Earnings Call Transcript
KURA SUSHI USA, INC. (KRUS)
Earnings Call Transcript - KRUS Q1 2024
Operator, Operator
Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal First 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'd like to turn the call over to Mr. Porten.
Benjamin Porten, Senior Vice President 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 first 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 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. 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 is available in our earnings release. With that out of the way, I would like to turn the call over to Jimmy.
Hajime Jimmy Uba, President and Chief Executive Officer
Thanks, Ben, and Happy New Year to everyone joining us today. Fiscal 2024 is off to an exceptionally strong start with meaningful improvement in restaurant-level operating profit margin and adjusted EBITDA, as well as six new units opened to date with another seven under construction. Our goals for this fiscal year remain the same as last year: maintain excellent operations, continue to rapidly grow the number of our restaurants, and leverage our general and administrative expenses against our increasingly large restaurant base. I'm pleased to say that we are continuing to make excellent progress on all three fronts. Total sales for the fiscal first quarter were $51.5 million, representing comparable sales growth of 3.8% with traffic growth being responsible for 3.3% of our overall comparable sales. Sales momentum has accelerated since our last earnings call, as implied by the 110 basis point improvement over the branded September-October comps of 8.7%, this improvement being delivered entirely by traffic growth. Effective price was 9% during the fiscal first quarter. As of the first week of December, we dropped 7% in price which we partially offset in January with pricing of approximately 1%. Our current 3% effective pricing is a return to our historical pricing cadence which reflects our confidence in the ongoing normalization of our prime costs as well as a strong strategic decision to best take advantage of current macro factors to maintain traffic growth and capture market share. Commodity costs have seen a marked improvement over the prior year quarter with our cost of goods sold as a percentage of sales coming in at 29.8% in Q1 as compared to last year's 31.6%. Labor costs have largely remained the same at 31.6% as compared to the prior year quarter's 31.9%. Restaurant-level operating profit margins improved from 18.3% in the prior year quarter to 19.5% and adjusted EBITDA grew from $0.6 million to $1.8 million, representing year-over-year growth of approximately 200%. It's worth mentioning that much of the adjusted EBITDA growth was driven by improvements in commodity costs, but it is particularly encouraging to see such dramatic growth even while we faced the other headwinds associated with full compliance and restaurant-level headwinds associated with a record number of new restaurant openings and the units under construction. I believe this adjusted EBITDA growth is only a test of what we can expect in future years as we grow our unit base as a company and become even better able to leverage our general and administrative costs. In the fiscal first quarter, we opened four new restaurants: Pittsburgh, Pennsylvania; Flushing, New York; Tampa, Florida; and Naperville, Illinois. Subsequent to the quarter end, we opened two more new restaurants in Kansas City, Missouri and Skokie, Illinois. Additionally, we have seven units currently under construction. Accordingly, we are excited to increase our unit openings guidance for fiscal 2024, which Jeff will expand on shortly. The incredible reception that we are seeing as we establish ourselves in new markets demonstrates the broad national cost of food cost affordability of Kura Sushi, and the performance of the new units in existing markets is confirming our expectations that the massive consumer appetite for sushi is more than enough to sustain our in-field brand. It's been a couple of months since we launched the new version of our rewards program and I'm very pleased to be able to share that the early momentum we discussed in our previous earnings calls has remained just as strong. Registration rates for new members are approximately tripled compared to the previous program, and given that these are all new users, we expect greater engagement on a per-user basis and overall comfort with the previous rewards program. While it is still very much early days in terms of the new rewards program and in our earnings on how to best leverage it, we expect to provide a more concrete update in future earnings calls in terms of newly unlocked opportunities and its potential to drive incremental revenue. Our current collaboration with Peanuts has been very well received by our guests. Our next brand collaboration is SPY x FAMILY and we believe the pipeline for the remainder of the fiscal year is the strongest we've ever had. As we enter the New Year, I would like to thank all of our team members both at our restaurants and at our corporate support center for all of their hard work which has allowed us to share great news quarter after quarter on our earnings call. And with that, I will turn it over to Jeff to discuss our financial results and liquidity. Jeff?
