Kura Sushi USA, Inc. Q3 FY2025 Earnings Call

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Kurosushi USA Incorporated Fiscal Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and CEO, Jeff Utes, Chief Financial Officer, and Benjamin Porton. Senior Vice President of Investor Relations and System Development. And now, I would like to turn the call over to Mr. Porton.

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

By now, everyone should have access to our fiscal third quarter 2025 earnings release. It can be found at www.kurosissu.com in the Investor Relations section. A copy of the earnings release has also been included in the 8K we submitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore you should not put on due 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 pilots for a more detailed discussion of the risks that could impact our future operating results in financial condition. Also during During today's call, we will discuss certain non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation, nor is the 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.

Thanks, Ben, and thank you to everyone for joining us today. The last quarter has been a busy one for us between rolling out the new reservation system investigating new market opportunities and building out our IP pipeline and strategizing on how to get the most out of our collaborations. We completed the system-wide rollout of the reservation system ahead of schedule, made meaningful progress on building a restaurant pipeline that leverages the opportunities demonstrated by Bakersfield, and have built our biggest marketing calendar yet for the upcoming fiscal year. I am extremely pleased with a result on all three fronts, and very proud of the efforts by our team members to maximize summer sales and set our sales up for a great fiscal 26. Total sales for the fiscal third quarter were $74 million, representing comparable sales growth of negative 2.1%, with price and mix of 0.8%, offset by negative traffic of 2.9%. We are pleased to see the business moving in the right direction with sequential improvement in comp performance each month of the quarter. Cost of goods sold as a percentage of sales were 28.3%, representing an improvement of 90 basis points over the prior year quarters, 29.2%, due to pricing and ongoing efforts by the supply chain team. Labor as a percentage of sales increased by 50 basis points due to high single-digit wedge inflation, partially offset by pricing and incremental operational efficiencies. Restaurant-level operating profit margin was 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, Rimwood, Washington State, and McKinney, Texas. Subsequent to quarter end, we opened two more units, one in the Woodlands, Texas, and one in Salt Lake City, Utah. We are very pleased with the class of 2025, with many of our restaurant openings exceeding our expectations. Rimwood 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 hydrospace potential, but also serve as a functional comp tailwind by reducing the number of openings in markets that can cannibalize sales. We have mentioned that we hope to get back to a 50-50 split between new and existing markets by fiscal 2027, and that we've been hard at work developing previously unexplored DMAs like Des Moines, Richmond, and Tulsa. I'm very proud to say that we now have properties under negotiation at each of these markets. Turning to marketing, we have seven to eight IP collaborations lined up for Fiscal 2026, which, as we mentioned in the previous call, is a record for us. Fiscal 2026 will have no interruptions between IP campaigns, and we will be wrapping this fiscal year with included a four-to-five-month stretch without IP collaborations. We have a renewed appreciation for the role that collaborations play in ourselves and have made investments to better utilize this opportunity that is unique to Gula. In addition to creating a new role in our marketing team, which will be fully dedicated to researching and negotiating with new licensors, We have also established an intellectual property committee to facilitate the development of longer-term strategies as it related to our IP collaborations. To close, I would like to provide an update on our system development efforts. While we had originally expected to complete the implementation of the reservation system by the end of the fiscal year, we were able to roll out reservations across all restaurants by early June. The response from guests and the team members has been uniformly positive. While it's too early for us to quantify the impact of the reservation system, we believe it has great potential as a comp driver and have identified system improvement opportunities which we believe could drive operational efficiencies as well. Although the implementation of these improvements will take some time, we are pleased with the strong start and look forward to being able to share more quantified expectations in future calls regarding potential traffic lift and labor improvement through the reservation system. As a final note, I am pleased to also announce the introduction of our new light rice option, which will give guests even more control over how they experience cooler by introducing the option to order sushi with smaller portions of rice. The third quarter has been a very busy one for us, and it's exciting to see so many of our initiatives come online or 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.

