Kura Sushi USA, Inc.

Good afternoon.

Ladies and gentlemen, thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Third Quarter 2026 Earnings Conference Call. At this time, 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 line today, we have Hajime, Jimmy, Uba, President and Chief Executive Officer, and Benjamin Porten, SVP, Investor Relations and System Development. And now I would like to turn the call over to Mr. Porter, Porten.

Thank you, operator. Good afternoon, everyone, and thank you all for joining.

By now, everyone should have access to our fiscal third quarter 2026 earnings release. It can be found at www.kurosushi.com in the Investor Relations section. A copy of the earnings release is also being included in the Medicaid resubmitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussions 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 any 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 for Pivotal Accordance with GAAP. and the reconciliations to comparable gap measures are available in 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 who's joining us on our call today.

During our fiscal third quarter, we were able to make significant progress towards our goals of sustainable margin improvement and returning to our historical 20% restaurant-level operating profit margins regardless of tariff relief. Despite our cost of goods sold as a percentage of sales being 200 basis points higher than last year due to tariffs, our operational discipline allowed us to more than offset this impact and improve our restaurant-level operating profit margin by 90 basis points over the prior year to 19.1%. We were also able to improve adjusted EBITDA margins by 40 basis points to 7.7%, and grew our adjusted EBITDA dollars by more than 20% over the prior year. Our ability to improve profitability in a challenging environment speaks to what we do best, responding rapidly to control what we can control. Total sales for the fiscal third quarter were $85.9 million, representing comparable sales of negative 0.4%, with negative 5.1% of traffic offset by a positive 4.7% in price on the mix. Effective pricing for the quarter was 4.5%. During our last earnings call, we mentioned that mix being close to flat at negative 0.2% was the best flow through in pricing that we had ever seen. Mix actually saw further improvement in the third quarter with average get growth exceeding effective pricing. Pricing relapsed 1% as of June 1st, which we offset with 1% pricing on July 1st, making our effective pricing for fiscal fourth quarter 4.2%. Cost of goods sold as a percentage of sales was 30.2% as compared to 28.3% in the prior year quarter due to the impact of tariffs. While COGS remain meaningfully higher than historical levels, we are pleased with the progress of our vendor negotiations and cost management efforts, which resulted in a sequential improvement of 20 basis points over Q2. Our full-year COGS expectations as a percentage of sales remain approximately 30%. Labor as a percentage of sales improved by 250 basis points to 30.6% due to operational initiatives. At the beginning of the fiscal year, we had shared an expectation to lever labor costs by 100 basis points over fiscal 2025's full-year labor costs of 32.9%. I'm very proud to share that as of the end of our third quarter, We've been able to drive down our year-to-date labor cost as a percentage of sales to 31.2%. It now looks like we are going to land in the neighborhood of 200 basis points of improvement on our labor line. Turning to unit development, we opened seven new restaurants in the third quarter. Orange, Union City, Temecula, and San Diego in California, Goodyear, Arizona, Wellington, Florida, and Denton, Texas. Subsequent to quarter end, we opened restaurants in Tulsa, Oklahoma, Sunset Valley, Texas, and Charlotte, North Carolina, bringing us to 15 new unit openings to date. While we continue to expect to open 16 new restaurants for this fiscal year, we have unfortunately faced significant unexpected delays for a number of restaurant openings in both Q3 and Q4, and the loss of approximately six revenue months has impacted our revenue expectations for the year, which we will discuss shortly. These delays occurred following the April earnings call across different geographies and for different reasons, and for many unrelated delays to coincide with one another is highly unusual. Our marketing team has been hard at work building our IP pipeline for Fiscal 27, which is