Q3 2023 Kura Sushi USA Inc Earnings Call

Good afternoon, good afternoon, ladies and gentlemen, and thank you for standing by welcome to the career Sushi USA, Inc.

<unk> third quarter 2023 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.

On this call today, you have Hajime, Jimmy Lee, President and Chief Executive Officer, Jeff.

Chief Financial Officer, and Benjamin ported SVP Investor Relations and system development and now I would like to turn the call over to Mr. Porton.

Operator, good afternoon, everyone and thank you all for joining by now everyone should have access to our fiscal third quarter 2023 earnings release. It can be found at www dot person. She dot com in the Investor Relations section a copy of the earnings release is also bearing fruit and gatekeepers.

Before we begin our formal remarks I need to remind everyone that part of our discussions today will include forward looking statements as defined under the package of 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 where I see 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 was lethal esports performance.

The presentation of additional information should not be considered in isolation, nor as the substitute for cells prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in a hurry release with that out of the way I would like to turn the call over to Ken.

Thanks, Ben and thank you to everybody mothballed ammonia costs today.

I'm pleased to announce another excellent quarter for Qunar fishy, well, sometimes I'll give you a couple of months and corporate.

Yeah, but you are letting you have grown by approximately 30 ball fan, but he wouldn't buy a lot of it has to be an integral part of the industry, leading comparable to say at this point.

Or do you know anybody can airports continue to be absolutely is an improvement of 130 basis points or whatever yeah, yeah yeah.

I'm exceptionally proud the P. P course, ishi continue too much out of the company.

And it takes a lot of grief.

The BD team.

Basketball without eating well 49 point it seems you're involved with.

It's comparable to pay the full 10 points of people, which breaks down into three buckets talking cause at all on the same point of Citi Paul Black.

On the mix.

Oh perfect.

I'm getting the two deals.

These are all finally caught up at all.

Outperforming industry by eight to 130 basis points.

Yeah, the whole month.

It'd be even better it's probably I don't say this all the $17 6 million bottles of a 14 point the second button.

I can easily that just came on site gets the Benjamin for Qunar remains extremely strong.

But traditionally pushups that'd be full audio small he's got are you continuing to eat is cost of goods sold of a percentage of sales coming in at 30%, which is in line with all the time that you thought you'd be at kind of 'twenty two.

Hey, Michael.

Digital sales was 29, 2%, representing an improvement of 180 basis points almost right yeah yeah.

Oh, I'm, sorry, the quota for them to grow, but I think what will be commodity of 23, 5%.

Yeah put against them and putting them into a 100 basis points well above it right yeah yeah.

I'm also very happy to nonstop between about girls and their phone they don't but I think probably the margin on the improvement in G&A.

You are able to grow.

EBITDA margin by 200 basis points, although the play yeah, yeah on the.

Net income margin by 210 basis points due to three we opened one new therefore people at the Georgia on the Walmart U. That's all subsequent to quarter end in Framingham, Massachusetts for a total of seven new restaurants opened to date.

Yeah.

We have a ceiling on the constructional all play to us.

It had been more in the queue.

We are in excellent position with a cheap although you need to go to school and fall if he's going to do anything and it couldn't be happier with the pipeline. We have showed up for fiscal 'twenty four.

Oh and you wait for the fall has been successfully rolled it out across all of our integrated system.

But it's all it's too early Paul provided quantitative but did that impact.

Yeah, I'm very encouraged by our results.

Labor pains are meaningfully more accurate on the VEB deep. He says part of light <unk> continues to outperform our peers in terms of the topic.

Just to follow up on that I like.

In Oklahoma, we see.

Yeah.

Well what do you have the name of it continues to grow is approximately 120, you tell them you remember what was the close of the quarter.

Well demonstrated something he said he want enabling me again proved that to be honest very great success on comparable rigor under our collaboration with maybe a b S.

Hey, Dave you don't put up with them on cartoon network.

It exceeded.

Vishal on behalf stave off some of the strongest but I guess, what responses, you're seeing or any collaboration.

All of our restaurants.

Amazing young.

Also find out at all or was it actually provide some updates on pricing.

Meet up approximately 2% of pricing a much fast, bringing a lot I think there would be pricing, but he's got a part of the core coffee attacking puffing.

Let me take one to two quarter, we'd up 6%, okay. Thank on G fast, which was partially offset by 2%, but I think that would be too.

Yeah.

So they're not they but even modest scale, but just mostly central bank, even if we think about comping against some normalization or inflationary push ups.

I wonder if he's got it yeah.

That's what I would like to share my deep appreciation for the amazing to watch My language course App.

On the corporate support center. Thank you everyone.

And we thought Oh, it's Honeywell about project to discuss I'm, a finance what any thoughts on that.

Yes.

Jimmy.

For the third quarter total sales were $49.3 million as compared to $38 million in the prior year period comps.

Comparable restaurant sales performance as compared to the prior year period was positive 10, 3% with regional comps up 15, 5% in California, and 4% in Texas.

Turning to costs food and beverage costs as a percentage of sales were 30% as compared to 29, 7% in the prior year quarter.