Thank you, Jimmy. For the third quarter, total sales were $74 million as compared to $63.1 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was negative 2.1%, with traffic at negative 2.9%, and price and mix positive 0.8%. Effective pricing for the quarter was 4.3%. On June 1st, we took a 1% menu price increase, and after lapping prior year increases, our effective price for the fourth quarter will be 3.5%. Comparable sales in our West Coast market were flat, and comparable sales in our Southwest market were negative 2.5%. As we've been discussing for the last several months, we were looking forward to our third quarter, where our comp comparison eased, And that optimism was met with encouraging sequential monthly results, as Jimmy mentioned earlier. Turning now to costs. Food and beverage costs, as a percentage of sales, were 28.3% compared to 29.2% in the prior year quarter, largely due to pricing and supply chain initiatives. We continue to be fortunate that tariffs have not caused a meaningful negative impact to our food and beverage costs, and we are continuing to work with our suppliers to minimize any future impacts. Labor and related costs as a percentage of sales were 33.1% as compared to 32.6% in the prior year quarter. This increase was largely due to wage inflation, partially offset by pricing and operational efficiencies. Occupancy and related expenses as a percentage of sales were 7.5% compared to the prior year quarters, 6.8% due to sales deleverage. Depreciation and amortization expenses as a percentage of sales were 4.7% as compared to the prior year 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 to leverage. General and administrative expenses as a percentage of sales were 11.8% as compared to 14% in the prior year quarter due to sales leverage, lower public company costs as we lap the first year of 404B SOC compliance, and lower litigation-related costs. In just a moment, I will be discussing our updated guidance for our full-year G&A expense. Operating loss was $162,000 compared to operating loss of $1.2 million in the prior year quarter due to the lower G&A expenses discussed previously. Income tax expense was $55,000 compared to $60,000 in the prior year quarter. Net income was $565,000 or $0.05 per share compared to a net loss of $558,000 or negative $0.05 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 due leveraging, increased labor expense, and higher other costs. Adjusted EBITDA was $5.4 million as compared to $4.5 million in the prior year quarter. We're particularly pleased at being able to increase our adjusted EBITDA by 20%, even with higher restaurant operating costs. Turning now to our cash and investments, at the end of the fiscal third quarter, we had $93 million in cash, cash equivalents and investments, and no debt. And then lastly, I am pleased to update our guidance for the full fiscal year 2025. We expect total sales to be approximately $281 million. We expect to open 15 new units, maintaining an annual unit growth rate above 20% with average net capital expenditures per unit of approximately $2.5 million. And we now expect general and administrative expenses as a percentage of sales to be below 13%, exclusive of any legal settlements. And now, I will turn it back over to Jimmy.

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing star, please.

One moment while we poll for questions.

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

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

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

Tell me, I have a comment about questions for CompSales. But please allow me to speak in Japanese. Ben is going to translate. Ben, at the main of CompSales, in terms of the question, it's been created by the Preparator Remax setter, and it's been created by the main in terms of the IP collaboration that's been created at the same time, and the quality of the Q3, and the Quotard Data also has a collaboration with IP collaboration, so I'm very happy with that.

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

And then, Jeremy, on your last question about the guidance raised to 281, last quarter we were pretty certain that we would be close to there as well, but we've been really gun-shy about raising our guidance too early, just based on, you know, what happened last year about this time. This wasn't a great call for us in July last year. So we wanted to be certain that we felt really good about that before we told everybody that we thought we were going to be higher than our previous range of 275 to 279.

Totally understandable, especially when you guys were reporting in early April. Just one follow-up question I wanted to ask on labor. And so you had about 50 base points of deleverage in the quarter. Obviously, a negative comp doesn't help on that, but I wanted to get a sense for 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?

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 labor year over year, and without getting really any commentary on quarter date comps, we're very pleased with how the focus is progressing, and, sorry, go ahead, Jay.

We've talked about the new touch panel and reservation system. We've talked about Q3 and Q4. We've talked about Q2 and Q4.

