Title

Presentation

Kura Sushi USA, Inc. beats earnings expectations. Reported EPS is $0.05, expectations were $-0.02.

Operator: Good afternoon, ladies and gentlemen. And thank you for standing by. Welcome to Kura Sushi USA, Inc. fiscal third quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. 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 Uttz, Chief Financial Officer, and Benjamin Porten, Senior Vice President of Investor Relations and System Development. And now I would like to turn the call over to Mr. Porten.

Benjamin Porten: Thank you, operator. 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.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-Ks 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 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.

Hajime Jimmy Uba: Thanks, Ben, and thank you to everyone for joining us today. The last quarter has been a busy one for us. Between loading up a new reservation system, investigating new market opportunities, and building out our IT 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. Have built our biggest 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 ourselves up for a great fiscal 2026.

Total sales for the fiscal third quarter were $74 million, representing comparable sales growth of negative 2.1%. This was plus on the 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. Also, food and beverage costs as a percentage of sales were 28.3%, representing an improvement of 90 basis points over the prior year quarter’s 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 incremental operational efficiencies. This resulted in an operating profit margin of 18.2% as compared to 20% in the prior year, due to higher labor, occupancy, and other costs.

During the third quarter, we opened three new restaurants: North Scottsdale, Arizona; Lynnwood, 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 recent openings exceeding our expectations. Lynnwood joined our top five restaurants shortly after opening, underscoring the tremendous opportunity we see in the Pacific Northwest. 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 as 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 whitespace potential but also serve as a functional tailwind by reducing the number of openings in markets that can cannibalize sales. We have mentioned that we hope to get back to a fifty-fifty split between new and existing markets by fiscal 2027 and that we have been working harder to develop previously unexplored DMAs like Des Moines, Richmond, and Tulsa. I’m very pleased to say that we now have properties under negotiation in 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.

In fiscal 2026, we have no interruptions between IP campaigns, unlike this fiscal year, where we included a four to five-month stretch without an IP collaboration. We have a renewed appreciation for the roles that collaborations play in our sales and have made investments to better utilize this opportunity that is unique to Kura. In addition to creating a new role in our marketing team, which will be fully dedicated to researching and negotiating with new licensees, we have also established an intellectual property committee to facilitate the development of longer-term strategies related to our IP collaborations. Before I hand it over to Jeff, 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 May.

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’re pleased with the strong start and we 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 our new light rice option, which will give guests even more control over how they experience Kura by introducing the option to order sushi with a smaller portion of rice.

The third quarter has been a very busy one for us, and it’s exciting to see so many initiatives come online or cross 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.

Jeff Uttz: 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 1, 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 on 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 quarter’s 6.8% due to sales deleverage. Depreciation and amortization expenses as a percentage of sales were 4.7% as compared to the prior year quarter’s 5%.

Other costs as a percentage of sales were 14.7% as compared to the prior year quarter’s 14.1% due to sales deleverage. 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 404(b) SOX 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 an 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¢ per share, compared to a net loss of $558,000 or negative 5¢ 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.

Hajime Jimmy Uba: 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.

Operator: 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. One moment while we poll for questions. And our first question comes from the line of Jeremy Hamblin with Craig Hallum. Please proceed with your question.

Jeremy Hamblin: Thanks so much, and congrats on the strong results. I want to see if we might be able to dive in a little bit to the commentary around the new reservation system initiative and 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.

Benjamin Porten: Yeah. Jeremy, this is Ben. Great to hear from you. We’re really happy with the reservation system. As Jimmy mentioned, we did see sequential improvement throughout the quarter, with each month being better than the last through March, April, and May. We began the 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 have been really, you know, one of the big reasons that 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 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 believe that there’s additional upside as we communicate this further to our guests.

Hajime Jimmy Uba: Jeremy, I have a comment about your question on comp sales, but please allow me to speak in Japanese. Ben is going to translate.

Benjamin Porten: And going back to the monthly cadence that we’ve seen in Q3, May coincided with the introduction of our first IP campaign in four to five months. And that was also when our comps turned positive. And so it was really great to see not just positive comps but positive traffic as well in May. And we have those IP collaborations continuing through the current quarter. 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 million, 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. 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 $275 million to $279 million.

