Kura Sushi USA Inc

NASDAQ:KRUS

Earnings Call Analysis

Fiscal 2024 Starts Strong, Expanding Units

The company kicked off Fiscal 2024 with robust improvements in restaurant-level operating margins and adjusted EBITDA, alongside the opening of 6 new units and 7 more under construction. Sales reached $51.5 million, representing a 3.8% comparable sales growth which was primarily traffic-driven. Commodity costs decreased, leading to an overall cost of goods sold at 29.8%, compared with 31.6% from the previous year. Operating profit margins rose to 19.5% from 18.3%, and adjusted EBITDA grew about 200% from $0.6 to $1.8 million. The company plans to open 12-14 new units and expects total sales between $239 million to $244 million in FY2024. The anticipated capital expenditure per unit is roughly $2.5 million, with general and administrative expenses forecasted to maintain at approximately 14.5% of sales.

Kura Sushi Starts Fiscal 2024 with Strong Sales and Improved Margins

Kura Sushi USA, Inc. demonstrated a robust start to fiscal year 2024, with President and CEO Hajime 'Jimmy' Uba expressing satisfaction with the company's progress across key goals. They have focused on maintaining superior operations, growing their restaurant count rapidly, and utilizing their general and administrative (G&A) expenditure more efficiently. The total sales for the first quarter stood at $51.5 million, a 3.8% increase in comparable sales growth from the previous year. This boost was largely driven by customer traffic. The pricing strategy has also been adjusted to ensure ongoing sales momentum while accounting for macroeconomic factors. The company has been successful in managing commodity costs which have significantly decreased as a percentage of sales from the prior year, and labor costs have also remained stable, leading to an impressive improvement in restaurant-level operating profit margin from 18.3% to 19.5% and a 200% increase in adjusted EBITDA to $1.8 million.

Expansion and Guidance on New Unit Openings

During the fiscal first quarter, Kura Sushi expanded its footprint by opening four new restaurants, with two additional openings following the end of the quarter. This rapid growth has led to an increased forecast for new unit openings, with the current count at seven units under construction. The company is adjusting its unit opening guidance upwards for fiscal 2024, reflecting the positive reception of their brand in both new and existing markets. A newly updated loyalty program has shown promise with sign-ups tripling compared to the previous iteration. This, along with strong brand collaborations, such as the popular Peanuts and the anticipated Spy x Family, suggests further positive engagement and potentially higher revenue streams.

Financial Results and Optimistic Projections

Kura Sushi's CFO, Jeff Uttz, detailed the financials, noting an operating loss of $2.8 million which was slightly higher than the prior year's $2.2 million. Nevertheless, the company enjoyed increases in sales, with notable regional growth in the West Coast market. A reduction in general and administrative expenses as a percentage of sales was offset by costs related to new unit openings, but the overall financial stance is healthy, with $64.2 million in cash and no debt. Looking ahead, Kura Sushi expects total sales for fiscal year 2024 to be between $239 million and $244 million, with 12 to 14 new units forecasted to open, each with an average net capital expenditure of approximately $2.5 million.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note that this call is being recorded.

On the call today, we have Hajime "Jimmy" Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President of Investor Relations and System Development.

And now I'd like to turn the call over to Mr. Porten.

[Benjamin Porten, executive]

Thank you, operator. Good afternoon, everyone, and thank you all for joining. I now everyone to go back to us for our fiscal first quarter 2024 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC.

Before we begin our formal remarks, we need to remind everyone that part of our discussion today will include forward-looking statements defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on. These statements are also subject to numerous risks and uncertainties that could cause actuals to differ materially from what we expect. We refer all of you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Also during today's call, we will discuss certain non-GAAP financial measures, that can be useful in evaluating our performance. Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and the reconciliations to comparable GAAP measures are available in our earnings release.

With that out of the way, I would like to turn the call over to Jimmy.

[Hajime Uba, executive]

Thanks, Ben, and happy New Year to everyone joining us today.

Fiscal 2024 is off to an exceptionally strong start with meaningful improvement in restaurant-level operating profit margin and adjusted EBITDA as well as 6 new units opened to date with another 7 under construction. Our goal for this fiscal year remains the same as last year, maintain excellent operations, continue to rapidly grow the number of our restaurants, and leverage our G&A against an increasingly large restaurant base. I'm pleased to say that we are continuing to make excellent progress on all 3 fronts.

Total sales for the fiscal first quarter were $51.5 million representing comparable sales growth of 3.8%, with [indiscernible] growth in response for 3.3% of our overall comp. Sales momentum has accelerated since our last earnings call as implied by the 110-basis point improvement over the blended September, October comps of 3.7%, with the improvement being driven entirely by traffic. The fixed table price was 9% during the fiscal first quarter. As of the last week of December, we upped 7% in price which will be partially offset in just January is pricing of approximately 1%. Our current 3% FX pricing is a return to our historical pricing cadence which reflects our confidence in the ongoing normalization of our plan costs as well as a strong strategic decision to best take advantage of current macro factors to maintain traffic growth and the capital market share.