shaping up to be one of our strongest ever. Following our current collaboration with Honkai Star Rail, we have a collaboration with Atlas' Persona. In June, Atlas officially announced the release of the much-awaited Persona 6, making the end of a decade-long wait for fans since 2016's Persona 5. In September and October, we are partnering with Apostasy Diaries, coinciding with the release of the anime's latest season. I'm extremely excited to announce that November marks our third collaboration with Nintendo. Our IP campaign for November and December is Yoshi, celebrate the recently released Yoshi and the Mysterious Book for the Nintendo Switch 2. In other marketing news, we remain on track for a fiscal 2027 launch for our upgraded status-tiered rewards program. We are also in the process of introducing optionality to our Bicrocon system by giving guests a choice between the capsule price and the free dessert voucher We believe this addition will improve guest satisfaction, encourage repeat visits, and reduce our price production costs. Development is currently underway, and we hope to have updates for you at our November earnings call. Now, I'll discuss our financials and liquidity. For the third quarter, Total sales were $85.9 million as compared to $74 million in the prior year period. Comparable restaurant sales growth compared to the prior year period was negative 0.4%, with negative 5.1% from traffic and 4.7% from press and mix. Comparable sales growth in our West Coast market was negative 1.2%, and negative 2.1% in our Southwest market. Effective pricing for the quarter was 4.5%. As a reminder, beginning in the first quarter of fiscal year 2027, we will no longer provide regional breakdowns for comparable sales as regional comps are largely determined by the timing of infills and we do not believe they are indicative of overall company trends. Turning to costs, food and beverage costs as a percentage of sales were 30.2%, compared to 28.3% in the prior year quarter due to tariffs on imported ingredients. Labor and related costs as a percentage of sales were 30.6%, as compared to 33.1% in the prior year quarter due to operational efficiencies and pricing partially offset by low single-digit Rich Incubation. Occupancy and related expenses as a percentage of sales were 7.8% compared to prior year quarters 7.5%. Depreciation and amortization expenses as a percentage of sales were 4.9% as compared to the prior year quarters 4.7%. Other costs as a percentage of sales were 14.6% as compared to the prior year quarter's 14.7%. General and administrative expenses as a percentage of sales were 11.9% as compared to 11.8% in the prior year quarter. Operating loss was $39,000. and many more. Income tax expense was $49,000 as compared to $55,000 in the prior year quarter. Net income was $423,000, over 3 cents per share, compared to net income of $565,000 over $0.05 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.1% compared to 18.2% in the prior year quarter. Adjacent EBITDA was $6.6 million as compared to $5.4 million in the prior year quarter. And at the end of the fiscal third quarter, We had 66.1 million dollars in cash, cash equivalents and investments and no debt. Lastly, I would like to update and reiterate the following guidance for fiscal year 2026. We now expect total sales to be between 330.5 and 331.5 million dollars. We continue to expect to open 16 new units, maintaining an annual unit growth rate above 20%, with average net capital expenditure per unit continuing to approximate $2.5 million. We continue to expect G&A expenses as a percentage of sales to be approximately 12%, excluding litigation expense. And we now expect and Freya Estran-level operating profit margins to be approximately 18.5%. Before we open the call to Q&A, I want to conclude my prepared remarks by acknowledging our team whose execution during the quarter was excellent despite our challenging top line. This is best showcased in our improved guidance on Estran margin and Estran margin dollars which are both higher than our previous expectations for the year. We remain confident in our team's ability to deliver this kind of execution going forward, and I thank all of our team members for their continued efforts. This concludes our previous remarks. I'm 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 your line is in the question queue. You may press star 2 if you would like to remove your question for the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.

