Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  Kura Sushi USA, Inc.    KRUS

KURA SUSHI USA, INC.

(KRUS)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

KURA SUSHI USA : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
01/13/2020 | 06:19am EDT
You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited financial statements and
the related notes and with the audited financial statements and the related
notes included in our Annual Report on Form 10-K for the fiscal year ended
August 31, 2019 (the "Annual Report").

In addition to historical information, the following discussion and analysis
contains forward-looking statements based on current expectations that involve
risks, uncertainties and assumptions, such as our plans, objectives,
expectations, and intentions set forth in the "Special Note Regarding
Forward-Looking Statements" and "Risk Factors" sections of the Annual Report.
You should review those sections in our Annual Report for a discussion of
important factors, including the continuing development of our business and
other factors that could cause actual results to differ materially from the
results described in or implied by the forward-looking statements contained in
the following discussion and analysis.

"Kura Sushi USA," "Kura Sushi," "Kura," "we," "us," "our," "our company" and the "Company" refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires.

Overview


Kura Sushi USA, Inc. is a fast-growing, technology-enabled Japanese restaurant
concept that provides guests with a distinctive dining experience by serving
authentic Japanese cuisine through an engaging revolving sushi service model,
which we refer to as the "Kura Experience". We encourage healthy lifestyles by
serving freshly prepared Japanese cuisine using high-quality ingredients that
are free from artificial seasonings, sweeteners, colorings, and preservatives.
We aim to make quality Japanese cuisine accessible to our guests across the
United States through affordable prices and an inviting atmosphere.

Business Trends


We have expanded our restaurant base from eight restaurants in California as of
the beginning of fiscal year 2016 to 23 restaurants in five states as of
November 30, 2019. We opened four restaurants in fiscal year 2018 and six
restaurants in fiscal year 2019.  We did not open any new restaurants during the
three months ended November 30, 2019. Subsequent to November 30, 2019, we opened
one restaurant in Katy, Texas. We expect to open six new restaurants in fiscal
year 2020, resulting in significant increases to both revenue and restaurant
operating costs in fiscal year 2020.  Additionally, we expect our general and
administrative expenses will increase as a percentage of sales in our fiscal
year 2020 due to additional costs associated with being a public company.

Key Financial Definitions


Sales. Sales represent sales of food and beverages in restaurants. Restaurant
sales in a given period are directly impacted by the number of restaurants we
operate and comparable restaurant sales growth.

Food and beverage costs. Food and beverage costs are variable in nature, change
with sales volume and are influenced by menu mix and subject to increases or
decreases based on fluctuations in commodity costs. Other important factors
causing fluctuations in food and beverage costs include seasonality and
restaurant-level management of food waste. Food and beverage costs are a
substantial expense and are expected to grow proportionally as our sales grows.

Labor and related expenses. Labor and related expenses include all
restaurant-level management and hourly labor costs, including wages, employee
benefits and payroll taxes. Similar to the food and beverage costs that we
incur, labor and related expenses are expected to grow proportionally as our
sales grows. Factors that influence fluctuations in our labor and related
expenses include minimum wage and payroll tax legislation, the frequency and
severity of workers' compensation claims, healthcare costs and the performance
of our restaurants.

Occupancy and related expenses. Occupancy and related expenses include rent for all restaurant locations and related taxes.

Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets' estimated useful lives, ranging from three to 20 years.

Other costs. Other costs include utilities, repairs and maintenance, credit card fees, royalty payments to Kura Japan, stock-based compensation expenses for restaurant-level employees and other restaurant-level expenses.


General and administrative expenses. General and administrative expenses include
expenses associated with corporate and regional supervision functions that
support the operations of existing restaurants and development of new
restaurants, including compensation and benefits, travel expenses, stock-based
compensation expenses for corporate-level employees, legal and professional
fees, marketing costs, information systems, corporate office rent and other
related corporate costs. General and administrative expenses are expected to
grow as our sales grows, including incremental legal, accounting, insurance and
other expenses incurred as a public company.

