Earnings Call Transcript - KRUS Q2 2024

Operator, Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Second Quarter 2024 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, President and Chief Executive Officer; 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, SVP of Investor Relations and System Development

Thank you, operator. Good afternoon everyone and thank you all for joining. By now, everyone should have access to our fiscal second quarter 2024 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.

Hajime Jimmy Uba, CEO

Thanks, Ben, and thank you to everyone for joining us today. I'm very pleased to report that the ongoing strength of our business as we progress through a record fiscal year. Jeff will go into greater detail later, but for those of you who have read our earnings release, I'm sure you know the results. We have announced further raises in guidance. It was unprecedented for us when we announced our guidance raise so early in the year with our first quarter call and being able to follow the next quarter is rightly indicative of our confidence in our business. We've opened 10 restaurants to date, putting us well on track for our new unit guidance of 13 to 14 openings this fiscal year. We leveraged G&A year-over-year by 190 basis points and grew adjusted EBITDA dollars by 23%. We've introduced big new projects and our operational teams have more than risen to the challenge of implementing them. I'm extremely proud of everyone's efforts and wanted to begin the call by acknowledging all of our team members and thanking them for creating so much great news that I get to share today. Total sales for the fiscal second quarter were $57.3 million, representing comparable sales growth of 3%. A profit growth of 5.9% is a meaningful acceleration over the prior quarter's profit growth of 3.3%. We are very pleased that we have achieved these results in spite of the severe weather that impacted the entire industry. During our fiscal second quarter, the Black Box Restaurant Industry Traffic Index was negative 3.5%, a spread of 940 basis points. Compared to the casual dining industry, our profit outperformance was 1,180 basis points. It's clear that our guests love Kura as much as we love them. As a reminder, 7% of the pricing paid off during the first week of December, which we offset with only 1% in January for a current effective pricing of 3%. We are very pleased to see that this is continuing through the quarter. This clearly has been a special quarter for Kura, and I'm proud of that. We provide the kind of guest experience that keeps guests coming back to us. During the second quarter, commodity costs continued to be right where we want them, up 29.6% of sales. Labor as a percentage of sales was 32.8% as compared to 31.5% in the prior year quarter. In addition to the meaningfully higher pre-opening labor cost due to accelerated openings, we experienced the same severe weather that impacted the rest of the restaurant industry. We are confident that this increase in labor costs is not structural in nature and expect to see the same seasonal leverage in labor that we've always seen. As I previously mentioned, we are aggressively executing on one of our key strategic pillars to drive overall corporate profitability, leveraging G&A. We were able to bring G&A cost down to 14.3% as a percentage of sales as compared to last year's 16.3%. We now expect to achieve even greater G&A leverage for the year, which Jeff will discuss later. Our support center team has done a great job in managing incremental headcount, and we expect further tailwinds in future years as we infill markets and benefit from efficiencies in regional restaurant management. In the fiscal second quarter, we opened five new restaurants: Kansas City, Missouri; Skokie, Illinois; Columbus, Ohio; and Euless and Webster in Texas. Subsequent to quarter-end, we opened one more restaurant in Orlando, Florida. We also have five units currently under construction. In the fiscal year-to-date alone, we've opened as many restaurants as we did during the first six years of Kura Sushi's operations in the U.S. I'm incredibly proud of what our brand has become and for us to have established our footprint as a truly national brand with restaurants in 17 states today. We are also pleased with the performance of our new Rewards program. U.S. members are now responsible for approximately a third of our sales, up from less than a quarter with our prior program. Our recent analysis shows that average Rewards members spend 10% more per ticket, even after factoring in discounts, and visit 1.3 times per month. For the last several calls, I've hinted at our IT collaboration that I was extremely excited about, and it's my pleasure to finally be able to share that our next IT partner is Dragon Ball. I think this might be our first non-American property that everybody on this call is already familiar with. We believe Dragon Ball is the most exciting partnership we've ever had, and I'm truly looking forward to sharing the results. I have a lot of great news this year regarding our tech pipeline as well. We have completed our first in-restaurant test of our robotic dishwasher in Japan, and early results have confirmed our expectations about how meaningful they will be for our operations. While we don't have timelines for implementation, I'm very pleased with our momentum. Our table-side mobile ordering function implementation is going smoothly as well, and I'm happy to be able to announce a new teaser for table-side mobile ordering that we are developing in parallel. The ability for guests to order items through side menu purchases rather than just through sushi plates. One more thing on the tech front: We have completely new battle-tested technology from Kura Japan that we are currently getting certified for the U.S. We call it the Sushi Slider. We put our rice balls directly onto our sushi plates and then take them to each dine-in employee. During peak hours, we can have two to three employees spending half of their shift placing rice balls on the sushi plates and handling them to the next person on the make line. The operational upside here is obvious. Our expectation is that we'll be able to bring the Sushi Slider certified for testing this summer, and we may even be able to retrofit some of our existing restaurants to accommodate it. As you can see, we've made a lot of progress in this last quarter. Lastly, I'm pleased to announce that we were able to secure a very favorable review with DoorDash, prompting our exclusive partnership and rapid rollout of the program. In these difficult times, we are able to keep our menu prices the same as in-store dining, and we expect the DoorDash sales to be beneficial to margins. We are very pleased with our partnership with DoorDash so far and I'm looking forward to providing quantitative color in future calls. I would like to again thank all of our team members at our restaurants and our support center. Every department can point to a remarkable achievement this quarter. We're looking at some 10 restaurants that we've already opened, the incredible traffic outperformance of our restaurants, G&A leverage of 190 basis points, our IT collaboration pipeline, the success of our new device program, our progress in technology, or a successful rapid rollout of DoorDash. It's been an amazing quarter. Thank you, everyone. Jeff, now I'll turn it over to you to discuss our financial results and liquidity.