Our first question is from Jeremy Hamblin with Craig Hellum.

Please proceed with your question.

Thanks for taking the questions. I thought I might start with the comp trends. Obviously, a little bit disappointing with where traffic fell down 5% in the quarter. I wanted to see if you could provide us an update on how Current quarter trends are looking how kind of June shaped up. And with the guidance range that you provided on revenues for FY26, what's the implied same store sale range that you would expect to hit those revenue figures given what you expect for unit openings the remainder of the year?

Thank you, Jeremy, for your first question.

Please allow me to speak in Japanese.

Ben is going to translate it. First of all, Q3's traffic, of course, we also disappointed, but the main reason is, as I said in the previous call, the influence of the gas price. As for Q4, the gas price is a little cheaper, so that's a benefit, but other than that, it's offset by the world top and other places, so our revenue guidance this time is a construction delay, plus the macro environment for Q3, Q2, and Q4. I hope you can understand that it's a good way to do it. Hi Jeremy, this is Ben.

We were certainly disappointed that traffic came in negatively as well, but we believe that this is largely due to elevated gas prices and along the lines of what we discussed in the prior earnings call. As the gas prices have eased, we're beginning to see a little bit of benefit as we've entered Q4, but those benefits are partially offset by how popular the World Cup is. And so the guidance that we're providing for The revenue contemplates the Q3 and Q4 macro background as well as the construction delays.

On the other hand, we are very confident in the achievement of the positive comp in the next few years. Q4 has strengthened various rules for this economy. I would like to once again tell you that we can make a positive comp in the next few years. Also, I would like to say that We continue to be confident in our ability to deliver slightly positive comps for the full year.

This year has been choppy, but we're very much looking forward to fiscal 27. As we've discussed in the past, the real estate pipeline is extremely promising. It's the first time that we've had a majority new market ratio in many years. And so that'll be a catalyzation tailwind. And so that'll be a tailwind for us. The fiscal 27 IP pipeline is phenomenal. I could not be happier with it. And so that should be a pretty meaningful tailwind as well. We have the rewards program step up coming on as we enter the new year. As it relates to fiscal 27, we're very bullish about where we can land for the comps.

Gotcha. Okay. I think it implies something more like down 3%, 4%, maybe in Q4. I did have a follow-up question. The company had a fairly consistent history of comp performance. consistently positive with some volatility, but there's clearly been a bit more volatility over the past two years and wanted to just understand what you think might be driving that. And then in terms of thinking about as the company is closing in on 100 locations over the coming couple of quarters, How should we be thinking about the long-term growth algorithm for Quora as a concept? Is this something where you think of long-term comps in the range of, let's say, low single digit, positive low single digit, obviously with some variability, but color on what internally you expect? and whether, you know, obviously there has been some noise in 26, but it seems as though the IP collaborations, you know, have had maybe a bit of a bigger impact, you know, than, you know, typical on results. Of course, you've got to throw in there the higher gas prices, but, you know, thoughts on those two questions.

Sure. First of all, I'd like to answer the first question. After all, The reason why Comp wasn't stable was because of the gap in the cadence of the IP collaboration. But that will disappear from the current version. The other reason is cannibalization. These two are the cadence of the IP and cannibalization. I think this is a big impact. As I said before, the impact of cannibalization will be halved after 27. As for the IP, there are 27, 26, and 7 new IPs. Thank you very much. In terms of the things that are under our control as it relates to comp, we see that really pipeline management is the dominant factor, and that relates both to IT pipeline as well as real estate pipeline.

As it relates to the IP pipeline, last year we had a five-month stretch without IPs, and so that was a very visible comp impact. We've since remedied that. We have seven this year, and we're actually continuing to grow the number that we're doing every year as we know that there's maximal excitement at the beginning of every campaign. So fiscal 27th, beyond having higher quality IPs, we'll also have a total of eight IPs. We're also... and many more. Thank you. As it relates to the last two years' comps, I would also add just that this hasn't happened in a vacuum. We're in a war now with elevated gas prices. Last year, we had the FAST Act come online, and we've got a pretty big California presence.

There are factors beyond our control, but we feel extremely good about the factors that are in our control.

Great. All right. Well, thanks for taking my questions, and best wishes. Thank you.

Our next question is from Andrew Charles with TD Cowan & Co. Please proceed with your question.

Thank you. This is Zach Ogden on for Andrew. I just have a follow-up to Jeremy's first question. I know you called out the delayed openings being partly are responsible for the lower revenue guidance, but can you just talk about where that down 40 basis points stands for sales for the quarter fell relative to your expectations, and then how your expectations for 4Q have changed over the last 90 days?

Do you have any thoughts about COMP?

No, I don't have any particular thoughts about COMP.

