Q2 2023 Kura Sushi USA Inc Earnings Call
Speaker 2: Good afternoon, ladies and gentlemen, and thank you for standing by.
Speaker 2: Welcome to the Kura Sushi USA Inc. fiscal second quarter 2023 earnings conference call.
Speaker 2: 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.
Speaker 2: Please note that this call is being recorded.
Speaker 2: On the call today, we have Jimmy Uba, President and Chief Executive Officer, Jeff Youtes, Chief Financial Officer, and Benjamin Porton, Senior Vice President, Investor Relations and Business Development. And now I'd like to turn the call over to Mr. Porton.
Speaker 2: Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now everyone should have access to our fiscal second quarter of the 2020 earnings release. It can be found at www.kursushy.com in the investor relations section.
Speaker 2: A copy of the earnings release has also been included in the 8-K that was submitted to the SEC. Before we begin our formal remarks, we 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 place undue reliance on them.
Speaker 2: These statements are also subject to numerous risks and uncertainties that cause actual results to differ significantly 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.
Speaker 2: 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 is it substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our own release.
Speaker 2: With that out of the way, I'd like to turn the call over to Tim.
Speaker 3: Thanks Ben, and thank you to everyone for joining us today. It's been an exceptional quarter for Kuratsushi.
Speaker 3: In the previous annual call, I had mentioned our three goals for this fiscal year.
Speaker 3: Maintaining great operations and delivering a BW to our guests.
Speaker 3: continuing our rapid unit expansion and leveraging our G&J investment.
Speaker 3: be able to say that we are seeing excellent results on each of these goals.
Speaker 3: We continue to lead the industry with a terrific growth of 7% in our second quarter, as demonstrated by our traffic performance.
Speaker 3: Consumer sentiment remains extremely strong.
Speaker 3: Our unit pipeline is the strongest it has ever been, with nine units under construction and another nine executive releases across existing and new markets.
Speaker 3: Our success in leveraging G&A combined with improvement in national level cost has resulted in 400 base point other city with emerging expansion over the previous year.
Speaker 3: Our second quarter sales of $43.9 million represent 40% revenue growth over the prior year.
Speaker 3: Our restaurant delivers comparable sales growth of 17.4%, which breaks down to 7.4% in traffic growth and 10% in price on the mix.
Speaker 3: Despite our pricing, our value remains unparalleled and consumer sentiment and strengths have never been stronger.
Speaker 3: Our strong sales performance continued into March with revenue of $16.4 million and comparable sales of 11.2%.
Speaker 3: Turning to operating results.
Speaker 3: We've seen material improvement in both labor and cost of goods sold.
Speaker 3: Our labor costs as a percentage of sales have improved by 160 basic points over the prior year.
Speaker 3: and our cokes as a percentage of cells are approaching the all-time best we saw in fiscal 2020.
Speaker 3: Between the freeing of further cost of inflation and about December pricing.
Speaker 3: We saw COGS as a percentage of sales improved by 150 basis points over the prior quarter.
Speaker 3: Net restaurant efficiency continues to be visualized, resulting in restaurant Le operating at a profit margin of 20%.
Speaker 3: A 250 best point improvement over the prior year.
Speaker 3: In terms of corporate cost,
Speaker 3: We were able to improve G&A as a percentage of sales by 120 basis points over the prior year. Cumulatively, we were able to grow Adacity Beta margin by 400 basis points and Net Income margin by 370 basis points as compared to the prior year.
Speaker 3: We are pleased to see our strategies for growing corporate profitability succeed. We believe it is only an indication of what we can expect as we continue to grow and achieve our full scale.
Speaker 3: During our second quarter, we opened three new restaurants.
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Speaker 3: We are very pleased with the performance of these restaurants, with the Philadelphia and Edison vocation in Papua Kira, and the squaring tremendous opportunity that East Coast Market represents.
Speaker 3: In our previous calls, we have mentioned unprecedented permitting delays that impacted the opening of Trident City and the Philadelphia.
Speaker 3: We haven't seen any such permitting concerns since, and we believe those are one of anomalies.
Speaker 3: Looking ahead, our unit pipeline is stronger than it has ever been with 9 reference and the construction and 9 more ex-gatedly safe.
Speaker 3: We not only feel extremely comfortable about achieving our fiscal 2023 unit growth guidance,
Speaker 3: But all of us have an excellent head start on our Fiskart 2020 for development.
