Kura Sushi USA, Inc.

At this time, all participants are 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 CEO, Jeff Ute, Chief Financial Officer, and Benjamin Porton, Senior Vice President of Investor Relations and System Development. And now, I would like to turn the call over to Mr. Porton.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal third quarter 2025 earnings release. It can be found at www.CurseIssue.com in the investor relations section. A copy of the earnings release has also been included in the 8K 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 on your 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 prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our initial 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. The last quarter has been a busy one for us, between rolling out the new reservation system, investigating new market opportunities, and building out our IP pipeline, and strategizing on how to get the most out of our collaborations. We completed the system-wide rollout of the reservation system ahead of schedule, made meaningful progress on building a restaurant pipeline that leverages the opportunities demonstrated by Bakersfield, and have built our business marketing calendar yet for the upcoming fiscal year. I'm extremely pleased with the result on all three fronts, and very proud of the efforts by our team members to maximize summer sales and set our sales up for Great Fiscal 26. Total sales for the fiscal third quarter were $74 million, representing comparable sales growth of negative 2.1%, with price and mix of 0.8%, offset by negative traffic of 2.9%. We are pleased to see the business moving in the right direction with sequential improvement in comp performance each month of the quarter. Cost of goods sold as a percentage of sales were 28.3%, representing an improvement of 90 basis points over the prior year quarters, 29.2%, due to pricing and ongoing efforts by the supply chain team. Labor as a percentage of sales increased by 50 basis points due to high single-digit wage inflation, partially offset by pricing and incremental operational efficiencies. Restaurant-level operating profit margin was 18.2 percent as compared to 20 percent in the prior year due to higher labor, occupancy, and other costs. During the third quarter, we opened three new restaurants, North Scottsdale, Arizona, Greenwood, Washington State, and McKinney, Texas. Subsequent to quarter end, we opened two more units, one in Woodlands, Texas, and one in Salt Lake City, Utah. We are very pleased with the class of 2025, with many of our restaurant openings exceeding our expectations. Linwood joined our top five restaurants shortly after opening. At the beginning of the fiscal year, we provided unit development guidance of 14 new restaurants, which we achieved with last week's Salt Lake City opening. I'll leave it to Jeff to share our thoughts on guidance for the remainder of the year, but I will mention that we have currently five units under construction. Over the last several calls, we have been discussing the opportunity in smaller DMAs demonstrated by the success of this year's opening in Bakersfield, California, and how the greater optionality created by these smaller markets can not only expand our white space potential, but also serve as a functional comp tailwind by reducing the number of openings in markets that can cannibalize sales. We have mentioned that we hope to get back to a 50-50 split between new and existing markets by fiscal 2027, and that we've been hard at work developing previously unexplored DMAs like Des Moines, Richmond, and Tulsa. I'm very pleased to say that we now have properties under negotiation at each of these markets. Turning to marketing, we have seven to eight IP collaborations lined up for Fiscal 2026, which, as we mentioned in the previous call, is a record for us. Fiscal 2026 We have no interactions between IP campaigns, and we will be wrapping this risk area with included a four to five month stretch without IP collaborations. We have a renewed appreciation for the role that collaborations play in our sales and have made investments to better utilize this opportunity that is unique to Gura. In addition to creating a new role in our marketing team, which will be fully dedicated to researching and negotiating with new licensors, We have also established an International Property Committee to facilitate the development of longer-term strategies as it relates to our IP collaborations. To close, I would like to provide an update on our system development efforts. While we had originally expected to complete the implementation of the reservation system by the end of the fiscal year, we were able to roll out reservations across all restaurants by early June. The response from guests and team members has been uniformly positive. While it's too early for us to quantify the impact of the reservation system, we believe it has great potential as a comp driver and have identified system improvement opportunities, which we believe could drive operational efficiencies as well. Although the implementation of these improvements will take some time, We are pleased with the strong start and look forward to being able to share more quantified expectations in future calls regarding potential traffic lift and labor improvement through the reservation system. As a final note, I'm pleased to also announce the introduction of a new light rice option, which will give guests even more control over how they experience Kula by introducing the The third quarter has been a very busy one for us, and it's exciting to see so many of our initiatives come online or across the finish line. All of our team members, both at our restaurants and our chief support center, have been doing incredible work to make this happen. Thank you, everyone. Jeff, I'll hand it over to you to discuss our financial results and liquidity.

