Kura Sushi USA Inc - Ordinary Shares - Class A Aktie

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.

On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President, Investor Relations and System development.

And now I would like to turn the call over to Mr. Porten. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal second quarter 2026 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I would like to turn the call over to Jimmy.

Thanks, Ben, and thank you to everyone for joining us on our call today. Entering this fiscal year, we knew that the second fiscal quarter to be critical regarding our ability to accomplish our stated goals expectations on the full year guidance. As some of you may have seen in this after release, our fiscal second quarter was quite strong. We have a lot of to share today, including better-than-expected comparable sales and record-breaking level leverage. So let's right in.

Total sales for the fiscal second quarter were $80 million, representing comparable sales growth of 8.6%, with 4.3% of positive traffic and 4.3% of the price on the mix. To provide an update on our goal of flat to that positive comparable sales. Our year-to-date comparable sales growth as of the end of the first half of fiscal 2026 is now 3%.

While Q2 is the most favorable quarter in the fiscal year from a comparative perspective. Concerning our performance to date, we now expect modest positive full year bonds. Cost of goods as a percentage of sales was 30.4% as compared to the prior year quarter 28.7%. The tariff situation remains largely unchanged for us, and the minorities to the changes in tariff types have been offset by commodity inflation.

We continue to expect 3-year COGS to be approximately 30%. Ever at a potent sales improved by a remarkable 410 basis points from last year's 34.8% to 30.7%, driven by operational initiatives on the better set of leverage. Opportunity from label initiatives, scale around site seasonal leverage and it's unusual to see this level of impact in the first half of the fiscal year.

Given our progress to date, our initial goal of improving Riva as a percentage of sales by 100 basis points has proven to be conservative.

Moving on to unit development. In the second quarter, we opened one new [indiscernible] Subsequent to quarter end, we opened 4 more in front Orange and the Union City, California to the Arizona and Redington Florida. The openings from fiscal '26 are shaping up to be just as strong as fiscal 2025, which was the strongest vintage in recent memory. We currently have 8 units under construction. As some of these have very recently broken ground, our expectation for new openings in fiscal '26 remains at 16 units.

Marketing is clear that our strategy of reemphasizing our IP collaboration is working. Our Kabi collaboration was just as successful as we had hoped and Nintendo is an excellent partner. Sandi's Evergreen popularity was one of the reasons for our strong performance in February. Our current IV collaboration is with Qisen, coinciding with the release of the

Our next collaboration is with Tamachi as part of its 30th anniversary celebration followed by We are making meaningful strides on the introduction of setting in our program. This will be the most mining evolution in the Infarvet program since its introduction and we are hard at work to create some things have to be delayed with the new guest and long-time prefers.

Turning to the reservation system. I'm pleased to report that -- it was members using the reservation system, a much higher visitation rate than we are members who Our two running stock brands have been our was plans under the accuracy of our waste time estimates. And we feel the reservation system has succeeded in arising the biggest pain points for our guest. We believe that there is further opportunity by raising awareness of the ability to pay reservations on the side step raises completely.

To this end, after opening up renovation to nondevelopment members, we were able to grow the number of reservations paced by over 30%. On these roots, we continue to expect to retrofit the majority of the 50 restaurants that of the space to accommodate them by the end of the fiscal year. If they have mentioned that our expectation to improve labor by 100 basis points for fiscal '26 does not contemplate the impact of the digital We expect the robot to deliver an implement of 50 basis point benefit in fiscal '27 over wherever we land at the end of this fiscal year.

It's my pleasure to be able to report such a strong quarter, and I would like to thank our chief members of our reference and support center for making this possible.

Before I turn the call over to Jeff, I want to take a moment to address our announcement today and recognize on the It has been an invaluable to me and the Kura Sushi over the past 4 years. His strategic insight and financial leadership have been incremental in our growth journey as a public company. While we will miss his expertise on the partnership, we are grateful for everything he has contributed to our success. If on behalf of everyone at Kura, we would like to rescue the best of luck and success in the future endowers.

Thank you, Jimmy, for those kind words. It's been an honor and a privilege to serve as CFO of Kura Sushi over the past 4 years. I'm incredibly proud of what we've accomplished together as a team, and I'd like to thank Jimmy, the Board and every member of the Kura family for their partnership and their trust.

Now let me walk you through our fiscal second quarter financial results. For the second quarter, total sales were $80 million as compared to $64.9 million in the prior year period. Comparable restaurant sales growth compared to the prior year period was 8.6% with 4.3% from traffic and 4.3% from price and mix. Comparable sales growth in our West Coast market was 7.2% and 9.7% in our Southwest market. Effective pricing for the quarter was 4.5%.

As a reminder, beginning in the first quarter of fiscal 2027, we will no longer provide regional breakdowns for comparable sales as regional comps are largely determined by the timing of infills and we do not believe they are indicative of overall company trends.

Turning now to costs. Food and beverage costs as a percentage of sales were 30.4% compared to 28.7% in the prior year quarter due to tariffs on imported ingredients. Labor and related costs as a percentage of sales were 30.7% as compared to 34.8% in the prior year quarter due to operational efficiencies, pricing and better sales leverage, partially offset by low single-digit wage inflation. Occupancy and related expenses as a percentage of sales were 8.1% compared to the prior year quarter's 7.9%.

Depreciation and amortization expense as a percentage of sales were 5.2% as compared to the prior year quarter's 5.1%. Other costs as a percentage of sales were 14.5% as compared to the prior year quarter's 13.5% due to higher promotional and utility costs.

General and administrative expenses as a percentage of sales were 13.7% as compared to 16.9% in the prior year quarter. Fiscal second quarter 2026 includes $1.2 million of litigation expenses as compared to $2.1 million of litigation expenses in the prior year.

Operating loss was $2.2 million compared to an operating loss of $4.6 million in the prior year quarter. Income tax expense was $51,000 as compared to $38,000 in the prior year quarter. And net loss was $1.7 million or negative $0.14 per share compared to a net loss of $3.8 million or negative $0.31 per share in the prior year quarter.

Adjusted net loss, which excludes the litigation expense, was $502,000 or negative $0.04 a share as compared to adjusted net loss of $1.7 million or negative $0.14 per share in the prior year quarter.

Restaurant level operating profit as a percentage of sales was 18.2% compared to 17.3% in the prior year quarter. Adjusted EBITDA was $5.5 million as compared to $2.7 million in the prior year quarter. And at the end of the fiscal second quarter, we had $69.7 million in cash, cash equivalents and investments, and no debt.

And lastly, I'd like to update and reiterate the following guidance for fiscal year 2026. We now expect total sales to be between $333 million and $335 million. We expect to open 16 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit continuing to approximately $2.5 million. And we now expect G&A expenses as a percentage of sales to be approximately 12%, excluding litigation expense. And we now expect full year restaurant level operating profit margins to be between 18% and 18.5%.

And with that, I'd like to turn it back over to Jimmy.

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.

[Operator Instructions] And the first question comes from the line of Andrew Charles with TD Cowen.

Great. I was a bit surprised following the big 2Q same-store sales deep that revenue guidance was inched up. You're looking at consensus forecast, it looks like you're blessing the back half at the midpoint. So does that reflect conservative in the back half of the year perhaps you can comment on what you're seeing with the new store productivity as well?

Thank you, Andy, for your first question. .

[Foreign Language]

[Interpreted] Charles or Andrew Charles, my grandfather's names Charles. Andrew, this is Ben. In terms of the guidance that we've provided, it really -- it incorporates the better-than-expected performance in Q2. But just given there's work going on, and we don't know how it's going to play out. We felt it was prudent in terms of our guidance, just to add the upside from Q2, but not to extrapolate further from that. It doesn't reflect conservatism or pessimism. It's just prudence.

Okay. Fair enough. And then curious, what drove the improvement in mix to roughly flat? What are you seeing there in terms of attachments or beverages, et cetera, that helped improve that performance?

[Foreign Language]

[Interpreted] The biggest factor would be our guests are eating more plates per person. Our interpretation is that this is a reflection of the success of IPs, when we have compelling IPs, people are that much more incentivized to go for that 15th plate or to hit the spending threshold for

The next question comes from the line of Todd Brooks with Benchmark StoneX.

Congrats on a really great quarter. And Jeff, best of luck in your next stop here. So two questions, if I may. One, you talked about the margin leverage in this business and kind of the ability to claw your way back towards the 20% restaurant-level operating margin without any sort of tariff relief. I think at a recent conference, Jim, you talked about some successful negotiations with some suppliers. We saw outsized labor leverage here. I guess, where are we in that journey? And when would you kind of think or has the ability to get back to that 20% level?

[Foreign Language]

[Interpreted] Todd, this is Ben. So we're very pleased with how the negotiations between Jenny and our suppliers went. Unfortunately, we've seen higher-than-expected inflation in some of our seafood inputs separately from tariffs. And so the upside to Genius negotiations have largely have been offset. We're thinking of it in terms of -- thanks to the negotiations, we're able to continue to maintain our expectation of, give or take, 30% COGS for the full year. And so we don't expect that to be accretive to a margin opportunity. The biggest would be as we look to next year, as Jimmy mentioned in his prepared remarks, the Dish robots, we expect an incremental 50 basis points in terms of leverage -- I'm sorry, in terms of labor improvement -- and next year, we have a -- previously, we've been saying a 50-50 split between new and existing markets. So that's actually shifted even more in our favor to 55-45. These -- the new markets have no impact to cannibalization and so that will be a tailwind for fiscal '27 and all things equal, new markets outperformed. And so between those things, we feel very confident in our ability to get back to that 20% without careful lease.

Perfect. And then my follow-up question, I'll jump back in queue. If -- and I think, Jimmy, when you were kind of rolling through it, you talked about some future IP partnerships. Can we just review those again so that we pick up the detail behind the upcoming partnerships? And as we're starting to think about, I think, at the end of April, this window of IP versus no IP in the prior year. And so as we're looking forward into Q3 here, can you remind us what we're comparing against? I just want to -- and just give us a qualitative sense of the strength of the partnerships that you see coming up in the future versus what Kura last year?

Got it. Todd, this is Ben. So the ones that we have lined up after education or Tamagachi, which is coinciding with its 30th anniversary and then we have a partnership with a video game called star rail. In terms of your question, yes, at the end of April, we'll be ending the -- we'll be ending the lapping of the lack of IP starting from the last week of April through May, we had peanuts and then actually for Peanuts as well. Those months were pretty strong. And then we had Holloway, which was a strong performer as well. So -- that sort of goes back to Jimmy's earlier comment about Q2 being the easiest point of comparison. Please do not model 8% comps on a go-forward basis.

The next question comes from the line of Jeremy Hamblin with Craig-Hallum.

Congrats on the strong results. I want to revisit just the tariff ruling and in terms of thinking about, obviously, some volatility on sourcing potential for freight costs to be passed through as well, given the war. But just in terms of understanding the tariff aspect of your food cost that's embedded here, what's the timing where you would expect given your kind of forward contracts to potentially have some benefit, all else being equal, are we looking at kind of the June time frame, just given the change in the global tariff rate?

So I'm happy to answer this question.

[Foreign Language]

[Interpreted] Jeremy, this is Ben. So to your point earlier, we do make forward contracts for some of our proteins. Because our basket is so wide, we have -- the contracts don't expire on the same date, so to speak. They're all sort of overlapping. And so there wouldn't be a moment where we would expect a really meaningful shift. The other thing that Bart's mentioning is Materis, while the IPA tariffs were taken down. They were replaced by other tariffs. And so the relief was really quite minor for us, and this has been offset by fuel costs and just protein inflation areas.

Got it. So with that, I wanted to talk about kind of technology investments that you guys have been making, which have had nice success, the reservation system, robotic dishwashing. In terms of other labor initiatives because it looks like you guys have made some really nice progress, tremendous progress on the labor front. Can you talk about with so many tools now available and you guys have really been an industry leader in making technology investments to help make your business operations more efficient. Can you just talk about some of these tools that are available, whether they're kind of AI generative tools to help with labor scheduling or otherwise that provides some opportunity on a go-forward basis, whether it's in FY '26, but more likely in the future, just to potentially really refine the business model.

[Foreign Language]

[Interpreted] Jeremy, so to give you an update on the robotic dishwashers. We expect to finish the installation of our first 10 or tranche of the first 10 by the end of this month, and so we're very happy with the progress. Very happy to announce that we've actually gotten approval for American use for technology that we've mentioned in past calls, the Sushi slider. And so this will be limited to new store openings, and we don't expect straight headcount reduction in the way that we'd expect with the robotic dishwashers, but this will be a margin opportunity, especially for higher volume restaurants on weekends. In terms of the tech things that we're looking at, we're focused a lot on using technology to improve food quality and food consistency. And we're also starting to explore more guest-facing technologies as well that is focused on efficiency as much as they are focused on funds, which we see as a meaningful opportunity in terms of driving traffic as well going forward.

In terms of AI, we're using a couple -- we're using the social media listening tool right now but I bet assigned AI broadly. I think the Chair of our new AI committee and -- this is large. This is eating most of my time, and so I hope to have exciting updates for you guys in the future.

[Foreign Language]

[Interpreted] Yes. Really, it's kind of shocking how meaningful the strides have been. And in terms of like the ease of making specialized tools for your business. And so we see a lot of really, really exciting things we can do. One obvious application would be to try to hone in on the batting average of our IP collaborations. That would be something that we'd be really excited about.

Great. And best wishes to the team and Jeff on his next endeavor.

The next question comes from the line of Jeff Bernstein with Barclays.

This is Anisha on for Jeff Bernstein. Before my question, I wanted to thank Jeff for 4 years of collaboration and wish him all the best going forward. As you think about bringing a new CFO, bot capabilities or prior experience are most important, given Kura's next phase of growth particularly around unit development, capital allocation or systems as the business continues to scale?

[Foreign Language]

[Interpreted] Anisha, this is Ben. Guests has been such a great partner to us. we really reset high expectations for the role, and we're looking for somebody who can satisfy that. And so that's something that our nominating committee is working on right now. All those qualifications that you've mentioned. Personally, I would love somebody who's charming and charismatic as Mr. Uttz. He's spent a lot of fun working with him. And so we're not in a rush to fill the spot for the sake of filling the spot. We know it's a very, very important role, and we're going to give it the appropriate attention.

Great. And as a follow-up, you guided to around 20% unit growth for fiscal '26. So looking beyond that, what gives you confidence that a similar growth rate is sustainable into fiscal '27 and what key guardrails are most important to preserve as the system scales?

