Sushi restaurant chain Kura Sushi (NASDAQ:KRUS) reported results in line with analysts' expectations in Q1 FY2024, with revenue up 30.9% year on year to $51.48 million. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $241.5 million at the midpoint. It made a GAAP loss of $0.18 per share, improving from its loss of $0.21 per share in the same quarter last year.
Key Takeaways from Kura Sushi's Q1 Results
We were impressed by how significantly Kura Sushi blew past analysts' gross margin expectations this quarter. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates, partly due to the strong same-store sales growth it posted this quarter. On the other hand, its operating profit and EPS missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. Investors were likely expecting more, however, and the stock is down 4.6% after reporting, trading at $71 per share.
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Kura Sushi (KRUS) Q1 FY2024 Highlights:
- Market Capitalization: $822.1 million
- Revenue: $51.48 million vs analyst estimates of $51.44 million (small beat)
- EPS: -$0.18 vs analyst expectations of -$0.12 (45.2% miss)
- The company reconfirmed its revenue guidance for the full year of $241.5 million at the midpoint
- Gross Margin (GAAP): 31%, up from 15.6% in the same quarter last year
- Same-Store Sales were up 3.8% year on year
- Store Locations: 56 at quarter end, increasing by 13 over the last 12 months
Hajime Uba, President and Chief Executive Officer of Kura Sushi, stated, “Fiscal 2024 is off to an exceptionally strong start, with meaningful improvements in restaurant-level operating profit margin and Adjusted EBITDA, as well as six new units opened to date with another seven under construction. Our goals for this fiscal year remain the same as last year: maintain excellent operations, continue to rapidly grow the number of our restaurants, and leverage our G&A against our increasingly large restaurant base. I’m pleased to say that we are already making excellent progress on all three fronts.”
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ:KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.
Kura Sushi is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 30.8% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it added more dining locations and increased sales at existing, established restaurants.
This quarter, Kura Sushi's year-on-year revenue growth of 30.9% was wonderful, and its $51.48 million in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 26.3% over the next 12 months, a deceleration from this quarter.
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Number of Stores
A restaurant chain's total number of dining locations is a crucial factor influencing how much it can sell and how quickly company-level sales can grow.
When a chain like Kura Sushi is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Kura Sushi's restaurant count increased by 13, or 30.2%, over the last 12 months to 56 locations in the most recently reported quarter.
Taking a step back, Kura Sushi has rapidly opened new restaurants over the last eight quarters, averaging 24.1% annual increases in new locations. This growth is much higher than other restaurant businesses and gives Kura Sushi a chance to scale towards a mid-sized company over time. Analyzing a restaurant's location growth is important because expansion means Kura Sushi has more opportunities to feed customers and generate sales.
Kura Sushi has been one of the most successful restaurants over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 40.1%. This performance suggests its rapid buildout of new restaurants is justified. When a chain has strong demand, more locations should help it reach more customers seeking its meals and boost revenue growth.
In the latest quarter, Kura Sushi's same-store sales rose 3.8% year on year. This growth was a deceleration from the 6.9% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
So should you invest in Kura Sushi right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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