Jeff Uttz, CFO

Thanks, Jimmy. For the second quarter, total sales were $57.3 million as compared to $43.9 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was positive 3%, with regional comps of 8.7% in our West Coast market and flat comparable sales in our Southwest market. Turning now to our costs. Food and beverage costs as a percentage of sales were 29.6% compared to 30.1% in the prior year quarter, largely due to pricing and supply chain initiatives. Labor and related costs as a percentage of sales were 32.8% as compared to 31.5% in the prior year quarter. This increase was largely due to adverse weather conditions, increased training costs associated with new store openings, and general wage increases. Occupancy and related expenses as a percentage of sales were 6.9% compared to the prior year quarter's 7%. Depreciation and amortization expenses as a percentage of sales increased to 4.7% compared to the prior year quarter's 4%, largely due to additional newly opened units as well as the accelerated depreciation of assets being replaced due to planned remodels. Other costs as a percentage of sales increased to 14.6% compared to 13.3% in the prior year quarter, due mainly to preopening costs associated with a greater number of store openings as well as an increase in marketing costs, repairs and maintenance, and general cost inflation. General and administrative expenses as a percentage of sales decreased to 14.3% compared to 16.2% in the prior year quarter due to greater sales leverage, which was partially offset by incremental public company costs and recruiting and travel costs associated with new unit openings. Operating loss was $1.7 million compared to an operating loss of $1 million in the prior year quarter, largely driven by incremental other costs associated with a greater number of unit openings and units under construction and depreciation and amortization. Income tax expense was $50,000 compared to $15,000 in the prior year quarter. Net loss was $1 million or $0.09 per diluted share compared to a net loss of $1 million or $0.10 per diluted share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.6% compared to 20.3% in the prior year quarter. Adjusted EBITDA was $2.9 million compared to $2.3 million in the prior year quarter. Now, turning to our cash and liquidity. At the end of the fiscal second quarter, we had $56.8 million in cash and cash equivalents and no debt. Lastly, I'd like to update the following guidance for fiscal year 2024. We now expect our total sales to be between $243 million and $246 million. We now expect to open between 13 and 14 new units with average net capital expenditures per unit of approximately $2.5 million. And we now expect G&A expenses as a percentage of sales to be between 14% and 14.5%. And with that, I'd like to turn the call back over to Jimmy.

