Wall Street is getting a good taste of Kura Sushi USA.
The Irvine-based restaurant chain released fiscal fourth quarter results on Nov. 6 showing sales climbed 20% to $66 million, which beat analyst estimates. It also reported an adjusted profit of nine cents a share, topping the two-cents earnings expected by analysts.
“Kura delivered impressive FQ4 beats on sales and margins,” Craig-Hallum analyst Jeremy Hamblin wrote in a note to investors. “We remain incredibly impressed by the execution of the management team to maintain 20%+ rest-level margins despite sluggish sales.”
The shares have almost doubled since July, returning Kura Sushi to a $1 billion market cap that it reached last January after quarters of sizzling growth (Nasdaq: KRUS).
The fourth quarter results left such a good feeling that the sushi chain, known for its conveyer belt food delivery concept, went out and raised $64.6 million net in a public offering last week.
Kura Sushi agreed to sell 695,938 shares of its ClassA common stock at a price of $85 per share, which closed on Nov. 13. It plans to use the proceeds for general business purposes including capital expenditures and working capital.
“In fiscal 2024, we succeeded on our key goals of achieving over 20%-unit growth and maintaining best-in-class restaurant-level operating profit margins,” Chief Executive Hajime Uba said in a statement.
It is the second most valuable publicly traded restaurant chain based in Orange County, topping Huntington Beach’s BJ’s Restaurants Inc., which has an $844 million market cap (Nasdaq: BJRI), and Costa Mesa’s El Pollo Loco Holdings Inc., with a $386 million valuation (Nasdaq: LOCO).
It’s also more highly valued than a chain that features Korean food — GEN Restaurant Group Inc. (see front page article for more).
Market Potentials and 2025 Opportunities
Kura Sushi is at 70 restaurants across 20 states as of November with a long-term goal to increase the number to 290. The company currently expects to open 14 new restaurants in fiscal 2025, after adding 14 locations this fiscal year, in hopes to maintain an annual unit growth rate above 20%.
Uba sees “massive potential” in the Pacific Northwest market following recent openings in Oregon and Washington that have performed well.
“We are highly anticipating our upcoming openings in smaller markets that will serve as proof-of-concept for our ability to thrive in the United States,” the chief executive told analysts this month.
Besides initiatives to drive foot traffic and increase the average check, Kura Sushi also has plans to increase takeout and delivery sales via its rewards program and mobile app.
“We believe that we have the potential to become a national Japanese restaurant brand,” according to its proxy statement.
Analysts are expecting fiscal 2025 sales to rise 17% to $278.9 million and then accelerate another 21% to $336.3 million in fiscal 2026.
“I am tremendously excited for this fiscal year 2025 and what we can achieve,” Uba said in the statement.
One new program Kura Sushi will introduce into its U.S. restaurants will be a reservation and self-seating system. It is the company’s “biggest opportunity” to improve its labor costs in fiscal 2025, according to Uba.
“I’ve been working in lockstep with Japan to bring to port that system translated into not just English but how to make it appropriate for American use,” he told analysts.
Uba added that the system was on-track, and he expects the first store implementation in early spring.
“Fiscal year 2025 is an opportunity to demonstrate the next level of Kura Sushi’s potential, and I am incredibly grateful for the excellent work by our team members who have positioned us so well for the new year,” Uba said.
Share Price Tops $100
Kura Sushi USA was established in 2008 as a subsidiary of Kura Sushi Inc., a Japan-based revolving sushi chain with over 550 restaurants and 40 years of brand history.Kura Sushi USA went public at $14 a share in 2019.
Although the stock fell to almost $5 a share during the pandemic, it’s been on a steady rise, including almost doubling since July to more than $103.48 on Nov. 6.
After the fourth quarter results were announced, the stock dropped 8.1% to $95.09. One reason was that comparable sales, a key metric, fell 3.1% year over year, caused by weak performances in Texas. It also provided fiscal 20225 guidance below what some analysts expected.
“Kura Sushi faces significant challenges with cannibalization and operational deleveraging, impacting comparable sales and margins, with a full remedy expected by FY 2026,” analyst Pedro Goulart wrote on the Seeking Alpha website.
Still, Goulart isn’t that pessimistic. He has a $90 target price; meanwhile Craig-Hallum’s Hamblin raised his target price to $120 each.
William Blair & Co., Barclays Capital Inc. and TD Securities (USA), also representatives of the underwriters, acted as joint book-running managers for the public offering. Craig-Hallum Capital Group, Roth Capital Partners and The Benchmark Co. acted as co-managers.