Commodity costs have seen a marked improvement over the prior year quarter with our cost of goods sold as a percentage of sales coming up 29.8% for Q1, as compared to last year's 31.6%. Labor costs have largely remained the same, up 31.6% as compared to prior year quarter of 31.9%. Restaurant-level operating profit margins improved from 18.3% in the prior year quarter, 19.5% and adjusted EBITDA from $0.6 million to $1.8 million, representing year-over-year growth of approximately 200%.

As mentioned that much of adjusted EBITDA growth was driven by improvements in commodity costs, but it is truly encouraging to see such dramatic growth even while we faced headwinds associated with 404(b) compliance on restaurant-level headwinds associated with a record number of new restaurant openings and units under construction. I believe this adjusted EBITDA growth is only a test of what we can expect in future years as we grow our unit base as a company and even better able to leverage our G&A.

In the fiscal first quarter, we opened four new restaurants: Pittsburgh, Pennsylvania; Flushing, New York; Tampa, Florida, and Naperville, Illinois. Subsequent to the quarter end, we opened two more new restaurants in Kansas City, Missouri, and Skokie, Illinois. Ultimately, we have 7 units currently under construction.

Accordingly, we are excited to increase our unit opening guidance for fiscal 2024, which Jeff will expand on shortly. The incredible reflection that we have seen as we establish our service in new markets demonstrate [indiscernible] of Kura Sushi and the performance of new units in existing markets is confirming of our expectations that the [ main ] consumer appetite position more than enough to sustain our in-feed brands.

It's been a couple of months since we launched a new version of our U.S. program, and I'm very pleased that you'll be able to share that are momentum that we discussed in our previous earnings call has remained just outperformed. The restoration rate of new members are approximately tripled what there with the previous program and given that these are all new users, we expect greater engagement on a per user basis and the overall cohort of the previous U.S. program.

While it is still very much early days in terms of the new revised program, and our earnings on a base level achieved, we expect to give more concrete update in future earnings calls in terms of newly unlocked opportunities and its potential to drive incremental revenue.

Our current ID collaboration, Peanuts has been very well received by our guests. Our next brand collaboration is Spy x Family, and [indiscernible] pipeline for the remainder of the fiscal year is the strongest [indiscernible]. As we enter the new year, I'd like to thank all of our team members, both at our restaurants and at our corporate support center for all of their hard work, which has allowed us to [indiscernible] revenues quarter after quarter on our earnings call.

And with that, I'll turn it over to Jeff to discuss our financial results and the liquidity. Jeff?

[Jeff Uttz, executive]

Thank you, Jimmy.

For the first quarter, total sales were $51.5 million as compared to $39.3 million in the prior year period. Comparable restaurant sales performance as compared to the prior year period was positive 3.8% with regional comps of 9% in our West Coast market and 1.3% in our Southwest market.

Turning now to costs. Food and beverage costs as a percentage were 29.8% as compared to 31.6% in the prior year quarter, largely due to pricing and the easing of commodity inflation. Labor and related costs as a percentage of sales decreased to 31.6% from 31.9% in the prior year quarter. This decrease is due to sales leveraging from increased traffic and pricing, which was largely offset by increased training costs associated with new store openings and general wage increases. Occupancy and related expenses as a percentage of sales were 7.6% compared to the prior year quarter 7.3% due to incremental preopening rents associated with a greater number of units under construction. Depreciation and amortization expenses as a percentage of sales increased to 4.8% as compared to the prior year quarter's 4% largely due to the additional newly opened units as well as the accelerated depreciation of assets that are being replaced due to planned remodels.

Other costs as a percentage of sales increased to 14.7% compared to 13.5% in the prior year quarter due mainly to preopening costs associated with a greater number of store openings as well as an increase in marketing costs and general cost inflation.

General and administrative expenses as a percentage of sales decreased to 16.7% as compared to 16.9% in the prior year quarter due to greater sales leverage, which was largely offset by incremental public company costs and recruiting and travel costs associated with new unit opening.

Operating loss was $2.8 million as compared to an operating loss of $2.2 million in the prior year quarter, largely driven by incremental other costs, depreciation and amortization and occupancy associated with the greater number of unit openings and units under construction.

Income tax expense was $38,000 compared to $10,000 in the prior year quarter. Net loss was $2 million or $0.18 per share compared to a net loss of $2.1 million or $0.21 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.5% compared to 18.2% in the prior year quarter. Adjusted EBITDA was $1.8 million compared to $0.6 million in the prior year quarter.