Speaker 3: as a note on the cadence of unique openings.
Speaker 3: We expect one opening during the third quarter.
Speaker 3: with the remainder in Q4.
Speaker 3: Finally, we have made meaningful progress on the implementation of a new way to restart.
Speaker 3: which we believe has the potential to be the biggest cons driver of our FISCar 2023.
Speaker 3: As we mentioned in past calls,
Speaker 3: Our current research algorithm provides highly conservative estimates of wait times, particularly close to the end of the evening.
Speaker 3: We expect the revised algorithm to have three major impacts.
Speaker 3: on improvement in customer satisfaction.
Speaker 3: reduced attrition, and the potential to drive additional traffic in off-peak hours.
Speaker 3: I'm extremely pleased with the progress that we've seen on our marketing initiatives as well.
Speaker 3: The targeted advertising and search engine optimization will begin in December .
Speaker 3: have been highly effective in drawing first-time guests.
Speaker 3: Our reward membership base growth continues to be extremely rapid.
Speaker 3: With a current count of 700,000 members as compared to the 500,000 members we noted during our November ANIX call.
Speaker 3: While the implementation of the new great list app is a more immediate priority.
Speaker 3: We are also working on rolling out our updated device program with Punch.
Speaker 3: Additionally, we just began our second demo survey campaign in April , which I'm sure you remember from the prior summer as being our most successful ground collaboration yet.
Speaker 3: As the plenty of things to come, I'm very happy to announce that.
Speaker 3: We will be partnering with DC Comics this summer which is just another indication of the momentum the cooler brand have seen over recent years.
Speaker 3: It is an honor and privilege to be able to report such strong results and progress on our initiatives.
Speaker 3: and I'm incredibly grateful for the consistently spectacular work by our restaurant team members and corporate support staff that make this possible.
Speaker 3: And with that, I'll turn it over to Jeff to discuss our financial results and liquidity.
Speaker 2: Thanks, Jimmy. For the second quarter, total sales were $43.9 million as compared to $31.3 million in the prior year period.
Speaker 2: Comparable restaurant sales performance as compared to the prior year period was positive 17.4% growth with regional comps of 20% in California and 14% in Texas.
Speaker 2: The variance in regional comparable sales reflects the relatively easier comparison for California due to Texas' faster recovery from the pandemic.
Speaker 2: This regional difference becomes minimal with a pre-pandemic three-year comparison against fiscal 2020 Q2 with California comps of 27.3% and Texas comps of 29.4%.
Speaker 2: Turning to costs, gluten beverage costs as percentage of sales were 30.1% as compared to 30% in the prior year quarter.
Speaker 2: We are very pleased that with the flattening of the inflation curve combined with our price increases We were able to minimize the impact to our food and beverage costs and continue to be encouraged in the trends that we are seeing
Speaker 2: Labor unrelated costs as a percentage of sales decreased to 31.5% from 33.1% in the prior year quarter.
Speaker 2: This decrease is due to incremental efficiencies created by the implementation of technological initiatives, a favorable comparison in the lapping of the impact of Omicron in fiscal 2022, and sales leveraging from increased traffic and pricing.
Speaker 2: This leveraging was partially offset by wage increases.
Speaker 2: Occupancy and related expenses as a percentage of sales were 7% compared to the prior year quarters 7.4% due to sales leverage.
Speaker 2: Other costs as percentage of sales decreased to 13.3% compared to 13.9% in the prior year quarter also due to sales leverage.
Speaker 2: General and administrative expenses as the percentage of sales decreased.
Speaker 2: To 16%, as compared to 17% in the prior-year quarter.
Speaker 2: On a dollar basis, G&A expenses were $7.1 million as compared to $5.5 million in the prior year quarter, with the increase largely driven by compensation, as we invested in both recruiting and internally developing the management talent.
Speaker 2: As Jimmy previously mentioned, we are very pleased with the leverage we have seen in our G&A expenses and continue to hold G&A leverage as a main focus going forward.
Speaker 2: Operating loss was $1 million, compared to an operating loss of $1.9 million in the prior year quarter.
Speaker 2: As a percentage of sales, operating loss was 2.4% as compared to a loss of 6% in the prior year quarter.
Speaker 2: Income tax expense was $15,000 compared to $3,000 in the prior year quarter.
