Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Fourth Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be open for your questions following the presentation. Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, the President and Chief Executive Officer; Jeff Uttz, the Chief Financial Officer; and Benjamin Porten, SVP, Investor Relations and System Development. And now I'd like to turn the call over to Mr. Porten. Thank you, and you may proceed, sir.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter 2023 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-K 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 reconciliation to comparable GAAP measures are available in our earnings release. With that out of the way, I would like to turn the call over to Jimmy.

Thanks, Ben, and thank you to everyone for joining us today. I'm very pleased to announce that we closed another record-breaking year with a great fiscal fourth quarter. Before we dive into discussing our most recent quarter, I would like to have a quick recap of what we have achieved over the full fiscal year. At the beginning of the year, we mentioned three major goals for fiscal 2023: maintaining excellent operations, continuing to rapidly grow our restaurant base, and leveraging our G&A against our increasingly large restaurant base. I'm proud to report our success on all of these fronts as demonstrated by our full year restaurant-level operating profit margins improving 70 basis points year-over-year to 21.9%, a record 10 new unit openings, and full year G&A leveraging of 80 basis points over the prior year. Our AUVs have grown from $3.8 million in fiscal 2022 to $4.3 million in fiscal 2023, reflecting the incredible number of new unit openings we've had in recent years. These successes absolutely translated to improvement in profitability. Our adjusted EBITDA grew from $9.2 million in fiscal 2022 to $14.3 million in fiscal 2023, representing a growth rate of over 56% in a single year. Total sales for the fiscal fourth quarter were $54.9 million, representing comparable sales growth of 6.5%, with traffic growth being responsible for 5.6% of our total comparable sales. In spite of ongoing concerns of a deteriorating macro environment, more guests are coming to Kura Sushi than ever before. Our traffic is absolutely outperforming pre-pandemic levels. We continue to be pleased with our sales performance as we enter the new fiscal year with branded comps for September and October of 2.7%, total revenue of approximately $34.3 million, and the quality of traffic in both months. Commodity costs have continued to improve. Our cost of goods sold as a percentage of sales of 29.5% is a 120 basis point improvement over the prior year quarter and a 50 basis point sequential improvement over the prior quarter. Labor costs as a percentage of sales have held steady at 28.8%, confirming the expectations we had shared during the previous earnings call. Restaurant-level operating profit margins reached an all-time high of 24.4%, representing a 50 basis point improvement over the prior year quarter. During our fiscal fourth quarter, we opened four new restaurants: Long Island, New York; San Jose, California; and Framingham and Dorchester in Massachusetts, for a total of 10 unit openings in fiscal 2023. Our momentum on the development front is better than ever. Since entering the new fiscal year, we've already opened four units: Pittsburgh, Pennsylvania; Flushing, New York; Tampa, Florida; and Naperville, Illinois, with another seven units currently under construction. It's been wonderful to see Kura continue to resonate in new markets as we expand across the country. Turning to new initiatives, I'm very happy to announce that we launched our new rewards program app in mid-October, and guest response through the new app has been uniformly positive. While our previous rewards app has been very effective in growing traffic by encouraging repeat visits, the visual presentation in the app and its usability was lacking. In comparison, our new app is very highly rated on the App Store and the Google Play Store, with many users commenting on the significant improvement the new app has delivered. The response from existing users has been nothing short of great. But what's really exciting is that since launching our new app, the number of weekly new user registrations has more than doubled. To be clear, these are not existing users migrating their accounts, but completely new guests joining our rewards program due to the improvements we have made. I would encourage everyone on this call to download our new app as you'll be able to immediately see the difference in quality. On top of the improvement to the guest experience, our new rewards platform has unlocked completely new opportunities for our marketing team, such as customer segmentation, targeted marketing, and new ways of rewarding and engaging with our guests. I'm extremely excited for its potential and expect this to be a meaningful sales driver for us as we learn to unlock its potential. Development of the robotic dishwashers will continue to progress with the first in-restaurant implementation in Japan expected in spring of 2024. Following this pilot, we will be able to begin the certification process for implementing the robotic dishwashers in the U.S. While we do expect the dishwasher robots to have a meaningful impact on our labor model in future years, as we have stated in past earnings calls, we do not expect implementation during this fiscal year, and we expect its impact to slowly ramp as these dishwasher robots will be limited to newly opened restaurants. Our current Jujutsu Kaisen IP collaboration has had a great guest response, and our upcoming pipeline of brand collaborations is our strongest one yet. I'm so excited to see what we can achieve in fiscal 2024, and I'm deeply grateful for the continuous hard work by our team members at our restaurants and at our corporate support center for setting us up for another amazing year. And with that, I'll turn it over to Jeff to discuss our financial results and liquidity.