Turning to our cash liquidity. At the end of the fiscal first quarter, we had $64.2 million in cash and cash equivalents and no debt. And lastly, I would like to update and reaffirm the following guidance for fiscal year 2024. We now expect total sales to be between $239 million and $244 million. We now expect to open between 12 and 14 units with average net capital expenditures per unit of approximately $2.5 million, and we continue to expect general and administrative expenses as a percentage of sales to be approximately 14.5%.

Now I'll turn it back over to Jimmy.

[Hajime Uba, executive]

Thanks, Jeff. This concludes our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions. As a reminder, during the Q&A session, I may answer in Japanese before my response is translated into English. Thank you for your attention.

[Operator]

[Operator Instructions] Our first question comes from the line of Joshua Long with Stephens.

[Joshua Long, analyst]

Just curious if you could share a little bit more about the unit development pipeline and what seems to be a nice strengthening in that. I know in the prior call, you talked about the potential for upside to the unit the new unit of the pipeline for the year. That seems to be coming into fruition. Just curious if this is a function of site selection, maybe if permitting has gotten any better. Anything you could share there in terms of just how the new stores are coming together.

[Hajime Uba, executive]

Sure. Thank you, Jeff, for your thoughtful question. Please allow me to speak in Japanese, Ben will then translate it. [Foreign Language].

[Benjamin Porten, executive]

[Interpreted] So as Jimmy mentioned in the prepared remarks, so you have 7 units under construction. We're extremely pleased to be able to say that three of those are pretty far into construction. And so we're very happy with where we are. It's one of the reasons that we were confident in terms of raising our guidance. In terms of the permitting delays that we've mentioned in the past fiscal year, those have meaningfully eased, and so we're very happy with the rollout and how smooth it's been this year.

[Joshua Long, analyst]

Great. That's very helpful. And thinking maybe more about the performance of newer stores. It sounds like that's pretty strong. Could you give a little bit of extra context or color in terms of just how the results for the quarter performed versus your expectations? I know there's always going to be a little bit of difference in between what you all see and how we model it, but I'm thinking particularly in terms of just kind of how average weekly sales growth was growing through the quarter. And maybe if at some point, we kind of get away from looking at this on a multiyear stack comparison. I know we're getting further away from kind of COVID and some of those disruptions. But just curious if you're trying to see any sort of normalization there? And any sort of commentary you could share on how new store performance is unfolding?

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] In terms of new restaurants, fiscal '23 has been a record year. This year, we've already opened 6 to date. And so we've had a lot of new openings. In terms of the major new markets that we've hit, we've entered Minneapolis. We've opened a couple of restaurants in New York, we hit Pittsburg, we're in Tampa. It's been a pleasure really to see how warm the reception has been in each of these markets. And every time you enter in a new market, it's just a confirmation of the portability of our concept. And so it's really encouraging for us.

And in terms of the existing markets, we've opened a couple of New Jersey, Chicago, the Atlanta area, and those are all doing very well as well. As Jimmy mentioned in the earlier prepared remarks, there's abundant appetite for Sushi across the United States. And so we feel very confident. But not only in terms of our existing -- our new markets, which are gangbusters, but infilling our existing markets as well.

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] So -- and in terms of the multiyear stack, we're not -- if I'm -- if we're being totally frank, we're not internally doing a multiyear stack anymore. We've returned to normalcy. And so we're very pleased to be able to say that.

[Joshua Long, analyst]

Great. That's helpful. And then one last one for me. In terms of the food deflation or just the overall COGS basket that you talked about in your prepared remarks, I think also in the past, there was conversation around the potential to reinvest in food quality or other areas if the food cost margin went materially below 30% was just as kind of a starting point. So I realize it's probably early on in build process, and there's still a little bit fluidity there. But could you just remind us how you're thinking about the food cost line and when and where some of the pivot points or thought process might lie in terms of the potential for seeing leverage or maybe reinvesting in that line item?

[Jeff Uttz, executive]

Josh, it's Jeff. Yes, the 30% number that -- on the COGS line is something that we're very happy with. It's something that we would like to see a little bit lower and it has gotten lower. In terms of deflation, just to give you the numbers of what we've seen this year, year-over-year, our deflation was about 4%. And sequentially, quarter-over-quarter, our deflation was about 2%. So that deflation, combined with the price increases that we've taken over the last year, and as Jimmy mentioned, we did take about 1% on January 1, we believe that with the price increases and the deflation that we're going to be successful in having that COGS number show up even a little bit below 30%. But as we've mentioned in the past, there's a floor to that. If that COGS number were to get somewhere at 27%, 28%, that may be a little bit too low, and then you do risk hurting your food quality, which is not something we're going to do. So as long as we can keep that number in the very, very high 20s or right around 30%, we're going to be happy.