Jeff Uttz, Chief Financial Officer
Thank you, Jimmy. For the first quarter, total sales were $51.5 million as compared to $39.3 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was positive 3.8%, with regional comps of 9% in our West Coast market, and 1.3% in our Southwest market. Turning now to costs. Food and beverage costs as a percentage of sales were 29.8% as compared to 31.6% in the prior year quarter, largely due to pricing and the easing of commodity inflation. Labor and related costs as a percentage of sales decreased to 31.6% from 31.9% in the prior year quarter. This decrease is due to sales leverage from increased traffic and pricing, which was largely offset by increased training costs associated with new store openings and general wage increases. Occupancy and related expenses as a percentage of sales were 7.6% compared to the prior year quarter's 7.3%, due to incremental pre-opening rents associated with a greater number of units under construction. Depreciation and amortization expenses as a percentage of sales increased to 4.8% compared to the prior year's quarter's 4%, largely due to the 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 14.7% compared to 13.5% 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 and general cost inflation. General and administrative expenses as a percentage of sales decreased to 16.7% as compared to 16.9% in the prior year quarter due to greater sales leverage, which was largely offset by incremental public company costs and recruiting and travel costs associated with new unit openings. Operating loss was $3.8 million as compared to an operating loss of $2.2 million in the prior year quarter, largely driven by incremental other costs, depreciation and amortization, and occupancy associated with a greater number of unit openings and units under construction. Income tax expense was $38,000 compared to $10,000 in the prior year quarter. Net loss was $2 million or $0.18 per share compared to a net loss of $2.1 million or $0.21 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.5% compared to 18.2% in the prior year quarter. Adjusted EBITDA was $1.8 million compared to $0.6 million in the prior year quarter. Turning to our cash and liquidity. At the end of the fiscal first quarter, we had $64.2 million in cash and cash equivalents and no debt. And lastly, I would like to update and reaffirm the following guidance for fiscal year 2024. We now expect total sales to be between $239 million and $244 million. We now expect to open between 12 and 14 units with average net capital expenditures per unit of approximately $2.5 million. And we continue to expect general and administrative expenses as a percentage of sales to be approximately 14.5%. Now, I will turn it back over to Jimmy.
Hajime Jimmy Uba, President and Chief Executive Officer
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.
Operator, Operator
Thank you. We will now begin the question-and-answer session. Our first question comes from Joshua Long with Stephens. Please go ahead with your question.
Joshua Long, Analyst
Thank you for taking my question. I'm interested in learning more about the unit development pipeline and the recent improvements in it. In the previous call, you mentioned the potential for growth in the new unit development pipeline for the year, and it seems that is starting to materialize. I'm curious if this progress is due to better site selection, improvements in permitting, or any other insights you can share about how the new stores are developing.
Hajime Jimmy Uba, President and Chief Executive Officer
Thank you, Josh, for your thoughtful question. Please allow me to speak in Japanese and have it translated for me. So, as Jimmy mentioned in the prepared remarks, we have seven units under construction. We're extremely pleased to say that three of those are quite far along in the construction process, and we're very happy with our progress. This is one of the reasons we are confident in raising our guidance. Regarding the permitting delays from the past fiscal year, those have significantly eased, and we are very satisfied with the rollout and how smoothly that has gone this year.
Joshua Long, Analyst
That's very helpful. Thank you. Regarding the performance of newer stores, it seems strong. Could you provide some additional context about how the results for the quarter compared to your expectations? I understand there will always be some variance between your insights and our models. I'm particularly interested in the average weekly sales growth trends throughout the quarter and whether we're starting to move away from analyzing this on a multiyear comparison, especially as we distance ourselves from COVID disruptions. I'm curious to hear if you're observing any signs of normalization and any insights you could share on how new store performance is developing.
Hajime Jimmy Uba, President and Chief Executive Officer
In terms of new restaurants, fiscal '23 was a record year for us. This year, we have already opened six locations to date, reflecting a lot of new openings. We've successfully entered major markets like Minneapolis, opened a couple of places in New York, established a presence in Pittsburgh, and entered Tampa. It's truly gratifying to see how well these markets have embraced us. Each time we enter a new market, it reaffirms the adaptability of our concept, which is encouraging for our team. In our existing markets, we've opened several new locations in New Jersey, Chicago, and the Atlanta area, all of which are performing very well. As mentioned earlier, there is a strong demand for sushi across the United States, so we are very confident not only about the performance in our new markets, which are excelling, but also in our existing ones. Regarding the multiyear stack, I want to be clear that we are no longer doing that internally. We have returned to a sense of normalcy, and we are pleased to share that.