Hajime Jimmy Uba, CEO

Thank you, 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 to English. Thank you for your attention.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. Our first question will come from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Jeffrey Bernstein, Analyst

Great. Thank you very much. A couple of questions. The first one, just looking at the comp, I think you said 3%. Just wondering if you can talk about maybe the trends through the quarter and what you've seen in the month of March. It does seem like the industry is perhaps talking about a little bit of a slowdown in March going into April, especially in the lower-income consumer. So, just trying to get your perspective on the consumer environment and what trends you've seen in recent months?

Hajime Jimmy Uba, CEO

In terms of the monthly trends, we experienced some challenges in January due to the bad weather. However, we are encouraged by the 45 remodels, although the pace seems slow after a promotion. We're particularly excited about achieving a 5.9% increase in traffic, highlighting a significant gap of 1,000 basis points between us and the casual dining sector. We're very satisfied with our market performance and are optimistic as we approach April and beyond.

Jeffrey Bernstein, Analyst

No, that's encouraging. And then just separately on the new markets you're going into from a geography standpoint, any surprises in terms of reception from the consumer whether positive or negative? Just curious your learnings in your newest markets you've got such a big opportunity for you.

Hajime Jimmy Uba, CEO

In terms of geographic trends, we've seen the same trends as before in terms of new markets. Every single one of them has been a hit. So, in other words, no surprises; we've expected hits and we've gotten hits, and so that's really nice. The differences in geographic performance would really just be associated with wherever the weather was. For us, we've got a lot of places in California, and when it rains in California that can have an impact on the West Coast comps.

Jeffrey Bernstein, Analyst

The labor line and other costs were higher than expected, which put pressure on the margin. However, I don't think these issues are fundamentally structural. It appears that the labor increase was due to an accelerated opening of units. Are there any unusual costs involved? I'm curious about your expectations for the restaurant margin in the second half of fiscal 2024, especially regarding which line items you believe have the most clarity versus those with greater uncertainty as we look at the second half of the year. Thank you.

Jeff Uttz, CFO

We're very confident about the restaurant-level operating profit margins for the second half of the year. As you know, we've already opened the bulk of the units for this fiscal year, and so those preopening labor-related headwinds are largely behind us. The other factor is that we're going to see the same seasonality, the same sales leverage that we've seen every year. We also have a number of promotions that are in the pipeline that we could not be more excited about. As Jimmy mentioned, we've got Dragon Ball. We think that's literally the biggest promotion ever. Jimmy and I are super proud and pleased to have that there. And so we've got a lot of tailwinds, and even besides that, we've got tech advancements and our DoorDash partnership. There are a lot of things to look forward to for restaurant-level operating profit margins.

Hajime Jimmy Uba, CEO

Another point is that during the first month that you open a restaurant, it's typically not profitable, but we're over the hump for all those restaurants, and they're operating at full capacity. There will be a tailwind for the back half of the year. Yes, we're really excited.

Jeff Uttz, CFO

And what I'll add is, as we talked about the restaurant-level margins, we are really excited about all these new things we have in the pipeline. We also want to point out the G&A reduction and leverage that we're getting on the total adjusted EBITDA on the G&A. I mean, we went from 15.8% in 2022 to 15% in 2023. With the earning guidance, if we hit the midpoint, that's another 80 basis points of improvement, something we are very proud and very excited about.

Jeffrey Bernstein, Analyst

Absolutely. Thank you guys very much.

Hajime Jimmy Uba, CEO

Thanks, Jeff.

Jeff Uttz, CFO

Thank you.

Operator, Operator

Our next question comes from the line of Jon Tower with Citigroup. Please proceed with your question.

Jon Tower, Analyst

Thank you for taking my questions. I’d like to start with the comparables, particularly during this period. It's impressive to see the growth in traffic, which is fantastic, but I'm curious about the implications for price and mix as you've moved into negative territory. Although there isn't a lot of historical data here, have you noticed any changes in how consumers are managing their spending compared to previous years? How is this reflected in your business? Are customers ordering fewer dishes or relying less on tablets and opting for more from the belts? I’m interested in understanding how this is playing out for you.

