Q1 2024 Kura Sushi USA Inc Earnings Call

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. fiscal first-quarter 2024 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 estions 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; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President of Investor Relations and System Development. Now, I'd like turn the call over to Mr. Porten.

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access for our fiscal first quarter 2024 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. Copy of the earnings release has also been included in the 8-K we submitted to the SEC.
Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance. 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 so we can be useful in evaluating our performance. Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. With that out of the way, I'd like to turn the call over to Jimmy.

Thank you and happy new year to everyone joining us today. Fiscal 2024 is off to an exceptionally strong start with meaningful improvement in restaurant level operating profit margin and adjusted EBITDA, as well as six new units opened to date and another seven under construction. Our goal for this fiscal year remains the same as last year: maintain excellent operations, continue to rapidly grow the number of our restaurants, and rebalance our G&A against an increasingly larger base. I am pleased to say that we are continuing to make excellent progress on all three fronts.
Total sales for the fiscal first quarter was $51.5 million, representing comparable sales growth of 3.8% with solid growth being responsible for 3.3% of our overall growth. There is some momentum that's accelerated since our last earnings call, as implied by the 110-basis-point improvement over the blended September-October comps of 3.7%, with the improvement being driven entirely by traffic growth. Effective price was 9% during the fiscal first quarter. As of the first week of December, we up 7% in price need to be partially offset in January pricing of approximately 1%.
Our current 3% effective pricing is a return to our historical pricing cadence, which reflects our confidence in the ongoing normalization of our prime costs, as well as a strong strategic decision to better take advantage of current macro factors to maintain traffic growth and the capture market share. Commodity costs have seen a market improvement over the prior year quarter, with our cost of goods sold as a percentage of sales coming in at 29.8% for Q1, as compared to last year of 31.6%. Labor costs have largely remained at the main chain at 31.6%, as compared to prior year quarter of 31.9%.
Restaurant level operating profit margins improved from 18.3% in the prior year quarter to 19.5% adjusted EBITDA grew from $0.6 million to $1.8 million, representing year-over-year growth of approximately 200%. It's worth mentioning that matches our asset EBITDA growth was driven by improvements in commodity costs, but it is truly encouraging to see such dramatic growth even while we face the under headwinds opportunity to be with have for 40s of compliance and the restaurant EBIT headwind associated with a record number of new restaurant openings and the units under construction.I believe if EBITDA growth on the uplift of what we can expect in future years as we grow our unit base, much as a company, and we are even better able to leverage our G&A.
In the fiscal first quarter, we opened four new restaurants: Pittsburgh, Pennsylvania, Flushing, New York; Tampa, Florida; and Naperville; Illinois. Subsequent to the quarter end, we opened two more new restaurants in Kansas City, Missouri, and Skokie, Illinois. Originally, we have seven units currently under construction. Accordingly, we are excited to increase our unit opening guidance for fiscal 2024, which Jeff will expand on shortly.
The incredible reception that you're seeing as we establish ourselves in new markets, demonstrates the truly national cost total cost of portability of Kura Sushi and the performance of new units in existing market is confirming our expectations that the massive consumer appetite for fresh is more than enough to foresee our Asian brands. It's been a couple of months since we launched a new version of our Levi's program, and I'm very pleased to be able to share that the momentum that we discussed in our previous earnings call for the remainder of test up from their installation rate for new members are approximately equal what they are with the previous program. And given that these are all new users. We expect greater engagement on a per-user basis. Kind of our comfort of the previously was program. While it is still very much early days in terms of the US program and our earnings has the best ever achieved. We expect to give more concrete update in future earnings calls in terms of annuity and other opportunities. And it's potential to drive incremental revenue. Our current ID product ID collaboration business has been very well received by our guests. Our next the blend, the collaboration is a family and the diabetes pipeline for the remainder of the fiscal year is the strongest one we have ever had as we enter the new year, our directors and all of our team members both at our restaurants and of our corporate support center for all of their hard work. It has allowed us to have our fair share of revenues quarter after quarter on our earnings call and with that, I'll turn it over to Jeff to discuss our financial results and liquidity.

