Kura Sushi USA Inc - Ordinary Shares - Class A Aktie

Good afternoon. Ladies and gentlemen, thank you for standing by. Welcome to the Kura Sushi USA Incorporated Fiscal Third Quarter 2026 Earnings Conference Call. At this time, participants have been placed in a listen-only mode and the lines will be open for your questions following the presentation. Please note that this call is being recorded. On the line today, we have Pajama Jimmy Uba, President and Chief Executive Officer, and Benjamin Porton, SVP Investor Relations and System Development,.

And now I would like to turn the call over to Mr. Porter, Horton. Thank you, Operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal third quarter 2026 earnings release. It can be found at www.kurosushi.com in the Investor Relations section. A copy of the earnings release is also being included in the Medicaid resubmitted to the 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 any 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 is a substitute for results for pregnant accordance with GAP. And the reconciliations to comparable GAP measures are available in earnings release.

that out of the way, I would like to turn the call over to Jimmy. Thanks, Ben, and thank you to everyone who's joining us on our call today. During the fiscal third quarter, we were able to make significant progress towards our goals of sustainable margin improvement and returning to our historical 20% restaurant-level operating profit margins regardless of tariff relief. Despite our cost of goods sold as a percentage of sales being 200 basis points higher than last year due to tariffs, International discipline allowed us to more than offset this impact and improve our restaurant-level operating profit margin by 90 basis points over the prior year to 19.1%. We were also able to improve adjusted EBITDA margins by 40 basis points to 7.7% and grew our adjusted EBITDA dollars by more than 20% over the prior year. Our ability to improve profitability in a challenging environment speaks to what we do best, responding rapidly to control what we can control. Total sales for the fiscal third quarter were $85.9 million, representing comparable sales of negative 0.4% with negative 5.1% of traffic. by a positive 4.7% in price on the mix.

Effective pricing for the quarter was 4.5%. During our last earnings call, we mentioned that Nix being close to flat at negative 0.2% was the best flow-through in pricing that we had ever seen. makes actually saw further improvement in the third quarter with average get growth exceeding effective pricing. pricing, we left 1% as of June 1st, which we offset with 1% pricing on July 1st. our effective pricing for fiscal fourth quarter, 4.2%. Cost of the sold as a percentage of sales was 30.2% as compared to 28.3% in the prior year quarter due to the impact of tariffs. While co-ops remain meaningfully higher than historical levels, pleased with the progress of our vendor negotiations and cost management efforts, which resulted in a sequential improvement of 20 basis points over Q2. Our full-year COX expectations as a percentage of sales remain approximately 30%. Labor as a percentage of sales improved by 250 basis points to 30.6% due to operational At the beginning of the fiscal year, we had shared an expectation to level labor costs by 100 basis points over fiscal 2025's full-year labor costs of 32.9%. I'm very proud to share that as of the end of our third quarter, we've been able to drive down our year-to-date labor costs as a percentage of sales to 31.2%.

It now looks like we are going to land in the neighborhood of 200 basis points of improvement on our labor line. Turning to unit development, we opened seven new restaurants in the third quarter. Orange, Union City, Temecula, and San Diego in California. Goodyear, Arizona, Wellington, Florida, and Denton, Texas. Subsequent to quarter end, we opened restaurants in Tulsa, Oklahoma. Sunset Valley, Texas, and Charlotte, North Carolina, bringing us to 15 new unit openings to date. While we continue to expect to open 16 new restaurants for this fiscal year, We have unfortunately faced significant unexpected delays for a number of restaurant openings in both Q3 and Q4 and the loss of approximately six revenue months impacted our revenue expectations for the year, which we will discuss shortly.

These delays occurred following the April earnings call across different geographies and for different reasons, and for many unrelated delays to coincide with one another is highly unusual. Our marketing team has been hard at work building our IP pipeline for fiscal 27. which is shaping up to be one of our strongest ever. Following our current collaboration with Honkai Star Rail, of a collaboration with Atlus's persona. In June, Star Wars officially announced the release of the much-awaited Persona 6, making the end of a decade-long wait for fans since 2016's Persona 5. In September and October, we are partnering with Apostle Study Diaries, coinciding with the release of the anime's latest season. I'm extremely excited to announce that November marks our third collaboration with Nintendo. Our IP campaign for November and December is Yoshi, to celebrate the recently released Yoshi and the Mysterious Book for the Nintendo Switch 2.

