Promotions tied to Kirby and Hello Kitty helped power Kura Sushi to better-than-expected sales growth to start the year.
Same-store sales rose 8.6% on 4.3% higher traffic in Kura’s fiscal second quarter, which ended Feb. 28. Prices were also 4.5% higher.
Executives for the conveyor-belt sushi chain credited the popularity of Kura’s bikkura pon program, which gives diners a prize for every 15 plates they order. In the quarter, prizes featured characters from Nintendo’s Kirby game and the Hello Kitty franchise, which enticed customers to order more food than usual.
“Our interpretation is that this is a reflection of the success of the [intellectual properties],” said CEO Hajime Uba, according to a transcript from financial services site AlphaSense. “When we have compelling IPs, people are that much more incentivized to go for that 15th plate or to hit the spending threshold for giveaways.”
The growth was helped by the fact that Kura was not offering an IP-led promotion during the same period a year ago, when same-store sales declined 5.3%. Comparisons will become more challenging after this month, when the lapping of the IP-less period comes to an end.
“Please do not model 8% comps on a go-forward basis,” SVP of Investor Relations and System Development Benjamin Porten cautioned analysts.
Still, the strong quarter brightened Kura’s outlook for the rest of the year. It’s now expecting positive same-store sales growth, an improvement from its previous forecast of flat to positive, though still somewhat conservative given the strong quarter.
“Just given there's a war going on and we don't know how it's going to play out, we felt it was prudent in terms of our guidance just to add the upside from Q2, but not to extrapolate further from that,” Porten said.
The robust sales growth also helped 88-unit Kura save some money on the labor side. Labor costs as a percentage of sales declined by a “remarkable” 410 basis points, to 30.7%, due to both higher sales and operational improvements.
Food costs, however, rose almost 200 basis points, to 30.4%, due to tariffs and higher-than-expected seafood inflation.
Overall, restaurant-level operating margin improved by about a point compared to last year, to 18.2%.
Kura doesn’t anticipate labor costs to continue falling at that rate for the rest of the year, but they should remain deflated, Porten said.
“There are a lot of idiosyncrasies to Q2 that led to that 400 basis point [decline],” he said. “But we do think that for Q3 and Q4, we can improve labor year-over-year by about 150 basis points.”
The chain is also taking steps to make its restaurants even more efficient. It will finish installing robotic dishwashers in 10 stores later this month, which it expects to reduce its head count in those locations and shave about 50 basis points off of its labor costs by the end of fiscal 2027.
It also has approval to begin using the Sushi Slider robot developed by its Japanese parent company. The robot automates the process of putting rice balls onto plates.
Also on Tuesday, Kura CFO Jeff Uttz announced that he is leaving to join Firebirds Wood-Fired Grill. Uttz helped reduce Kura’s G&A spending by 400 basis points over three years, and news of his departure appears to have contributed to a sharp drop in Kura’s stock price Tuesday.
Executives said the G&A discipline will continue under whoever it hires to replace him.
“It's one of the things that our investors have come to expect, it's part of our guidance, and so it's part of our report card at this point,” Uba said. “And so, Jeff leaving doesn't change that.”
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