On Wednesday, Benchmark analyst Todd Brooks revised the price target for Kura Sushi USA Inc . (NASDAQ:KRUS) shares to $90 from the previous $115, while maintaining a Buy rating on the stock.
Kura Sushi released its fiscal third quarter results on Tuesday, which aligned with the preliminary figures announced on June 27. The company experienced a decline in customer traffic in California, where around half of its same-store sales (SSS) originate.
This downturn was attributed to the consumer pushback against recent menu price hikes, which were a response to the increase in the minimum wage for quick-service restaurants (QSR) in California from $16 to $20 per hour effective April 1, leading to a broader wage inflation in the state's hospitality sector.
The reported figures, including revenues of $63.1 million, a 28% year-over-year increase, SSS growth of 0.6%, and a restaurant-level operating margin (RLOM) of 20% (down from a previously anticipated 22%), were consistent with the update provided by the company in late June.
Benchmark's analysis suggests that the observed slowdown in California may be a temporary issue and anticipates that similar trends could be reported by other firms during the second-quarter 2024 earnings season.
Despite the current challenges, Benchmark's outlook for Kura Sushi remains positive. The firm believes that Kura Sushi is positioned to sustain a unit growth rate of over 20% per year while maintaining RLOMs above 20%. This growth trajectory is expected to establish Kura Sushi as a leading brand in the U.S. sushi category, potentially expanding to over 300 locations nationwide.
The adjustment in Kura Sushi's price target reflects the immediate impact of the wage adjustments and customer traffic trends in California. However, the firm's long-term confidence in Kura Sushi's business model and expansion potential remains unshaken, as indicated by the maintained Buy rating.
InvestingPro Insights
In light of the recent performance and outlook for Kura Sushi USA Inc. (NASDAQ:KRUS), InvestingPro provides additional context to Benchmark's analysis. As of the last twelve months leading up to Q2 2024, Kura Sushi's market capitalization stands at $656.66 million, reflecting the market's current valuation of the company. Despite a challenging period, the company has shown a robust revenue growth of over 30%, a testament to its expanding footprint and appeal to consumers.
InvestingPro Tips highlight that analysts are expecting sales growth in the current year, which aligns with Benchmark's optimistic view of the company's expansion potential. However, the stock is currently trading at a high earnings multiple, with a P/E ratio of approximately 415.7, indicating that investors are pricing in high growth expectations for the future. Additionally, the Relative Strength Index (RSI) suggests that the stock is in oversold territory, which could signal a potential rebound if market sentiment shifts.
For investors seeking a deeper dive into Kura Sushi's financials and future prospects, there are 16 additional InvestingPro Tips available at https://www.investing.com/pro/KRUS. To access these insights and more, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.