Jeremy Hamblin: Understandable, especially when you guys were reporting in early April. Just one follow-up question. I wanted to ask about the 50 basis points of deleverage in the quarter. Obviously, a negative comp doesn’t help on that, but I wanted to get a sense of 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 comp to see a positive leverage on that labor line item.

Benjamin Porten: For Q4, our expectation is that we’ll see mid to low single-digit labor inflation, which would be an improvement from what we’ve seen in Q2 and Q3. It goes without saying that a positive comp makes it easier to leverage 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. 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.

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

Benjamin Porten: Thanks, Jeremy. Thank you, Jeremy.

Hajime Jimmy Uba: Thank you.

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

Jeffrey Bernstein: Great. Thank you very much. A couple of questions. The first one, looking to clarify your comments on the tariff implications. It seems like you guys report shortly after tariff discussions. So I know last quarter, there was a 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.

Jeff Uttz: Sure, Jeff. This is Jeff. We knew this question was coming. So and to be honest, I prerecorded last week, late last week, and that’s the tariff commentary in there. It was related to last week. Obviously, this new news came out yesterday. But what I can tell you is while there’s we don’t just because it’s been twenty-four 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. And, so, you know, 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 fifty-fifty, sixty-forty.

We don’t know those numbers yet. As soon as we get clarity on those numbers, then we’ll be able to calculate more of an impact of what it might do to our COGS, and we’ll be able to share that in a future call. We also are hopeful that 25% is not the final number. You know, 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 1, we will see. But 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 and a half or 31. So we’re optimistic about what’s gonna happen over the next three to four weeks in terms of negotiations, and we’ll be able to have further color the next time we’re in front of investors.

Jeffrey Bernstein: 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 in sustaining 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 assuming it’s gonna 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 could be back north of 20% again. Thank you.

Hajime Jimmy Uba: Sure. Speaking to the current year, we’re already nine months into fiscal twenty-five, and with the year-to-date number, bridging that to a 20% plus number is difficult. But we don’t think there’s anything that is structurally changed about our margins. And, absolutely, 20% plus is our target for fiscal twenty-six. Looking at fiscal twenty-six, we’re feeling very good about our position as it relates to comps. We’re lapping fiscal twenty-five, which had a four to five-month stretch without IP campaigns. Next year, we have the most IP campaigns we’ve ever had. We also have reservations for the full year. And so, just coming into the year, we’re in a very strong position, and we see no reason that we wouldn’t be able to achieve positive comps and have that flow through to a 20% plus threshold level 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 margin expansion. Or really a return to margin normalcy.

Jeffrey Bernstein: Got it. 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 twenty-six versus that sub 13% fiscal twenty-five? Thank you.

Jeff Uttz: Yeah. The biggest basket is really the headcount. And the team and leadership and the support center and in-field operations have 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, you know, salaries are 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. Clearly, with the guidance raised from where we were at the beginning of the year in the mid-thirteen. 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 twenty-six.

Jeffrey Bernstein: Understood. Thank you.

Operator: Thank you. Thank you, Jeff.

Hajime Jimmy Uba: Thank you.

Operator: And our next question comes from the line of Andrew Charles with TD Cowen. Proceed with your question.

Zach Ogden: 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?

Benjamin Porten: Yeah. Fiscal twenty-five is certainly stronger than fiscal twenty-four, 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, in his prepared remarks, Lynnwood 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 Fisher’s 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, giving us that much more optionality in terms of how we build our pipeline.

And that’s really gonna be the biggest part of us getting back to a fifty-fifty split for fiscal twenty-seven. And so we’re very pleased across the board with performance, not just in infilling existing markets, where we knew that we do well, but having positive surprises in new markets as well.

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

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

Zach Ogden: Okay. Got it. Thank you.

Benjamin Porten: Thanks, Zach. Thank you, Andy. Thanks, Zach.

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

Todd Brooks: Hey. Thanks, and congratulations on the results this quarter. Great to see. Two quick questions. One, following up on the 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 could get in a pickup from loyalty program members alone?