[Foreign Language]

[Interpreted] So as it relates to fiscal '27, we already have our pipeline built, and so we feel very confident about our ability to hit that 20% unit growth for fiscal '27. In terms of the gating factors, the way that we've always thought about it would be if our new units are not meeting our expectations, if they're coming in below the average -- the system average for unit economics, that would seriously -- that would cause us to seriously reconsider how quickly we're growing. But as mentioned earlier, fiscal '25 was one of the strongest years we've opened in recent memory and fiscal '26 is shaping up very strong as well. And so we're really pleased with that. And we'd like to sustain that 20% unit growth for as long as possible. At the same time, we don't want that 20% to become the tail that wags the dog. And so if it ever we would -- we're always looking at it critically. It's not a blind case of a number. And should circumstances change, we like to maintain our flexibility. But for where we have visibility as it stands today, we feel good about that 20%.

The next question comes from the line of Sharon Zackfia with William Blair.

I guess I have two. The first is kind of going back to one of the initial questions on -- I guess, Jimmy, you said slightly positive comps for the year and you can kind of get there with no comps for the rest of the year. And I get that there's geopolitical uncertainty and all of that. But are you seeing anything in the business that would suggest that you can't maintain positive comps for the rest of the year?

[Foreign Language]

[Interpreted] So Sharon, I'm sure you recall the traumatic and unfortunate experience a couple of years ago where we raised guidance. And then in a number of weeks, we had to lower guidance below the initial guidance. And that's that sort of informed a level of conservatism in the way that we provide guidance ever since. But having had that lesson and knowing today that the President has like a deadline, and we don't know what's going to happen. It just seems irresponsible to get ahead of our skis. And so the guidance reflects what we're seeing today and what we're confident that we can hit.

[Foreign Language]

[Interpreted] And we're pleased to have shorter storing so far. [Foreign Language] Just looking at how the environment is we're pleased with how things are proceeding.

Okay. The second question is, it may have been causal. It may have been coincidental, but it certainly felt like the company got a lot more disciplined around G&A when Jeff joined the company. And I guess I'm curious, like, do you think now that's part of the muscle memory of the company and ingrained that you will see G&A leverage on an ongoing basis even -- as Jeff to parks and again, sorry, you do off.

Thanks, Sharon. I mean, I'll let Jimmy and Ben address going forward. But we made a lot of strides. I'm proud of the team. I was fortunate to be in the driver's seat for the G&A reduction and kind of lead the charge. But the team really stepped up and over 400 basis points in just over 3 years is quite a bit when you kind of multiply that by them. The trading multiples and all that is quite a bit to our valuation that I'm quite proud of. Going forward, as Jimmy said earlier, as a search for a new CFO, they're not going to rush it and it humbles me and makes me feel proud that the company thinks of me the way that they do. And I wish them the best, and I'll be on the sideline continuing to watch what they do. And I hope that the new CFO continues to lead this to a single-digit G&A at some point as I have promised in the past.

[Foreign Language]

[Interpreted] Jeff has carved such a clear and sustainable path forward for us that we absolutely expect to continue to leverage G&A and that's going to be one of the primary mandates for whoever becomes the next CFO as much as I would love to double my salary. We know that there are more prudent ways to spend our money. It's just -- it's one of the things that our investors have come to expect. It's part of our guidance. And so -- it's just -- it's part of our report card at this point. And so Jeff leading doesn't change that.

The next question comes from the line of Mark Smith with Lake Street Capital Markets.

I wanted to dig into the comp just a little bit, and sorry if I missed any update on this. But can you guys speak at all to March and maybe as we saw gas prices rise, any changes in consumer behavior and potentially in the past, if gas prices have had a significant impact on your consumer, whether it be the plates that they eat or traffic trends?

[Foreign Language]

[Interpreted] So as Jimmy mentioned earlier, we're happy with how the quarter is data is going. As it relates to gas prices, and I were in California, gas prices were $6. Whether we're talking about Kura or any other company, it would be foolish to think that this would not have an impact on the consumer. That being said, we are pleased with performance. And yes, that's where we are.

Okay. Last question for me is just around cadence as we look at the back half of the year, the in restaurants to open. Will these be more heavily? I know you've got 4 open, but should we look for the rest of those kind of in Q4? Or can you squeeze more in here in Q3 or even early in Q4?

[Foreign Language]

[Interpreted] There are a number of stores that we're hoping to open up in Q3, but -- it's -- for modeling purposes, it's -- we think it's safe to assume back half weighting bolt in Q3 relative to Q4.

The next question comes from the line of Jim Anderson with Northcoast Research.

And Jeff, best of luck in your new opportunity. I wanted to go back to seafood inflation more broadly, food costs. Is there any concern that we're going to start seeing or hearing about fuel surcharges or incremental invoice impacts from aviation fuel increases or diesel fuel in the next couple of quarters?

Jim, it's Jeff. I've been really deep into this, as I finish up here, we're really watching this. That is a possibility. Fuel surcharges are something that the delivery companies like to impose. I did ask our supply chain team. We haven't seen a lot of it lately, just a handful. But that is a possibility. It does happen, obviously, when fuel goes up. We push back on those, and I see I've had these before at other companies. And I don't just accept them. I'd push back and say, look, that's a cost of doing business. If you want to adjust your prices go ahead, but they typically don't. And they will usually allow you to cross out those line items on the invoice. And I've been pretty successful with that in the past. That being said, as Jimmy mentioned earlier, there's just a lot of puts and takes in food costs right now with what's going on in the world. And that's why we expect our guidance at the 30%-ish number for the year. And we think with all the negotiations, minus anything that's going on with fuel and delivery costs and all that, we remain pretty confident in that 30% number as to where we sit right now for the year.

[Foreign Language]

[Interpreted] Jim, so just to add on to Jeff's comment, we're very, very proud that we've been able to keep our cost of goods sold at 30%, all things considering. When you look at our Q2 comps, half of that being driven by traffic, we see this as an indication of our strategies. The 4.5% effective pricing that we're running as of November translates to roughly $1 per person. And we know that our direct competitors, the individually owned SC restaurants, there's just no way that they're able to keep the doors open with -- by charging just $1 extra per person and that value delta has become clearer and clearer to our guests. And so this dynamic isn't fun, but it works in our favor. And as incremental pressures arise, again, it won't be fun, but it will work in our favor.

[Foreign Language]

[Interpreted] And we're really, really happy that we -- as we see the year now, we don't -- we feel that we have no need to take further price this year.

Okay. And that assumes about 4%, 4.5% for the fiscal year for price?

[Foreign Language]

[Interpreted] It will be a little bit below 4% on a full year basis.

Last question for me. I think last year, you reported about a 500 basis point negative impact because of wildfires and other issues. If we peel that off, the $8.5 million the comp you reported, is that a good run rate for where you think you are trending March, April to date?

[Foreign Language]

[Interpreted] Jim, unfortunately, we had weather as well this year. And so the comps are so good that it doesn't seem obvious, but we did have pretty significant winter weather that impacted our sales. And so the 400 to 500 basis points, while that was -- that's not a 400 to 500 basis point tailwind this year, it's more like a 200 basis point tailwind.

Okay. Okay. So again, maybe I can ask one last. How should we think about the performance in the back half relative to the guidance, low single digits, just kind of bridging that gap?

[Foreign Language]

[Interpreted] We don't like to make it a practice of giving quarterly guidance. And just given all the moving parts, we feel it's especially not a good time to try to give quarterly guidance. But we did provide a guidance update at the beginning of this call, and all that incorporates everything that we've seen to date.

[Foreign Language]

[Interpreted] And to reiterate, we're happy with how Q3 has performed so far.

The next question comes from the line of George Kelly with ROTH Capital Partners.

First, Ben, in response to one of the earlier questions, you mentioned there being opportunity for tech enhancements around food quality and consistency. I don't know how much you're going to want to say on today's call, but -- can you provide a little more detail just on where you think there could be opportunity there?

[Foreign Language]

[Interpreted] So the two that are on the docket right now, one is managing our broth. And so we think all of our stock from scratch every morning during my training period, I was responsible for doing this. So this is near and dear to my heart. But you make the broth in the morning. And if you're taking it war it evaporates. And so it gets progressively more concentrated and better. And so we have this technology that we use in Japan that allows it to stay fresh all day long. And so we're really excited to bring that over, make sure that we have very consistent quality on what we see as one of the most important things about our restaurants being our broth.

The other that we're working on is -- so we have a station for like the feared Mayo salmon, for instance, we do that by hand right now, but we're working on automating that. And so that will give us much greater consistency probably a little bit in labor savings, but that's mostly a food quality effort.

Okay. Okay. Helpful. And then two other quick ones. Litigation expense, what are your expectations for that in the coming quarters? Should it stay kind of consistent with what you just did. I think it was 1.2 in the quarter? And then second question on labor. I may have missed it, but did you provide more specific like an updated guide for the year on labor? And that's all I had.

[indiscernible]

Sorry. Thank you. I'll address the litigation one, George. And then Jimmy can jump into the labor side. On the litigation, I mean, unfortunately, this is just a negative byproduct of doing business in California. And any -- the restaurant companies that you follow or anybody else follows, you get sued in California for just wage and hour stuff regardless of how buttoned up your system is.

So what are my expectations? Well, my expectations are to never be sued because I think we're very buttoned up. But it just happens in California, and it's an unfortunate thing. So I would like to tell you that they're done, but we just don't know. But I will assure you that our employment -- the practices that we that we employ in terms of employment and wage and hour law are some of the best that I've ever seen, but you just can't get away from it in California. So that's where I'd leave it. I'm hopeful that we won't see any more but you just never know.

[Foreign Language]

[Interpreted] George, as it relates to labor, we're not expecting 400 basis points in leverage in the coming quarters. There are a lot of to Q2 that led to that 400 basis point. But we do think that for Q3 and Q4, we can improve labor year-over-year by about 150 basis points. And so we're looking forward to giving you guys updates on that.

The next question comes from the line of Matt Curtis with D.A. Davidson.

I just had another one on the reservation system. Jimmy, in your comments, I think you mentioned that it was driving a much higher visitation rate. So just wondering if you've seen any sales lift from increased usage of the reservation system? I mean I think you guys previously said you've not been explicitly baking in any sales upside from this. I just wanted to see if this is still the case or not?

Yes. Our internal estimate is that the reservation system has contributed about 1%. And so we're very pleased, especially given the headcount reduction is already delivered.

Okay. Great. And one last one for me. I think you had a gap in your IP collaborations in -- for the first 2 weeks of March due to some infection issues, I believe it was -- could you maybe just provide a little more detail around this and whether you think it's more of a one-off or something that could potentially reoccur?

This has actually never happened before in our history of being in the United States. And so we really had no reason to expected. We don't expect it to happen again. We're not sure why it happened this time, but we think it's one-off.

[Foreign Language]

[Interpreted] While we weren't happy that this happened, we don't really see it as a meaningful headwind just given that the overwhelming upside and response opportunity for the IP collaborations tends to be the first 2 weeks. And so it felt like we lost those first 2 weeks, we just pushed them back by 2 weeks. And so if we lost anything, it within the last 2 weeks of the campaign, which tailwind compares into the first 2 weeks. And so it's unfortunate, but it's not as much of a headwind as it might sound like -- and to reiterate, we're happy with Q3.

Next question comes from the line of Jon Tower with Citi.

Just curious, I noticed that you guys during the quarter did a sushi lunch combo, I think it was and it wasn't something that's seen before, but I think it's something you've done in the past, just not in recent memory. So I'm curious, one, how consumers responded to it too, did it end up impacting your mix at all or traffic during that lunch period? And is this also a sign of something that you feel comfortable with using again in the future?

[Foreign Language]

[Interpreted] So this is something that we've done every winter. We usually do some sort of combo with our soups, our noodle dishes. We think they really did and we just we want to give people opportunities to reason to drive them. And so that's something that we've done every year. It has an impact, but not -- it's not really a big needle mover. We'll probably do something similar in the summer as well, not for soups, but we don't expect it to be a big needle waiver.

[Foreign Language]

[Interpreted] And Jon, it's really -- it's great to see how successful the IPs have been working. But we don't want to be entirely reliant on IPs. And so to that end, we've been working on -- we've been working on a lot of LTOs, even going above and beyond the core reserve. For instance, in March, we had a campaign called Bodo of disease. It's very high-quality Toro. And yes, we just -- we've got a pretty good calendar in terms of reasons to come in.

Got it. I appreciate that. And I got expense stores more frequently to make sure I can understand what's new and what's not. But I guess you mentioned earlier, obviously, that this year, you've been pretty disciplined on pricing and that the competitive set is likely going to have to pass along a lot more pricing than what you guys are planning to do for the year. One, have you seen that happen anecdotally based on your own work that you've done? And then two, have you seen any signals that because of the price increases or potential price increases from the competitive set that consumers are pushing back and/or like there's risk that the other -- these other stores might have to close their doors because traffic is just not showing up the way that it should?

It's possible. I mean this is a dynamic that's played out twice before, at least with my time at the company, once during the pandemic, and once during the post-pandemic supply chain issues. It's always been a traffic tend to us. The reason that we are interpreting. The reason for this interpretation would really be -- we took a 3.5% price on November, but our traffic accelerated. And so we don't think there'll be a reason for that. If it weren't clear that the value was amazing. And anecdotally, yes, we are seeing it. You'll be able to confirm the same thing just by looking at Yelp menus and going back historically and see their current menus, and I think you might be surprised.

Got it. And are you guys highlighting that in any of these social or digital marketing that -- like how can you communicate test to guests...

That's a tricky nothing -- everybody's raising price by us. It's not a good slogan.

[Foreign Language]

[Interpreted] One thing that we do, do is target marketing, especially if we're able to see that the competitive set in that local market has taken price pretty aggressively. We can spend incremental advertising dollars there just to get eyeballs, and that's always -- that's worked pretty well. Another tool -- we just talked about the logo of disease, but -- that makes it easier for guests to make a direct comparison with higher-end sushi as well. And if they're not impressed by the salmon getting the Bluefin Toro for $4 is impressive. And so it serves the dual purposes, these LTOs.

Thank you. This concludes today's question-and-answer session, and this will also conclude the conference as well. You may all now disconnect your lines at this time, and we thank you for your participation. Have a great day, everyone.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this call is being recorded.

On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President of Investor Relations and System Development.

And now I'd like to turn the call over to Mr. Porten.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal first quarter 2026 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I would like to turn the call over to Jimmy.