Thank you, Jimmy. For the third quarter, total sales were $74 million as compared to $63.1 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was negative 2.1%, with traffic at negative 2.9% and price and mix positive 0.8%. Effective pricing for the quarter was 4.3%. On June 1st, we took a 1% menu price increase, And after lapping prior year increases, our effective price for the fourth quarter will be 3.5%. Comparable sales in our West Coast market were flat, and comparable sales in our Southwest market were negative 2.5%. As we've been discussing for the last several months, we were looking forward to our third quarter, where our comp comparison eased, and that optimism was met with encouraging sequential monthly results, as Jimmy mentioned earlier. Turning now to costs, food and beverage costs as a percentage of sales were 28.3% compared to 29.2% in the prior year quarter, largely due to pricing and supply chain initiatives. We continue to be fortunate that tariffs have not caused a meaningful negative impact to our food and beverage costs, and we are continuing to work with our suppliers to minimize any future impacts. Labor and related costs as a percentage of sales were 33.1% as compared to 32.6% in the prior year quarter. This increase was largely due to wage inflation, partially offset by pricing and operational efficiencies. Occupancy and related expenses as a percentage of sales were 7.5% compared to the prior year quarters, 6.8% due to sales deleverage. Depreciation and amortization expenses as a percentage of sales were 4.7% as compared to the prior year quarters, 5%. Other costs as a percentage of sales were 14.7% as compared to the prior year quarters, 14.1% due to sales to leverage. General and administrative expenses as a percentage of sales were 11.8% as compared to 14% in the prior year quarter due to sales leverage, lower public company costs, as we lap the first year of 404B SOC compliance and lower litigation related costs. In just a moment, I will be discussing our updated guidance for our full year G&A expense. Operating loss was $162,000 compared to operating loss of $1.2 million in the prior year quarter due to the lower G&A expenses discussed previously. Income tax expense was $55,000 compared to $60,000 in the prior year quarter. Net income was $565,000 or 5 cents per share compared to a net loss of $558,000 or negative 5 cents per share in the prior year quarter. Restaurant level operating profit as a percentage of sales was 18.2% compared to 20% in the prior year quarter, largely due to sales deleveraging increased labor expense, and higher other costs. Adjusted EBITDA was $5.4 million as compared to $4.5 million in the prior year quarter. We're particularly pleased at being able to increase our adjusted EBITDA by 20%, even with higher restaurant operating costs. Turning now to our cash and investments, at the end of the fiscal third quarter, we had $93 million in cash, cash equivalents and investments, and no debt. And then lastly, I am pleased to update our guidance for the full fiscal year 2025. We expect total sales to be approximately $281 million. We expect to open 15 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit of approximately $2.5 million. And we now expect general and administrative expenses as a percentage of sales to be below 13%, exclusive of any legal settlements. And now, I will 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.

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 that your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing star keys.

One moment while we poll for questions.

And our first question comes from the line of Jeremy Hamblin with Craig Hullam. Please proceed with your question.

Thanks so much and congrats on the strong results. I wanted to see if we might be able to dive in a little bit to the commentary around the new reservation system initiative and, you know, kind of The timing of that along with the timing of bringing your latest IP collaboration back kind of lends itself. I wanted to see if you might unpack the same store sales trends cadence during the quarter a little bit more for us to get a sense for how May performed as you brought that IP collab back versus the first two months of the quarter and then you know, a sense for you had a pretty big raise in your sales guidance for the year, you know, how things have started out here in June.

Yeah. Jeremy, this is Ben. Great to – thanks for the questions. Great to hear from you. We're really happy with the reservation system. As Jimmy mentioned, we did see sequential improvements throughout the quarter, with each month being better than the last through March, April, and May. We began rollout of the reservation system in late February, but I'd say it really began in earnest in April, and we were largely done by May. And so you can sort of see that benefit rolling along as well. And we began the peanuts campaign in very late April and had it running through May and June. And the two of those combined has been really one of the big reasons that we we're so happy with how the last quarter shook out. One other thing to keep in mind is that the reservation system, just given that we've been, the rollout has overlapped with these time-limited things like the Peanuts campaign and now the Hololive campaign, we haven't had dedicated advertisements just for the reservation system. And the messaging that we have done is largely focused just towards our rewards members. And so we're very pleased to see the results that we're seeing right now and I believe that there's additional upside as we communicate this further to our guests.