Thank you, Jimmy. For the fourth quarter, total sales were $54.9 million as compared to $42 million in the prior year period. Comparable restaurant sales performance as compared to the prior year period was positive 6.5% with regional comps of 12.1% in California and 3.3% in Texas. Turning now to costs. Food and beverage costs as a percentage of sales were 29.5% as compared to 30.7% in the prior year quarter, largely due to pricing and the stabilization of commodity inflation. Labor and related costs as a percentage of sales decreased to 28.8% from 28.9% in the prior year quarter. This decrease is due to incremental efficiencies created by the implementation of technological initiatives and sales leveraging from increased traffic and pricing, which was largely offset by wage increases. Occupancy and related expenses as a percentage of sales were 6.6%, compared to the prior year quarter's 6.5%. Other costs as a percentage of sales increased to 13.8% compared to 12.4% in the prior year quarter due to costs associated with a greater number of store openings, as well as an increase in marketing costs and general cost inflation. General and administrative expenses as a percentage of sales decreased to 13.2% as compared to 13.3% in the prior year quarter. On a full-year comparison, G&A expenses as a percentage of sales decreased to 15% as compared to the prior year's 15.8%. This represents an increase of G&A dollars of 25.8% for fiscal year 2023 as compared to sales growth of 32.8% over the same period. With the leveraging of G&A being one of our key goals for fiscal 2023, we are very pleased with these results and expect to achieve further leverage in the coming fiscal years. Operating income was $2.2 million as compared to operating income of $1.9 million in the prior year quarter. Income tax expense was $167,000 compared to $61,000 in the prior year quarter. Net income was $2.9 million or $0.25 per diluted share, compared to net income of $1.9 million or $0.19 per diluted share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 24.4% compared to 23.9% in the prior year quarter. Adjusted EBITDA was $6.3 million compared to $4.8 million in the prior year quarter. Turning now to our cash and liquidity. At the end of the fiscal fourth quarter, we had $69.7 million in cash and cash equivalents and no debt. And lastly, I'd like to provide the following guidance for fiscal year 2024. We expect total sales to be between $238 million and $243 million. We expect to open between 11 and 13 units, with average net capital expenditures per unit of approximately $2.5 million. And we expect general and administrative expenses as a percentage of sales to be approximately 14.5%. In addition, as we have communicated over the last year, beginning with our next earnings call, we will no longer quantify quarter-to-date performance.

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 for your attention.

The first question comes from Joshua Long from Stephens. Please proceed with your question, Joshua. If your line is muted, please unmute it so you can ask your questions.

Great. Thank you for taking my question. Curious if we could talk through the trends that you saw through before your fiscal fourth quarter that we had previously talked about in June and kind of the almost 15% range. But curious how that trended in July and August? And then as you think about kind of the early trends here in 1Q '24, can you remind us kind of what we're lapping over and/or how you think about some of the brand awareness initiatives that you've been working on in terms of the traffic driving tool? Thank you so much.