I'm looking forward to seeing the positive results in the future. Hey Zach, this is Ben. In terms of the negative 0.4 for COMP, this was within our range of possibilities and so it was not a surprise to us. Just given the overall macro pressure and the meaningfully elevated gas prices, especially in California, In terms of our thoughts on comps over the last 90 days, they haven't really changed. We continue to believe that we can deliver positive comps for the full year. If we are talking about surprises, though, the restaurant delays are certainly the biggest surprise for us. This was not something that we anticipated at all at the time of the last call.

Got it. Okay, thank you. And then the second question is on mix. Could you just unpack what made that flip positive in the quarter? Last call, it did sound like you weren't expecting that to remain flat. So what drove mix to actually be positive and better than you were expecting?

First of all, Q1 was 0% and Q2 was 4% or more. And this trend has been going on since June. So our prediction is that pricing will be very positive. The price has increased by 3.5%, and the number of customers has increased, and the number of side menus has also increased. As I mentioned before, compared to other sushi restaurants, we have lowered the price very much. I think this has contributed to the growth of our customers. So, in terms of sustainability, the possibility of continuing has increased a little. Thank you very much.

On the note of surprises, it was a pleasant surprise at the beginning of the year when we began to see the mix turn so favorable, especially after it had been a headwind for multiple years. That having continued through present day and actually further accelerating in June have led us to believe that this is not just a coincidence or luck. and our interpretation is that this is completely a result of our pricing strategy. The 3.5% that we've priced up that we took in November meaningfully underprices our competitors. And so our guests who have been going to other sushi restaurants, they've become accustomed to paying a much higher price than they had, say, a year ago. And then they come into our restaurant with those higher price expectations. They see how much cheaper we are than they expect and so they end up spending more as a result. And so we're seeing growth Not just in purpose and plates, but also mix, attachment, and drinks as well.

Not just in purpose and plates, but also mix, attachment, and drinks as well. Not just in purpose and plates, but also mix, attachment, and drinks as well. I think generally in the restaurant industry when there are macro pressures on the consumer

The expectation is that people reduce frequency. And so we're seeing that in traffic. And given higher gas prices and the popularity of the World Cup, this is something that we would expect. But seeing the mix grow is giving us enormous confidence just in terms of when our guests do come in, they're spending more than ever before. And so clearly, they're responding extremely well to the efforts that we've been putting in place, whether it be the The Coke Flow promotions that we were running in June, our new giveaways, hand roll campaigns, our promotional calendar has really been packed. And seeing that mix, improvements, sustain over more than six months now, gives us that much more confidence that the competitive advantage between ourselves and the rest of the sushi industry is really, it cannot be crossed.

To add a little more, if this price mix trend continues, We feel that we've been able to take minimal pricing because of the aggressive cost controls, and our strong hope is that as the macro environment normalizes and the World Cup is no longer a factor,

Our traffic returns, but our price mix remains elevated. Our pricing expectations for fiscal 27 are actually to be below where we came in for fiscal 26. And so we just hope to keep compounding this advantage.

Got it. Thanks, guys.

Thanks, Zach. Thank you. Our next question is from Todd Brooks.

with Benchmark StoneX. Please proceed with your question.

Hey, thanks for taking my questions. Just one to kind of dimensionalize the permitting delays and getting the new units open that you've experienced and that kind of caught you by surprise. I think you framed it up, maybe six months of lost unit operating time. Four million AUVs. I mean, can we ballpark the revenue guide down kind of a couple million attributable to the delays and the balance, just same-store sales performance?

Go ahead and just put them all. Yeah, that's a fair analysis.

Okay, great. Thanks. And then just looking forward, you talked about how pleasantly surprised you've been by the mixed performance the last couple quarters. I think coming into this quarter, you had looked for mixed to revert. That did not happen. Based on what you're learning here and as you're thinking about Q4, are you still assuming that you can kind of hold the hill on MIX? Are you expecting in kind of the guidance horizon going forward for the balance of the fiscal year, MIX to switch back to slightly negative?

Of course, it's still in the middle of July, but there's a very positive change in June, and I don't think it's going to change much from now on. But based on that, this time it's all revenue guidance and so on. and others.