                                       15

--------------------------------------------------------------------------------

Interest expense. Interest expense includes cash and non-cash charges related to our line of credit and finance lease obligations.

Interest income. Interest income includes income earned on our investments.

Income tax expense (benefit). Provision for income taxes represents federal, state and local current and deferred income tax expense.

Results of Operations


The following table presents selected comparative results of operations for the
three months ended November 30, 2019 compared to the three months ended November
30, 2018. Our financial results for these periods are not necessarily indicative
of the financial results that we will achieve in future periods. Certain totals
for the table below may not sum to 100% due to rounding.



                                             Three Months Ended November 30,          Increase / (Decrease)
                                               2019                  2018                  2019 vs 2018
                                                             (dollar amounts in thousands)
Sales                                     $        17,440$        13,420$    4,020            30.0   %
Restaurant operating costs
Food and beverage costs                             5,693                 4,518          1,175            26.0
Labor and related costs                             5,641                 4,138          1,503            36.3
Occupancy and related expenses                      1,439                   920            519            56.4
Depreciation and amortization expenses                663                   448            215            48.0
Other costs                                         2,047                 1,645            402            24.4
Total restaurant operating costs                   15,483                11,669          3,814            32.7
General and administrative expenses                 3,326                 2,148          1,178            54.8
Depreciation and amortization expenses                 22                    23             (1 )          (4.3 )
Total operating expenses                           18,831                13,840          4,991            36.1
Operating loss                                     (1,391 )                (420 )         (971 )         231.2
Other expense (income)
Interest expense                                       34                    41             (7 )         (17.1 )
Interest income                                      (197 )                  (5 )         (192 )       3,840.0
Loss before income taxes                           (1,228 )                (456 )         (772 )         169.3
Income tax benefit                                     (4 )                 (65 )           61           (93.8 )
Net loss                                  $        (1,224 )     $          (391 )   $     (833 )         213.0   %




                                                      Three Months Ended
                                                         November 30,
                                                   2019                  2018
                                                  (as a percentage of sales)
      Sales                                            100.0     %        100.0   %

Restaurant operating costs

      Food and beverage costs                           32.6              

33.7

      Labor and related costs                           32.3              

30.8

      Occupancy and related expenses                     8.3               

6.9

      Depreciation and amortization expenses             3.8               

3.3

      Other costs                                       11.7              

12.3

      Total restaurant operating costs                  88.7              

87.0

      General and administrative expenses               19.1              

16.0

      Depreciation and amortization expenses             0.1               

0.2

      Total operating expenses                         107.9             
103.2
      Operating loss                                    (7.9 )             (3.2 )
      Other expense (income)
      Interest expense                                   0.2                0.3
      Interest income                                   (1.1 )                -
      Loss before income taxes                          (7.0 )            
(3.5 )
      Income tax benefit                                   -               (0.5 )
      Net loss                                          (7.0 )   %         (3.0 ) %


                                       16
--------------------------------------------------------------------------------

Three Months Ended November 30, 2019 Compared to Three Months Ended November 30, 2018


Sales. Sales were $17.4 million for the three months ended November 30, 2019
compared to $13.4 million for the three months ended November 30, 2018,
representing an increase of approximately $4.0 million or 30.0%. The increase in
sales was primarily driven by four new restaurants that opened subsequent to
November 30, 2018, as well as 7.9% comparable restaurant sales growth.

Food and beverage costs. Food and beverage costs were $5.7 million for the three
months ended November 30, 2019 compared to $4.5 million for the three months
ended November 30, 2018, representing an increase of approximately $1.2 million,
or 26.0%. The increase in food and beverage costs was primarily driven by sales
from the four new restaurants that opened subsequent to November 30, 2018. As a
percentage of sales, food and beverage costs decreased to 32.6% in the three
months ended November 30, 2019, compared to 33.7% the in three months ended
November 30, 2018. The decrease in food and beverage costs as a percentage of
sales was primarily driven by decreases in avocado prices and increases in our
menu prices.