We're very pleased to see that the flattening of the inflation curve that began during our second quarter has continued to hold and we continue to be encouraged and the trends that we're seeing.

Labor and related costs as a percentage of sales decreased to 29, 2% from 31% in the prior year quarter.

This decrease is due to incremental efficiencies created by the implementation of technological initiatives.

Sales leveraging from increased traffic and pricing.

The leveraging was partially offset by wage increases.

Occupancy and related expenses as a percentage of sales were seven 2% compared to the prior year quarter to seven 1%.

Other costs as a percentage of sales increased to 12, 5% compared to 11, 5% in the prior year quarter.

Due to an increase in marketing costs as well as general cost inflation.

General and administrative expenses as a percentage of sales decreased to 14, 2% as compared to 15, 5% in the prior year quarter.

On a dollar basis, G&A expenses were $7 million as compared to $5 $9 million in the prior year quarter.

As we've mentioned in the last several calls leveraging our G&A line has been a main focus of ours. This year.

The quarter over quarter increase of $1.1 million represents an increase of 18, 8% against a revenue increase of approximately 30%.

We're very pleased with this level of leverage and we will continue to keep this is the main focus going forward, while making sure that we continue to make the key hires necessary to fuel our aggressive growth such as that our construction and in our operations departments.

Operating income was $1 3 million as compared to operating income.

Zero point $5 million in the prior year quarter.

As a percentage of sales operating income was 2.7% as compared to one 2% in the prior year quarter.

Income tax expense was $41000 compared to a benefit of $2000 in the prior year quarter.

Net income was $1 $7 million or 16 cents per share compared to net income of 0.5 million or five cents per share in the prior year quarter.

Well I'll start level operating profit as a percentage of sales was 23 and a half per cent compared to 22.5% of Macquarie your quarter.

Adjusted EBITDA was $5 $1 million compared to $3 $2 million in the prior year quarter.

Turning now to our cash and our liquidity at the end of the fiscal third quarter, we had $75 million in cash and cash equivalents and no debt.

This large increase in our cash balance is due to the follow on offering which we closed in April of this year.

Lastly, I want to reiterate and update the following guidance for fiscal year 2023.

We expect total sales to be between 187 and $189 million.

We expect to open between nine and 11, new units with average net capital expenditures per unit of approximately two and a half million dollars.

And lastly, we expect general and administrative expenses as a percentage of sales to be between 15 and 15.5%.

Please note also that our guidance assumes no material changes as consumer behavior, a broader macroeconomic trends.

In addition, as mentioned during our previous earnings calls at the conclusion of the current fiscal year, beginning with our first quarter earnings call, we will no longer quantify it quarter to date performance.

And with that I'd like to turn the call back over to Jimmy.

Thanks.

This concludes our prepared remarks, yeah, no hockey answer any questions you might have.

Okay.

I'm filling in for questions.

Linda you want them to Colombia official I may answer in Japanese people might've sponsored <unk> translate into English. Thank you for your attention.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants.

Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Thank you. Our first question comes from Jon Tower with Citigroup. Please proceed with your question.

Great. Thanks for taking the questions I'm just curious if you could dig in a little bit on a quarter to date I believe you said 14, 7% comps quarter to date do you attribute that primarily to the promotional activity that and I apologize for not following exactly the promo that's on air at the moment, but it's.

Would you.

Attribute most of that to the promotion and how long do you anticipate that promotion to stay intact.

Thank you John .

Christian pretty not only done for you or Chris from Jefferies.

Right.

Most of them in general.

What.

Put on our prepared remarks.

If you put up with excellent jumping on it works for Houston.

It's only been a couple of months equaled by title.

Yes.

Okay cool jump into Taiwan.

Get them, all but no.

What does it take them.

Well he took over that.

On top of it.

Hi, Donald.

Thank you.

Okay.

And I don't have any crystal.

Yes.

We're extremely pleased with our results with rebar bearers, our marketing team did an amazing job with setting this up with that collaboration and it's definitely.

Played it very meaningful target is 14% cockpit you'd mentioned the all of our campaigns are over a two months period, so were getting to read errors and where can it go through July with your bare bears the historical pattern that <unk> seen is particularly exciting for getting camp Adas is greater in the first bump in the second month and so.

Or expect.

Expectations are relatively tempered for.

In July we bear bear impact versus June but.

For the first week of July .

Booz Allen has certainly helped but we're very pleased.

Great and then just to kind of continue that line of thinking I believe you had.

Our planned promotion with D. C comics still on track for hitting in August if I'm a is that correct.

Yeah, absolutely we do.

It was one of our first sort of you know.

Nationally known American brands in D C being another one of those brands, we're very excited about August .

If we hadn't put anybody up against Steven's player I'm glad that you see.

[laughter], Okay, and and then just on the labor cost per operating week I was just looking at that in the model and was surprised to see it actually go down on a year over year basis.

Considering I'm, assuming some of the inflation you're seeing so can you perhaps speak to what the drivers were behind that anything funky in last year's third quarter or are we just talking about a combination of sales leverage and technology rolling through the system and therefore, the sustainability of this trend moving forward how should we think about that.

