Kura Sushi USA (KRUS) Q4 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer - Hajime Jimmy Uba
• Senior Vice President, Investor Relations and System Development - Benjamin Porten

TAKEAWAYS

• Total Sales -- $88.9 million for the fourth quarter, representing a 11.9% increase compared to $79.4 million in the prior year period.
• Comparable Restaurant Sales -- Negative 5.7%, reflecting a decline in guest traffic.
• Guest Traffic -- Negative 11.5% for the quarter, driven by weakness in weekday lunch dayparts.
• Price and Mix -- Positive 5.8%, offset by effective pricing of 4.2% for the quarter.
• Cost of Goods Sold -- 29.7% of sales, compared to 28.4% in the prior year quarter due to the impact of tariffs on imported ingredients.
• Labor and Related Costs -- 30.4% of sales, compared to 31.1% in the prior year quarter due to operational efficiencies and pricing.
• Adjusted EBITDA -- $7.7 million for the quarter, compared to $7.4 million in the fourth quarter of 2025.
• Net Loss -- $296,000, or negative $0.02 per diluted share, compared to net income of $2.3 million in the prior year period.
• Operating Loss -- $600,000, which includes $1.2 million in impairment and asset disposal costs.
• Restaurant-level Operating Profit Margin -- 19.1% for the quarter, compared to 19.8% in the fourth quarter of 2025.
• Total Sales Guidance -- $376 million to $381 million for fiscal year 2027.
• Unit Growth Guidance -- 17 new restaurants planned for fiscal year 2027.
• Capital Expenditures Guidance -- Approximately $2.6 million per unit in average net capital expenditures.
• General and Administrative Guidance -- Approximately 11.5% of sales for the full fiscal year 2027.
• Restaurant-level Operating Profit Guidance -- Approximately 19.0% for fiscal year 2027.
• Cash and Investments -- $65.6 million in total cash, cash equivalents, and investments as of Aug. 31, 2026.
• Full Year Labor Leverage -- 190 basis points of improvement over fiscal 2025, exceeding the initial goal of 100 basis points.
• G&A Leverage -- 90-basis-point improvement for the full fiscal year 2026 compared to the prior year.
• Unit Count -- 95 restaurants in operation at the end of fiscal 2026, with four openings in the fourth quarter.
• Cannibalization Impact -- 2% impact on comparable sales during fiscal 2026.

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RISKS

• Porten stated, "we were also certainly--we were also surprised by the traffic decline. This is meaningfully beyond our expectations," regarding the 11.5% decrease in fourth quarter traffic.
• Uba stated, "tariffs collectively increased our cost of goods sold, and other costs by 180 basis points," during the 2026 fiscal year.
• Porten noted that for fiscal year 2027, "openings overall will be heavily backloaded," with the majority of new restaurants expected in the third and fourth quarters.

SUMMARY

Kura Sushi USA, Inc. (NASDAQ:KRUS) reported a 5.7% decrease in fourth quarter comparable restaurant sales and announced a midterm goal to achieve self-funding status by 2031. Management stated that the company will transition from a percentage-based growth model to a unit-based approach to preserve cash runway and eliminate the necessity for future capital raises. The company is implementing value-focused initiatives, including value combos and a decision to hold menu prices steady, to address guest traffic declines during weekday lunch dayparts. Operational efficiencies, such as the rollout of robot dishwashers and technological innovations in the Bikkura Pon system, are intended to drive labor leverage and offset cost pressures from tariffs. Management indicated that despite a 180-basis-point increase in costs related to tariffs during the fiscal year, labor leverage gains helped support adjusted EBITDA growth.

