Kura Sushi USA, Inc. Q3 FY2026 earnings call

### Profitability Improvement and Cost Management - Despite 200 basis points of year-over-year increase in cost of goods sold (COGS) as a percentage of sales driven by import tariffs, operational discipline offset the cost impact and delivered margin improvement. COGS came in at 30.2% of sales, with a 20 basis points sequential improvement over Q2; full-year COGS as a percentage of sales is still expected to hit ~30%. - Labor as a percentage of sales improved 250 basis points year-over-year to 30.6%, driven by operational efficiency initiatives. Year-to-date labor cost as a percentage of sales is 31.2%, and full-year 2026 labor cost improvement is now tracking to ~200 basis points, double the initial 100 basis point target set at the start of the fiscal year.

### Unit Development - Seven new restaurants were opened during Q3 across California, Arizona, Florida, and Texas. Three additional restaurants opened after quarter end, bringing total 2026 year-to-date openings to 15. The company still expects to hit its full-year target of 16 new restaurant openings, representing 20%+ annual unit growth, with average capex per new unit of ~$2.5 million. - Significant unanticipated opening delays occurred across multiple geographies in Q3 and Q4, resulting in approximately six lost months of revenue. Most delays stemmed from longer-than-expected fire inspection correction and re-inspection timelines, plus unanticipated new third-party inspection requirements for new market locations.

### Marketing and Product Initiatives - The fiscal 2027 intellectual property (IP) collaboration pipeline is one of the strongest the company has ever built. Confirmed upcoming collaborations include: *Persona* (coinciding with the *Persona 6* launch), *The Apothecary Diaries* (tied to the new anime season), and a third collaboration with Nintendo featuring Yoshi, tied to the new *Yoshi and the Mysterious Book* release for Nintendo Switch 2. - An upgraded tiered status rewards program remains on track for a fiscal 2027 launch. Modifications to the company's Bicrocon capsule prize program are under development: guests will be offered a choice between the standard capsule prize or a free dessert voucher, which management expects to improve guest satisfaction, increase repeat visits, and reduce prize production costs. Updates will be provided on this initiative in the November 2026 earnings call.

### Guest Pricing and Value Proposition - After a 1% price increase rolled back June 1, the company implemented a 1% offsetting price increase July 1, bringing effective pricing for fiscal Q4 to 4.2%. Price and mix flipped positive and continued to improve in Q3, with average check growth outpacing effective pricing. This sustained improvement is attributed to the company's strategy of keeping prices meaningfully lower than competing sushi restaurants, leading incoming guests from competitors to spend more on side items, drinks, and add-ons.

Kura Sushi USA operates a single operating segment of rotating sushi restaurants. In fiscal Q3 2026, total company revenue was $85.9 million, up from $74 million in the prior year quarter. Key segment (restaurant-level) profitability metrics: restaurant-level operating profit margin hit 19.1% of sales (up 90 basis points year-over-year), and adjusted EBITDA was $6.6 million (up from $5.4 million year-over-year), with an adjusted EBITDA margin of 7.7% (up 40 basis points year-over-year). Net income for the quarter was $423,000 ($0.03 per diluted share), compared to $565,000 ($0.05 per diluted share) in the prior year quarter. Comparable restaurant sales were negative 0.4% year-over-year: negative 5.1% from traffic offset by 4.7% from price and mix. Regional comparable sales breakdown (discontinued after this quarter): West Coast comps were negative 1.2% and Southwest comps were negative 2.1%. As of quarter end, the company held $66.1 million in cash, cash equivalents and investments with zero outstanding debt.

