Earnings Call Transcript - KRUS Q4 2022

Operator, Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Fourth Quarter 2022 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be opened for your questions following the presentation. Please note that this call is being recorded. On the call today, we have Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Vice President of Investor Relations and Business Development. And now, I would like to turn the call over to Mr. Porten. Please go ahead.

Benjamin Porten, Vice President of Investor Relations and Business Development

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter 2022 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 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.

Jimmy Uba, President and Chief Executive Officer

Thank you, Ben, and thank you everyone for joining us today. It’s great to be able to report strong growth in our financial year. We broke sales records and unit growth records and achieved an all-time high on our restaurant-level operating profit margins. We further improved our portability by entering and succeeding in three new states and many more DMAs. We implemented many new innovations at our restaurants allowing us to scale successfully as we continue to pass through aggressive growth. It’s been a great year. Now, I would like to discuss our fiscal fourth quarter results and touch on some expectations for the coming fiscal year. We continue to see strong sales performance in our fourth quarter with sales of $42 million, a 50% growth over the prior year of $27.9 million, and comparable sales growth of 27.6% as compared to the prior year period. What’s remarkable about this figure is that our comparable sales growth has far outpaced the pricing that has taken over this period, as we saw traffic growth of 14.6% over the prior year. Profit growth in California was especially robust, exceeding 20%. As a reminder, California reopened for full indoor dining on June 15, 2021. The traffic gain we saw in California materially outperformed our expectations directly due to two weeks of additional operating capacity in fiscal year 2022. On that note, I would like to discuss regional performance. In the fiscal fourth quarter, California saw comparable sales growth of 32.7% compared to the prior year period. In Texas, we saw comparable sales growth of 19% compared to the prior year period. This geographic disparity mirrors the comparative benefit California had last year due to operating restrictions. Off-premises sales were $1.3 million with a mix of 2.9%, consistent with our near-term expectations for low single-digit off-premises mix. This strong performance contributed to a fiscal year 2022 AUV of $3.8 million, which is an increase of $1.7 million over the prior year AUV of $2.1 million, as well as a healthy improvement on our pre-pandemic AUV of $3.5 million. To provide some context for our comparable sales, I would like to discuss our recent pricing history. We took pricing of approximately 8% in September of 2021, followed by approximately 2% in March 2022 and closed out the fiscal year with pricing of approximately 6% in July 2022. Following our lapping of September 2021, our current year-over-year effective pricing is a little less than 8%. Again, our comps for the first quarter on a single-year basis was approximately 28%, with effective pricing of approximately 14% over the same period. We are exceptionally proud to say that our comparable sales gains are not being driven fully by pricing, and we have seen no discernible traffic growth, demonstrated by the previously mentioned 14.6% year-over-year profit growth in our fiscal fourth quarter. Now, I would like to discuss what I’m sure is top of mind for everyone in the restaurant industry: inflation, labor availability, and consumer strength. Our COGS as a percentage of sales was 30.7%. While this figure is still very strong from a historical perspective, we saw a 100 basis points increase in COGS relative to our fiscal third quarter due to commodity inflation, which we were not able to fully offset by pricing. On the other hand, labor as a percentage of sales improved to 28.9%, driven primarily by price and seasonal sales leverage, supported by the full rollout of robot servers, tableside payment, and touch panel ordering systems. Staffing headwinds have progressively eased, and our current staffing, excluding the newly opened units, is over 95% of optimal levels. In spite of unprecedented inflation, we were able to deliver an all-time best restaurant operating profit margin of 23.9% in our fourth quarter. On a full-year basis, our restaurant operating profit margin for fiscal 2022 was 21.2%, which is an improvement of more than 100 basis points over our pre-pandemic historical results. I believe that consumer demand for Kura Sushi remains very strong in spite of inflationary concerns and potential pressure on discretionary spending. First, we are fortunate in that our historical and current restaurant strategy prioritizes markets that have a high concentration of high-income residents, making Kura guests that much more resilient as customers. Second, our value proposition remains excellent. In spite of the pricing adjustments taken during the pandemic, an internal survey of sushi restaurants indicated that our menu pricing is approximately on par with those set by local competitors. There has been a lot of discussion about consumers trading down, and we think there’s a significant opportunity in capturing first-time guests that are trading down from their local mom-and-pop sushi restaurants. This will be a key strategy for growing sales in fiscal 2023, and we expect to make additional marketing investments to take full advantage of this opportunity. The health of Kura consumers is demonstrated by our quarter-to-date sales. We saw September sales of $13.5 million and October sales of $13.3 million with year-over-year comparable sales growth of 11.5% and 6.3% in September and October, respectively. I believe these results are particularly strong considering the tough competition, as we have the 8% pricing taken in September 2021. As for the strength of the Kura consumer, our franchise consumption during the quarter-to-date has actually shown modest growth relative to our fiscal fourth quarter. Average check sizes have also grown modestly compared to our fiscal fourth quarter. Moving to development, in the fourth quarter, we opened three new locations: Novi, Michigan; Vineland, Florida; and Tysons Corner, Virginia, making a total of eight new unit openings for fiscal year 2022. As you may have heard from other earning calls from our peers in the industry, we are continuing to see headwinds in construction costs gradually due to seeking delays and permitting delays from local governments. I’m very proud of our developmental team for achieving 25% unit growth this year while working under these conditions. Much like fiscal year 2021, our craft of new units from this year has the potential to be one of the best classes we’ve ever opened. Development for fiscal year 2023 is off to a strong start, and we expect three new units to open in the next several weeks. Two of these units will be in the new market of Philadelphia, Pennsylvania, and at the Mall of America in Minneapolis, and the other unit is set to open in Jersey City, New Jersey, a market that has delivered remarkable results with our port relocation. On another note, I would like to formally welcome our new Chief Financial Officer, Jeff Uttz. Jeff has a truly remarkable career in the restaurant industry, including growing another concept from only three units and ultimately leading its sale to leading Shake Shack back in 2015. Jeff has only been with us for a month and he has already proven himself to be an incredible addition to our team, and I couldn’t be more excited to have him as one of Kura’s leaders. Finally, I would like to thank all of the team members that have made this great year possible, both at our restaurants and our corporate support center. Kura has grown so much over the last several years and it’s great to see our employees grow alongside us and for our management pipeline to be filled with internal promotions. And with that, I’ll hand it over to Jeff to briefly discuss our financial results and liquidity.

