Kura Sushi USA(KRUS) - 2025 Q4 - Annual Report

Financial Performance and Risks - Comparable restaurant sales growth is crucial for the company's sales and profit, with potential adverse effects if growth is less than expected [95] - Changes in food and supply costs could adversely affect profitability, particularly for critical ingredients like rice and seafood [112] - Economic conditions, including changes in U.S. trade policy, could impact consumer discretionary spending and restaurant sales [116] - The restaurant industry faces significant competition, which could materially affect the company's financial condition and results of operations [115] - Labor costs are a primary component of operating expenses, and increased labor costs could adversely affect growth and profitability [137] - Quarterly operating results may fluctuate significantly due to factors such as inflation, labor availability, and changes in consumer preferences [157] Operational Challenges - The company may face challenges in managing growth effectively, requiring enhancements to systems and controls [96] - The company faces risks related to food safety and foodborne illnesses, which could adversely affect its business and financial condition [117] - Negative publicity from foodborne illness incidents at any restaurant could lead to a nationwide decline in sales [118] - The reliance on third-party vendors for food safety increases the risk of widespread foodborne illness incidents [117] - Mechanical failures of automated equipment, such as sushi robots and conveyor belts, could disrupt restaurant operations and lead to unplanned capital investments [122] - The company may face challenges in attracting and retaining qualified personnel, which could delay new restaurant openings and increase turnover rates [138] - Changes in employment laws and regulations could require additional pay increases or benefits, impacting operating costs [144] - The company is subject to various federal, state, and local regulations that could delay or prevent the opening of new restaurants [146] Supplier and Cost Dependencies - JFC provided 58%, 55%, and 49% of total food and beverage costs in fiscal years 2025, 2024, and 2023 respectively, indicating reliance on key suppliers [110] - Approximately 44% of the company's restaurants are located in California and Texas, making it susceptible to adverse conditions in these states [99] - The average cash build-out cost for new restaurants opened in fiscal year 2025 was approximately $2.5 million per restaurant [98] Financial Structure and Stock Information - The company has federal net operating loss carryforwards of approximately $39.6 million and federal tax credit carryover of approximately $10.3 million as of August 31, 2025 [154] - The company does not intend to pay dividends for the foreseeable future, retaining earnings for operations, expansion, and debt repayment [166] - The company has authorized the issuance of up to 50,000,000 shares of Class A common stock and 10,000,100 shares of Class B common stock, with 11,110,742 shares of Class A and 1,000,050 shares of Class B outstanding as of August 31, 2025 [161] - The existence of two classes of common stock may result in less liquidity for Class A common stock compared to a single class structure [156] - Kura Japan controls 67% of the combined voting power of the company's equity interests, influencing corporate management and decisions [172] - Future sales of common stock could depress the market price, particularly if substantial shares are sold by Kura Japan [161] Governance and Compliance - The company is considered a "controlled company" under Nasdaq standards, exempting it from certain corporate governance requirements [173] - The exclusive forum provisions in the company's charter may limit stockholders' ability to bring claims in favorable judicial forums [169] - The board of directors is authorized to issue up to 1,000,000 shares of preferred stock without stockholder approval, which could negatively affect the rights and value of Class A common stock [164] - Cybersecurity vulnerabilities could result in breaches of customer and employee data, adversely impacting the company's reputation and financial condition [125] - The company relies heavily on social media for marketing, and failure to adapt to digital trends could negatively affect brand relevance and sales [127] - Long-term non-cancelable leases represent a significant portion of operating expenses, and failure to negotiate renewals could lead to increased costs or restaurant closures [132] - Macroeconomic conditions affecting landlords could impact the company's lease agreements and overall restaurant traffic [134] Strategic Relationships - The company relies on Kura Japan for strategic, operational, and financial support, which may be affected by changes in ownership interest [101] - The company has a $45.0 million revolving credit line with Kura Japan, with no outstanding balance as of August 31, 2025 [104] - Kura Japan purchased 126,500 shares of Class A common stock in fiscal year 2021 as part of a public offering of 1,265,000 shares [135] - In fiscal year 2023 and fiscal year 2025, the company completed public offerings of 1,265,000 shares and 800,328 shares of Class A common stock, respectively [135] - The company may face conflicts of interest due to Kura Japan's significant influence over corporate decisions and potential differing interests [175]