[Benjamin Porten, executive]

In terms of reinvesting that, some things that we've done materially significantly improved the quality of our cold proteins, especially tuna and salmon. Very pleased to be able to say that we've done that while also lowering our COGS cost. And so that's really been pretty remarkable for us. One other thing that we'd like to do is our LTOs. For example, in December, we did a crab fair. Very high-quality crab. Winter is crab season in Japan. And this was one of the most popular LTOs ever. And I think our guests really enjoyed and sort of appreciated that we were giving back to our guests through crab.

[Operator]

Our next question comes from the line of Jeremy Hamblin with Craig-Hallum.

[Jeremy Hamblin, analyst]

Congrats on the strong results. I wanted to just come back as there's a little bit of a breakup in the audio in some of the commentary around menu pricing as well as same-store sales color. Apologies for going back over some of this. But I want to make sure that I understood a, kind of the cadence of comps color that you shared throughout Q1. And then two, I think what I heard on the menu pricing was that you're carrying 3% overall in Q2. And then kind of the comp on the West Coast versus the other regions or in the Southwest region, if we could start with that, that would be great.

[Jeff Uttz, executive]

Yes. So the pricing that we ran, Jeremy, in Q1 was 9%. We did take the -- we lapped the 7% pricing in December, and then we took the 1% at the beginning of January. So we're currently at 3% pricing. We're very, very happy with where the comp number came out. And what we really want to play everybody back to is that traffic number. The traffic of 3.3% that we saw in Q1. And as you know, listening to conference call still throughout the year. Very few concepts have been able to have positive traffic. And we looked at that number. And as long as we can keep people coming back in the door and keep our existing guests coming back, we're going to be very happy. And that's one of the things that we can control through great service and great food quality. We continue to do that, and we believe that our guests are going to keep coming through that door and keep that traffic positive. And if we can do that, we're very positive that we can, it's going to be a good year for us.

[Benjamin Porten, executive]

And just to add on the cadence, given that the audio broke up a little bit, we gave September and October comps last earnings call. It was 2.7% and -- so you can assume that the comps for November were much stronger given that we came in at 3.8% for the full quarter. And given that we didn't take any price during that quarter, the acceleration was driven solely due to traffic. So back to Jeff's earlier point, we're very, very pleased to see that we're operating, executing so well that more guests than ever are coming in through our doors.

[Jeremy Hamblin, analyst]

Got it. And I think there was some commentary on the West Coast versus the Southwest market comps also. I just want to clarify.

[Benjamin Porten, executive]

Yes. Give me one second.

[Jeff Uttz, executive]

I have the numbers here. It is over the top of my head, Jeremy. 9% in the West Coast and 1.3% in the Southwest markets.

[Jeremy Hamblin, analyst]

Got it. And so then just coming back to comp overall in terms of where the menu pricing was, traffic up really strong, 3.3%. Are you still seeing a little bit of reduction then in average plate consumption? And -- go ahead.

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] On a sequential basis from Q4 to Q1, plate consumption per person has actually gotten up. And on a year-over-year comparison, it's about flat. And so we're really happy with where plate consumption is.

[Jeremy Hamblin, analyst]

Got it. And then I wanted to shift gears to your labor costs. And you see that had some nice 30 basis points of leverage year-over-year. I think minimum wage in California on January 1 is up about 3.2%. But wanted to get an outlook of what you're thinking about, Jeff, on kind of the labor market here in calendar '24, as we're moving forward. Are you seeing a little bit less pressure? I think there's also in April, the impact of the potential large-scale fast food wage laws that are going into effect, the $20 wage. But just wanted to get a sense for what you were expecting. And again, pretty nice leverage that you got on a 3.8% comp.

[Hajime Uba, executive]

I'm happy to answer this question, Jeremy. [Foreign Language].

[Benjamin Porten, executive]

[Interpreted] In past earnings calls, we've mentioned that about -- I think until about Q3 of last year, the year-over-year labor inflation was about 10%. It's since moderated to mid-single digits, and that is including the annual minimum wage increases in California, with the 1%-ish pricing that we took as of January, we believe that that's enough to offset the labor increases and really keep our margins flat year-over-year. You asked about AB 1228, previously noted the FAST Act. We're very pleased to be -- I think we're pretty much the only concept that is saying that we see this as an opportunity.

We -- in terms of our California markets, our employees are already making wages that are competitive with the $20 that people are going to be making at QSR. And so obviously, QSRs need to take an aggressive price to be able to offset that. And so we see this as a meaningful opportunity to grow market share as -- up until now, the conversation has really been, do we go to Kura Sushi or do we go to other casual dining places. Now it's -- do we get a combo meal at the burger place or do we get Kura Sushi, and that's one of the reasons that we're running 3% prices. We really want to demonstrate to the world at large, not just our existing guests, how great value Kura Sushi is.