Jeff Uttz, Chief Financial Officer

Thank you, Jimmy. I am humbled and honored to be part of this amazing company and to have joined the best-in-class management team. I believe we are poised to become the industry leader in sushi, and I couldn’t be more excited about the future. For the fourth quarter, total sales were $42 million as compared to $27.9 million in the prior year period. Comparable sales growth compared to the prior year period was 27.6% with regional comps of 32.7% in California and 19% in Texas. Turning to costs, food and beverage costs as a percentage of sales were 30.7% as compared to 30.8% in the prior year quarter due to pricing taken over the course of fiscal year 2022, largely offset by food cost inflation. Labor and related costs as a percentage of sales decreased to 28.9% from 29.9% in the prior year quarter. Excluding the impact of the employee retention credits recognized in the prior year, labor as a percentage of sales in the prior year would have been 34.3%. This decrease is due to sales leveraging from pricing and operating conditions that allowed for full indoor dining capacities. This leveraging was partially offset by wage increases. Occupancy and related expenses as a percentage of sales improved to 6.5% from 6.8% in the prior year quarter, primarily due to higher sales leverage, partially offset by higher pre-opening lease expense. Other costs as a percentage of sales decreased to 12.4% compared to 12.9% in the prior year quarter, also due to higher sales leverage. General and administrative expenses as a percentage of sales decreased to 13.3% as compared to 18% in the prior year quarter, largely due to higher sales leveraging from an expanded system base and normalized operating conditions. On a dollar basis, general and administrative expenses were $5.6 million compared to $5 million in the prior year quarter. Operating income was $1.9 million as compared to an operating loss of $762,000 in the prior year quarter. As a percentage of sales, operating income was 4.6% as compared to negative 2.7% in the prior year quarter. Income tax expense was $61,000 compared to $18,000 in the prior year quarter. Net income was $1.9 million or $0.19 per diluted share compared to a net loss of $834,000 or negative $0.09 per diluted share in the prior year quarter. On an adjusted basis, net income in the fiscal fourth quarter was $2.1 million or $0.21 per diluted share compared to the prior year quarter’s net loss of $1.4 million or negative $0.15 per diluted share. Restaurant level operating profit as a percentage of sales was 23.9% compared to 16.4% in the prior year quarter. Adjusted EBITDA was $4.8 million compared to $619,000 in the prior year quarter. Turning to our cash and liquidity, at the end of the fiscal fourth quarter, we had $35.8 million in cash and cash equivalents and no debt. Lastly, I would like to provide the following guidance for fiscal year 2023. We expect total sales to be between $183 million and $188 million. We expect general and administrative expenses as a percentage of sales to be approximately 16%, and we expect to open between nine units and 11 units with average net capital expenditures per unit of approximately $2.5 million.

