Kura Sushi had an unexpected problem last quarter: California. And that could be bad news for other restaurants in the state.
The Irvine, California-based chain of conveyor-belt sushi restaurants on Thursday warned that its sales last quarter were lower than anticipated, due largely to weakness in California that it did not expect.
Same-store sales increased 0.6% in the company’s fiscal third quarter ended May 31, according to the preliminary results released on Thursday. The company said total sales are expected to be $63.1 million, which would be below Wall Street expectations for the period, according to the website Earnings Whispers.
“The financial results of our fiscal third quarter did not meet our expectations, due largely to unanticipated softness in the California market,” Hajime Uba, CEO of Kura Sushi, said in a statement.
He added that the company doesn’t expect the sales weakness to last. “While we believe that these sales pressures are transitory and consumer strength will normalize over time, we believe we have positioned the company to be able to deliver strong results regardless of the overall macro environment,” he said.
The results fell far short of the bullish sentiment Uba expressed earlier in the year, when he contended that higher prices at fast-food chains in California, resulting from the $20 wage required of such concepts there, would lead more people to chains like Kura Sushi.
The state began requiring fast-food chain restaurants to pay at least $20 an hour starting April 1. But Kura Sushi is a full-service chain that is not required to pay workers $20 per hour.
The company’s commentary on California suggests that Californians are eating out less, period, and are not shifting from fast food to full-service. At least they’re not shifting to Kura Sushi.
“What we see generally is really sort of a wider reluctance to go out to eat, period,” Uba said through a translator at an investor conference earlier this month, according to a transcript on the financial services site AlphaSense. “I think there’s just an across-the-board perception that restaurants are expensive and it’s a tricky message to say everybody is expensive except for us.”
“We haven’t changed our prices,” he added. “It’s only been a couple months. I think as people start coming out again, they’ll realize that we’re a … better value comparatively than we’ve ever been before.”
Data from the retail traffic firm Placer.ai has suggested that fast-food chains are seeing reduced customer count since the law went into effect on April 1. But the commentary from Kura Sushi suggests that sales weakness is broader than just the restaurants required to pay the wage.
The 50-unit Kura Sushi operated 18 units at the end of 2023, according to data from Restaurant Business sister company Technomic.
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