Mothers don't let the body.

What do you need that type of thing.

We do about it.

Do you know about but that's the one that's like.

So on the whole that healing and so on the one it keeps going the money.

Not at all.

It's something I think fast enough to keep it up on your door cheerful.

Fair enough.

<unk> hundred 84 basis points.

Monday night, hitting a wall and a twofold.

<unk> had enough complaining about it puts up a whole another element.

All right.

Okay.

Oh, yes, so looking at labor cost performance year over year Youre right. The two driving factors for the prescribing pattern plummeting sales leverage you have to repeat the effectiveness of our cricket initiatives. We completed rollout at the end of Q3 of last year. So this year, we had benefit from a full quarter from the server robot square. So we only had a partial benefit in the preceding year and the others.

Our operations team.

Taken.

Sure operations Madison or Labor management.

That one of our top priorities and they've really been executing on that and so.

We're very pleased with where we come in for Q3 in terms of sustainability on a go forward basis, we'd like to provide some more context, because we'll be coming up against some difficult comparisons they kept it on the coupon that anybody adult mosquito city, you pick that up.

Not at all.

How are you doing to get them up to market them or how do you let them at that point.

Okay.

Got you understood and stuff like that.

Thank you would've been different Miss something and you said something about one or.

Also on the call.

Yeah.

I saw that in the Q4.

On the other.

Most of the opposite of Nike.

Well, what I was talking about.

Monday.

I thought you Couldnt got acute medical schools.

Of course that dividend is paid off.

I am looking to Q4, historically, we've always seen leverage creep.

Before.

And we do expect a degree of leverage but certainly not.

In the range of 200 basis points or anything like that but the first factor being the three initiatives to keep and life for a full 12 months and so they're baked in from a comps perspective, the orders that we get a bonus adjustment in Q4, which we don't expect to see.

And in Q4, this fiscal year and so while we do expect leveraging and sales.

Basically I.

We think the way to look at it is just look at Q forced labor.

As a percentage of sales and thats, probably going to get some pretty close to Q4 this year as opposed to.

Trying to triangulate from the quarter over quarter.

Quite a step down that we've talked to you frequency for 'twenty two.

Alright, Thanks, a lot I'll pass it along.

Thanks, John .

Thank you. Our next question comes from Joshua Long with Stephens. Please proceed with your question.

Great. Thank you for taking my question I was curious if you could talk about some of the trends through the quarter I know as we left off last quarter started off in that low double digit 11% range very strong curious if theres any you know any additional color you can share on just how things transformed through the quarter overall and then maybe by region.

You know, the California, and Texas comp.

Comp number that you called out as well.

Oh no.

Yeah, It sounds like she got suite like.

Well, that's a little couple of months ago.

Jonathan.

What are you kind of at the moment I wouldn't know about them.

Thank you Becky.

But on a sub sticky or take I don't want it for months to get them all.

I don't think so.

No I think that's great.

What does it have anything yet.

Let them know Sheila and ask what are your thoughts towards you guys still have him with us today.

Yes.

Oh I know.

Got.

But somebody is going to put them on a sensor.

Okay.

Yeah, So looking at a regional basis as Jeff mentioned in the opening remarks, California outperformed Texas costs for this quarter, but that's not a single year basis, if we do them or how your comparison.

The comparison becomes much closer simply because the operating environment for California, and Texas have been so radically different especially over the last two or three years.

Year over year comparisons just the premium comparison, you can really determine your answer in terms of the cadence of performance, Yeah, Mark where March was.

With strong April was a little bit weaker, which I think is what everybody saw the restaurant industry that may was stronger and June is actually we couldn't be more pleased June was 14, 7% that we saw.

You know very strong traffic at it's been a it's been a nice stream for us and I think Josh to what's important to note as we've mentioned this in conferences as well.

<unk> units are in Washington State in Texas and in New Jersey.

So while certain regions, Texas, maybe better than California, some quarters and vice versa. We're very pleased and very happy to see that our three best restaurants or are very geographically dispersed and we continue to do well pretty much in every region throughout the country.

That's super helpful. I appreciate those two point when you think about trends I think in the past couple of quarters, we've talked about pretty consistent per plate consumption.

You also then trying to think about this from a marketing perspective in terms of you mentioned Oh, we bear bear as being the first American are most widely known here in America, and then going into thinking about the D. C. Comics are you pulling in a new guest are you pulling in your kind of more frequent guests or your current guests more frequently how do you.

About that and how does how has percolate consumption trended.

<unk>.

I don't know, but it up put it in Pakistan.

I'll put up some good effort.

Absolutely no.

And I'll leave it there.

Okay.

People are going to put out another three months.

Okay, and looking at a homeless schedules escape.

Separately, we did it but they don't want just considering what that about I don't think I think that 190 <unk>.

Okay.

Looking at consumer sentiment.

Consumption in check.

It's been flat check management, it's been pretty much minimal negligible in terms of the impact for readout errors. So what are the way we're thinking about it is that.

Over the last quarter regained about 120000 rewards members and for all of Q4 will be working with American properties. So we bear bear for the first two months of Nike Comics for the latter Mark.