Thank you, Derek. For the first quarter, total sales were 51.5 million as compared to $39.3 million in the prior year period. Comparable restaurant sales performance as compared to the prior year period was positive 3.8% with regional comps of 9% in our West Coast market and 1.3% in our Southwest markets.
Turning now to costs, food and beverage costs as a percentage of sales were 29.8% as compared to 31.6% in the prior year quarter, largely due to pricing and the easing of commodity inflation, labor and related costs as a percentage of sales decreased to 31.6% from 31.9% in the prior-year quarter. This decrease is due to sales deleveraging from increased traffic and pricing, which was largely offset by increased training costs associated with new store openings and general wage increase. Occupancy and related expenses as a percentage of sales were 7.6% compared to the prior year quarter, 7.3% due to incremental pre-opening rents associated with a greater number of units under construction, depreciation and amortization expenses as a percentage of sales increased to 4.8% as compared to the prior year quarters, 4%, largely due to the additional newly-opened units as well as the accelerated depreciation of assets are being replaced due to planned remodels.
Other costs as a percentage of sales increased to 14.7% compared to 13.5% in the prior year quarter due mainly to pre-opening costs associated with a greater number of store openings as well as an increase in marketing costs and general cost inflation.
General and administrative expenses as a percentage of sales decreased to 16.7% as compared to 16.9% in the prior year quarter due to greater sales leverage, which was largely offset by incremental public company costs and recruiting and travel costs associated with new unit opened.
Operating loss was 3.8 million as compared to an operating loss of 2.2 million in the prior year quarter, largely driven by incremental other costs, depreciation and amortization and occupancy associated with the greater number of unit openings and units under construction income tax expense was $38,000 compared to $10,000 in the prior year quarter. Net loss was 2 million for $0.18 per share compared to a net loss of 2.1 million or $0.21 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.5% compared to 18.2% in the prior year quarter adjusted EBITDA was 1.8 million compared to 0.6 million in the prior year quarter.
Turning to our cash and liquidity, at the end of the fiscal first quarter, we had 64.2 million in cash and cash equivalents and no debt.
And lastly, I would like to update and reaffirm the following guidance for fiscal year 2024, we now expect total sales to be between 239 and 244 million. We now expect to open between 12 and 14 units with average net capital expenditures per unit of approximately 2.5 million. And we continue to expect general and administrative expenses as a percentage of sales to be approximately 14.5%.

Now I'll turn it back over to Jim and if this concludes our prepared remarks, we are now happy to answer any questions you have for. 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. Thank you for your attention.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate that your line is in the question queue, you may press star two, if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for questions. Thank you. Our first question comes from the line of Joshua Long with Stephens. Please proceed with your question.

Great. Thank you for taking my question. Just curious if you can share a little bit more about the unit development pipeline and what seems to be a nice strengthening in that I know in the prior call you talked about the potential for upside to the unit in your new unit development pipeline for the year. That seems to be coming into fruition. Just curious if this is a function of site selection and maybe if permitting has gotten any better or anything you could share there in terms of just how the new stores are coming together.

So thank you for your thoughtful questions. Please allow me to speak in Japanese banks will have for it for me on the loan pipeline, you can see that on our prepared remarks, we are going to settle in minutes, not differently my construction, the mix with our analytical and of course, you got documents from the reserve. Jody unopened had done a survey with any open the q-and-a. I've got most of that on our public commentary that all is happening. It's probably not going to take us until people know. I'm sorry, Nicolas, yet to table on e-commerce are indicative of the memory and the fact of the matter conquer Amazon tourism during the annual guidance of 3% in adjusted and optimized provides that the bonuses.

So as Jimmy mentioned in the prepared remarks, we have seven units under construction and we're extremely pleased to be able to say that three, those are pretty far into construction. So we're very happy with where we are. It's one of the reasons that we were confident in terms of raising our guidance in terms of the permitting delays that we've mentioned in the past fiscal year, those have meaningfully eased. And so we're very happy with the rollout and how smooth it's been this year.

Great.

That's very helpful. Thank you and I'm thinking maybe more about the performance of newer stores. It sounds like that's pretty strong. Did you give a little bit of extra context or color in terms of just how the results for the quarter performed versus your expectations. I know there's always going to be a little bit of difference in between what you will see and how we model it, but I'm thinking particularly in terms of just kind of how average weekly sales growth are we growing through the quarter and maybe if at some point, we kind of get away from looking at this on a multiyear stack comparison. I know we're getting further away from kind of COVID and some of those disruptions.

But just curious if you're starting to see any sort of normalization there and any sort of commentary you could share on how new store performances is unfolding, Martin, on your funding, your new open standard Domo unaltered from Limited open standard schedule on AutoCAD maturing new market that opens stuff while Minneapolis health economics data that need Minneapolis New York at the pizza positive for the company for Tatra CAD and you opened that restaurant submit in a quarter. It is not the model into another. I think it's not going to Q3. And I was wondering what did you assume if you could all orders getting the material and uses good arguments, it will be a single market. But if I just cover the stock at maturity or other of them, but we've still got news. I'd much rather get easier now on opening or from an economical denominated or any detail on the final hurdle or whatever in Apollo Tyres a spindle could deny the overall Macquarie Telecom has already given you an auto dimming on the particularly on a two-shift maturity, but on a kudos to my mother to the new restaurant concept from California.

In terms of new restaurants, fiscal 23, it's been a record year.

This year.

