Q4 2024 Kura Sushi USA Inc Earnings Call
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Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please give it a thumbs up. And if you're new here, don't forget to subscribe to my channel. I post weekly videos. So, thanks for watching. I'll see you next time.
Speaker Change: Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Kurosuchi USA Inc fourth quarter 2024 earnings call. At this time you have been placed in a lesson only mode and the lines will be open for your question following the presentation.
Speaker Change: Please note that this call is being recorded. On the call today we have Hajime Uba, President and Chief Executive Officer, Jeff Uttz, Chief Financial Officer and Benjamin Porten, SVP Investor Relations and System Development. And I would now like to turn the call over to Mr. Porten.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you, Operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter 2024 earnings release.
Speaker Change: It can be found at www.curseissue.com in the Investor Relations section. A copy of the earnings release has also been included in the 8K we submitted to the SEC. 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 Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore you should
These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.
Speaker Change: 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 a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release.
Speaker Change: With that out of the way, I would like to turn the call over to Jimmy.
Jimmy: Thanks, Ben, and thank you to everyone for joining us today. I'm pleased to report an end to the fiscal year that has meaningfully outperformed the expectations we shared during the last morning's call, and to share that, a new fiscal year is off to a strong start.
Speaker Change: The sales pressures beginning in April improved significantly over the course of the quarter, resulting in fourth quarter comps of negative 3.1%. As compared to the expectations we shared during the prior earnings call of negative high single-digit comps.
Speaker Change: I'm very pleased that, in spite of the unexpected sales decline in the back half of the fiscal year, we were able to maintain positive full-year comps of 0.7% and full-year restaurant-level operating profit margins above 20%.
Speaker Change: This was made possible by the rapid response by our team members throughout the company to find new efficiencies and cost-saving opportunities.
Speaker Change: Total sales for the fiscal fourth quarter was $66 million, representing comparable sales performance of negative 3.1%.
Speaker Change: Our cost of goods sold as a percentage of sales was 28.5%, representing 100 basis point improvement over the prior year.
Speaker Change: This improvement was made possible by improving the quality of ingredients while also lowering cost.
Speaker Change: Labor as a percentage of sales was 31.1%, representing an increase of 230 wages points as compared to the prior year due to wage inflation and sales deliverage.
Speaker Change: Restaurant-level operating profit margin for the fourth quarter was 20.9%, as compared to the prior year at 24.4% due to sales leverage.
Speaker Change: On the development front, we opened one new unit in Lake Grove, New York, during the fourth quarter, for a total of 14 new unit openings during the fiscal year.
Speaker Change: Subsequent to quarter end, we have opened five new units, Beaverton, Oregon, Tacoma, Washington, Rockville, Maryland, Terry Hill, New Jersey, and Bakersfield, California.
Speaker Change: We currently have 6 units under construction, but it bears mentioning that some of these units have just broken ground.
Speaker Change: While we are satisfied with the progress of opening new restaurants so far in fiscal year 2025, we expect that the opening of the remaining nine restaurants, especially those that have not yet started construction, will be backloaded for Q3 and Q4.
Speaker Change: As many of you know, Bellevue has been our strongest performer since its opening.
Speaker Change: These are our most successful units being in Washington State. We have always been excited about the massive potential of the Pacific Northwest market.
Speaker Change: This year, we finally opened our second unit in the Pacific Northwest with Beaverton Oregon.
Speaker Change: I'm extremely pleased to share that. You are not disappointed.
Speaker Change: Following Beaverton, we opened our new unit in Tacoma, Washington.
Speaker Change: Tacoma has been a very strong performer since its opening.
Speaker Change: While it's still early days, I'm very happy to see that the new units in the Pacific Northwest have exceeded our already high expectations and I'm very bullish about the long-term potential of this market.
Speaker Change: Turning to new initiatives, we completed the full rollout of our back-of-house streamlining efforts in early September, and results to date have delivered the expected improvements to labor costs.
Speaker Change: Supporting of Kura Japan's reservation and self-seating system is proceeding as scheduled, representing further opportunities for labor efficiencies later in the year.
Speaker Change: We have also diversified our marketing efforts so that we have more levers to pull beyond the hit IP correlations.
Speaker Change: We are going to be more discerning with our IT collaborations going forward, prioritizing the quality and broad-based appeal of partnering brands over the number of campaigns.
Speaker Change: Our strategy to showcase our unbeatable quality and authenticity will be key to building our long-term brand equity as we grow into our national footprint, while also being more cost-efficient than rolling IT collaborations.
Speaker Change: During the fourth quarter, we took an impairment charge of $1.6 million. This charge is due to a challenging sales environment at our Aventura, Florida location.
Speaker Change: While we are required to take this impairment charge this quarter by the accounting rules, we will continue to operate this restaurant and will implement several operational changes that we believe could improve results.
