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On Wednesday, Craig-Hallum adjusted its outlook on Kura Sushi USA Inc . (NASDAQ:KRUS) shares, lowering the price target to $85 from the previous $120, while still maintaining a Buy rating on the company's stock. The revision comes in the wake of Kura Sushi's third fiscal quarter preliminary update and revised guidance.
The company's focus during the third fiscal quarter report was primarily on current same-store sales (SSS) trends and the factors contributing to the slowdown in comps since March, which had seen a 7.3% increase. The forecast for the fourth fiscal quarter indicates a modest to high single-digit decline in comps, which is slightly more pessimistic than most had anticipated.
This downturn is attributed to a significant softening of the California market beginning in April due to macroeconomic factors, as well as some cannibalization in the Texas market following new openings in the Houston and Dallas areas earlier in February.
In response to these trends, Kura Sushi's management is implementing more disciplined spending to help stabilize margins despite the weaker comps. Although the slowdown in comp trends is concerning, it's noted that Kura Sushi experienced a similar situation in fiscal year 2018 when SSS turned negative before rebounding strongly the following year.
The company's growth prospects remain robust, with a pipeline that suggests over 20% unit growth for at least the next five years. Despite the current negative SSS and the resulting compression of the stock multiple, the anticipation is that the valuation will return to a top-tier multiple as soon as there are early signs of comp recovery.
Craig-Hallum's analyst expressed continued confidence in the long-term narrative for Kura Sushi, emphasizing that total sales for fiscal year 2024 are projected to exceed 25%, ranking among the highest in the restaurant industry.
The reduction in the price target to $85 reflects current challenges, yet the firm views the recent decline in the company's shares as a significant opportunity for investment in what is considered an exceptional company that is still in the early stages of its growth trajectory.
In other recent news, Kura Sushi USA has reported a decline in sales for Q3 2024, with a total sales figure of $63.1 million and a minimal comparable sales growth of 0.6%.
Despite this downturn, the company has reaffirmed its fiscal year 2024 guidance, projecting total sales between $235 million and $237 million. In terms of expansion, Kura Sushi USA has opened four new units and has six more under construction, indicating a commitment to growth.
Other recent developments include the completion of its smartphone mobile ordering system, with further tech initiatives in the pipeline. The company's operating and net losses for the quarter were reported to be $1.2 million and $0.6 million respectively.
Looking ahead, Kura Sushi USA plans to continue its 20% annual unit growth and operational improvements, while focusing on cost management and driving sales through marketing and new technologies.
However, the company expects negative mid to high-single digit comparable sales in the fourth quarter. For fiscal year 2025, the company aims for a mix of 40-60 new to existing market unit growth. Despite the challenging economic conditions, Kura Sushi USA maintains a focus on long-term stability and expansion.
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