• Management reported a midterm objective to generate positive free cash flow and become self-funding by 2031.
• The company decided to take no additional pricing to offset the 3.5% price increase that rolled off at the start of November to bolster its value proposition.
• Uba stated, "What began as a local culture favorite brand is now the undisputed leader of the American sushi space."
• Porten noted that the company will no longer provide regional breakdowns for comparable sales beginning in the first quarter of fiscal 2027.
• Management indicated that robot dishwasher retrofits have been completed at 33 locations, and the technology will be a default feature for all new openings starting in mid-fiscal 2027.
• The company is testing a value combo meal priced at $9.99 and $11.99 to attract first-time guests and address traffic pressure during weekday lunch hours.
• Management reported the decision to close all restaurants for Christmas and Thanksgiving starting in fiscal 2027, which will result in two days of lost revenue.

INDUSTRY GLOSSARY

• AUV: Average Unit Volume, the average annual sales for restaurants open at least 18 months.
• Bikkura Pon: A proprietary prize system where diners receive a toy or digital voucher after consuming a specific number of plates, integrated into the restaurant's revolving sushi model.
• Infill: The strategic opening of new restaurant locations within a metropolitan area where the company already maintains an operational presence.
• IP Collaboration: Partnerships with popular intellectual property brands, such as Yoshi or Kirby, used to drive guest traffic through themed prizes and menu items.
• Restaurant-Level Operating Profit: A non-GAAP financial measure representing operating income plus certain non-cash and corporate expenses, used to evaluate individual restaurant performance.

Full Conference Call Transcript

Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA Inc. Fiscal Fourth Quarter 26 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 the call today, we have Hajime Jimmy Uba, president and chief executive officer and Benjamin Porten, senior vice president, investor relations and system development. And now I would like to turn the call over to Mr. Porten. Please go ahead.

Benjamin Porten: Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal fourth quarter and fiscal year 2026 earnings release. It can be found at www.kurasushi.com in the investor relations section. A copy of the earnings release has also been included in the 8-Ks 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 2000. 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 our 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 we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP. And the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I would like to turn the call over to Jimmy.

Hajime Uba: Thanks, Ben, and thank you to everyone who is joining us on our call today. As we look back at our fiscal 26, I am proud of our efforts to protect margin, in spite of the tariffs and the consumer headwinds. While tariffs collectively increased our cost of goods sold, and other costs by 180 basis points, over fiscal 2025, we were able to offset these increases with labor leverage of 190 basis points over the prior year driven by the technological innovation that is core to our concept. Our continued commitment to G&A leverage is reflected in the 90 basis point improvement over the prior year.

And we were also able to grow adjusted EBITDA margin and dollars over the prior year. As we enter the new fiscal year, I would like to share how our priorities have evolved as Kura has matured over the last decade. What began as a local culture favorite brand is now the undisputed leader of the American sushi space. Prior to Kura Sushi, there have been no nationally successful chains. Despite of the increasingly broader popularity of sushi in The United States. Over the last few decades, we have addressed and solved each of these scaling challenges and we are now in 25 states. With over 100 restaurants right around the corner.

Having completed our national BGF strategy, I would like to share our major new midterm goal. We expect to generate positive free cash flow and become self funding by 2031. This call hinges on 2 factors. Returning to our historical 20% restaurant level operating profit margins over this time period. And normalizing our annual unit growth strategy on a percentage-based 1 to a unit-based 1 where the annual unit opening count continues to increase each year. This normalization of our unit growth approach delivers 2 major expected benefits. The extension of our cash runway for the self funding status and the elimination of the need for future capital raise.

Now I would like to move on to discuss our recent results. Total sales for the fiscal fourth quarter were $88.9 million representing comparable sales of negative 5.7% with negative 11.5% of traffic. Offset by positive 5.8% in price and mix. With effective pricing for the quarter of 4.2%. Over the last year, we have seen mix reach all time highs and this trend has only become more pronounced. Cost of goods sold as a percentage of sales were 29.7%. As compared to 28.4%. In the prior year quarter. Due to the impact of tariffs. Full year COGS came in exactly in line with our expectations of 30.0%.