Jamie, I have a comment about a question for Comp Sales, but please allow me to speak in Japanese. Ben is going to translate. I have a comment about a question for Comp Sales, but please allow me to speak in Japanese. I have a comment about a question for Comp Sales, but please allow me to speak in Japanese.

Going back to the monthly cadence that we've seen in Q3, May coincided with the introduction of our first IP campaigns, really, in four or five months. And that was also when our comps turned positive. And so it was really great to see not just positive comps, positive traffic as well in May. And we have those IP collaborations continuing through the current quarter. And we're very pleased with how the current quarter is performing as well.

And then, Jeremy, on your last question about the guidance raise to 281, last quarter, we were pretty certain that we would be close to there as well. But we've been really gun-shy about raising our guidance too early, just based on what happened last year about this time. This wasn't a great call for us in July last year. So, We wanted to be certain that we felt really good about that before we told everybody that we thought we were going to be higher than our previous range of Q75 to Q79.

Totally understandable, especially when you guys were reporting in early April. Just one follow-up question I wanted to ask on labor. And so you had about 50 base points of deleverage in the quarter. Obviously, a negative comp doesn't help on that, but wanted to get a sense for where your what your wage rates are on a year-over-year basis currently, and then in terms of looking at Q4, where you would need to come to see a positive leverage on that labor line item?

First of all, regarding labor inflation in Q4, I think it will be low single-digit labor inflation from mid to low single-digit. That's what I thought at first.

For Q4, our expectation is that we'll see mid to low single-digit labor inflation, which would be, you know, an improvement from what we've seen in Q2 and Q3.

Also, basically, the positive comp is, of course, going to have a better impact on labor than it did last year, but I can tell you that the numbers we're looking at in Q2 data right now are basically very encouraging.

It goes without saying that a positive comp makes it easier to labor year over year. And without giving really any commentary on quarter to date comps, we're very pleased with how the quarter is progressing.

And sorry, go ahead, Jay.

One thing that we've been seeing unfold over the last couple of months is all the initiatives that we've been working on over the last year and really going as far back into last year with the operational streamlining and then this year supplemented by the new Mr. Fresh, the new touch panels and the reservation system. You see the benefit of those labor initiatives trend along with sales leverage and we're seeing really everything blossom now. And so that's been a real pleasure to watch.

Thanks so much for all the color and taking the questions and best wishes the remainder of the year.

Thank you.

Thank you. And our next question comes from the line of Jeff Bernstein with Barclays. Please proceed with your question.

Great. Thank you very much. A couple of questions. The first one, just looking to clarify your comments on the tariff implications. Seems like you guys report shortly after tariff discussions. I know last quarter there was tariff rollout kind of right before you guys reported it, and then I know there's been some Japan headlines around tariffs just in the past day or two. So I know it's difficult for you, but it sounds like you're fairly confident that there's no material impact. I'm just wondering if you could share any incremental color, especially now that we do have some specifics in terms of at least what's tariffs related to Japan. So any color you could provide in terms of the impact on the cost structure or any pricing you might take would be very helpful. And then I had a follow-up.

Sure. Jeff, this is Jeff. We knew this question was coming. And to be honest, I pre-recorded last week, late last week. The tariff commentary in there was related to last week. Obviously, this new news came out yesterday. But what I can tell you is, well, Just because it's been 24 hours, I don't have a monetary impact yet based on the projected tariff, but I can tell you that about 45% of our basket comes from Japan, Korea, and Vietnam. We'll be able to calculate an impact later. As I mentioned in previous calls, our Japanese suppliers have been very eager to sit with us and say, look, we'll share some of this impact. We don't know if that's 50-50, 60-40. We don't know those numbers yet. As soon as we get clarity on those numbers and we'll be able to calculate more of a monetary impact of what it might do to our COGS, and we'll be able to share that at a future conference or in a future call. We also are hopeful that 25% is not the final number. As you know, these things have bounced around. Trump uses these things as leverage a lot of times, as we know, and Where it ends up by August 1st, we will see. But, you know, we're in a good place in our COGS number right now, in the low 28s. And if we do have an impact, we feel pretty good about the fact that that impact shouldn't throw us north of 30, even if it were really high. So we're in a much better place than if our cost of goods sold was, say, at 30.5 or 31. So we're optimistic about what's going to happen over the next, three to four weeks in terms of the negotiations, and we'll be able to have further cover the next time we get in front of investors.