We've already opened six to date. And so we've had a lot new openings in terms of the major new markets that we've hit. We've entered Minneapolis. We've we've opened a couple of restaurants in New York to hit Pittsburgh for in Tampa. It's been it's a pleasure really to see how warm the reception has been in each of these markets and every time we open every time we enter into new markets, it's just a confirmation of the portability of our concept. And so it's really encouraging for us.
In terms of the existing markets, we've opened a couple of New Jersey, Chicago, the Atlanta area, and those are all doing very well as well. As Jimmy mentioned in the earlier prepared remarks, there's abundant appetite for sushi across the United States. And so we feel very confident not only in terms of our existing or new markets which are gangbusters, but infilling our existing markets as well other than the 21 for this difficult, if you make an assumption on any kind of momentum for activity against the P&L. It will mean some income though to a structure, but more predominantly in aggregate, it's sort of normal to me. Mobility must have persistency has gone up and up on.

Okay.

So in terms of the multiyear stack, we're not funding it from being totally, Frank. We're not internally doing a multi-year stack anymore. We've returned to normalcy. And so we're very pleased to be able to say that.

Great.

Thank you.

That's helpful. And one last one for me. In terms of the food deflation or just the overall COGS basket that you talked when you for paired remarks, I think also in the past, is there a conversation around the potential to reinvest in food quality or other areas if you will, the food cost margin was materially below 30%. I was just as a kind of a starting point to realize that probably early on and build process and there's still a little bit fluidity there, but could you just remind us how you're thinking about the food cost line and when and where it was?
Yes, I'll pivot point or have you thought proximate thought process might lie in terms of potential forcing leverage or maybe reinvesting in that line item?

Yes, Josh, it's Jeff. Yes, the 30% number that on the COGS line is something that we're very happy with. It's something that we would like to see a little bit lower, and it has to be gone lower in terms of deflation, just to give you the numbers of what we've seen this year year over year and deflation was about 4% and sequentially quarter over quarter and inflation was about 2%. So that inflation combined with the price increases that we've taken over the last year. And as Jimmy mentioned, we did take about 1% on January first. We believe that with the price increases and the deflation that we're going to be successful in having that COGS number show up even a little bit below three. But as we've mentioned in the past, there's a floor to that. We view that COGS number were to get somewhere 27, 28. That may be a little bit too low. And then you you do risks hurting your food quality, which is not something we're going to do. So as long as we can keep that number in the very, very high 20s, right around 30% we're going to be happy.

That's very helpful color in terms of reinvesting that some things that we've done it materially or significantly improved the quality of our core proteins, especially tuna and salmon. I'm very pleased to be able to say that we've done that while also lowering our COGS basket or COGS cost. And so that's really been pretty remarkable for us one of the things that we'd like to do is our LTOs. For example, in December, we did a crab fare, very high-quality crab. Winter is crab season in Japan. And this was one of the most popular LTOs ever. And I think our guests really, really enjoyed it and sort of appreciated that we were giving back to our guests through THROUGH craft Great.

Thank you so much.

Thanks, Jonathan.

Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Please proceed with your question.

Thanks and congrats on the strong results. I wanted to just come back. There's a little bit of break-up in the audio and some of the commentary around menu pricing as well as same-store sales. Color. Apologies for going back over some of this, but I want to make sure that I understood a bit kind of the cadence of comps color that you shared throughout FQ. one and then two, I think what I heard on the menu pricing was that you're carrying 3% overall in FQ. two and then, you know, kind of the comp on the West Coast versus the other regions or in the Southwest region? If we could start with that, that would be great.
Yes.

So the pricing that we ran Germany in Q1 was 9% of we did take the one. We've lapped the 7% pricing in December and then we took the 1% at the beginning of January. So we're currently at 3% on pricing. We're very, very happy with where the comp never came out. And what we really want to point everybody back to is that traffic number that the traffic of 3.3% that we saw in Q1. And as you know, listening to conference calls still and throughout the year, very few concepts have been able to have positive traffic. And we look at that number and designs, we can keep people coming back in the door and keep our existing guests coming back. We're going to be very happy and that's one of the things that we can control through great service and great food quality. We continue to do that. We believe that our guests are going to keep coming through that door and keep that traffic positive. And if we can do that, we're very positive that we can it's going to be a good year for us.

And just to add on the cadence, given that the audio broke up a little bit, we gave September and October comps last earnings call, it was 2.7%. And so you can assume that the comps are November will be much stronger given that we came in at 3.8% for the full quarter. And given that we didn't take any price during that quarter or the The acceleration was driven solely due to traffic.
So back to Jeff's earlier point on, we're very, very pleased to see that we're operating executing so well that more guests than ever coming and for our doors.

Got it. I think there was there was some commentary on the West Coast versus the South West market comps also just wanted to clarify?

Yes. Give me second.

I have the I have the numbers here. Why is over now? Suddenly I have charts that 9% in the West Coast and 1.3% in the Southwest market.

Got it. Sort of just coming back to the comp overall in terms of where the menu pricing was, traffic up really strong 3.3%. Are you still seeing a little bit of reduction in average plate consumption? Is it all going up?