Joshua Long, Analyst
Great. Thank you. That's helpful. Then one last one for me. In terms of the food deflation or just the overall COGS basket that you talked about in your prepared remarks, I think also in the past there was conversation around the potential to reinvest in food quality or other areas if the food cost margin went materially below 30%. So realize it's probably early on in the old process, and there's still a little bit of fluidity there. But could you just remind us how you're thinking about the food cost line and when and where some of those pivot points or thought process might lie in terms of the potential for seeing leverage or maybe reinvesting in that line item?
Jeff Uttz, Chief Financial Officer
Hey, Josh. It's Jeff. Yeah. The 30% number on the COGS line is something that we're very happy with. It's something that we would like to see a little bit lower, and it has gotten lower. In terms of deflation, just to give you the numbers of what we've seen this year, year-over-year our deflation was about 4%. And sequentially, quarter-over-quarter, our deflation was about 2%. So that deflation, combined with the price increases that we've taken over the last year, and as Jimmy mentioned, we did take about 1% on January 1. We believe that with the price increases and the deflation, that we're going to be successful in having that COGS number show up even below 30%. But as we've mentioned in the past, there's a floor to that. If that COGS number were to get somewhere around 27% or 28%, that may be a little bit too low, and then you do risk hurting your food quality, which is not something we're going to do. So as long as we can keep that number in the very high 20s or right around 30%, we're going to be happy.
Joshua Long, Analyst
Got it.
Jeff Uttz, Chief Financial Officer
In terms of reinvesting that, some things that we've done have materially significantly improved the quality of our core proteins, especially tuna and salmon. Very pleased to be able to say that we've done that while also lowering our COGS cost. And so that's really been pretty remarkable for us. One other thing that we like to do is our limited time offers. For example, in December, we did a crab fair with very high quality crab. Winter is crab season in Japan, and this was one of the most popular limited time offers ever. Our guests really enjoyed it and appreciated that we were giving back to them through this offering.
Joshua Long, Analyst
Great. Thank you so much.
Jeff Uttz, Chief Financial Officer
Thanks, Josh.
Hajime Jimmy Uba, President and Chief Executive Officer
Thank you, Josh.
Operator, Operator
Thank you. Our next question comes from the line of Jeremy Hamblin with Craig Hallum. Please proceed with your question.
Jeremy Hamblin, Analyst
Thanks and congrats on the strong results. I wanted to just come back because there's a little bit of breakup in the audio and some of the commentary around menu pricing, as well as same-store sales color. Apologies for going back over some of this, but wanted to make sure that I understood, a, kind of the cadence of comps color that you shared throughout FQ1. And then two, I think I heard on the menu pricing was that you're carrying 3% overall in FQ2 and then kind of the comp on the West Coast versus the other regions or in the Southwest region, if we could start with that, that would be great.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
The pricing we implemented in the first quarter was 9%. We surpassed a 7% increase in December and introduced a 1% increase at the start of January. Currently, our pricing stands at 3%. We're very pleased with our comparable sales performance. It's important to emphasize the traffic figure of 3.3% that we achieved in Q1; as noted in various conference calls throughout the year, few companies have managed to generate positive traffic. We monitored this number closely, and as long as we can keep customers returning and encourage our existing guests to come back, we’ll be satisfied. This is something we can influence through excellent service and high-quality food, which we continue to deliver. We believe our guests will keep coming back, maintaining positive traffic. If we can achieve that, we're optimistic about the upcoming year. Additionally, regarding the cadence, during the audio disruption, we noted that in our previous earnings call, we reported September and October as having comps of 2.7%, so you can deduce that November's comps were likely stronger given our full quarter came in at 3.8%, which was solely driven by traffic as we did not implement any price hikes during that period. In line with Jeff's earlier comments, we are very happy to see our strong execution, especially with more guests than ever visiting our locations.
