6. Kura Sushi USA, Inc. (NASDAQ:KRUS)
Number of Hedge Fund Holders as of Q4: 16
12 West Capital Management’s Equity Stake: $50.4 Million
Kura Sushi USA, Inc. (NASDAQ:KRUS) is a Japanese conveyor belt sushi restaurant chain founded in 1977. Headquartered in Sakai, Osaka, the company is the second-largest sushi chain in Japan, operating 543 locations in Japan, 56 in Taiwan, and 70 in the United States. It reported strong quarterly performance, with revenue increasing by 25.2%, driven by both store expansion and improved same-store sales. Comparable store sales rose by 1.8%, reversing a previous decline, and are expected to continue growing throughout the year. During the quarter, the company added six new locations, contributing to a total increase of 16 stores compared to the prior year, representing a 26% expansion. Given this pace, the company’s forecast of 15% fiscal-year growth appears conservative.
Although Kura Sushi USA, Inc. (NASDAQ:KRUS) faced some margin pressure due to expansion costs, the impact was less severe than anticipated. Operating efficiencies and controlled spending helped mitigate rising wages and inflation, leading to a significant reduction in corporate-level operating losses. The restaurant-level operating margin remained positive at approximately 18%, while overall operating losses declined to $1.5 million, nearly 50% lower than the previous year. While management’s guidance appeared cautious compared to analyst expectations, it reflects anticipated same-store sales growth alongside a store expansion rate exceeding 20%. This trajectory is expected to continue into 2025, reinforcing the company’s long-term growth strategy.
Kura Sushi USA, Inc. (NASDAQ:KRUS)’s balance sheet remains strong, with no long-term debt, a 50% increase in equity, and minimal liabilities: total liabilities stand at less than 0.8 times equity and 0.5 times assets. With only 70 locations in operation within the U.S., there is significant room for expansion, especially when compared to other fast-casual chains such as Chipotle Mexican Grill, which operates over 3,500 locations and continues to grow. Analyst sentiment following the Q1 earnings report has been positive, with multiple price target increases maintaining a “Moderate Buy” rating. These revised targets range from $90 to $120, with an average of approximately $103, representing a potential 15% to 25% upside.
Middle Coast Investing stated the following regarding Kura Sushi USA, Inc. (NASDAQ:KRUS) in its Q4 2024 investor letter:
“I wrote up Portillo’s briefly in Q3, where I had executed a pair trade with Kura Sushi USA, Inc. (NASDAQ:KRUS), buying Portillo’s shares and selling Kura Sushi short. That trade worked on a short-term basis, and while I unsuccessfully shorted Kura again (see below), I also decided to open a Portillo’s position.
I mentioned KRUS above. We closed our short the second time around at $90, shortly after the company’s Q3 which I thought was quite bad but didn’t really hit the stock. There’s no obvious catalyst to correct the company’s value, and I am probably missing the bull case. I only short in personal accounts.”
