What Happened:
Shares of sushi restaurant chain Kura Sushi (NASDAQ:KRUS) fell 24.1% in the morning session after the company announced underwhelming preliminary FQ3'24 results. Total sales are expected to be approximately $63.1 million, below Wall Street's expectations. Comparable restaurant sales are expected to grow 0.6% in Q3, a significant deceleration compared to the 3% growth in the previous quarter. Lastly, restaurant-level operating profit is expected to clock in at 20% of sales, which is in line with the previous quarter, but there is still a deceleration compared to the 23.5% margin recorded in the same period last year.
Hajime Uba, President and Chief Executive Officer of Kura Sushi commented on some of the factors influencing the weak results, "The financial results of our fiscal third quarter did not meet our expectations, due largely to unanticipated softness in the California market. Overall, the results were disappointing, leaving investors with little reason to be optimistic heading into earnings.
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What is the market telling us:
Kura Sushi's shares are quite volatile and over the last year have had 31 moves greater than 5%. But moves this big are very rare even for Kura Sushi and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 22.7% on the news that the company reported first quarter earnings results that blew past analysts' gross margin expectations. Revenue also came in slightly ahead of Consensus estimates.
Looking ahead, full-year revenue guidance came in higher than Wall Street's estimates, partly due to the strong same-store sales growth posted during the quarter. Management highlighted an acceleration in sales momentum, and the business continued to add new restaurants to meet growing demand.
On the other hand, its operating profit and EPS missed analysts' expectations. Overall, it was a strong quarter, demonstrating that the company is staying on target.
Kura Sushi is down 14.7% since the beginning of the year, and at $62.41 per share it is trading 48% below its 52-week high of $119.98 from March 2024. Investors who bought $1,000 worth of Kura Sushi's shares at the IPO in July 2019 would now be looking at an investment worth $3,184.
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