Thank you, Josh, for your first question. Please allow me to answer in Japanese. Ben, you can translate. Regarding the June comparisons, we were very pleased. As we mentioned in the previous earnings call, July and August presented some of the toughest comparisons we've faced since going public. We had the Demon Slayer campaign, and we benefited from the full rollout of the three initiatives for the first time in Q4. Additionally, the operating conditions in 2021 made the comparison for 2022 somewhat easier. The comparisons for Q4 of 2022 were 28%. Achieving a 6.5% increase, with a 5.6% positive traffic growth compared to last year's approximately 14% positive traffic, is quite an accomplishment. We're very pleased with these results. Did we fully address your question, Josh, or is there anything else you'd like me to cover?

I appreciate that. And then just thinking forward, I mean, you've done a great job in terms of broadening the awareness of the brand with some of your brand partner collaborations. Curious how those are performing and kind of any sort of early read or additional context you could offer for 2024?

As you mentioned earlier, we are very pleased to have surpassed the 28% comparable sales growth with positive customer traffic. The collaborations we've been engaged in have significantly contributed to this success. In our previous earnings call, we highlighted the strong performance of We Bare Bears, which certainly drove traffic. Currently, we are collaborating with Jujutsu Kaisen, a popular anime that is performing very well. While I can't share the complete pipeline for the rest of the year, I can say that we have some of the most exciting brands ever collaborating with Kura coming up. I’m really looking forward to providing updates as we progress further into the fiscal year.

Thank you.

Thanks, Josh.

Thank you. The next question comes from Jeffrey Bernstein from Barclays. Please proceed with your question, Jeffrey.

Great. Thank you very much. Two questions. First, I just wanted to follow up on the comp trend. Totally appreciate lapping a 28% comp is extremely difficult. But in order to flush out the comparisons that I think you said got more difficult as the quarter went along, perhaps you can share on a two or three year basis, however you look at it, because it does seem like the comp if you're running close to 15% in the first five weeks and you did a six and change for the full quarter that it was pretty flattish in the back nine weeks. I'm just trying to gauge whether you think it was a sequential slowdown at all or whether on a multiyear basis, it was actually fairly stable? Just trying to get a sense for the trend throughout the quarter, flushing out the comparisons.

Yes. On a multiyear basis, I would say that it’s stable. Last year was really exceptional. July and August, in particular, had the Demon Slayer collaboration, which really brought unprecedented traffic for us.

Can you provide the monthly numbers from last year so we can assess the trends over the past two to three years?

I don't have them in front of me, but I believe if you go to our past earnings calls, you'll be able to see them in the archives.

Okay. And then my second question was looking forward from a restaurant margin perspective, I appreciate that you gave top line guidance in terms of revenues and units and whatnot. But as we think about the margins and the flow-through to earnings, any thoughts you can give in terms of fiscal '24? I mean the commodity and labor basket inflation, I presume, just wondering what you're thinking for each of those and whether you have an ability or desire to hold the margins flat? Maybe how much pricing you're anticipating in fiscal '24? Any color on the key line items on the pricing to offset ultimately leading to restaurant margin would be great.

So we'll let Jeff handle commodities. But just to discuss labor, in past earnings calls, we've been mentioning that we've been seeing about double-digit year-over-year labor inflation. We're very pleased to report that this has moderated to mid-single-digits, which is reflected in our pricing decision made in July. As you know, we lapped a 7% increase and only took a 2% increase to offset that. The relatively modest price increase reflects our positive outlook on the overall labor environment. As we've mentioned in previous earnings calls, anything above 20% is considered an exceptional restaurant-level operating profit margin. We're pleased to have grown that substantially this year by 80 basis points year-over-year. We're very satisfied with any performance over 20%.