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

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

Thanks, Jeremy.

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

Thank you very much. The first one, just looking to clarify your comments on the, it seems like you guys report shortly after tariff score that was right before you guys reported. 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 – 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.

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

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

I'm sorry, the year-to-date number,

Bridging that to a 20% plus number is difficult, but we don't think there's anything that is structurally changed about our margins, and absolutely 20% plus is our target for fiscal 26.

For that, there are 7-8% of IP collaboration, so there will be 26% to 20% of IP collaboration.

Looking to fiscal 26, we're feeling very good about our position as it relates to comps. We're lapping fiscal 25, which had a 4-5 month stretch without IP campaigns. Next year, we have the most IP campaigns we've ever had. We also have the reservation for the full year. So we, you know, just coming into the year, we're in a very strong position and there's no reason that we wouldn't be able to achieve positive comps and have that flow through to a 20% plus threshold of operating comp margin.

Well, if a positive comps can be done, labor occupancy, depreciation, other costs are going to go down.

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 goal we'll see.

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

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

Understood. Thank you.

Thank you, Jeff.

Thank you.

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

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

Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes.

Yes. Fiscal 25 is certainly stronger than fiscal 24. It's one of the strongest classes we've had in recent memory. We're really, really pleased. A big part of that would be our opening up of the Pacific Northwest, as Jimmy mentioned and his prepared remarks, Linwood, pretty much immediately entered our top five. And so that's been a great talent for us. And besides building out one of the most promising markets that we've had, we've also been exploring new DMAs. So Fishers in Indiana would be an example. Bakersfield is another example that we've returned to over the past couple of earnings calls, but all of them are doing very well. And what's critical about Fishers and Bakersfield is that they provide data points for us in terms of our pipeline building in the future. It gives us that much more optionality in terms of how we build our pipeline. And that's really going to be the biggest part of us getting back to a 50-50 split for fiscal 27. And so we're very pleased across the board with performance, not just in infilling existing markets where we knew that we'd do well, but having positive surprises in new markets as well.

Got it. Thank you. And then this 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?

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

Got it. Thank you.

Thanks, Zach. Thanks, Zach.

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

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

No, absolutely. To answer your second question first, that is absolutely the next thing that's on the docket for us. Right now, our guests have been organically discovering it. I'm sorry, our rewards members have been organically discovering it. The reservation button is exactly where the old waitlist button was, and so there's really no change to the guest flow. 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, massive catalyst for rewards member registrations. And so certainly, we want to 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 give you any numbers that you're going to be facing your modeling off of. But one really important point that we've been able to corroborate for statistical analysis is that more than half of our 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.

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

Yeah. I mean, speaking in terms of, if you just look at our pipeline from past years, it's pretty clear that the properties just get bigger and better every year. I think one thing that's really key to our new strategy is that while we have been able to get consistently bigger partners, they haven't necessarily translated to bigger sales. And just by having more partnerships per year, that gives us more at-bats, that many more opportunities to discover really what's going to be successful, what's going to build our portfolio based off of that. 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 going to be a very key part of our discussions as it relates to fiscal 26. We're being a little bit more experimental. So, for instance, with the current holiday live campaign, we don't have associated figure-up on 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 that are relatively sort of investment light lets us be that much more experimental, lets us have that many more campaigns per year, which will get us closer to that ideal portfolio that much faster.

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

Thank you.

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

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

In terms of what's really the major components of our other costs growing as compared to, say, a couple years ago, it's really just minor growth across the board. So, you know, flight increases in R&M costs, flight increases in utilities. Really, the way that we think about it is the other cost numbers for Q2 were abnormally low. And so you can sort of think of the 14-7 we had for Q3 as a bounce back. Year-to-date, our other cost as a percentage of sales is 14.3%, which is exactly where it was for the full year of fiscal 24.

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

Perfect. And then just similar as we think about GNA, 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. Is there been, have there been cuts or, you know, are you continuing to add people? I'd just love more insight into kind of how you're managing G&A and if it's purposeful kind of keeping the belt tight or if it's just kind of the sales growth that's keeping that down and leading to the guidance that we saw here today.