Labor as a percentage of sales improved by 70 basis points to 30.4%, due to operational initiatives. 1 of our goal for fiscal 26 was to improve labor by 100 basis points over the prior year and I am incredibly pleased to share that. Our full year labor leverage over fiscal 25 nearly doubled our goal. At 190 basis points of improvement. Turning to unit development. We opened 4 new restaurants in the fourth quarter. Heath, Oklahoma, Austin, Texas, Charlotte, North Carolina, and Parsippany, New Jersey. Oklahoma and North Carolina are both new markets for us and initial guest response has met all of our expectations. Subsequent to quarter end, we opened 3 new restaurants.

Tysons, Virginia, Des Moines, Iowa, and Denver, Colorado, which opened just yesterday. Iowa is another new market. And while it has only been open for a few weeks, it is off to a great start. In keeping with our midterm strategy, our unit opening expectations for fiscal 27 are 17 new units. We currently have 7 restaurants under construction. For fiscal 2027, openings overall will be heavily backloaded. With current expectations of 4 openings in Q1. 2 openings in Q2, 5 openings in Q3, and 6 openings in Q4. I am excited to share more of our fiscal 27 IP pipeline. We are currently in our Yoshi campaign, which runs through November and December.

Our Q1 comparable sales to date of negative 3.1% meaning an improvement on Q4. And we are excited for the Yoshi campaign we have slated for November and December. Following Yoshi, we have Hotate Dynamic in January. And in February and March, We have 4 more IT collaborations for fiscal 27. Following this year, And I look forward to sharing more of our IP pipeline in our next earnings call. On the note of our IT collaborations and the Bikkura Pon prizes, and please appreciate that we have fully loaded out our Bikkura Pon digital voucher option. at all of our restaurants.

Now, just to have an appealing prize, we require guests to regardless of their familiarity with a given IP campaign. We believe this will be a potential opportunity for reductions in other cost. As we adjust Bikkura Pon prize order volumes to reflect the deal preferences of our guests. In other system development news, we closed the fiscal year slightly ahead of rollout of robot traditional dishwashers ahead of schedule, and with 33 retrofits completed to date, we have just under 20 remaining. Starting midway in fiscal 27, all new openings will have robot dishwashers. as a default feature. While we are pleased with the improvement in price and the traffic in the fourth quarter did not meet our expectations.

We have implemented several initiatives primarily focused on value. To improve traffic with the goal of achieving positive comparable sales on a full year basis. In order to further bolster our value proposition, and in an effort to recapture traffic, We have made the decision to take no pricing to offset the 3.5% that rolled off at the beginning of November. While our pricing strategy will remain flexible, we believe that we will be able to continue to grow margin over the prior year without taking price. And that the tariff shock to sushi industry pricing is a major opportunity for us to capture a larger audience.

Before moving on to our financials, I would like to thank all of our team members also at our restaurants, at our support center, for the great work they have done to provide excellent guest experiences. While protecting margin in a challenging environment. Now I will hand it over to Benjamin to discuss our financials and liquidity.

Benjamin Porten: Thank you, Jimmy. For the fourth quarter, total sales were $88.9 million, as compared to $79.4 million in the prior year period. Comparable restaurant sales growth compared to the prior year period was negative 5.7%. With negative 11.5% from traffic offset by 5.8% of price mix. Comparable sales growth in our West Coast market was negative 4.9%, and negative 8.6% in our Southwest market. Effective pricing for the quarter was 4.2%. As a reminder, beginning with the first quarter of fiscal 2027, we will no longer provide regional breakdowns for comparable sales. As regional comps are largely determined by the timing of infills, we do not believe they are indicative of overall company trends. Turning to costs.

Food and beverage costs as a percentage of sales were 29.7% compared to 28.4% in the prior year quarter. Due to tariffs on imported ingredients partially offset by pricing. Labor and related costs as a percentage of sales were 30.4% as compared to 31.1% in the prior year quarter, due to operational efficiencies and pricing. Partially offset by low single digit wage inflation. Occupancy and related expenses as a percentage of sales was 7.8%, compared to the prior year quarter's 7.1% due to sales deleverage. Depreciation and amortization expenses as a percentage of sales were 5.6% as compared to prior year quarter's 4.9%, also due to sales deleverage.