For the last month of August and so.

Our ability to attract with board members materially you know it is a.

<unk> larger number than what we've seen in past quarters and certainly this would be something that we put into work music toolbox.

Minimum whatever they wanted you blah blah blah and signed up with <unk>.

Yeah. So it was one one.

We see a pretty strong correlation between the effectiveness of our brand collaboration with sign ups because to get better prices. They give away for T shirts, the canvas bags et cetera, neither registered as a member and so strong salt Collaborates and certainly can fuel membership growth that'll be one of the ways that we're you know.

Determining the effectiveness of these brand collaborations.

Yeah.

Great. That's very helpful. One last quick one from me and then I'll hop back in the queue and we think about kind of the marketing efforts that I think than in prior calls you've talked about the opportunity to optimize your awareness to drive accessibility and it's been more about managing the current spend and again optimizing versus adding dollars to the marketing pipeline can you square that.

With some of the commentary you had in terms of the three numbers that just are you just reported in terms of marketing kind of stepping up it sounds like is that kind of a one time.

<unk>.

Dynamic or how should we think about marketing.

Spending in the overall kind of progress against the initiatives of driving awareness and optimizing our brand visibility.

I don't know, but.

The agenda.

Oh, no I was just not enough spending one mono Tim disappointed about 20 basis points of it I didn't notice a months ago, what's under the Hood of audio on board, it's got circled on debt.

I'm not supposed to run its course.

So how do you look at us on a marketing you'd be doing 910 basis points to 20 basis points that I used to get them closed Q2 with the just the acute COVID-19. They can become a dollar tree can do any unemployed beginning of love to hear about some of her and she said I E.

But I'll do my best.

Hi.

I think what you're referring to is the comment in the other cost line, where we mentioned marketing costs being what are the drivers, but really the marketing costs.

Maybe incrementals like 10 to 20 basis points. It wasn't it really wasn't meaningful as he mentioned in past earnings calls that the new marketing strategies, particularly but the targeted advertising.

Google's many channels, that's really just a reallocation of marketing dollars and as we've seen with the traffic performance, particularly in the west.

Two quarters, we've been exceptionally pleased with it.

Marketing dollars are moving very effectively.

And so yes, we don't expect a big step up or anything like that in terms of marketing spend in the future.

And anytime in the near future, but we're very pleased with the performance.

Understood. Thanks, so much for the time.

Hey, Josh.

Thank you. Our next question comes from Sharon Zackfia with William Blair. Please proceed with your question.

Hi, good afternoon.

Wanted to touch on development, because that it's still a pretty wide range implied for the.

Fourth quarter anywhere between three to five new openings and I I know you've opened one so far.

I guess are you more comfortable at the lower end or higher end I mean, where's the status of that construction I know everyone's been battling kind of permitting delays and so on and so I'm, just curious kind of where where your comfort level is on hitting you know maybe the higher end of that.

So I'm a mother.

Sure.

And what keeps it at some point of course that you don't you cant buy them at yourself and then a pimple what did you do that the more important mosquito. So you don't know I don't like it.

Although the high end on our whole mall occupancy the continental G box, which.

We took the tissue machine like that.

The 911 number to be sure we're extremely comfortable with of the seven units under construction that we mentioned.

Most of them are pretty far along construction during the back half and so getting that higher and is certainly not outside the realm of possibility for us to hit the lower end I think it's unlikely it would really have to take sort of unprecedented delays sleep.

So yeah, I'd say, we're very confident about the quality of our pipeline for the remainder of the quarter.

Not much at all.

And to get them to fit them, all so opening up JJ previously up I E.

And.

I think that's an opening them and it can't depend on opening in a hole.

Great.

Sure.

And so.

That 911, we're very confident in the number of units that were already in the first week of July and so the impact that subsequent units do you have in terms of you know.

The impact of fiscal 'twenty three revenue as you know, we just got a young order of a month or for lessons. So that's not going to be super substantial but that being said our revenue guidance.

And so both in terms of revenue guidance and the.

Yeah.

The pipeline, we're extremely we're extremely comfortable with the numbers that we've shared with the street.

Okay. Thanks for that and then I know, Jim you talked about kind of the.

The changes to the waitlist algorithm and a positive I'm curious if there's any way to quantify that and as you've had this and test. It sounds like questions longer is that a benefit that kind of builds over time or is it something where you kind of manifest that improvement in kind of the lunch <unk>.

Right.

<unk> pretty quickly.

Yeah. So in terms of quantifying it we we just finished the rollout in Q3 and here's the six week.

Wording period for the algorithm, where it sort of takes and use that to build its traffic expectations and so we're a little bit low to bill.

Provide quantum.

Numbers or numerical expectations in terms of what your second question. I think is really interesting about does the impact build over time and one thing that we've been discussing with the marketing department is that we rolled out. These updates these improvements to the waitlist app without really communicating back necessarily to our guests and so.

The accuracy has improved and I imagine the guest experiences improve but they are.

I don't think that guest behavior will change until there is a concerted marketing effort to let guests know that there actually hasn't been a material improvement.