In other marketing news, we remain on track for our fiscal 2027 launch for our upgraded status tiered rewards program. We are also in the process of introducing optionality to our Big Carbon system. giving guests a choice between the capsule price and the free dessert voucher that can be leading to on their next visit. We believe this addition will improve guest satisfaction, encourage repeat visits, and reduce our price production costs. Development is currently underway and we hope to have updates for you at our November earnings call. Now, I'll discuss about financials and liquidity. For the third quarter, total sales were $85.9 million as compared to $74 million in the prior year period. Comparable restaurant sales growth compared to the prior year period was negative 0.4%.

It was negative 5.1% from traffic and 4.7% from press and mix. Comparable sales growth in our West Coast market was negative 1.2% and negative 2.1% in our Southwest market. Effective pricing for the quarter was 4.5%. As a reminder, beginning in the first quarter of fiscal year 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 to costs, food and beverage costs as a percentage itself was 30.2%. compared to 28.3% in the prior year quarter due to tariffs on imported ingredients. Labor and related costs as a percentage of sales were 30.6%, as compared to 33.1% in the prior year quarter due to operational efficiencies and pricing. offset by low single-digit wedge incubation. Expansion and related expenses as a percentage of sales were 7.8% compared to prior year quarters, 7.5%.

Depreciation and amortization expenses as a patented sales were 4.9% as compared to the prior year quarter's 4.7%. Other costs as a percentage of sales were 14.6% as compared to the prior year quarter's 14.7%. General and administrative expenses as a percentage of sales were 11.9%. compared to 11.8% in the prior year quarter. Operating loss was $39,000. operating loss of $162,000 in the prior year quarter. Income tax expense was $49,000. compared to $65,000 in the prior year quarter. Net income was $423,000, over 3 cents per share. compared to net income of $565,000, or $0.05 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.1%. compared to 18.2% in the prior year quarter.

Adjacent EBITDA was $6.6 million as compared to $5.4 million in the prior year quarter. And at the end of the fiscal third quarter, we had $66.1 million in cash equivalents and investments and no debt. Lastly, I would like to update and reiterate the following guidance for fiscal year 2026. We now expect total sales to be between $330.5 and $331.5 million. We continue to expect to open 16 new units, maintaining an annual unit growth rate above Average net capital expenditure per unit continuing to approximate $2.5 million. We continue to expect G&A expenses as a part of the sales to be approximately 12% expected excluding litigation expense. And we now expect clear S-run level operating profit margins to be approximately 18.5%.

Before we open the call to Q&A, I want to conclude my prepared remarks by acknowledging our team whose execution during the quarter was excellent despite our challenging top This is best showcased in our improved guidance on the death row margin and the death row margin dollars, which are both higher than our previous expectations for the year. We remain confident in our team's ability to deliver this kind of execution going forward. I thank all of our team members for their continued efforts. This concludes our previous remarks. And I'm happy to answer any questions you have. Operator, please open the line for questions. During the Q&A session, I may answer in Japanese before my response is translated into English.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question for the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Jeremy Hamblin. with Craig Heloon.

Please proceed with your question.

Thanks for taking the questions. I thought I might start with the comp trends. Obviously, a little bit disappointing with where traffic fell down 5% in the quarter. I wanted to see if you could provide us an update on how Current quarter trends are looking how kind of June shaped up. And with the guidance range that you provided on revenues for FY26, what's the implied same store sale range that you would expect to hit those revenues? revenue figures given what you expect for unit openings the remainder of the year.

Thank you, Jeremy, for your first question. Please allow me to speak in Japanese. Bain is going to translate. First of all, we disappointed the Q3 traffic, but the main reason is, as I said in the previous call, the influence of gas prices. The gas price of Q4 is also a little cheaper, so it's a benefit, but it's also offset by the World Cup and other places. Our revenue guidance this time is a construction delay plus the macro environment for Q3, Q2, and Q4.