[Jeremy Hamblin, analyst]

Got it. That's a great point. Last one for me and I'll hop out of the queue. Just wanted to ask about some of the recent collaborations, right? You've partnered with Peanuts and Snoopy in December here into January. I wanted to get a sense for how that promotion was performing, seems to be generating a decent amount of buzz.

[Benjamin Porten, executive]

Yes. We're really pleased with the December results. And Peanuts collaboration is certainly a big part of it. Our PR team gets better and better with every collaboration that we cycle through. And this time, they did a really spectacular job with what we call the space collaboration, not just the toys or the [ enemies ], but we had photo ops where the restaurants were decked out like a Charlie Brown Christmas. We had little, big Snoopy figures on our Mr. Fresh dome. And those would go mysteriously missing. And so just for a part of that, you can really take a higher price than that, certainly not encouraging guests to do that, but it was -- it was nice to see people were so -- that excited about it. And as Jimmy mentioned earlier, we've got Spy x Family as our next collaboration and then we've got two more after that for the remainder of the fiscal year. This is the best pipeline we've ever had. I could not be more excited. I wish I could tell you what they were right now, but you're going to have to wait until the next call.

[Operator]

Our next question comes from the line of Sharon Zackfia with William Blair.

[Sharon Zackfia, analyst]

Jeff, I have to confess, I was a little surprised that you raised revenue guidance this early in the fiscal year. So -- but I'm curious on the $1 million raise. Was it anticipated in initial guidance? Was it the opening schedule better -- is it just [Technical Difficulty] in the business?

[Jeff Uttz, executive]

Sharon, you're cutting out a little bit on my end, but I think I got the gist of your question.

So as Jimmy mentioned earlier, one of the questions that was asked, the -- the cadence of the opening is going quicker than we had expected, which is why we decided to raise the guidance. We feel that we're going to have some more operating weeks and have an additional unit come in at the end of the year, which is why we're raising $1 million and not more than that.

To talk about some of the things that have been happening with the openings in the markets that we're opening in, we have seen some of the permitting problems that we did have last year ease and some of the site selection has been really good. And landlords are excited about getting us in. And I was talking to our Chief Development Officer recently, in fact, last night and he was telling me that landlords are getting their work done quicker because they want to get us in and they're excited about having Kura Sushi as part of their portfolio. And the quicker that they can get their work done, the quicker that we can get our work done and we can get open, and we're seeing that happen, which is why we raised the guidance a little bit. I wanted to get through the first quarter and kind of see how that played out. We thought that that's how it would be, but we wanted to get through the first quarter and kind of watch what happened before we raised the guidance. So that's why we are where we are now.

[Sharon Zackfia, analyst]

Very helpful. And then on the traffic improvement you saw in November, pretty meaningful, we can all kind of do the math. I mean, is there anything in particular you attribute November to or in hindsight that you attribute prior 2 months to be in a little bit than November.

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] We would attribute the acceleration in traffic in November largely for our new rewards program, we're very pleased with its capabilities. Part of it was in November, we were just thinking a push to migrate more of our existing users sort of a final push. And so we had a promotion around that. In December, we started a promotion where -- this is the first time we've ever done this, and something that we can only do because we have a rewards program that can track this kind of thing where -- but we made an offer where if you come twice in December, you get a 20% off coupon for January. And so that was very good for driving traffic in December. And obviously, it's going to be a traffic driver in January as well when people come to redeem that coupon.

[Sharon Zackfia, analyst]

I mean the robotic dishwasher, which I know we're all very excited about. I think [Technical Difficulty] tested in the spring. I'm just wondering if that's still on plan and went really well. What could the time frame look like for a rollout into new units going forward?

[Benjamin Porten, executive]

Yes. So we are still in -- we are still on Phase IV a test in spring. I'm very much looking forward to it. I'd say that the technology is largely ready. It's just a matter of getting it battle tested. There's -- it's a little bit tricky to go from the prototype to the mass market models or the mass-produced model, just given that there are some material changes. And so I think it's safe to assume that it's going to be at least 12 months from when the mass-produced model is finalized. And at that point, I can get the actual parts list and bring it to the regulatory organizations. But that's a pretty opaque process. And so it would probably be 12 months minimum from testing. And then it would just -- the timing for which stores we can plan ahead in terms of the layout to accommodate the robot dishwasher.

[Operator]

Our next question comes from the line of Jeffrey Bernstein with Barclays.