Speaker 2: Net loss was $1 million, or 10 cents per diluted share.
Speaker 2: Compared to a net loss of $1.9 million, or 19 cents per diluted share, in the prior-year quarter.
Speaker 2: Restaurant level operating profit as a percentage of sales was 20.3% compared to 17.8%
Speaker 2: In the prior year quarter, adjusted EBITDA was $2.3 million, compared to $4 thousand in the prior year quarter.
Speaker 2: Turning to cash and liquidity, at the end of the fiscal second quarter, we had $22.3 million in cash and cash equivalents and no debt. Lastly, I would like to reiterate and update the following guidance for fiscal 2023.
Speaker 2: We expect total sales to be between $185 and $188 million.
Speaker 2: We expect to open between 9 and 11 units with average net capital expenditures per unit of approximately $2.5 million.
Speaker 2: We expect general and administrative expenses as a percentage of sales to be between approximately 16% and 16%.
Speaker 2: Please note that our guidance assumes no material changes in consumer behavior or broader macroeconomic trends.
Speaker 2: In addition, as we move on from the pandemic era.
Speaker 2: At the conclusion of the current fiscal year, beginning with our first quarter earnings call, we will no longer quantify quarter-to-date performance in keeping with pre-pandemic reporting policies.
Speaker 2: With that, I'd like to turn it back over to Jim.
Speaker 3: Thank you, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have.
Speaker 3: If this concludes our prepared remarks, we are now happy to answer any questions you have. Operator, please open the line for questions.
Speaker 3: I reminderthat to morning that you on the session I may answer in Japanese before my response is translated into English. Thank you for your attention.
Speaker 2: Ladies and gentlemen, at this time we will be conducting a question and answer session.
Speaker 2: If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the queue.
Speaker 2: You may press star 2 if you would like to remove your question from the queue.
Speaker 4: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker 4: Our first question comes on the line of Jeremy Hamlin with Craig Hallum. Please state your question.
Speaker 5: Thanks and congratulations on the really strong momentum in the business. I wanted to come back to the Wait Time app and just get an understanding in terms of the potential for efficiencies in the process. When do you expect the new version to be going live?
Speaker 5: a benefit, wanted to get a sense for what you think the potential magnitude can be.
Speaker 3: Thank you, Jeremy, for your first question. I will be able to answer this question, but please allow me to speak in Japanese. Then, if you want to answer it.
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Speaker 2: We're currently testing the updated weight list in five stores, and we expect a full route and roll out by the end of the fiscal year at the latest.
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Speaker 2: give up, but we're very encouraged by the initial test results. What we've seen is we've seen very concrete improvements in waiting time accuracy. If we were to say, you know, prior to implementation, about 70% of the wait times were accurate within five minutes. We're now seeing upwards of 85%.
Speaker 2: In terms of the shoulder periods that you mentioned, we think there's a pretty meaningful opportunity, especially at the end of days - you know, those have the worst attrition rates - because let's say you and I go to dinner at nine o'clock and the other restaurant closes at 10 and the wait time says two hours. We're not going to wait because we won't get a seat, since everybody has the same reaction. Have we waited?
Speaker 2: We would have gotten the season. So just by having that more accurate wait time, it unlocks greater operational efficiencies for that last hour. In terms of the other shoulder periods, one big opportunity we see is in weekday launches. If a dinner wait time is off by 15 or 20 minutes, it's annoying, it's frustrating, but your day is over and so you just wait a little bit longer. If your one-way wait time is off by 15 or 20 minutes.
Speaker 2: you know, you've lost your lunch, your meal opportunity. And so we think that once we can really dial in the accuracy and communicate that to our guests, that's a very meaningful opportunity for us.
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Speaker 2: So while we're tremendously excited for the opportunity represented by WISEly, given the
Speaker 2: the rollout expectations. We haven't built this upside into our existing financial models, into our guidance. And so, you know, if there is a lift, that's gravy for us.
Speaker 5: Great, that's helpful cover. And then just last one for me. In terms of, I think in April now you're running the Demon Slayer promo. Could you just talk about that? I think you ran that at the end of last summer, you know, bringing it back. I think it's a pretty significant licensing partner.
Speaker 5: But any caller that you might be able to share on that particular license partner in terms of you know whether your concise service available, and that Krista may not be able to share that
Speaker 5: the potential to impact results versus some of the other promos that you've run.