Labor and related costs. Labor and related costs were $5.6 million for the three
months ended November 30, 2019 compared to $4.1 million for the three months
ended November 30, 2018, representing an increase of approximately $1.5 million,
or 36.3%. The increase in labor and related costs was driven by additional labor
costs incurred with respect to four new restaurants that opened subsequent to
November 30, 2018, as well as wage increases. As a percentage of sales, labor
and related costs increased to 32.3% in the three months ended November 30,
2019, compared to 30.8% in the three months ended November 30, 2018, which was
primarily driven by higher wage rates in our newer restaurants and wage
increases in existing restaurants.

Occupancy and related expenses. Occupancy and related expenses were $1.4 million
for the three months ended November 30, 2019 compared to $0.9 million for the
three months ended November 30, 2018, representing an increase of approximately
$0.5 million, or 56.4%. The increase was primarily a result of additional lease
expense incurred with respect to four new restaurants that opened subsequent to
November 30, 2018. As a percentage of sales, occupancy and other operating
expenses increased to 8.3% in the three months ended November 30, 2019, compared
to 6.9% in three months ended November 30, 2018. The increase in occupancy and
related expenses as a percentage of sales was primarily driven by higher
occupancy rates in our newer restaurants and the increase in pre-opening lease
expense.

Depreciation and amortization expenses. Depreciation and amortization expenses
incurred as part of restaurant operating costs were $0.7 million for the three
months ended November 30, 2019 compared to $0.4 million for the three months
ended November 30, 2018, representing an increase of approximately $0.2 million,
or 48.0%. The increase was primarily due to depreciation of property and
equipment related to the opening of four new restaurants that opened subsequent
to November 30, 2018 As a percentage of sales, depreciation and amortization
expenses at the restaurant-level increased to 3.8% in the three months ended
November 30, 2019 as compared to 3.3% in the three months ended November 30,
2018. The increase is primarily due to higher build-out costs of our newer
restaurants. Depreciation and amortization expenses incurred at the
corporate-level were immaterial for the three months ended November 30, 2019 and
2018, and as a percentage of sales remained relatively consistent at 0.1% and
0.2%, respectively.

Other costs. Other costs were $2.0 million for the three months ended November
30, 2019 compared to $1.6 million for the three months ended November 30, 2018,
representing an increase in approximately $0.4 million, or 24.4%. The increase
was primarily due to costs related to the opening of four new restaurants that
opened subsequent to November 30, 2018, such as credit card fees, kitchen
supplies, and utilities. The remaining year-over-year increase is due to other
individually insignificant items. As a percentage of sales, other costs
decreased to 11.7% in the three months ended November 30, 2019 from 12.3% during
the three months ended November 30, 2018. The decrease is primarily due to lower
advertising, insurance and recruiting costs.

General and administrative expenses. General and administrative expenses were
$3.3 million for the three months ended November 30, 2019 compared to $2.1
million for the three months ended November 30, 2018, representing an increase
of approximately $1.2 million, or 54.8%. This increase in general and
administrative expenses was primarily due to $0.9 million of public company
costs and $0.3 million in employee compensation-related expenses associated with
increased wages and additional headcount to support our growth in operations. As
a percentage of sales, general and administrative expenses increased to 19.1% in
the three months ended November 30, 2019 from 16.0% in three months ended
November 30, 2018, primarily due to the increase in the expenses mentioned
above.

Interest expense. Interest expense was insignificant in both the three months ended November 30, 2019 and 2018, and as a percentage of sales remained relatively consistent at 0.2% and 0.3%.

                                       17

--------------------------------------------------------------------------------


Interest income. Interest income was $0.2 million for the three months ended
November 30, 2019 compared to $5 thousand for the three months ended November
30, 2018, representing an increase of approximately $0.2 million, or 3,840.0%,
due to a higher cash and cash equivalents balance.

Income tax benefit. Income tax benefit was $4 thousand in the three months ended
November 30, 2019 compared to an income tax benefit of $0.1 million in the three
months ended November 30, 2018.

Key Performance Indicators


In assessing the performance of our business, we consider a variety of financial
and performance measures. The key measures for determining how our business is
performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level
Contribution, Restaurant-level Contribution margin, comparable restaurant sales
growth, and number of restaurant openings.