Hi Jeremy, this is Ben. We were certainly disappointed that traffic came in negatively as well, but we believe that this is largely due to elevated gas prices and along the lines of what we discussed in the prior earnings call. As the gas prices have eased, we're beginning to see a little bit of benefit as we've entered Q4. benefits are partially offset by how popular the World Cup is. And so the guidance that we're providing for.

the revenue contemplates the Q3 and Q4 macro background as well as the construction delays. I'd like to tell you again that we can make a positive contribution with these numbers. We've also been working on strengthening the pipeline of the IPI, the pipeline of the real estate, and food promotion.

Jeremy, as it relates to comps, we continue to be confident in our ability to deliver slightly positive comps for the full year. It's this year's been choppy, but we're very much looking forward to fiscal 27 as we've discussed in the past. The real estate pipeline is extremely promising. It's the first time that we've had a majority new market. ratio in many years, and so that'll be a catalyzation tailwind. And so that'll be a tailwind for us. The fiscal 27 IT pipeline is phenomenal. could not be happier with it. And so that should be a pretty meaningful tailwind as well.

And we have the rewards program step up coming on as we enter the new year. And so as it relates to fiscal 27, we remain, we're very bullish about where we can land for the comps.

Got you. Okay. I think it implies something more like down 3%, 4%, maybe in 2%, 4%. consistently positive with some volatility, but there's clearly been a bit more volatility over the past two years. And wanted to just understand what you think might be driving that. And then in terms of thinking about as the company is closing in on 100 locations, over you know the coming couple of quarters how should we be thinking about kind of the long-term growth algorithm for Cora know, as a concept? Is this something where you think of, you know, kind of long-term comps, you know, in the range of, let's say, low single digit, you know, positive low single digit, obviously with some variability, but, you know, color on what internally you expect and whether, you know, obviously there has been some noise in 26, but it seems as though the IP collaborations you know, have had maybe a bit of a bigger impact, you know, you know, than, you know, typical on results, of course, you got to throw in there the higher gas prices. But, you know, thoughts on those two questions.

First of all, I'd like to answer the first question. The reason why the Comp was unstable so far was because of the gap between the cadence of the IP collaboration and the gap between the IP collaboration. That's going to disappear from the main machine. The other one is the cannibalization. These two are the cadence of the IP and the cannibalization of the IP. This is a big impact. As I said before, after 2027, the impact of cannibalization will be halved. Also, as for IP, 2027, 2026, the new IP will be 7 times. 2027 will be 8 times.

We will increase the number of times and the number of rooms. We will increase the number of rooms. I think these two are quite stable. However, in order to avoid gas prices and such, we added food collaborations. We did 12 food collaborations with Sprite Zerbo, plus a short-term food collaboration every month. If there was anything negative about the macro, In terms of the things that are under control as it relates to comp, we see that really pipeline management is the.

predominant factor and that relates both to IT pipeline as well as real estate pipeline. As it relates to the IP pipeline, you know that last year we had a five-month stretch without IPs, and so that was a very visible comp impact. We've since remedied that. We have seven this year, and we're actually continuing to grow the number that we're doing every year as we know that there's maximal excitement at the beginning of every campaign. So fiscal 27th, beyond having higher quality IPs, we'll also have a total of eight IPs. We're also supplementing this by putting more energy into our food-based promotions. Our current reserves have been very successful with our deaths, and so we're increasing the frequency from nine a year to 12 a year, and these will also be supplemented by a a different type of food-based promotion that allows us to be more reactive should there be macro pressure so we can lean more into value if that were necessary. As it relates to the last two years' comps, I would also add just that this hasn't happened in a vacuum.

We're in a war now with elevated gas prices. Last year, we had the FAST Act come online, and we've got a pretty big California presence and so it's there are factors beyond our control that we feel extremely good about the factors that are in our control.

Great. All right. Well, thanks for taking my questions and best wishes.

Thank you. Our next question is from Andrew Charles with TD Cowan & Co. Please proceed with your question.

Thank you. This is Zach Ogden on for Andrew. And just have a follow up to Jeremy's first question. I know you called out the delayed openings being partly responsible for the lower revenue guidance, but can you just talk about where that down 40 basis points, same for sales for the quarter, fell relative to your expectations and then how your expectations for 4Q have changed over the last 90 years? Thank you.