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. Please bear with us.

Operator, Operator

Our first question will come from Joshua Long of Stephens Inc. Please go ahead.

Joshua Long, Analyst

Great. Thank you for taking the question. And Jeff, nice to hear from you again, glad to have you aboard. When we think about the results in the quarter, I was hoping you might be able to talk about some of the strength that you’ve seen. Obviously the regional strength is helpful context, but as you think about that momentum continuing into the first part of your fiscal 2023, can you talk about just the underlying pushes and pulls there? Are you doing – do you see that as momentum for the brand on top of just the consumer looking for those unique experiential concepts which you offer? Do you see any sort of context you’d help there to frame up kind of how your consumers doing and that underlying momentum would be helpful.

Jimmy Uba, President and Chief Executive Officer

Thank you, Joshua for your question. Please, I don’t need to answer in Japanese.

Benjamin Porten, Vice President of Investor Relations and Business Development

To start with the regional comps, the disparity that we saw between California and Texas is really just an artifact of the easier comparison that California had due to the first two weeks of June only having a 50% seating capacity. And then just sort of the ongoing traffic recovery that we saw last year. And so that’s really the only reason that California has better comps than Texas this time.

Jimmy Uba, President and Chief Executive Officer

Benjamin Porten, Vice President of Investor Relations and Business Development

Q4 with truly exceptional comps with year-over-year comparable sales of almost 20 – comparable sales growth of almost 28%. As Jimmy mentioned in the opening remarks in September and October, we had comps of about 12% and 6% respectively. Those are going to be probably more representative of the overall comps we expect for Q1 relative to Q4.

Jimmy Uba, President and Chief Executive Officer

The comparable sales growth for Q4 was almost 28%, with year-over-year comparable sales nearing 20%. As Jimmy noted in his opening remarks, we saw comps of approximately 12% in September and 6% in October. These figures will likely be more indicative of the overall comps we anticipate for Q1 compared to Q4.

Benjamin Porten, Vice President of Investor Relations and Business Development

So, we also touched on this a little bit in the prepared remarks, but in September and October, one of the truly reassuring things that we saw in terms of guest sentiment was that the fee per person sushi plate consumption had not gone down at all. In fact, we’d seen modest growth. That’s the primary way that we monitor consumer elasticity, just given that you build your check plate by plate. If there is a threshold, you can see them manage that check. But the average checks have also grown as well modestly. The fee per person consumption and average checks remain very stable in spite of the pricing that we saw in July, indicating that we really don’t think that the guests are sensitive to the pricing at all. In terms of the acceleration for comps relative to Q4, I think this is more an externality or just a reflection of the overall industry. I think people are just going out less frequently, but when they do come, they’re not managing their check. It’s clear that our guests have not yet become sensitive to any of the pricing that we’ve taken. As Jimmy mentioned earlier, in spite of the pricing we’ve taken, we’re still approximately half of the price of our local competitors. We still remain a truly excellent value.

Jimmy Uba, President and Chief Executive Officer

Acceleration for comparisons relative to Q4 seems to be more of an external factor or a reflection of the overall industry. It appears that people are going out less often, but when they do, they are not being careful with their spending. Our guests have not yet shown sensitivity to any of the price increases we've implemented. As Jimmy noted earlier, despite the price changes, we are still about half the cost of our local competitors. We continue to offer an exceptional value.

Benjamin Porten, Vice President of Investor Relations and Business Development

One of the main themes for fiscal 2023 is going to be our focus on capturing guests that have yet to visit Kura, but go to other sushi restaurants. As everybody knows, we have a truly unique dining experience that you really can't get anywhere else. Coupling that with the fact that we're priced at approximately half the price of our competitors makes us truly appealing, hence we'll really be leading into capturing new guests.