Other costs as a percentage of sales were 14.6% as compared to the prior year quarter's 15% due to a 1-time tariff refund benefit of approximately $500 thousand for some of our promotional materials. General and administrative expenses as a percentage of sales were 11.2% as compared to 11.7% in the prior year quarter. Operating loss was $600 thousand inclusive of $1.2 million in impairment and asset disposal costs compared to operating income of $1.5 million in the prior year quarter. Income tax expense was $86 thousand as compared to $43 thousand in the prior year quarter.

Net loss was $300 thousand or -$0.02 per share compared to net income of $2.3 million or $0.18 per share in the prior year quarter. Adjusted net income was $900 thousand or $0.08 per diluted share. As compared to adjusted net income of $2.5 million or $0.20 per diluted share in the prior year quarter. Restaurant level operating profit as a percentage of sales was 19.1% compared to 19.8% in the prior year quarter. Adjusted EBITDA was $7.7 million as compared to $7.4 million in the prior year quarter. And at the end of the fiscal fourth quarter, we had $28.4 million in cash and cash equivalents, and $37.2 million in investments. Totaling $65.6 million, no debt.

I would like to provide the following guidance for fiscal year 2027. We expect total sales to be between $376 million and $381 million We expect to open 17 new units with average net capital expenditures per unit of approximately $2.6 million. We expect general and administrative expenses as a percentage of sales to be approximately 11.5% and we expect full year restaurant level operating profit margins to be approximately 19%. This concludes our prepared remarks. We are now happy to answer any questions you have. As a reminder, during the Q&A session, Jimmy may answer in Japanese before his response is translated into English. Operator, please open the line for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the number keys. And 1 moment while we poll for questions. Our first question will come from Matthew Curtis with D.A. Davidson. Please proceed with your question.

Matthew Curtis: Hi. Good evening. I guess the first question is really on the traffic decline, was pretty sharp in the fourth quarter. Could you provide some more detail on what exactly drove that and maybe what the progression was month by month?

Hajime Uba: Sure. Thank you, Matt, for your first question. This question is probably the most critical question during this call. So please allow me to speak in Japanese, and take time to give you enough explanation.

Benjamin Porten: Then another Hi, Matthew. This is Benjamin. So we were also certainly--we were also surprised by the traffic decline. This is meaningfully beyond our expectations. But the good news is that we have been able to drill down into the time or the day parts where we are seeing that traffic pressure as well as the opportunities that we have to reverse it. And so we would like to go through those with you now. In terms of geography, the traffic pressures that we saw in Q4 were very broad based. Really no meaningful differences between our markets.

In terms of daypart, it is pretty clear that where we are losing traffic are the weekday lunches In August, we performed a consumer study, and 1 pretty clear through line that we saw was value is top of mind for our consumers. I imagine all consumers And while, you know, we do not think of value as simply being priced. Our price. Our average check is $29. When you think about that as a lunch ticket, it is not as affordable as some of the other options. And so we have been specifically working on, how to address this.

And so as it relates to weekday lunches, we have certainly made sure that there are no issues with the quality of service or the quality of the ingredients that we are making sure that we are doing the appropriate storytelling so the guests appreciate exactly how high quality our ingredients are. But what we really landed on as the major lever for driving traffic during the weekend lunches, especially would be to provide, undeniable value through value combos And so we have been--in October, we did a 3-day pilot where we piloted $9.99 option and a $10.99 option, which gave you a bowl of noodles and 2 handrolls. 99. I am sorry. $9.99 and $11.99.

And for this 3-day period, they were 5% of mix, and so they were a pretty big hit. But, also, critically, we saw no degradation in average check size. And so based off of those early results, we are very encouraged, and we are in the process of implementing a larger test with more of our restaurants. And so works, but the test extension actually begins next week. Based off of how the test goes, we will make some adjustments to make sure that from a COGS perspective, the value combos are margin neutral, and we expect to launch the system wide sometime in Q2. We are also, leading into value for off-premise as well.