Speaker Change: The new fiscal year has started strong, and it's clear that we are in a very different place than the last one we saw.
Speaker Change: The cost-saving efforts we began in preparation for the potential of longer-term macro headwinds have been fully implemented, and these initiatives will serve us well as we enter a fully normalized environment.
Speaker Change: Our new unit openings to date have exceeded expectations and confirmed that the Pacific Northwest is a huge untapped market for us.
Speaker Change: In addition to the success, we are continuing to see in the Pacific Northwest.
Speaker Change: We are highly anticipating our upcoming openings in smaller markets that will serve as proofs of concept for our ability to thrive in the United States beyond the largest EMAs, indicating even greater white space opportunity.
Speaker Change: While Bakersfield has only been open for a few days, the strength of its opening has us optimistic about our ability to thrive in smaller DMAs.
Speaker Change: Fiscal year 2025 is an opportunity to demonstrate the next level of Kurosuke's potential, and I am incredibly grateful for the excellent work by our team members who have positioned us so well for the new fiscal year.
Speaker Change: Now I'll turn it over to you to discuss our financial results and liquidity.
Speaker Change: Thank you, Jimmy.
Speaker Change: For the fourth quarter, total sales were $66 million, as compared to $54.9 million on the prior year period. Comparable restaurant sales performance compared to the prior year period was negative 3.1%, with regional comps of positive 3.9% in our West Coast market and negative 8.9% in our Southwest market.
Speaker Change: Turning now to costs, food and beverage costs as a percentage of sales were 28.5% compared to 29.5% in the prior year quarter, largely due to pricing and supply chain initiatives.
Speaker Change: Labor and related costs as a percentage of sales were 31.1% as compared to 28.8% in the prior year quarter. This increase was largely due to sales de-leverage and wage increases.
Speaker Change: Occupancy and related expenses as a percentage of sales were 7% compared to the prior year quarters, 6.6%.
Speaker Change: Depreciation and amortization expense as a percentage of sales increased to 4.6% compared to the prior year quarter's 3.8% due to sales deleverage and the accelerated depreciation of assets being replaced due to planned remodels.
Speaker Change: Other costs as percentage of sales increased to 14.7% compared to 13.8% in the prior year quarter, due mainly to utilities, delivery fees, software licenses, and operating supplies.
Speaker Change: General and administrative expenses as a percentage of sales increased to twenty point three percent compared to thirteen point two percent in the prior year quarter due to a litigation expense.
Speaker Change: General Administrative Expenses as a percentage of sales excluding litigation expense for the fourth quarter and the full fiscal year for 13.2%
Speaker Change: and 14.1% respectively, representing full-year leverage over fiscal 2023 of 90 basis points.
Speaker Change: Operating loss was $5.8 million compared to operating income of $2.2 million in the prior year quarter, largely driven by litigation expense.
Speaker Change: as well as sales de-leverage, higher labor costs, and incremental other costs associated with the greater number of unit openings and units under construction.
Speaker Change: Income tax expense was $19,000 compared to $167,000 in the prior year quarter.
Speaker Change: Net loss was $5.2 million or a negative 46 cents per share compared to net income of $2.9 million or 25 cents per share in the prior year quarter.
Speaker Change: Adjusted net income was $1 million, or $0.09 per share, compared to adjusted net income of $2.9 million, or $0.25 per share, in the prior year quarter.
Speaker Change: Restaurant-level operating profit as a percentage of sales was 20.9 percent compared to 24.4 percent on the prior year quarter.
Speaker Change: The Jeffs at Yvetta was 5.5 million dollars compared to 6.3 million dollars in the prior year quarter.
Speaker Change: Turning now to cash and liquidity. At the end of the fiscal fourth quarter we had 51 million dollars in cash and cash equivalents and no debt.
Speaker Change: And then lastly, I'd like to provide the following guidance for fiscal year 2025.
Speaker Change: We expect total sales to be between $275 and $279 million.
Speaker Change: We expect to open 14 units, maintaining an annual unit growth rate above 20%, with average net capital expenditures per unit of approximately $2.5 million.
Speaker Change: and we expect general and administrative expenses as a percentage of sales to be approximately 13.5 percent.
Jimmy: And with that, I'd like to turn it back over to Jimmy.
Jimmy: Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star and then 2 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.
Speaker Change: One moment please while we poll for questions.
Speaker Change: and more. Thank you. Thank you.
Speaker Change: The first question we have is from John Tower of City, please go ahead.
John Tower: Great, thanks for taking the questions. Good evening, guys. Maybe just to start, I'm curious about the guidance for revenue and based on the
John Tower: New store openings greater than 20%. I think the sales growth would imply something lower than that. You're talking about the current quarter. You're pleased with the start to the fiscal year. So I'm just curious if you could help square that for us.