Speaker 2: Yeah, so I'm sure you remember we did Demon Slayer in July and August of last year. Comps in that quarter were 28%, 14% from traffic. Certainly not entirely driven by Demon Slayer, but it was a major component of one of our most successful quarters ever. In terms of this April's Demon Slayer, it's going to be the same format largely where we have the 15 plates.
Speaker 2: What happens is that you're able to, you know, because Demon Slayer is such a big property, you expand your fan base through Demon Slayer with the first campaign. And then when you have that second campaign, you start with that bigger starting base. And so we're very excited for what Demon Slayer can do for us. And as Jimmy mentioned during the opening remarks, I've been sort of alluding to this in past calls, but we are...
Speaker 2: Working with DC Comics and that's going to be our first, you know, really major mainstream American property And I'm tremendously excited for that Fantastic, thanks for the call and best wishes
Speaker 2: and that's going to be our first, you know, really major mainstream American property, and I'm tremendously excited for that. Thanks for the color and best wishes. Next, Jeremy. Next, Jeremy.
Speaker 4: Our next question comes on the line of Tod Brooks with The Benchmark Company. Please proceed with your question.
Speaker 6: Thanks and congrats to all of you on the operating momentum that you're showing this quarter. It's very exciting to see.
Speaker 6: I know Jimmy you talked about seeing some signs of early success with the new marketing approach and bringing new customers to the Cura brand.
Speaker 6: I think we could probably point to maybe that 200,000 jump in.
Speaker 6: The loyalty program has some evidence of that, but.
Speaker 6: To duly track success, are we far enough into this that we can start to gauge intent to revisit and how we're converting those customers to additional frequency once they discover the brand? And I want a hundred more things.
Speaker 3: Sure, I'm happy to answer this question.
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Speaker 2: December, we're extremely pleased with the early results given. It's only been, you know, three or four months, but just seeing the traffic strength, we - you know, last quarter we were seven hundred basis points on Naptrack. This quarter, actually seven hundred forty basis points on Naptrack, and so, we've gotten even further ahead of the pack. We're really happy about that and in terms of cost effectiveness.
Speaker 2: It's really been unbeatable. There's been no incremental spend. We just reallocated some of our other digital advertising and so It's been a home run.
Speaker 3: If you have any questions, please feel free to contact me.
Speaker 2: And then, well, it's hard to break out what specific, you know, whether Google is delivering those new rewards members or it's just.
Speaker 2: You know, the ongoing strength, we've been seeing this sort of tremendous growth for the last year or two, but we're really happy to have this ongoing growth towards the rewards members. They tend to visit about six times as frequently as a non-member. Their average check is about 20% higher because they want to get to the coupon breakpoints or the giveaway breakpoints. And about a quarter of our sales are done through rewards. And so it's a very meaningful part of our business.
Speaker 2: We're extremely excited to really have to unlock the potential that the rewards program, especially the data component, represents when we move to punch.
Speaker 6: That's great. So the second question I'll jump back into Q after this. Five units open in the first half of the fiscal year.
Speaker 6: Sounds like the pipeline between under construction and Executed at least is very strong what I'm wondering is with one unit opening in Q3 Are there any operational pinch points in Q4 to have any units you can open? I'm just trying to think with
Speaker 6: I think you guys highlighted that we're mostly new centers, which is an easier construction process in the back half of the year. What drives us for where we land between the nine units and the eleven units for four year guidance. Thanks.
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Speaker 2: So certainly the goal is to open those remaining units in Q4 as evenly as possible to distribute. You know the discretion of the opening teams and the operation teams, but one thing we're happy about is that some of these openings are in existing areas, like California. Where can we really draw the support of our existing units there? And so, hopefully.
Speaker 2: not have to leverage one of our opening teams. And so, we're trying to get in front of the ball as much as we can, and so it's not a manpower issue that's a bottleneck for us, in terms of achieving the higher end of that using guidance.
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Speaker 2: Just a sort of repeat with just said in the paper marks. We're very confident about those 9 to 11 units and we're extremely happy that we've got to meet in full head start on fiscal 24.
Speaker 6: That's great. Thank you all.
Speaker 6: That's great. Thank you all. Thanks, Aditya.
Speaker 4: Next question comes from the line of Joshua, along with Stevens. Please proceed with your question.
Speaker 6: Great, thank you for taking my question. I was curious if we could run through a couple housekeeping items. The 17.4% comp during the quarter, can we talk about how that progressed?