Understood. Thank you. And then just on the restaurant margin, I know in past quarters you've talked about your, I guess, longer-term confidence sustained in the 20% plus, and I think you had been confident in achieving that in fiscal 25, though it looks like we're running more in the 17% to 18% range year-to-date. So I'm I'm assuming it's going to be difficult to get to 20% in fiscal 25. I know you guys don't chase a margin, but I'm just wondering your perspective on the outlook for the margin in the fourth quarter and or whether or not fiscal 26 in a more normalized environment, you'd be confident to suggest we could be back north of 20% again. Thank you.

First of all, regarding fiscal 25, it's currently about 88% in the nine-month state, so I think it's actually a very difficult state in the full quarter. Speaking to the current year, we're already more than nine months into fiscal 25.

And with the quarter to date, I'm sorry, the year to date number, bridging that to a 20% plus number is difficult. But we don't think there's anything special. that is structurally changed about our margins, and absolutely 20% plus is our target for fiscal 26.

Looking at fiscal 26,

We're feeling very good about our position as it relates to comps. We're lapping fiscal 25, which had a four to five month stretch without IT campaigns. Next year, we have the most IT campaigns we've ever had. We also have the reservation for the full year. And so we, you know, just coming into the year, we're in a very strong position and there's no reason that we wouldn't be able to achieve positive comps and have that flow through to a 20% plus threshold operating comp margin. And with positive comps, that would naturally allow us better leverage on labor, occupancy, other costs, depreciation, and that would drive our market expansion, or really a return to market normalcy.

If I could just slip one more in. Jeff, I know you like to talk about the G&A leverage, which... Lowering your target for this fiscal year, obviously very impressive. I'm just wondering that further reduction, any color you can share in terms of the biggest buckets of these incremental savings and whether or not you think, I know you talk long term about being sub 10%, but should we continue assuming a path trajectory the way we've been seeing recently in terms of how we should think about fiscal 26 versus that sub 13% fiscal 25? Thank you.

Yeah, the biggest basket is really headcount. And the team and leadership and the support center and in field operations has done a really good job of figuring out how to better allocate work to everybody rather than just adding people when things get backed up. So it's really been a group effort. And salaries is the biggest piece of that G&A. So with everybody's focus, that's how we were able to get there. Now that leverage that we got this year was much higher than I expected. And clearly with the guidance raised from where we were at the beginning of the year and the mid 13. So, you know, going forward, I do expect additional leverage in the past. I think I had said 50 to 60 basis points a year next year. Honestly, Jeff, I don't know if it'll be quite that high just because of how much we got this year. I do expect leverage next year, but maybe not to that 50 to 60 basis point. But I do believe that in future years, we might be able to get back there after we get through fiscal 26.

Understood. Thank you. Thank you. Thank you, Jeff. Thank you.

And our next question comes from the line of Andrew Charles with TD Cowan. Please proceed with your question.

Thank you. This is Zach Ogden on for Andrew. Just based on our math, it looks like the new store productivity has improved so far in 2025 relative to 2024. So are you seeing the class of 2025 opening stronger than the class of 2024? And if so, what's that driven by?

Yes. First of all, in terms of 2025, it is clearly a strong performance. Yeah, Fiscal 25 is certainly stronger than Fiscal 24.

It's one of the strongest classes we've had in recent memory. We're really, really pleased. A big part of that would be our opening up of the Pacific Northwest, as Jimmy mentioned, and his prepared remarks. Linwood pretty much immediately entered our top five, and so that's been a great tailwind for us.

Besides building out one of the most promising markets that we've had, we've also been exploring new DMAs.

So, Fishers in Indiana would be an example. Bakersfield is another example that we've returned to over the past couple of earnings calls, but All of them are doing very well. And what's critical about Fisher's and Bakersfield is that they provide data points for us in terms of our pipeline building in the future gives us that much more optionality in terms of how we build our pipeline. And that's really going to be the biggest part of us getting back to a 50-50 split for fiscal 27. And so we're very pleased across the board with the performance, not just in infilling existing markets where we knew that we'd do well, but having positive surprises in new markets as well.