Given that the mix has actually improved as we've entered the quarter, we remain very optimistic. In terms of the remainder of the quarter, we really don't see a reason for trends to change. That being said, anything is possible and so that's reflected in the range of our We believe the macro situation as every macro situation in the past will be ultimately transitory but We believe that the mixed flow-through that we're seeing now is potentially a sustainable advantage. And so, net-net, this overall could be a very positive tailwind for us in the coming years.

Great. And then one final, and I'll jump back in queue. You quickly ripped through the review of the upcoming IP collab schedule. I know that Honkai just recently launched. Can we just review kind of the calendar for the back of this fiscal or this last quarter of the fiscal year? And then more importantly, can you quantify or maybe even qualify a product of the quality of Yoshi as a platform with Nintendo and this phenomenon that it seems like you keep earning your way up into a higher tier and maybe more impactful promotions with Nintendo? Thanks.

Yeah, it would be my pleasure. So after Honkai Star Rail, we have Persona, which is a role-playing game. And then in September, October, we have the Apothecary Diaries, which is a popular light novel series, which has since become a very popular anime. And then November and December, we have Yoshi's.

And just Yoshi relative to Kirby, just on magnitudes of expected impact?

I would say it's comparable. It's not, yeah, I mean, you're asking me to choose between children. I love them both. It's hard to pick.

Also, this time, I haven't shared it yet, but at the November stage, from December to January, January, February, March, April, in addition to that, we'll be uploading what we can upload in the future, so I don't think we'll be able to do that in November.

You can be very excited for the November call because we're extremely excited to share what we have for the back half of the year in terms of the IT pipeline.

Okay, perfect. Thank you both.

Thank you.

Our next question is from Matt Curtis with DA Davidson. Please proceed with your questions.

Hi, good afternoon. I was just wondering if we could get back to the third quarter for a minute. Could you guys describe maybe the sales impact that IT collabs had in the third quarter relative to the second quarter? And then maybe more importantly, how were the same sort of sales trends affected as you began to lap the resumption of IT collabs, which, correct me if I'm wrong, I believe happened at the end of April.

Hey Matt, this is Ben. For really any IP, our base case expectation is a low single digit contribution.

When we have marquee items like Furby or Yoshi, the expectation is a mid-single digit contribution. We're excited to continue to introduce more and more mid-single digit contributing IPs as we continue.

And so as it relates to Q3, we believe the IPs contributed low single digits. And part of the offset for the traffic pressure that we saw through the quarter was the success of our food collaborations. The quarter reserve was very meaningful in terms of not just getting people to come in, but to spend more than they have before. That's been a

a pretty big part of the mixed growth. And so we're very excited for the incremental benefit that we'll have next year by having an extra three of these.

Okay, thanks. And then a different topic. I think last quarter you mentioned the 1% comp lift from the reservation system. I was just wondering if that persisted in the third quarter.

Yeah. Okay, great. Thank you. Thank you, Matt. Thanks, Matt.

Thank you.

Our next question is from Sharon Zaxia with William Blair. Please proceed with your question.

Hey, thanks for taking the question. I'm curious, as you've seen the slowdown in traffic, is there any difference in what you're seeing with new customer acquisition versus your existing customer frequency?

We are seeing too much of a difference in terms of behavior between non-members and members. The defining feature really for Key3 is just a reduction of frequency.

We are seeing too much of a difference in terms of behavior between non-members and members.

And again, going back to the reduction of frequency being tied to the macro environment with the higher gas prices competing attention with the World Cup,

All of these factors we understand is transitory and we're very confident that we'll be able to maintain the momentum of our mix and come out stronger than before.

Thanks for that. And then on the restaurant delays, are there steps that you're taking to help ensure that we don't see kind of any incremental issues in 2027? Are you adding more buffer to the pipeline as you think about that?

First of all, there were four stores this time, and three of them were related to fire inspection. In fact, the delay caused by fire inspection is common. On the other hand, the biggest delay is usually fire inspection. Usually, the deadline for what has been pointed out is about two weeks, but this time it was about six weeks for three stores. Thank you very much.