Joshua Long, Analyst

Got it. Thank you. That’s very helpful. When we think about that pricing maybe opportunity or just the current state of it bounced against the inflationary environment, what are your thoughts on pricing going forward? It seems like there’s perhaps room where you could take incremental pricing and still be a value, but also just noting that your last point there in terms of getting more people into your concept and into that funnel. How do you think about pricing on a go-forward basis?

Jimmy Uba, President and Chief Executive Officer

Thank you for your insights. Considering the current pricing situation in relation to the inflationary environment, what are your views on pricing moving forward? It appears there may be potential for modest price increases while still providing value, but I also want to acknowledge your earlier mention about attracting more customers to your brand. How do you envision pricing strategies in the future?

Benjamin Porten, Vice President of Investor Relations and Business Development

In terms of pricing, I don’t think we can really meaningfully discuss it without giving the context of COGS. We saw commodity inflation of approximately high single digits for Q4, and we expect to see that same cadence of ongoing accelerating inflation as we enter fiscal 2023. We plan to take pricing in Q2 given the inflationary trends that we’re seeing now. We’re monitoring it very closely and that’ll determine the magnitude and timing. That being said, we don’t expect the pricing we’re going to take to fully offset the inflation that we’re seeing. Last year we had our company-best in terms of COGS at 30%. We don’t think the pricing will get us back to 30%, but when we take price, we don’t think just about managing COGS or driving COGS down to a certain number. We think about overall restaurant profitability holistically. And so that’s really going to be the North Star for us in terms of price.

Jimmy Uba, President and Chief Executive Officer

We are working to determine the magnitude and timing of our pricing strategy. However, we don't expect the price adjustments to completely counteract the inflation we are experiencing. Last year, we achieved our best cost of goods sold at 30%. We believe the new pricing won't enable us to return to that 30% level, but when we make price changes, we focus not only on managing or reducing costs but also on the overall profitability of the restaurant. That will be our guiding principle regarding pricing.

Benjamin Porten, Vice President of Investor Relations and Business Development

Today, with the pricing we’ve taken, we’ve really seen minimal traffic loss and that's been really great. But we're absolutely cognizant that there’s always the possibility for traffic loss. Value propositions are always relative, and so if you're used to going to Kura and coming here every month, the price that we take is a lot more visible. But for people that have never been to Kura, there are a lot of sushi lovers that are paying twice the average Kura ticket. For those people that have never been here, it’s an overwhelmingly great value. We know those guests exist, and it’s just a matter of getting them to come to our restaurants.

Joshua Long, Analyst

Very helpful. One more, if I may. When we think about the high single-digit inflation that you’ve seen across your food basket, can you break that out a little bit and provide some more context around it? I know we’ve talked about you having a broad basket with also some opportunity from the sourcing that you have on the seafood side internationally, but just curious where you’re seeing some of that inflation and just trying to add some context to the COGS margin that you reported for the quarter. It was still down year-over-year, but up sequentially versus 3Q. So just trying to understand how some of those pushes and pulls played out during the quarter?

Jimmy Uba, President and Chief Executive Officer

Could you provide additional context regarding the situation? I understand we have discussed your diverse portfolio, which includes potential opportunities from your international seafood sourcing. I'm interested in identifying where you are experiencing inflation and would like to clarify the COGS margin you reported for the quarter. While it has decreased year-over-year, it has increased compared to the third quarter. I am trying to understand how these various factors influenced the quarter.

Benjamin Porten, Vice President of Investor Relations and Business Development

Certainly we do have a broad basket, and that’s one of the reasons we’ve been able to mitigate the inflation. There have been ongoing headwinds ever since we entered the pandemic. Typically we’re able to lock in six-month pricing for our big main purchases, which gives us a level of stability with COGS, but with the huge spikes and drops in demand as a result of the pandemic and post-pandemic, we’ve not been able to get all of our products from the same vendor in the way that we would have in the past. We need to go to a variety of smaller vendors to get everything we need to make sure we have all the ingredients in place. You don’t get as much of a scale benefit because you’re dealing with a lot of different vendors, and because they’re smaller, they can’t lock-in prices for six months at a time. That being said, we’re hoping this doesn’t go on forever, and as the vendors are able to predict demand more accurately, we’ll begin to see moderation and hopefully be able to lock in prices again in the way we have historically. One thing we’re looking forward to in terms of mitigating inflation outside of price is taking advantage of the foreign exchange rates between the U.S. dollar and Japanese yen. The U.S. dollar is basically at an unprecedented high relative to the Japanese yen, and we know that if we source directly from Japan, we’ll be able to benefit from that. The reason we haven't seen that upside just yet is that we're still in the process of exhausting our existing supply, but once that’s gone, then we can take much more advantage of the exchange rates. We’re hoping to see some impact in that beginning in the back half of the year.