Got it. Thank you. And then just last call, you had called out a $300,000 to $400,000 impact to new store bill costs from tariffs. Has that expectation changed at all since the last call based on the different tariff rates?

No. That $300,000 to $400,000 is still our expectation at worst case scenario given the current tariff situation.

All right. Got it. Thank you. Thanks, Zach. Thanks, Zach.

Thank you. And our next question comes from the line of Todd Brooks with Benchmark Company. Please proceed with your question.

Hey, thanks, and congratulations on the results this quarter. Great to see. Two quick questions. One, following up on reservation, I know we're a little ways away from getting quantifiable data, but just from what you're seeing in the early experience with the platforms in place, Are you seeing those larger boosts around lunch and maybe late night, kind of those where you knew you had capacity if you could unlock it with the surety of being able to get a seat? And then another follow-up on the reservation side, I know that we've really, I think, just started promoting it to loyalty program members recently. Thoughts on the ability to take it to non-loyalty and message it more broadly and draw some new people to the brand to try the restaurant? Or do we need to leg into that just to handle the capacity that we get in a pickup from loyalty program members alone?

No, absolutely. To answer your second question first, that is absolutely the next thing that's on the docket for us. Right now, our guests have been organically discovering it, uh, I'm sorry, our rewards members have been organically discovering it as the reservation button is exactly where the old wait list button was. And so there's really no change to the guest flow. And so people discover it pretty naturally. Otherwise it's been secondary messaging in our marketing emails, but we do believe that this is a massive, massive catalyst for rewards member, uh, registrations. And so certainly, um, we, we want to capture that in terms of what we've seen, um, in the early days. Just given that our last restaurant rolled out in mid-June, I don't want to give you any numbers that you're going to be facing your modeling off of. But one really important point that we've been able to corroborate for statistical analysis is that more than half of our desks with reservations are being seated within two minutes of arrival, which, I mean, that's night and day from what guests are used to. And so I think you get a pretty clear idea of the massive opportunity there is here.

That's fantastic. And then a final question, and I'll jump back in queue. You've talked about the IP partnership and the strength that you're seeing and the coverage that you're seeing. I think there was a comment that you'll be covered for all the weeks of fiscal 26 versus being dark on IP partnerships for four to five months here. in fiscal 25. I know we're not going to get details on what's making up the pipeline, but can you talk qualitatively about the quality of the pipeline and maybe the magnitude of the partners? Because it sounds like there's that much more internal effort against it as well with the new committee and just really a focus on extracting more return out of these efforts. Thanks.

Yeah. I mean, speaking in terms of If you just look at our pipeline from past years, it's pretty clear that the properties just get bigger and better every year. I think one thing that's really key to our new strategy is that while we have been able to get consistently bigger partners, they haven't necessarily translated to bigger sales. And just by having more partnerships per year, that gives us more at-bats, that many more opportunities to discover really what's going to be successful, what's going to build our portfolio based off of that. The upcoming several campaigns that we have are Demon Slayer and One Piece, which are two of the best properties we've partnered with. Following that, we have Kirby, which is the biggest Nintendo property that we've ever partnered with. We're very pleased. The renewed focus on the IP collaborations, I think, is going to be a very key part of our discussions as it relates to fiscal 26th. We're, we're being a little bit more experimental. So for instance, with the current holiday life. We don't have associated bigger upon giveaways, but it's still been a massive traffic driver because of the intensity of the fandom. So we've got these cups for sale and we have food collaborations, but that's still been a very meaningful traffic driver and having these campaigns without that are relatively sort of investment light, let's just be that much more experimental. Let's just have that many more campaigns per year, which will get us closer to that ideal portfolio that much faster.

That's great. Thanks, Ben. Congrats, everyone. Thank you.

Thank you. And our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Hi, guys. Just as we look at restaurant-level expenses here, just wanted to dig in on other costs. You know, is this purely utilities or other things that drove that a little bit higher here during the quarter?

First of all, Q3's other costs are getting higher. As I said, maintenance and utilities, the cost line of various things is getting higher and higher. That's a big reason. Basically, Q2 is getting extremely low. The average of nine months is 14.3%, which is the same as last year. Basically, Q2's reaction came to Q3. I think it's okay if you think so. I think it's okay if you think so. I think it's okay if you think so.