Speaker 6: Through the quarter, I know, I think back to thinking back to January , you talked about some strong 14% area comps of December and then also there was a bit of incremental price taken from one Q into two Q. So just curious if you could kind of outline how that flows through the quarter and then talk about any sort of acceleration and momentum that you saw in January and February .
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Speaker 2: In terms of the difference between Q1 and Q2, the biggest single factor would be the impact of the easier comparison to Omicron. That's probably going to be responsible for low to mid-single digits of that comp. Besides that, we're very pleased with the performance of the targeted marketing we began in December, and we.
Speaker 2: As well as the branch collaboration that we did through our partnership with my hero academia. As a reminder, we've lapsed 2% pricing in March. And so, don't think of the March results as a deceleration by any means. When you back out the Omicron intact and that pricing lap, it's completely in line with the Q2 results.
Speaker 2: We're very pleased with the results for the quarter to date as well. Great, that's helpful. And then maybe just kind of level setting that pricing conversation. I feel like you'd taken, I think it didn't turn out to be an incremental 700 basis points from 1Q into 2Q. I think you'd taken that in late December , so maybe you didn't get a full 700 basis points for December , but is that where you shook out for the quarter? And then as you think about what?
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Speaker 6: What is put if finin in? Get So clarify. We took pricing during the first week of December , not the first day, and so the benefit was so partial but more meaningful than if you taken in the last quarter.
Speaker 2: The effective price that we are carrying throughout Q2 is 14%. With us hitting March, we're rolling up 2%, and will be carrying around 12% for Q3. As we mentioned in our prepared remarks, the traffic increased by 700 basis points in Q2, and traffic remained positive in March as well. We are extremely happy about consumer sentiment.
Speaker 2: we think we're in a very strong position. Understood, that's very helpful commentary. I appreciate that. Was curious if you might be able to talk about the inflation outlook for the year. Obviously you had gotten some good visibility earlier in the year. It seems like things were cooling down. That sounds to be more or less the case. Is that what is driving kind of much of what we should expect to see over the course of the year?
Speaker 2: Previously, you talked about some possible sourcing initiatives and longer-term opportunities to optimize the supply chain. Anything you could share regarding how to think about some of these cost line items as we go through the rest of the year would be helpful.
Speaker 2: Yes, just Jeff, in terms of inflation, I think I mentioned at ICR what we have started to see. We were very happy with that, and it came to fruition, as you can see in our results with the cost of goods sold number. The year-over-year inflation is about 7.5%, which is a deceleration from what we have seen in Q1, where we believe the year-over-year was 10%.
Speaker 2: The numbers are improving; they continue to show. We're continuing to be happy with where they're coming out, and I've got really a double benefit because we were seeing not only a leveling off of inflation but also, because we took the pricing increase, we're kind of getting that benefit and it flows through on both sides of that equation. So, going forward for the rest of the year, I'm really happy with where our cards forecast is great. We're helpful with some of the initiatives that improve efficiency, and these front initiatives have been talked about in prior calls and maybe alluded to a little bit here.
Speaker 7: and how we might think about the rollout of some of those initiatives over the course of the year.
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Speaker 2: In terms of the labor impact of the tech initiatives that we rolled out last year, the touch panel drink orders, the table side payment, and the server robots, as we've mentioned in the last call, we're seeing about 50 to 60 basis points in labor improvement, and we're continuing to see that today. One thing to keep in mind is that when we rolled out the robot servers, that was also a traffic lift as well.
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Speaker 8: In terms of the 50 to 60 basis point improvement we just mentioned, it's a very hard number. It's a very concrete number for us. We can see it reflected in the schedules that we build in the working hours that are required to operate our restaurants. However, people might notice that we didn't get the.
Speaker 8: full leverage flow through from the price that we took in December in terms of labor. And that's because we're seeing about 10% labor in place in year over a year. We're hoping for that to ease, but it's not baked into our expectations. And so that's going to be an ongoing factor for us in Q3 and Q4. We're going to do absolutely our best to manage that, but that is the labor market that we're in right now.
Speaker 8: In terms of the waitlist, that's going to come from the labor. The labor advantage of that is really going to be coming more from sales leverage, just being able to serve more guests per day, which allows you to spend your labor dollars more effectively. And in terms of the dishwasher, the technology is a lot of why it's ready to go. It's just a matter of getting certification, but that's a pretty.
