Kura Sushi USA(KRUS) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q2 FY2024 financials reflect sales growth, increased operating costs, and a wider operating loss, alongside asset and liability growth from expansion Condensed Balance Sheets As of February 29, 2024, total assets and liabilities increased, while cash and cash equivalents decreased Condensed Balance Sheet Summary (in thousands) | Account | Feb 29, 2024 | Aug 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $56,768 | $69,697 | | Total current assets | $74,216 | $89,371 | | Property and equipment – net | $124,163 | $106,427 | | Total assets | $315,529 | $304,659 | | Liabilities & Equity | | | | Total current liabilities | $30,585 | $29,138 | | Operating lease liabilities – non-current | $118,936 | $110,234 | | Total liabilities | $150,249 | $140,018 | | Total stockholders' equity | $165,280 | $164,641 | Condensed Statements of Operations and Comprehensive Loss Sales grew over 30% for both three and six-month periods, with net loss slightly narrowing despite increased operating loss Three Months Ended Performance (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $57,291 | $43,944 | +30.4% | | Operating loss | $(1,690) | $(1,049) | +61.1% | | Net loss | $(998) | $(1,015) | -1.7% | | Diluted EPS | $(0.09) | $(0.10) | +10.0% | Six Months Ended Performance (in thousands, except per share data) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $108,766 | $83,262 | +30.6% | | Operating loss | $(4,531) | $(3,205) | +41.4% | | Net loss | $(3,045) | $(3,103) | -1.9% | | Diluted EPS | $(0.27) | $(0.32) | +15.6% | Condensed Statements of Cash Flows Operating cash flow significantly increased, but higher investing activities for expansion led to an overall decrease in cash and cash equivalents Six Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,218 | $1,677 | | Net cash used in investing activities | $(20,640) | $(15,408) | | Net cash provided by financing activities | $1,493 | $243 | | Decrease in cash and cash equivalents | $(12,929) | $(13,488) | - The increase in cash used in investing activities was driven by payments for property and equipment, which rose to $22.8 million from $14.3 million in the prior year period, reflecting accelerated restaurant expansion[16][120] Notes to Condensed Financial Statements Notes detail accounting policies, growing lease obligations, related party transactions with Kura Japan, and a full valuation allowance on deferred tax assets - The company has operating leases with remaining terms of up to 20 years. As of February 29, 2024, total operating lease liabilities were $129.3 million[32][34] - Transactions with parent company Kura Japan include royalty payments of 0.5% of net sales, totaling $545 thousand for the six months ended February 29, 2024[38][40] - The company has a $45.0 million revolving credit line with Kura Japan, with no outstanding balance as of February 29, 2024[43][44] - A full valuation allowance is maintained against the company's net deferred tax assets due to a history of cumulative losses, resulting in a minimal income tax expense despite pre-tax losses[49] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes sales growth to new restaurant openings and price increases, while operating loss widened due to higher labor and pre-opening costs, with sufficient liquidity for future expansion Results of Operations Q2 FY2024 sales grew over 30% driven by new restaurants and comparable sales, while labor costs increased as a percentage of sales despite improved food costs Q2 2024 vs Q2 2023 Performance (in thousands) | Metric | Q2 2024 | Q2 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $57,291 | $43,944 | $13,347 | 30.4% | | Food and beverage costs | $16,935 | $13,240 | $3,695 | 27.9% | | Labor and related costs | $18,768 | $13,854 | $4,914 | 35.5% | | General and administrative | $8,168 | $7,122 | $1,046 | 14.7% | | Operating loss | $(1,690) | $(1,049) | $(641) | (61.1)% | - The 30.4% increase in Q2 sales was driven by fourteen new restaurants opened since February 28, 2023, and a comparable restaurant sales increase of 3.0%[72] - Labor costs as a percentage of sales increased from 31.5% to 32.8% year-over-year, primarily due to higher wage rates, pre-opening labor costs, and the impact of adverse weather[74] Key Performance Indicators Key performance indicators show decelerated comparable sales growth, increased Adjusted EBITDA with slight margin compression, and continued restaurant expansion Comparable Restaurant Sales Performance | Period | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Three Months Ended | 3.0% | 17.4% | | Six Months Ended | 3.5% | 11.8% | Restaurant Openings | Period | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Three Months Ended | 5 | 3 | | Six Months Ended | 9 | 5 | | Restaurants at End of Period | 59 | 45 | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(998) | $(1,015) | $(3,045) | $(3,103) | | EBITDA | $1,111 | $797 | $850 | $302 | | Adjusted EBITDA | $2,850 | $2,310 | $4,617 | $2,947 | | Adjusted EBITDA margin | 5.0% | 5.3% | 4.2% | 3.5% | Restaurant-level Operating Profit (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Operating loss | $(1,690) | $(1,049) | $(4,531) | $(3,205) | | Restaurant-level operating profit | $11,209 | $8,928 | $21,270 | $16,088 | | Restaurant-level operating profit margin | 19.6% | 20.3% | 19.6% | 19.3% | Liquidity and Capital Resources The company maintains sufficient liquidity from cash on hand, operations, and a credit line, bolstered by a recent public offering, to fund operations and expansion for the next 12 months - The company completed a public offering of Class A common stock in April 2023, receiving net proceeds of $64.3 million to be used for general corporate purposes, including capital expenditures[112] - As of February 29, 2024, the company had no borrowings under its $45.0 million Revolving Credit Agreement with Kura Japan[113] - Management believes that cash from operations, cash on hand, and available credit will be sufficient to fund needs for at least the next 12 months[115] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposure were reported for the six months ended February 29, 2024 - There have been no material changes to the company's market risk during the six months ended February 29, 2024[131] Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of February 29, 2024[133] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[134] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, not expected to materially adversely affect its financial position or operations - The company is involved in various legal proceedings from the ordinary course of business but does not expect them to have a material adverse effect on its financials[47][137] Item 1A. Risk Factors No material changes to previously disclosed risk factors have occurred since the last annual report - No material changes to the company's risk factors have occurred since the filing of its 2023 Form 10-K[138] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None[139] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL documents - The exhibits filed with this report include officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and Interactive Data Files (XBRL)[144]