Go ahead, Chuck, on a go-to gold, a little on all the three Q. four Q. one depot and update, you know on operator compound confirm something on our uplisting of disaggregated Omaha, that'll inactive index on a Q4 Q1 consumer corporate, the consumption of ethanol because of political unrest that on Cordis that quarter, to be honest, on a sequential basis from Q4 to Q1, plate consumption per person has actually gone up.

And on a year-over-year comparison, it's about why. And so we're really happy with where play consumption is.

Got it. And then I wanted to shift gears to your labor cost. And you said had a nice 30 basis points of leverage year over year. And minimum wage in California on January one is up about 3.2%, but wanted to get an outlook of what you're thinking about, Jeff, on on kind of the labor market here in calendar 24 is removing 40 seen a little bit less pressure. I think there's also you know in April, you know, the impact of the potential large-scale fast food, you know, wage laws that are going in to affect the CAD20 wage, but just wanted to get a sense for what you are expecting and again, pretty nice leverage that you got on a 3.8% comp?

I'm happy to answer this question. Just Jim, most of it's an environment that is made at a 10% dividend. And we have a reason to consider McConnell submit an NDA to methodically. I mean, Norway together with some of them might be at the annual mid-single digit, deliberate and unwavering resolve completely lost mandate for RioCan Meadows Guinea or as competitive as we need, much percent every 2% and pricing mobile-ready eligible offset, particularly debilitating and medium it on whatever data you want to read it or not new, but also as a percentage of patents to placebo. So difficult to reconstruct or any kind of decision on what the most.

So in past earnings calls, we've mentioned that about I think until about Q3 of last year, the year over year, labor inflation was about 10% since moderated to mid-single digits, and that is including the annual minimum wage increases in California with the 1% pricing that we took as of January, we believe that that's enough to offset on the labor increases and really keep our margins flat year over year.
You'd asked about 80 1220, as I previously known as the FAST Act we're very pleased that I think we're pretty much the only concept that is saying that we see this as an opportunity in terms of our California markets. Our employees are already making wages that are competitive with $20 that people are going to be making at QSR. And so obviously, QSRs need to take aggressive price to be able to offset that and so we see this as a meaningful opportunity to grow market share as up until now, the conversation has really been to go to Kura Sushi. We're going to go to other casual dining places. Now let's do we get a combo meal at the burger place or do we get for sushi? And that's one of the reasons that we're running 3% prices. We really want to demonstrate to the world at large, not just our existing guests, how concrete have valued, Chris, who she is.

Got it.

That's great point last one for me, and I'll hop out of the queue. Just wanted to ask about some of the recent collaborations, right? You've partnered with peanuts and Snoopy Uno in December here into January. And wanted to get a sense for how that promotion was performing seems to be generating a decent amount of buzz.

Yes, we're really pleased with the December results and the Peanuts collaborations sort of a big part of it. Our PR team gets better and better with every of collaboration that we cycle through this time. They give a really spectacular job with what we told us in the space collaboration, not just toys are the enemies, but we had photo ops for the restaurant for decked out like Charlie Brown Christmas. We had little pig Snoopy figures on our MR fresh items, and those would go mysteriously missing. And so if the tenants were a part of that, you could really take a higher price than that certainly not encouraging guests to do that, but it was it was nice to see people so that excited about it. And as Jimmy mentioned earlier, we've got spike families. Our next collaboration and then got two more after that for the remainder of the fiscal year. This is the best pipeline we've ever had. I could not be more excited.

I wish I could tell you what they were right now, but you have to wait until the next call to say thanks for taking all the questions and best wishes, of course, thank you.
Thank you much.

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.
Thanks for taking my question.

And just a second, as I was a little surprised that you raised revenue guidance this early in the fiscal year. So but I'm curious on the 1 million raise, was that anticipated and initial guidance was at the opening schedule that or is that just and then the business your share, you're cutting out a little bit on my end, but I think I got the gist of your question.

So as Jimmy mentioned earlier on one of the questions that was asked that the the cadence of the opening is going quicker than we had expected, which is why we decided to raise the guidance. We we feel that we're going to have some more operating weeks and have an additional unit come in at the end of the year, which is libraries and $1 million, not more than that. He talked about the some of the things have been happening with the openings in the markets that we're opening and we have seen some of the permitting problems that we did have last year ease and some of the site selection has been really good and landlords are excited about getting us yet. And I was talking to our Chief Development Officer recently, in fact, last night, and he was telling me that the landlords are getting their work done quicker because they want to get a sense and they're excited about having Kura Sushi as part of their portfolio and the quicker they can get their work done, the quicker that we can get our work done and we can get open and we're seeing that happen, which is why we raised the guidance a little bit and wanted to get through the first quarter and kind of see how that played out. We thought that that's how it would be. But we wanted to get through the first quarter and kind of watch what happened before we raised the guidance, and that's that's where we are where we are.