We are in the process of developing some value bundles for our guests. 1 very interesting thing I neglected to mention about the 3-day testing in October is that the advertising there was extremely minimal. It was limited purely to rewards members, which makes that 5% mix all that much more remarkable. But as we develop the value bundle for off-premise, and as we begin the system wide push for the value combos, Q2, we expect to support that with paid advertisement. Really, the goal here is to capture first time guests.

We know that we have done a great job with activating our rewards members, but we think that this sort of, you know, $11.99 value is really it is pretty eye catching, and we are very excited about what it means in terms of first time guest capture. And so as it relates to fiscal 27 traffic, well, Q4's performance came in below expectations. We feel that we have got a really strong lineup in terms of initiatives that will drive traffic for us in fiscal 27. Our IP pipeline is very strong. Beyond the quality of the individual properties, we also have a record number of IPs.

The LTOs that we do, the current reserves, we are increasing from 9 to 12. Those are proven traffic movers, and so we are excited about that. We think that, we are pretty unique in deciding to take 0% pricing, and that should make the value delta between ourselves and everybody else that is fighting for stomach share of that much clearer. We also have value combos, which were really this is pretty new for us to put this much effort behind a value combo and to support it with our with marketing.

And so we are really excited to see how far we can bring this And, yeah, all of this is going to be supported by incremental spending on social--unpaid social, which we are really excited about.

Matthew Curtis: Okay. Understood. Thanks for all of that context. If I could just ask 1 more. On the collaborations, I mean, 1 of the big initiatives this year was to, as you said, improve the quality as well as increase the frequency of those collaborations. With the idea of essentially reducing quarterly same store sales and traffic volatility. It seems like that has not really worked out to the extent that you probably hoped this year. So with regard to IP collabs going forward, when you say you talk about them for 2027, are you talking about increasing the number. The frequency of collaborations again? Or going back to retool your IP platform somehow?

Benjamin Porten: So we have not retooled our IP platform, but we are also increasing the number of IPs that we are doing. So last year, we had 7. This year, we have 8. The bulk of the excitement is typically within the first month. And so having more first months gives us more comp opportunity even with a full calendar in both years.

Matthew Curtis: Okay. Understood. Thanks very much.

Benjamin Porten: Thanks, Matthew.

Operator: And next, we will move to Todd Brooks with StoneX. Please go ahead.

Todd Brooks: Hey, thanks for taking my questions. Appreciate it. Benjamin or Jimmy, within the 2027 guidance, what same restaurant sales assumption is in that $376 million to $381 million? Revenue guidance?

Benjamin Porten: Sure. Hey, Todd. For the high end of the, the guide, that assumes flat to slightly positive comps, whereas the, low end of the guide would assume negative comps.

Todd Brooks: How deep of a negative can that buffer? Benjamin, and still hit the $376 million?

Benjamin Porten: Just slightly. Yep. But if you could think of there being about a 1.5% comp spread between the high end and low end assumptions.

Todd Brooks: Okay. Great. Thank you. that is helpful.

Benjamin Porten: I am sorry if I could talk on it. And just as a couple other notes, given that we are on the topic of the revenue guidance, we are meaningfully backloaded this year in terms of, the unit opening pace. And so we just thought it would be most useful for us to share our expectation about operating months. Currently, we expect 84 operating months from new openings in fiscal 27. As some other puts and takes for revenue, this will be the first year that we have decided to close for Christmas and Thanksgiving.

We are happy that our, you know, team members will be able to spend time with their families but it will--it is 2 days of lost revenue.

Todd Brooks: Okay. Fair enough. When we look at Q4 and we look at that traffic number, I know you talked about IP as a program across the whole year. But in the Q4 window, did the IP partnerships performed to plan? Was that any of the reason for just down double-digit traffic?