Yes, it's Jeff. I'll add to what Jimmy and Ben mentioned. When we consider restaurant-level operating profit, a 20% margin is impressive. Historically, we haven't increased prices to chase margins; rather, we've adjusted prices in response to minimum wage hikes and other external pressures that have raised our operating costs. This will remain our approach moving forward. Regarding our cost of goods sold, the recent trends are quite promising. In the last few earnings calls, I've noted a slowdown in significant increases, and I'm pleased to report that this past quarter showed a slight deflation in our basket both sequentially and year-over-year. Although it's not a large figure, it reflects a downward trend, which is encouraging. I'm optimistic that this trend will continue. We've made some promotions in our supply chain team, and the negotiations have been fruitful, so I am very positive about what we will see on our cost of goods sold as we progress through this fiscal year.

Got it. And just lastly, if I could clarify from a unit opening perspective. I know you're discussing 11 to 13 units. I'm wondering if you can share your openings by quarter and how you view those in terms of new versus existing markets.

So in terms of the opening cadence, this isn't something we usually discuss in the Q4 earnings calls, but since we've already opened four stores, we feel it's necessary to comment on it. We do not anticipate further openings in Q1. The seven units currently under construction are mostly in the early stages. Based on that, you can gauge the cadence concerning our guidance. Regarding new versus existing markets, approximately 20% to 25% of our units from the fiscal '24 pipeline will be in new markets, while the remainder will be in existing markets. This marks a departure from the historical 50-50 split. With us now operating in 15 states, there are fewer new markets available for entry.

And one further thing about opening more stores up in existing markets is that's really going to help us even further on the G&A line. And our regional G&A make it much more efficient for our area managers, not having to travel so far and have restaurants that are in geographical areas where they are not on the road as much and not spending as much money doing that. So we're excited to be able to see some potential leverage on the regional G&A side of things versus the corporate G&A side as well.

To conclude our discussion on unit growth, you may have been surprised by our guidance of opening 11 to 13 units, especially since we've already opened four and have seven under construction. Some of you might be curious about why we are being more ambitious with our growth plans. This is primarily due to the operating environment we've experienced over the past 12 years. While the construction period itself is generally stable, we've encountered unexpected challenges during the final stages that have delayed openings by weeks or even months. The 11 to 13 unit guidance reflects this uncertainty, particularly concerning permitting. However, we believe that the process will become smoother, and we see plenty of opportunities for growth. We are eager to provide updates and potential revisions in future earnings calls.

Thank you. The next question comes from Jon Tower from Citigroup. Please proceed with your questions, Jon.

Great, thanks. First, a clarification and then a question. Just curious, I think, Jimmy, you mentioned September, October running comps in the plus 2.7% range. Maybe I misheard that, but wanted to clarify. And if so, I'm curious to gain your perspectives on the slowdown on a one-year basis that you're experiencing. And I think on a multiyear basis, that would also be a bit of a slowdown as well.

Yes, Jon, good to talk to you. This is Jeff. In terms of the comps that we've seen, what we're really most excited about, what we want to focus on is the traffic. And what we believe is that getting people in the door and getting traffic to increase is a huge part of the battle when it comes to comps. And we feel we're winning that battle. And you and all of us have all listened to the conference calls from other companies that have been going on over the last several weeks. And we're proud of the fact that we're one of the few concepts that is showing a positive traffic number. We can't control certain things like somebody may be not ordering a soda or ordering a tea or having a side item, which you might expect in an economy like we're having. But what we do expect is that the people will continue to keep coming back and they do. And people, when they go out, are choosing Kura. And we believe that's going to continue. And we're going to continue to push so that people come in that door. And if they do make some changes to their dining habits, hopefully, we believe that will be offset by having more people come through the door. So that's what we're going to continue to push is that traffic number.

Got it. So it is you are seeing a little bit of check management from consumers that are coming back, albeit more frequently than before, but the check management is occurring in the business right now.

A little bit. And it's like small add-on things. So our sushi plates for guests is not changing dramatically. So like I said, somebody may have a water instead of a coke or not have a tea or maybe they won't have a small dessert at the end of their meal or something like that, which, like I said, is to be expected in an economy like we're in. But people are still coming through the door. We're happy with that.

