Gas prices and soccer steal traffic from Kura Sushi
Kura Sushi faces headwinds from gas prices and construction delays, impacting sales outlook and unit growth.
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Kura Sushi reported a 5% drop in customer traffic due to high gas prices and competition from the World Cup. The chain has opened seven new locations in the quarter, expecting a total of 16 new restaurants by fiscal year-end despite facing construction delays that will limit revenue generation from these units.
Why It Matters
These challenges may compress future territory expansion plans and affect unit economics for franchisees, as revenue growth may be impacted by external economic pressures and operational setbacks.
Kura Sushi has faced several challenges impacting its performance and expansion plans. The company reported a 5% decline in customer traffic and a 0.4% drop in same-store sales for the quarter ending May 31, largely due to high gas prices, especially in California where a majority of its locations are situated. Gas prices peaked at over $4.50 per gallon in May due to geopolitical tensions, which executives cited as a significant factor in reduced restaurant visits. Additionally, competition from entertainment events like the World Cup has also drawn consumer attention away from dining.
Amid these issues, Kura Sushi has encountered construction delays on four new restaurant locations, primarily linked to fire inspections. These delays have cost the chain an estimated six months of potential revenue, which has contributed to a downgrade in its revenue outlook for the fiscal year ending in August. Kura now anticipates total sales between $330.5 million and $331.5 million, down from prior estimates of $333 million to $335 million. Despite these obstacles, the company is still predicting an increase in same-store sales for the year.
On a positive note, Kura Sushi has seen an improvement in its operating profits, with restaurant-level margins rising by 90 basis points to 19.1%, driven by more efficient operations and a decrease in labor costs as a percentage of sales. For the fiscal year, Kura aims for restaurant-level profits of approximately 18.5%, at the upper end of its prior range. During the latest quarter, Kura opened seven new restaurants, expecting to finish the year with a total of 16 new locations, bringing its count to 91 restaurants.
Total sales for the quarter reached $85.9 million, up from $74 million the previous year, and the company reported an operating loss narrowing to $39,000 compared to $162,000 last year. Following the release of this information, Kura’s stock experienced volatility but stabilized with only a minor decrease. Moving forward, the brand's ability to maintain its expansion pace will depend on resolving ongoing construction challenges and the impact of external economic factors.
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