On Friday, Citi adjusted its outlook on Kura Sushi USA Inc . (NASDAQ: NASDAQ:KRUS), reducing the share price target to $79 from the previous $101, while maintaining a Neutral rating on the stock. The revision comes after the company reported preliminary results for the third fiscal quarter, which included a modest same-store sales (SSS) growth of 0.6%, a figure that fell short of Wall Street's expectations.
The analyst from Citi noted that the anticipated boost from the Dragon Ball (NYSE:BALL) promotion did not significantly enhance customer traffic during the quarter. Moreover, the guidance for fiscal year 2024 suggests that the company is experiencing ongoing challenges in the current month.
A particular point of concern was the underperformance in California, where approximately one-third of Kura Sushi's stores are located. The state has been identified as the main contributor to the company's weaker than expected comparable sales, raising questions about the impact of rising wage rates on consumer spending for dining out in the region.
Despite the immediate pressures, the analyst acknowledged Kura Sushi's leading position in the $26 billion U.S. sushi market and the brand's attractive long-term prospects. However, the disappointing sales results and the subsequent reduction in revenue guidance are likely to affect the stock's valuation in the near term.
Investors are expected to closely monitor Kura Sushi's performance, particularly as the company navigates the impact of economic factors on its operations and consumer behavior. The updated price target reflects the immediate challenges faced by the company while also considering its potential for growth in the competitive dining industry.
In other recent news, Kura Sushi USA Inc. has seen a mix of financial developments and analyst evaluations. The technology-enabled Japanese restaurant chain reported solid financial performance for the fiscal second quarter of 2024, with total sales hitting $57.3 million and comparable sales growth of 3%. Despite reporting an operating loss and a net loss for the quarter, the company has maintained a robust cash position with no debt and plans to open 13 to 14 new restaurants by the end of the fiscal year.
Citi, an investment firm, has maintained a Neutral rating on Kura Sushi, but lowered the stock's price target to $101 from $124. This revision reflects the company's forecast for new restaurant openings for fiscal year 2024.
The firm noted concerns about weaker customer traffic during the quarter, which may affect the stock's short-term performance. Despite these near-term headwinds, Citi highlights Kura Sushi's strong store-level economics and its leadership position in the fragmented $26 billion sushi market as key strengths.
Piper Sandler also initiated coverage on Kura Sushi with a Neutral rating and set a price target of $114. The firm expressed admiration for Kura Sushi's unique use of technology in enhancing customer experience and operational efficiency.
Still, it is noted that the company's stock price already carries a significant premium compared to its industry peers. This influenced the decision to start with a Neutral rating. These are the recent developments surrounding Kura Sushi USA Inc.
InvestingPro Insights
As Kura Sushi USA Inc. (NASDAQ: KRUS) grapples with the headwinds highlighted by Citi's revised outlook, real-time data from InvestingPro provides additional context for investors weighing the company's prospects. The market cap of Kura Sushi stands at $925.3 million, underscoring its position in the competitive dining industry. Despite modest same-store sales growth, the company has experienced a notable revenue increase of over 30% in the last twelve months as of Q2 2024, which may interest investors looking for growth potential.
InvestingPro Tips suggest caution due to the stock trading at a high earnings multiple, with a P/E ratio recently recorded at 576.06, and a high Price / Book multiple of 5.6 as of Q2 2024. Moreover, with an EBITDA growth of 53.0% in the same period, the company shows some underlying operational strength. Still, these metrics should be balanced against the concerns raised by analysts, such as weak gross profit margins at 18.67% and a recent downturn in stock price, with a 15.07% decrease over the last month.
For investors seeking a deeper analysis, InvestingPro offers additional insights, including 16 more InvestingPro Tips for KRUS, which can be accessed with a special offer. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain a more comprehensive understanding of Kura Sushi's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.