[Jeffrey Bernstein, analyst]

Great. A couple of questions on the comp trend. The first one, I think for the fiscal quarter, you did a 3.8% and I think you said the pricing was 9% and the traffic, if I heard right, was the 3.3%. So that would imply, I guess, a negative 8 or so mix. And I think you said the plates were flat. So I guess it sounds like an ongoing maybe non-sushi check management. I'm just wondering how you think about that negative offset, whether you see that as a concern or whether that concern is abating, kind of a missing component of presumably the meaningful negative mix shift kind of how you think about that?

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] So in terms of the negative mix, it's certainly there, but we don't really think of it as a concern. Our focus remains traffic. Our marketing is geared around that. Our overall strategy is geared around that. We think that's the hardest part and really where we shine brightest, especially in comparison to our peers.

In terms of average check management, we think of that actually is a unique feature for guests that comes from our service model. Guests can come in no matter what their budget is. And that's one of -- we never price people out, and that's one of the reasons that our traffic is doing so strongly. But in spite of that mix pressure, our restaurant-level operating profit margin is 19.5%, a meaningful improvement over the 18.2% last year. And so -- our thought again is traffic is our focus. We can leverage our fixed costs against traffic, and that gets us the margins that we like.

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] That being said, of course, we love it when our guests do have greater attachment side menu items, et cetera. And so we do have some promotional campaigns in the pipeline that are geared towards improving guest spend.

[Jeffrey Bernstein, analyst]

Understood. And then as we look forward, I think I pieced together from an outlook perspective on comps. Based on the September, October, it seems like the November was roughly 6%, and I guess if the pricing was similar for sure, that's a nice uptick. So I'm just wondering one, I want to confirm that was right. And then I think on December, I thought you said that you were really pleased. I wasn't sure if that was reference to the overall comp? Or how we should just think about the outlook, whether or not it's fair to assume a mid-single digit type comp sustains with still positive traffic and the pricing in that 3% range, just trying to figure out the outlook first on the December and then what we should be thinking about for the rest of the year based on those components?

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] So yes, in terms of the November coming in at about 6%, your math is right there. Looking at December, we did lap at 7% pricing in the first week. But as we said, we were very pleased with our traffic performance, our overall comp performance. We're confident that with our ongoing traffic strength and our marketing efforts, the IP pipeline that we have, menu development, that we'll be able to maintain this very strong momentum through the remainder of the fiscal year. We're very happy.

[Jeffrey Bernstein, analyst]

Understood. Now that's encouraging despite, I guess, concerns of a slow in consumer. So good to hear. My last question was just on the cost side of things. Just a clarification. I think you said the commodities were 4% deflation in the first quarter. I'm just wondering what the labor was for the first quarter and maybe the expectation for each of those for full year fiscal '24.

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] In terms of labor, you've seen about mid-single digits inflation year-over-year, but we were able to come in 30 basis points below the prior year, 31.6% against last year's 31.9%. And so we're feeling that the operational efforts that we've made the -- as well as the pricing that we've taken come into play there. And we're very pleased that we were able to not just stay flat but actually improve our labor margin.

[Jeff Uttz, executive]

And then you're right, from quarter 1 of fiscal '23 to this year quarter 1, it was about a 4% deflation. And then sequentially from Q4 of this past fiscal year to Q1, it was about 2%.

[Jeffrey Bernstein, analyst]

Got it. And just to clarify, Ben, did you say -- I mean, I know depending on how we look at restaurant margins, it varies, but based on your calculation, it was 130 basis points of expansion. But you said you expect the restaurant margins flat in fiscal '24, with the 3% price for the rest of the year? Or were you referring to the labor line? I think that prior question someone was asking about labor. But I thought you had mentioned that you were comfortable with restaurant margins flat. So I just wanted to clarify if you have any kind of forward-looking thoughts on the remaining 3 quarters from an overall margin perspective?

[Benjamin Porten, executive]

Yes. If you look at our historical margins, they've had to lever pretty meaningfully every quarter. And so you can just assume that the same as historically they're going to continue to improve as we have greater traffic that we can -- and greater sales that we can leverage against our fixed costs. The comment about the 3% pricing that we took, we felt was enough to offset not just our labor cost our -- well, we've got a COGS tailwind. We do have some other cost general inflation, but the 3% that we thought was enough to pretty much offset all of those inflationary pressures.

[Jeff Uttz, executive]

And I'll also add too, Jeff, on the restaurant-level operating profit as a percentage of sales, as I mentioned in my prepared remarks, we had 130 basis points of leverage there from 18.2% to 19.5%. So with a lot of tailwinds, our pricing, the commodity deflation, the easing of labor inflation, so the tailwinds have been great this past quarter, and we fully expect that to continue for the remainder of the year.

[Operator]

Our next question comes from the line of Jon Tower with Citigroup.