Sales


Sales represents sales of food and beverages in restaurants, as shown on our
statements of operations. Several factors affect our restaurant sales in any
given period including the number of restaurants in operation, guest traffic and
average check.

EBITDA and Adjusted EBITDA

EBITDA is defined as net income before interest, income taxes and depreciation
and amortization. Adjusted EBITDA is defined as EBITDA plus stock-based
compensation expense, pre-opening lease
expense, pre-opening costs, non-cash lease expense and asset disposals, closure
costs and restaurant impairments, as well as certain items that are not
indicative of core operating results. EBITDA and Adjusted EBITDA are non-GAAP
measures which are intended as supplemental measures of our performance and are
neither required by, nor presented in accordance with, GAAP. We believe that
EBITDA and Adjusted EBITDA provide useful information to management and
investors regarding certain financial and business trends relating to our
financial condition and operating results.

We believe that the use of EBITDA and Adjusted EBITDA provides an additional
tool for investors to use in evaluating ongoing operating results and trends and
in comparing the Company's financial measures with those of comparable
companies, which may present similar non-GAAP financial measures to investors.
However, you should be aware when evaluating EBITDA and Adjusted EBITDA that in
the future we may incur expenses similar to those excluded when calculating
these measures. In addition, our presentation of these measures should not be
construed as an inference that our future results will be unaffected by unusual
or non-recurring items. Our computation of Adjusted EBITDA may not be comparable
to other similarly titled measures computed by other companies, because all
companies may not calculate Adjusted EBITDA in the same fashion.

Because of these limitations, EBITDA and Adjusted EBITDA should not be
considered in isolation or as a substitute for performance measures calculated
in accordance with GAAP. We compensate for these limitations by relying
primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a
supplemental basis. You should review the reconciliation of net income to EBITDA
and Adjusted EBITDA below and not rely on any single financial measure to
evaluate our business.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the three months ended November 30, 2019 and November 30, 2018:



                                                    Three Months Ended
                                                       November 30,
                                                     2019             2018
                                                  (amounts in thousands)
          Net loss                              $       (1,224 )$ (391 )
          Interest (income) expense, net                  (163 )         36
          Taxes                                             (4 )        (65 )
          Depreciation and amortization                    685          471
          EBITDA                                          (706 )         51
          Stock-based compensation expense(a)              121          160
          Pre-opening lease expense(b)                     174          136
          Pre-opening costs(c)                             141           36
          Non-cash lease expense(d)                        127          118
          Adjusted EBITDA                                 (143 )        501
          Adjusted EBITDA margin                          -0.8 %        3.7 %


                                       18
--------------------------------------------------------------------------------

(a) Stock-based compensation expense includes non-cash stock-based compensation,

which is comprised of restaurant-level stock-based compensation included in

other costs in the statements of operations and of corporate-level

stock-based compensation included in general and administrative expenses in

the statements of operations. In the three months ended November 30, 2019,

restaurant-level stock-based compensation was $16 thousand and

corporate-level stock-based compensation was $105 thousand. In the three

months ended November 30, 2018, restaurant-level stock-based compensation was

$21 thousand and corporate-level stock-based compensation was $139 thousand.

(b) Pre-opening lease expense includes lease expenses incurred between date of

possession and opening date of our restaurants

(c) Pre-opening costs consist of labor costs and travel expenses for new

employees and trainers during the training period, recruitment fees, legal

fees and other related pre-opening costs.

(d) Non-cash lease expense includes lease expense from the opening date of our

restaurants that did not require cash outlay in the respective periods.