Hajime Jimmy Uba, CEO

In terms of mix, our per person plate consumption has stayed flat at 6.3 plates year-over-year, so really no difference there. The difference would be in side-menu orders or people trading out from soft drinks to water. In terms of mix, we're actually very pleased. I don't know if you caught what we mentioned at ICR in January, but as of December, mix has gone from negative high single-digits to negative mid-single digits. The consumer is showing greater strength in the most recent quarter relative to the last couple of quarters where we've mentioned mix being negative high single digits. We have several initiatives that we expect to provide opportunities for side menu ordering, mainly the biggest one allowing guests to order from their phones instead of just having to reach over their friends sitting closer to the conveyor belt. Additionally, guests will earn prizes by ordering side menu items, which have never been a consideration before. We have a lot of things to look forward to, in addition to the fact that mix has already been improving.

Jon Tower, Analyst

Got it. Thank you. Appreciate that color. Maybe jumping around a little bit to the DoorDash partnership that you've got. And I think, Jimmy, you mentioned that this is going to be margin-neutral relative to in-store transactions, while keeping the prices the same. If I understood that correctly, are effectively this just getting passed along to consumers in the higher delivery fees? I'm just curious how you guys manage that.

Jeff Uttz, CFO

Our expectation is that it's going to be margin-neutral to margin-accretive. We're really excited about the partnership with DoorDash. In terms of passing along costs to guests, one of the reasons that we're partnering with DoorDash is because we can offer a better guest experience than ever before. We're on DashPass, so if you have a DashPass membership, you can now get delivery for free, where before, it cost $7 or $8. To be able to offer the same prices as in our restaurants and give guests free delivery is market-accretive; it was a no-brainer for us. This really came down to the deal terms we were able to secure with DoorDash, and as Jimmy mentioned in the prepared remarks, if we hadn't been able to arrive at these terms, this wasn't something that we were entertaining.

Jon Tower, Analyst

Got it. In terms of, I mean, maybe it's early days for it, but I'm curious either what you're seeing in stores that were maybe deployed already in terms of how it's mixed in or what your internal expectations are? And then separately, but related, how are you managing this within the store? Because obviously, your kitchens are super busy already, and you've got a lot of traffic running through. How are you handling these delivery orders versus the in-store transactions that are taking place?

Jeff Uttz, CFO

Yes, the operations team has done an amazing job in terms of implementing and integrating it into their operations. We're able to throttle orders, so if we are busy and our kitchen's already at capacity, we're always going to prioritize the guests that are already in our restaurants. We simply slow down or shut down our upfront orders when necessary. It really hasn't been an issue.

Jon Tower, Analyst

Got it. Awesome. Yes, I'll pass it along and maybe hop back in the queue. Thank you.

Hajime Jimmy Uba, CEO

Thank you, Jon.

Operator, Operator

Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Mark Smith, Analyst

Hi guys. First off, I just wanted to dig into the margins a little bit more on the labor expense up here. Can you break down at all how much of that was due to the higher openings here versus just kind of pure labor inflation? And then I'm also curious, any impact that you guys are seeing in California restaurants on labor with the higher minimum wage there?

Hajime Jimmy Uba, CEO

If you look at our Q, you can see that our preopening costs for Q2 are $700,000 higher than preopening costs in the prior year's Q2. The bulk of that $700,000, which is about 1.2% of sales, is labor. This immediately shows how significant the impact from accelerated preopening labor was. In terms of the full year, we expect mid-single-digit labor inflation, which is what we've said in past quarters. The change in labor is really driven by the preopening labor and the leverage we saw across our markets. We're very pleased with the margins that we achieved in spite of that, and we have zero concerns in terms of returning to normal as we entered Q3. We know that the elevated labor costs from the last quarter are linked to factors out of our control, like the weather, and we are pleased we were able to open our restaurants. We are happy overall. Regarding the FAST Act, as I'm sure you're aware, we're not directly under that umbrella. However, many other casual dining restaurants have been impacted by it regardless of whether they are directly under that umbrella due to the competitive nature of wages. In California, our employees in the back of the house are eligible for tips, and so they're already making very competitive wages. We just don't see a scenario where they're going to leave our heavily automated restaurants to do more work for less pay. This has not created wage pressure for us. We know prices have gone up in the area quite a lot, but maintaining our pricing structure provides us with a strategic and meaningful advantage. We see this as an opportunity to grow our audience while delivering a great experience.

