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What changed in KURA SUSHI USA, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KURA SUSHI USA, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+252 added−302 removedSource: 10-K (2023-11-09) vs 10-K (2022-11-10)

Top changes in KURA SUSHI USA, INC.'s 2023 10-K

252 paragraphs added · 302 removed · 232 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest change(“Wismettac”). Our spend with JFC accounted for 52%, 58%, and 59% of total food and beverage costs for fiscal years 2022, 2021, and 2020, respectively. Our spend with Wismettac was 25% of our total food and beverage cost for fiscal year 2022 and 27% for fiscal years 2021 and 2020.
Biggest changeIn fiscal year 2023, we sourced through the following two major Japanese-related distributors: JFC International Inc. (“JFC”), a subsidiary of Kikkoman Corporation, and Wismettac Asian Foods, Inc. (“Wismettac”). Our spend with JFC accounted for 49%, 52%, and 58% of total food and beverage costs for fiscal years 2023, 2022, and 2021, respectively.
Marketing and Advertising We use a variety of marketing and advertising channels to build brand awareness, attract new guests, increase dining frequency, support new restaurant openings, and promote Kura Sushi as an authentic Japanese restaurant with high-quality cuisine and a distinctive dining experience. Our primary advertising channels include digital, social, traditional media, and print.
Marketing and Advertising We use a variety of marketing and advertising channels to build brand awareness, attract new guests, increase dining frequency, support new restaurant openings, and promote Kura Sushi as an authentic Japanese restaurant with high-quality cuisine and a distinctive dining experience. Our primary advertising channels include digital, social media, traditional media, and print.
Competition The restaurant industry is divided into several primary categories, including limited-service and full-service restaurants, which are generally categorized by price, quality of food, service, and location. The Kura model sits at the intersection of these two categories offering the experience and food quality of a full-service restaurant and the speed of service of a limited-service restaurant.
Competition The restaurant industry is divided into several primary categories, including limited-service and full-service restaurants, which are generally categorized by price, food quality, service, and location. The Kura model sits at the intersection of these two categories, offering the experience and food quality of a full-service restaurant and the speed of service of a limited-service restaurant.
Our competition continues to intensify as competitors increase the breadth and depth of their product offerings and open new restaurants. Seasonality Seasonal factors and the timing of holidays cause our sales to fluctuate from quarter to quarter. As we expand by opening more restaurants in cold weather climates, the seasonality impact may be amplified.
Our competition continues to intensify as competitors increase the breadth and depth of their product offerings and open new restaurants. Seasonality Seasonal factors and the timing of holidays cause our sales to fluctuate from quarter to quarter. The seasonality impact may be amplified as we expand by opening more restaurants in cold weather climates.
Although we have implemented a HACCP system for managing food safety and quality at our restaurants for sushi rice and other foods which require time and 11 temperature control for safety, we cannot provide assurance that we will not have to expend additional time and resources to comply with new food safety requirements either required by current or future federal food safety regulation or legislation.
Although we have implemented a HACCP system for managing food safety and quality at our restaurants for sushi rice and other foods which require time and temperature control for safety, we cannot provide assurance that we will not have to expend additional time and resources to comply with new food safety requirements either required by current or future federal food safety regulation or legislation.
However, we believe such uses will not adversely affect us. Available Information Our website is located at www.kurasushi.com , including an investor relations section at ir.kurausa.com in which we routinely post important information, such as webcasts of quarterly calls and other investor events in which we participate or host, and any related materials.
However, we believe such uses will not adversely affect us. 13 Available Information Our website is located at www.kurasushi.com , including an investor relations section at ir.kurausa.com in which we routinely post important information, such as webcasts of quarterly calls and other investor events in which we participate or host, and any related materials.
These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances.
These environmental laws can provide for significant fines and penalties for non-compliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the 12 hazardous or toxic substances.
We primarily compete with other full-service restaurants. We face significant competition from a variety of locally owned restaurants and national chain restaurants offering both Asian and non-Asian cuisine, as well as takeaway options from grocery stores. We believe that we compete primarily based on product quality, dining experience, ambience, location, convenience, value perception, and price.