Speaker 7: And last one for me, when we think about these GSA efficiencies, how much of that is
Speaker 7: you know, being driven by some of the things that you talked about, Jeff, when you onboarded in terms of opportunities to optimize, spend and really just think about the timing and cadence of investments versus just some of the near term sales leverage as we think about the guidance range being given in terms of you know,
Speaker 2: G&A margins. Is there more to come there? How early on are we in terms of really being able to optimize the overall spend and kind of G&A investment pipeline? We're very happy with 120 bps that we leverage that we achieved in this quarter and that's just the start.
Speaker 2: We're continuing to work hard. One of the reasons we're being able to see benefits right now is, in the last 12 to 18 months, we spent a lot of money investing in the office in terms of C-suite and vice president level positions, expensive people. We've built that team out now. We're not gonna have those additional hires of that. We're gonna have a lot of money investing in the office in terms of C-suite and vice president level positions. We're gonna have a lot of money investing in the office in terms of C-suite and vice president level positions.
Speaker 2: magnitude going forward and that's going to continue to help the GNA leverage. The other thing that's going to help the leverage on the regional side is if we continue to infill markets with additional restaurants, we'll be able to be much more efficient with our area managers. Instead of an area manager having say five or six restaurants maybe in four or five states.
Speaker 2: We'll be able to compartmentalize them more into the reference over are closer, and we'll be able to say on travel analysis, make their time much more efficient as well. So, those are the two things going forward that I believe are really going to deliver more significant leverage. There is more to come; I have given a timeline on what we're going to get down to a single-digit number. However, what we've seen so far is very, very encouraging, and there.
Speaker 8: Part of our GNA as well, we've got two right now, each cost about a million dollars per year to operate. When we're talking about the pipeline, we mentioned how markets like California don't need an opening team, and so as we continue to infill, those very meaningful PA investments become unnecessary and can actually be eliminated.
Speaker 2: The hope is eventually those teams will just, they'll become store managers or regional managers, and we won't need opening teams once we reach a certain point. And also, while the expensive GNA hires have ceased, we've filled most of those positions, we're not gonna cut back on making sure that we have a development and real estate team in place that we need in order to keep the pipeline as robust as it is. As Jimmy mentioned in the prepared remarks.
Speaker 2: We have nine restaurants under construction and more executed leases, and we need to continue to maintain that pipeline. We want to make sure that we have the right teams in place in order to keep it as robust as we need to be in order to continue the growth pattern. We've seen this in the number of units in the other area that we just talked about, which is area management. As we add restaurants, we are going to have to continue adding area managers.
Speaker 9: your question. Hi, good afternoon. Myself actually went out for a part of Jeff's commentary, so I apologize if you talked about this. But in terms of the development pipeline, how far out now are you working? Are you working on kind of fiscal 25 at this point? And can you talk about kind of a quality of the kinds of sites that you're able to get now?
Speaker 8: Availing this month, generally speaking, the units in our pipeline.
Speaker 8: There's a couple of fiscal 25 sprinkled in there, but what we're looking at is mostly 24.
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Speaker 8: The quality of the sites being brought to us is improving every day. I mean, he tries to personally visit as many of the sites as possible, and it's obvious that the quality of the sites is amazing. One thing that's been really fun is, you know, some of the sites that Jimmy and I have been looking at for the last five years, waiting to get into? We have been able to get into them, and they have been just as successful as we hoped. So that's been really fun to see.
Speaker 8: I know for people that are familiar with the story, we mentioned how during the pandemic, we made very aggressive investments in terms of real estate. We built that $45 million revolver with a parent. We hired our first chief development officer, who's opened thousands of units. And we aggressively signed leases in places that would have otherwise been inaccessible to us at that point, like Westfield. Fran cl do shaping out the cars.
Speaker 8: we have one to two hour dinner lines. We're great tenants now, Westfield wants us everywhere. And so at the time of the pen, when we first signed these leases, we were extremely excited, but there was an internal concern that this boost will be limited to the fiscal 21 and 22 stores. But what we're seeing is that this success is really just.
Speaker 8: It's snowb. It just keeps getting better and better, and so our expectation is that her skills are going to stay just as strong, if not even stronger. The development is as strong as it's ever been. We're very pleased. I don't know that.