It's purposeful keeping it down. 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. Several years ago, maybe we're 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 see who has some bandwidth to take on some more things, and everybody's done just a good job of 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. 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. From like 21 requested new hires, I think we went down to six or seven. And that was three years ago, and it's worked out. So with that change in mindset, I think that it's the way that we will be doing things in the foreseeable future, which is why I'm very optimistic about that. And north of 300 basis points of leverage over three years is something that we are very proud of as a management team.

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

over time of course uh we're happy for you to fill in whatever the that number you think will be

okay perfect thank you guys thank you thank you and our next question comes from the line of john

tower with city please proceed with your question great thanks for taking the questions um maybe

jeff following up to the comment you made earlier on tariffs and and the idea of cogs um maybe moving north of 30 percent or maybe not hitting north of 30 so i guess the implication there is that you guys would absorb all the impact um of any sort of tariffs rolling through even if you're negotiating with your suppliers there? Or better said, you're not going to necessarily take pricing to offset the impact of tariffs on COGS. Is that the best way to interpret that?

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

And just to add on that, as it relates to COGS, I think we have a massive opportunity in fiscal 26 through the light rice program that Timmy had mentioned. I had the opportunity to try it for the first time last week, and typically I'll top out at five or six plates. I ate at least 10 plates without thinking about it. And I'm sure that there are going to be tons of other guests that are just as enthusiastic about this. And so if we can really get what we expect from the light rice, that's a big lever for us for fiscal 26. And as Jeff mentioned, we want to pull every other lever before we pull pricing.

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

Yeah, so it's for most of our nigiri options. When you order on the touch panel, you'll have an option like regular rice or light rice, and the light rice is just a smaller portion of rice.

Okay, so lower cogs. So it's the same price point, lower cogs.

It's also lower cogs, but also it's not as filling. And so I ate twice as much as I usually do when I was choosing the light rice options.

And then just on – I know fiscal 27, you're pointing to getting back to a 50-50 split on new versus emerging markets or – excuse me, new versus existing markets. Can you speak to that number for new stores in 26 – I'm sorry if I misspoke. I meant 27, you're talking about new stores, 50-50. What that looks like in 26, and then are you still anticipating, I think, roughly a 4% or so cannibalization number?

you know dragging on the business next year in terms of our expectations for fiscal 26

we're looking at a pipeline where it's going to be about 70 percent existing markets 30 percent new In terms of the impact of the existing, the new units in existing markets, we think that's going to be largely in line with the 400 basis point headwind that we saw in fiscal 25 and 24.

20% to maintain and then as it relates to fiscal 27, we expect to continue to maintain that 20% unit growth.

So we do think we'll be able to get back to that 50-50, which would naturally just cut that compact wind in half.

And then just last piece for me, in terms of it's great to hear the IP collaboration stepping up next year. And it sounds like you're going to be on pretty much all year or throughout the year in fiscal 26. You know, in the past, I think you've kind of had some hit or misses when it comes to some of the IP tie in. So can you speak to, you know, your confidence or how you're approaching it differently this time to ensure that the hit rates are higher than, you know, perhaps past initiatives or past IP tie-ins that you've had?

Yeah, well, I think the biggest frustration in the past was really sort of opportunity cost, where if you had a miss, it wasn't just that you had a miss. So you had a myth that was eating up two months of your calendar that could be better spent with a better collaboration. And just by having, you know, seven to eight, which is meaningfully more than we've had this year, and it's the most that we've had of any year, we get that many more tries, so to speak, to find what the successful ones are. And based off of those successes, we know what to repeat in future years.

Got it. So it's effectively just frankly sprinkling in more throughout the year. So you'll have a better idea of what works and what you can repeat. Okay, cool. Awesome. Thanks for taking the questions.

Thank you.

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

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 how we should look at that as you roll off pricing in November.