Thanks, Ben, and happy New Year to everyone for joining us on the call today. We are making great progress towards the goals we laid out in our annual guidance and towards achieving positive comparable sales on a full year basis. Regarding our goal of 16 new restaurant openings, we have 10 units under construction on top of the 4 restaurants opened to date. Our commitment to aggressive cost management has reduced G&A as a percentage of sales by 80 basis points on an adjusted basis. We are also able to lever labor as a percentage of sales, renewing our confidence in our ability to improve labor cost by 100 basis points in fiscal 2026. The first quarter has created a strong foundation for us to build on as we enter the easier comparisons of Q2 and Q3.

Total sales for the fiscal first quarter was $73.5 million, representing comparable sales growth of negative 2.5%, outperforming the comp expectations we have shared during our last earnings call. We were very pleased to see the sequential improvement at the end of the quarter and for this momentum to have continued past November. Cost of goods as a percentage of sales was 29.9% as compared to the prior year quarter's 29%.

As a reminder, we took 3.5% price on November 1, so Q1 did not see the full quarter benefit. Also, as we have previously discussed, we expect full year COGS to be around 30% after considering the impact of tariffs and achieving the full benefit of our menu price adjustment. Labor as a percentage of sales was 32.5% compared to -- as compared to the prior year period's 32.9% due to a number of initiatives relating to operating costs.

Shifting to real estate. We opened 4 restaurants in the first quarter, Arcadia and Modesto in California and Freehold and Lawrenceville in New Jersey. We currently have 10 restaurants under construction, including 1 in Tulsa and 1 in Charlotte, both of which are new markets for us. As we have mentioned in the last earnings call, fiscal '25 was the strongest [ class ] in recent memory, and the restaurants we've opened to date are continuing this trend. We expect to open one unit in the fiscal second quarter and for the remainder to open in the back half of the year.

Turning to marketing. We are currently engaged in our campaign with Kirby, coinciding with the release of Kirby Air Riders for Switch 2. As part of our efforts to maximize the impact of each collaboration, we have introduced IP-themed Mr. Fresh domes and touch panels, which have been well received by our guests. As we mentioned in our last earnings call, research is ongoing for the introduction of rewards program status tiers.

We also began advertising our reservation system for the first time during the holidays. In preparation for the reservation system's marketing campaign, we have also decoupled the reservation system from our rewards program with the hopes of encouraging adoption by removing the user friction created by required app download and allowing guests to place reservations directly through the Kura website or our Google Maps pages.

In other system development news, the manufacturing of our robotic dishwashers is proceeding on schedule, and we continue to expect to begin installation in Q3 and to have the majority of 50 eligible existing restaurants retrofitted by the end of the fiscal year.

To conclude, we are pleased with the progress we made toward towards the goals we shared with our annual guidance. We believe were on the right path to achieving positive comp sales for the year. I would like to express my thanks to every one of our team members at the restaurants and support centers for their partnership in achieving these goals.

Jeff, now I'll hand it over to you to discuss our financial results and liquidity.

Thanks, Jimmy. For the first quarter, total sales were $73.5 million as compared to $64.5 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was negative 2.5% with a negative traffic of 2.5% and flat price and mix.

Comparable sales in our West Coast market were negative 2.8%, and comparable sales in our Southwest market were negative 2.7%. Effective pricing for the quarter was 3.5%. On November 1, we took a 3.5% menu price increase, and after lapping prior increases, our effective price for the second quarter will be 4.5%. As a reminder, beginning in the first quarter of fiscal 2027, we will no longer provide regional breakdowns for comparable sales, as regional comps are largely determined by the timing of infills, and we do not believe that they are indicative of overall company trends.

Turning to costs. Food and beverage costs as a percentage of sales were 29.9% compared to 29% in the prior year quarter due to tariffs on imported ingredients. Labor and related costs as a percentage of sales were 32.5% as compared to 32.9% in the prior year quarter due to pricing and initiatives related to operations, offset by sales deleverage and labor inflation. Occupancy and related expenses as a percentage of sales were 7.9% compared to the prior year quarter's 7.4% due to sales deleverage.

Depreciation and amortization expenses as a percentage of sales were 5.4% as compared to the prior year quarter's 4.8% due to sales deleverage and remodel costs. Other costs as a percentage of sales were 16.1% as compared to the prior year quarter's 14.5% due to sales deleverage and higher marketing costs. This line is also impacted by tariffs as some of the expenses in this category come from overseas purchases.

General and administrative expenses as a percentage of sales were 13%, which includes 30 basis points in litigation accruals as compared to 13.5% in the prior year quarter. Operating loss was $3.7 million compared to an operating loss of $1.5 million in the prior year quarter, largely due to tariff pressures on our food and beverage costs and other cost line items. Income tax expense was $36,000 as compared to $39,000 in the prior year quarter.

Net loss was $3.1 million or negative $0.25 per share compared to a net loss of $1 million or negative $0.08 per share in the prior year quarter. Adjusted net loss, which excludes the litigation accrual, was $2.8 million or negative $0.23 per share as compared to an adjusted net loss of $1 million or negative $0.08 per share in the prior year quarter.

Restaurant-level operating profit as a percentage of sales was 15.1% compared to 18.2% in the prior year quarter. Adjusted EBITDA was $2.4 million as compared to $3.6 million in the prior year quarter. And at the end of the fiscal first quarter, we had $78.5 million of cash, cash equivalents and investments and no debt.

And lastly, I'd like to reiterate our following guidance for fiscal year 2026. We expect total sales to be between $330 million and $334 million. We expect to open 16 new units, maintaining annual unit growth rate above 20% with average net capital expenditures per unit continuing to approximate $2.5 million. We expect G&A expenses as a percentage of sales to be between 12% and 12.5%, and we expect full year restaurant-level operating profit margins to be approximately 18%.

With that, I will turn things back over to Jimmy.

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.

[Operator Instructions] And our first question comes from the line of Sharon Zackfia with William Blair.

I wanted to talk about the decision to decouple the reservation system from loyalty. Can you talk about kind of what led to that decision, where you're not seeing loyalty members kind of react as you had hoped? And then as you started to market it, what is early read then potentially bolstering those shoulder periods, which is what I think kind of was the hoped for scenario with the reservation system?

Yes. Sharon, this is Ben. So in terms of reward member uptake on the reservation system, we're actually extremely pleased more than half of visits by rewards members are being done through the reservation system. And so uptake is frankly better than expected, and so that's been very encouraging.

We really just wanted to open it up to a bigger audience. It's a big ask to have somebody install an app just for one function. And so we felt let them experience how useful it is and then maybe they'll -- we'll be able to convert them into rewards members after the fact as, obviously, we want as many people to join the rewards program as possible as they tend to visit more and spend more per visit. And so that's been very encouraging.

We started marketing the reservation system more post decoupling in the last week of December. And so they're really -- there's pretty limited data in terms of what we've seen in that 1 week of advertising. But what is really encouraging is that for the people that have tried it, they basically use it forever. And so I think it's just a matter of awareness, and there remains upside to be unlocked in the reservation system.

And then it sounded like trends ended more strongly as you went throughout the quarter, and it sounds like that continued through December. And I know you reiterated, I think, plans for slightly positive comps for the year. Jeff, just given comparisons do get so easy here in the February quarter, do you expect comps to be positive as well in the February quarter?

Sure. Thank you for your question, Sharon. Please answer your question in Japanese. Ben is going to translate. [Foreign Language]

[Interpreted] Sharon, so in terms of our expectations regarding Q2 comps, we absolutely expect positive comps. In the November call, we mentioned our negative mid-single-digit expectations for Q1 comps. They came in at negative 2.5%, which obviously indicates that November ended up being a very strong month. One particular item that's been of exceptional encouragement for us is that following the November -- we took pricing on November 1, but November traffic and price/mix improved over the prior months. And that trend has also continued into Q2. And so standing where we are today, a month and change into the quarter, we feel very good about Q2 comps.

And our next question comes from the line of Jeremy Hamblin with Craig-Hallum.

I wanted to hit on a couple of the kind of cost line items here. So first question regarding food cost is we don't know what's going to happen with tariffs. Clearly, it's been a significant headwind. I think, Jeff, you'd called out maybe about 200 basis points for FY '26. But if there were a change as we started to see some relief on tariffs impacting food costs, how long would it take for that to flow into your financials? Would it be 60 days, 90 days if that change were to happen?

And then also wanted to just ask about other operating expense category, which I think includes utilities, repairs and maintenance, insurance, credit card fees, et cetera, just to get a sense for, let's say, the expected impact that you might have on that category with, let's say, a positive 2.5% comp versus a down 2.5% comp that you had in Q1. What type of leverage, deleverage would you see under that hypothetical?

Yes. Jeremy, I'll answer the question on food costs, and then I'll turn it over to Jimmy to give some color on the other cost line item. But as it relates to food costs, we mentioned in the past, generally, we buy 4 to 6 months' worth of product. So it will take a little bit of time to get through the product that we have on hand in order to see a benefit and a reduction in tariffs. That being said, where food cost is ending up for the year and our 30% estimate, I'm quite pleased with that number.

When we first started looking at this, it could have been a 300 -- somewhere between 300% and 400% impact. But because of the great negotiations that were done with the suppliers as well as negotiating just the prices of things, tariffs aside, I'm very pleased with that 30% number. If the tariffs are reduced or do go away, that number could get back into the 28s again where it was. And that's really the only headwind that we've really seen as far as COGS, is uncontrollable inputs such as tariffs.

So we're optimistic. We'll see what happens over the next few months as it relates to tariffs. But ending up at the 30% number is still something that we, as a company, are pretty proud of given the headwinds that the tariffs pose to us.

Again, this is Jimmy. I'll answer your question about other cost line, but please allow me to speak in Japanese. [Foreign Language]

[Interpreted] In terms of the other cost line item, the biggest impact, unfortunately, for other costs as well was tariffs. Most of our promotional materials come from China. So our Bikkura Pon toys or giveaway items, those come from China, and they've been experiencing pretty heavy tariffs. And so that's been a meaningful pressure on the other cost line item. And Jeremy, as you mentioned, the sales deleverage that we had, while the comps came in better than expected, they were still negative. And so we saw sales deleverage on fixed and semi-fixed costs.

Utilities were up just on an absolute basis. We've seen that broadly across our restaurant base. And then lastly, the pricing that we took, we took in November, and so we did not receive that benefit in September or October.

And in terms of...

No, so this is...

Go ahead. Please.

Okay. [Foreign Language]

[Interpreted] That being said, with the pricing that we took in November -- or in spite of the pricing that we took on November 1, we saw traffic improve in November and December. We also saw price/mix improve in November and December. And we expect to -- for that to flow through and give us better leverage on our other costs, which we're actually -- we're already starting to see. And so that's really encouraging for where we'll land at the end of the quarter.

And our next question comes from the line of Andrew Charles with TD Cowen.

Great. Jeff, wanted to check with the shelf registration that you guys saw last week. What are you monitoring for as you think about when you would potentially tap into it?

I haven't really given a time line on that. When we did the capital raise a year ago, Andrew, in November of 2024, my thought was potentially that could be the last one. Right now, where we're looking at, we're -- restaurant-level margins of 18% versus 20% just for good corporate housekeeping and to be ready when the time comes if it does. Just wanted to have that shelf registration statement out there and be ready.

But we still have $75 million of cash and investments on our balance sheet, so we're pretty liquid, pretty strong on that side. But it's just something I wanted to have out there in case the time comes. Certainly want to keep an eye on where the share price is and if the share price becomes attractive and there was a reason we wanted to go on to capital. It's just being ready.

Okay. That's helpful context. And then we didn't reiterate 18% restaurant-level margins. I hear you on the 30% COGS target. I hear you're on about 32% labor. But I'm just curious. Does the margin target embed any additional price in 2026? I'm just trying to better understand the opportunities to improve the other operating costs amid the tariffs.

[Foreign Language]

[Interpreted] Relating to the 18% annual guidance that we provided in the November call, that already contemplated 15% restaurant-level operating profit margin we had for Q1. And so there's -- we're fully on track relative to our own expectations.

In terms of the pricing, we feel that our -- as it stands today, we have no further expectations to take price in fiscal '26. We think the pricing that we took on November is adequate. The flow-through that we're seeing is actually better than expected, and so that's really encouraging there. And yes, between those 2 things, we remain extremely confident about that 18% full year target.

[Foreign Language]

[Interpreted] And on another note, following the November pricing, we're actually -- we're already seeing leverage on our labor cost line earlier than expected. It's really encouraging making it -- making us now much more confident in terms of hitting that 100 basis point labor leverage number and opening up the possibility for maybe even better than 100 basis points.

And our next question comes from the line of Jeffrey Bernstein with Barclays.

Great. First question is just on the comp trends. You talked about the improvement to close the quarter and seemingly sustaining into the second quarter and very confident in that positive for the second quarter. I'm just trying to unpack how much you think is due to your own company-specific efforts versus the macro. I know there's lots of investor optimism around near-term benefits from lapping inclement weather and lapping the tariff headwinds. Maybe benefits from tax refunds and stimulus. So just trying to get your sense for how much you attribute to your own internal initiatives versus maybe your confidence of the broader industry that will accelerate from here with those factors. Or if you don't believe that to be the case, perhaps why not? And then I had one follow-up.

Sure. [Foreign Language]

[Interpreted] Looking to Q1, we outperformed the industry on a number of metrics, which we're very encouraged by. That was really par for the course for us historically. It hasn't been the case necessarily for the last year, and so the return to that position has been very encouraging. We think the promotions that we had in November played a big part.

And really, to Jimmy's earlier comment about the biggest element of surprise in terms of November, that was the pricing flow-through and the traffic growth that we saw post price. And so to your commentary about macro, I mean, it's still just a couple of months, but that, we interpret as an improvement in the consumer. And so that's very encouraging there.

In terms of other company-specific comps, that comp benefit starts in December. And so November would not have benefited from that.

[Foreign Language]

[Interpreted] And when we were speaking about the industry comparisons up, I meant to say November and onwards, not Q1.

Got you. And just to clarify, I know you often talk about a 2-year stack. And if you held that first quarter trend, it would imply maybe a positive 4% or 5% in the second quarter as your compares ease by, I think, 700 basis points. So I'm just trying to clarify, I think you said you assume modest positive comp for the full year. Just trying to clarify that. And did your trend in November and December improve on a 1-year or a 2-year stack basis? Just trying to get the sense for the underlying momentum versus just comparisons.

