Kura Sushi USA, a technology-enabled Japanese restaurant chain that went public in August, believes it has significant runway for growth in existing and new markets—a level of optimism that is in line with its long-term goal of opening about 300 units.
The chain, which has 24 domestic units, said operating numbers will continue to improve because of current amenities. One of those is the expansion of Kura’s rewards program, which offers guests a $5 coupon for every $50 spent. The chain reports that members of the rewards program have larger average checks and higher return rates. The program should roll out across all units sometime during fiscal 2020.
The platform, which has been in place since August, has played a role in top-line growth. Kura did not provide specific numerical data on the success of the program, but did note that engagement rates with customers who received coupons are high and registration rates are consistent.
Then there’s the added technology piece. Kura has tested touch-panel bill ordering at its Little Tokyo unit in Los Angeles where customers can order drinks from their table by using a touch screen.
“We expect the rewards program and the touch-screen drink ordering, along with marketing initiatives and the new menu items, to drive continued comp growth across our system,” Jimmy Uba, president and CEO of Kura, said during a recent conference call.
Comp sales have surged lately, too. Kura reported year-over-year growth of 7.9 percent for Q1 of fiscal 2020, following a 9.4 percent increase in Q4 of fiscal 2019. The Q1 performance also gave Kura a two-year stack of 12.3 percent. Those numbers were fueled by a 3.1 percent jump in average check and a healthy 4.7 percent increase in traffic. Operating loss stood at $1.4 million compared to $400,000 during last year’s Q1, and net loss came in at $1.2 million, or 15 cents per diluted share, compared to $400,000 in 2019, or 8 cents per diluted share.
“Our first-quarter loss was generally in line with our expectations, and we continue to expect our profits to be generated during the second half of the fiscal year, in line with historical cadence,” Uba said. “ … We expect to be near breakeven in Q2 before steadily improving in the back half of the year. All in all, we are excited about the coming year.”
The chain experienced lower-than-expected sales in four stores located in shopping centers that aren’t fully occupied, it said. Although tenants moving into a shopping center are out of its control, Kura said, in areas with fully occupied shopping centers, units are driving comp sales, such as Austin, Texas, Doraville, Georgia, and Frisco, Texas, in Q1.
For the full fiscal year, the company expects between a 2–4 percent increase in comp sales. Ben Porten, investor relations manager for Kura, said what appears to be a slow down for fiscal 2020 is really due to strong comp sale increases in fiscal 2019, which were 4.4 percent, 6.8 percent, 7.6 percent, and 9.4 percent, respectively. The other factor involves the tailwinds from full occupancy at some of their locations, which is expected to taper off.
As of now, the company sits at two dozen restaurants across California, Texas, Georgia, Illinois, and Nevada. Kura remains on track to open six units by the end of fiscal 2020, some of which expand into new areas like Washington, D.C. The most recent unit opened in Katy, Texas. It was supposed to debut in Q1, but was delayed until late December because of difficulties with scheduling the final inspection. The company said the delay was an anomaly and won’t be typical for store openings going forward.
“We had a fully built store that we had to sit on for about two months, just because we couldn’t schedule the final inspection,” Porten said. “And so, we don’t expect that sort of delay to recur. It’s never happened before.”
Three units are under construction right now while Kura has executed leases for the remaining locations. The full-service chain will work on three locations in Q4 at the same time—Bellevue, Washington, Washington, D.C., and Sherman Oaks, California. Two of those are scheduled to open in Q4 while the Bellevue spot may get pushed to fiscal 2021.
Kura recently added Kim Ellis to its board of directors to assist with the growth as well. She previously served as the executive vice president of development at Panda Express, and oversaw the opening of more than 600 restaurants in five years.
“Results in the first quarter included strong comparable restaurant sales growth, as guests continue to respond positively to our premium ingredients, affordable price points, and most importantly, the distinctive ‘Kura Experience,’” Uba said. “We remain excited about the balance of fiscal 2020 and have a number of drivers in place that we believe can sustain our momentum. Furthermore, we have a strong development pipeline that will enable us to bring our unique brand to a growing number of guests throughout the country.”