So I think it's a good opportunity to improve the improvement of this. It's really fun to see.

We're very excited to see where we can bring mix in fiscal 26. So over the last couple of years, our mix has gone from negative high single digits to hovering between negative low single digits to mid single digits. Part of that from this fiscal year, would be the headwind from the lack of IP collaborations. We have, typically with every IP collaboration, we'll have a giveaway that's associated with a certain spending threshold, typically $70 or so. The giveaway campaign that we had for HoloLive was actually at a higher dollar threshold because we saw there's that much guest interest for it. And so that naturally drives average ticket. The light price we think is a big opportunity in terms of average check growth. I fully – my personal expectation is that this will grow the number of plates per person, and I think that's really an opportunity that we're going to be leading into. The other is the 25th plate initiative. We're really pleased with the early results. What we have seen is pretty much exactly what we expected is minor pressure on transactions above 30 plates, but more than enough growth in the 25-plate-plus category to offset that, and so we're really happy to see that.

Thank you for that. just wanted to talk a little bit more about the res system as it's related to membership levels. Have you seen any notable increase in membership in the fourth quarter, or could you update us on

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

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

First, in the近い initiative, it's the Dish Policing Machine. This is a good idea. It's been a long time ago, but it's been a long time for several months. It's already been a test for the field. It's been a test for a certificate.

One of the biggest things that we're excited for for fiscal 26 would be the DISH robot. Our strong hope was to get it live in fiscal 25, but I'm not sure if we'll be able to do that, but it really does seem like we'll be able to get certification within a matter of months. The units that we're building in Fiscal 26 are built from the blueprint stage, assuming the eventual installation of these robots, and so that's going to be a very meaningful opportunity, should reduce headcount fully 2 to 1. And then while the reservation system is at each of our restaurants, we still see lots of opportunity for improvements, especially as it relates to employee efficiency, we have, we've got a list of about 70 different things that we're working on as it relates to the reservation system. And that, we think, is going to have pretty meaningful upside opportunities as it relates to front-of-house efficiencies. All right. Thank you very much.

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

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

As a couple of examples, the seeding process is meaningfully simplified. Before when the seeder or the host was seeding a guest, they had to enter information on three different terminals, and we've cut that labor by two-thirds, so there's only one terminal that they're touching, and the process itself is simplified. One unexpected efficiency opportunity we've seen is in busing, and this hadn't occurred to me until I'd actually seen this happen in the restaurants once we implemented it. But there's an element of psychological pressure when you have, you know, reservation times that you've promised somebody. Before we did it on a wait list, and so you knew, like, parties 26, 27, 28 were waiting. And that's a different feeling from being at 7, you know, being at 730, knowing that there are three parties that you'd promise to seat them at seven o'clock waiting for you. And so the bussers are actually moving more quickly. And so that's opportunity, especially in the peak hours. And so I'm excited to see just how much we can get out of that.

That's helpful. Thanks. And then second question for me, back to the light rice. um ben you sound confident about either what you're seeing or what sort of how you expect um the 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 uh about uh the sort of plate opportunity and maybe it's been tested at certain uh locations and and when do you expect it to fully roll out. So just, I guess, added context about that would be great.

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

So just to give you some additional context, in classic Kura speed style, we implemented

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

Okay, that's helpful. Thank you. Thank you very much.

Thank you.

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

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

Plus of mix is 0.8% positive. Effective is 4.3% so it's 3.5% minus.

Price fixed cumulatively was positive 0.8. Effective price was 4.3. So mix was negative 3.5.

As we mentioned earlier, MIX has been hovering around the negative high single digits for a very long time.

We're really pleased to see it stabilize in this low to mid single digit range. With the initiatives that we have, like the light rise, the 25th plates, IP collaborations and giveaways, we're really excited to further drive that down. And, you know, we think there's even a possibility that we'll be able to see a positive number at some point.

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

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

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

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

Okay, great. Thanks very much. Thank you, Mark.

Thank you. With that, this does conclude today's teleconference.

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