In terms of what's really the major components of our other costs growing as compared to, say, a couple years ago, it's really just minor growth across the board. So flight increases in R&M costs, flight increases in utilities. Really, the way that we think about it is the other cost numbers for Q2 were abnormally low. And so you can sort of think of the 14.7 we had for Q3 as a bounce back. Year-to-date, our other cost as a percentage of sales is 14.3%, which is exactly where it was for the full year of fiscal 24.

We think that 14%-ish is where we're going to be running for the foreseeable future.

Perfect. And then just similar, as we think about G&A, I know that, Jeff, you just talked a little bit about kind of people and salaries and things that are in there. You know, it's great seeing that guidance come down. Has there been... Have there been cuts or are you continuing to add people? I'd just love more insight into kind of how you're managing G&A and if it's purposeful kind of keeping the belt tight or if it's just kind of the sales growth that's keeping that down and leading to the guidance that we saw here today.

It's purposeful keeping it down. We, it's not due to cuts. We have not cut people and we do not plan to cut people. This is more of slowing down the hiring. And I think it's a change in mindset. We, we, several years ago, maybe we're a little quick to hire people when, when things got a little rough and rather than thinking about alternative ways to do things, how we allocate work, how we can, you know, see who has some bandwidth to take on some more things. And everybody's done just a good job at doing that. So when there is a new hire request, it gets a lot more scrutiny now than when I first started with the company. And people are just thinking about different ways of doing things. And the approval process for new hires goes through a lot more people than it did previously. And I challenge it quite a bit as a financial officer. You know, to give a good example, when I joined the company, we were able to cut the number of requested new hires in the budget in half or more than half. It was like from like 21 requested new hires, I think we went down to six or seven. And that was three years ago and it's worked out. So with that change in mindset, I think that it's the way that we will be doing things in the foreseeable future, which is why I'm very optimistic about that. And North of 300 basis points of leverage over three years is something that we are very proud of as a management team.

Excellent. And if I can squeeze in one more, as we think about the successes as you've moved into maybe some smaller markets, does that change your outlook on kind of your total pipeline and how many units you think you can build across the US over time?

Of course.

We're happy for you to fill in whatever that number you think will be.

Okay. Perfect. Thank you, guys. Thank you, Mark. Thank you.

And our next question comes from the line of John Tower with Citi. Please proceed with your question.

Great. Thanks for taking the questions. Um, maybe Jeff, following up to the comment you made earlier on tariffs and the idea of cogs, um, maybe moving north of 30% or maybe not hitting north of 30%. So I guess the implication there is that you guys would absorb all the impact, um, of any sort of tariffs rolling through, even if you're negotiating with your suppliers there, like, or better said, you're not going to necessarily take pricing to offset the impact of tariffs on COGS. Is that the best way to interpret that?

Well, we would take on the portion that we agreed to with the vendors, wherever that ends up, whether it was 50-50 or whatever. Yes, pricing is a last resort. But I will tell you that our effective pricing in November goes down to 1%. So when that happens, we do have some pricing power if we need to do that. But we want to leave that as a last option, certainly. But we could do that. We're just hopeful that the 25% number that's currently out there will end up being much lower. And that's what the hope is going to be. And again, it's been 24 hours. And I think as Jeff Bernstein said earlier, unfortunately, we get to deal with these things within a day or two after they happen on the last two calls. So We will have more color on this as we get further in, but that's our current thought process.

And just to add on that, as it relates to COGS, I think we have a massive opportunity in fiscal 26 through the white rice program that Timmy had mentioned. I had the opportunity to try it for the first time last week, and typically I'll top out at five or six plates. I ate at least 10 plates without thinking about it, and I'm sure that there are going to be tons of other guests that are just as enthusiastic about this. And so If we can really get what we expect from the light rice, that's a big lever for us for fiscal 26. And as Jeff mentioned, we want to pull every other lever before we pull pricing. Got it. And can you speak to what that light rice is? I just haven't heard of it before. Yeah. So it's for most of our nigiri options. When you order on the touch panel, you'll have an option like regular rice or light rice. And The light rice is just the – it's a smaller portion of rice. Okay, so lower COGS. So it's the same price point, lower COGS. It's also – I mean, lower COGS, but also it's not as filling. And so I ate twice as much as I usually do when I was choosing the light rice options. Okay. And then just on – I know fiscal 27, you're pointing to getting back to a 50-50 split on new versus emerging markets, or excuse me, new versus existing markets. Can you speak to that number for new stores in 26? I'm sorry if I misspoke. I meant 27, you're talking about new stores, 50-50. What that looks like in 26, and then are you still anticipating, I think, roughly a 4% or so cannibalization number dragging on the business next year?