Jeremy Hamblin, Analyst
Got it. I think there was some commentary on the West Coast versus the Southwest market comps also just wanted to clarify.
Jeff Uttz, Chief Financial Officer
Yeah. Give me one second.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
I have the number here.
Jeff Uttz, Chief Financial Officer
Great.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
From the top of my head, 9% in the West Coast and 1.3% in the Southwest markets.
Jeremy Hamblin, Analyst
Got it. Regarding the overall comparison, menu pricing was strong with traffic increasing by 3.3%. Are you still noticing a slight decline in average plate consumption?
Hajime Jimmy Uba, President and Chief Executive Officer
On a sequential basis from Q4 to Q1, plate consumption per person has actually improved. Year-over-year, it's approximately the same. We're quite pleased with the current state of plate consumption.
Jeremy Hamblin, Analyst
Got it. And then I wanted to shift gears to your labor costs. I see that you had some nice 30 basis points of leverage year-over-year. I think minimum wage in California on January 1 is up about 3.2%, but I wanted to get an outlook of what you're thinking about, Jeff, on the labor market here in calendar '24? As we're moving forward, are you seeing a little bit less pressure? I think there's also in April, the impact of the potential large scale fast food wage laws that are going into effect, the $20 wage, but just wanted to get a sense for what you were expecting. And again, pretty nice leverage that you got on a 3.8% comp.
Hajime Jimmy Uba, President and Chief Executive Officer
I'm happy to answer this question. Until about the third quarter of last year, year-over-year labor inflation was around 10%, but it has since moderated to mid-single digits, including the annual minimum wage increases in California. With the pricing adjustment we implemented in January, we believe it will be sufficient to offset labor increases and maintain our margins year-over-year. Regarding AB 1228, previously called the FAST Act, we view this as an opportunity. In our California markets, our employees already earn competitive wages compared to the $20 wage expected in quick service restaurants. Quick service restaurants will need to raise their prices significantly to manage this change. We see this as a valuable chance to increase our market share. The current conversation has shifted from choosing between Kura Sushi and other casual dining options to deciding between getting a combo meal at a burger place or dining at Kura Sushi. This is part of the reason we're implementing a 3% price increase; we aim to showcase the value Kura Sushi offers to a broader audience beyond our current customers.
Jeremy Hamblin, Analyst
Got it. That's a great point. Last one for me. Now I'll hop out of the queue. Just wanted to ask about some of the recent collaborations, right? You've partnered with Peanuts and Snoopy in December into January, and wanted to get a sense for how that promotion was performing. It seems to be generating a decent amount of buzz.
Jeff Uttz, Chief Financial Officer
Yeah. We're really pleased with the December results, and the Peanuts collaboration is certainly a big part of it. Our PR team gets better and better with every collaboration that we cycle through, and this time they did a really spectacular job with what we call the space collaboration, not just the toys or the animes, but we had photo ops where the restaurants were decked out like a Charlie Brown Christmas. We had little Snoopy figures on our Mr. Fresh domes, and those would go mysteriously missing. If guests were a part of that, you really can't get higher praise than that. Certainly not encouraging guests to do that. It was nice to see people so excited about it. As Jimmy mentioned earlier, we've got SPY x FAMILY as our next collaboration, and then we've got two more after that for the remainder of the fiscal year. This is the best pipeline we've ever had. I could not be more excited. I wish I could tell you what they were right now, but you're going to have to wait until the next call.
Jeremy Hamblin, Analyst
Great. Thanks for taking all the questions and best wishes.
Jeff Uttz, Chief Financial Officer
Of course. Thank you.
Hajime Jimmy Uba, President and Chief Executive Officer
Thank you, Jeremy.
Operator, Operator
Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.
Sharon Zackfia, Analyst
Thanks for taking the question. Jeff, I have to admit I was a bit surprised that you raised revenue guidance this early in the fiscal year. I'm curious about the $1 million increase—was it part of the initial guidance, was it included in the opening schedule, or is this due to an improvement in the business?