Restaurant-level Contribution and Restaurant-level Contribution Margin


Restaurant-level Contribution is defined as operating income plus depreciation
and amortization, stock-based compensation expense, pre-opening lease expense,
pre-opening costs, non-cash lease expense, asset disposals, closure costs and
restaurant impairments, general and administrative expenses, less
corporate-level stock-based compensation expense. Restaurant-level Contribution
margin is defined as Restaurant-level Contribution divided by sales.
Restaurant-level Contribution and Restaurant-level Contribution margin are
intended as supplemental measures of our performance and are neither required
by, nor presented in accordance with, GAAP. We believe that Restaurant-level
Contribution and Restaurant-level Contribution margin provide useful information
to management and investors regarding certain financial and business trends
relating to our financial condition and operating results. We expect
Restaurant-level Contribution to increase in proportion to the number of new
restaurants we open and our comparable restaurant sales growth.

We present Restaurant-level Contribution because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level. We also use Restaurant-level Contribution to measure operating performance and returns from opening new restaurants. Restaurant-level Contribution margin allows us to evaluate the level of Restaurant-level Contribution generated from sales.


However, you should be aware that Restaurant-level Contribution and
Restaurant-level Contribution margin are financial measures which are not
indicative of overall results for the Company, and Restaurant-level Contribution
and Restaurant-level Contribution margin do not accrue directly to the benefit
of stockholders because of corporate-level expenses excluded from such measures.

                                       19

--------------------------------------------------------------------------------


In addition, when evaluating Restaurant-level Contribution and Restaurant-level
Contribution margin, you should be aware that in the future we may incur
expenses similar to those excluded when calculating these measures. Our
presentation of these measures should not be construed as an inference that our
future results will be unaffected by unusual or non-recurring items. Our
computation of Restaurant-level Contribution and Restaurant-level Contribution
margin may not be comparable to other similarly titled measures computed by
other companies, because all companies may not calculate Restaurant-level
Contribution and Restaurant-level Contribution margin in the same fashion.
Restaurant-level Contribution and Restaurant-level Contribution margin have
limitations as analytical tools, and you should not consider it in isolation or
as a substitute for analysis of our results as reported under GAAP. The
following table reconciles operating income to Restaurant-level Contribution and
Restaurant-level Contribution margin for the three months ended November 30,
2019 and 2018, respectively:



                                                                  Three Months Ended
                                                                     November 30,
                                                                2019               2018
                                                                (amounts in thousands)
Operating loss                                             $       (1,391 )$       (420 )
Depreciation and amortization                                         685               471
Stock-based compensation expense(a)                                   121               160
Pre-opening lease expense(b)                                          174               136
Pre-opening costs(c)                                                  141                36
Non-cash lease expense(d)                                             127               118
General and administrative expenses                                 3,326   

2,148

Corporate-level stock-based compensation and pre-opening

  costs included in General and administrative expenses              (138 )            (139 )
Restaurant-level Contribution                                       3,045   

2,510

Operating profit margin                                              -8.0 %            -3.1 %
Restaurant-level Contribution margin                                 17.5 %            18.7 %



(a) Stock-based compensation expense includes non-cash stock-based compensation,

which is comprised of restaurant-level stock-based compensation included in

other costs in the statements of operations and of corporate-level

stock-based compensation included in general and administrative expenses in

the statements of operations. In the three months ended November 30, 2019,

restaurant-level stock-based compensation was $16 thousand and

corporate-level stock-based compensation was $105 thousand. In the three

months ended November 30, 2018, restaurant-level stock-based compensation was

$21 thousand and corporate-level stock-based compensation was $139 thousand.

(b) Pre-opening lease expense includes lease expenses incurred between date of

possession and opening date of our restaurants.

(c) Pre-opening costs consist of labor costs and travel expenses for new

employees and trainers during the training period, recruitment fees, legal

fees and other related pre-opening costs.

(d) Non-cash lease expense includes lease expense from the opening date of our

restaurants that did not require cash outlay in the respective periods.

Comparable Restaurant Sales Growth


Comparable restaurant sales growth refers to the change in year-over-year sales
for the comparable restaurant base. We include restaurants in the comparable
restaurant base that have been in operation for at least 18 months prior to the
start of the accounting period presented due to new restaurants experiencing a
period of higher sales upon opening, including those temporarily closed for
renovations during the year. For restaurants that were temporarily closed for
renovations during the year, we make fractional adjustments to sales such that
sales are annualized in the associated period.