We primarily compete with other full-service restaurants. We face significant competition from a variety of locally owned restaurants and national chain restaurants offering both Asian and non-Asian cuisine, as well as takeaway options from grocery stores. We believe that we compete primarily based on product quality, dining experience, ambiance, location, convenience, value perception, and price.
Our guests can enjoy high-quality dishes at affordable prices because of our efficient kitchen operations and low front-of-house labor needs. The average plate price on the revolving conveyor belt of our restaurants is around $3.25, which appeals to guests with appetites and budgets both large and small.
Our guests can enjoy high-quality dishes at affordable prices because of our efficient kitchen operations and low front-of-house labor needs. The average plate price on the revolving conveyor belt of our restaurants is around $3.55, which appeals to guests with appetites and budgets both large and small.
Kura Japan has registered the following patents and marks with the PTO: Food Management System (Patent No.: US 9,193,535 B2), Food Plate Carrier (Patent No.: US 8,550,229 B2) which is known to us as Mr. Fresh, “Kura Sushi” (Trademark Reg. No 5,460,596) and “Kura Revolving Sushi Bar” (Trademark Reg. No. 5,557,000).
Kura Japan has registered the following patents and marks with the PTO: Food Management System (Patent No.: US 9,193,535 B2), Food Plate Carrier (Patent No.: US 8,550,229 B2) which is known to us as “Mr. Fresh,” “Kura Sushi” (Trademark Reg. No 5,460,596) and “Kura Revolving Sushi Bar” (Trademark Reg. No. 5,557,000).
However, we cannot predict the time period over which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including those described in “Item 1A.
However, we cannot predict the time period over which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including those described in “Item 1A. Risk Factors—Risk Factors”.
We believe this expansion will be crucial to executing our growth strategy and building awareness of Kura Sushi as a national Japanese casual dining brand. Expansion into new markets occurs in parallel with ongoing growth in existing markets, with the goal of maintaining a pipeline of top-tier development opportunities.
We believe this expansion is crucial to executing our growth strategy and building awareness of Kura Sushi as a national Japanese casual dining brand. Expansion into new markets occurs in parallel with ongoing growth in existing markets, with the goal of maintaining a pipeline of top-tier development opportunities.
Our flexible physical footprint allows us to open in-line, end-cap, and free-standing restaurant formats at strip malls and shopping centers and penetrate markets in both suburban and urban areas. Expansion Strategy We plan to pursue a two-pronged expansion strategy by opening new restaurants in both new and existing markets.
Our flexible physical footprint allows us to open in-line, end-cap, and free-standing restaurant formats at strip malls and shopping centers and penetrate markets in both suburban and urban areas. Expansion Strategy We have a two-pronged expansion strategy by opening new restaurants in both new and existing markets.
Our menu of small plates allows our guests to sample a variety of dishes, and with over 130 items on our menu, there is always something new to enjoy when our guests return.
Our menu of small plates allows our guests to sample a variety of dishes, and with approximately 130 items on our menu, there is always something new to enjoy when our guests return.
At Kura Sushi, we leverage the disciplined operational expertise honed over the more than 35-year history of Kura Japan to help us achieve strong restaurant-level economics.
At Kura Sushi, we leverage the disciplined operational expertise honed over the more than 40-year history of Kura Japan to help us achieve strong restaurant-level economics.
We aim to make quality Japanese cuisine accessible to our guests across the United States through affordable prices and an inviting atmosphere. Kura Sushi is headquartered in Irvine, California and was established in 2008 as a subsidiary of Kura Sushi, Inc. (“Kura Japan”), a Japan-based revolving sushi chain with over 500 restaurants and more than 35 years of brand history.
We aim to make quality Japanese cuisine accessible to our guests across the United States through affordable prices and an inviting atmosphere. Kura Sushi is headquartered in Irvine, California and was established in 2008 as a subsidiary of Kura Sushi, Inc. (“Kura Japan”), a Japan-based revolving sushi chain with over 500 restaurants and 40 years of brand history.
If we were no longer able to source through any of our suppliers, we would intend to replace the supplier with a 9 different source, but there can be no assurance that any such replacement would provide goods at the prices and level of quality of our current suppliers.