Yes, so...

[Foreign Language] Go ahead, Ben.

No, please. Please.

[Foreign Language]

[Interpreted] Without providing commentary on the comp performance to date, we remain very, very confident about our ability to hit flat to slightly positive comps. The momentum as we exited the quarter was very encouraging. And to Jimmy's repeated comments, that momentum has continued, and so we feel very good about achieving that flat to positive comp for the full year.

Understood. And then just to clarify, I think you said -- we know you opened 4 units in the first quarter, and you have 10 more under construction. I'm guessing it's not surprising to you or maybe you turn these units around faster, but you're talking about 16 for the full year. It seems that you already have 14 with good visibility. Just wondering how much lead time is needed in terms of construction that you're confident in that 16 plus relative to the 14 you have visibility on today.

[Foreign Language]

[Interpreted] Looking at the fiscal '26 pipeline, we think that the 16 unit target is the upper bound. We continue to think that's the appropriate target. We don't expect that to change. There might be a little bit of benefit in terms of faster lead times, but that's not really something that we expect. It should pretty much be business as usual. So we opened 4 in Q1. We expect to open 1 in Q2 and the remainder are in the back half.

Yes. And so for those 10 units, a lot of them just broke ground. And so yes, you could keep that in mind for modeling purpose. That would be great.

But presumably, you have 2 more to get you to that 16 that maybe haven't broke ground yet, but you have a good line of sight to.

Yes.

Yes.

And our next question comes from the line of Jon Tower with Citi.

Great. Maybe just circling back to a comment that, Jimmy, you had just made or maybe, Ben, it was you in response to the question. You had mentioned that the promos that you had done in November had played a decent part in terms of getting some traffic back into stores and lifting sales. Can you dig into that a little bit? Like what exactly did you do during that window? Is it something that you feel like you can repeat in the future? And how can you -- or is it something that was just one-off and you don't expect to bring to future windows?

Sure. [Foreign Language]

[Interpreted] Jon, so as it relates to November, we had our second One Piece giveaway, and that outperformed our expectations a little bit. We had a gift card promotion. We typically have whatever year as we get closer to the holidays. But really, the biggest factor for the November outperformance was our LTO or Kura Reserve. This month -- or for November, the sort of theme item was sakura bacon, and we weren't sure how big of a hit bacon sushi would be. But in retrospect, in hindsight, of course, bacon sushi is going to be a slam dunk. And so that really was a big hit for us.

In terms of whether or not it's replicable, we're not -- we don't have plans to have another sakura bacon, but there's nothing to preclude that in the future. Certainly, we're putting as much energy as we can into our LTOs. We know that that's a really -- it's another lever for us. But looking to December, while we don't have another LTO, food LTO along those lines, we have our most exciting IP of the year, Kirby. And so we're -- not to beat a dead horse, but we're really happy with how December's shaken out.

Okay. Yes. And that kind of leads to a question just regarding -- you had mentioned earlier the idea of advertising the reservation system and reservation program more broadly to the nonrewards members. And I'm just curious to hear where you guys think the brand -- well, where the brand is today with respect to broad advertising, which I don't think it does much of, but where you want to be over time, either as a percentage of sales, what mediums you want to go in and frankly, where the message should be to guests. Is it more about, hey, this is what Kura Sushi is? Or is it more about a call to action in terms of LTOs, like whether it's the Kura Reserve or it's the Kirby IP tie in? If you could expand on that, that would be great.

Yes. So I wouldn't expect us to do anything like television advertising. We're very happy with the marketing efforts to date. We think that we have done a phenomenal job just in terms of spending our ad dollars effectively, primarily on social media, influencers, et cetera. But those have been exceptional in terms of return on ad spend.

I'd say that there's probably going to be more of an emphasis on call to actions, to your point. Our rewards members very much are moved by call to action. And so that's going to be an ongoing point of focus, especially because they're continuing to trend upward in terms of spend, which is great.

Okay. So just rewards members in general now that we're pretty far. I think we're a year in or so. Maybe I'm off a little bit. But can you speak to how they have moved in terms of either frequency and/or spending levels versus where we started off a year or so ago?

Yes. So we're now up to 1 million members. If we're counting newsletter numbers, it's actually 1.7 million numbers. And so that's really been very aggressive growth thanks to the efforts of the marketing team. In terms of the spend, a 2-person ticket, per person, they spend about $6 more on -- and so that's a pretty meaningful difference. And they visit more than twice or even triple a nonmember.

And our next question comes from the line of Mark Smith with Lake Street Capital.

I'm curious if there's any other demographic or geographic trends that you saw in the quarter or even post quarter that are worth calling out. For instance, I'm curious if you saw any impact when government shutdown ended. Did that drive any incremental traffic or spend or anything else to call out here in the quarter?

[Foreign Language]

[Interpreted] So the major change that we have seen is just the broad-based improvement from November onward. Really are not seeing any sort of differences on a regional or geographic basis. As we've mentioned in the past, the differential between any given region in terms of comp performance is really driven more by the timing of infills than anything else. And so it's really just been a broad-based improvement both in traffic and ticket. And so that's been really -- I guess I keep coming back to the word encouraging, but it really has been encouraging.

Excellent. And then as we look at restaurant-level margins, I'm curious if you could talk about comp units versus noncomp restaurants, kind of where the margins are shaking out for each and then if we've seen any real change over time in one or the other.

[Foreign Language]

[Interpreted] So we haven't really commented too much on the difference between comp and noncomp unit performance. What we have said is that, historically, new units have pretty strong honeymoons. They'll have elevated revenues, but they're not as efficient as -- at managing costs as a more seasoned restaurant. And so the RL OPMs, they actually end up shaking about the same.

And our next question comes from the line of James Sanderson with Northcoast Research.

I wanted to go back to the labor line item. Just wondering if you could walk through any milestones or key drivers operationally that you'll need in order to achieve that 100 basis point improvement and when we can expect that to build in the next 3 quarters.

[Foreign Language]

[Interpreted] James, in terms of waiver, as it relates to Q1, the biggest driving factor was the pricing that we've taken. We feel that we're making great progress in terms of the leverage that we expect to make for the full year and have no concerns about hitting that 100 basis point target and in fact, feel that there is a real possibility that we'll be able to get there even -- there to get even beyond 100 basis points of leverage.

In terms of the factors that need to go right, so to speak, for us to hit that, those are already in play or in place. They're largely going to be driven by the initiatives that we put in the last fiscal year. So the reservation system, the new touch panels, the new Mr. Fresh domes, those cumulatively will get us at least those 100 basis points. And any sort of labor initiatives, just the benefit trends along with seasonality and so we were, frankly, a little bit surprised to see benefit as early as we did, and we just expect that to become more pronounced as sales grow and we're better able to leverage fixed costs.

Okay. So not necessarily need to see the robotic dishwashers, another technology into the store in order to achieve that gain.

[Foreign Language]

[Interpreted] Yes. So the robotic dishwashers are contemplated in that 18%, but the impact is going to be pretty minimal for the full 18% RL OPM. And so we'll see even more benefit as we enter fiscal '27 and we've got more of the system updated to have the robotic dishwashers. And so if we're able to implement these sooner than expected, then that's a potential point of opportunity as well.

All right. All right. Very good. Could you also review the collaborations you offered in the first quarter, if they performed to your expectations?

[Foreign Language]

[Interpreted] In terms of Q1's collaborations, we had Demon Slayer in September. That was the second month of Demon Slayer, and then we had One Piece in October and November. Both met our expectations.

Okay. Very good. Last question for me. I just wondered if you had thought about your long-term growth target rate of about 300 units in the United States, if you had revised that.

[Foreign Language]

[Interpreted] If we do have plans for a formal update, we'll be sure to let everybody know, but in the meantime, we will let the analysts provide their own estimates on that bigger number.

And our next question comes from the line of George Kelly with ROTH Capital Partners.

So first one, just to revisit the tariff conversation. Just want to make sure I'm capturing everything properly. So your 30% COGS target for the year bakes in, is it a 200 basis point impact from tariffs? And then can you quantify the tariff impact on your other expense line?

[Foreign Language]

[Interpreted] George, as it relates to the other costs, the impact was largely on the promotional items, the Bikkura Pon prizes and the giveaways. Cumulatively, as a percentage of sales, there was about a 40 to 50 basis point impact from tariffs. This is prepricing. And so post-November results, that should ease a little bit, but it is a pretty meaningful step-up in our promotional costs.

George, on cost of goods sold, 30% is where we think it's going to end up for the year. It is about a 200 basis point impact, but we've had some other pretty good negotiations that have offset that a little bit. So when you look at the math, from last year, to get to 30%, I think it's like it will end up being like 150 basis points delta between the 2 years. But the tariff impact alone is pretty significant at 200 basis points, but we had some other good negotiations that have offset that a little bit, which is why we ended up 30% for the year.

Okay. Okay. Helpful. And then second question I had is just related to promotions. You sound very pleased with how Kirby is performing. So I guess the question is, is the performance there -- I understand Kirby, that's a big draw -- a big partner. But how have you executed it differently? Is it partly sort of an internal execution issue? Maybe you're monetizing it better or advertising it better. So I wonder if that's sort of part of the reason. And then a second question is can you talk at all about your future planned promotions for the remainder of the year.

[Foreign Language]

[Interpreted] George, as it relates to Kirby, there were a number of things that we tried for the first time with this collaboration. We have these customized Mr. Fresh domes. And so instead of just a clear dome, you have a Kirby protecting your sushi. And we also updated the touch panels to be Kirby themed. These are both very well received by guests. We really want to try to just keep trying new things and continue to grow the experience. And so the guests feel that much more that it's something that can't be missed.

[Foreign Language]

[Interpreted] And we are very, very pleased with the results.

Okay. That's great. And can you comment at all about future planned promotions for the year?

Yes. Sorry. Sure. So Kirby runs through the end of January, and then we have Sanrio for February. And then March and April, we have Jujutsu Kaisen to coincide with our new anime season.

And our final question comes from the line of Todd Brooks with Benchmark StoneX.

Appreciate it. Couple of questions, a few leftovers here. If we're thinking about the same-store sales guidance you provided for the full year and the price increase that we took at the beginning of November, what's the right way to think about p/mix for the balance of the year as we're kind of building into a component of same-store sales?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Interpreted] In terms of the components of comp, we'd be pretty low to share the price and mix expectations just given -- well, early results post the November pricing have been very, very encouraging. It's really just 2 months, and so it's hard for us to extrapolate onwards or outwards. That being said, we do feel very confident that we'll be able to achieve that flat to slightly positive just based off of our trajectory to date as well as the easier comparisons that we're enjoying now.

Okay. Fair enough. Second, in the other cost, I just wanted to clarify. When you talk about elevated marketing cost, was that referring to kind of the promotional cost around tariff-related Bikkura Pon pressures and around...

Exactly.

Okay. So as far as marketing spend on the brand itself, there's really no change year-over-year. This was that tariff-related pressure that you were pointing to on Bikkura Pon.

[Foreign Language]

[Interpreted] As it really so other costs, if we're comparing year-over-year, the comps for the prior year quarter were 1.8% against the negative 2.5% that we posted for the current quarter. And so that alone gets you pretty meaningful deleverage. So that together with the tariff impact is how we got to the current quarter's other costs. That being said, in terms of the comp being a drag and deleveraging, we expect that dynamic to flip with Q2. As we comp positive, we expect the other costs to stabilize.

Okay. Great. And the final one for me, and this goes back when you guys talked about the environment coming out of the pandemic and just kind of competitive decimation the closures that you've seen. I'm just thinking about if you guys are absorbing 200 basis points of tariff pressure, if we sort of think about independent competitors and absorbing that kind of 300 to 400 basis points of pressure that Jeff was talking about related to tariffs, are we seeing another wave of kind of mom-and-pop type of closures as you're continuing to roll out across the country here where you just got a more open runway as you continue to grow your footprint?

Unfortunately, yes.

[Foreign Language] Go ahead, Ben.

Yes, it's a weird thing to say. Yes. I mean, we can't quantify it. And it's never good to see people go out of business, but this is a pretty consistent pattern. Whether or not there are going to be closures on the scale of the pandemic, I mean, I don't think that will be the case. But regardless of whether a restaurant closes outright, I still think that we'll be able to capture traffic just because the pricing that our direct competitors are taking to offset their costs are only serving to highlight the incredible value that we offer.

[Foreign Language]

[Interpreted] And then looking to November, we took 3.5% pricing. Granted, 2.5% was rolling off, and so we were offsetting -- a big part of the pricing was to offset that, but 3.5% is an unusually large step-up for us. We typically price the increments of 1% to 2% historically. And the fact that traffic and mix have only grown since is extremely encouraging. It's only been a couple of months, and so we don't want to read too much into it, but 1 possible interpretation is that the 3.5% that we've taken pales in comparison to the pricing that our competitors are taking. And that is why our traffic grows in spite of the pricing.

Thank you. And ladies and gentlemen, that does conclude today's question-and-answer session as well as today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note that this call is being recorded.

On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin, Senior Vice President, Investor Relations and System Development.

And now I would like to turn the call over to Mr. Porten. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter 2025 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I would like to turn the call over to Jimmy.

Thank you, Ben, and thank you to everyone for joining us today. I'm incredibly proud of what our team achieved during fiscal 2025 as we delivered our strongest class of restaurant openings in recent memory, adding a record of 15 new locations. We also successfully managed our corporate G&A expenses, resulting in an annual adjusted EBITDA growth of over 30%. These accomplishments are particularly significant given the volatile consumer environment and the tariff pressures we navigated throughout the year, which have negatively impacted our top line results and restaurant-level margins. Nevertheless, our team remains resilient, and we continue to believe that our focus on execution has positioned us well for continued growth in fiscal 2026.

Total sales for the fiscal fourth quarter was $79.4 million, representing comparable sales growth of 0.2%, led by traffic growth of 0.5% and partially offset by price and mix of negative 0.3%. Cost of goods sold as a percentage of sales was 28.4% as compared to the prior year quarter at 28.5%. I am exceptionally proud of our purchasing team who negotiate tirelessly to mitigate higher ingredient cost so we can continue to provide the best value possible for our guests. Labor as a percentage of sales improved by 30 basis points to 31.1% as compared to the prior year period of 31.4%, meeting the expectations for year-over-year improvement for labor in Q4 that we had shared in the previous earnings call. In spite of ongoing labor inflation, we have been able to offset these cost increases through aggressive operational initiatives and system implementations. I have some exciting news on this front that I will discuss shortly.