Got it. Cool. And then just talking about the development side again, I know that there's been some discussion, not with you yet, but others in the industry about having some problems on the development side. I know you hit on kind of slower permitting timelines than what you had historically seen. But are you actually seeing any problems with developers not actually opening units, especially in first-generation locations? And if so, can you give us maybe an idea of how much of your portfolio is kind of exposed or potentially exposed to those developers that are at risk of potentially cutting new locations short and therefore, potentially putting some of your new stores at risk or potentially...

Yes, to clarify, the uncertainty we mentioned relates more to permitting than to developers. Fortunately, this issue is not something we typically face. We've encountered one or two letters of intent affected by interest rates and developers withdrawing, but thankfully, there's been nothing concerning our fiscal '24 pipeline or any projects under construction. This situation hasn't posed any problems for us. One unusual issue we've recently experienced involves permitting officials coming by at the very end of construction. Even after approving blueprints months earlier and after we've built the restaurant, they have raised concerns about the blueprints, requiring significant changes that delay openings by several weeks. This has been frustrating. We believe it might be related to changes in personnel, as the pandemic led to layoffs and training of new employees. We've noticed that sometimes our approved plans, which comply with codes, are met with requests for additional requirements that exceed what is typically expected. We are uncertain about the reasons for these changes. Previously, these matters could be resolved through discussion, but now there's little opportunity for communication, with online portals being the only point of contact, and they don't facilitate discussions effectively. Despite this shift, we anticipate a strong development year, with the midpoint of our growth projection indicating a 24% increase in units. We hope to provide updates and improvements on our progress.

Our pipeline is really strong, Jon. And Jimmy talked about the seven under construction and beyond that, we're not talking any further about that other than the guidance that we've given, the 11 to 13, but the pipeline is very strong. And we have no concerns about being able to meet our guidance. And like Ben said, potentially, hopefully raise it in a future call.

Thank you. The next question comes from Jon Tower from Citigroup. Please proceed with your questions, Jon.

Great, thanks. First, a clarification and then a question. Just curious, I think, Jimmy, you mentioned September, October running comps in the plus 2.7% range. Maybe I misheard that, but wanted to clarify. And if so, I'm curious to gain your perspectives on the slowdown on a one-year basis that you're experiencing. And I think on a multiyear basis, that would also be a bit of a slowdown as well.

Yes, Jon, good to talk to you. This is Jeff. In terms of the comps that we've seen, what we're really most excited about, what we want to focus on is the traffic. And what we believe is that getting people in the door and getting traffic to increase is a huge part of the battle when it comes to comps. And we feel we're winning that battle. And you and all of us have all listened to the conference calls from other companies that have been going on over the last several weeks. And we're proud of the fact that we're one of the few concepts that is showing a positive traffic number. We can't control certain things like somebody may be not ordering a soda or ordering a tea or having a side item, which you might expect in an economy like we're having. But what we do expect is that the people will continue to keep coming back and they do. And people, when they go out, are choosing Kura. And we believe that's going to continue. And we're going to continue to push so that people come in that door. And if they do make some changes to their dining habits, hopefully, we believe that will be offset by having more people come through the door. So that's what we're going to continue to push is that traffic number.

Got it. So it is you are seeing a little bit of check management from consumers that are coming back, albeit more frequently than before, but the check management is occurring in the business right now.

A little bit. And it's like small add-on things. So our sushi plates for guests is not changing dramatically. So like I said, somebody may have a water instead of a coke or not have a tea or maybe they won't have a small dessert at the end of their meal or something like that, which, like I said, is to be expected in an economy like we're in. But people are still coming through the door. We're happy with that.