. Hey, Zach, this is Ben. In terms of the negative 0.4 for comps, this was within our range of possibilities. and so it was not a surprise to us, just given the overall macro pressure and the meaningfully elevated gas prices, especially in California. In terms of our thoughts on comps over the last 90 days, they haven't really changed. We continue to believe that we can deliver positive comps for the full year.

But the delay in the restaurant is the biggest surprise.

If we are talking about surprises though, the restaurant delays are certainly the biggest surprise for us. This was not something that we had anticipated at all during the, at the time of the last call.

Got it. Okay, thank you. And then the second question is on mix. Could you just unpack what made that flip positive in the quarter? Last call, it did sound like you weren't expecting that to remain flat. So what drove mix to actually be positive and better than you were expecting? Sure.

The trend is still going on. We believe that the price has been very positive. The price has been rising by 3.5% and we are still in the first stage of the trend. Thank you.

On the note of surprises, it was a pleasant surprise at the beginning of the year when we began to see the mix turn so favorable, especially after it had been a headwind for multiple years. That was a pleasant surprise. having continued through present day and actually further accelerating in June, have led us to believe that this is not just a coincidence or luck. Our interpretation is that this is completely a result of our pricing strategy. 3.5% that we've priced up, that we took in November, meaningfully under prices our competitors. And so our guests who have been going to other sushi restaurants, they've become accustomed to paying a much higher price than they had, say, a year ago. And then they come into our restaurant with those higher price expectations. They see how much cheaper we are than meat than they expect. And so they end up spending more as a result.

And so we're seeing for growth, not just in purpose and plates, but also mix attachment and drinks as well.

I'm particularly encouraged by the improvement of the price and mix. The price and the World Cup events have affected the traffic, and we can't control that. But we can control the price and mix. Especially since June, we've been able to control the float for the World Cup, and food campaigns. We have a lot of things to control. We are facing a lot of challenges due to the influence of the macro. On the other hand, we are able to make a positive price and mix that we have never seen before.

We are very happy to be able to do this.

impact offset the time you have to go about that. So I think generally in the restaurant industry when there are macro pressures on the consumer the expectation is that people reduce frequency and so we're seeing that in traffic and you know given higher gas prices and the popularity of the World Cup this is would expect but seeing the mix grow is giving us enormous confidence just in terms of when our guests do come in they're spending more than ever before and so clearly they're they're very they're We're responding extremely well to the efforts that we've been putting in place, whether it be the Coke Flow promotions that we were running in June, our new giveaways, hand-rule campaigns. Our promotional calendar has really been packed, and seeing that mix, improvements, sustain over more than six months now gives us that much more confidence.

confidence that the competitive advantage between ourselves and the rest of the sushi industry is really, it cannot be crossed. We will continue to increase our sales. We will continue to do our best to control the cost of our products. We will continue to do our best to control the cost of our products.

We feel that we've been able to take minimal pricing because of the aggressive cost controls, and our strong hope is that as the macro environment normalizes and the World Cup is no longer a factor, our traffic returns for our price mix remains elevated. Our pricing expectations for fiscal 27 are actually to be below where we came in for fiscal 26. And so we just hope to keep compounding this advantage.

Got it. Thanks, guys. Thanks, Zach. Thank you. Our next question is from Todd Brooks with Benchmark StoneX. Please proceed with your question.

Hey, thanks for taking my questions. Just one to kind of dimensionalize the permitting delays and getting the the new units open that you've experienced and that kind of caught you by surprise. I think you framed it up maybe six months of lost unit operating time, four million AUVs. I mean, can we ballpark the revenue guy down kind of a couple million attributable to the delays and the balance, just same-store sales performance? Yes. Yes, that's a fair analysis. Okay, great, thanks. And then just looking forward, you talked about how pleasantly surprised you've been by the mixed performance the last couple quarters. I think coming into this quarter, you'd look for mix to revert.