In our waitlist app and that they can do their schedule around it and so now that we finished the rollout of the waitlist app.

<unk>.

Working on the.

The update to our new rewards program, which is going to have a new skill. It's gotta look completely different from the existing one and so the idea is that we're really going to bundle that communication with the rollout of the new apps.

And to state the App wasn't as great. Yeah. It was really great now.

The lunch.

And also sharing while we don't have the data yet to be able to quantify you know what it means in terms of sales or comps.

The new Waitlist App, what we do know and the information. We do have is it wait times are more accurate and we do know that the over quoting or the under quoting if people buy a half an hour or more has decreased substantially to where are we with some restaurants could've been in the 20% to 25% range of people being misquoted by half an hour or more on the wait times and we know now.

And most of our restaurants, that's down into the single digits.

Okay, great. Thank you.

Thank you. Our next question comes from Todd Brooks with Benchmark Company. Please proceed with your question.

Hey, Thanks for taking my question.

Jeff I wanted to ask about the G&A performance in the quarter, obviously very strong improvement.

Provided guidance for the full year range, but where are you and I know this is one of your priorities coming in as far as attacking this opportunity and as we're starting to look at forward years.

If you have you completed most of the efficiency efforts that you went after or is there.

More opportunity for efficiency as we look out to fiscal 'twenty four.

There are more opportunities for efficiencies one of the things that I talked about it on the Paas was being able to leverage some more technology.

And our support center on some of our daily things that we do.

We actually recently one of the first things we did this in our financial planning and analysis Department, we're launching a new software for F. P&A that will improve substantially not only our forecasting and our budgeting, but also the research tools that we have in the support center for the restaurants to determine what's going on with their P&L I wanted to give our operators a tool to be able to dig deep into there.

Financials on their own as well as having us into support center help them not just one technological step that we've taken I've asked other departments do you really think about how can it help you what can we do.

We saw really good leverage in the last two quarters of 120 bps in Q2 and 130 this quarter.

Very very happy that quite honestly exceeded my expectations, a little bit and I'm very pleased and very happy with how the team has stepped up in the company in order to make that happen. Because this is not a single person effort. It's an effort of the entire company.

And so what we did this year or for the past nine months is slow down our hires a little bit in the support center continuing to hire in the areas, where we need to in order to support our growth such as construction development recruiting training.

And we're going to continue to do that but we've asked people to really kind of you know you wouldn't they can to keep the hires at a minimum. So that's why we saw such good leverage we are going to continue to see your leverage going forward I Havent provided any guidance on Wednesday, we'll be in single digit percentages, we will get there someday, but that's not necessarily in the next 12 or 24 months, but we are.

Very happy with the leverage that we've seen over the last two quarters.

That's great.

Follow up question, if I may.

Actually a quick question on the pricing side, so I think the way that they hold.

You guys talking about the waterfall was 15% during the quarter.

<unk>.

6% at the start of July .

At the same time, we took another 3% so kind of the back two months of the quarter isn't ready to think about running maybe 10% effective price is my math right there.

Okay, well I was going to say what you'll see is there's a 6% 7% that were in there for June So Q3, Youll see it as it comes out and as we mentioned we took we rolled off six on July 1st, but we took two so the pricing for July and August then it'll be 8% for each of those months, So 13% June 8% July and August .

Perfect. Thanks, and my final one is sorry I'm.

I'm sorry.

I'm sorry.

August 13% June 9% July and August .

Okay, perfect, thanks, 7% than December and a 2% that we just started.

Fair enough and then a final $170 million of cash on the balance sheet after the offering.

So.

The team has talked about listen we're building to grow we'll make the hires that we need to grow I guess between the brands performance landlords, the appetite to get Cora into projects and now the <unk>.

Magnus you the cash on the balance sheet.

Do you see any.

Optic and the opportunities to open or accelerate the unit openings I think you talked about 11 11 leases signed already for the coming year, but just would like to know if the incremental capital and the readiness for the organization as you're thinking of growing any faster into the opportunity that the brand has in the U S. Thanks.

But what about it.

Mmm intermodal space, which you may not get them get them on the phone lines, just as I think that's supposed to the country's hydro myself.

Most of the downside critics and not put them all on them.

Same thing on the home App, but in all ex that additional click and a couple of months.

So that you can buy side will that money has been put on a few of them being able to manage it better.

I mean, that's what kicks it isn't a faithful committee to get US a long time.

Okay.

Next we'll go see the point that it's getting them on automotive with the musical London visits.

But what do I know this is a good one.

Why don't you just the best way to put it but when you're talking about Houston.

Okay.

A couple of before you get your ticket Oh my goodness.

So this is very similar to what we've said in past earnings calls, but the way we think about our unit growth pace is really in terms of pre gating factors first would be our liquidity. The second would be the availability of high quality sites in the peripheral bureaucratically pipeline as you mentioned.

With the April rates, we were.

We're in the best cash position, we've ever been in and surface.

Right and so for the last several years the focus has really been on making sure the quality.

The quality and breadth of the Madison pipeline can really keep up with our.

British goals and so what we've said historically is that 20% is what we say is.

Totally product discrete.