Got it. Cool. And then just talking about the development side again, I know that there's been some discussion, not with you yet, but others in the industry about having some problems on the development side. I know you hit on kind of slower permitting time lines than what you had historically seen. But are you actually seeing any problems with developers not actually opening units, especially in first-generation locations? And if so, can you give us maybe an idea of how much of your portfolio is kind of exposed or potentially exposed to those developers that are at risk of potentially cutting new locations short and therefore, potentially putting some of your new stores at risk or potentially...

Yes. To clarify, the uncertainty we mentioned is mainly related to permitting rather than issues with developers. Fortunately, this problem is not something we typically encounter. We've experienced one or two letters of intent falling through due to interest rates and developers withdrawing, but this has not affected our fiscal '24 pipeline or construction. This has not been an issue for us. One new challenge we've faced is that late in construction, permitting officials have come back after months of approving blueprints, claiming there are major changes required, which delays openings significantly. This has been frustrating. It might be a result of personnel changes due to the pandemic, as many new employees are still adjusting. So, the uncertainty we experience comes from permitting, not from the developers. Often, our approved plans meet code, yet we’re asked to make additional changes that exceed code requirements and that we have not encountered before. We are unsure why this is happening, but it occurs from time to time. The human aspect seems to be missing now; previously, these challenges could have been discussed directly, but now we can only communicate through online portals, which do not allow for personal discussions. Despite these challenges, we anticipate a very strong development year with the midpoint of our guidance indicating 24% unit growth. We hope to provide updates on our progress.

Our pipeline is really strong, Jon. And Jimmy talked about the seven under construction and beyond that, we're not talking any further about that other than the guidance that we've given, the 11 to 13, but the pipeline is very strong. And we have no concerns about being able to meet our guidance. And like Ben said, potentially, hopefully raise it in a future call.

Thank you. The next question comes from Jeremy Hamblin from Craig-Hallum. Please proceed with your questions, Jeremy.

Thank you and congrats on a strong year. I want to come back to the sales guidance for the year. And just to make sure I understood in terms of that range that you provided, what's the implied same-store sales embedded within that? Is it kind of like in the 3% to 5% range?

We do not provide guidance on comparable sales at this time. However, the revenue guidance we have shared includes the expectation of opening 11 to 13 new units, along with our internal expectations for comparable sales. As previously mentioned, there is significant potential for the number of stores we open to exceed that range, which would also positively impact our revenue guidance. There are many opportunities ahead this year. It's important to note that while we achieved 9.5% comparable sales growth for fiscal year '23, we do not anticipate similar results for fiscal year '24.

Yes, there are some costs associated with our new stores. For example, we opened one store on August 31, the last day of our fiscal year, and we have been training employees for that location for about a month or more, which impacts our labor costs. Most of our other costs are related to noncash rent that we begin recording when we take possession of the premises, typically around 150 days before opening. So, the increased preopening costs make sense. We opened four restaurants in the fourth quarter and another four in the first quarter, meaning the preopening expenses for the first quarter affect the fourth quarter. We anticipate being able to manage those preopening costs better as we open restaurants in areas where we already have locations. This allows our new employees to train at nearby restaurants instead of traveling farther, which also applies to our managers' training.

I understand. I want to revisit restaurant-level margins. It seems you are optimistic about your food costs for the year and have a handle on labor costs with hourly wage rates being more stable. However, your menu pricing has decreased significantly since June. What are your expectations for restaurant-level margins? Specifically, what do you think your comparable store sales need to be for restaurant-level margins to remain flat or show a slight increase in fiscal year 2024?

In terms of costs, we cannot provide specific numerical guidance on our expectations. However, we have successfully maintained restaurant-level operating profit margins of 20% for years, and we are pleased to continue growing that figure. Pricing will be a factor in maintaining or further increasing these margins, but it is a sensitive decision for us given the current macroeconomic conditions. We need to carefully consider the possibility of sacrificing our traffic advantage. Having a significant lead in traffic positions us well for the upcoming years, not just quarter-to-quarter. Regarding serious impacts to our restaurant-level operating profit margins, the dishwasher has potential to significantly contribute, but as stated before, that will not be realized in fiscal '24 and will be limited to new stores. Therefore, the ramp-up will be gradual, but it is a tangible development that we are looking forward to.