Jeff Uttz, CFO

One of the things we've always said is that when we thought about the FAST Act or AB 1228 came in, we thought that would actually increase our value proposition. Just yesterday, I ordered a salad for lunch from another chain, and without even the delivery fee, it was almost $20. You can go to Kura Sushi, have a plate of sushi and a soda for about that or maybe just slightly more. So, our anticipation regarding pricing adjustments around April 1st and how this actually enhances our value proposition seems to be proving true, at least in the early stages of this new Act.

Mark Smith, Analyst

Excellent. Other question for me is just looking at the opening cadence here. You guys did a good job getting restaurants opened here in the first half. With five under construction, the guidance of 13 to 14, are you just being a little conservative on those openings? Or do you think you can get these five open by the end of the year?

Hajime Jimmy Uba, CEO

In terms of the cadence, we just broke ground on one of them, so it's very early on in terms of the construction lifecycle. We expect about an even split for openings between Q3 and Q4. We think that 13 to 14 units is a reasonable expectation, which is why we set that as guidance.

Mark Smith, Analyst

That’s fair. Thank you, guys.

Jeff Uttz, CFO

Thank you, Mark.

Hajime Jimmy Uba, CEO

Thanks, Mark.

Operator, Operator

Our next question comes from the line of Matt Curtis with William Blair. Please proceed with your question.

Matt Curtis, Analyst

Hi, good afternoon. You guys ran a promotion to your Rewards members, and I think with two visits in December, you gave them a 20% coupon valid in January. I was just wondering if you could tell us about how much the traffic benefit that wound-up delivering for you or what redemption rates were like? And then, I guess, related to whether you're planning to run anything like this regularly going forward?

Hajime Jimmy Uba, CEO

In terms of the coupon campaign, without getting too deep into details, we are very pleased. However, with January, we had some noise from weather, which may have resulted in less traffic than there would have been otherwise. But we still achieved a 5.9% traffic growth for the quarter while comps were at 3%. We viewed this campaign as a success overall.

Matt Curtis, Analyst

Okay, got it. Do you mind telling us what the weather penalty was for the quarter?

Hajime Jimmy Uba, CEO

I'm sorry, can you repeat that?

Matt Curtis, Analyst

Sorry, would you mind telling us what the weather penalty was for the quarter?

Hajime Jimmy Uba, CEO

For both January and February, we experienced about four operating days each that were heavily impacted. In January, it was largely Texas, the Midwest, and some of the East Coast. California was hit during February, but yes, about eight days.

Matt Curtis, Analyst

Okay, got it. Thank you. And then you talked about Dragon Ball being the promotion that's coming this spring, I guess. You have SPY x FAMILY that's been in place since I think March 1st. Could you remind us what promotions you're lapping over this timeframe and how successful they were last year?

Hajime Jimmy Uba, CEO

We are really pleased with March results. We think part of this success was due to SPY x FAMILY, which was a very successful campaign. In terms of previous promotions, we believe it was Jujutsu Kaisen that ran last year for April and May, which was quite strong but not the strongest. We are very pleased to be performing as we are. Again, Dragon Ball is huge, and it’s just hard to predict what the impact will be, but we are really excited for May 1st.

Matt Curtis, Analyst

Okay, understood. Thanks very much.

Hajime Jimmy Uba, CEO

Thanks Matt.

Jeff Uttz, CFO

Thank you, Matt.

Operator, Operator

Thank you. Our next question comes from CJ Dipolino with Craig-Hallum Capital Group. Please proceed with your question.

CJ Dipolino, Analyst

Hi everyone, it's CJ on for Jeremy Hamblin. I wanted to touch on labor costs one more time and just see if you were able to give a little more color, kind of quantify the penalty from adverse weather?

Hajime Jimmy Uba, CEO

So, as we mentioned earlier, we had about $700,000 in incremental preopening costs compared to the prior year. The majority of those costs are in labor. We also had eight days of weather impact, and you can't change the schedule in real-time to address weather events. So, yes, that's the impact.