Jeff Uttz, Chief Financial Officer
Hey, Sharon, you're cutting out a little bit on my end, but I think I got the gist of your question. So as Jimmy mentioned earlier on one of the questions that was asked, the cadence of the opening is going quicker than we had expected, which is why we decided to raise the guidance. We feel that we're going to have some more operating weeks and have an additional unit come in at the end of the year, which is why we raised it $1 million and not more than that. To talk about some of the things that have been happening with the openings and the markets that we're opening in, we have seen some of the permitting problems we had last year ease, and some of the site selection has been really good. Landlords are excited about getting us in. I was talking to our Chief Development Officer recently, in fact, last night, and he was telling me that these landlords are getting their work done quicker because they want to get us in, and they're excited about having Kura Sushi as part of their portfolio. The quicker they can get their work done, the quicker we can get our work done, and we can open. We're seeing that happen, which is why we raised the guidance a little bit. Wanted to get through the first quarter and kind of see how that played out. We thought that that's how it would be, but we wanted to get through the first quarter and watch what happened before we raised the guidance. So that's why we are where we are now.
Sharon Zackfia, Analyst
Very helpful. And then on the traffic improvement you saw in November, obviously, pretty meaningful. We can all kind of do the math. I mean, is there anything in particular you attribute November to, or in hindsight, that you attribute prior two months to being a little less than November?
Hajime Jimmy Uba, President and Chief Executive Officer
We would attribute the acceleration in traffic in November largely to our new rewards program. We're very pleased with its capabilities. In November, we made a final push to migrate more of our existing users, and there was a promotion around that. In December, we initiated a promotion for the first time, which was made possible by our rewards program that can track these activities. We offered a 20% off coupon for January to anyone who visited us twice in December. This promotion was effective in driving traffic in December and is expected to continue attracting visitors in January when they come to redeem the coupon.
Sharon Zackfia, Analyst
The robotic dishwasher, which we are all very excited about, is being planned for spring. I'm just wondering if that timeline is still on track and how the rollout into new units will look going forward.
Jeff Uttz, Chief Financial Officer
Yeah. So we are still on pace for a test in spring. I'm very much looking forward to it. I'd say that the technology is largely ready. It's just a matter of getting it battle-tested. It’s a little tricky to go from the prototype to the mass market model just given that there are some material changes. I think it's safe to assume that it's going to be at least 12 months from when the mass-produced model is finalized. At that point, I can get the actual parts list and bring it to the regulatory organizations, but that's a pretty opaque process. It would probably be 12 months minimum from testing, and then it would just be the timing for which stores we can plan ahead in terms of a layout to accommodate the robot dishwasher.
Sharon Zackfia, Analyst
Thank you and Happy New Year.
Hajime Jimmy Uba, President and Chief Executive Officer
Thank you. Happy New Year.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
Thanks, Sharon.
Operator, Operator
Thank you. Our next question comes 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 on the comp trend. The first one, I think for the fiscal quarter you did a 3.8% and I think you said the pricing was 9% and the traffic if I heard right, was at 3.3%. So that would imply, I guess, a negative 8% or so in mix. And I think you said the plates were flat. So I guess it sounds like an ongoing, maybe non-sushi check management. I'm just wondering how you think about that negative offset, whether you see that as a concern or whether that concern is abating kind of that missing component of presumably the meaningfully negative mix shift, kind of how you think about that.
Hajime Jimmy Uba, President and Chief Executive Officer
So regarding the negative mix, while it's certainly present, we don't view it as a significant concern. Our primary focus is on traffic, and our marketing efforts reflect that. Our entire strategy centers on it. We believe traffic is the most challenging aspect and where we excel compared to our competitors. As for managing the average check, we consider it a unique aspect of our service model that benefits our guests. Customers can visit regardless of their budget, and this inclusiveness is a key reason for our strong traffic. Despite the mix pressures, our restaurant-level operating profit margin is 19.5%, which is a notable increase from last year's 18.2%. We maintain that traffic is our main priority. By leveraging our fixed costs against traffic, we can achieve the desired margins. Of course, we also appreciate when guests show increased interest in side menu items and similar options. We have promotional campaigns planned aimed at enhancing guest spending.