Of the four stores, three of the delays were caused by fire inspections. In fact, when we do have a delay, it's typically because of a fire inspection. When we do have a correction that we need to make, it's usually something that we can do in two weeks, but the asks this time were much more involved. They took, on average, six weeks with extra time added on top on the end as we were waiting for Reinspection to be scheduled. And so that was pretty frustrating. Obviously, we adjust our practices with every hiccup of these types that we face. But unfortunately, it's always a different issue. Different counties have different rules and different inspectors, even in the same county, are idiosyncratic. And so that makes it pretty hard to head off And so we do bake in to our expectations a certain degree of delays, but for so many to fall on each other at the same time and for them to be much longer than we typically experience, that was what was so unexpected.

Also, Charlotte opened today with a new North Carolina, but regarding that, we were asked to do a third-party inspection of the conveyor belt, which has never been done before. So we're happy to say that we actually just opened our Charlotte, North Carolina location today, our 94th restaurant. As part of that inspection process, there was a request for a third-party inspection of our conveyor belts, which had

We should never happen with our preceding 93 restaurants. And so these kinds of surprises can always pop up. But now that that's happened, we know whenever we're opening up in a new county to come with that third party inspection ready and head off that issue for the future.

Okay, thank you.

Thanks.

Thank you.

Our next question is Mark Smith with Lake Street Capital. Please proceed with your question.

Hi, guys. You mentioned some cannibalization kind of easing here, but I'm curious any real impact in the quarter as well as your outlook for many of the restaurants that you've opened over the last several months from cannibalization.

First of all, we used to have 300 or 400, but now we have about 250. and so on. Hey, Mark. This is Ben. In the past, I think our estimate for the comp headwinds, broadly speaking, were between 300 to 400 basis points. Now, we've been able to bring it down to about 250 basis points. We would expect this headwind to

Thank you. Okay.

And then you talked about opening delays. I'm curious if that's added any incremental costs. I know that you guys maintain your guidance here for kind of new restaurant build-out costs. But are you seeing any incremental costs from delays or just inflationary pressure that's leading to higher opening costs?

First of all, rent is no longer available because we are in the process of possession. Of course, the training cost is extra, but what I would like to emphasize here is that we were able to upgrade the guidance of the restaurant-level margin thanks to the training cost due to the opening delay. Also, the FI27 is probably 20% closer to the restaurant-level margin than it was at the beginning, which is a lot faster. Hey Mark, so when we have an opening delay by an inspection, really the primary cost would be in training costs or rehiring costs, because you can't ask somebody to wait for a month with no job.

That being said, in spite of those incremental costs, we were able to raise our restaurant-level operating profit margin guidance to 18.5%. And so we are spectacularly proud of just how efficient all of our restaurant-level members have been. And as we get closer to the end of the year and have more visibility into fiscal 27, we think that we are going to get a lot closer to that 20% historical goal a lot faster than we'd expected. And so we're very excited to give you guys an update on that as well in November.

Perfect. The last one for me is just thinking about menu price increases, what you guys have taken. It sounds like you're seeing positive results out of offering a value proposition. But I'm curious just if you want to speak to elasticity in the price increases that you've taken and kind of response from consumers.

Well, I mean, I think the mixed growth really speaks for all of it. And so we're just, our plan is really to just keep the value as intact, as aggressive as it has been, and wait for that traffic to return, and then just benefit on both ends.

Of course, we would like to release more data by November, but at our own level, of course, I work for Sushiya, so I go to Sushiya, but until now, the lunch was $80, and now it's $100, so it's already 20%, 25% I think. We have an effective price of 4% We can't be sure that the price will be lower than that of Sushi USA after the tariff. The top line is still in a tough situation, but if we improve the margin while minimizing the pricing in this situation, all of these things will be improved. The sentiment of consumers will be improved, and when the tariff is gone, we can expect a big margin improvement.