That did not happen. Based on what you're learning here and as you're thinking about Q4, are you still assuming that you can kind of hold the hill on mix? Are you expecting in kind of the guidance horizon going forward for the balance of the fiscal year?.

mix to switch back to slightly negative? Of course, it's still in the middle of July, but there's a lot of positive changes at the point of June, and I don't think the remaining period will change much from now. But based on that, all of the revenue guidance and the slightly positive in the full year are all being included. Just given that the mix has actually improved as we've entered the quarter, we remain very optimistic. In terms of the remainder of the quarter, we really don't see a reason for trends to change. That being said, you know, anything is possible, and so that's why we, you know, that's the range of our... That's reflected in the range of our...

restaurant level market guidance as well as our expectations to have slightly positive confidence for the full year. Again, this macro is very likely to be down, but on the other hand, this plus and mix is likely to continue to follow, so it's a positive overall possibility.

So, we believe the macro situation, as every macro situation in the past, will be ultimately transitory, but we believe that the mixed flow through that we're seeing now is potentially a sustainable advantage. And so, net-net, this overall could be a very positive tailwind for us in the coming years.

Great, and then one final and I'll jump back in queue. You quickly ripped through the review of the upcoming IP Collab Schedule. I know that Honkai just recently launched. Can we just review kind of the calendar for the back of this fiscal or this last quarter of the fiscal year and then more importantly, can you quantify or maybe even quantify, qualify a product of the quality of Yoshi as a platform with Nintendo and this phenomena that it seems like you keep earning your way up into a higher tier and maybe more impactful promotions with Nintendo. Thanks.

Yes, it would be my pleasure. So after Honkai Star Rail, we have Persona, which is a role-playing game. And then in September, October, we have the Apothecary Diaries, which is a popular light novel series, which has since become a very popular anime. And then November and December, we have the Apothecary Diaries. we have Yoshi. And just Yoshi relative to Kirby, just on magnitudes of expected impact? I would say it's comparable. It's not, yes, I mean, you're asking me to choose between children. I love them both. It's hard to pick.

You can be very excited for the November call because we're extremely excited.

to share what we have for the back half of the year in terms of the IT pipeline.

Okay, perfect. Thank you both. Thanks, Todd. Thank you. Our next question is from Matt Curtis with DA Davidson. Please proceed with your question.

Hi, good afternoon. I was just wondering if we could get back to the third quarter for a minute. Could you guys describe maybe the sales impact that IT collabs had in the third quarter relative to the second quarter? And then maybe more importantly, how were the same sort of sales trends affected as you began to lap the resumption of IP collabs, which correct me if I'm wrong, I believe happened at the end of April. .

Hey Matt, this is Ben. For really any IP, our base case expectation is a low single digit contribution. When we have marquee items like Furby or Yoshi, the expectation is a mid single digit contribution. We're excited to continue to introduce more and more mid single digit contributing IPs.

As we continue. And so as it relates to Q3, we believe the IP has contributed low single digits. And part of the.

Well, part of the offset for the traffic pressure that we saw through the quarter was the success of our food collaborations. The Kerr Reserve was very meaningful in terms of not just getting people to come in, but to spend more than they have before. That's been a pretty big part of the mixed growth. And so we're very excited for the incremental benefit that we'll have next year by having extra three of these. Okay, thanks.

And then a different topic. I think last quarter you mentioned the 1% comp lift from the reservation system. I was just wondering if that persisted in the third quarter.

Yes. Okay, great. Thank you. Thank you, Matt. Thanks, Matt. Thank you. Our next question is from Sharon Zaxia with William Blair. Please proceed with your question.

Hey, thanks for taking the question. I'm curious as you've seen this slowdown in traffic, is there any difference in what you're seeing with new customer acquisition versus your existing customer frequency?.

First of all, we think that the frequency is greatly affected by the decrease in the number of users.

We aren't seeing too much of a difference between, in terms of behavior, between non-members and members. The defining feature really for Key3 is just a reduction of frequency.

And again, going back to the reduction of frequency being.

tied to the macro environment with the higher gas prices, competing attention with the World Cup. All of these factors we understand is transitory, and we're very confident that we'll be able to maintain the momentum of our mix and come out stronger than before.

Thanks for that. And then on the restaurant delays, are there steps that you're taking to help ensure that we don't see kind of any incremental issues in 2027? Are you adding more buffer to the pipeline as you think about that?.

There were four stores this time, and three of them were related to fire inspection. The delay caused by fire inspection is common. On the contrary, the biggest delay is usually fire inspection. Usually, the delay of the said thing is about two weeks. This time, it took about 6 weeks for all three stores. It also took time to schedule the inspection. It was a very unusual pattern.