- Total fiscal 2026 revenue is now guided to $330.5 million to $331.5 million, revised downward from prior expectations due to the impact of unanticipated new restaurant opening delays and weak macro traffic trends. The original full-year comparable sales expectation of slightly positive full-year comps is maintained. - The number of full-year 2026 new restaurant openings is unchanged at 16 units, maintaining a 20%+ annual unit growth rate. Average capital expenditure per new unit is still expected to approximate $2.5 million. - General and administrative expenses as a percentage of sales (excluding litigation expense) are still expected to be approximately 12% for full-year 2026. - Restaurant-level operating profit margin for full-year 2026 is now guided to approximately 18.5%, an upward revision from prior guidance, driven by stronger-than-expected cost control and labor leverage that offset the revenue impact of opening delays. - Management is bullish on fiscal 2027 performance, with multiple expected tailwinds: a robust IP pipeline, the new tiered rewards program launch, reduced cannibalization headwinds, and a strong high-quality real estate pipeline with a majority of new openings in new markets. Management expects to return to positive comparable sales in the near term and reach the company's historical 20% restaurant-level operating margin target much faster than originally expected.

- Elevated consumer macro pressures, including high gas prices (particularly in the company's core California market), have reduced customer visit frequency, driving negative comparable restaurant traffic during the quarter. - Sustained import tariffs on key ingredients have kept COGS meaningfully higher than historical levels, pressuring overall profitability. - Unanticipated new restaurant opening delays driven by idiosyncratic local permitting and inspection requirements (e.g., extended fire inspection correction timelines, unanticipated third-party conveyor belt inspection requirements in new locations) created lost revenue and incremental training/rehiring costs, pulling down full-year 2026 revenue guidance. While the company adjusts practices after each delay, idiosyncratic local rules and inspector variability make it difficult to fully eliminate this risk. - Recent comp performance has been more volatile than historical levels due to variable IP collaboration cadence and cannibalization from new location openings, though management expects both headwinds to moderate in 2027. - Cannibalization from existing locations still creates a comparable sales headwind of approximately 250 basis points, down from 300-400 basis points historically.

Q: Jeremy Hamblin asked why comp performance has become more volatile over the past two years, and what long-term comp growth the company expects as it approaches 100 locations. / A: Management attributed recent volatility to two main factors: uneven cadence of IP collaborations and cannibalization from new store openings, both of which are expected to moderate after 2026. External macro factors including elevated gas prices and post-pandemic policy changes also added temporary volatility. Management expects long-term positive low single-digit comparable sales growth, with a strong pipeline of 8 high-quality IP collaborations in 2027, new market expansion, and the new rewards program acting as tailwinds.

Q: Zach Ogden asked what drove the unexpected positive mix shift in the quarter, and whether this trend is sustainable. / A: Management stated the positive mix shift (faster average check growth than pricing) is a result of the company's deliberate value strategy: the company took only ~4% effective pricing in 2026, far less than the ~20% pricing increases implemented by competing sushi restaurants. When customers accustomed to higher competitor prices visit Kura Sushi, they spend more on side dishes, drinks, and add-ons, driving the positive mix. This trend has held for over six months, and management believes it is a sustainable structural competitive advantage.

Q: Mark Smith asked about incremental costs from opening delays and whether build costs are increasing, and when the company will reach its 20% historical restaurant-level margin target. / A: While opening delays did create incremental training and rehiring costs, the company still improved full-year margin guidance to 18.5% due to strong cost control across the business. Management now expects to reach the 20% historical restaurant-level operating margin target much faster than originally anticipated, potentially as soon as fiscal 2027, driven by sustained labor leverage and ongoing cost control initiatives.

Q: John Tower asked what operational changes drove the 200 basis point labor leverage improvement achieved in 2026, and how marketing spend will change in 2027. / A: Most 2026 labor leverage came from the system-wide rollout of the reservation system completed in Q4 2025, which reduced front-of-house headcount needs, paired with tighter employee scheduling. For 2027, the planned option to choose a free dessert voucher instead of a Bicrocon capsule will reduce prize costs, and this savings is expected to fully offset incremental marketing spending for more frequent IP collaborations and limited-time food offerings. (1942 characters)