We went public we tend to we tended to outperform that last year, we did 25%.

8% midpoint of our guidance is for this year is 25% and so.

You know that that's the that's the neighborhood that we're comfortable with and that's the number or neighborhood.

We think that we can continue to deliver one of the things. We've mentioned in past earnings calls is that just.

Your number of new markets that we're in we're going through additional growing pace on it in terms of building up retail Madison seems not not in terms of a regional manager managers by region and so once you.

Single unit margins become infill come 234, even if markets then you get that sort of ability to self sustain and so that's another opportunity, but regardless you know just with the number if you look at the number of units we've been putting out over the last five years, even if our growth as a percentage it doesn't change.

That number rose materially every year and so we were very pleased with our growth.

And to keep that growth trajectory going Todd.

It kind of ties back closer to the G&A question. Your SaaS, that's why we're gonna be.

Renewing to invest money into recruiting because it's all about eliminating potential bottlenecks as you mentioned with the $70 million in cash on the balance sheet.

Eliminated a potential bottleneck for cash where we're sat with password for a while but then as we continue to invest in the recruiting side, we want to make sure that we eliminate any potential bottlenecks as it relates to hiring managers. So.

We are very well shored up.

A development going forward to keep that pace.

Perfect. Thank you all.

Thanks, Doug.

Thank you. Our next question comes from Mark Smith with Lake Street Capital. Please proceed with your question.

Hi, guys.

One follow up on that development questions, just a little bit.

Any additional insights on what you're seeing on deals. These days you know any change in Ti dollars and kind of availability of real estate ideal situation.

Well I don't know Keith any Castilla and <unk>.

But I don't think they.

Okay.

Something's indefinitely pushed out the ones that that looks at my phone.

It's about working with both of them.

So.

The biggest shift would really just be going from smaller developers to really national developers and national developers, especially if they're you know whatever they have is quite large turkey, I always tend to be a lot bigger than a mom and pop strip mall developer. So we've seen that change, but that's more of a structural change I don't think that's necessarily reflected the.

Economic trends or anything like that it's just a different position that rate and our growth cycle.

Okay.

Okay.

And then just wanted to look kind of further out you guys did a good job driving March in here.

You've got some initiatives that you've talked about a little bit like some back of the house dishwashing technology things like that.

Maybe the margin drivers down the road any updates on that or any other initiatives that you have that.

But maybe you can help.

Improve some some restaurant.

Margin as we look forward.

Yeah, absolutely that's always the case and so in terms of the dishwasher that that is the single most exciting thing that we have in our pipeline I'm very pleased to say that.

I'm actually now in charge of these initiatives and so.

You've got only one next to strangle.

But yeah, no I I I I didn't extremely hands on right now we are beginning the testing in a physical restaurants in Japan.

Pending that were or actually we're actually trying to get approval in the United States in parallel.

So you know I I E.

It's unfortunately.

Possible for me to give a timeline on when winter is always out but the impact from the dishwasher alone would be greater than the three initiatives that we rolled out last year.

So the upside is tremendous keeping in mind that.

With such a material change.

The impact will probably be limited works at new restaurants, but it is something that I am extremely focused on but the other part about margin is we're at risk concept and so as Jeff mentioned in his opening remarks, our G&A grew by 18% against revenue growing by 30% and so I didn't get to do my best to deliver incremental restaurant margin improve.

But really.

The meat of the stories and lever to do that.

Okay, maybe I'll squeeze one more in you talked quite a bit about labor.

Are you guys seeing any difference in retention rates here over the last couple of months.

But I guess any thoughts of Colton and I put into at night on Okay. What do you think or.

What I would ask what's unique and I won't go into that.

That's about all I can assure you.

Okay.

I think it's going to hit two into later on Monday, our newest market, but then I'll get a set of old all of it I mean, why do you let them know, it's not all about it but they're not indefinitely.

The EBITDA that the Muslims, particularly keep kicking in should have balloon payments can really keep that though it doesn't mean that you might get some difficult weather.

You must know ethical Tonight.

Okay.

Of course.

Well sure.

So we so it's always been a point of fight for us that we.

We are performing discrete cutover averages.

Or pretty much the entire time, we get in the United States. We think it's because we provide a really great place to work in.

Our take home.

Compensation is probably the highest among casual dining restaurants, you really hard to compare with the chips you can get with our efficiencies but.

Just being a relatively new concept to the United States. Most people are familiar with revolving sushi being at a lot of new markets. So for instance, if we're trading out of management candidates outside of their home state.

Theres greater attrition associated with that but that's really just a growing pain for us given our current position where we are in the United States. We know that as we infill because it's only going to get easier for us.

As I mentioned earlier, we're already beating the industry average and so we're very happy with where we're at Texas.

Excellent. Thank you guys.

She makes work.

Thank you. Our next question comes from George Kelly, It's Rod and can please proceed with your question.

Hi, everybody thanks for taking my questions.

So first one for you on the back of a dishwasher.

Ben you were just going through your excitement around that.

Curious you said that that alone should have a bigger impact in the Q.

<unk> initiatives from last year can you just quantify and remind us those three initiatives and how much savings they drove.

