Kura Sushi USA(KRUS) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed financial statements for the period ended May 31, 2025, detailing asset growth to $419.4 million, a 17.3% quarterly sales increase yielding $0.6 million net income, and significant financing inflows despite a $4.2 million nine-month net loss Condensed Balance Sheets Balance Sheet Highlights (as of May 31, 2025) | Metric | May 31, 2025 (in thousands) | August 31, 2024 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $47,132 | $50,986 | | Total current assets | $72,026 | $61,335 | | Property and equipment – net | $164,909 | $138,589 | | Total assets | $419,373 | $328,522 | | Liabilities & Equity | | | | Total current liabilities | $38,548 | $34,499 | | Total liabilities | $192,369 | $165,984 | | Total stockholders' equity | $227,004 | $162,538 | - Total assets increased by 27.7% to $419.4 million, primarily due to growth in property and equipment and the addition of $45.9 million in short-term and long-term investments[9] - Total stockholders' equity grew by 39.7% to $227.0 million, mainly as a result of a follow-on public offering which increased additional paid-in capital[9][14] Condensed Statements of Operations Statement of Operations Summary | Metric | Three Months Ended May 31, 2025 (in thousands) | Three Months Ended May 31, 2024 (in thousands) | Nine Months Ended May 31, 2025 (in thousands) | Nine Months Ended May 31, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Sales | $73,965 | $63,082 | $203,315 | $171,848 | | Operating Loss | $(162) | $(1,169) | $(6,225) | $(5,700) | | Net Income (Loss) | $565 | $(558) | $(4,177) | $(3,603) | | Diluted EPS | $0.05 | $(0.05) | $(0.35) | $(0.32) | - For the third quarter of fiscal 2025, sales grew 17.3% year-over-year, and the company shifted from a net loss to a net income of $565 thousand[11] - For the nine months ended May 31, 2025, sales increased by 18.3% year-over-year, but the net loss widened to $4.2 million from $3.6 million in the prior year period[11] Condensed Statements of Cash Flows Cash Flow Summary (Nine Months Ended May 31) | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,338 | $14,943 | | Net cash used in investing activities | $(84,183) | $(27,257) | | Net cash provided by financing activities | $64,991 | $2,022 | | Decrease in cash and cash equivalents | $(3,854) | $(10,292) | - Cash from financing activities surged to $65.0 million due to net proceeds of $64.4 million from a follow-on public offering[18][21] - Cash used in investing activities increased significantly to $84.2 million, driven by $70.2 million in purchases of investments and $36.7 million for property and equipment[18] Notes to Condensed Financial Statements - In November 2024, the company completed a follow-on public offering, raising net proceeds of $64.4 million to be used for general corporate purposes, including capital expenditures[21] - The company pays its parent, Kura Japan, a royalty fee of 0.5% of net sales. For the nine months ended May 31, 2025, total payments to Kura Japan for royalties, equipment, and other services amounted to $5.2 million[40][41] - The company has settled several employee wage claims for a total of approximately $7.2 million since August 2024 and is currently facing a new putative class action lawsuit filed in December 2024[49][50][51] - The revolving credit agreement with Kura Japan was extended in April 2025, pushing the availability period to April 10, 2028. As of May 31, 2025, the full $45.0 million credit line remains available with no outstanding balance[45][46] Management's Discussion and Analysis (MD&A) Management reports an 18.3% increase in nine-month sales to $203.3 million driven by new restaurants, despite a 1.7% decline in comparable sales, with liquidity bolstered by a $64.4 million offering to support expansion Overview and Business Trends - The company expanded its footprint by opening 13 new restaurants in the first nine months of fiscal 2025, bringing the total to 76 restaurants across 20 states and Washington, D.C[64] - The company plans to open a total of 15 new restaurants in fiscal year 2025 and anticipates that revenue, operating costs, and G&A expenses will increase accordingly to support this growth[64] Results of Operations Q3 FY2025 vs. Q3 FY2024 Performance | Metric | Q3 2025 (in millions) | Q3 2024 (in millions) | Change (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $74.0 | $63.1 | +$10.9 | +17.3% | | Operating Loss | $(0.2) | $(1.2) | +$1.0 | -86.1% | | Net Income (Loss) | $0.6 | $(0.6) | +$1.2 | +201.3% | Nine Months FY2025 vs. Nine Months FY2024 Performance | Metric | YTD 2025 (in millions) | YTD 2024 (in millions) | Change (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $203.3 | $171.8 | +$31.5 | +18.3% | | Operating Loss | $(6.2) | $(5.7) | -$0.5 | -9.2% | | Net Loss | $(4.2) | $(3.6) | -$0.6 | +15.9% | - For the nine months ended May 31, 2025, food and beverage costs as a percentage of sales decreased to 28.6% from 29.5% YoY, due to menu price increases and supply chain initiatives[77][89] - Labor costs as a percentage of sales for the nine-month period increased to 33.6% from 32.5% YoY, primarily due to higher wage rates[77][90] Key Performance Indicators (KPIs) Non-GAAP Performance Metrics (Nine Months Ended May 31) | Metric | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Adjusted EBITDA | $11.7 | $9.1 | | Adjusted EBITDA Margin | 5.7% | 5.3% | | Restaurant-level Operating Profit | $36.4 | $33.9 | | Restaurant-level Operating Profit Margin | 17.9% | 19.7% | Comparable Restaurant Sales Performance | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended May 31 | (2.1)% | 0.6% | | Nine Months Ended May 31 | (1.7)% | 2.4% | - For the nine months ended May 31, 2025, the comparable restaurant sales decrease of 1.7% was composed of a 4.2% decline in traffic offset by a 2.5% positive price/mix[88] - The company opened 12 restaurants in the first nine months of fiscal 2025, compared to 13 in the same period of fiscal 2024, ending the period with 76 total restaurants[114] Liquidity and Capital Resources - The company believes its cash on hand, cash from operations, and investments are sufficient to fund needs for at least the next 12 months[116] - In November 2024, a public offering of common stock generated net proceeds of $64.4 million, strengthening the company's capital resources[119] - As of May 31, 2025, the company had no outstanding balance on its $45.0 million revolving credit line with Kura Japan, which was recently extended to 2028[116][118] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure, including commodity price fluctuations and interest rate changes, since its last Annual Report on Form 10-K - No material changes to market risk were reported for the nine months ended May 31, 2025[132] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of May 31, 2025, with no material changes to internal control over financial reporting identified during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[134] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[135] PART II. OTHER INFORMATION Legal Proceedings The company refers to Note 8 for legal matters, detailing $7.2 million in employee wage claim settlements and an ongoing putative class action lawsuit with an unestimable potential loss - Details on legal proceedings are incorporated by reference from Note 8 of the financial statements[137] - The company has settled multiple employee claims related to wage laws for approximately $7.2 million and is defending a new putative class action complaint in California[49][50][51] Risk Factors The company highlights no material changes to overall risk factors but emphasizes vulnerability to food and supply costs, particularly due to sole reliance on Kura Japan for proprietary rice vinegar and potential supply chain disruptions - The company's profitability is vulnerable to changes in food and supply costs and the availability of key products[139] - A specific dependency risk is noted, as Kura Japan is the sole supplier of the company's proprietary rice vinegar[139] - Supply chain disruptions could force menu changes, cause shortages, and lead to significant reductions in sales[140] Other Items (Items 2, 3, 4, 5) This section reports no unregistered equity sales or senior security defaults, and discloses that the CEO and CDO adopted Rule 10b5-1 trading plans for potential stock sales beginning January 2026 - No unregistered sales of equity securities or defaults on senior securities were reported during the period[141][142] - In May 2025, CEO Hajime Uba and CDO Robert Kluger adopted Rule 10b5-1 trading plans for potential future sales of company stock, scheduled to commence no earlier than January 16, 2026[144][146]