Jeff Uttz, CFO

So, eight days impacted but with full payroll costs incurred.

CJ Dipolino, Analyst

Okay. Thank you. And then on the other cost line item on P&L, I know you said you negotiated the DoorDash deal on really favorable terms. Are you seeing any incremental expense that's being added to that line item?

Jeff Uttz, CFO

No. DoorDash launched in February on a rolling basis, so the impact in Q2 was not super meaningful. But in either case, we do expect DoorDash to be margin-neutral, or actually, our expectation is market-accretive; worst case it would be margin-neutral. Other costs are influenced as well by the preopening costs; the two biggest lines impacting our P&L are labor and the other costs line. The other costs line is impacted also by the increased number of store openings which creates travel and other costs associated with moving people around for those openings.

CJ Dipolino, Analyst

Okay, right. Thank you. And then one more quick one, if you don't mind. Sorry if you just touched on it, but once you break ground on a new restaurant, how long does it take? What's the typical time to open from that point?

Hajime Jimmy Uba, CEO

It typically takes about five months. Historically, it has been about five months. In the last couple of quarters, we've seen that tight with inspection processes improving at the end of construction. So, it's been closer to four months, but our base expectation remains five months.

CJ Dipolino, Analyst

Okay, got it. Thank you. Very helpful.

Jeff Uttz, CFO

Thank you.

Hajime Jimmy Uba, CEO

Thanks, CJ.

Operator, Operator

Our next question comes from the line of George Kelly with ROTH. Please proceed with your question.

George Kelly, Analyst

Hey everybody. Thanks for taking my questions. My first question is about Dragon Ball. It seems like you are really excited about that partnership. I understand the appeal of big brands, but I’m curious if your approach to monetizing these major partnerships has changed at all. Are you being more aggressive in your monetization strategy given your past experiences with these significant deals?

Jeff Uttz, CFO

Yes. Our strategy around this is always evolving. As we mentioned, one of the reasons that we're so pleased with April so far is our recent giveaway campaign with SPY x FAMILY where if you crossed a certain spending threshold, you received t-shirts. I was actually at lunch today at Kura, and I saw lots of people trying to get those t-shirts, so clearly, it's working. We realize just how meaningful an opportunity it is. This is a very meaningful driver in terms of getting people into the door, and these are brands that people are very passionate about. So, we have a lot of things in the pipeline. I can’t discuss them just yet, but we’re always looking for new ways to engage our guests. The brands are one of the most fun elements about coming into Kura, and we’re always looking at new ways to leverage that.

George Kelly, Analyst

Okay, understood. And then the second question on unit growth. Taking your guidance up again at the midpoint for expected openings this year, is it all about permitting? Or are there any other factors that explain you raising that a couple of times now? And then the second part of that question is, if you look out beyond this year, is it fair to assume that the 20% growth target that you've put out in the past, is that still a good number to use?

Hajime Jimmy Uba, CEO

In terms of forward growth, what we've achieved would show that 20% is the floor, typically coming in closer to 25%. That's what we've been doing, and that's what we expect to do. Our organization has demonstrated that it's capable of meeting that challenge year after year, and we're excited to keep delivering on that. Given that we've already opened 10 stores, with five under construction, just looking at historical patterns in terms of permitting and construction, we think that 13 to 14 is a reasonable estimate. There is potential for even more, but at this point, we feel good about that number.

Jeff Uttz, CFO

To your point, you had a question about the acceleration that drove that. Permitting has become a bit easier this year compared to the last couple of years. However, the other piece helping is that our management pipeline is strong, and one thing I committed to when I joined the company was to reinvest in areas that would yield good returns. One of those was recruiting, and we’ve invested heavily to ensure we have both internal and external talent ready. Because of this, our management pipeline has improved significantly. And we can still achieve an 80 basis point leverage in G&A even with reinvestments in recruiting, construction, and operations. The formula and the model are working well right now, helping us open restaurants more quickly than anticipated.

George Kelly, Analyst

Excellent. Thank you.

Hajime Jimmy Uba, CEO

Thanks, George.

Operator, Operator

Thank you. We have reached the end of our question-and-answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.