Joshua Long, Analyst

Thank you.

Operator, Operator

The next question comes from Andrew Strelzik of BMO Capital Markets. Please go ahead.

Daniel Gold, Analyst

Hi, this is Daniel Gold on for Andrew. Thanks for taking the question. Can you speak to the performance of your units in new markets and what new or existing markets you are excited about expanding in next year? And follow that, can you speak to your pipeline, or signed leases and what you already have under construction?

Jimmy Uba, President and Chief Executive Officer

Thank you for taking the question. Can you speak to the performance of your units in new markets and what new or existing markets you are excited about expanding in next year? Additionally, can you discuss your pipeline, signed leases, and what you already have under construction?

Benjamin Porten, Vice President of Investor Relations and Business Development

In terms of fiscal 2022, we entered three new markets. We were successful in all three of those new markets, which has always been a significant source of encouragement for us. Just given that it continues to serve as further proof that we’re able to prove our portability nationally. The fiscal 2022 units, even outside of the new markets, have been very strong. The strength of those units has reflected in the aggressive unit growth that we’ve guided towards for fiscal 2023.

Jimmy Uba, President and Chief Executive Officer

In fiscal 2022, we entered three new markets and achieved success in each one, which has been a significant source of encouragement for us. This success reinforces our ability to expand nationally. The units for fiscal 2022, even beyond the new markets, have performed very well. This strength is reflected in the ambitious unit growth we are targeting for fiscal 2023.

Benjamin Porten, Vice President of Investor Relations and Business Development

Looking at the pipeline for fiscal 2023, the new markets that we will likely be entering include Minnesota with that Mall of America location, Philadelphia, Pennsylvania, and then New York State. Each of the locations in these three new markets are excellent, and so we’re very excited. In terms of markets we’ll be filling, we’re currently in the process of wrapping up construction in Jersey City, which will be our second location in New Jersey. We chose that location because it has been exceptional for us, just considering the strength of Fort Lee right out of the gate. We’re going to be opening our second New Jersey location and possibly a third New Jersey location as well.

Daniel Gold, Analyst

And just a last one for me in regards to staffing levels. I know you had made great progress in 3Q, where are you at today? Have you reached optimized staffing levels?

Jimmy Uba, President and Chief Executive Officer

We are opening our second location in Jersey City, which has proven to be a strong market for us, similar to Fort Lee. Additionally, we are considering a third location in New Jersey. As for staffing levels, I know you've made significant progress in the third quarter, so where do you currently stand? Have you achieved optimal staffing levels?

Benjamin Porten, Vice President of Investor Relations and Business Development

As Jimmy mentioned in the prepared remarks, our current staffing levels are over 95% relative to their optimal levels. So really the best that we’ve been at, the best position we’ve been in since entering the pandemic. All our restaurants are operating at full operating hours. We don’t have any restaurants that aren’t able to service to-go orders because of staffing constraints. So we’re very pleased with the staffing levels as they are now. The recruiting team, the training department, the marketing team, and the new store opening team have really been doing a tremendous job in terms of hiring and retention. We also rolled out three new initiatives over the course of fiscal 2022: robot servers, touch panel drink orders, and tableside payment. Those have introduced efficiencies but also improved the take-home pay of our employees, enabling them to serve more tables and simplifying their operations. These combined efforts have gotten us to a place that we feel really good about.

Daniel Gold, Analyst

That’s great to hear. Thank you.

Jimmy Uba, President and Chief Executive Officer

Thank you, Daniel.

Operator, Operator

The next question comes from Sharon Zackfia of William Blair. Please go ahead.

Sharon Zackfia, Analyst

Hi, good afternoon. It’s good to talk to you guys and to hear Jeff’s voice again. I guess I’m curious about the G&A guide for the year; I think it was probably a bit more than a lot of us had expected. Is part of that increase due to what you were alluding to, Jimmy, with marketing? Is that kind of where that would go on the P&L? I don’t know if it goes there on other ops for you. Can you talk more about what kind of marketing you’re thinking of to bring in more customers? And as you think about revenue guidance with more marketing, this might be a Jeff question. What do you assume kind of the return is on that marketing?