Very helpful.

And then on the VM, the traffic improvement you saw in November fleet pretty meaningful. We can all kind of do the math. I mean, is there anything in particular you attribute November to or in hindsight that you attribute prior two months to be in a little bit than November.

Now anybody can say on what marketing very successful growth in Ecuador, Amazon or concrete punting on it on a GP that and the configuration of semiconductor pushing kind of further on if it's calculated methodical, sort of it is not our opinion, of course, and supplements is there not more on our own by you guys to get we're not going to give up any percent of the energy companies.

Yields have definitely put together when a duty that ecosystem being active in the Motorola Teleca AutoNavi, good October done, I imagine by Covance in the only fundamental system, we wouldn't attribute the need for the for the acceleration in traffic in November, largely for our new rewards program. We're very pleased with and its capabilities are part of it was in November, we were just making a push to migrate more of our existing users sort of a final push. And so we had a promotion around that in December, we started a promotion where this is the first time we've ever done this and something that we could only do because we have a rewards program that contract is kind of thing where we made an offer where you come twice in December, you get to 20% off a 20% off coupon for January. And so that leaves very good for dry eye tracking traffic in December. And obviously, it's going to be a topic driver in January as well when people come to redeem that coupon.

I mean the robotic dishwasher, which I know we're all very excited about. I think I said in the spring, I'm just wondering if that's still on plan and went really well, what could we look at the timeframe look like for a rollout into new units going forward?

Yes.

So we are still in a we are still on pace for a test in spring. I'm very much looking forward to it. I'd say the technology is largely ready. It's just a matter of getting it battle-tested. There's a it's a little bit tricky to go from the prototype to the mass market model just for the mass produce model, just given that there are some material changes. And so I think it's safe to assume that it's going to be at least 12 months from when the mass model is finalized and up it definitely I can get the actual parts list and bring it to the regulatory organizations. But that's a pretty opaque process. And so it would probably be 12 months minimum from from from testing. And then it would just be the timing for which stores we can get out but plan ahead in terms of a way out to accommodate robot dishwasher.

Thank you and happy new year.
Thank you.

Happy New Year and Sure.

Thank you. Our next question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Great.

Thank you very much. A couple of questions on the comp trend. The first one, I think for the fiscal quarter, you did it three eight, and I think you said the pricing was nine and the traffic, if I heard right, was a 3.3. So that would imply, I guess, a negative eight or so mix and I think you said the plates were flat. So I guess it sounds like an ongoing maybe non sushi check management and just wondering how you think about that negative offset whether you see that as a concern or whether that concern is abating kind of that missing component of presumably the meaningfully negative mix shift, kind of how you think about that.

But on the other thing, we're not pressed on the clinical data that will come from Paul McGinnis on ag, whatever regulatory Pandora weakening of the NOK whatever gets thrown into one of my IT vertical, do you tomorrow meaning you can likely go to participate in marketing with the Pacifica for any candidate antibodies about on what about determinant on our ticket size, local control of the development concept, whatever demand negative in Ecuador, Chemicon and if I could call them or whatever to Savvis and ordering of the OpEx and look at it when it becomes just a token of somebody who gets them comfortable enough dividend of spending immunoassay, MasTec's, August and October Siliconix has already accumulated some could argue as anybody because of the convertible is key to the game and also political revenues and sort of the core capital, the sort of other things that go to panel two toxic automotive.

So in terms of the negative mix is certainly there, but we don't really think of it as a concern or focus remains traffic. Our marketing is geared around that. Our overall strategies geared around that, we think so and that's the hardest part and really where we shine brightest, especially in comparison to our peers in terms of average check management. We think that that actually is a unique feature for guests that comes from our service model. Guests can come in no matter what their budget is, and that's one of the we never price people out, and that's one of the reasons our traffic soon so strongly. But in spite of that mix pressure, our restaurant-level operating profit margin is 19.5%, a meaningful improvement over the 18.2% last year. And so our thought, again, is traffic is our focus. We can leverage our fixed costs against traffic. And that's that gets us the margins that we like.

But for the whole panel, does it mean that you're not going to lose a lot of political, but I'm not talking at benefit of African American women. I'm assuming again, no sinister the inevitable, but you know, I'll give you another government or the state government since August when I covered everything I don't get a lot of customer data and a continued significant weakness.

That being said, of course, we love it when our guests do have greater attachment side, menu items, et cetera. And so we do have some promotional campaigns in the pipeline that are geared towards improving guests.

Ben, understood. And then as we as we look forward, I think it piece together from an outlook perspective on comps based on the September October, it seems like the November was roughly a 6%. And I guess if the pricing was similar for sure that's a nice uptick. So I'm just wondering what I wanted to confirm that was right.
And then and on December, I thought you said you were really pleased. I wasn't sure if that was a reference to the overall comp or how we should just think about the outlook, whether or not fair to assume a mid single digit type comp sustains with still positive traffic and the pricing in that 3% range, trying to figure out the outlook first on the December and then kind of what we should be thinking about for the rest of the year based on those components.

