked.” With its proprietary tech (like the Mr. Fresh dish cover system and touch-panel ordering), scalable operations, and integrated reservation and loyalty platforms, Kura Sushi believes it can maintain its brand proposition—even if short-term profit margins take a hit.
“And as you probably guessed, we’re in a much, much better position than them and we believe we can turn this into a competitive advantage and further widen the delta in terms of value between ourselves and the typical Sushi restaurant,” Uba said ” … Our buying power is orders of magnitude larger than the typical sushi restaurant. We’re probably one of the biggest fish buyers in the country and so that is something that is very different for us versus any of our competitors.”
Uba said Kura Sushi’s long-term goal of 20 percent restaurant-level operating profit margin remains intact, but the tariffs have clouded the outlook in the near term. On the labor front, the chain is already contending with higher-than-expected wage inflation, with year-over-year increases in the high single digits. The addition of potential tariff-induced cost hikes—especially on imported equipment and specialty ingredients—adds another layer of complexity.
Equipment buildout costs could rise by as much as $400,000 in a worst-case scenario, Uba explained, but that doesn’t meaningfully alter Kura Sushi’s growth strategy. The chain earns $4 million in AUV and cash-on-cash returns of 33 percent. A $300,000 increase, for example, would only change the unit economics by half a year in terms of payback period.
The company is unlikely to shift to a U.S.-only supply chain over the next year.
“It would probably be difficult to shift entirely to domestic. I mean you can’t catch tuna in Lake Erie,” Uba said. “So there’s just geographic biological limitations there. But what we can do is adjust between different buyer countries, and so we’re going to be keeping a very close eye over how the tariffs shake out over the coming months. And if there are countries that we’re currently working with that are less advantageous and there are options for ingredients of comparable quality, better tariff rates, then certainly that’s something that we pursue.”
“One thing that we’ve been working on over the last couple years that is going to become critically important now is our relationships not with just our broadline suppliers, but with the direct vendors,” he continued. “Our supply chain team goes, they’re traveling across the world negotiating directly with the providers. And so it’s a very different situation from a mom-and-pop where their options are limited to what the broadliner is offering. We bring what we want to the broadliner. And so again it’s just a completely different story in terms of economies of scale. And as unfortunate as this is, this is going to hurt our competitors a lot more.”
During the chain’s fiscal Q2, total sales were $64.9 million compared to $57.3 million in the prior year period. Same-store sales dropped 5.3 percent, with a 1.5 percent decrease on the West Coast and an 8 percent decline in the Southwest market. Sales were impacted by unexpected weather in January and February, including wildfires and flooding in Southern California and cold waves across many other markets. Restaurant-level operating profit was 17.3 percent compared to 19.6 percent in the prior year quarter, largely due to sales deleverage.
Kura Sushi has 73 restaurants, up from 59 at this point last year. Six additional stores are currently under construction.