Benjamin Porten: No. No. Honkai: Star Rail. Yeah. Without calling out any specific IPs for not meeting or expectations, Not all of them did meet our expectations. The other factor there, for Q4 was the World Cup. 1 thing that really surprised us is that when the World Cup began, you could see traffic really turn on a dime. So we expected that dynamic to reverse. At the end of the World Cup, which is part of the reason for the guidance that we provided in July. What we saw in July subsequently was that the dynamic did not reverse, which was very surprising. and really the difference between our expectations and the results we reported today.

And as it relates to-- It relates to Q1, we did see there was a lot of, you know, consumer uncertainty, especially midterms. But now that we are past the midterms, now that we are into the Yoshi campaign, we are feeling very encouraged. Just looking at the comps to date, it is a meaningful improvement. We are about down -3% versus the -5.7% that we were doing in Q4, and so we are already on an upward trajectory. In terms of the full year comps, we are expecting a meaningful step up in the back half, and so we are really excited to hit those quarters, so to speak.

Todd Brooks: Okay. And the final 1, and then I will jump back in if I can. You have long talked about the challenge of the current brand promise of communicating the value that you offer without kind of diminishing the quality? Positioning that people perceive for the brand and now we are moved to a place where we are looking to more broadly promote $9.99 and $11.99 bundles. How are you either looking at the consumer differently that they just have such a different focus? Around price point driven value now? That you do not think it will diminish the perception of the brand?

Or just walk me through what got you over the hump to be willing to communicate value so overtly? Thanks.

Benjamin Porten: Yeah. Just in terms of our decision to put energy behind the value combos, we just wanted to meet consumers where they are. Where they are. and us, you know, crowing about how high quality our ingredients are when everybody else is thinking about value we did not think was the right strategy. And so we are doing deep discounting on our, you know, sushi stables really just on the noodle, but what we have seen is that the average check size has not diminished. On the days that we have done the value combos. And so our assumption presently is that the value combo is very eye catching, and it gets people in the door.

But once they see all the delicious looking sushi spinning past them, they cannot help themselves. And so if somebody only has $12, we want Kura to be a great option. but if they can spend more, we want them to come as well. What about it? And in the intervening months since the last call, we spent a lot of time studying our competitors' best practices as it relates to value presentation. And the 5% mix that we are seeing, is pretty in line with the best of class as it relates to value.

And so we are very encouraged there, and we do not think that it is negatively impacting the value perception or the quality perception of Kura as a whole.

Todd Brooks: Okay. Perfect. Thank you both.

Benjamin Porten: Thanks, Todd.

Operator: And next, we will move to Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia: Hi. Thanks for taking the question. I just wanted to clarify on the comp because you alluded to negative 3 quarter to date. But you are just dropping the price off now. Correct? So with that and with Thanksgiving and Christmas closed, I presume we should expect something worse for the quarter.

Benjamin Porten: So, I mean, we are only 4 days, 5 days now into November. Mhmm. But we have not really seen any changes in average check. And so we are really, really pleased to see mix basically making up the price that we or not offsetting. As it relates to Thanksgiving, if we close a restaurant for a full day, we back those out of the comp base, and so that would not impact our comps.

Sharon Zackfia: Okay. Thank you. And then the decision to slow growth a little bit, I guess I had been thinking we were kind of in that 20% plus range, and it is it is gonna be a bit less than that this year. is can you kind of walk through the thought process? Are you seeing the unit economics hold up as expected, or are you trying to kind of be more selective in this macro environment? I would just be curious on the thought process.

Benjamin Porten: Sure. Sure. So this is the other major topic that we were excited to discuss, and so we would like to spend some time going over this. So, Sharon, just before we go into the reasons that we decided to do this, I wanted to head off any concerns about unit economics. This has nothing to do. We have zero complaints with the unit economics of our recent openings. Fiscal 26 have been great. Openings that we have had to date in fiscal 27 are great as well. And so really, it has more to do with the maturation of Kura as a company.