But we cannot give you the typical percent of dinner at optimized. None of them are totally different cash-positive materials presenting article and all operating and operating it up to some of them or whatever is due to the gate. And I imagine, you know, having a consistent dividend policy, dividend it out of political and competition and on traffic does carry producing a multi-mode Monsanto's? I mean, you had eight of marketing Logistica made on the annual corporate on-net business. Obviously Discover Anacor, in-office, you all take your seats at Dominion as tight as it might on the monopoly of R&D. But of course, you have to take on what you might see or you see serious momentum on a comparable EBIT to compensate us already to fill additional lumpiness.
I'm going just talk a little bit further on vessels.

So yes, in terms of the November coming in at about 6%. Your math is right there. And looking at December, we did lap that 7% pricing in the first week. But as we said, we were very pleased with our traffic with our track performance, our overall comp performance. We're confident that with our ongoing traffic, strengthen our marketing efforts, the IP pipeline that we have, many development that we'll be able to maintain this very strong momentum through the remainder of the fiscal year. We're very happy Understood.

Now that's encouraging, despite, I guess, concerns of a slowing consumer. So good to hear my last question was just on the cost side of things and just a clarification. I think you said the commodities were 4% deflation in the first quarter. I'm just wondering what the labor was for the first quarter and maybe the expectation for each of those for full year fiscal 24, but no rebound or English and cold quarter every day to everybody on the Internet is going to facilitate them.

It only monitors into the traditional channel, thereby in Gresham at Maserati, Sutherland, agribusiness, Presidium or sucrose data, 10 or whatever it might own operations to me personally, but you know what?

I'm not saying there's no set of outcomes that African-American motors in terms of labor, we have seen about mid-single digits up in inflation year over year. We are overcoming 30 basis points below the prior year, 31.6% against last year's 31.9%. And so we're feeling that the operational efforts that we've made the year as well as the pricing that we've taken all come into play there. And we're very pleased that we were able to not just stay flat, but actually improve our wafer margins.

And then in terms of the 34,000 curated artwork from quarter one of fiscal 23 to this year, Q1 it was about 4% deflation. And then sequentially from Q4 of this past fiscal year one, it was about 2%, Scott.

And just to clarify, Ben, did you say I mean, I know depending on how we look at restaurant margins, it varies. But based on your calculation, it was 130 basis points of expansion. But you said you expect the restaurant margins flat in fiscal 24 with the 3% price for the rest of the year, or are you referring to the labor line?
I think that prior question. Sam was asking about labor, but I know you I thought you had mentioned that you were comfortable with restaurant margins flat. So just wanted to clarify if you have any kind of forward-looking thoughts on the remaining three quarters from an overall margin perspective?

Thank you.
Yes, if you look at our historical margin, they tend to lever pretty pretty meaningfully every quarter. And so you can just assume that the same as historically, they're going to continue to improve as we have greater traffic that we can and greater sales that we can leverage against our fixed costs.
The comment about the 3% pricing that we took we thought was enough to offset not just our labor costs are we've got a COGS tailwind we do have some other costs, general inflation, but the 3% that we felt was enough to pretty much offset all of those inflationary pressures.

And on the all add to Jeff, on the restaurant-level operating profit as a percentage of sales, as I mentioned in my prepared remarks, we had 130 basis points of leverage there from 18.2 to 19.5. So with a lot of tailwinds are pricing, the commodity deflation, the easing of labor inflation. So the tailwinds have been great as this this past quarter, and we fully expect that continue for the remainder of the year.

Sounds great.

Thank you very much and utility.

Thank you. Our next question comes from the line of John tower with Citigroup. Please proceed with your question.

Great.

Thanks for taking the questions.

Just a few, if I may, and I apologize if you might have hit this earlier at our time here and some stuff. But on the loyalty program, I'm curious how have registrations hit versus your own expectations and how is it? It seems as if per Ben's comments earlier at least around the promotion of in December where you can come in twice and get 20% off in January. It one, I don't know if that was only reserved for loyalty members or not, but and how is this working overall the loyalty program to drive frequency ticket and or frankly, any sort of customer insights that you might not have had previously Yes, obviously, generally speaking, whenever you're talking about a promotion, you can assume that it's limited to our Rewards members on.