John Tower: Why the revenue growth that looks relatively conservative versus the new store growth and how bullish you sound on the current state of same-store sales?
Speaker Change: Thank you, John, for your first question. Please allow me to speak in Japanese.
Speaker Change: First of all, as John just said, I think it is true that we are a little out of conservative this time. For the last two months, September and October,
Speaker Change: We are happy about the sales recovery. It is better than Q4, but we are still in the process of recovery. It is not easy for us to stay strong in such a situation.
John Tower: Especially, I'm gonna repeat what I said about after-sales in a nearby slump, All that being said, we have our own opinion about the calculation. Thanks!
Speaker Change: So, John, as you said,
Speaker Change: It's true that we are being a little bit conservative. We're very pleased with the performance that we've seen to date as we've gone through the fiscal year, September and October. The Q1 is definitely outperforming Q4 where we're.
Speaker Change: We're very happy to see that, but it's also true that we're still in mid-process in terms of recovery. And so we feel it's prudent not to be overly aggressive with our revenue guidance at the beginning of the year. The last thing we want to do is to have to do a repeat of downward revenue guidance that we did last year. And so we felt that this was the most prudent approach.
Speaker Change: On the other hand, we were very surprised by the sudden decrease in sales since April, but I think it is very important for us to be able to control it.
Speaker Change: For example, the cost control and the new operational efforts have allowed us to achieve less than 20% of the gross domestic product. In order to improve management of computers, we have re-expanded the strategy to minimize the impact of cannibalization.
Speaker Change: Another common scene that I found on a search engine was back it was a question of like how we did voice over capability So we decided to throw a rainy day LED band and like it was like an easy way to do It was a tip of the day, then it's gonna be a random show and we are gonna play privacy and the uploading.
Speaker Change: There are many problems in the market Team difference in sales can be significant and Megan can't control her sales team members and so on Now I am giving you the overview of the events The following day will have details about our sales plan so if you have a good deal, I would like us to review the details
Speaker Change: In terms of looking at the impact of the post-April sales deceleration, we're very proud of how we were able to manage the things that were under our control, namely our cost control efforts, the streamlining changes that we made to our backup house in particular.
Speaker Change: Those changes were what allowed us to maintain that restaurant-level operating profit margin of about 20%. We're also very pleased
Speaker Change: that we were able to maintain a unit growth rate above 20% for fiscal year 2020.
Speaker Change: Benjamin Porten, Hajime Uba, Jeff Uttz
Speaker Change: Of course, should the environment continue to prove favorable, then we look forward to a revision.
Speaker Change: I'm also trying to figure out the new store productivity implications. Are there anything is there anything to note? I mean, you just hit on the idea of perhaps being in markets where you're not going to have.
Speaker Change: as much cannibalization with the existing stores. But are you doing anything with the size of the stores? Are these kind of all on trend relative to what you've been opening the past couple of years?
Speaker Change: Okay
Speaker Change: Go ahead, Jimmy. Go ahead, Doug.
Doug: As I say, John, in terms of how we look at new stores, one of the things that you know that we really focus on and we put a lot of credence in is cash-on-cash return. And that allows us to be very...
Doug: It allows us to look at a bunch of different sites. We're not dialed into a particular cookie cutter size. So, you know, we'll build a smaller store if that's a great site that's available.
Doug: and we don't necessarily always dial into a particular AUB because if I can get a cash-on-cash return of 40 or 50 percent on a smaller restaurant that may do a little bit lower AUB, we'll do that all day.
Doug: And then in terms of your comment about our comp assumption for FISCA 25, as you know, we don't give comp guidance.
Speaker Change: But to kind of reiterate what Jimmy said, as we came out of Q4, I think we kind of saw what everybody else did. You know, June wasn't great, and then towards the latter half of July and into August, things started to get better. But in our mind, it isn't quite yet a trend.
Speaker Change: So we didn't want to get too far ahead of our skis and put an overly aggressive comp assumption in our model. But I can tell you that the comp assumption for next year is not a negative number, without quantifying it for you.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: OK, great, thank you. I appreciate that and then.
Speaker Change: Maybe just in terms of thinking about the digital initiatives, I know you hit on earlier. Well, actually, I'll stop pausing that. Going back to the labor initiatives at the store level,
Speaker Change: Those things should remain in place as volumes kind of return in the future. There's nothing that would suggest as volumes come back to stores you should anticipate having a need to add more labor in the back of the house to, you know, meet that demand.
Speaker Change: First of all, I'm sorry, but I don't fully understand what you're talking about.
Speaker Change: We are still in the middle of the uncertainty of the sales return, but we are aiming to lower the level of 24 than 24. By combining BOHC and Front of the House, we are aiming to lower the level of 24 compared to last year's 24.