In terms of our expectations for fiscal 26, we're looking at a pipeline where it's going to be about 70% existing markets, 30% new.

In terms of the impact of the new units in existing markets, We think it's going to be largely in line with the 400 basis point headwind that we saw in fiscal 25 and 24.

Your risk?

And then as it relates to fiscal 27, we expect to continue to maintain that 20% unit growth. We do think we'll be able to get back to that 50-50, which would naturally just cut that compact window path. Okay. And then just last piece for me, in terms of it's great to hear the IP collaboration stepping up next year, and it sounds like you're going to be on pretty much all year or throughout the year in fiscal 26th. In the past, I think you've kind of had some hit or misses when it comes to some of the IP tie-ins. So can you speak to your confidence or how you're approaching it differently this time to ensure that the hit rates are higher than perhaps past initiatives or past IP tie-ins that you've had? Yeah, well, I think the biggest frustration in the past was really sort of opportunity cost, where if you had a miss, It wasn't just that you had a miss. You had a miss that was eating up two months of your calendar that could be better spent with a better collaboration. And just by having, you know, seven to eight, which is meaningfully more than we've had this year and it's the most that we've had of any year, we get that many more tries, so to speak, to find what the successful ones are. And based off of those successes, we know what to repeat in future years. Got it. So it's effectively just frankly sprinkling in more throughout the year, so you'll have a better idea of what works and what you can repeat. Okay, cool.

Awesome. Thanks for taking the questions. Thank you, John. Of course. Thank you.

And our next question comes from the line of Jim Sanderson with North Coast Research. Please proceed with your question.

Thanks for the question and congratulations on a great quarter. I wanted to talk a little bit more about the mix component of same-store sales. How do you expect that to progress going forward if that's related to how you're rolling out collaborations and how we should look at that as you roll off pricing in November?

First of all, in terms of price and mix, from the high-single-date-negative to the low-single-date-negative, I think there will be a lot of opportunity from now on. We're very excited to see where we can bring MIX in fiscal 26.

So over the last couple of years, Our mix has gone from negative high single digits to hovering between negative low single digits to mid single digits. Part of that from this fiscal year be the headwind from the lack of IP collaborations. We have typically with every IP collaboration, we'll have a giveaway that's associated with a certain spending threshold. It's typically $70 or so. The giveaway campaign that we had for HoloLive was actually at a higher dollar threshold because we saw there's that much, you know, guest interest for it. And so that naturally drives average ticket. The light price we think is a big opportunity in terms of average check growth. I fully, my personal expectation is that this will grow the number of plates per person. And I think that's really an opportunity that we're going to be leading into. The other is the 25th plate initiative. We're really pleased with the early results. What we have seen is pretty much exactly what we expected is minor pressure on transactions above 30 plates, but more than enough growth in the 25 plate plus category to offset that. And so we're really happy to see that.

All right. Thank you for that. Just wanted to talk a little bit more about the RES system as it's related to membership levels. Have you seen any notable increase in membership in the fourth quarter? Or could you update us on where that membership rate is?

So membership rates are, the growth rate is pretty much the same as past quarters. And a big part of that is we haven't communicated the reservation system to non-rewards members yet. And so I expect in November, I'll be able to give you the answer you're looking for.

Very good. Last question for me. Could you just update us on the various technology initiatives you've got in process? I think you've got the rest system you're just finishing. I think you've got some point of sale issues to resolve. And then there's the robotic dishwasher. Is there anything else out there that could have an impact, good or bad, on operations going forward?

One of the biggest things that we're excited for for the 26th would be the DISH robot

Our strong hope was to get it live in fiscal 25, but I'm not sure if we'll be able to do that, but it really does seem like we'll be able to get certification within a matter of months. The units that we're building in fiscal 26 are built, you know, from the blueprint stage, assuming the eventual installation of these robots, and so that's going to be a very meaningful opportunity, should reduce headcount fully two to one.