Benjamin Porten: 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. Our rewards members have been organically discovering it as the reservation button is exactly where the old waitlist button was, and so there’s really no change to the guest loads and people discover it pretty naturally. Otherwise, it’s been secondary messaging in our marketing emails. But we do believe that this is a massive catalyst for rewards member registrations. And so certainly, we capture that. In terms of what we’ve seen in the early days, just given that our last restaurant rolled out in mid-June, I don’t want to see any numbers that you’re gonna be basing your modeling off of.

But one really important point that we’ve been able to corroborate through statistical analysis is that half of our guests 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.

Todd Brooks: 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 twenty-six versus being dark on IP partnerships for four to five months here in fiscal ‘twenty-five. 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.

Benjamin Porten: 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. Just by having more partnerships per year, that gives us more at-bats. That many more opportunities to discover really what’s gonna be successful, what’s the And, you build our portfolio based off of that. And so 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 that the renewed focus on the IP collaborations, I think, is gonna be a very key part of our discussions as it relates to fiscal twenty-six. We’re being a little bit more experimental. So for instance, with the current HoloLive campaign, we don’t have associated bicker 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, you know, relatively sort of investment light lets us be much more experimental, lets us have that many more campaigns per year. Which will get us closer to that ideal portfolio that much faster.

Todd Brooks: That’s great. Thanks, Ben. Congrats, everyone.

Benjamin Porten: Thank you. Thank you. Thank you.

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

Mark Smith: 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?

Benjamin Porten: In terms of what’s really the major components of our other costs growing as compared to, say, a couple of years ago, it’s really just minor growth across the board. So our slight increases in the R&M cost, slight 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 $14.07 we had for Q3 as a bounce back. Year to date, our other costs as a percentage of sales is 14.3%, which is exactly where it was for the full year fiscal twenty-four. We think that 14% ish is where we’re gonna be running for the foreseeable future.

Mark Smith: 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. 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.

Jeff Uttz: It’s purposeful. Keeping it down. 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 several years ago, maybe were a little quick to hire people 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. You know, north of 300 basis points of leverage over three years is something that we are very proud of as a management team.

Mark Smith: Excellent. And if I can squeeze in one more. As we think about the successes as you 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?

Benjamin Porten: Of course. We’re happy for you to fill in whatever the number you think will be.

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

Hajime Jimmy Uba: Thank you, Mark. Thanks, Mark. Thank you.

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

Jon Tower: Great. Thanks for taking the questions. Maybe, Jeff, following up to the comment you made earlier on tariffs and the idea of COGS, 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 of any sort of tariffs rolling through even if you’re negotiating with your suppliers there, like or better said, you’re not gonna necessarily take pricing to offset the impact of tariffs on COGS. Is that the best way to interpret that?

Jeff Uttz: Well, we would take on the portion that we agreed to. With the vendors, wherever that moves up. It was fifty-fifty 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 gonna be. And, you know, it’s been twenty-four 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.

Benjamin Porten: And just to add on that, as it relates to COGS, I think we have a massive opportunity in fiscal twenty-six through the light rice program that Jimmy 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 gonna be tons of other guests that are just as enthusiastic about this. And so if we can really get what we expect from the LiteRice, that’s a big lever for us for fiscal twenty-six. And as Jeff mentioned, we want to pull every other lever before we pull pricing.

Jon Tower: Got it. And can you just speak to what that light rice is? I just haven’t heard of it before.

Benjamin Porten: 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.

Jon Tower: Okay. So lower COGS. Is that the same price point, lower COGS?

Benjamin Porten: Lower COGS, but also it does it’s not as filling. And so I ate twice as much as I usually do when I was choosing the light rice options.

Jon Tower: Okay. And then just on I know fiscal twenty-seven, you’re pointing to getting back to a fifty-fifty 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?

Benjamin Porten: In terms of our expectations for fiscal twenty-six, we’re looking at a pipeline where it’s gonna be about 70% existing markets, 30% new. In terms of the impact of the new units in existing markets, we think it’s gonna be largely in line with the 400 basis point headwind that we saw in fiscal twenty-five and ’24. And then as it relates to fiscal twenty-seven, we expect to continue to maintain that 20% unit growth. We do think we’ll be able to get back to that fifty-fifty, which would naturally just cut that comp headwind in half.