Speaker Change: Hi. John, the changes that we've made in terms of operational streamlining are structural. It's the combination of multiple make-stations into a single one, and so...
Speaker Change: It's still very much early in the fiscal year. Our belief is that our full-year labor numbers, percentage of sales, should be better than fiscal 24.
Speaker Change: Of course, if the sales are fully recovered, I think the leverage will go even further. But even without that, I think we can achieve lower numbers than last year. Of course, there is also pricing.
Speaker Change: And of course, if the macro environment recovers as we hope, then there's further upside to the labor line. But even without that, we expect our labor to be an improvement year over year, you know, between the operational streamlining and whatever pricing that we take.
John Tower: Great. And maybe my last one, pricing fourth quarter and the mix in the quarter as well, if you wouldn't mind, and what the pricing is to start the year in 2025.
Speaker Change: Yeah, so we're running about, for Q4, we're running about 4% price.
Speaker Change: in the numbers we just released, and then as we think about the upcoming year, John, in terms of pricing. Typically, we've always taken pricing in January, but we're thinking about taking pricing sooner than that this year simply because we've determined that if you take a little bit earlier than January, you can really capture a lot during that December holiday period.
Speaker Change: and Jeff Uttz, and Capture a lot of those sales. So, you'll probably see a price increase, which we haven't quantified yet, coming up shortly before the end of the calendar year.
John Tower: Got it. Thanks. I'll pass it along. I appreciate taking the questions.
Speaker Change: Thank you, John.
Speaker Change: The next question we have is from Jeff Bernstein of Barclays, please go ahead.
Jeff Bernstein: Hi, good evening. Thanks for taking the question. This is product guys
Jeff Bernstein: Just a quick question on development. You've already opened five and you know, you've alluded to a pretty decent pipeline with six under construction. Just wondering on why there isn't more upside to the 14. I know
Jeff Bernstein: Anecdotally we've heard that maybe the approval and permitting process is a little bit better these days but maybe not
Jeff Bernstein: Yes, exactly where it needs to be, but just anything you can provide on just the availability of quality sites
Speaker Change: The ability to get permits, approvals, just are there any kinds of headwinds you're seeing there that lead you to be a little bit more conservative on the unit level? Thank you.
Speaker Change: First of all, I've never had any headwinds or any trouble with this, but this time, in the first half of the tempo and the second half of the tempo, this second half of the tempo was a little bit of a problem.
Speaker Change: Thank you for watching, and Good Luck.
Speaker Change: So this is Hay Pratik, Pratik, this is Ben.
Speaker Change: site selection, strategic changes we mentioned in the last earnings call. We did prune a number of LOIs. There's nothing wrong with the sites per se, it was just not the right timing in terms of cannibalization headwinds and so we decided to
Speaker Change: Benjamin Porten, Hajime Uba, Jeff Uttz
Speaker Change: Pipeline
Speaker Change: got proved. And so that's really what it is, and the...
Speaker Change: The reason that we've got a 14 instead of a range is just, you know, looking at our release timing, that's really what we're led to believe, and so we felt it just made the most sense to give you guys what we're actually expecting.
Speaker Change: got it I appreciate that color and then just turning to commodities I know you have a very different basket than most in the industry but you know what is a good inflation level that you're assuming in
Speaker Change: fiscal 25. I know it's early, but things can change pretty easily. But just, you know, what you're assuming in fiscal 25 and just how easily you can kind of pivot in and out of different items on the menu if the need arises.
Speaker Change: Yes, our commodity basket, as you know, is pretty varied, right, the things that we do buy. In terms of what we look at for next year, you know, there were so many moving parts. Some of that was solidified last night, as to what's going on. You know, we do have the Fed tomorrow, so we've got a lot of things going on.
Speaker Change: There is an assumption of low single-digit commodity inflation in the budget, just comparable to what a CPI increase would be, nothing super aggressive in terms of inflation assumption.
Speaker Change: But yeah, because our bass are so diversified, we can pivot quickly. If for some reason we have a problem getting a particular fish or a particular product in, we can pivot to an LTO or something with a different product.
Speaker Change: The other thing that I've talked about too, which is great, is with our two broad liners, they overlap each other. So if one of our broad liners happens to run out of a product, we can go to the other one and most likely they will have it. So we do have redundancy in our supply chain process and because of that, very rarely do we run out of things.
Speaker Change: and the process has been very streamlined over the last year to two years.
Jeff Bernstein: That's great. And if I can just sneak one last one in, just on the labor line, Jeff.