Jeffrey Bernstein, Analyst
Understood. And then as we look forward, I think I pieced together from an outlook perspective on comps, based on the September-October, it seems like the November was roughly at 6%. And I guess if the pricing was similar, for sure that's a nice uptick. So I'm just wondering, one, I want to confirm that was right. And then I think on December, I thought you said that you were really pleased. I wasn't sure if that was a reference to the overall comp or how we should just think about the outlook, whether or not it's fair to assume a mid-single digit type comp sustains with still positive traffic and the pricing in that 3% range. Just trying to figure out the outlook first on the December and then kind of what we should be thinking about for the rest of the year based on those components.
Hajime Jimmy Uba, President and Chief Executive Officer
So, in terms of November coming in at about 6%, your calculations are correct. Looking at December, we did see 7% pricing in the first week. However, we were very pleased with our traffic performance and overall comparable performance. We are confident that with our continued traffic strength, marketing efforts, product pipeline, and menu development, we will maintain this strong momentum throughout the rest of the fiscal year. We are very happy.
Jeffrey Bernstein, Analyst
Understood. That's encouraging, despite I guess concerns of a slow in consumer. So good to hear. My last question was just on the cost side of things. Just a clarification, I think you said the commodities were 4% deflation in the first quarter. I'm just wondering what the labor was for the first quarter and maybe the expectation for each of those for full year, fiscal '24.
Hajime Jimmy Uba, President and Chief Executive Officer
In terms of labor, we experienced mid-single digits inflation year-over-year, but we managed to come in 30 basis points below the previous year's figure, at 31.6% compared to last year's 31.9%. We believe that the operational efforts we've implemented, along with the pricing strategies we've adopted, have contributed to this improvement. We are very satisfied that we not only maintained our position but also enhanced our labor margins.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
And then in terms of food deflation, you're right; it was about 4% from quarter one, fiscal '23 to this year, quarter one. It was about a 2% sequentially from Q4 of this past fiscal year to Q1.
Jeffrey Bernstein, Analyst
Got it. Just to clarify, Ben, did you say that based on your calculations, there was 130 basis points of expansion in restaurant margins? But do you expect the restaurant margins to remain flat in fiscal '24 with a 3% price increase for the rest of the year? Or were you referring to the labor line? I know someone asked a previous question about labor, but I thought you mentioned you were comfortable with restaurant margins remaining flat. I wanted to confirm if you have any forward-looking insights on the remaining three quarters from an overall margin perspective. Thank you.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
Yeah. If you look at our historical margins, they tend to leverage pretty meaningfully every quarter. And so you can just assume that the same as historically, they'll continue to improve as we have greater traffic and greater sales that we can leverage against our fixed costs. The comment about the 3% pricing that we took, we felt it was enough to offset not just our labor cost, but we've got a cost that has some other costs, general inflation, but the 3% we thought was enough to pretty much offset all those inflationary pressures.
Jeff Uttz, Chief Financial Officer
I'll also add too, Jeff, on the restaurant-level operating profit as a percentage of sales. As I mentioned in my prepared remarks, we had 130 basis points of leverage there from 18.2% to 19.5%. So with a lot of tailwinds, our pricing, the commodity deflation, and the easing of labor inflation, the tailwinds have been great this past quarter and we fully expect that to continue for the remainder of the year.
Jeffrey Bernstein, Analyst
Sounds great. Thank you very much.
Hajime Jimmy Uba, President and Chief Executive Officer
Thank you, Jeff.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Jon Tower with Citigroup. Please proceed with your question.
Jon Tower, Analyst
Great. Thanks for taking the questions. Just a few, if I may, and I apologize if you might have hit this earlier. I had a hard time hearing some of the stuff. But on the loyalty program, I'm curious, how have registrations hit versus your own expectations? And how is it seems as if, per Ben's comments earlier, at least around the promotion in December, where you can come in twice and get 20% off in January. One, I don't know if that was only reserved for loyalty members or not, but how is this working overall the loyalty program to drive frequency ticket and/or frankly, any sort of customer insights that you might not have had previously?
