Kura Sushi USA, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kurosushi USA Fiscal Third Quarter 2024 Earnings Conference Call. At this time, all 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 call today, we have Hajime Jimmy-Uba, President and Chief Executive Officer, Jeff Financial Officer, and Benjamin Portin, SVP Investor Relations and Systems Development. And now, I would like to turn the call over to Mr. Portin.

Thank you, Operator. Good afternoon, everyone. Thank you all for joining. By now, everyone should have access to our fiscal third quarter 2024 earnings release. It can be found at www.crowsushi.com in the Investor Relations section. The copy of the earnings release has also been included in the 8K resubmitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Also during today's call, we will discuss certain non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP. And the reconciliations to comparable GAAP measures are available in our earnings release. With that out of the way, I would like to turn the call over to Jimmy.

Thanks, Ben, and thank you to everyone for joining us today. As we mentioned in our pre-release announcement, sales in the fiscal third quarter did not meet our expectations. This sales decline, which began mid-April, was sudden and unexpected, and I'm proud of the efforts that our team members have made, allowing us to maintain a restaurant-level profit margin of just 20% despite sales deliverance. We believe the current headwinds are macro-driven and transitory, but with the difficulty in predicting the duration of macroeconomic shift, we believe the most prudent course of action is to position ourselves to be able to continue to deliver strong financial results and uninterrupted progress on our core strategic goals of at least 20% annual unit growth beyond the leverage and operational excellence, regardless of the broader economic environment. While the third quarter results were unexpected, nothing has changed about Kurasushi's tremendous potential. Total sales for the fiscal third quarter was $63.1 million, representing comparable sales growth of 0.6% and traffic growth of 0.3%. We believe the competition over the prior quarter was driven by the overall macro environment and the consumer sentiment, particularly in California, as well as a degree of cannibalization as we execute our planned strategy of infilling existing markets. The impact of cannibalization we have seen was not unexpected and is a necessary result of infilling and we expect financial benefits from infilling synergies. At the same time, we continue to take a thoughtful approach with infills for the purpose of managing their impact on comparable sales. As we exit the current macro environment, we expect to return to delivering positive comparable sales through the ongoing incorporation of new learnings into our site selection process in combination with the balancing of infill ratios for our pipeline. As context for the softness in California, in past earnings calls, we had mentioned our expectations that the first act would be a tailwind for us, as which pressures would prompt more aggressive pricing among competitors and highlight the value that Kurosushi offers. What we have seen instead is a general perception that restaurants as a category have become expensive, introducing industry-wide pressures regardless of a given restaurant's relative value. Despite this shift in consumer behavior, I'm pleased that we were able to maintain both positive comparable sales and traffic for the quarter. Turning to restaurant revenue expenses, our cost of goods sold improved by 80 basis points to 29.2%. as a result of ongoing supply chain efforts. Labor as a percentage of sales increased from the prior year quarters 29.2% to 32.3%, largely due to sales deliverance, increased pre-opening labor costs, and wage increases. Other costs rose by 190 basis points to 14.4% due to sales deliverance, general inflation, and an increase in pre-opening expenses. To offset increased costs, we took 1% pricing in May and 1.7% in July for current effective pricing of approximately 4%. Additionally, we believe we have opportunities for better cost management in the near future through incremental operational efficiencies in hourly labor. We also expect to achieve meaningful reductions in pre-opening expenses, primarily labor and travel costs associated with management trainees by taking advantage of the opportunities created by infilling existing markets. I'm very proud that we were able to continue to leverage our G&A year-over-year in spite of lower than expected sales. Third quarter G&A as a percentage of sales was 14%, which is a 20 basis point improvement year over year. As I mentioned earlier, continued G&A leverage regardless of macro pressures is a major priority. We believe regional leverage opportunities in infield markets will play a very meaningful role in our cost management and G&A reduction strategies. In fiscal 25, we plan to continue our unit growth rate of at least 20%, but also expect that we will be able to manage these new restaurants with our existing area management team. Additionally, as we plan to open several new restaurants in existing markets in fiscal 25, this will allow us to draw on the talent pool developed by local restaurants and meaningfully reduce our third-party recruiting agency fees. Moving on to development, we opened four units in the fiscal third quarter, Waterford Lake, Florida, Atlanta, Georgia, Scottsdale, New York, and Roseville, California. Subsequent to quarter end, we opened a restaurant in Lake Grove, New York, marking the 14th unit of our fiscal year and the high end of our new unit guidance range for FY24. We currently have six units under construction, positioning us for a strong start to fiscal 25. Turning to tech initiatives, I'm pleased to announce that we have completed the rollout of our smartphone mobile ordering system, and the in-store testing towards the additional feature that allows guests to arm Biclopon prizes with side menu items is on track to begin shortly. The sushi slider is undergoing US certification, and we are making improvements to robotic dishwasher in preparation for the final mass production model. I'm exceptionally pleased to be able to announce some new technologies today. We are currently working with Japan to implement a reservation feature for the first time. This is a massive upgrade from our current remote check-in system giving guests far more control over their dining experience. Our long wait times are a hurdle for our guests when they decide to dine with us, and we believe this removes that hurdle. With this system, guests can identify the busiest times and avoid them by making reservations outside of peak demand, which we believe is a traffic opportunity, particularly on weekends. This technology is accompanied by an automated seating system reducing the workload of our front of house employees. These new features are top priority, and we are pushing to roll them out as quickly as possible. It is unfortunate that macro environment has weakened, but consumer confidence always bounce back. We continue to regularly set new guest survey records And so we know that our guests love Kula as much as they always have. As restaurant visitation habits normalize, we know that guests will put us at the top of their list because of the exceptional value we have always offered. In the meantime, we are focused on driving incremental operational efficiencies at our restaurants and reducing other costs. so that we can continue to post strong unit-level economics and leverage GMA regardless of the overall macro environment. These improvements will carry over as consumer strength returns, and we are tremendously excited to see the new heights we'll be able to achieve as a result. I would like to close by expressing my gratitude to each of our team members for their tireless efforts at our restaurants and our support center. Thank you. Yes, I'll turn it over to you to discuss our financial results and liquidity.