Jon Tower: Okay. And then just last piece for me. In terms of it’s great to hear IP collaboration stepping up next year, and it sounds like you’re gonna be on pretty much all year or throughout the year in fiscal twenty-six. I’m you know, in the past, I think you’ve kinda 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?

Benjamin Porten: 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 successful ones are. And based off of those successes, we know what to repeat in future years.

Jon Tower: Got it. So it’s effectively just frankly sprinkling in more throughout the year. So you have a better idea of what works and you can repeat. Okay. Cool. Awesome. Thanks for taking the questions.

Benjamin Porten: Thank you, John. Of course.

Operator: Thank you. And our next question comes from the line of Jim Sanderson with Northcoast Research. Please proceed with your question.

Jim Sanderson: Hey. 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 you expect that to progress going forward, if that’s related to how you’re rolling out collaborations and we should look at that as you roll off pricing in November.

Benjamin Porten: Sure. We’re very excited to see where we can bring mix in fiscal twenty-six. So, you know, 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 is 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. Typically $70 or so or most. The giveaway campaign that we had for HoloLive was actually at a higher dollar threshold because we saw there’s that much guest interest for it. And so that naturally drives average ticket. The LiteRice, we think, is a big opportunity in terms of average check growth.

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 gonna be leaning into. The other is the twenty-fifth plate initiative. 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.

Jim Sanderson: Alright. 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?

Benjamin Porten: 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.

Jim Sanderson: 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 res 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?

Benjamin Porten: Yeah. Well, one of the biggest things that we’re excited for for fiscal twenty-six would be the DISH robot. Our strong hope was to get it live in fiscal twenty-five. 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. But the units that we’re building in fiscal twenty-six are built from the blueprint stage, assuming the eventual installation of these robots. And so that’s gonna be a very meaningful opportunity, should reduce headcount. And then 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, and that’s we think, is gonna have pretty meaningful upside opportunities as it relates to front-of-house efficiencies.

Jim Sanderson: Alright. Thank you very much.

Benjamin Porten: Thank you. Thank you.

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

George Kelly: 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?

Benjamin Porten: Yeah. So just as a couple of things, like, as a couple of examples, the process is meaningfully simplified. Before when the seater or the host was seating a guest, they had to enter information on three different terminals. And we cut that labor by two-thirds. So there’s only one terminal that they’re touching in the process. Itself is simplified. One unexpected efficiency opportunity we’ve seen is in busing. And this really hadn’t occurred to me until I’ve actually seen this happen in the restaurants once we implemented it, but there’s an element of psychological pressure when you have reservation times that you’ve promised somebody. Before we did it on a waitlist, and so you knew, like, parties 26, 27, 28 were waiting.

And that’s a different feeling from being at 07:30, knowing that there are three parties that you’d promised to seat them at 07:00 waiting for you. And so the buses are actually moving more quickly, and so that’s an opportunity, especially in the peak hours. And so I’m excited to see just how much we can get out of that.

George Kelly: 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. Well, 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 when do you expect it to fully roll out? So just, I guess, adding context about that would be great.

Benjamin Porten: The biggest thing that gives us confidence is that this isn’t this is something that Kura 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, but there really is a very big opportunity there. We’ve already got this at about 50 of our restaurants, and 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 twenty-five of just checking one issue after another in terms of points of friction for our guests. So just to give you some additional context in classic Kura speed style, we implemented this in our first restaurant about ten 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.

George Kelly: Okay. That’s helpful. Thank you. Thank you very much.

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

Matt Curtis: 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?

Benjamin Porten: Price mix cumulatively was positive 0.8. Effective price was 4.3. So mix was negative 3.5. And, you know, 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 LiteRice, the twenty-fifth 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.

Matt Curtis: 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 for the quarter?

Benjamin Porten: 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.

Matt Curtis: Yeah. But I meant, what were the actual per plate consumption trends during the quarter relative to, say, the second quarter?

Benjamin Porten: For the last several years, it’s been approximately six per person.

Matt Curtis: Okay. Great. Thanks very much.

Hajime Jimmy Uba: Thank you, Mark. Thank you.

Operator: 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.