I don't know if you recall on the last earnings call, was November in our rewards program, and that's been out for a couple of weeks. And we mentioned that the registration rate has doubled as compared to the prior program. We sort of assume that would level off that that was due to the initial excitement, but I'm not sure if you heard in today's call, because the audio is a little bit garbled but the registration has actually tripled in comparison to the last program. So it hasn't leveled off. It's actually accelerated. So I think it's very fair to say that it's it's far exceeded our expectations. We're very pleased with it. I think it's still a little bit premature to be discussing guest insights, but engagement is great. The things that we can do the kind of campaigns that we can deploy are at a completely different level on certainly the next earnings call, we'll have a lot of good news that we'll be able to share with you as management has an iconic product campaign, while on our development budget is going to talk about it and that zinc price in December to get that 20% off in January that's slipped only further rewards members. In fact, you heard George platform is what enabled us to use that to actually do that for the first time.

Got it.

Thank you.

And just I know last quarter you'd also discuss the idea about communicating kind of some of the upgrades on the waitlist system and or kind of rolled out cellphone ordering at the table to consumers as a potential lever that you guys push that during the quarter at all?

And if so, what was the uptake of either?
Yes, in terms of the waitlist app attrition. So guest attrition has dropped from 25% to below 20%, a very meaningful improvement on this, but we're very, very happy with it. And we think it's one of the reasons that our traffic is continuing to improve. And in terms of the mobile phone ordering, that is still limited to two restaurants, we're going to start testing later this week. The testing is complete. It's feature complete on really, I think the biggest factors that we have and we've had some trouble figuring out exactly what to name it when we when we have a button called mobile ordering or I think our guests are assuming it's like a takeout button. And so we're changing into smartphone ordering, which I think is a clear explanation of exactly what it can do and for people that are I'm new to this on the call it a lot. This program allows you to use your cell phone to place orders as well, which doesn't sound very exciting until you've been at a restaurant with a party of four more and you're sitting on the outside and you can order from the panel and you're you don't want to reach over people and graphs up. And so we're very excited about this. And especially in terms of mix, we think it's a meaningful opportunity for side menu attachment rates to go up. And so yes, that's the rollout is starting in January and it's going to be on a rolling basis should be. My expectation is that it will be done in the next few quarters, hopefully next quarter.

Got it.

Thank you.

And then just I guess a follow-up on the US TAM. I know you've previously talked about the idea of getting to about 300 stores and it seems like new store productivity volumes and certainly traffic all seem to indicate that your brand is resonating particularly well with consumers despite whatever the macro had been doing over the past 24 months and obviously prior to that as well. Some curious if and when you guys thinking about that number, it appears dated at the moment. Do you guys have any more thoughts on where that should go over time?

What are quite as visible perfect co-tenant, Ben, it's okay. If I can buy that bundle, if it does look like, especially for the catheter promotion, I think in the cylinder and a certain sort of public debt and also Director of the operators tend to be much more representative. Is there any you might get somebody with some examples in our on our conservative growth, some of them have something on or update the Star studio ominous and silicon out of optimization.

So it still remains a topic of discussion in terms of when we're going to commission the new whitespace study. Obviously, we know that people are excited for that. And so we're excited to share that with the three whenever we do decide to commission the whitespace study, we've communicated many times in the past that the 300 units that we initially gave at the time the IPO, we think is conservative, not just because it was a conservative number to begin with. But because of the market fragmentation and the sheer number of restaurant closures in the Japanese segment as a result of COVID, we think that's fundamentally changed our opportunity in the United States. And again, as you mentioned, we're rolling along. We've got 56 units inside the initial 300. And so we're not in a rush necessarily. We don't see a need to see how everybody hundreds of units into the future. But I don't think anybody certainly not anybody on this call expects 300 to be our ceiling.

Got it.

Thank you for taking the questions, of course.

Thank you.

Yes.

Thank you. Our next question comes from the line of Todd Brooks with Benchmark Company. Please proceed with your question.

Great.

Thanks for taking my question. Just a couple left here. Jeff, on the other cost line, given the success in accelerating the opening pipeline, is it safe to take the end of Q1 level of spend and then obviously apply low leverage as volumes increase in the back half. But and how should we be thinking about that level of spend as we got forward to the year.

That's exactly how you should think about.
Todd, we're going to continue our opening pace. As you know, we raised the guidance to 12 to 14 units. So we're going to continue to open units as quickly as we can. So we're going to continue to see those large preopening expenses, and that's really what impacted other costs. The most throughout the quarter was the preopening expenses associated with opening these restaurants. As you know, a lot of restaurant companies in the past, we've broken out preopening expenses as a separate line item on the financials. Let's just look down upon now, so we don't do that, but you can see what our preopening expenses were and our adjusted EBITDA reconciliation in the queue so as we continue to open restaurants and we have more top line revenue to get the leverage, you're thinking about it.
Exactly right. It's going to leverage a little bit, but they're still going to remain elevated. I wouldn't take to think about a lot of leverage going forward necessarily this year on the preopening costs. But as we get through the year, you will get some and again, next year, more next year, more similar to G&A, really as how I'm kind of thinking about it because unless we start opening 50 stores sometime we're going to we're going to continue to have enough stores where that additional revenue from the stores we have opened will significantly offset that. But right now it is giving us some some higher costs in the other cost line and in the labor line as well.
Our preopening costs are sprinkled throughout our P&L. They're not stuck in just one line there and it's in labor, it's an occupancy. That's another reason. The occupancy was high, too. Nobody asked about occupancy yet, but we have to start booking rent expense on restaurants when we take possession of the building. So when it takes four or five months to build the restaurant, we're having non-cash rent expense, hit our books. And because of the accelerated openings, that's why you see our occupancy line a little bit higher than I think some people expected it to be this quarter as well.