Turning to real estate. We closed fiscal 2025 with 3 store openings in the fourth quarter, The Woodlands, Texas, Salt Lake City, Utah and Boulder, Colorado. Salt Lake City and Boulder are the first units in their respective markets. And as with every new market we've entered to date, have been a very strong performance. Subsequent to quarter end, we opened 3 units, Arcadia and Modesto in California and Freehold, New Jersey. With another 6 units under construction, the new fiscal year is off to a great start. We expect to open 5 to 6 units in the first half of the fiscal year and open the remaining units in the back half of the year. I'm excited to announce we are in the process of introducing status tiers to our rewards program. We are currently performing exploratory research to determine what kind of incentives resonate most strongly with our guests.

This marks the first major update to our rewards program since we introduced the Punchh. We are very excited to take our rewards program to the next level and look forward to keeping you updated on its progress. On system development, we have largely completed the revisions we have been working on for the reservation system. With these updates completed, we expect to begin marketing the reservation system to non-reward members beginning in the fiscal second quarter. As you may have guessed when I mentioned this earlier, I'm extremely pleased to announce that we have secured commercial use certification for our robotic dishwasher and are currently in the process of installing these machines in eligible restaurants. As a reminder, our initial expectation was that the robotic dishwasher opportunity will be largely limited to new openings with only 5 to 10 restaurants eligible for retrofitting, but now we expect to be able to retrofit approximately 50 restaurants of our existing 82.

We expect to have the majority of the retrofit rollout during this fiscal year and to see labor improvements of approximately 50 basis points for restaurants that receive the retrofit. Fiscal 2025 was defined by the incredible cross-departmental efforts to do everything that we could to mitigate an unfriendly environment. Our commitment to growing corporate profitability remains unabated as demonstrated by the strides we made in adjusted EBITDA and adjusted net income. We have made great strides in honing our unit expansion strategies and have built a pipeline that allows us to capitalize on the opportunities represented by previously unexplored smaller DMAs. The efforts by the operations team and the implementation of new systems have created lasting efficiency gains. I am very grateful for all of our team members who generate the good news we get to share at each earnings call. I don't see that changing.

Jeff, I'll hand it over to you to discuss our financial results and liquidity.

Thanks, Jimmy. For the fourth quarter, total sales were $79.4 million as compared to $66 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was positive 0.2% with traffic growth of 0.5% and price and mix of negative 0.3%. Comparable sales in our West Coast market were negative 0.6% and comparable sales in our Southwest market were positive 1.6%. Effective pricing for the quarter was 3.5%. On November 1, we took a 3.5% menu price increase. And after lapping prior year increases, our effective price for the first quarter will be 4.5%. Beginning in the first quarter of fiscal 2027, we will no longer be providing regional breakdowns for comparable sales as regional comps are largely determined by the timing of infills, and we don't believe that they are indicative of overall company trends.

Turning now to our costs. Food and beverage costs as a percentage of sales were 28.4% compared to 28.5% in the prior year quarter. During the quarter, we began to see the impact of tariffs in our cost of goods sold of approximately 70 basis points. Labor and related costs as a percentage of sales were 31.1% as compared to 31.4% in the prior year quarter due to operational efficiencies and pricing, partially offset by wage inflation. Occupancy and related expenses as a percentage of sales were 7.1% compared to the prior year quarter's 7%. Depreciation and amortization expense as a percentage of sales was 4.7% as compared to the prior year quarter's 4.6%. Other costs as a percentage of sales were 15% compared to the prior year quarter's 14.4% due to sales deleverage and higher marketing costs.

General and administrative expenses as a percentage of sales were 11.7% as compared to 20.3% in the prior year quarter due to the lapping of litigation costs incurred during the prior fiscal year, partially offset by higher compensation-related expenses. On a full year basis, general and administrative expenses as a percentage of sales were 13.3%, representing a 300 basis point improvement over the prior year's 16.4% G&A expenses as a percentage of sales, excluding litigation costs for the fourth quarter were 11.4% as compared to the prior year quarter's 13.2%. G&A expenses as a percentage of sales, excluding litigation costs for the full year were 12.5% as compared to the prior year's 14.1%. And we did not have any impairment charges in the fourth quarter of fiscal '25 as compared to 2.4% in the prior year quarter. Operating income was $1.5 million compared to an operating loss of $5.8 million in the prior year quarter, mainly due to the lower G&A and the impairment expenses just discussed.

Income tax expense was $43,000 compared to $19,000 in the prior year quarter. Net income was $2.3 million or $0.18 per share compared to a net loss of $5.2 million or negative $0.46 per share in the prior year quarter. Adjusted net income was $2.5 million or $0.20 per share as compared to adjusted net income of $1 million or $0.09 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.8% compared to 20.9% in the prior year quarter. And adjusted EBITDA was $7.4 million as compared to $5.5 million in the prior year quarter.

Turning to our cash and investments. At the end of the fiscal fourth quarter, we had $92 million in cash, cash equivalents and investments and no debt. And lastly, I'd like to provide the following guidance for fiscal year 2026. We expect total sales to be between $330 million and $334 million. We expect to open 16 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit continuing to approximate $2.5 million. We expect general and administrative expenses as a percentage of sales to be between 12% and 12.5%. And lastly, we expect full year restaurant-level operating profit margins to be approximately 18%.

And with that, I'll turn it back over to Jimmy.

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.

[Operator Instructions] First question comes from Jeremy Hamblin with Craig-Hallum.

Congrats on the strong profitability here. I wanted to just dive into what you saw over the course of the last several months. I think you were on the July call, very pleased with how quarter-to-date comp trends were. Maybe things softened a little bit in the August period. But I wanted to see if you could give us kind of a sense of where quarter-to-date trends were. And then you've had a bunch of IP collabs. And just to understand how effective those been? I know you've had kind of shorter periods than you previously had on the collabs, but some color on what you're seeing out there, especially in context that the number of restaurants have seen some softening in September and October.

Sure. Thank you, Jeremy, for your first question. Please allow me to speak in Japanese. He's going to -- Ben is going to translate. [Foreign Language]

[Interpreted] So -- Jeremy, this is Ben. Over the last several months, we've certainly been seeing the same macro pressures that our peers have been reporting, and we're not immune to them either. We're very pleased with the work that the marketing team has done. They've done a phenomenal job. They're really doing everything in their power to drive comps and the quarter would have been much more difficult without all of their efforts. And so the IP collabs that you had mentioned, they certainly -- the quarter would have been worse without them. It's hard to assess the impact on a numerical basis, but they definitely made a difference in the quarter.

The upside from the reservation system, the light rice and the 25 plates cumulatively had a little bit of a contribution, but that's what got us to positive comps between all those different factors. All those efforts were largely offset with the macro pressures that you mentioned, but we were pleased to come in with positive comps for the quarter.

[Foreign Language]

[Interpreted] And then in terms of quarter-to-date, we've seen the same operating environment as we've entered our first quarter.

[Foreign Language]

[Interpreted] And while this is -- this is not going to be a usual practice going forward, we just felt given that we're already 2 quarters -- or 2 months into the quarter that it made sense for us to share our comp expectations based off of the results to date and our internal expectations. Unfortunately, our expectation for Q1 is to come in negative mid-single digits. This is not a reflection in terms of worsening performance or a worsening environment, but really just a reflection of the quarter -- the year-over-year comparisons for Q4 and Q1. And the delta is pretty cleanly about 500 basis points between those 2 quarters.

[Foreign Language]

[Interpreted] Just to remind you the numbers that we're lapping, Q4 was lapping a negative 3% comp. And so a relatively easy comparison, whereas Q1, we're lapping a 2% or a positive 2%. And so just given that we came out about flat in Q4 over -- while lapping that negative 3%, our expectation is that same delta, which would get us to that mid-single -- negative mid-single-digit number for our Q1 comp expectation.

[Foreign Language]

[Interpreted] That being said, we remain -- our goal remains to deliver positive comps for the year. We think we can get flat to slightly positive. Q1 remains the most difficult comparison. As we enter Q2 and Q3, we'll be lapping a negative 5% comp and a negative 2% comp. Those will also coincide with the -- with some of our stronger IP collaborations, we'll benefit from the pricing that we took in November, and we'll also hopefully benefit from greater adoption from the reservation -- for the reservation system as we start to market it to non-rewards members.

Appreciate the color on that. And then just a follow-up here on the unit development and make sure I understood. So 16 new units for the year. I think you said 5 to 6 in the first half of fiscal '26 and 3 quarter-to-date. Do you anticipate opening up any more in Q1? And then just confirming that you're 5 to 6 in the first half of the year and then roughly 10 in the back half of the year?

[Foreign Language]

[Interpreted] Yes. We're expecting to open one more in Q1, and then we would open 1 or 2 in Q2.

[Foreign Language]

[Interpreted] In the prepared remarks, we mentioned that 6 units were under construction, but the majority of them, we've just broken ground. And so while we do have a lot of units under construction, our expectation for the first half of the year is to open 5 or 6 units total.

Next question, Mark Smith with Lake Street Capital Markets.

Yes, Alex turning on the line for Mark Smith today. In the prepared remarks, you highlighted around 50 basis points of labor improvement from the robotic dishwasher rollout and you said you'd be retrofitting about 50 restaurants. How quickly do you expect that to be kind of implemented? And then when will we see the full impact on the P&L?

[Foreign Language]

[Interpreted] So as it relates to the robotic dishwashers, we placed our order to the manufacturer after we got certification. And so they're in the process of developing or just manufacturing them now. It's a proprietary piece of equipment, so we can't get it just off the rack or whatever. And so really, that's the biggest bottleneck for us, just getting them made and then shipped over from Japan to the United States. Our expectation is that the implementation in earnest will really start in Q3. And while we do expect to get the majority of the eligible restaurants retrofitted during fiscal '26, the impact from a labor perspective would be much more pronounced in fiscal '27 than fiscal '26. Our expectations for the benefit from the robotic dishwashers in fiscal '26 are reflected in the RLOPM guidance that we shared earlier.

[Foreign Language]

[Interpreted] That being said, as Jimmy is as impatient as I am, he's going to Japan to knock on the doors of the factory and speak with the President and ask for them to expedite things as much as they can. And so hopefully, we'll be able to get these in a little bit sooner than we're expecting right now.

That's great. Great color there. Last one for me. You mentioned tariffs a little bit impacting you in the quarter. Given the ongoing back and forth for tariffs on Japan and Vietnam, can you give an update on supplier negotiations? What level of cost sharing you're seeing? Have you taken or do you anticipate taking any additional pricing to offset those costs?

It's Jeff. So the -- we took 3.5% on November 1, as we mentioned in the prepared remarks. And that was after negotiations we had with the suppliers. And as we also said in the prepared remarks, we saw about a 70 basis point impact in Q4. And going forward, after we took the menu price increase, and these negotiations are still ongoing, but they're much more progressed than they were in the past.

But currently, where we stand is that we expect our COGS for fiscal '26 to be at least 30%, around the 30% range. So we thought in interest of transparency that it would just be useful to everybody to just kind of tell you what we thought COGS is going to end up at. So call it about 30%. And that's also why we gave the restaurant-level operating profit margin guidance as well. That was a new piece of guidance for us that we gave this time that we've never given in the past. And just given the volatility of what's going on, we just thought in the interest of transparency that it was just a good thing to help the Street and help everybody out of what we expect going forward.

Next question, Jeff Bernstein with Barclays.

Great. This is Pratik on for Jeff. A big picture question about '26. What kind of strategic changes do you guys foresee with the brand? Obviously, we've heard all sorts of commentary from restaurants about how the consumer is challenged and people are looking for value. What are you -- what steps are you taking to kind of address that current environment? And more excitingly, what new markets have you the most excited for '26? And I have a follow-up.

[Foreign Language]

[Interpreted] Just keeping in mind that we're in an environment right now where guests are extremely price sensitive and are managing their frequency being that much more thoughtful about where they're spending their restaurant dollars, we were very diligent in our processes as we approach the November pricing. We added a value question to the end of meal survey, which validated our beliefs that our guests continue to believe that we provide really an unbeatable value. We also conducted a consumer insight study. We actually -- we got granular to the point where we're doing separate studies by geography to see the elasticity by market.

And so we feel that the pricing that we took really sort of threaded the needle in terms of what was -- what's appropriate. In terms of the efforts that we're making, it's really -- we're not betting the farm on any one big thing. It's really just the diligent small things all coming together from every department. It's really the approach that we've always taken. It's just lots and lots of small incremental improvements, which cumulatively give us that massive value advantage. We didn't want to force a 20% margin in fiscal '26. That -- we really -- we didn't want to basically trade the future potential traffic for 1 year better margins. We really want our guests to continue to see us as providing an unbeatable value. And yes, we didn't want to be shortsighted as it relates to fiscal '26.

[Foreign Language]

[Interpreted] In terms of the things that we're working on, this is a very fundamental thing for any sort of restaurant business, but we're very focused on improving our products, both from a menu development perspective and a sourcing perspective. They've really been doing a phenomenal team. There's a reason we call them out every call. They're just tireless in their efforts, and it's really kind of staggering how consistently they've been able to improve our or proteins in particular. And so we've got a number of Japan-sourced LTOs that we're looking forward to, which we expect will be a big hit from our guests.

We know that the IP campaigns are a very big opportunity for us. We're pretty happy with the pipeline that we've built, but we know that there's more opportunity to be run from each campaign. And so we really want to use each one as a learning opportunity and build on that so that we can really, yes, maximize the opportunity that we see there. A couple of other things that we're working on is, as we mentioned in the prepared remarks, we're working on introducing the tiered statuses to our rewards program. And we're also going to begin marketing the reservation system to non-rewards members. And so all those things together would be some of the things that we have on the docket.

And then my follow-up was for Jeff. It looks like the company ended fiscal '25 at exactly 12.5% of sales when it comes to G&A. And I know you mentioned in your prepared remarks that you expect fiscal '26 to be at 12% to 12.5%. So at the midpoint, you're assuming about 25 basis points of leverage. And I can certainly appreciate what's happening in today's environment. But that's just not as much leverage as we're used to seeing in the past? And I know, Jeff, longer term, I know you want to get the company to that sub-10% level. Just what's changed in fiscal '26? Is there just a deliberate strategy to allow for less leverage? Or is there another round of investment in certain areas? Just anything you can kind of help us unlock what's going on in G&A.