[Jon Tower, analyst]

Just a few, if I may. And I apologize if you might have hit this earlier at our time here and some of the stuff. But on the loyalty program, I'm curious, how have registration hit versus your own expectations? And how is it seems as if for Ben's comments earlier, at least around the promotion of -- in December, where you can come in twice and get 20% off in January. One, I don't know if that was only reserved for loyalty members or not. But how is this working overall the loyalty program to drive frequency, ticket and/or, frankly, any sort of customer insights that you might not have had previously?

[Benjamin Porten, executive]

Yes. So generally speaking, whenever you talk about a promotion, you can assume that it's limited to our rewards members. I don't know if you recall in the last earnings call, it was November, our rewards program has just been out for a couple of weeks, we mentioned that the registration rate had doubled as compared to the prior program. We sort of assumed that would level off, that was due to the initial excitement. But I'm not sure if you heard in today's call because the audio is a little bit garbled, but the registration has actually tripled in comparison to the last program. So it hasn't leveled off. It's actually accelerated. So I think it's very fair to say that it's far exceeded our expectations. We're very pleased with it. I think it's still a little bit premature to be discussing guest insights, but just engagement is great. The things that we can do, the kind of campaigns that we can deploy are at a completely different level. Certainly, the next earnings call will have a lot of good news that we'll be able to share with you.

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] Yes. And that visiting twice in December to get that 20% off in January, that slipped only for rewards members. In fact, the improved rewards platform has enabled us to actually do that for the first time.

[Jon Tower, analyst]

Got it. And just -- I know last quarter, you also discussed the idea about communicating kind of some of the upgrades on the waitlist system and/or kind of the rolled out cell phone ordering at the table to consumers as a potential lever. Did you guys push that during the quarter at all? And if so, what was the uptake of either?

[Benjamin Porten, executive]

Yes. In terms of the waitlist app, attrition -- so guest attrition has dropped from 25% to below 20%, a very meaningful improvement. We're very, very happy with it. And we think it's one of the reasons that our traffic is continuing to improve.

In terms of the mobile phone ordering, that is still limited to two restaurants. We're going to start testing later this -- we're going to -- the testing is complete. It's feature complete. Really, I think the biggest factor is that we -- we've had some trouble figuring out exactly what to name it. When we have a button called mobile ordering or I think our guests are assuming it's like a takeout button. And so we're changing into smartphone ordering, which I think is a clear explanation of exactly what it can do. And for people that are new to this on the call, it allows -- this program allows you to use your cell phone to place orders as well, which doesn't sound very exciting until you've been at a restaurant with a party of 4 or more and you're sitting on the outside and you can't order from the panel and you don't want to reach over people and grab stuff.

And so we're very excited about this especially in terms of mix, we think it's a meaningful opportunity for side menu attachment rates to go up. And so yes, that's -- the rollout is starting in January, and it's going to be on a rolling basis, should be -- my expectation is that it will be done in the next 2 quarters, hopefully, next quarter.

[Jon Tower, analyst]

Got it. And then just, I guess, following up on the U.S. TAM. I know you previously talked about the idea of getting to about 300 stores. And it seems like new store productivity volumes and certainly traffic all seem to indicate that your brand is resonating particularly well with consumers despite whatever the macro had been doing over the past 24 months and obviously, prior to that as well. So I'm curious if and when you guys think about that number, it appears dated at the moment. Do you guys have any more thoughts on where that should go over time?

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] So it still remains a topic of discussion in terms of when we're going to commission the new whitespace study. Obviously, we know that people are excited for that. And so we're excited to hear that with the street whenever we do decide to commission the whitespace study. We communicated many times in the past that the 300 units that we initially gave at the time of the IPO, we think is conservative, not just because it was a conservative number to begin with, but because of the market fragmentation and the sheer number of restaurant closures in the Japanese segment as a result of COVID. We think that's fundamentally changed our opportunity in the United States. But again, as you mentioned, we're rolling along. We've got 56 units against that initial 300, and so we're not in a rush necessarily. We don't see a need to see however many hundreds of units into the future. But I don't think anybody -- certainly not anyone on this call expects 300 to be our ceiling.

[Operator]

Our next question comes from the line of Todd Brooks with Benchmark Company.

[Todd Brooks, analyst]

Just a couple left here. Jeff, on the other cost line, given the success in accelerating the opening pipeline, is it safe to take the kind of Q1 level of spend and then obviously apply a low leverage as the volumes increase in the back half. But how should we be thinking about that level of spend as we go forward through the year?

[Jeff Uttz, executive]

That's exactly how you should think of it, Todd. We're going to continue our opening phase. As you know, we raised the guidance to 12 to 14 units. So we're going to continue to open units as quickly as we can. So we're going to continue to see those large preopening expenses. And that's really what impacted other costs the most throughout the quarter was the preopening expenses associated with opening these restaurants. As you a lot of restaurant companies in the past have broken out preopening expenses as a separate line item on the financials, which is looked down upon now, so we don't do that. But you can see what our preopening expenses were in our adjusted EBITDA reconciliation in the Q.

