IPO Watch – Kura Sushi USA (KRUS)
Currently scheduled to debut next week on August 1st, Kura Sushi is a fast-growing technology-enabled Japanese restaurant concept with over 400 locations. It was established in 2008 as a subsidiary of Kura Japan. The company offers what they refer to as the “Kura Experience,” which is built on the combination of authentic Japanese cuisine and an engaging revolving sushi service model.
The Kura Experience
According to their S-1 filing, the Kura Experience is a “multi-sensory” experience for our guests. They believe the sight of beautifully crafted cuisine weaving through their restaurants, the motion of dishes zipping by tables on the express belt, the sound of anime videos playing on tableside touch screens, the thrill of being rewarded for achieving dining milestones, and the flavor of authentic Japanese dishes create a highly entertaining and engaging environment for guests. “Our revolving conveyor belt service model offers a steady stream of dishes and continuous service which we believe builds anticipation and a sense of discovery among our guests. In addition, items ordered on our on-demand screen arrive on the express belt in a theatrical fashion, which we believe our guests find entertaining and also adds to the sense of constant motion in our restaurants.” The company’s menu of small plates allows guests to sample a variety of dishes, and with over 140 items on the menu, there is always something new to enjoy.
Kura also seeks to delight and reward guests for achieving dining milestones with short anime videos and a rotating selection of small toys from their Bikkura-Pon rewards machines. They have signed licensing agreements with VIZ Media, LLC (Naruto Shippuden) and tokidoki to use their popular characters and brands in their Bikkura-Pon rewards machines and will continue to seek licensing agreements with other iconic brands in the future. “We believe our Bikkura-Pon rewards machines encourage guests to consume a greater quantity of plates as they work towards achieving the next dining milestone. Our continuous service model creates an atmosphere of active participation where food is at the center of the conversation, and we believe it also creates a memorable and shareable experience for our guests.”
Restaurant Development
The overall Asian restaurant landscape in the United States is highly fragmented, with the top five concepts estimated to have a market share of approximately 7.0% in 2017 according to Technomic, Inc., a national consulting and market research firm. Based on an analysis by Buxton, Kura estimates that they have the potential to become a national Japanese restaurant brand, with a long-term total restaurant potential in the United States for over 290 restaurants, and they aim to achieve a 20% average annual restaurant growth rate over the next five years. It opened three new restaurants in fiscal year 2017 and four new restaurants in fiscal year 2018. As of July 22nd, 2019, they have opened all five planned new restaurants in fiscal year 2019 and plan to open six to seven new restaurants in fiscal year 2020.
Sales Performance
From fiscal year 2017 to fiscal year 2018, Kura’s sales grew 38.9% to $51.7M, operating income grew 81.5% to $1.9M, and net income grew 146.4% to $1.7M. Comparing the nine months ended May 31, 2018 to the nine months ended May 31, 2019, sales grew 22.6% to $45.5M, operating income decreased 9.1% to $0.7M, and net income decreased 29.0% to $0.5M. It also has achieved positive comparable restaurant sales growth in ten out of the last eleven quarters ending in the third fiscal quarter of 2019.