We're actually in the process of performing an analysis to get an empirical view of just how much pricing our competitors have been taking. We can speak anecdotally that against our 4%-ish, it's much typically closer to 20%. It's really just a gulf that has continued to widen exactly as we'd expected post-tariff. And so while it's unfortunate that the Q4 top line, we expect some pressure, we believe that as long as we keep the pricing at a minimum and continue to drive margin improvement in spite of that, when traffic returns, we'll really, the margins will just, we're extremely excited.

Excellent. Thank you, guys. Thanks, Martin Buck.

Thank you.

Our next question is from JP Wallum with Roth Capital Partners. Please proceed with your question.

JP WALLUM Great. Hi, guys. I appreciate you taking my questions. I wanted to kind of just follow up on maybe sort of the new customer or sort of the understanding that you talked about earlier, guests going to competitors and then coming to you guys and spending a little bit more. But I'm curious. Is there anything to show that new customers or customers maybe trading down from others is actually increasing as a percent of mix relative to your repeat customers? I'm trying to get a sense of whether you think there's some real market share gains that are going on here that maybe some customers have fallen off, but as that lower income traffic maybe returns, you see this big boost ahead.

Yeah, the biggest point in favor of that that I could point out now is that the average check growth is actually, the growth rate is faster among non-members than reward members, which has never been the case before. And so our interpretation is that that is the reflection of a higher spending tranche of guests coming to us.

Also, we do qualitative and quantitative research every six months, so in the next research,

and we commissioned a consumer study twice a year and so obviously that'll be one of the top questions that we'll have for the next analysis and we look forward to updating you guys on just how much market we've been able to capture.

Okay, great. And then one more, maybe more on a sort of strategic lens, but As you sit here almost 100 units, thinking about your guys' centralized operations management at HQ, as you think about the next 100 units from here, how would you categorize where your infrastructure is at to support that? Is there anything that you're sort of seeing in the next 6 to 12 months that's needed?

Hey JP, this is Ben. And so as it relates to fiscal 27,

We already have the pipeline locked and loaded, and we know that it's higher than 20%, so we're happy to report that. In terms of the G&A and support center, we really do think that we have everything intact. We'll just sort of need proportionate growth to manage the more volume of work as we continue to grow. So really nothing out of the ordinary there, and we would continue to expect to leverage G&A. Just in terms of growth, unit growth broadly, the constraining factors for us have historically been the availability of high-quality sites, our availability of capital, and our management pipeline. We feel very good about our training department and our personnel. We've got a great bench. And we opened seven restaurants in Q3, but our cash bet, cash burn, was only $3 million. And so we're doing... We're very, very pleased with how our balance sheet management has been going. And so really the remainder is just the availability of high-quality sites. And so we want to be flexible on that just so that we don't force ourselves to commit to sites that we wouldn't otherwise choose.

Great. Thanks, guys. Best of luck. Thanks, JP.

Thank you. Our next question is from John Tower with Citi.

Please proceed with your question.

Great. Thanks for taking the questions. Maybe real quick, obviously, you had spoke to the idea of seeing labor leverage and expecting that to be down, I believe, 200 basis points or so in fiscal 26. Can you just speak to exactly what you're doing at the store level to get that level of leverage, particularly in the context of very modest same-store sales growth on the year?

Sure. First of all, we were able to cut down the reservation system and update the search panel from Q4 to Q25. We were able to cut down the reservation system and update the search panel from Q4 to Q25. We were able to cut down the reservation system and update the search panel from Q4 to Q25. We were able to cut down the reservation system and update the search panel from Q4 to Q25. We were able to cut down the reservation system and update the search panel from Q4 to Q25. We were able to cut down the reservation system and update the search panel from Q4 to Q25. We were able to cut down the reservation system and update the search panel from Q4 to Q25.

In terms of the labor gains this year, a lot of it comes down to the work that we did in fiscal 25. The reservation system was installed system-wide by Q4 of last year, and so that's resulted in headcount reduction in front of house. We've also gotten better scheduling appropriately. We've gotten a lot tighter with that. And so those two factors have really been the driving factors for the improvement in fiscal 26. We'll be lapping the benefit of the reservation system implementation in Q4, but we have the robotic dishwasher still in 424 fiscal 27. And so this, again, going back to your comment about leveraging 200 basis points on modest comps, this is really, I think, something that only Cura could do.