But it's a good thing.

We're opening restaurants and they're going to start pushing for revenue and make profits, and we're excited to see this happening.

That's very helpful. Thanks, Jeff. And I agree that if it's tied to accelerate unit openings.
That's a great thing. I'll just one follow-up there and then I'll hop back in the queue. Within the other expense, you talked about marketing costs being up. Is this just pre-opening marketing for new units? Or is there something that you're doing?

Additionally on the marketing side that would bump that cost line, but I cannot you cannot do any consumer nosocomial pneumonia. And if that is what American energy that's kind of our targeted marketing that Haemonetics, my incremental consolidated Cosan appeared in this global sourcing of telecom companies, telcos, utilities and the most diversified group of equity with some of them have not excusing hydrovacs on a covenant on the supplemental on marketing, you know, it wasn't on a lot of it because you don't get it'll probably go follow clinical data that I think I was getting at because I would imagine you guys got up and obviously you're not giving that Q1 to Q1 and or below what was covered in the tunnel has nothing to do with economic development.

So in some context, last year in December, we started investing in targeted marketing search engine optimization with Google across channels. It's been exceptionally. It's been very cost effective, and we're very happy with it, which is why we've kept it as part of our marketing suite. But so this is really just a year-over-year comparison given that we started in on December. This was the first and last Q1 where we didn't have that cost last year as of Q2, we're going to be doing an apples to apples comparison. So it's not like we started something new in Q1. This is really just the tail of the year-over-year comparison.

Perfect. Thank you, both.

Thank you and goodbye.

It's not.

Thank you. Our next question comes from the line of George Kelly with ROTH Capital Partners. Please proceed with your question.

Hey, everyone, thanks for taking my question here. So it was twice just been asked, but I'm just one last one for you and related to CapEx. And I was curious what's a good sort of percentage of sales to use just generally for maintenance CapEx. I know it's 2.5 per restaurant, but wondering about maintenance CapEx. And if we look back over the last year or two, has there been kind of a post COVID catch up on some maintenance CapEx? You're just curious if there's been anything sort of not normal in the more recent periods.

So a couple of things, George. So we're maintenance CapEx. We've said in the past, it runs about $100,000 per rep. Once the restaurant is opened. Your ongoing maintenance stuff that we're capitalizing. And in terms of catch up there, not necessarily so much of a catch-up. But when you look at our depreciation line on the P&L, what you're seeing is a lot of accelerated depreciation in there because we've done several remodels. We changed our logo sometime before I joined the company, but we haven't changed the sign. It yet. So we're changing a lot of our signing to the new logo. And when we make that decision and we have a date for when that time is coming down, we have to accelerate the depreciation. But we also have a lot of protective equipment that we have in the restaurants for COVID that we've kept on the books just and we made sure the COVID emergency is over and now that So are we have to write those off as well. So there are some it's several unusual things hitting our depreciation lines, but that's that that's kind of how I think you should look at it like that 100 gram as well for us for maintenance CapEx.

Okay. So that's good. That's all I had. Thank you.

Thanks, George.

You're welcome.

Thank you. Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

I guess similarly, I think most questions have been asked here, but just one for me. As we look at G. and A., there's a little bit of a litigation accrual. Did that fall in there and was there anything else that was kind of one-time-ish? It looks like you're expecting some pretty good leverage there. Just wanted to see if there's anything else that was maybe one-time-ish in nature?
Yes, the litigation accrual 205,000 was the biggest one-time fees. And if you back that out the number almost exactly where we expected it to come out for the quarter that you're going to see going forward for the rest of the year. And we if you look at our guidance, we're projecting about 50 basis points of leverage when we had 80 basis points last year. And the reason we're not expecting as much leverage this year is this is our 1st year because this is our 6th year as a public company, which means that we now have to be for oh four be compliant, which has created quite a bit of additional auditor costs and some consulting costs to make sure that we are completely for oh four be compliant when we need to be. So the additional public company costs create a little bit of a headwind there. But you know, what 80 last year plus 50 this year, 130 bps over two years is pretty good.
Excellent.

Thank you.

Thank you, Mike.

Thank you.

Thank you. We have reached the end of our question and answer session.
And with that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. You bet in and with that, I will hand it over to Pavel. You, no, no, no, no, no, no, no, no, no, no, both of, yes.

Okay.

No.