As you know, prime costs are the largest component of restaurant-level margins, and the initiatives we are implementing, like the dishwashers, will have an impact. However, we cannot compromise on food quality or service quality, and we believe that the real improvement in margins will come from increasing sales and achieving leverage on our fixed operating costs. We need to be cautious, though, as when food costs drop below 30%, it is important not to compromise quality too much.

Yes, Jeff makes a really good point. We could be very aggressive and aim for 25% restaurant-level operating profit margins, which would certainly impact traffic. However, our strategic preference is to grow traffic and leverage that to enhance our fixed costs and increase restaurant-level operating profit margins more organically.

Got it. Thanks for taking the questions, guys. Best wishes this year.

Thanks, Jeremy.

Thank you, Jeremy.

Thank you. The next question comes from Sharon Zackfia from William Blair. Please proceed with your question, Sharon.

Hey, good afternoon. I'm just going to beat the dead horse of the quarter-to-date comp. I do have in my notes that last year, comps were, I think, up like 11.5% in September and 6.3% in October. And we've heard a lot of companies talk about kind of more normal seasonality, and I'm not sure you saw that in 2022. So I guess my question is, have you seen what others have seen, which was kind of slower traffic trends in September, followed by more of a rebound in October as we're comparing a little bit of an apple and an orange maybe year-over-year?

As Jeff mentioned earlier, the restaurant industry has experienced significant impacts from macroeconomic factors in September and October. Despite this, we are very pleased to report that we managed to increase traffic. For October, one factor was that there were more weekend days compared to the previous October. Given that, October turned out to be slightly better than September. Our performance was quite similar in both months. The timing of Halloween also did not help our situation, nor did it help anyone else. However, when you account for all variables, October was fairly flat, showing slight favorability but not a substantial difference from September.

It was encouraging to hear that labor inflation is easing, but I'm mindful of your concentration in California. While you're not directly affected by the FAST Act, some full-service operators still anticipate it will influence wage rates across California, not just in limited service. I'm interested in your view on what actions you might take next spring in California, particularly regarding any necessary wage increases and how you would adjust pricing in that scenario.

Thank you for the question. We were looking forward to addressing this. We believe the impact from the FAST Act will be minimal or possibly beneficial for us. There are several reasons we think this will be advantageous. First, the FAST Act doesn't directly affect us. Many industry peers have mentioned the potential effects of a $20 minimum wage for California employees, but we are already offering competitive wages and won't need to raise wages to that level, so it's not a concern for us. Additionally, our technology-driven approach allows us to implement initiatives to reduce headcount that are unique to Kura and not easily replicated by others, providing us with a competitive edge. Finally, as quick-service restaurants need to adjust from their current rates to a $20 minimum wage, they will likely have to increase prices significantly. As the price difference between a quick-service meal and a Kura meal narrows, the value of Kura increases, which we believe could ultimately drive more traffic to us.

Okay, thank you.

Thanks, Sharon.

The next question comes from Mark Smith from Lake Street. Please proceed with your questions, Mark.

Hi, guys. This is Alex Sturnieks on the line for Mark today. Just firstly, and you might have touched on it already, but could you walk us through the menu price increases that are built into the comp? And any new increases or increases that you anniversary this quarter?

The effective price for Q4 was approximately 10.7%. As of July, there was a 7% decrease, which we countered with a 2% offset. In June, it was 14%, and then for July and August, it was around 9%. There has been no change since then.

Q1 will be all 9%. We will anniversary 7% in the first week of December. Starting at the beginning of December, we will only have 2% pricing in our top.