Measuring our comparable restaurant sales growth allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including:

• consumer recognition of our brand and our ability to respond to changing

consumer preferences;

• overall economic trends, particularly those related to consumer spending;

• our ability to operate restaurants effectively and efficiently to meet

        consumer expectations;


  • pricing;


  • guest traffic;


  • per-guest spend and average check;


                                       20
--------------------------------------------------------------------------------

  • marketing and promotional efforts;


  • local competition; and


  • opening of new restaurants in the vicinity of existing locations.


Since opening new restaurants will be a significant component of our sales
growth, comparable restaurant sales growth is only one measure of how we
evaluate our performance. The following table shows the comparable restaurant
sales growth for the three months ended three months ended November 30, 2019 and
2018:



                                                      Three Months Ended
                                                         November 30,
                                                     2019            2018

Comparable restaurant sales growth (%) 7.9 % 4.4 %

          Comparable restaurant base                      14              10




Number of Restaurant Openings

The number of restaurant openings reflects the number of restaurants opened
during a particular reporting period. Before we open new restaurants, we
incur pre-opening costs. New restaurants may not be profitable, and their sales
performance may not follow historical patterns. The number and timing of
restaurant openings has had, and is expected to continue to have, an impact on
our results of operations. The following table shows the growth in our
restaurant base for the three months ended November 30, 2019 and 2018:



                                             Three Months Ended
                                                November 30,
                                            2019             2018
                   Restaurant activity:
                   Beginning of period           23             17
                   Openings                       -              2
                   Closings                       -              -
                   End of period                 23             19



Liquidity and Capital Resources


Our primary uses of cash are for operational expenditures and capital
investments, including new restaurants, costs incurred for restaurant remodels
and restaurant fixtures. Historically, our main sources of liquidity have been
cash flows from operations and annual capital contributions from Kura Japan.
Since the completion of our initial public offering, we do not expect to receive
any additional capital contributions from Kura Japan.

The significant components of our working capital are liquid assets such as
cash, cash equivalents and receivables, reduced by accounts payable and accrued
expenses. Our working capital position benefits from the fact that we generally
collect cash from sales to guests the same day or, in the case of credit or
debit card transactions, within several days of the related sale, while we
typically have longer payment terms with our vendors.

We believe that cash provided by operating activities, cash on hand and
availability under our existing line of credit will be sufficient to fund our
lease obligations, capital expenditures and working capital needs for at least
the next 12 months.

                                       21
--------------------------------------------------------------------------------

Summary of Cash Flows


Our primary sources of liquidity and cash flows are operating cash flows and
cash on hand. We use this to fund investing expenditures for new restaurant
openings, reinvest in our existing restaurants, and increase our working
capital. Our working capital position benefits from the fact that we generally
collect cash from sales to guests the same day, or in the case of credit or
debit card transactions, within several days of the related sale, and we
typically have at least 30 days to pay our vendors.

The following table summarizes our cash flows for the periods presented:

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news on KURA SUSHI USA, INC.
05/13KURA SUSHI USA, INC. : Regulation FD Disclosure, Financial Statements and Exhibi..
AQ
05/13Kura Sushi USA to Participate at the BMO Capital Markets Virtual 15th Annual ..
GL
04/23More U.S. companies return payroll loans after new Treasury guidance
RE
04/22KURA SUSHI USA, INC. : Regulation FD Disclosure (form 8-K)
AQ
04/15KURA SUSHI USA, INC. : Entry into a Material Definitive Agreement, Creation of a..
AQ
04/14KURA SUSHI USA : Management's Discussion and Analysis of Financial Condition and..
AQ
04/14KURA SUSHI USA, INC. : Entry into a Material Definitive Agreement, Results of Op..
AQ
04/14Kura Sushi USA Provides Business Update Related to COVID-19 and Announces Fis..
GL
04/08Kura Sushi USA to Announce Second Quarter 2020 Financial Results on April 14,..
GL
03/18KURA SUSHI USA, INC. : Regulation FD Disclosure (form 8-K)
AQ
More news