Of course, if it was a collection in the same pattern every time, it would be possible to fix it. Unfortunately, it is a failure every time, but it is said that it is different every time. my case study here and thisけど, but then you know, the when we do have delays, typically because of a fire inspection. When we do have.

correction that we need to make. It's usually something that we can do in two weeks, but the asks this time were much more involved. And so they took on average six weeks with extra time added on top on the end as we were waiting for a re-inspection to be scheduled. And so that was pretty frustrating. Obviously, we adjust our practices with every hiccup of these types that we face, but unfortunately, it's always a different issue. Different counties have different rules and different inspectors, even in the same county, are idiosyncratic. That makes it pretty hard to head off.

We do bake in to our expectations a certain degree. but for so many to fall on each other at the same time and for them to be much longer than we typically experience, that was so unexpected. Also, Charlotte opened its new store today, but we haven't had a chance to see them open a convenience store.

We have a third party inspection. We were asked to follow up on that. When we have a new site, we will be looking at that. We will check if there is a new site in advance. As Sharon said, we will be doing a major amendment to prevent this.

So, we're happy to say that we actually just opened our Charlotte, North Carolina location today. It's our 94th restaurant. As part of that inspection process, there was a request for a third-party inspection of our conveyor belts, which had never happened with our preceding 93 restaurants. And so, these kinds of surprises can always come. pop up but now that that's happened we know you know whenever we're opening up in a new county to come with that third party inspection ready and head off that issue for the future. Okay, thank you.

Thanks. Thank you. Our next question is Mark Smith with Lake Street Capital. Please proceed with your question.

Hi guys, you mentioned some cannibalization kind of easy here, but I'm curious any real impact in the quarter as well as your outlook for many of the restaurants that you've opened over the last several months from cannibalization.

We were at 300 or 400 before, but now we are at 250 or more. We expect to see a drop in the new market and control.

Hey, Mark, this is Ben. In the past, I think our estimate for the comp headwinds, broadly speaking, were between 300 to 400 basis points. Now we've been able to bring it down to about 250 basis points. We would expect this headwind to continue into the first half of fiscal 27, just given the timing of some of the openings, especially the first infills and next key performers. But as we start to benefit from the 55% new market mix, we would expect that cannibalization impact to steadily lessen over fiscal 27 and 28.

Okay. And then you talked about opening delays. I'm curious if that's added any incremental costs. I know that you guys maintain your guidance here for kind of new restaurant build-out costs, but have you seen any incremental costs from delays or just inflationary pressure that's the to higher opening costs? Thank you.

FI27 is probably closer to the restaurant level margin than it was at the beginning. We are very proud of the progress of our team members who have increased Q3.

So when we have an opening delay by an inspection, really the primary cost would be in training costs or rehiring costs because you can't ask somebody to wait for a month with no job. That being said, in spite of those incremental costs, we were able to raise our restaurant-level operating profit margin guidance to 18.5%. And so we are spectacularly proud of just how efficient all of our restaurant-level members have been. And as we get closer to the end of the year and have more visibility into fiscal 27, we think that we are going to get a lot closer closer to that 20% historical goal a lot faster than we'd expected. And so we're very excited to give you guys an update on that as well in November.

Perfect. The last one from me is just thinking about menu price increases, what you guys have taken. It sounds like you're seeing positive results out of you know, offering a value proposition. But I'm curious just if you want to speak to elasticity in the price increases that you've taken and kind of response from consumers.

I mean, I think the mixed growth really speaks for all of it. And so we're just – our plan is really to just keep the value as –.

as aggressive as it has been, and wait for that traffic to return, and then just benefit on both ends. Thank you. The price of the stock price has gone up by 25% and the effective price is 4%. I'm sure that the price has been lower since the tariffs. The top line is still tough, but we are still in a situation where the price is at a minimum. Thank you.

So we're actually in the process of performing an analysis to get an empirical view of just how much pricing our competitors have been taking. We can speak anecdotally that against our 4%-ish. it's much typically closer to 20%. It's really just a gulf that has continued to widen exactly as we'd expected. post-tariff. And so while it's unfortunate that the Q4 top line, we expect some pressure, we believe that as long as we keep the pricing at a minimum and continue to drive margin improvement in spite of that, when traffic returns, the margins will just, we're extremely excited.