Speaker Change: You know you've spoken to all these efficiencies that are that are going to yield some dividends And it looks like you're going to laugh a b1228 as well later on in the year although It doesn't look like
Speaker Change: you know, your concept really saw much of an impact, but just what is a more normalized rate of inflation on the waiver line going forward once kind of like all these prior year nuances are lapsed? Like, is there something like around mid single digits that we should expect?
Speaker Change: First of all, regarding FY24, well, I'll be the one to answer, regarding FY24, it's a mid-single digit, but until then, the low-single digits were the normals.
Speaker Change: Historically, labor inflation on an annual basis has been about low single digits. For fiscal 24...
Speaker Change: But it was closer to mid-single digits
Speaker Change: With the operational improvements that we've put into place, we're confident that we'll be able to exit Fiscal 25 with a four-year labor line that is superior to Fiscal 24's, and obviously, if the macro environment improves and we get further sales leverage, then that's additional opportunity there.
Speaker Change: Thank you so much. I'll pass it on, guys. Appreciate it. Thank you.
Speaker Change: The next question we have is from Brian Mullen of Piper Sandler, please go ahead.
Speaker Change: Hi, this is Allison Armstrong for Bryan Mullen. Thank you for taking the question. In regards to the 20.9 restaurant level margin this year, I'm curious how you're thinking about the range for next year and what some of the headwinds and tailwinds might be that we should consider.
Speaker Change: Thank you all for joining in for today's webinar
Speaker Change: Even though there were some unexpected events after April, we were able to maintain it. We want to maintain it even if there are headwinds this year. That's what we've been aiming for this year.
Speaker Change: In terms of restaurant-level operating profit margin, we've never provided guidance, but one thing that we
Speaker Change: said very consistently is that
Speaker Change: One of our primary goals is to maintain our restaurant-level operating profit margins above 20% on a four-year basis. We're very pleased to see that in spite of the headwinds that we saw in terms of sales to leverage beginning in April, we were able to maintain restaurant-level operating profit margins above 20%, and we absolutely expect to do that again in fiscal 25, hopefully without the headwinds that we saw beginning in April.
Speaker Change: Thank you.
Speaker Change: The next question we have is from Jeremy Hamblin of Craig Hallam Capital Group. Please go ahead.
Jeremy Hamblin: Thanks for taking the questions and congrats on the improved results. Wanted to dig in a little bit on the other operating costs, you know, line item which has been, you know, a bit more challenging to control here in recent years and just get a sense, you know, we know some of that is due to utilities inflation has been higher, insurance inflation has been higher.
Speaker Change: I wanted to get a sense for what you are seeing here at the start of this fiscal year related to that line item and I know embedded within that is some of the delivery cost fees and just understand how.
Speaker Change: you know, how that, you know, the DoorDash deal is kind of progressing.
Speaker Change: Thank you for watching!
Speaker Change: Yeah let me let me hit the operating supplies and then but Jimmy Jimmy and Ben will talk about the DoorDash.
Speaker Change: On the operating supplies, you're right, Jeremy. I mean, utilities are up.
Speaker Change: Jeff Uttz, CFO Alphabet and Google
Speaker Change: So, Q1 is, in terms of sales, is our seasonality-wise, our lowest quarter. So, when you look at some of those fixed costs that are another cost.
Speaker Change: you'll see a trend in that direction.
Speaker Change: What we're seeing as the year started is pretty similar to what we've seen in past years. We're continuing to push and work as much as we can to renegotiate contracts and, you know, widen our
Speaker Change: we're also looking at vendor lists of people that come in. We do use EcoTrac, which is a great software that the facilities department uses in order to work with multiple vendors when something goes down in the restaurant in order to find the vendor that not only has the best response time so we're not down but also has the best pricing and we're looking at all of those things to try and do what we can.
Speaker Change: You know, unfortunately, things like utilities are a little bit out of our control, but we're looking line by line by line at other costs for the things that are under our control to do what we can to continue to chip away at that cost line.
Speaker Change: Thank you for watching!
Speaker Change: I think Jeff really covered 99% of what there is to discuss in terms of other costs. For the delivery costs, that's a reflection of a promotional campaign where we subsidized part of delivery fees for first-time orders on DoorDash and so it's not a typical fee. I wouldn't expect it to be a recurring fee.
Speaker Change: And can you quantify what the impact of that promotion was on that line item?
Speaker Change: I don't have that number on me, but not huge.
Speaker Change: Okay, got it. And then could you just, could you provide a bit more color on some of the upcoming technology initiatives?
Speaker Change: just in terms of the timing of when you would expect.
Speaker Change: you know, some impact on those, right? It sounds like you're expecting your labor line, which I think was 31.9 percent,
Speaker Change: of sales to be a little bit better this year. I'm sure that's not kind of a straight line shot, but can you help us just understand the context of timing on those initiatives and how you expect that to play out to get to that target?