Jimmy Uba, President and Chief Executive Officer

I think the increase was probably a bit more than many of us anticipated. Is part of that increase related to the marketing efforts you mentioned, Jimmy? Is that where it would be reflected in the profit and loss statement? I'm not sure if it falls under other operations for you. Could you elaborate on the type of marketing you're considering to attract more customers? And regarding revenue guidance with increased marketing, this might be a question for Jeff. What do you predict the return on that marketing will be?

Benjamin Porten, Vice President of Investor Relations and Business Development

Our marketing costs actually aren’t in the G&A line. We’ll just discuss marketing separately, and Jeff can take the G&A discussion. The marketing costs as a percentage of sales in fiscal 2023 relative to fiscal 2022, will be a little bit higher. This largely reflects a shift in our thinking on how to capture guests. Historically, our bread and butter has really been using our rewards system to encourage our existing guests to increase their frequency. Now, with what we’re seeing in the overall sushi market, we’ve pivoted toward capturing the massive potential of these new guests that are trading down. We’re making commensurate investments to take full advantage of that opportunity. Jeff, do you want to share your thoughts on G&A?

Jeff Uttz, Chief Financial Officer

Yes. Hey, Sharon, it’s really good to hear your voice and everybody’s voice again, and be back on this earnings call. Excited to be part of this. On G&A, as you guys know, my last two roles were in growth concepts, and where we are, G&A both dollars and percentage of sales is not unusual or unreasonable given where we are in our growth cycle. That being said, coming in the door, one of my main goals is to take a very, very hard look at G&A and figure out where we can potentially save money. We’ve seen challenges everywhere, from not only salaries but also as I’m sure you all know because you travel all the time, the price of travel and airline tickets and hotels, particularly airline prices, are through the roof. We’re going to look at all that and I’ve gone to every department head and asked them to get together with me. We’re going to go through all of our existing contracts for things that do hit the G&A line and see if there’s any opportunity to renegotiate some of those. With me coming in, it’s a good time to go back to some of these people and see if we have an opportunity to save money. That being said, one of the biggest mistakes you can make as a growth company is to not have the support and the people in the support center ready for growth. We do want to be ready for that growth, and while I’m going to take a very hard look at G&A, we’re not going to shy away from ensuring we have the right number of people and the right support in the office to support growth out in the field and support our development team. We’ll look at it closely; I’m going to do what we can to reduce costs, but we’re certainly not going to project or provide any guidance that we’re going to shy away from ensuring we have the people we need to make our growth successful.

Sharon Zackfia, Analyst

Thanks for that. And then Jimmy, with all of the innovations you did over the summer, I know you talked about table turns and that employees are happy and getting more tips or take-home pay. Did you have anything quantifiable you could share about customer satisfaction with the new technology? I don’t think you mentioned whether you’ve seen beverage attach rates noticeably go up with the full order systems, but if I missed that, I apologize.

Jimmy Uba, President and Chief Executive Officer

Sure, Sharon, I’m happy to answer this question.

Benjamin Porten, Vice President of Investor Relations and Business Development

To sort of go back to our thinking when rolling out these projects, the immediate goal was to improve customer satisfaction. The industry had really hit a wall in terms of hiring. Wait times had gotten longer, checkout times had gotten longer. Pretty much across the industry, the experience was not the same. We wanted more than anything for our guests to come to the crew that they knew and loved. These initiatives were designed to allow our front-of-house servers to really focus on hospitality, where their value add truly is. We saw immediate upticks in customer service ratings as a result of implementing these. The 28% comp that we saw in Q4 is a clear reflection of just how well received they’ve been by guests, given that the rollout was completed by the end of Q3.

Jimmy Uba, President and Chief Executive Officer

The experience was not the same. We wanted our guests to return to the crew that they knew and loved. These initiatives were designed to enable our front-of-house servers to concentrate on hospitality, where their true value lies. We observed immediate improvements in customer service ratings after implementing these changes. The 28% comparable sales growth we experienced in Q4 clearly reflects how well these initiatives have been received by guests, especially since the rollout was completed by the end of Q3.