Okay, and then I appreciate all that color. Thank you for that. In terms of thinking about the other OpEx line in the next year, obviously right now you've upped the IP cadence, which I know is going to or has cost a little bit more money, but it does look like year over year, at least on a per week basis, that came down pretty nicely in the third quarter. The expectations for next year, given that you're going to be, I think, launching one more IP, and then also you're going to have these reserve 12 months or 12 reserve options throughout the year versus nine this year. So broadly, how are you thinking about marketing spend next year versus this year?

I've been waiting for this question. Actually, the coupon I mentioned in Prepaid Remax, I think it will be an improvement of about 50 basis points if it goes well. Of course, there is a possibility that we can develop the system and do it relatively early, so I'm looking forward to the November call. However, to some extent, the stock of Big Rappon's toy will be delivered early, so from the second half, John, we're happy you asked this because this is something that Jimmy and I have been working on. So Jimmy kind of touched on this in the prepared remarks, but the Bikrapon we think is actually going to be a

Maybe a bigger lever than people are initially appreciating. So to give you some context, with the last consumer study, we saw that guests really saw the challenge of getting to that 15th plate and getting the prize is very compelling. But they found the prizes themselves not compelling. And so we were dispersing these prizes every time, regardless of whether the guests were interested in it or not. And by introducing the ability to give Thank you for joining us. with more than offset the incremental investments in the additional frequency of IP campaigns and food LTOs.

Also, we are currently working on the F-127 budget, and we are also directly involved in vendor contracts and negotiations on the F-127 cost line. We are also directly involved in the F-127 cost line. We are also directly involved in the F-127 cost line. We're really putting in every effort that allows us to expect meaningful

Thank you. Thank you. And this connects back to our earlier comment about you might be pleasantly surprised by how quickly we get back to that 20% restaurant-level operating profit margin.

Great. Thank you for taking the questions. Appreciate it.

Thanks, Sean. Thank you.

Our next question is from Jim Sanderson with North Coast Research. Please proceed with your question.

Thanks for the question. I wanted to go back to the margin discussion. I think you're guiding towards 18.5% on a non-GEMP basis, which is comparable to last year. Is the biggest factor in fourth quarter going to be that continued improvement in labor rate that you would expect to continue into fiscal 27?

First of all, even if labor costs continue to rise a little, we will see meaningful improvements in the year-over-year. As I said earlier, in terms of other costs, As it relates to margin, yes

A lot of the benefit is coming from the labor. We will be lapping the introduction in Q4, and so the benefit will be partial, but the bulk of it will be coming from the initiatives that we discussed earlier, as well as the tight scheduling. The other cost improvements that we expect for fiscal 27, we're already starting to see a little bit of benefit in Q4, and so some of that is part of our higher margin expectation as well. We also, we're getting some refunds on our on tariffs paid for our other cost items where we are the importer of record. And so that's a one-time tailwind, but that does play into the 18-5 expectation as well. All of our efforts, they're designed to be structural, and so they're just baked into the business now, and we expect the gains to only accelerate as we enter fiscal 2017.

So there will still be the opportunity for the robotic dishwashers to add value in fiscal 2017?

Yes.

And so really everything except outside of the nominal refund that we received on the tariffs for other costs, all of those factors continue to benefit us.

Okay. And the one-time tariff will be fourth quarter pending? Yes. I wanted to also go back to traffic, the negative 5.4%. Can you break that up by month so we can try to get an understanding of how that trended in the quarter?

There really wasn't enough difference between the months to really call out any sort of trend. The only thing I was going to add is that the June mix has seen a pretty It genuinely surprised me. So that's really, it's good to be surprised in a positive way.

Right, but relatively stable traffic turned throughout the quarter by month. Is the right way to look at this?

Yes.

Yes, sir.

All right.

I'll pass it on. Thank you.

Thanks, Jim.

This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.