Speaker Change: Yeah, yeah, I'm more than happy to discuss. The biggest opportunity in terms of Fiscal 25 is the new reservation and self-seating system. I've been working in lockstep with Japan to bring, to port that system translated into, you know, you know, not just English but how...
Speaker Change: Benjamin Porten, Hajime Uba, Jeff Uttz
Speaker Change: The fact that the price will be lower than 24, I think it can be realized without changing it. If this can be done, I think it is even more positive.
Speaker Change: Jimmy's earlier comments in terms of our expectations about being able to produce labors percentage of sales in fiscal 25 that is lower than last year that doesn't contemplate the upside represented by the reservation system so should that that'll be gravy
Speaker Change: for us on the labor line and restaurant level operating profit margin line as well.
Speaker Change: Great, helpful color. Last thing, just a little bit more color on the 4.7 million dollar litigation expense.
Speaker Change: It's just, Jeremy, the typical wage and hour claims that restaurant companies unfortunately have to deal with from time to time around Related Liberty to get into the details of it But it's your run-of-the-mill You know, I don't know a restaurant company that hasn't had to deal with these types of claims over the last seven to ten years, so it is wage and hour
Speaker Change: Thanks for the call and our best wishes.
Speaker Change: Ladies and gentlemen, just a reminder, if you would like to queue for a question, you may press star and then 1.
Speaker Change: The next question we have is from Sharon Zakfia of William Blair. Please go ahead.
Sharon Zakfia: Hi, good afternoon. Thanks for taking the question. I guess, and I apologize, my phone is a little bit muffled, but it sounds like trends have improved more in November, in the November quarter, and certainly improved as the August quarter progressed.
Speaker Change: I guess as you do like the post-mortem on kind of what happened in April through August.
Speaker Change: Do you really think it was the promotional tie-in? Do you think it was fast-act?
Speaker Change: What is your best insight now on kind of what caused that saloon?
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Well, as of now, the last few months since April have been affected by COVID-19. Other restaurants have also been able to relax a little since August, and I think that will continue in our case as well.
Speaker Change: The strong IP also influenced its absorption in August.
Speaker Change: and Pikmin in October. I think that's what was reflected. So, in November, there are a lot of elections, and there's a lot of noise. I'm looking forward to seeing how much it will return to normal in March. I'm looking forward to seeing how much it will return to normal in March. It's not clear yet, so I'm looking forward to seeing what will happen. That's what I'm thinking about right now.
Speaker Change: In terms of our
Speaker Change: Benjamin Porten, Hajime Uba, Jeff Uttz
Speaker Change: has been corroborated by the earnest calls of our peers.
Speaker Change: and then to your comment on IP collaborations.
Speaker Change: That certainly could have played a role as well. R. August benefited from One Piece, which was a very successful campaign. Ran from August to June.
Speaker Change: September. As we entered October, we've been working with Pikmin, which is a Nintendo property. Also, we're very pleased with the results there. November, you know, we just entered, so it doesn't really make too much sense to comment on the first five days.
Speaker Change: We're hopeful that these trends continue, but just given the opacity, we felt it was appropriate to be prudent with our revenue guidance, going back to Hajime's earlier comments.
Speaker Change: That's really helpful. I guess one other question, Ben, you just talked about the
Speaker Change: reservation self-saving system coming in next year and maybe being able to get 50 BIPs from that. Are these savings, and I know you continue to get more and more efficiencies, more and more savings. Ultimately, how do we think about that kind of in harvesting to the bottom line versus reinvesting in the business to continue to deepen the competitive moat?
Speaker Change: Thank you for watching!
Speaker Change: In terms of investment, do you mean costs? Costs, materials, etc. No, not really. In the big cities, Kurojapa has already developed it. We only change it to the US version. So, the cost is not that big. It's almost negligible. It's a level that can be ignored. And, by doing that, you can reinvest the remaining labor. No, in terms of this, the current level is more comparable to the previous level. 23% is 30%. You can get closer to that level.
Speaker Change: the reservation system and really any future technologies. Our expectation is that this will certainly help us get back to the waiver levels that we saw in fiscal 23. We think that's an appropriate level for us to be at and so that'll probably be the first thing that you see.
Speaker Change: Great, last question. Hey Jeff, could we get the traffic in the quarter?
Speaker Change: Oh yeah, I have those numbers.
Speaker Change: Minus, it was negative 2.4.
Speaker Change: So 0.7 price traffic down 2.4 for a countdown of minus 3.1.
Speaker Change: The next question we have is from Todd Brooks of Benchmark Company. Please go ahead.