Speaker 9: Did we answer all of your questions? I had a follow-up question, but Jimmy, I didn't know if you had more to add. No. Okay. Just one follow-up. I mean, the traffic growth remains very impressive. I guess I'm curious, are you seeing consumers...
Speaker 9: Try to manage the check at all, though. When they come in, are you seeing fewer plates or lower beverage attachment or anything that might suggest any kind of check management starting to creep into the business?
Speaker 3: Japanese interpretation We're extremely pleased with consumer sentiment.
Speaker 8: As we mentioned earlier, of the Q2 comps, 14.4%. 10 of that, we saw about 10% price and mix, and so that's great. Last quarter of our 6.9% comps, only 2.9% was from price and mix, and so we're seeing even better flow through than before.
Speaker 8: The guest treating more per plate, more plates per person than they were over the prior quarter, and our average check has grown to about $28. So, in spite of the pricing that we're seeing, guests are actually eating more. It's been very encouraging to see.
Speaker 3: Japanese interpretation We believe that Kura has
Speaker 8: fundamental advantages as a concept even when consumer sentiment is weak. Certainly we're not saying that it is but we you know just given what we've seen it has been extremely strong but if there is a downturn we do have some structural advantages. I mean if you're reducing the frequency of times that you're dining out you want your entertainment dollars to go as far as possible and so you can make a sandwich at home you can even grill a steak at home nobody makes sushi at home.
Speaker 8: Certainly not with a conveyor belt, and so that's one of the reasons that our traffic has been so strong initially. The way that we build our, the way that guests experience, the M where they build it, plate by plate, means that nobody ever feels priced out, and so we're in an excellent position. We're very, we're very pleased to be where we are.
Speaker 4: Okay, great. Thank you. Thanks, Erin. Thank you, Cetil. Our next question comes from the line of George Kelly with Roth Capital. Please proceed with your question. Hey, everyone. Thanks for taking my question. So, just a couple for you. The first one, I was curious if you could update us on a couple sourcing initiatives.
Speaker 2: That's something that we're just not going to flip the switch on, because getting the products in at the right time, efficiently and effectively, is so important that we have to take this slowly and make sure that we're completely dialed in before we flip the switch for the whole company. We do have some initiatives coming up. We've got shrimp and salmon.
Speaker 2: We have been able to purchase it at a much more favorable price. It will be coming in May and June, so that's upcoming. I think we've talked about that in the past, but it's an exciting development.
Speaker 2: One thing that I'm really excited about too, is it will be much easier for us to forecast where we're going to be in terms of COS. Because in the past, we've got to be right in the market; the markup sort of kind of around, across the board. And if once we get everything into more of a broadline system, we'll be able to know exactly what the market is, exactly what we're paying, and we'll be much.
Speaker 2: in a much better place in terms of forecasting, not to mention our actual results going forward, should be better as well. So it's in process, but we're taking it slowly to make sure that we're really dialed in before we roll it out system wide. So if I were to just attempt to repeat what you just said, is this something that you're still kind of assessing and uncertain as to whether you'll kind of roll it out or mouth out.
Speaker 4: if you are contemplating taking additional pricing this year and then
Speaker 4: Another question is just the timing of the DC Comics partner. When is that stuff, is that in July and August or if you could specify that. And that's all I had. Thank you.
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Speaker 8: We have no specific plans at this point, but there are a couple things that are useful to consider. One would be that we're going to be lapping 6% price in July . We'll no longer have that benefit. We are still seeing that 10% labor inflation that Jimmy had mentioned, and there are typically minimum wage increases in July in our Cal, especially in our Los Angeles markets. And while college inflation is easing, we are seeing ongoing inflation in the U.S.
Speaker 3: Not just get; give some up. Another thing: even that they, you know, maxing out at whatever it excited, because they must get them more, not going back in a PO whatever for later. They much, whatever point about they whatever. I don't see separate rational kind of things.
Speaker 8: We're really excited about DC Comics. We think it's going to get us in front of a new and different audience from what the past collaborations have done. We haven't baked it like we baked it up at Ana, and we'd be really pleased to see it: The Demon Slayer. But one thing is that DC will be starting in August, whereas Demon Slayer had July and August.
Speaker 4: Understood. Thanks. Thanks, George. We have a follow-up question from the line of Todd Brooks with the Benchmark Company. Please proceed with your question.