Benjamin Porten, Vice President of Investor Relations and Business Development

In terms of the impact on employees, we certainly see retention rates improve as a result of the implementation of these initiatives. Now, the servers can really focus on hospitality, which is why they’re interested in being servers in the first place. As a result of implementing these features, we’ve actually been able to operate these restaurants with fewer individuals while serving more people. This has led to tip growth that’s contributed to retention improvement. Between the three initiatives, we’ve seen about 50 basis points in labor savings. It’s had a meaningful impact, and we regard it as a big success.

Jimmy Uba, President and Chief Executive Officer

The initiatives have allowed the servers to concentrate more on hospitality, which is their primary interest. By implementing these features, we have managed to run our restaurants with fewer staff while catering to a larger number of customers. This has resulted in an increase in tips, which has helped with employee retention. Overall, these initiatives have provided approximately 50 basis points in labor savings, making a significant impact that we consider a considerable success.

Benjamin Porten, Vice President of Investor Relations and Business Development

In terms of beverage attach rate, we have seen a modest increase in the attach rate, but not enough to really move the needle in overall sales; just enough to know that it has had an impact. In terms of table turn times; it’s still something we’re evaluating. Once we have our upgraded weight system implemented, we’ll be able to get a much better and more accurate view of table turn times, which will allow us to provide a more meaningful number in coming quarters.

Sharon Zackfia, Analyst

Okay, great. Thank you very much.

Jimmy Uba, President and Chief Executive Officer

Thank you, Sharon.

Operator, Operator

The next question comes from Jeremy Hamblin of Craig-Hallum Capital Group. Please go ahead.

Jeremy Hamblin, Analyst

Thanks for taking the questions, and congrats on the strong results. I want to come back to the unit development and kind of the timing of that. I think if I’m not mistaken, in Q4, two of the three openings occurred in the last week of the quarter. And in terms of the openings in Philly, Mall of America, Jersey City, I think those are probably two or three months behind what you might have been expecting, four or five months ago. But I wanted to get a sense for, in Q4, that shift in timing of openings, what type of revenue impact you think that might have had versus where you were thinking things were going to open back in, let’s say June? And then in terms of the FY 2023, the type of impact that you might be seeing. If you could help us to pin down a little bit of the nine to 11 units expected for the year, is I’m not sure if you were suggesting that three units were going to open before the end of the November quarter, or if it’s two open and then maybe one opens in December? But any more color you can share on the timing of when you expect the nine to 11 units to open during the year and the cadence.

Jimmy Uba, President and Chief Executive Officer

Could you clarify the expected timeline for the nine to eleven units that are anticipated for the year? Specifically, I’m interested in whether you expect three units to open before the end of the November quarter, or if it's two units opening and then potentially one more in December. Any additional details on the timing and the rate of openings would be appreciated.

Benjamin Porten, Vice President of Investor Relations and Business Development

You are correct that two of the three units we opened in Q4 opened during the last week, and Philadelphia, Mall of America, and Jersey City are running a couple of months behind our initial expectations. The delays have primarily been driven by an unprecedented level of delays and slowness in getting permits, inspections, and document reviews. The municipal governments are just overstretched, and there’s really not much we can do to push them forward. That said, the nine to 11 units we’re guiding towards for fiscal 2023 takes these delays into account. It’s a number we’re very comfortable with. In terms of the cadence for store openings, we have five units under construction. We expect the three units in Philadelphia, Mall of America, and Jersey City to open in several weeks, but it’s pretty opaque regarding the remaining stores, which will likely open in the back half of the year.

Jeremy Hamblin, Analyst

I’m sorry, Jimmy.

Jimmy Uba, President and Chief Executive Officer

Sorry, would you like to ask a question?

Jeremy Hamblin, Analyst

Well, I think I was looking to see just the timing of what you would estimate the revenue impact was from just these pushouts in completion and actual openings. If you did $42 million in the August quarter, do you think that could have reached $43 million based on kind of prior timing, and then obviously it’s certainly impacting the November quarter as well.

Jimmy Uba, President and Chief Executive Officer

I’m sorry, Jimmy. Sorry, do you mean to ask a question? Well, I think I was trying to understand the timing of your estimates regarding the revenue impact from the delays in completions and actual openings. If you earned $42 million in the August quarter, do you believe that could have increased to $43 million based on earlier projections? It's also certainly affecting the November quarter.