Todd Brooks: Hey, thanks for squeezing me in. I wanted to explore the regional spread in the same-store sales performance that you highlighted. I know a lot of investors kind of
Speaker Change: Is that weakness in the kind of Southwestern market is that more of the two-year stack that you were lapping tougher same-store sales, or is there an element that Texas got hit by barrel during the quarter and that was an artificial drag on that region versus the the West Coast region
Speaker Change: First of all, I would like to explain a little bit about the markets outside of California. We have about 45 computer-based stores, and half of them are in California, and the other half is divided into four regions. Among them, Texas has 100,000 stores, which is a big portion.
Speaker Change: How many years has it been?
Speaker Change: In many cases, the project takes almost entirely single-units. But the team has taken care of it over the years.
Speaker Change: I would say, especially in 2021
Speaker Change: Most restaurants here have preserved those existing scenic spots from other regions. Those places are strongly impacted by the universe of Unterground Ground Level 4. In the case of Southeast, we recently opened a new restaurant called Out of statues at Dallas, and they don't even have Weglisten at Houston, because they are still under control.
Speaker Change: The fact that we received such an impact is reflected in the fact that we received two of them in a very small unit. This is not only the case in South East Asia, but also in other regions of California. Therefore, it is not only our performance that is reflected,
Speaker Change: I would like to tell you that the impact has increased significantly.
Speaker Change: So, the biggest thing that we really want to emphasize in terms of comps is that it's not necessarily, looking at the regional comps, it's not necessarily an indication of our performance or our popularity or the demand that we see in those markets, but really just an artifact of the way that we've grown over the last 10 years.
Speaker Change: Our company has about 45 units, about half of those are in California. We've got over 10 in Texas.
Speaker Change: Outside of those markets, they're pretty much all single-unit markets which have recently gone into
Speaker Change: You know multi-unit markets and so obviously that that has a very meaningful impact
Speaker Change: on comps and it has nothing to do with demand, it just has to do with the fact that it's the first infill.
Speaker Change: Looking to the southeast in particular, there was one infill in Dallas and one infill in Houston which impacted a store each in those markets, which had largely been not impacted by prior infills, and so that was a headwind there.
Speaker Change: With regards to part 25,
Speaker Change: Many private companies appeared in a pilot project, which is the first...
Speaker Change: We are still in the process of cannibalization. After 2026, we will focus on the new market. I think the pressure on comps in all regions will be eased. Especially this time, we are doing well in the smaller DMF in Seikaku Guild. If that happens, the future pressure on comps and cannibalization will be eased. We are looking forward to it.
Speaker Change: And just to give you some additional thinking on the way that we've approached cannibalization since the last earnings call, we've been very proactive in terms of our pipeline and starting in fiscal 26, that's when you'll really start to see a greater number of new market units being included, which obviously don't play into cannibalization whatsoever. In terms of fiscal 25 with
Speaker Change: We've lead times. It's pretty lit your
Speaker Change: Options are pretty limited in terms of adding new places, and so our approach for Fiscal 25 is really removing places which were existing markets or would have been first infills, but looking at the early success of Bakersfield, that's
Speaker Change: That's really going to come into full gear in fiscal 26, which we're very excited about.
Speaker Change: That's great. And just one follow-up, if I may. Not a follow-up, but an additional question.
Speaker Change: Ben, you talked about a lower frequency perhaps of the IP collaborations. Can you walk us through...
Speaker Change: Maybe some detail behind it. Is it fewer events? Is it shorter duration of event? Just how do you see this evolving and are you tying yourself to a specific number of collabs?
Speaker Change: per year anymore, or it's when the right partner comes along, you guys would work that into kind of your calendar of what you're looking to do.
Speaker Change: Thanks for joining us.
Speaker Change: Every branded property collaboration is expensive and not every single one is worth the associated cost and so the thinking now is really let's go for the ones that we think are really going to be big hits.
Speaker Change: and so
Speaker Change: Before we had, you know, six guaranteed, that's no longer the case. We're really just going after targets that we think will really move the needle from a comp perspective.
Speaker Change: But as I said in the remarks, instead of no IP collaboration, we have a lot of new marketing VPs, including Newton. As I said in September and October, we have IP collaboration plus.
Speaker Change: We expect to be able to cover most of the countries.
Speaker Change: And of course, you know, we're not just reducing the number of collaborations with nothing to replace it. We have a huge advertising pipeline. Our VP, our new VP of Marketing, which I think we've mentioned on every call since we've hired him, is doing a really great job. And if you're listening, we're very pleased. And so
Speaker Change: September and October, we've been seeing pretty strong results.
Speaker Change: The IP campaigns are part of it, but another big part would be the new advertising efforts that we put into place, especially the food-focused ones. We're excited to see the performance in upcoming months where we don't have IP collaboration so that we can
Speaker Change: See just how successful these campaigns are without that additional variable. And just to add some additional context, when we aren't doing a branded collaboration, that doesn't mean we're not going to be giving out the Big Tropon prizes, they just won't be branded prizes.
