On Friday, Craig-Hallum adjusted its outlook for Kura Sushi USA Inc . (NASDAQ:KRUS), reducing the price target to $120 from $130, while still recommending the stock as a Buy. The adjustment came after Kura Sushi reported preliminary financial results for the third fiscal quarter that fell short of expectations, primarily due to unexpected sales weakness in the California market. This downturn followed the implementation of the state's FAST Act.
Kura Sushi's revised forecast for fiscal year 2024 now sets the midpoint of sales guidance $8.5 million lower, indicating the company's belief that the softer sales trend continued into June. Despite the collaboration with Dragon Ball (NYSE:BALL) that started in May, the initiative did not generate sufficient excitement to offset the effects of higher industry prices squeezing California consumers.
Even with these challenges, Kura Sushi anticipates nearly 20% restaurant-level margins for the third fiscal quarter, which positions it highly within the casual dining industry. Additionally, the company successfully opened four new locations in the third fiscal quarter, reaching the low end of its full-year 2024 guidance, and plans to inaugurate another establishment next week.
Craig-Hallum remains positive about Kura Sushi's long-term prospects, citing the company's robust pace of new openings as a key component of its growth strategy. The firm anticipates that Kura Sushi's scalable concept will drive an eightfold to tenfold increase in unit growth, securing its place as a leading growth story in the restaurant sector over the next decade. Despite the current slowdown, the outlook for the rest of the 2024 calendar year is expected to improve as the company continues to expand its footprint.
In other recent news, Kura Sushi USA Inc. has reported solid financial performance for the fiscal second quarter of 2024, with total sales reaching $57.3 million and comparable sales growth of 3%. Despite an operating loss and a net loss for the quarter, the company maintains a healthy cash position with no debt and plans to open 13 to 14 new restaurants by the end of the fiscal year. In light of these developments, Citi has adjusted its outlook on the company, reducing its price target to $79 from $101, yet maintaining a Neutral rating. This revision follows a modest same-store sales growth of 0.6% in the third fiscal quarter, which fell short of Wall Street's expectations.
Investment firm Piper Sandler initiated coverage on Kura Sushi with a Neutral rating and a price target of $114, citing the company's unique use of technology in enhancing customer experience and operational efficiency. Despite these strengths, the firm noted that the company's stock price already carries a significant premium compared to its industry peers.
In other developments, Kura Sushi has been experiencing ongoing challenges, particularly in California, where approximately one-third of its stores are located. The state has been identified as the main contributor to the company's weaker than expected comparable sales.
InvestingPro Insights
Kura Sushi USA Inc. (NASDAQ:KRUS) is navigating through challenges, as reflected in their recent preliminary financial results. Despite this, the company is showing signs of resilience and potential for growth. According to InvestingPro data, Kura Sushi has a market capitalization of $925.3 million and is trading at a high earnings multiple with a P/E ratio of 576.06. This is a premium valuation that investors are willing to pay for the company's earnings, suggesting that the market has high expectations for its future growth.
Notably, the company has experienced a robust revenue growth of over 30% in the last twelve months as of Q2 2024, which is a positive indicator of its expansion capabilities. Additionally, Kura Sushi has been profitable over the last twelve months, with an EBITDA growth of 53.0%. This profitability, combined with the fact that the company's liquid assets exceed its short-term obligations, provides a cushion for the company in the current economic climate.
InvestingPro Tips highlight that analysts predict the company will be profitable this year and that it has a strong return over the last five years. These tips further support the notion that Kura Sushi has a solid foundation for growth. For readers looking to delve deeper into the financial health and future prospects of Kura Sushi, there are 16 additional InvestingPro Tips available at https://www.investing.com/pro/KRUS. These tips can provide valuable insights for making informed investment decisions.
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