Yes. So really look at it on a kind of an average year basis. We got 160 basis points of leverage this year compared to last year. I was expecting under 100 basis points. So we were able to pull some savings from fiscal '26 forward into fiscal '25. So when you look at it on a 2-year basis, even if we did hit that midpoint, that's still almost 100 basis points of leverage per year when you look at it that way. And we can't really parse it out year by year by year. We take the savings when we can get them. And we were fortunate to get the savings earlier on than we thought. So I'm looking at it on a year-by-year basis. And because we expect -- we got much more than we expected, I didn't want to overshoot next year. I'm hoping we can beat that at the beginning of the year. That's our starting guidance, and we'll do our very best to bump that guidance up in one of our future calls. But right now, I think that that's a prudent number between 12% and 12.5%.

Next question, Andrew Charles with TD Cowen.

This is Zach Ogden on for Andrew. So it looks like new store productivity did improve from 2024 to 2025. Are you able to quantify what new store AUVs are relative to the system average of roughly $4 million? Or maybe if you could qualitatively speak to what's driving that improvement? And if it's 1 or 2 units driving that strong new store productivity or if you're seeing more of a broad-based improvement?

[Foreign Language]

[Interpreted] So I'd just like to caveat this by starting by mentioning that we don't have an AUV target. We have a cash-on-cash return target. That being said, Zach, you basically got it right. The pressure on the AUVs that we saw that we reported today versus a year ago was largely due to the new entrants to the AUV comp base. But also to your earlier point, the fiscal '25 stores are spectacular. They've been one of the strongest classes in recent memory. It's not limited to 1 or 2 units. And we're very excited to see those go in the AUV comp base, and we expect that number to improve with their entry.

[Foreign Language]

[Interpreted] And on the note of AUV, just as I mentioned before, it's not a target for us, and there are a lot of things that can impact AUVs, just something as simple as store size doesn't necessarily reflect performance. But we did want to internally corroborate that things are as strong as we felt and they are. The sales per square foot for fiscal '24 and '25 are unchanged. And that's, I think, a more meaningful metric of our productivities.

Great. And then my follow-up question is, Jeff. The guidance for new store build costs stayed at $2.5 million, which is what it was in fiscal '25. So I mean, that's pretty encouraging considering you've previously talked about a $300,000 to $400,000 impact from tariffs. So is the impact from tariffs not as bad as you thought? Or are there just offsets to it?

Let me be very clear, it's the same as it was in '25 and '24. So [ we've been in the same ] for a couple of years, which we're very proud of. That's a net number. The cost to build did go up a little bit because of tariffs, but we're now getting better TI allowances from our landlords. So when you offset the TI allowance against the higher build, it comes out to a net about $2.5 million. So our cash out of pocket remains the same.

Next question, Brian Mullan with Piper Sandler.

This is Allison Arfstrom on for Brian Mullan. Just a quick one on the reservation system. It sounds like it's off to a strong start. At this point, are you able to quantify the impact? And if not, just anything new that you've learned with a few more months underway?

Yes. It's hard to tease out the impact of any one initiative, and that's always been the case for us. The rollout of the reservation system coincided with the resuming of our IP collaborations. And so there's just a lot going on. We were really happy to see positive traffic. But as you can see with the numbers, our comps were sort of more or less flat. And so it's the reservation system wasn't a massive traffic driver. It's -- I think it supported the quarter from being weaker, but it wasn't a massive, massive thing. But that also doesn't surprise us given that we haven't -- we really haven't meaningfully advertised it. It's basically just organic discovery from our existing rewards members.

And I'm really excited to see what numbers we can see from it once we advertise it to the broader audience. In terms of learnings, we've been able to identify some things that just make it easier to use both for our servers and for the guests. And so this should actually allow us by reducing front-of-house savings, incremental front-of-house savings as we introduce these improvements.

Next question, J.P. Wollam with ROTH Capital Partners.

Maybe just 2 sort of focused around the guidance. But one, if I think about kind of the comp expectations that you guys just mentioned for the upcoming year, can you give us a sense of how much maybe the upgraded reward system and the broader marketing of reservation are baked into that expectation? Is there any risk that those underperforming would harm comp expectations? Or is that really just upside to what you guys have underwritten right now?

[Foreign Language]

[Interpreted] So in terms of the revenue guidance, really all the guidance that we shared, it does not hinge on the IP campaigns or the reservation system. Those would be gravy opportunities for upside, but we know that it's really hard to proactively quantify the impact of new initiatives. And so we don't bake that into our revenue estimates just for the sake of just to be prudent.

[Foreign Language]

[Interpreted] And on the note of guidance, we think maybe you might have raised an eyebrow when you saw our revenue range combined with our commentary that we expect to be able to hit flat or slightly positive comps for the full year. This is really a reflection of the opening cadence. We touched on this a little bit in the prepared remarks, but that is really the bridge there. I'm sorry...

[Foreign Language]

[Interpreted] Right. Right. So it's typically, you're going to use a midyear convention for revenue at 50%, we would recommend 40% or even less, just looking at the cadence of openings.

Great. And then just switching over to kind of the 4-wall guide. Just kind of curious, obviously, the environment hasn't gotten any better since July. But just curious if you could kind of just give us a sense of what's changed since we talked in July when it sounded like maybe there was some optimism about really ramping back towards that 20%.

[Foreign Language]

[Interpreted] With the 20%, you're referring to the RLOPM?

Yes, the restaurant level.

[Foreign Language]

[Interpreted] So JP, to answer your question first, really, the major difference between when we last met in July and the discussion today would be just the expectations for our COGS have changed. As Jeff had mentioned in the prepared remarks, the impact to tariffs in Q4 were 70 basis points. And so on a full year basis, that impact was not very much. We had 18.4%, but looking to this year, we have the full impact all quarters instead of just Q4. We're -- we know that we took price and we'll benefit from that, but you typically only get about half of flow-through. And then as we look to other costs, we've seen meaningfully elevated utility costs and tariffs impacting non-COGS items as well. And so with all those in mind and all those pressures in mind, we felt that 18% was the appropriate number for us to expect for fiscal '26.

[Foreign Language]

[Interpreted] That being said, emphasis for fiscal '26, 20% remains the overall goal, and we hope to get back to that as soon as possible. And also keep in mind that with COGS of 28.6% this year and an expectation of 30% next year, that's 140 basis points. But our restaurant-level operating profit margin guidance is only 40 basis points lower than what we ran this year. So we're...

[Foreign Language]

[Interpreted] We're able to control the rest of the P&L.

Next question, Tania Anderson with William Blair.

Most of my questions have been answered. But just to follow up, you mentioned that there were some things that you noticed with the reservation system that you could do to improve it. And I was wondering if you can give a little bit more detail on that. And second, on the IP collaboration, I mean, given that you're kind of building out this portfolio and you have a mix of, say, known collaborations and maybe some new or more experimental, new collaborations, maybe experimental ways of doing the collaborations, I think you mentioned last quarter that might have more risk. How much control do you have about the -- over the exact timing and flow of all these collaborations per year like during the year and throughout the year. I'm curious about that.

Yes. So in terms of the collaboration timing, this -- we're generally at the mercy of the licensors. They try to -- they typically have their own marketing schedule, which, generally speaking, works in our favor because they want to partner with us when they're advertising something. But in terms of just having control over the timing, that's not really something that we can do. In terms of the reservation system, this is going to get pretty inside baseball. But in terms of guest-facing improvements, I think the most obvious one and the most meaningful one would be for guests to be able to pull their own reservation information.

Right now, you get it in a text. If you've made a reservation a week ago, it's -- you're not going to be able to find that text, and that's a pretty big headache, not just for the guests, but for the servers as well. And I know because I was desperately trying to find people's reservation numbers when I was testing out the program, and it's just not fun. And so that's really one of the big things that I meant when I was talking about labor savings for front-of-house. The other is we're changing the way that we -- that servers can see parties, and it doesn't really make a big difference from an operations perspective, but basically, the way we -- the way that it was set up before, we're working it in a way that made it impossible to collect correct data.

And this shift will allow us to, for the first time, really get accurate data and then we can make adjustments and decisions based off of that. And so I'm really excited for that. It's not very flashy, but it will make a big, big difference in terms of our planning for what we can do in the reservation system.

Next question, Todd Brooks with Benchmark StoneX.

Jeff, can we talk about -- I think you said mix was down 30 basis points last quarter. Obviously, the consumer weakened across the course of the quarter. I guess, did mix weaken as well as far as side menu attach or beverage attach? And within that down mid-single-digit comp expectation for Q1, is there a deeper kind of drag on price/mix versus what we saw in fiscal 4Q?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Interpreted] Todd, just to clarify, are you asking about what we're seeing differently between Q4 and Q1? Or is this just a general question about mix?

I was just trying to tie it to what people are seeing with the consumer. Did mix slow during the course of Q4 to end up at down 30 basis points, but the consumer maybe tighten their wallets a little bit more and didn't attach the same way as the quarter went on. And what's the price/mix assumption within the down mid-single-digit guidance for the first quarter same-store sales?

[Foreign Language]

[Interpreted] We certainly have seen check management. We -- in Q4, we had a number of initiatives that were intended to drive improvement in mix such as the light rice, the 25th plate, experimentation with the spending thresholds associated with giveaways. But just with this overall environment and the consumer not feeling as strong as they might have 6 months ago, those efforts, the timing is not right in terms of trying to drive mix. And so really, our focus is on traffic. This is how we've approached every economic downturn in the past. We know that people are going to control check. And so what we do want is just to make sure that they come in the door. We're working a lot on menu development.

We touched on this a little bit earlier, but we want people to be coming in because we have new great items that they want to try and then come back because they like it so much. And so that's one of the things that we're excited for. We expect to start seeing the results of those efforts starting in Q3.

Okay. Great. Second question, I don't know if you guys have ever talked about your customer profile. But if you looked at performance across the quarter, did you see any big disparities by income cohort or age cohort or geographically that would be instructive to share with us?

[Foreign Language]

[Interpreted] There have really been no meaningful changes in demographic patterns or behavior that we've seen. And so nothing to call out.

[Foreign Language]

[Interpreted] That being said, we're seeing a lot of reports about a weaker Gen Z consumer, and some of our best-performing restaurants rely on university or college traffic. And so we're keeping a very close eye on those units.

[Foreign Language]

[Interpreted] But we're not seeing anything that would cause concern for us at this point.

Great. And then, Ben, I'll give you a chance for the commercial here. I know, it will give us a forward look and a tease for the -- some upcoming IP partnerships that you might want to share. I didn't know if -- other than Kirby, if there was anything else you wanted to highlight coming in the next 2 or 3 partnerships?

Yes. The next one that we have is Sanrio. We're working with a couple of characters from that Sanrio universe that we've deliberately chosen. I won't spoil it for the marketing team. I'll let them unwrap that present. But I'm really excited about that, not just because I think those characters are probably the strongest properties, we could pick among the Sanrio stable, but also this is going to be a shorter period, a 1-month campaign instead of a 2-month campaign. And so it's another opportunity for us to explore how these differences can affect the response that we see from our guests.

Okay. And then Kirby following that, was that the cadence of the first 3 that you talked about last quarter?

Kirby is actually the next one. And so we entered the year, Demon Slayer. We -- we're in one piece now with Kirby coming up in December, January and then February will be Sanrio.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Kura Sushi USA Inc. Fiscal Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and CEO; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President of Investor Relations and System Development. And now I would like to turn the call over to Mr. Porten.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal third quarter 2025 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP and the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I would like to turn the call over to Jimmy.

Thanks, Ben, and thank you to everyone for joining us today. The last quarter has been a busy one for us between loading up the new reservation system, instigating new market opportunities and building out our IP pipeline and strategizing on how to get most out of our collaborations. We completed a system-wide rollout of the reservation system ahead of schedule. We made a meaningful progress on building a different pipeline. The leverage is the opportunities demonstrated by [indiscernible] and have built our busiest marketing calendar yet for the upcoming fiscal year. I'm extremely pleased with the results on all 3 fronts and very proud of the efforts by our team members to maximize ourselves and set ourselves up for a great fiscal '26.

Total sales for the fiscal third quarter was $74 million, representing comparable sales growth of negative 2.1% with price and the mix of 0.8%, offset by negative traffic of 2.9%. We are pleased that we see the business moving in the right direction with sequential improvement in comp performance each month of the quarter. Cost of goods sold as a percentage of sales were 28.3%, representing an improvement of 90 basis points over the prior year quarter, 29.3% due to pricing and ongoing effort by a supply chain team. Labor as a percentage of sales increased by 50 basis points due to high single-digit rate inflation, partially offset by pricing and incremental operational efficiencies. Restaurant level operating profit margin was 18.2% as compared to 20% in the prior year due to higher lever occupancy and other costs.

During the third quarter, we opened 3 new restaurants, North Scottsdale Arizona, Lynnwood, Washington State and the [indiscernible], Texas. Subsequent to quarter end, we opened 2 more units, one in [indiscernible] Texas and one in Fredrik City, Utah. We are very pleased with the [indiscernible] 2025 with many of our referral openings exceeding our expectations. Lynnwood during our top 5 restaurants shortly after opening, underscoring a tremendous opportunity we see in the Pacific Northwest.

At the beginning of the fiscal year, we provided unit development guidance of 14 new reference which we achieved with last week for [indiscernible] opening. I'll leave it to Jeff to share our thoughts on guidance for the remainder of the year, but I will mention that we have currently 5 units under construction. Over the last several calls, we have been discussing the opportunity in smaller DMAs as demonstrated by the success of this year opening in Bakersfield, California and has greater optionality created by these smaller markets can not only expand our white space potential, but also saves as a functional competitive win by reducing the number of openings in markets that can cannibalize ourselves.

We have mentioned that we hope to get back to a 50-50 split between new and existing markets by fiscal 2027 as that being harder to work developing previously and export DMAs like Des Moines, each month and [indiscernible]. I'm very plus to say that we now have properties under negotiation at each of these markets.

Turning to marketing. We have 78 IP collaborations lined up for fiscal 2026, which as we mentioned in the previous call, is a record for us. Fiscal 2026, we have no interruptions between IP campaigns, and we're redoing this fiscal year, which included a 4 to 5 month stretch without IP cooperations. We have a renewed appreciation for the roles that collaborations play in our sales and have made investments to better utilize this opportunity that is unique to Kura. [indiscernible] into creating a new role in our marketing team, which will be fully dedicated to researching and negotiating with the new license. We have also established an intellectual property committee to facilitate the development of longer term strategy related to our IP collaborations.