And the competitive landscape And so coming out of the IPO, we wanted to move very quickly given the fragmentation of the sushi space, the lack of a dominant leader. We wanted to make sure that we were able to be the first ones to plant our flag across our TDMAs. And today, we are in 25 states. We are in every major metro, every major DMA. And we are about to close in on 100 restaurants. And so the impetus behind, rapid growth solely for the sake of establishing that first mover advantage is much less of a consideration at this point.

And then in terms of really the driving positive reason for us pursuing this strategy is our desire to generate free cash flow and become self funding. This strategy of, this strategic moderation of our growth rate, this allows us to achieve that free cash flow assuming no benefit from a tariff relief. When we think about our last capital raise, we assumed that it was gonna be the last 1. It was at $85. Certainly, we have no appetite to do a cash raise at these share prices. We think it would be a disservice to our investors.

And we think that the stability of, self funding and the lack of need for further capital raise are really the 2 things that I think our investor base would best appreciate. So that is the driving force there. And then in terms of the growth rate adjustment, we have--we are going from the historical 20%. This year, we are still doing 18%. And so I really would not call it much of a deceleration at all, especially given that we are increasing the number of absolute units. We expect to continue to do that in our forward years. It will probably be the likeliest cadence would be something along the lines of 17, 18, 19, etcetera.

Although, there might be some puts and takes in a given year.

Sharon Zackfia: Okay. Thank you.

Benjamin Porten: Make sure.

Operator: And next, we will move to JP Woolham with Roth Capital.

John-Paul Wollam: Great. Appreciate you guys taking my questions, and I jumped late. So sorry if this has been covered a little bit. But just exploring the value conversation a little bit more. You know, I just wanna clarify. Is it due to you guys kind of not seeing the trade down from more expensive mom and pop customers that you maybe would have expected in this environment. And at the same time, you know, maybe you are more value sensitive or low income cohort. has kind of reduced their frequency, and so you have not replenished that bucket per se. And that is why you wanna be a little bit more aggressive with some of the messaging.

Is that part of it, or can you just kinda comment on that?

Benjamin Porten: Hey, JP. This is Benjamin. So in terms of trade down, we think that we are actually--we are capturing a lot of trade down, and the best demonstration would be the mix improvement, which is just consistently accelerated quarter after quarter. It does not really make sense unless we are capturing a new guest cohort that is accustomed to much higher sushi prices. And so we think we are doing a really good job of capturing the trade down. That being said, our traffic opportunity is weekday lunches, and $29 for. As an average check for a weekday lunch is certainly on the higher end.

And so we just wanna be more competitive for that daypart. that is what is really driving the $9.99 and $11.99 offerings.

John-Paul Wollam: Okay. Okay. that is helpful. And then just as we think about that restaurant level margin guide for next year, understanding that there is flat comps kind of baked in somewhere in around the midpoint of the sales guide. Can you just bridge, what gets you to that restaurant level margin for next year? And then, you know, we have talked about kind of hitting that 20% target in the past, but just kind of any puts and takes that would get you from that 19 back up to 20 beyond, next year?

Benjamin Porten: Sure. So let's--we are going to walk through. Walk you through the line items. But starting with COGS, we expect that to be slightly up as a result of not taking price, but we believe that it is going to be offset by reductions in our other costs. So they should net out to be neutral. And so the bridge from 18% to 19% is really coming from labor improvement. We were able to get 190 basis points of leverage in fiscal 2026. We expect an additional 100 basis points of labor improvement in fiscal 27.

So looking at labor inflation, it is become extremely stable, Really, the only labor increases that we are expecting would be the minimum wage increases on January 1, which should translate to an impact of 15 basis points on a full year basis. But our HR team has done a phenomenal job. And by renegotiating some of our workers' comp rates, we should be able to. We expect that to be offset. 70 to 80 basis points a quarter there. To give you some additional context on the quarter to date, we are currently. Quarter to date, we are doing about 70 to 80 basis points better on labor than we did last year.