Also, one more thing. Right now, the reservation system is in full swing, but basically, And then while the reservation system is at each of our restaurants, we still see lots of opportunity for improvements, especially as it relates to employee efficiency.

We've got a list of about 70 different things that we're working on as it relates to the reservation system. That, we think, is going to have pretty meaningful upside opportunities as it relates to front of house efficiencies.

All right. Thank you very much. Thank you. Thank you.

And our next question comes from the line of George Kelly with Ropth Capital Partners. Please proceed with your question.

Hey, everybody. Thanks for taking my questions. First, most of them have been asked and answered, but just a quick follow-up on the prior question. Can you be any more specific about the efficiency opportunity that you see available in 2026 from reservations?

Yeah, so just as a couple examples, the seeding process is meaningfully simplified. Before, when the seeder or the host was seeding a gas, they had to They had to enter information on three different terminals, and we've cut that labor by two-thirds, so there's only one terminal that they're touching, and the process itself is simplified. One unexpected efficiency opportunity that we've seen is in busing, and this hadn't occurred to me until I'd actually seen this happen in the restaurants once we'd implemented it, but there's an element of psychological pressure when you have you know, reservation times, which is promised somebody before we, we did it on a wait list. And so you need like parties, 26, 27, 28, we're waiting. And that's a different feeling from being at seven, you know, being at seven 30, knowing that there are three parties that you'd promised to see them at seven o'clock waiting for you. And so the busters are actually moving more quickly. And so that's opportunity, especially in the peak hours. And so I'm excited to see just how much we can get out of that.

Okay. That's helpful. Thanks. And then second question for me, back to the light rice. Ben, you sound confident about either what you're seeing or what sort of how you expect the reception you expect to get from that. Can you just give us a little more background on like why you have that level of confidence about the sort of plate opportunity and maybe it's been tested at certain locations and and when do you expect it to fully roll out so just i guess added context about that would be great

The biggest thing that gives us confidence is that this is something that Courage Japan has already been doing for years.

And when they implemented this, they did see mix improvement. They did see ticket growth. We were able to implement this now because of the update to the new touch panel system, which gives us much more flexibility. And so just looking at the results from Japan gives us a lot of confidence. What I was thinking earlier was really just from my personal experience. I really loved it. I would strongly encourage you to try it, and I think you'll feel as confident. You'll understand my confidence once you try it that, there really is a very big opportunity there. We've already got this in about 50 of our restaurants, and yeah, I'm really happy that we have this. It's really something that our guests have been asking for for a long time, whether it's explicitly in the guest surveys or just in the piles of untouched rice that we see in our restaurants. And so this is something that our guests have been asking for, and I think we've been doing a really good job in fiscal 25 of just checking one issue after another in terms of points of friction for our guests.

So just to give you some additional context,

Classic Cura speed style. We implemented this in our first restaurant about 10 days ago. We now have it in 50 restaurants. And so that speaks to our enthusiasm. But as you can imagine, we don't have a lot of data that we can share with you yet.

Okay, that's helpful. Thank you. Thank you, Gordon.

Thank you. And our final question comes from the line of Matt Curtis with William Blair. Please proceed with your question.

Hi, good afternoon. I apologize if I missed this in your commentary, but could you just give us the average ticket breakdown in the quarter between price and mix?

Price fixed cumulatively was positive 0.8.

Effective price was 4.3, so mix was negative 3.5.

As we mentioned earlier,

Mix has been hovering around the negative high single digits for a very long time. We're really pleased to see it stabilize in this low to mid single digit range. With the initiatives that we have, like the light rice, the 25th plates, IP collaborations and giveaways, we're really excited to further drive that down. And, you know, we think there's even a possibility that we'll be able to see a positive number at some point.

Okay, great. Thank you. And then I know the addition of light rice is really recent, but just to be clear, could you tell us what the per plate consumption trends were like throughout the quarter?

I'm sorry. So this was implemented after Q3, and so it wouldn't have had any impact on the plates per person consumption in the prior quarter.

Yeah, but I meant what were the actual per-flight consumption trends during the quarter relative to, say, the second quarter?

So for the last several years, it's been approximately six per person.

Okay.

Okay, great. Thanks very much. Thank you, Matt. Thank you. With that, this does conclude today's teleconference.

We thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.