Yeah, so those three initiatives.

Mindful of the other people on the coast.

Referring to the robot servers, the tableside came in and they talk to me about brink orders or expectation is about 50 to 60 basis points and labor improvement from those three initiatives and the dishwasher, we are confident would be more meaningful than that.

Okay, that's great and then.

Sorry, I interrupted.

But it's about hyatt's on our paper.

Keeping in mind that that the impact will cascade.

From when we put it in just because it's not going to be.

Robots reversal could put into all of our existing restaurants.

The robotic dishwashers will probably be on a go forward basis, and so youre not going to see like a.

Light switch it'll be.

Eddie improvement, but the dishwashers as we've mentioned before they are actually the highest position in the back of the house are among the highest rate position because they're not eligible participants the one.

Position that I was not giving us approval for arbitration employees are technically serving guests for the conveyor belt and so they are eligible for chips and it's a physically grueling job and so it's an expensive position with high turnover and being able to automate this and make it easier for the better sort of the remaining person.

Their work level, the remaining workload, even for them will be materially less than what they are dealing with now and so the benefit it won't just be the restaurant level it'll be at the G&A level, where we don't have to focus on recruiting and constantly replacing people and stuff like that.

Yeah, I'm really excited for it.

Okay. That's great and then second question for me.

If I look historically at your restaurant level margin just the seasonality of that line, there's been a really nice step up.

Between <unk> and <unk> historically and you just reported such a strong number I'm just curious if theres anything I should be aware of that would that.

That would make it hard for you to to achieve that kind of step up again this year.

Well I think the biggest big George when you look at last year from Q3 to Q4 as Jimmy already touched on this was we got such a big jump in.

And labor for last year because of the initiatives that we put in place. It was the first quarter, where everything was fully in place last year between Q3 and Q4. So we've got a lot of benefit between those two quarters and the Dutch. In addition, we took an incentive compensation adjustment last year in Q4, both of which were not going to have those benefits in this year. So if you look specifically at last year it'd be very.

Careful that to assume that kind of a jump from Q3 to Q4 in terms of the labor line, what you've seen historically in the other lines I think it's probably pretty consistent with where I would keep your eye on.

Okay. That's helpful.

[laughter].

Okay.

Great and then last question for me.

I don't believe you've talked about this recently, but.

I remember as part of the IPO process. There was a study that you guys did just about the number of units that you thought was a realistic.

Cool.

And then there were there was discussion about maybe updating that is that something you're still working on.

It's.

It's certainly not we don't have a new one.

The sort of it.

We're still very you know we've got about 50 units against that initial white space.

Our estimate of 300, and so we're not necessarily in a rush to update it one of the trickier things that we've seen when exploring this is it.

You know I think you know.

FERC.

For for us or in our estimation that the biggest opportunity.

Since we've gone public it's really been it's unfortunate, but it's the mass closures of.

Japanese restaurants, and white space studies tend to focus more on demographics as opposed to competitive factors and so we're that's the tricky part is figuring out how to bake in just how meaningfully the landscape has changed because of the demographics haven't changed that much but the competitive landscape has changed completely and so.

That's where we are and we do know too that when we did the Tam study at the IPO that the parameters that we use a very conservative and we do know that we make very good money at sales levels that are below what we used in the last.

White space study, so when we redo that if we just lower some of the parameters I think everybody on this call and we all know we view the set of conferences that we believe that number is going to be much higher than 300, and we will at some point update that study as most companies do about five years or so from their IPO, which for us would be.

Next summer.

It's really for us it seems like analysts provide their own likes these numbers for us and so we haven't had to give anyone.

Okay.

Thank you I'll.

I'll keep guessing.

[laughter] Thanks George.

Thank you. Our next question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed with your question.

Thanks, guys. This is Jack call on for Jeremy Ah Congrats on the great quarter.

So you mentioned that wages are still up year over year could you just clarify the magnitude of where wage pressure in Q3 is that still up high single digits and then just how how do we think about wage pressure heading into FY 'twenty four.

Oh no not at all thinking on simple examples of hemostasis honest I don't have it or not.

What about keeps getting them up with BMO.

But I know you didn't get them out on all those things are they still kind of interesting.

So I think last quarter, we mentioned that year over year labor inflation was about 10% and that's what we've seen largely the case for us for our Q3, we've seen a little bit of easing and so I think that's that's reflected in the pricing that we took being a lot lower than what we historically take or.

And what we've taken over the last year and a half safety somewhat closer to what we've historically taken which really speaks to our confidence in terms of where we expect our labor and our Cogs to land or.

Whatever.

Period of pricing this is going to cover but yeah low single digits mid single digits of labor and we're very happy with where things are going.

Got it that's helpful and then related to the unit development again, what does the pipeline look like in terms of executed leases versus an actor.

Active units under construction I think you mentioned seven under construction. So could you just clarify that and then provide us the number of executed leases.

So most of that or what.

What do you do that and give them.

They might get scuttle I don't know.

And then the one about the usual choice.

So it's we've got seven units under construction most of them being in the back half of their construction phases. We've got 11 leases under leased 11 leases that have been executed in a number of that are.