Excellent. Thank you, guys. Thanks, Mark.

Thank you. Our next question is from JP Wallum with Roth Capital Partners. Please proceed with your question.

Great. Hi, guys. Appreciate you taking my questions. I want to kind of just follow up on maybe sort of the new customer or sort of the understanding that you talked about earlier, guests going to competitors and then coming to you guys and spending a little bit more. But I'm curious, is there anything? to show that new customers or customers may be trading down from others is actually increasing as a percent of mix relative to your repeat customers I'm trying to get a sense of whether you think there's you know some real market share gains that are going on here that maybe you know some customers have fallen off but as that lower income traffic maybe returns you see this big.

boost ahead? Yes, the biggest point in favor of that that I could point out now is that the average check growth is actually, the growth rate is faster among non-members than reward members, which has never been the case before. And so our interpretation is that that is the reflection of a higher spending tranche coming to us. And we commissioned a consumer study twice a year and so obviously our you know that'll be one of the top questions that we'll have for the next analysis and uh we look forward to updating you guys on just uh you know how much we how much market we've been able to capture.

Okay, great. And then one more, maybe more on a sort of strategic lens, but as you sit here almost 100 units. about your guys' centralized operations management at HQ, like, as you think about the next 100 units from here, how would you categorize where your infrastructure is at to support that? Is there anything that you're sort of seeing in the next 6 to 12 months that's needed?.

First of all, this is also related to the future of the unit growth space. At least 20% for 27%, but for the future, I'm thinking about the balance of cash and the performance of New York. As usual, I want to think about flexibility. That's all.

Hey, JP, this is Ben. And so as it relates to fiscal 27, we already have the pipeline locked and loaded, and we know that it's higher than 20%. So we're happy to report that. In terms of the GNA and support center, we really do think that we have everything intact. We'll just sort of need proportionally proportionate growth to manage the more volume of work as we continue to grow. So really nothing out of the ordinary there and we continue to expect to leverage GNA. Just in terms of growth, unit growth broadly, the constraining factors for us have historically been the availability of high quality sites, availability of capital and our management pipeline. We feel very good about our training department and our personnel.

We've got a great bench. And we opened seven restaurants in Q3, but our cash set, cash burn was only $3 million. And so we're doing... We're very, very pleased with how our balance sheet management has been going. And so really the remainder is just the availability of high-quality sites. And so we want to be flexible on that just so that we don't force ourselves to commit to sites that we wouldn't otherwise choose.

Great. Thanks guys. Best of luck. Thanks, JP. Thank you. Our next question is from John Tower with Citi. Please proceed with your question.

Great. Thanks for taking the questions. Maybe real quick, obviously, you had spoke to the idea of seeing labor leverage and expecting that to be down, I believe, 200 basis points or so in fiscal 26. Can you just speak to exactly what you're doing at the store level to get that level of leverage? particularly in the context of very modest same-store sales growth on the year.

First, we were able to cut down the front of the house staff, including reservation system and such panel updates, from Q4-25. This effect and a little tighter schedule control. This is the reason why we are contributing to the development of the system. This is why we are continuing to develop the system. The year-over-year comparison is QSPO.

Hey, John. So in terms of the labor gains this year, a lot of it comes down to the work that we did in fiscal 25. The reservation system was installed system-wide by... by Q4 of last year. And so that's resulted in headcount reduction in front of house. We've also gotten better scheduling appropriately. We've gotten a lot tighter with that. And so those two factors have really been the driving factors for the improvement of fiscal 26. We'll be lapping the benefit of the reservation system implementation Q4, but we have the robotic dishwasher still in 424 fiscal 27.

And so this again, and going back to your comment about leveraging 200 basis points on.

modest comps, this is really, I think, something that only Quora could do. Okay. And then I appreciate all that, Collin. Thank you for that. In terms of thinking about the other OpEx line, into next year, you know, obviously right now, um, you've upped the IP cadence, which I know is, is going to, um, or has cost a little bit more money. Um, but it does look like year over year, at least on a per week basis that came down pretty nicely in the third quarter. Um, You know the expectations for next year given that you're going to be I think launching one more IP And then also you're going to have these reserve and 12 months or 12 reserve options throughout the year versus nine this year. So broadly, how are you thinking about marketing spend next year versus this year? Yes,.