Speaker 6: Thanks for squeezing the interest. Going back to the commodity side, I believe across the course of last year, when demand was robust.
Speaker 6: your supply chain had issues keeping up. So your vendor base got a little deconsolidated. As we're looking towards that predictability, Jeff, that you talked about with COGS forecasting going forward, maybe review how the process of reconsolidating
Speaker 6: with fewer vendors, more volume, and then maybe the scale advantages. That you're finding as you do that. And then my follow-up to that one is given the improvement that we're seeing with the commodity inflation side and the strong sales results. Is there a way to think about an exit rate with the initiatives that are in place for this year for where restaurant level margin?
Speaker 2: Should be targeted. That is, we're thinking about going in into 24. Thank you so, and I'm going to let Jimmy and then also elaborate- I kind of lacked in last year as well, because I wasn't with the company last year, but my understanding, during the pandemic, what happened is we were coming out of the pandemic as a lot of our suppliers had stopped.
Speaker 2: supply, having on hand as much product as they did because the Internet of throwing so much away during the pandemic, they were a little bit shy in terms of how much they had on board. So we had to go to some other suppliers and that really...
Speaker 2: their cogs up last year because we had to go to a new supplier, we weren't able to really negotiate with them, we kind of had our backs against the wall a little bit and had to go to them and say we need this product, they were able to provide it at the quality we needed but we did pay for that. So there were no vendors that I know of that we really, any of our large protein vendors especially that we really lost, it was just…
Speaker 6: I'm just listening to the commentary on the call, and the normalization that we're seeing in inflation with this sequential improvement and scale benefits. The Cisco rollout is proceeding throughout this year. I'm just trying to get my mind around what you guys are thinking, maybe for an exit rate for restaurant-level margins, going into fiscal 2024. So, you'd start to...
Speaker 2: Q2 is of all kinds, and we're very happy with that because Q2 is our seasonality. Q1 is our slowest quarter of the four, and then it gets sequentially better from there. Q2 is better than Q1, Q3 is better than Q2, and Q4, which is our summer, is our best quarter. So to be able to hit a 20% restaurant-level margin in Q2, we're very happy with it. We'll continue to chip away at it, but...
Speaker 2: That number is a pretty good number and we're not going to sacrifice guest service or food quality in order to drive that margin.
Speaker 3: much higher than that but there is a little opportunity I believe as we continue to leverage but we're happy with the number where it is.
Speaker 3: It's a couple minutes on the phone. Now the only other Harrisburg or think that day.
Speaker 8: As a reminder, we mentioned labor inflation. We do expect that to continue for Q3 and Q4, potentially past that, so please be mindful of that as well. A couple of other notes, just from my end: thinking about exit rates might not be super helpful for your modeling purposes, simply because of the seasonality that Jeff mentioned.
Speaker 8: Q4's Russia level operating profit margin in Q1 up rationalize level operating profit margin is materially different. If you go through any of our past things, I'm sure you'll see that. And just, you know, to echo Jeff's, we're very happy with that 20% plus. It's one of the industry's best. It's great to see ongoing improvement. But, in terms of the major opportunity for top and bottom line, that's going to be ongoing unit expansion and leveraging of our TNA.
Speaker 10: Thank you all.
Speaker 10: Thank you all.
Speaker 7: S question the follow-up question from Joshua along. What stevens, Please distribute your question great? Thanks for the follow-up, but just curious. It looked like there were maybe a couple of remodels during the quarter, or maybe some of your older units. Just curious if that was maybe a one-off opportunity, or a remodel or something a bit more.
Speaker 7: comprehensive is in the works. Just you know, just curious on either, you know, set up for that and or what you learn by touching going back and looking at some of those, I think it was in your California market. So at the time the IPO, we are parent company actually worked with a very famous
Speaker 8: Designer he, he created the unique logo. 20 is best for the West, but the guy he did our new updated logo. He developed an interior design as well, and so we've been doing those updates. You know, since 2019, two thousand and 20, we only have six left. They cost on average maybe two to $3 thousand, but you know, after those six we're caught up. Great, thank you.
Speaker 8: He's the guy who did the Uniqlo logo. It's probably what he's best known for the West. But he's the guy who did our new updated logo. He developed an interior design update as well. And so we've been doing those updates since 2019, 2020. We only have six left. They cost on average maybe two to $300,000. But after those six, we're caught up. Great, thank you. Thanks.