Right. And we touched on this earlier, but the fact that we only took 2% to offset that 7% coming off is really just a reflection of our bullishness on the labor environment as well as the actual inflation that we're seeing on the commodity front.

Yes. Perfect. That's good there. And then just my last question. You guys have to collapse the updated app, your tech initiatives with the automated dishwashers, but are you guys looking at any other areas of the customer experience, you guys could improve anything to leverage there?

Yes, there are many opportunities. One immediate area is that we haven't effectively communicated the impact of the upgrade to the waitlist to our guests yet. They are benefitting from it, but it hasn't influenced their behavior. That's something I want to change. Additionally, we have this technology that makes it easier to order from your cellphone, especially if you're sitting at a table with multiple people. This allows you to place orders without having to reach across the table. This technology is ready to be implemented; it's just a matter of rolling it out. Those are two points I can share at this time, and I'm sure I'll have more to discuss as the year progresses.

Thanks for answering my question. Appreciate it.

Thanks, Alex.

Thank you. The next question comes from JP Wollam from ROTH Capital Partners. Please proceed with your questions, JP.

Thank you everyone for answering my questions. To start, there have been many new openings in the last six months. Could you discuss any differences you've noticed with this latest group of openings? We've talked a lot about development, but I'm curious about customer reception and any new trends you've observed as these units have opened.

So over the last six months, we've been very fortunate to report that nearly all of our openings have been quite successful. Instead of seeing anything drastically new, it has confirmed that our strategy is on the right track. In previous earnings calls, we talked about our non-continuous growth approach throughout the United States. Fort Lee was our first location in New Jersey and on the East Coast. As a result, we’ve effectively established our presence in the Northeast markets like Philadelphia, New York, Boston, and DC. It's encouraging to see our strategy validated in this way. Additionally, we’re excited about the potential in the Pacific Northwest with forthcoming markets like Bellevue, which has yet to be developed. In earlier calls, we noted that Aventura was slow to rebound from the pandemic and did not meet the expectations we had before its opening. However, we've since opened two more units, one in Bylan, Orlando, and another in Tampa, both of which are performing exceptionally well. This indicates that the challenge lies with that specific location in Florida, rather than with the state as a whole, which we view as a significant growth opportunity.

Great. Yes, that's very helpful. And then maybe one follow-up, if I could turn to Jeff. I just kind of want to ask, with the guidance of the 14.5% G&A as a percent of revenue, could you maybe just help give us a sense of kind of from where you started when you first joined Kura and kind of where that guidance is, how are you feeling about your ability to either kind of optimize some of the costs or take some costs out of the business? And how do you feel, as we go forward, whether there's even more opportunity or whether you've really kind of pushed as far as you could on that regard?

There is more opportunity. Absolutely. It was an 80 basis points improvement from fiscal '22 to fiscal '23 for our full year G&A leverage, and I am very proud of that. It exceeded my expectations and goals for the company when I joined. Leveraging G&A was one of the top three priorities that Jimmy asked me to focus on, and I'm very satisfied with our progress. This year, we anticipate further improvements, as indicated by our guidance. The initial year was quite significant, and I am proud of our team. All the department heads stepped up to either delay hires, cut expenses, and strive for greater efficiency, which I had requested they do, and they responded well. We will continue to see this progress this year. One small challenge for G&A this year is that we will be facing our first year of 404(b) compliance, which slightly increases our public company costs. However, even with that, we are expecting future leverage this year, as reflected in our guidance. In fiscal '25 and beyond, we anticipate maintaining this leverage, with the possibility of reducing it to single digits at some point in the future. I don't have a specific timeline for that, but we are actively working on it.

Got it. That makes sense. Thank you and best of luck on forward.

You’re welcome. Thank you.

Thank you, Jeremy.

Thank you. And ladies and gentlemen, we have reached the end of the question-and-answer session. This does conclude today's conference. Thank you very much for joining us, and you may now disconnect your lines.