I was waiting for this question. The coupon I mentioned in the Prepaid Remax, I think it will improve the system by 50 basis points. Of course, we are looking forward to the November call because we can develop the system and make it available in the early stage. .

John, we're happy you asked this because this is something that Jimmy and I have been working on. So Jimmy kind of touched on this in the prepared remarks, but the Bikra pond we think is actually going to be maybe a bigger lever than people are initially appreciating. To give you some context, with the last consumer study, we saw that guests really saw the challenge of getting to that 15th plate and getting the prize is very compelling. But they found the prizes themselves not compelling. And so we were dispersing these prizes every time, regardless of whether the guests were interested in it or not. And by introducing the ability to give guests the option to choose between the capsule prizes or a food coupon, we no longer have that wasted toy that's left on the table. And the cost of the dessert is really offset by the incremental visit that we get when guests come to redeem it.

And so altogether, once this is fully in place, we would expect up to a benefit of 50 basis points, and that would more than offset the incremental investments in the additional frequency of IP campaigns and food LTOs. Thank you. Sure. So we're really putting in every effort that allows us to expect meaningful leverage in fiscal 27 over fiscal 26 as it relates to other costs as a percentage of sales. As we get ready for fiscal 27, we've been pretty aggressively negotiating our contracts with our vendors for other cost items. We're in the process of of bringing a lot of our preventive maintenance work in-house, and that would be a very meaningful cost savings. And so with that and the bigger pot in savings as well, we're feeling very good about the other cost expectations for fiscal 27. And this connects back to our earlier comment about you might be pleasantly surprised by how quickly we get back to that 20%.

best-fall-level offering, Bob Pollardson. Great. Thank you for taking the questions. Appreciate it.

Thanks, Sean. Thank you. Our next question is from Jim Sanderson with North Coast Research. Please proceed with your question.

Thanks for the question. Wanted to go back to the margin discussion. I think you're guiding towards 18.5% on a non-GEMP basis, which is comparable to last year. Is the biggest factor in fourth quarter going to be that continued improvement in labor rate that you would expect to continue into fiscal 27?.

Yes, we are looking at the labor cost. Even if it is a bit higher, we can see a meaningful improvement in the year-over-year. As I mentioned earlier, we are looking at the other cost. We are looking at the improvement from Q4 to Q5. It is one-time, but we can expect a refund of the tariff. We are looking at the two combinations. Despite the low forecast, we expect the margin to expand.

That will continue from the 27th.

As it relates to margin, yes. A lot of the benefit is coming from the labor. We will be lapping the introduction in Q4, and so the benefit will be partial, but the bulk of it will be coming from the initiatives that we discussed earlier, as well as the tight scheduling. The other cost improvements that we expect for fiscal year-end is that we will be adding We're already starting to see a little bit of benefit in Q4, and so some of that is part of our higher margin expectation as well. We also, we're getting some refunds on tariffs paid for our other cost items where we are the importer of record. And so that's a one-time tailwind, but that does play into the 18-5 expectation as well. That being said, all of our efforts, they're designed to be structural.

And so they're just baked into the business now. And we expect the gains to only accelerate as we enter fiscal 27. So there would still be the opportunity for the robotic dishwashers to add value in fiscal 2017? Yes. 100%. Yes. And so really everything except outside of the nominal refund that we received on the tariffs for other costs, all of those,.

factors continue to benefit us. Okay. And the one-time tariff will be fourth quarter pending? Okay. I want to also go back to traffic, the negative 5.4%. Can you break that up by month so we can try to get an understanding of how that trended in the quarter?.

There really wasn't enough difference between the months to really call out any sort of trend. Okay, so pretty much the same. The only thing I was going to add is that the June mix has seen a pretty, it genuinely surprised me. So that's really, it's good to be surprised in a positive way.

Right, but relatively stable traffic turns throughout the quarter by month is the right way to look at this.

Yes, sir. All right. I'll pass it on. Thank you. Thanks, Jim. This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

[Call has ended.]

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.]