Benjamin Porten, Senior Vice President of Investor Relations and System Development
Yeah. So generally speaking, whenever we talk about a promotion, you can assume that it's limited to our rewards members. I don't know if you recall, in the last earnings call, it was November. Our rewards program had just been out for a couple of weeks, and we mentioned that the registration rate had doubled compared to the prior program, and we sort of assumed that would level off. That was due to the initial excitement. But I'm not sure if you heard in today's call because the audio is a little bit garbled, but the registration is actually tripled in comparison to the last program. So it hasn't leveled off; it's actually accelerated. I think it's very fair to say that it's far exceeded our expectations. We're very pleased with it. I think it's still a little much premature to be discussing guest insights, but engagement is great. The things that we can do, the kind of campaigns that we can deploy are at a completely different level. Certainly, the next earnings call will have a lot of good news that we'll be able to share with you.
Hajime Jimmy Uba, President and Chief Executive Officer
Yes. Visiting twice in December to receive that 20% discount in January is exclusive to rewards members. The enhanced rewards platform made it possible for us to implement this for the first time.
Jon Tower, Analyst
Got it. Thank you. And just, I know last quarter you'd also discussed the idea about communicating kind of some of the upgrades on the waitlist system and/or kind of the rolled-out cell phone ordering at the table to consumers as a potential lever. Did you guys push that during the quarter at all? And if so, what was the uptake of either?
Jeff Uttz, Chief Financial Officer
In terms of the waitlist app, guest attrition has decreased from 25% to below 20%, which is a significant improvement. We're very pleased with this development, and we believe it's one factor contributing to our ongoing traffic growth. Regarding mobile phone ordering, it is still limited to two restaurants. We will begin testing later this, as the testing is complete and all features are ready. One challenge we faced was naming the feature appropriately. We had a button labeled mobile ordering, which led guests to think it was just for takeout. We are changing it to smartphone ordering, which more clearly conveys what it does. This feature allows customers to place orders using their cell phones, which may not seem exciting until you find yourself at our restaurant with a larger group and can't reach the panel to order. We're very enthusiastic about this, particularly in terms of our menu mix, as we see it as a valuable opportunity to enhance side item attachment rates. The rollout will begin in January and will occur gradually, with the expectation that it will be completed in the next two quarters, hopefully by next quarter.
Jon Tower, Analyst
Got it. Thank you. And then just I guess following up on the US total addressable market. I know you previously talked about the idea of getting to about 300 stores, and it seems like new store productivity volumes and certainly traffic indicate that your brand is resonating particularly well with consumers, despite whatever the macro had been doing over the past 24 months and obviously prior to that. I'm curious, if and when you guys think about that number, it appears dated at the moment. Do you have any more thoughts on where that should go over time?
Hajime Jimmy Uba, President and Chief Executive Officer
It remains a topic of discussion regarding when we will initiate the new white space study. There's clear excitement about it, and we're looking forward to sharing our findings with the public once we make that decision. We have mentioned before that the initial estimate of 300 units provided during the IPO was conservative. This conservatism stems not only from our initial approach but also from market fragmentation and the significant number of restaurant closures in the Japanese market due to COVID. We believe this has fundamentally shifted our opportunities in the United States. Currently, we have 56 units out of that initial estimate of 300, and we aren't feeling rushed to expand quickly. We don’t see a necessity to project hundreds of units in the near future, but it’s also clear that no one on this call sees 300 as our limit.
Jon Tower, Analyst
Got it. Thank you for taking the questions.
Hajime Jimmy Uba, President and Chief Executive Officer
Of course. Thank you, Jon.
Operator, Operator
Thank you. Our next question comes from the line of Todd Brooks with Benchmark Company. Please proceed with your question.
Todd Brooks, Analyst
Hey. Thanks for taking the question. Just a couple left here. Jeff, on the other cost line, given the success in accelerating the opening pipeline, is it safe to take the kind of Q1 level of spend and then obviously apply a low leverage as the volumes increase in the back half? But how should we be thinking about that level of spend as we go forward through the year?