Benjamin Porten, Vice President of Investor Relations and Business Development

We haven’t given revenue numbers; that’s a kind of weird way to put it. Our AUVs are $3.5 million to $3.85 million. If you took a mid-quarter convention and worked out the operating weeks, that will get you pretty close to lost revenue expectations. In terms of Q4, we certainly did have opening delays, but the sales losses there were partially offset by the tremendous success of the Demon Slayer program. It likely contributed low single digits to overall sales. September and October might look a little bit weaker relative to Q4, but again, they’re not benefiting from the incredible popularity of the IP that we collaborated with during July and August.

Got it., Analyst

Just a quick follow-up here. Then very impressive restaurant margin contribution in the quarter. In terms of, I think you noted that your food and beverage cost, you expected to be maybe a little over 30% here during the year in terms of labor, labor down at 29%. The sustainability of that given that you’re carrying the high single-digit pricing, is that something that’s reasonable? I mean, it seems like you guys got incredible efficiency during the quarter, but whether or not even if it’s not 29%, do you think that in that 30% range is an achievable figure?

Jimmy Uba, President and Chief Executive Officer

You mentioned that your food and beverage cost is expected to be slightly over 30% this year, while labor costs are currently down to 29%. Given your high single-digit pricing, is that a reasonable expectation? It appears you've achieved remarkable efficiency this quarter, but do you believe that even if labor doesn't stay at 29%, maintaining a cost around 30% is feasible?

Benjamin Porten, Vice President of Investor Relations and Business Development

Long story short, we do think the improvements we saw in Q4 are sustainable for at least part of it. There are a number of pushes and pulls that got us to the 28.9%. When modeling going forward, please remember the historical seasonality of labor as a percentage of sales. Q4 always has the best labor percentage of sales because of its strongest sales leverage. Q1 always has its weakest, so please keep that in mind with your modeling. We expect minimum wage increases in January, and we expect to take pricing in Q2. But yes, we do think that the labor situation has improved. We’re very happy about the robots and all that.

Great., Analyst

Thanks for the caller, guys. Congratulations and best wishes.

Jimmy Uba, President and Chief Executive Officer

Thanks, Jeremy.

Operator, Operator

The next question comes from George Kelly of ROTH Capital Partners. Please go ahead.

George Kelly, Analyst

Hey guys, thanks for taking my questions. So just to start, you just mentioned the Demon Slayer campaign's success over the summer. I’m curious; I see Tetris right now, curious if that could be something that’s similarly impactful or is there anything else that you can flag that’s planned for the coming quarters?

Jimmy Uba, President and Chief Executive Officer

Sorry, go ahead.

Jeff Uttz, Chief Financial Officer

The Tetris campaign has been really fun. We have these to-go boxes that are actually in the shape of Tetris blocks, and those have produced some of our strongest to-go sales. It's clear that it’s a huge hit with guests. That said, it doesn’t have the same cachet as Demon Slayer. People who had never heard of Kura were coming because of Demon Slayer, and people outside our markets were learning about Kura as a result of our Demon Slayer collaboration, which was great for planting seeds for future markets. However, Demon Slayer was one of the all-time best campaigns we’ve had. We do have a lot of campaigns in our pipeline with executed agreements that I’m extremely excited about. Historically, we’ve solely partnered with Japanese brands, animes, video games, etc. But we now have a number of American properties with truly nationally universal appeal, and those are things I’m very excited about.

George Kelly, Analyst

Okay. Excellent. And then you mentioned earlier potentially sourcing from Japan later this year. What kind of savings could that drive in? Is that something that’s already baked into your guidance?

Jimmy Uba, President and Chief Executive Officer

I'm extremely excited about the executed agreements we have. Historically, we've only partnered with Japanese brands, animes, and video games. Now, we also have several American properties with broad national appeal, which I find very promising.

Benjamin Porten, Vice President of Investor Relations and Business Development

In terms of COGS, we’ve seen quarter-over-quarter inflation from Q3 to Q4 and then Q4 to Q1. We expect this inflation to continue to grow up until Q2. Thus, our COGS for Q1 and Q2 are going to be worse than what you saw for fiscal 2022. That said, with the pricing we’re taking in Q2 that’s beginning to mitigate that, and our hopes for the Japanese Yen benefit is really not so much about getting back to fiscal 2022 COGS levels but rather offsetting any future inflation. We’re hoping to see stabilization in our COGS starting in Q3 and Q4.

George Kelly, Analyst

Okay. Thank you.

Jimmy Uba, President and Chief Executive Officer

Thanks, George.

Operator, Operator

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today’s presentation and you may now disconnect.