And this is with a -3% comp base. So when you contemplate the back half of the year when we reach the easier comparisons and we expect comp acceleration, 100 basis points of leverage, we think is extremely reasonable. And so this would be the bridge to the 19% for fiscal 27. Right. And as it relates to the dishwashers, given that we are still in the implementation process, we will we expect to complete full rollout in fiscal 27, meaning that fiscal 28 will be the first year that we have the full year benefit, and we would expect a 30-basis-point improvement from the full year benefit versus fiscal 27.

And then, with the savings from the Bikkura Pon dessert coupon options, we would expect once we are able to implement this up in full and have to be able to adjust our Bikkura Pon prize order volumes based off of the demand that we are seeing from guests We would expect that to be about a 20-basis-point savings. We are also implementing all these different PM projects, improvements in our repair and maintenance, approach, savings on small tools utilities, which would be another 20 basis points of savings in the other cost line. And for the remaining 50 basis points, this would be coming from better sales leverage on positive comps.

And so that is 1 of the reasons that we are really going full bore--full force behind of all of our traffic initiatives this year Our overwhelming goal is to be able to wisely spend our cash runway and to get to free cash flow by fiscal 2020, fiscal 2030. And we think to--and the 1 thing that we really wanna emphasize here is that none of this contemplates relief from tariffs. And that we would say, is conservative at this point. And so should that come, that would accelerate the timeline meaningfully And so we are really, we think that we have got a pretty bright future.

John-Paul Wollam: Great. Appreciate the color, and best of luck, guys.

Benjamin Porten: Thanks, JP. Thank you.

Operator: And next we will hear from Jeremy Hamblin with Craig-Hallum Capital Group.

Jeremy Hamblin: This is Will on for Jeremy. I also joined a little late, so apologies if this has been hit on. But, it sounds like comp trends have modestly improved to our quarter to date. I guess, can you help break that out by traffic and check? And then maybe remind us sort of lap that you are facing here in November? And then what sort of lift you are anticipating, from the Yoshi IP?

Benjamin Porten: In terms of the quarterly data improvement, that is really coming from mix. Traffic has been pretty much steady state since Q4. And so if we are able to improve traffic, you know, even if we were able to just get it to flat, that would put us in an incredible composition. And so that is really what we are putting all of our efforts behind. Other 1, I think. I am sorry. What was the other 1? I think. I am sorry, what was the-- Oh, and our expectations for the Yoshi campaign? We expect it to be as strong as Kirby. Yes. Mhmm.

That being said, you know, while our expectations for Yoshi, are very high, we think everybody was pretty much, you know, holding their wallets until the midterm election results came out. And we are excited to see the full potential of Yoshi play out in the coming months.

Jeremy Hamblin: that is helpful. Thank you. And then just wanted to touch on some of the cannibalization impact you would expect for the year. Just wondering if there is any. Anything new to note in terms of new versus infill mix for the 17 openings now expected in 2027?

Benjamin Porten: In terms of the pipeline we have for fiscal 27, it would be 45% existing markets, 55% new markets. But the comp tailwind benefit that we expect from this pipeline mix really comes in the back half of fiscal 27 and into fiscal 28, just given the cannibalization happening in fiscal 2026 that--or fiscal 2027, that would really be determined by our fiscal 26 openings A couple of ones come to mind in particular with the infills of San Diego and Boston, which were 2 of our top performing units. Previously single unit markets were infilled in the back half of fiscal 26.

And so those pressures we expect to--you know, we do not expect any change there until we lap it. Which would be in the back half of fiscal 27. But fiscal 28 would see continued improvement on the cannibalization headwind front. And I am I am I am not sure if I mentioned it, but the cannibalization we experienced in fiscal 26 was 2%, and we expect a steady deceleration in comp headwinds as we progress through fiscal 27 and 2020. Super helpful.

Jeremy Hamblin: For taking the questions. Thank you.

Benjamin Porten: Of course.

Operator: There are no further questions at this time. And this will conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

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