For growth, I'd like to provide an update on our system development efforts. While we had originally expected to complete the implementation of the reservation system by the end of the fiscal year, we were able to roll out reservations across all restaurants by a region. The response from guests and the team members have been uniformly positive. While it's too early for us to quantify the impact of the reservation system, we believe we have great potential by the comp driver and have identified system improvement opportunities, which we believe could drive operational efficiencies as well. Although the implementation of these improvements will take some time, we're pleased with a strong start and we look forward to being able to share more quantified expectations in future course regarding potential traffic lift and labor improvement through the reservation system.

As a final note, I'm pleased that you also announced the introduction of our new night life option, which will give guests even more control of how they experience Kura by introducing the option to order fish with smaller portion of rice. The third quarter was a very busy for us, and it's exciting that you see so many of our initiatives come online or cross the finish line. All our team members, both at our reference and our chief support center have been doing incredible work to make this happen. Thank you, everyone. I'll hand it over to Jeff to discuss our financial results and liquidity.

Thank you, Jimmy. For the third quarter, total sales were $74 million as compared to $63.1 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was negative 2.1%, with traffic at negative 2.9% and price and mix positive 0.8%. Effective pricing for the quarter was 4.3%. On June 1, we took a 1% menu price increase and after lapping prior year increases, our effective price for the fourth quarter will be 3.5%. Comparable sales in our West Coast market were flat and comparable sales in our Southwest market were negative 2.5%.

As we've been discussing for the last several months, we were looking forward to our third quarter, where our comp comparison eased and that optimism was met with an encouraging sequential monthly results, as Jimmy mentioned earlier.

Turning now to costs. Food and beverage costs as a percentage of sales were 28.3% compared to 29.2% in the prior year quarter, largely due to pricing and supply chain initiatives. We continue to be fortunate that tariffs have not caused a meaningful negative impact to our food and beverage costs, and we are continuing to work with our suppliers to minimize any future impacts. Labor and related costs as a percentage of sales were 33.1% as compared to 32.6% in the prior year quarter. This increase was largely due to wage inflation partially offset by pricing and operational efficiencies. Occupancy and related expenses as a percentage of sales were 7.5% compared to the prior year quarter's 6.8% due to sales deleverage. Depreciation and amortization expenses as a percentage of sales were 4.7% as compared to the prior year quarter's 5%. Other costs as a percentage of sales were 14.7% as compared to the prior year quarter's 14.1% due to sales deleverage.

General and administrative expenses as a percentage of sales were 11.8% as compared to 14% in the prior year quarter due to sales leverage lower public company costs as we lapped the first year of 404(b) SOX compliance and lower litigation-related costs. In just a moment, I will be discussing our updated guidance for our full year G&A expense. Operating loss was $162,000 compared to operating loss of $1.2 million in the prior year quarter due to the lower G&A expenses discussed previously. Income tax expense was $55,000 compared to $60,000 in the prior year quarter. Net income was $565,000 or $0.05 per share compared to a net loss of $558,000 or negative $0.05 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 18.2% compared to 20% in the prior year quarter, largely due to sales deleveraging, increased labor expense and higher other costs.

Adjusted EBITDA was $5.4 million as compared to $4.5 million in the prior year quarter. We're particularly pleased of being able to increase our adjusted EBITDA by 20% even with higher restaurant operating costs.

Turning now to our cash and investments. At the end of the fiscal third quarter, we had $93 million in cash, cash equivalents and investments and no debt. And then lastly, I am pleased to update our guidance for the full fiscal year 2025. We expect total sales to be approximately $281 million. We expect to open 15 new units maintaining an annual unit growth rate above 20% with average net capital expenditures per unit of approximately $2.5 million. We now expect general and administrative expenses as a percentage of sales to be below 13%, exclusive of any legal settlements. And now I will turn it back over to Jimmy.

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions.

As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.

[Operator Instructions]

Our first question comes from the line of Jeremy Hamblin with Craig-Hallum.

Congrats on the strong results. I wanted to see if we might be able to dive in a little bit to the commentary around the new reservation system initiative and kind of -- the timing of that, along with the timing of bringing your latest IP collaboration back kind of lends itself, I wanted to see if you might unpack the same-store sales trends, cadence during the quarter a little bit more for us to get a sense for how May performed as you brought that IP collab back versus the first 2 months of the quarter. And then a sense for -- you had a pretty big raise in your sales guidance for the year, how things have started out here in June.

Yes. Jeremy, this is Ben. Thanks for the question. Great to hear from you. We're really happy with the reservation system. As Jimmy mentioned, we did see sequential improvement throughout the quarter with each month being better than the last through March, April and May. We began rollout of the reservation system in late February, but I'd say like it really began in earnest in April and we were largely done by May. And so you can sort of see that benefit rolling along as well. And we began the PDUS campaign in very late April and had it running through May and June. And that the 2 of those combined has been really one of the big reasons that we're so happy with how the last quarter shook out.

One other thing to keep in mind is that the reservation system, just given that we've been -- the rollout has overlapped with the time-limited things like the Peanuts campaign and now the Hollow Live campaign. We haven't had dedicated advertisements just for the reservation system and the the messaging that we have done is largely focused just towards our rewards numbers. And so we're very pleased to see the results that we're seeing right now and believe that there is additional upside as we communicate this further to our tests.

Jimmy, I have a comment about questions for comp sales, but [indiscernible] speaking in Japanese. Ben is going to translate.

[Foreign Language]

[Interpreted] Going back to the monthly cadence that we've seen in Q3, may coincided with the introduction of our first IP campaigns really 4, 5 months and that is also when our comps turned positive. And so it was really great to see not just positive comps -- positive traffic as well as May. And we have those IP collaborations continuing through the current quarter and we're very pleased with how the current quarter is performed as well.

And then, Jeremy, on your last question about the guidance raise to $281 million. Last quarter, we were pretty certain that we would be close to there as well, but we've been really gun shy about raising our guidance too early just based on what happened last year about this time. This wasn't a great call for us in July last year. So we wanted to be certain that we felt really good about that before we told everybody that we thought we were going to be higher than our previous range of $275 million to $279 million.

Totally understandable, especially when you guys were reporting in early April. Just 1 follow-up question. I wanted to ask on labor. And so you had about 50 basis points of deleverage in the quarter. Obviously, the negative comp doesn't help on that. But I wanted to get a sense for where your what your wage rates are on a year-over-year basis currently? And then in terms of looking at Q4, where you would need to comp to see a positive leverage on that labor line item?

[Foreign Language]

[Interpreted] For Q4, our expectation is that we'll see mid- to low single-digit labor inflation, which would be an improvement from what we've seen in Q2 and Q3.

[Foreign Language]

[Interpreted] It goes without saying then a positive comp makes it easier to lever labor year-over-year. And without giving really any commentary on quarter-to-date comps, we're very pleased with how the quarter is progressing -- and sorry, go ahead, Jimmy.

[Foreign Language]

[Interpreted] One thing that we've been seeing unfold over the last couple of months is all the initiatives that we've been working on over the last year and really going as far back into last year, with the operational streamlining. And then this was supplemented by the new Mr. Fresh, the new touch panels and the reservation system. Do you see the benefit of those labor initiatives trend along with sales leverage. And we're seeing really everything blossom now. And so that's been a real pleasure to watch.

Best wishes for the remainder of the year.

And our next question comes from the line of Jeff Bernstein with Barclays.

Great. A couple of questions. The first one, just going to clarify your comments on the tariff implications. It seems like you guys report shortly after tariff discussions. So I know last quarter, there was tariff rollout kind of right before you guys reported. And then I know there's been some Japan headlines around tariffs just in the past day or two, so I know it's difficult for you, but it sounds like you're fairly confident that there's no material impact. I'm just wondering if you could share any incremental color, especially now that we do have some specifics in terms of at least what's tariffs related to Japan. So any color you could provide in terms of the impact on the cost structure or any pricing you might take would be very helpful. And then I have a follow-up.

Sure, Jeff, this is Jeff. We knew this question was coming. So to be honest, I prerecorded last week -- late last week, and that's the tariff are commentary in there was related to last week. Obviously, this new news came out yesterday. So -- but what I can tell you is while there's -- we don't -- just because I spend 24 hours, I don't have a monetary impact yet based on the projected tariff. But I can tell you that about 45% of our basket comes from Japan, Korea and Vietnam. And so we'll be able to calculate an impact later.

As I mentioned in previous calls, our Japanese suppliers have been very eager to sit with us and say, look, we'll share some of this impact. We don't know if that's 50-50, 60-40. We don't know those numbers yet. As soon as we get clarity on those numbers, and we'll be able to calculate more of a monetary impact of what it might do to our COGS, and we'll be able to share that at a future conference or in a future call. We also are hopeful that 25% is not the final number. As you know, these things have bounced around. Trump uses these things as leverage, a lot of times as we know. And where it ends up by August 1, we will see, but we're in a good place in our COGS number right now in the low 28s. And if we do have an impact, we feel pretty good about the fact that, that impact shouldn't throw us north of 30, even if it were really high. So it's a -- we're in a much better place than that our cost of goods sold, let's say, at 30.5 or 31. So we're optimistic about what's going to happen over the next 3 to 4 weeks in terms of the negotiations, and we'll be able to have further color the next time we get in front of investors.

Understood. And then just on the restaurant margin. I know in past quarters you've talked about your, I guess, longer-term confidence sustaining the 20% plus, and I think you had been confident in achieving that in fiscal '25. Though it looks like we're running more in the 17% to 18% range year-to-date. So I'm assuming it's going to be difficult to get to 20% in fiscal '25. I know you guys don't chase the margin, but I'm just wondering your perspective on the outlook for the margin in the fourth quarter and/or whether or not fiscal '26 in a more normalized environment, you'd be confident to suggest we could be back north of 20% again.

[Foreign Language]

[Interpreted] Speaking to the current year, we're already more than 9 months into fiscal '25 and with the quarter-to-date -- I'm sorry, the year-to-date number, bringing that to a 20%-plus number is difficult. But we don't think there's anything that has structurally changed out our margins. And absolutely, 20% plus is our target for fiscal '26.

[Foreign Language]

[Interpreted] Looking at fiscal '26, we're feeling very good about our position as it relates to comps, we're lapping fiscal '25, which had a 4 to 5 month stretch without IP campaigns. And next year, we have the most IP campaigns we've ever had. We also have the reservation for the full year. And so we -- just coming into the year, we're in a very strong position and we see no reason that we wouldn't be able to achieve positive comps and had that flow through to a 20%-plus threshold over operating cost margin.

[Foreign Language]

[Interpreted] With positive comps, that would naturally allow us better leverage on labor occupancy other costs, depreciation and that would drive our margin expansion or really a return to [indiscernible].

Got it. If I could just slip one more in. Jeff, I know you like to talk about the G&A leverage, which lowering your target for this fiscal year, obviously, very impressive. I'm just wondering that further reduction. Any color you can share in terms of the biggest buckets of these incremental savings and whether or not you think -- I know you took long term about being sub-10%, but should we continue assuming a path trajectory the way we've been seeing recently in terms of how we should think about fiscal '26 versus that sub 13% in fiscal '25.

Yes. The biggest basket is really headcount. And team and leadership in the support center and in field operations has done a really good job of figuring out how to better allocate work to everybody rather than just adding people when things get backed up. So it's really been a group effort, and salaries is the biggest piece of that G&A. So with everybody's focus, that's how we were able to get there. Now that leverage that we got this year was much higher than I expected, clearly, with the guidance raised from where we were at the beginning of the year in the mid-13s. So going forward, I do expect additional leverage. In the past, I think I had said the 50 to 60 basis points a year.

Next year, honestly, Jeff, I don't know if it will be quite that high just because of how much we got this year. I do expect leverage next year, but maybe not to that 50 to 60 basis point. But I do believe that in the future years, we might be able to get back there after we get through fiscal '26.

And our next question comes from the line of Andrew Charles with TD Cowen.

This is Zack Ogden on for Andrew. Just based on our math, it looks like the new store productivity has improved so far in 2025 relative to 2024. So are you seeing the class of 2025 opening stronger than the class of 2024? And if so, what's that driven by?

[Foreign Language]

[Interpreted] Yes, fiscal '25 is certainly stronger than fiscal '24. It's one of the strongest classes we've had in recent memory, we're really, really pleased. A big part of that would be our opening up of the Pacific Northwest, as Jimmy mentioned in his prepared remarks, Lynnwood pretty much immediately entered our top 5. And so that's been a great tailwind for us.

[Foreign Language]

[Interpreted] And besides building out one of the most promising markets that we've had, we've also been exploring new DMAs. So Fishers in Indiana would be an example. Bakersfield is another example that we've returned to over the past couple of earnings calls, but all of them are doing very well. And what's critical about Fishers and Bakersfield is that they provide data points for us in terms of our pipeline building in the future gives us that much more optionality in terms of how we build our pipeline. And that's really going to be the biggest part of us getting back to a 50-50 split for fiscal '27 and so we're very pleased across the board with the performance, not just in infilling existing markets where we knew that we do well, but having positive surprises in new markets as well.

Got it. And then just last call, you had called out a $300,000 to $400,000 impact to new store build costs from tariffs. Has that expectation changed at all since the last call based on the different tariff rates?

No, that $300,000 to $400,000 is still our expectation at worst-case scenario, given the comp tariff situation.

And our next question comes from the line of Todd Brooks with The Benchmark Company.

Congratulations on the results this quarter. Great to see. Two quick questions. One following up on reservation. I know we're a little ways away from getting quantifiable data. But just from what you're seeing in the early experience with the platforms in place, are you seeing those larger boosts around lunch and maybe late night kind of those -- where you knew you had capacity if you could unlock it with the surety of being able to get a seat. And then another follow-up on the reservation side. I know that we've really, I think, just started promoting it to loyalty program members recently. Thoughts on the ability to take it to non-loyalty and message it more broadly and draw some new people to the brand to try the restaurant. Or do we need to leg into that just to handle the capacity that we'd get in a pickup from loyalty program members alone?

No, absolutely. To answer your second question first, that is absolutely the next thing that's on the docket for us. Right now, our guests have been organically discovering it -- I'm sorry, our rewards members have been organically discovering it as reservation button is exactly where the old waitlist button was. And so there's really no change to the guest flow and people discover pretty naturally. Otherwise, it's been secondary messaging in our marketing e-mails. But we do believe that this is a massive massive catalyst for rewards member registrations. And so certainly, we want to capture that.