Jeff Uttz, Chief Financial Officer
That's exactly how you should think of it, Todd. We're going to continue our opening pace. As you know, we raised the guidance to 12 to 14 units. So we're going to continue to open units as quickly as we can. So we're going to continue to see those large preopening expenses and that's really what impacted other costs the most throughout the quarter was the preopening expenses associated with opening restaurants. A lot of restaurant companies in the past have broken out those preopening expenses as a separate line item on the financials, but we don't do that anymore. You can see what our preopening expenses were in our adjusted EBITDA reconciliation in the Q. As we continue to open restaurants and we have more topline revenue to gain the leverage, you're thinking about it exactly right, it's going to leverage a little bit, but they're still going to remain elevated. I wouldn't think about a lot of leverage going forward necessarily this year on the preopening costs. But as we get through the year, you will get some, and again next year more. Similar to G&A really is how I'm thinking about it, because unless we start opening a significant number of stores on time, we're going to continue to have enough stores where that additional revenue from the stores we have opened will significantly offset that. Right now, it is giving us some higher costs in the other cost line and in the labor line as well. Our preopening costs are sprinkled throughout our P&L. They're not just stuck in one line. It's in labor, and occupancy; that’s another reason the occupancy was high too, nobody asked about occupancy, but we have to start booking rent expense on restaurants when we take possession of the building. When it takes four or five months to build the restaurant, we're having noncash rent expense hit our books. Because of the accelerated openings, that's why you see our occupancy line a little bit higher than I think some people expected it to be this quarter as well, but it's a good thing. We're opening restaurants and they're going to start pushing through revenue and making profit, and we're excited to see this happening.
Todd Brooks, Analyst
That's very helpful. Thanks, Jeff, and agree that if it's tied to accelerated unit openings, that's a great thing. Just one follow-up there and then I'll hop back in the queue. Within the other expenses, you talked about marketing costs being up, is this just preopening marketing for new units or is there something that you're doing additionally on the marketing side that would bump that cost line up?
Hajime Jimmy Uba, President and Chief Executive Officer
Last December, we began investing in targeted marketing and search engine optimization with Google across its channels. This approach has proven to be very cost-effective, and we are pleased with the results, which is why it remains a key component of our marketing strategy. The current figures reflect a year-over-year comparison since we initiated this in December. Last year, Q1 was our first and only quarter without that cost. Moving into Q2, we will conduct a straightforward comparison, making it clear that we are not introducing anything new in Q1; it is simply a continuation of our year-over-year analysis.
Todd Brooks, Analyst
Perfect. Thank you, both.
Hajime Jimmy Uba, President and Chief Executive Officer
Thank you.
Jeff Uttz, Chief Financial Officer
Thank you, Todd.
Operator, Operator
Thank you. Our next question comes from the line of George Kelly with ROTH Capital Partners. Please proceed with your question.
George Kelly, Analyst
Hey, everyone. Thanks for taking my question here. So most of my stuff's been asked, but just one last one for you related to CapEx. And I was curious, what's a good sort of percent of sales to use just generally for maintenance CapEx? I know it's $2.5 million per restaurant, but wondering about maintenance CapEx. And if we look back over the last year or two, has there been kind of a post-COVID catch-up on some maintenance CapEx, just curious if there's been anything sort of not normal in the more recent periods.
Jeff Uttz, Chief Financial Officer
So a couple of things. George, hi. For maintenance CapEx, we've said in the past it runs about $100,000 per restaurant; that's your ongoing maintenance stuff that we're capitalizing. In terms of catch-up, there's not necessarily so much of a catch-up. When you look at our depreciation line on the P&L, what you're seeing is a lot of accelerated depreciation in there because we've done several remodels. We changed our logo sometime before I joined the company, but we haven't changed the signage yet, so we're changing a lot of our signage to the new logo. When we make that decision and we have a date for when that sign is coming down, we have to accelerate the depreciation. We have a lot of protective equipment that we had in the restaurants for COVID that we kept on the books just to make sure the COVID emergency was over, and now that it's over, we have to write those off as well. So there are some unusual things hitting our depreciation line. But that's kind of how I think you should look at it; like I said, it's around $100,000 for our maintenance CapEx.
George Kelly, Analyst
Okay. Sounds good. That's all I had. Thank you.
Benjamin Porten, Senior Vice President of Investor Relations and System Development
Thanks, George.
Jeff Uttz, Chief Financial Officer
You're welcome.
Operator, Operator
Thank you. We have reached the end of our question-and-answer session. And with that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.