We expect to be executed any day now and.

Double triple quadruple the number of fellow eyes, and so yes. The pipeline is great. We're very happy with the pipeline.

Got it. Thank you that's all for me.

Thanks, Jackie you do nothing different.

Thank you. Our next question comes from Joshua Long with Stephens. Please proceed with your question.

Great. Thanks for taking the follow up wanted to see if we could dig into the inflationary environment, specifically in the food basket and you talked about how that is coming back in line like we had hoped and sort of expected here in the back half of the year, but I think in prior quarters. We had talked about an opportunity are you all had talked about an opportunity in terms of sourcing maybe with <unk>.

Contracting around shrimp and salmon or some of the other key proteins curious if you could give us an update there and then Jeff I know one of the other initiative that was on the plate for at some point, maybe a longer term one was.

We have the ability to ship to a broad line distribution.

Partner is there just curious if you have any sort of update there if any and in terms of just how youre thinking about that or maybe the timing and potential.

Yes, I do I do have enough days, so the broadline distribution projects really goes hand in hand, with you talked about signing contracts for six months or a year or whatever we'll be able to be in a much better position to do that once we get the consolidation underway. The update on that consolidation piece is it in the past we had talked about moving to a U S.

<unk>, such as Cisco or U S foods, and what we've done what we've decided to do is consolidate some of our Japanese broadline distributors, which we already use because what we found is that it was very difficult for the U S broadline or to get a hold of some of the very specialized Japanese ingredients that we use in our.

<unk> and our food and since the Japanese brought value. So if we use already have those it's easier for them than to go get the mainstream type stuff. So what we're doing is we're consolidated down into two suppliers that we already use and they are Japanese companies. They have U S operations and by doing that work.

Have the entire country covered but more importantly, we will make sure that would be very hard to get specialty items that are used.

And Asian cooking will be able to get.

And so that's a process that we're doing it in progress you've already done many of our Skus are already consolidated and I expected in the next several months that will be done in terms of the inflationary environment that we've seen we have seen that continue to ease we saw about a 2% quarter over quarter decline from Q2 Q2 to Q.

Three and our cost of goods sold inflation. So that line continues to move in a positive direction and with all the work that we're putting into the supply chain and the consolidation, but the distributors as well as the general economy seems to be smoothing out a little bit all of those factors are working in our favor and we're very happy going forward is what we're seeing on the Cogs line.

That's super helpful commentary in terms of just thinking about the <unk> inflation I understand that that two 2% was quarter over quarter. What is that how how would we kind of frame that up on a year over year basis.

It's about what we talked about last quarter.

It's.

No about the same range as we talked about last quarter, but what was most important to us is it's easing.

Understood that that's Super helpful. And then one of the key pieces in one of your questions earlier that came through is that it's not really about capital you're not capital constrained you've got a great concept lots of growth opportunities you mentioned the importance of the human capital side and so I'm just curious if you could.

Quantify or talk about that manage your pipeline and what were the biggest opportunities are to either develop talent funnel talent into that or just how youre approaching that because it seems like that is the bigger piece of the overall growth story going yeah going over time.

When I was talking to you looking to kind of put it in the.

Most of it that's all.

They'll have somewhat of an app.

We can know what else are you at all like you might be willing to pay.

I don't think we can enforce are excellent.

It doesn't have nothing else.

Put it off when they come on it.

And just to get them to hold up.

Okay, good morning, I'm, especially proud of them.

And along with it.

The nuclear imaging.

Please.

No. So I think that most of that.

So you don't have to go find me so it looks to me because I might not make money right.

Oh yeah.

This sort of goes back to what we mentioned earlier, but.

We have a unique concept and we're in a unique partner growth where the majority of our units are single unit markets and so naturally we're gonna have growing pains associated with recruiting and training.

So that's also why that's really been the theme of our earnings calls for the last two years, if we know that that's.

Could it be that the single most important gating factor and we don't want to compromise on our growth and so that's what we've really focused our efforts on.

When we're saying when we were discussing this this is really a pretty transparent about our priorities, but we don't want you to think as you know this is going to be.

This is.

A serious enough concerned that it's going to compromise our ability to grow that's not the case at all what we're saying is that this is simply the top priority for where we are the other thing is that.

You know with America with our American operations, working so well in.

Everybody has seen tremendous opportunities for growth there are a lot of Japanese expats that want to join the United.

The American.

Route and so we've got a dual pipeline of internal or really a simple pipeline of internal promotions from.

American square employees.

Japanese employees that are banging down work orders because they want to be the next.

You know.

There is just countless examples of people that have grown tremendously over the last several years and then you know the external hires as well but.

Yeah. So.

Summarizing this is I wouldn't call it call it an easy position that we're in but I certainly wouldn't call it a concerning position everywhere.

Totally understand and to be clear, there's no concern on my part from that side and just knowing it's a restaurant. There you know an easy business easy it's hard to do especially when you are trying to scale. Your culture. So I appreciate that perspective, and the information there on the dual and triple pipelines, but it's certainly encouraging I appreciate the color.

Of course.

Thank you there are no further questions at this time. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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