American Investors Finally Get to See a Sushi Restaurant IPO

Jon C. Ogg

When markets have holiday interruptions, some corporate filings are overlooked, missed or ignored. What Americans have not been missing out on is their craving for sushi. It turns out that Americans are finally going to get to invest in a sushi bar if they want to with a new upcoming initial public offering.

A company called Kura Sushi USA has filed for an initial public offering (IPO) of its common shares. The first S-1 filing with the U.S. Securities and Exchange Commission shows a nominal share sale of up to $57.5 million worth of shares, but that can change as the formal IPO comes closer. Kura Sushi USA has two classes of shares, and the A-shares will be listed on the Nasdaq Global Market under the KRUS stock ticker.

With a dual class of shares, Class A common stockholders are entitled to one vote per share, while Class B common stockholders are entitled to 10 votes per share. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder.

U.S. investors need to understand that the beneficial owner of 100% of Kura Sushi USA’s Class B common stock is parent company, Kura Sushi. The newly listed company will be controlled by the parent company as well.

BMO Capital Markets and Stephens are listed as the top underwriters in the syndicate, followed by BTIG, Roth Capital Partners and Maxim Group.

Kura Sushi USA owns and operates the so-called revolving sushi bars, and most of its markets are in California and Texas. The IPO filing shows that Kura Revolving Sushi Bar is a fast-growing technology-enabled Japanese restaurant concept that was established in 2008 as a subsidiary of Kura Japan. That chain has over 400 restaurants. Its first U.S. location opened in Irvine, California in 2009.

It has 140 menu items that can be ordered via on-demand screens at the table and it is delivered by conveyor belts. The technology in its kitchens is said to have been updated over the course of the parent company’s 35-year history of operating revolving sushi restaurants.

Kura Sushi USA’s filing also shows that it believes itself to be the largest revolving sushi chain in the United States and that it was ranked number 15 based on sales growth in Restaurant Business Online’s Future 50 list in 2018.

As of May 31, 2019, Kura Sushi USA operated 21 high-volume restaurants mostly in California and Texas. California locations include two L.A. locations, and locations in Brea, Cerritos, Cupertino, Cypress, Irvine, Pleasanton, Rancho Cucamonga, Sacramento, San Diego and Torrance. With two locations in Houston, other Texas locations are in Austin, Carrollton, Frisco, Plano and Sugar Land. One location is in Doraville, Georgia and, another is located in Schaumburg, Illinois.

It opened three new restaurants in fiscal year 2017 and four new ones in fiscal 2018. As of May 31, 2019, it has opened four of the five planned new restaurants in fiscal 2019, and it plans to open six to seven new restaurants in fiscal 2020. The company has a long-term total restaurant potential for over 290 stores in the United States and it is looking to reach a 20% average annual restaurant growth rate over the next five years.

From fiscal 2017 to fiscal 2018, Kura Sushi USA’s sales rose 38.9% to $51.7 million. Its operating income rose by 81.5% to $1.9 million, while its net income rose by 146.4% to $1.7 million for the same period. And looking at the nine-month period ending May 31, 2018, to the nine months that ended May 31, 2019, its sales rose 22.6% to $45.5 million, while operating income decreased by 9.1% to $0.7 million and net income decreased by 29.0% to $0.5 million.

Kura Sushi USA also showed in the filing that it has achieved positive comparable restaurant sales growth in 10 out of the past 11 quarters ending in the third fiscal quarter of 2019.

As far as how to grow same-store sales and profitability ahead, Kura Sushi USA showed that it plans to continue to manage its menu and pricing as part of the overall strategy to drive traffic and increase average check. The company is also exploring initiatives to grow sales of alcoholic beverages in its restaurants. Alcoholic beverage sales accounted for only about 2.3% of total sales in fiscal 2018 and approximately 2.2% of total sales for the nine months ended May 31, 2019. Additional growth initiatives include increasing off-premises sales, piloting a rewards program, and improving its mobile application. As for increasing profitability, its IPO filing said:

During our U.S. expansion, we have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we continue to grow, we expect to drive higher profitability both at a restaurant-level and corporate-level by taking advantage of our increasing buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize labor costs at existing restaurants as our restaurant base matures and AUVs increase. We believe that as our restaurant base grows, our general and administrative costs will increase at a slower rate than our sales.

Many Americans only know of sushi by the traditional sushi bars where sushi, sashimi and rolls are made by a sushi chef behind a typical glass sushi bar counter. Kura Sushi USA is the conveyor belt version of sushi. Many restaurants have come public that offer sushi items on their menu.

24/7 Wall St. looked up outside and independent data for investors to consider. According to IBIS World, the U.S. annual growth rate for sushi has been 4.8% from 2014 to 2019, with sales having risen to $22 billion from 18,651 businesses selling sushi. The group also called the U.S. sushi scene a highly fragmented market mainly made up of small owner-operator establishments with no single company having major market share.