In terms of what we've seen in the early days, just given that our last restaurant rolled out in mid-June, I don't want to see any numbers that you're going to be basing your modeling off. But 1 really important point that we've been able to cooperate for statistical analysis is that half of our -- or half -- more than half of our debt with reservations are being ceded within 2 minutes of arrival, which -- I mean, that's night and day from what guest were used to. And so I can get a pretty clear idea of the massive opportunity there is here.

That's fantastic. And then a final question, and I'll jump back in queue. You've talked about the IP partnership and the strength that you're seeing and the coverage that you're seeing. I think there was a comment that you'll be covered for all the weeks of fiscal '26 versus being dark on IP partnerships for 4 to 5 months here in fiscal '25. I know we're not going to get details on what's making up the pipeline. But can you talk qualitatively about the quality of the pipeline and maybe the magnitude of the partners? Because it sounds like there's that much more internal effort against it as well with the new committee and just really a focus on extracting more return out of these efforts?

Yes. I mean, speaking in terms of -- if you just look at our pipeline from past years, it's pretty clear that the properties just get bigger and better every year. I think 1 thing that's really key to our new strategy is that while we have been able to get consistently bigger partners, they haven't necessarily translated to bigger sales. And just by having more partnerships per year that gives us more at [indiscernible], that many more opportunities to discover really what's going to be successful. Let's build our portfolio based off of that. And so the upcoming several campaigns that we have are Demon Slayer and One Piece, which are 2 of the best -- two of the best properties we've partnered with. Following that, we have Kirby, which is the biggest Nintendo property that we've ever partnered with. We're very pleased that the new -- the renewed focus on the IP collaborations, I think, is going to be a very key part of our discussions as it relates to fiscal '26. We're being a little bit more experimental.

So for instance, with the current alliance -- we don't have associated bigger upon giveaways, but it's still been a massive traffic driver because of the intensity of the fandom. So we've got these cups for sale and we have food collaborations, but that's still been a very meaningful traffic driver. And having these campaigns without -- that are relatively sort of investment light, lets us be out much more experimental, let's us have that any more campaigns per year, which will get us closer to that ideal portfolio that much faster.

And our next question comes from the line of Mark Smith with Lake Street Capital.

Just as we look at restaurant level expenses here, I just wanted to dig in on other costs, is this purely utilities or other things that drove that a little bit higher here during the quarter?

[Foreign Language] p

[Interpreted] In terms of what's really the major components of are other costs growing as compared to, say, a couple of years ago. It's really just minor growth across the board. So slight increases in R&M cost slight increases in utilities. Really, the way that we think about it is the other cost numbers for Q2 were abnormally low. And so you can sort of take the 14.7% we had for Q3 as a bounce back. Year-to-date, our other costs as a percentage of sales is 14.3%, which is exactly where it was for the full year fiscal '24. We think that 14-ish percent is where we're going to be running for the foreseeable future.

Perfect. And then just similar as we think about G&A, I know that, Jeff, you just talked a little bit about kind of people and salaries and things that are in there. It's great seeing that guidance come down. Has there been -- have there been cuts? Or are you continuing to add people. I'd just love more insight into kind of how you're managing G&A and if it's purposeful kind of keeping the belt tight? Or if it's just kind of the sales growth that's keeping that down and relating to the guidance that we saw here today?

It's purposeful, keeping it down. We -- it's not due to cuts. We have not cut people, and we do not plan to cut people. This is more of slowing down the hiring. And I think it's a change in mindset. We several years ago, maybe we're a little quick to hire people when things got a little rough and rather than thinking about alternative ways to do things, how we allocate work how we can see who has some bandwidth to take on some more things. And everybody has done just a good job of doing that. So when there is a new hire request, it gets a lot more scrutiny now than when I first started with the company. And people are just thinking about different ways of doing things and the approval process for new hires goes through a lot more people than previously. And I challenge it quite a bit as a financial officer.

To give a good example, when I joined the company, we were able to cut the number of requested new hires in the budget in half or more than one half. I was like from like 21 requested new hires, I think we went down to 6 or 7 and that was 3 years ago, and it's worked out. So with that change in mindset, I think that it's the way that we will be doing things in the foreseeable future, which is why I'm very optimistic about that. And north of 300 basis points of leverage over 3 years is something that we are very proud of as a management team.

Excellent. And if I can squeeze in one more. As we think about the success as you moved into maybe some smaller markets, does that change your outlook on kind of your total pipeline and how many units do you think you can build across the U.S. over time?

[Foreign Language]

[Interpreted] Of course. We're happy for you to fill in whatever that number you think will be.

Our next question comes from the line of Jon Tower with Citi.

Maybe, Jeff, following up to the comment you made earlier on tariffs and the idea of COGS, maybe moving north of 30% or maybe not hitting north of 30%. So I guess the implication there is that you guys would absorb all the impact of any sort of tariffs rolling through, even if you're negotiating with your suppliers there? Like -- or better said, you're not going to necessarily take pricing to offset the impact of tariffs on COGS. Is that the best way to interpret that?

Well, we would take on the portion that we agreed to with the vendors, we wherever that ends up in was 50-50 or whatever. Yes, pricing is the last resort. But I will tell you that our effective pricing in November goes down to 1%. So when that happens, we do have some pricing power if we need to do that, but we want to leave that as a last option. Certainly, but we could do that. We're just hopeful that the 25% number that's currently out there will end up being much lower. And that's where -- what the hope is going to be. And again, it's been 24 hours. And I think as Jeff Bernstein said earlier, unfortunately, we get to deal with these things within a day or 2 after they happen on the last 2 calls. So we will have more color on this as we get further in, but that's our current thought process.

And just to add on that, as it relates to COGS, I think we have a massive opportunity in fiscal '26 through the light rice program that Jimmy had mentioned. I had the opportunity to try for the first time last week. And typically, I'll talk about it 5 or 6 plates. I ate at least 10 plates without thinking about it. And I'm sure that there are going to be tons of other guests that are just as enthusiastic about this. And so if we can really -- Yes -- get what we expect from the light rice, that's a big lever for us for fiscal '26. And as Jeff mentioned, we want to pull every other lever before we pull pricing.

Got it. And can you just speak to what that light rice is? I just haven't heard of it before.

Yes. So it's for most of our Nigri options, when you order on the touch panel, you'll have an option like regular rice or light rice and the light rice is just -- it's a smaller portion of rice.

Okay. So lower COGS -- so the same price point, lower COGS?

Lower COGS, but also -- it's not as filling. And so I ate twice as much as I usually do, when I was choosing light rice options.

Okay. And then just on -- I know fiscal '27, you're pointing to getting back to a 50-50 split on new versus emerging markets -- or excuse me, new versus existing markets. Can you speak to that number for new stores in '26 -- I'm sorry, if I misspoke, I meant '27, you're talking about new stores, 50-50. What that looks like in '26? And then are you still anticipating, I think, roughly a 4% or so cannibalization number dragging on the business next year?

[Foreign Language]

[Interpreted] In terms of our expectations for fiscal '26, we're looking at a pipeline where it's going to be about 70% existing markets, 30% new. In terms of the impact of the existing -- the new units in existing markets, we think it's going to be largely in line with the 400 basis point headwind that we saw in fiscal '25 and '24.

[Foreign Language]

[Interpreted] And then as it relates to fiscal '27, we expect to continue to maintain that 20% unit growth. We do think we'll be able to get back to that 50-50, which would naturally just cut that contact wind at half.

Okay. And then just last piece for me. In terms of -- it's great to hear the IP collaboration stepping up next year, and it sounds like you're going to be on pretty much all year throughout the year in fiscal '26. In the past, I think you've kind of had some hit or misses when it comes to some of the IP tie-in. So can you speak to your confidence or how you're approaching it differently this time to ensure that the hit rates are higher than perhaps past initiatives or past IP tie-ins that you've had?

Yes. Well, I think the biggest frustration in the past was really sort of opportunity cost where if you had a miss, it wasn't just that you had a miss. You had a miss that was eating up 2 months of your calendar that could be better spent with a better collaboration. And just by having 7 to 8, which is meaningfully more than we've had this year and it's the most that we've had of any year, we get that many more tries, so to speak, to find what the successful ones are and based off of those successes, we know what to repeat in future years.

Got it. So it's effectively just frankly, sprinkling in more throughout the year. So you have a better idea of what works and what you can repeat. Thanks for taking the questions.

Our next question comes from the line of Jim Sanderson with Northcoast Research.

Congratulations on great quarter. I wanted to talk a little bit more about the mix component of same-store sales. How you expect that to progress going forward if that's related to how you're rolling out collaborations and how we should look at that as you roll off pricing in November?

[Foreign Language]

[Interpreted] We're very excited to see where we can bring mix in fiscal '26. So over the last couple of years, our mix has gone from negative high single digits to hovering between negative low single digits to mid-single digits. Part of that from this fiscal year be the headwind from the -- the lack of IP collaborations. We have -- typically, with every IP collaboration, we'll have a giveaway that's associated with a certain spending threshold typically $70 or so or most the giveaway campaign that we have for HolloLive was actually at a higher dollar threshold because we saw there's that much guest interest for it. And so that naturally drives average ticket the light rice, we think is a big opportunity in terms of average check growth. I fully -- my personal expectation is that this will grow the number of plates per person. And I think that's really an opportunity that we're going to be leading into.

The other is the 25th plate initiative. We're really pleased with the early results. What we have seen is pretty much exactly what we expected is minor pressure on transactions above 30 plates, but more than enough growth in the 25 plate plus category to offset that. And so we're really happy to see that.

All right. Just wanted to talk a little bit more about the res system as it's related to membership levels, have you seen any notable increase in membership in the fourth quarter? Or could you update us on where that membership rate is?

So membership rates are -- the growth rate is pretty much the same as past quarters. And a big part of that is we haven't communicated a reservation system to non-Rewards members yet. And so I expect in November, I'll be able to give you the answer you're looking for.

Very good. Last question for me. Could you just update us on the various technology initiatives you've got in process. I think you've got the res system you're just finishing. I think you've got some point-of-sale issues to resolve. And then there's the robotic dishwasher, is there anything else out there that could have an impact, good or bad on operations going forward?

[Foreign Language]

[Interpreted] Yes. One of the biggest things that we're excited for fiscal '26 would be the dish robot, our strong hope was to get it live in fiscal '25, but I'm not sure if we'll be able to do that, but it really does seem like we'll be able to get certification within a matter of months. The units that we're building in fiscal '26 are built from the blueprint stage, assuming the eventual installation of these robots. And so that's going to be a very meaningful opportunity should reduce headcount fully 2 to 1.

[Foreign Language]

[Interpreted] And then while the reservation system is at each of our restaurants, we still see lots of opportunity for improvement, especially as it relates to employee efficiency. We have -- we've got a list of about 70 different things that we're working on as it relates to the reservation system. And that, we think, is going to have a pretty meaningful upside opportunities as it relates to front of house efficiencies.

And our next question comes from the line of George Kelly with ROTH Capital Partners.

First, most of them have been asked and answered. But just a quick follow-up on the prior question. Can you be any more specific about the efficiency opportunity that you see available in 2026 from reservations.

Yes. So just as a couple -- as a couple of examples, the seating process is meaningfully simplified before when the seater or the host who was seating a guest, they had to enter information on 3 different terminals, and we've cut that labor by 2/3. So there's only 1 terminal that are touching in the process itself is simplified. One unexpected efficiency opportunity that we've seen is in [indiscernible] and this really -- this hasn't occurred to me until you've actually seen this happen in the restaurants once we've implemented it, but there's an element of psychological pressure when you have reservation times, which was promised to somebody. Before we did it on a wait list and so you need like parties 26, 27, 28 were rating. And that's a different feeling from being at 07:30, knowing that there are 3 parties that you promised to seat them at 07:00 are waiting for you. And so the busters are actually moving more quickly. And so that's opportunity, especially in the peak hours. And so I'm excited to see just how much we can get out of that.

Okay. That's helpful. And then second question for me. Back to the light rice. Ben, you sound confident about either what you're seeing or what -- sort of how you expect the reception you expect to get from that? Can you just give us a little more background on like why you have that level of confidence about the sort of plate opportunity and maybe it's been tested at certain locations and when do you expect it to fully roll out? So just, I guess, added context of that would be great.

[Foreign Language]

[Interpreted] The biggest thing that gives us confidence is that this is something that Kura's already been doing for years. And when they implemented this, they did see mix improvement, they did see ticket growth. We were able to implement this now because of the update to the new touch panel system, which gives us much more flexibility. And so just looking at the results from Japan business, a lot of confidence. What I was speaking earlier was really just from my personal experience, I really loved it. I would strongly encourage you to try it and I think you'll feel as confident -- you'll understand my confidence once you try it that there really is a very big opportunity there.

We've already got the said about 50 of our restaurants and Yes, I'm really happy that we have this -- it's really something that our guests have been asking for, for a long time, whether it's explicitly in the guest surveys or just in the piles of untouched rice that we see in our restaurants. And so this is something that our guests have been asking for. And I think we've been doing a really good job in fiscal '25 just checking 1 issue after another in terms of points of friction for our guests.

[Foreign Language]

[Interpreted] So just to give you some additional context in classic Kura speed style. We implemented this in our first restaurant about 10 days ago. We now have it in 50 restaurants. And so that speaks to our enthusiasm. But as you can imagine, we don't have a lot of data that we can share with you yet.

And our final question comes from the line of Matt Curtis with William Blair.

I apologize if I missed this in your commentary, but could you just give us the average ticket breakdown in the quarter between price and mix?

[Foreign Language]

[Interpreted] Price fix cumulatively was positive 0.8% and effective price was 4.3%. So mix was negative 3.5%.

[Foreign Language]

[Foreign Language] And as we mentioned earlier, mix has been hovering around the negative high single digits for a very long time. We're really pleased to see it stabilize in this low to mid-single-digit range. With the initiatives that we have, like the light rice, the 25th plates, IP collaborations and giveaways, we're really excited to further drive that down, and we think there's even a possibility that we'll be able to see a positive number at some point.

Okay. Great. And then I know the addition of light rice is really recent. But just to be clear, could you tell us what the per plate consumption trends were like throughout the quarter?

[Foreign Language]

[Interpreted] sorry. So the -- this was implemented after Q3, and so it wouldn't have any -- have had any impact on the plate per person consumption in the prior quarter.

Yes, but I meant what were the actual per plate consumption trends during the quarter relative to, say, the second quarter.

So for the last several years, it's been approximately 6 per person.

Thank you. With that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.