So as we continue to open restaurants and we have more topline revenue to get the leverage, you're thinking about it exactly right. It's going to leverage a little bit, but they're still going to remain elevated. I wouldn't take -- think about a lot of leverage going forward necessarily this year on the preopening costs. But as we get through the year, you will get some. And again, next year more and next year more. Similar to G&A really is how I'm kind of thinking about it because unless we start opening 50 stores sometime, we're going to continue to have enough stores where that additional revenue from the stores we have opened will significantly offset that. But right now, it is giving us some higher costs in the other cost line.

And in the labor line as well. Our preopening costs are sprinkled throughout our P&L. They're not stuck in just one line. They're in labor, it's in occupancy. That's another reason the occupancy was high too. Nobody asked about occupancy yet, but we have to start booking rent expense on restaurants when we take possession of the building. So when it takes 4 or 5 months to build the restaurant, we're having noncash rent expense hit our books. And because of the accelerated openings, that's why you see our occupancy line a little bit higher than I think some people expected it to be this quarter as well. But it's a good thing. We're opening restaurants and they're going to start pushing through revenue and make profits, and we're excited to see this happening.

[Todd Brooks, analyst]

That's very helpful. Thanks, Jeff, and agree that if it's tied to accelerate unit openings, it's a great thing. Just one follow-up there, and then I'll hop back in the queue. Within the other you talked about marketing costs being up. Is this just preopening marketing for new units? Or is there something that you're doing additionally on the marketing side that would bump that cost line up?

[Hajime Uba, executive]

[Foreign Language].

[Benjamin Porten, executive]

[Interpreted] So as some context, last year in December, we started investing in targeted marketing search engine optimization with Google across its channels. It's been exceptionally -- it's been very cost effective. We're very happy with it, which is why we've kept it as part of our marketing suite. But -- so this is really just a year-over-year comparison given that we started in December. This was the first and last Q1, where we didn't have that cost last year. As of Q2, we're going to be doing an apples-to-apples flat comparison. So it's not like we started something new in Q1. This is really just the tail of a year-over-year comparison.

[Operator]

Our next question comes from the line of George Kelly with ROTH Capital Partners.

[George Kelly, analyst]

So most of my questions have been asked, but just one last one for you. Related to CapEx. And I was curious what's a good sort of percent of sales to use just generally for maintenance CapEx? I know it's 2.5% per restaurant, but wondering about maintenance CapEx. And if we look back over the last year or 2, has there been kind of a post-COVID catch up on some maintenance CapEx? Or just curious if there's been anything sort of not normal in the more recent periods.

[Jeff Uttz, executive]

So a couple of things, George. For maintenance CapEx, we said in the past, it runs about $100,000 per res. Once a restaurant is open, your ongoing maintenance stuff that we're capitalizing. And in terms of catch-up, there's not necessarily so much of a catch-up, but when you look at our depreciation line on the P&L, what you're seeing is a lot of accelerated depreciation in there because we've done several remodels, we changed our logo sometime before I joined the company, but we haven't changed the signage yet. So we're changing a lot of our signage to the new logo. And when we make that decision, and we have a date for when that time is coming down, we have to accelerate depreciation. We also have a lot of protective equipment that we have in the restaurants for COVID that we kept on the books just so we make sure the COVID emergency was over and now that we have to write those off as well. So there are several unusual things hitting our depreciation line. But that's kind of how I think you should look at it like I said, $100,000 or so for us for maintenance CapEx.

[Operator]

Our next question comes from the line of Mark Smith with Lake Street Capital.

[Mark Smith, analyst]

Similarly, I think most questions have been asked here. But just one for me. As we look at G&A, there's a little bit of litigation accrual. Did that fall in there? And was there anything else that was kind of onetime-ish? It looks like you're expecting some pretty good leverage there. I just wanted to see if there was anything else that was maybe onetime-ish in nature?

[Jeff Uttz, executive]

Yes. The litigation accrual of $205,000 was the biggest onetime piece. And if you back that out, the number came almost exactly where we expected it to come out for the quarter. The thing you're going to see going forward for the rest of the year, and we're -- if you look at our guidance, we're projecting about 50 basis points of leverage when we had 80 basis points last year. And the reason we're not expecting as much leverage this year is this is our first year because this is our sixth year as a public company, which means that we now have to be 404(b) complaint, which has created quite a bit of additional auditor costs and some consulting costs to make sure that we are completely 404(b) compliant when we need to be. So the additional public company costs create a little bit of a headwind there. But you know what, 80 last year, plus 50 this year, 130 bps over 2 years is pretty good.

[Operator]

Thank you. We have reached the end of our question-and-answer session. And with that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]