Speaker Change: Understood. And then finally, just in the revenue guidance, which
Speaker Change: You talked about a lot of the reasons for the maybe the conservancy to start the year Is this a part of it as well as we're kind of weaning ourself to programs that make sense versus six programs a year and that that's
Speaker Change: You want to leave yourself a little bit of room there as kind of the new advertising mix kicks up?
Speaker Change: In terms of revenue guidance, we've always, in past years when we've given guidance, it
Speaker Change: doesn't contemplate the impact of IP collaborations. Basically, whenever we have a hit collaboration, that's opportunity for upside. And so that's the same thinking here. It does not contemplate IP collaborations.
Speaker Change: Thank you for watching!
Speaker Change: Thank you all.
Speaker Change: that will be in between the IT collaborations.
Speaker Change: What's really great about those, and Ben alluded to this too, is that they come with a fraction of the cost.
Speaker Change: and they can be just as experienced as the top line.
Speaker Change: So, a lot of that will flow down to the bottom line, and it also kind of ties into a question we were asked by another analyst earlier about other costs. The cost with these IP collaborations.
Speaker Change: and Richard Hausler.
Speaker Change: The next question we have is from Jim Sanderson of North Coast Research. Please go ahead.
Jim Sanderson: Hey, thanks for the question. I just wanted to follow up a little bit more detail on G&A spending. I think you reported a slight improvement over prior year. So going forward, maybe you can walk us through what type of line item leverage you would expect and how that can flow through to the bottom line.
Speaker Change: The biggest leverage will be on our support center salaries. Really that's the biggest line item in GNA and the entire team in our support center has done a great job in determining how do we do things more efficiently and how do we do things better without adding people.
Jim Sanderson: And that's where we're going to continue to see the leverage on our guidance of about 13.5% for next year would represent 60 basis points.
Speaker Change: And we came down from 15.8% two years ago to 15% last year to 14.1% this year, and we get into 13% next year. That is...
Speaker Change: much better than I anticipated when joining the company. It's because of the efforts of everyone in the support center to just look at how we do things and use technology and software rather than having to add people every time we open 10 restaurants. And we're going to continue that cadence throughout next year.
Speaker Change: Thank you very much.
Speaker Change: Can I add something?
Speaker Change: Do you want to comment? Of course.
Speaker Change: In addition to what Jeff said, especially for the pre-production and post-production, we have exhibited in the existing market, so taking advantage of that fact, as an area manager or a facility, our own equipment team, taking advantage of the regional leverage, as Jeff said earlier, without increasing the number of heads, we will do this. In such a place, specifically, taking advantage of such a form, we will increase the number of heads.
Speaker Change: And to add on to Jeff's comment, over the last year, the two years, the two preceding years, we've had a lot of infills, and unfortunately, you know,
Speaker Change: The way that the point of discussion in terms of insults has been cannibalization for the last in the last call, but really
Speaker Change: have area managers handle more restaurants. And so for fiscal 25, even though we're adding 14 units, you don't expect to add any area managers. So salary savings, travel savings with greater density. Our facilities teams don't have to travel as far. We have proprietary equipment teams that deal with all of our
Speaker Change: Patented technology will get leverage there. So there are a lot of regional G&A costs that are an opportunity for Fiscal 25 and beyond as well.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: All right, thank you for that. I also just wanted to follow up and make sure I understood the feedback about the same store sales and traffic for the quarter. I think you said 4% price, negative 2.4% on traffic, so that would imply a little bit of a worse negative mix in the quarter. Any feedback on what's driving that?
Speaker Change: Thank you.
Speaker Change: Actually, we're really happy with where the mix came out. If you go back a year, or you go back two years, our negative mix had been in the high single digits.
Speaker Change: So really where we're looking at it now is we're really happy because we're looking at it compared to last year So I think that the change is really negligible. It's not anything that can necessarily be identified last year We think people weren't having maybe a drink or maybe they weren't adding an additional side attachment but that's come back this year and We're happy with where the mix landed for Q4
Speaker Change: Okay. Okay, last question for me. Just wanted a brief update on DoorDash, if you can provide maybe what the mix for delivery sales was in the quarter, and if your pricing is set on marketplace equal to in-store pricing.
Speaker Change: Yes, so our mix is 3.2% of overall sales. Our pricing is the same as it is in restaurant. So we added Gordash in March. Just to give you some context on how we've grown, our mix in Q1, which would have been September through November of calendar 23, the off-premises mix at that point was 2%. And so it's grown meaningfully with the addition of Gordash.
Speaker Change: All right, thank you very much.
Speaker Change: Thanks, Jim.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: At this stage, there are no further questions. And with that, this concludes today's conference. Thank you for joining us. You may now disconnect your lines.