If we could no longer source through any of our suppliers, we would intend to replace the supplier with a different source, but there can be no assurance that any such replacement would provide goods at the prices and level of 9 quality of our current suppliers.
The proprietary technology deployed in our kitchens allows us to collect real-time data on food consumption and guest preferences which we analyze to further optimize our restaurants and enhance the dining experience; and • Flexible Real Estate: We have a flexible restaurant model which has allowed us to open restaurants as small as 1,600 square feet and as large as 6,800 square feet.
The proprietary technology deployed in our kitchens allows us to collect real-time data on food consumption and guest preferences which we analyze to further optimize our restaurants and enhance the dining experience; and • Flexible Real Estate: We have a flexible restaurant model which has allowed us to open restaurants as small as 1,600 square feet and as large as 7,920 square feet.
We license certain intellectual property critical to our business from Kura Japan, including, but not limited to, the trademarks “Kura Sushi” and “Kura Revolving Sushi Bar,” and patents for a food management system and Mr. Fresh dome.
We license certain intellectual property critical to our business from Kura Japan, including, but not limited to, the trademarks “Kura Sushi,” “Mr. Fresh” and “Kura Revolving Sushi Bar,” and patents for a food management system and Mr. Fresh dome.
The contents of our website referred to above are not incorporated into this report. Further, any references to our website are intended to be inactive textual references only. 13
The contents of our website referred to above are not incorporated into this report. Further, any references to our website are intended to be inactive textual references only. 14
Risk Factors—Risk Factors” Deliver Consistent Comparable Restaurant Sales Growth. We believe we will be able to generate comparable restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a unique and engaging dining experience, new menu offerings, and restaurant renovations.
Deliver Consistent Comparable Restaurant Sales Growth. We believe we will be able to generate comparable restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a unique and engaging dining experience, new menu offerings, and restaurant renovations.
Kura Japan’s combined ownership of Class A common stock and Class B common stock represents 75% of the combined voting power of our equity interests.
Kura Japan’s combined ownership of Class A common stock and Class B common stock represents 70% of the combined voting power of our equity interests.
We frequently reevaluate our market area development plan (targeted areas and pacing for development) and our site selection strategy within those targeted areas. Restaurant Design Restaurant design is handled by our in-house development team in conjunction with outsourced vendor relationships. Our restaurant size currently averages approximately 3,400 square feet.
We frequently reevaluate our market area development plan (targeted areas and pacing for development) and our site selection strategy within those targeted areas. Restaurant Design Our in-house development team handles restaurant design in conjunction with outsourced vendor relationships. Our restaurant size currently averages approximately 3,400 square feet.
On average, our restaurants opened during fiscal year 2022 required a cash build-out cost of approximately $2.2 million per restaurant, net of landlord tenant improvement allowances; however, this amount could be materially higher or lower depending on the utilization of union labor, market, restaurant size, and condition of the premises upon landlord delivery.
On average, our restaurants opened during fiscal year 2023 required a cash build-out cost of approximately $2.56 million per restaurant, net of landlord tenant improvement allowances; however, this amount could be materially higher or lower depending on the utilization of union labor, geography, restaurant size, and condition of the premises upon landlord delivery.
Seating in our restaurant is comprised of a combination of booths and bar seats, with an average seating capacity of approximately 120 guests. Our restaurant layout evokes a Japanese dining experience characterized by wooden booths and wood paneling to house the revolving conveyor belt and the Bikkura-Pon rewards machines. 7 Construction of a new restaurant takes approximately five months.
Seating in our restaurants is comprised of a combination of booths and counter seats, with an average seating capacity of approximately 110 guests. Our restaurant layout evokes a Japanese dining experience characterized by wooden booths and wood paneling to house the revolving conveyor belt and the Bikkura-Pon rewards machines. 7 Construction of a new restaurant takes approximately five months.
Kura Sushi opened its first restaurant in Irvine, California in 2009, and currently operates 40 restaurants across twelve states and Washington DC. Kura Japan owns 4,126,500 shares of our Class A common stock and all of our 1,000,050 Class B common stock.
Kura Sushi opened its first restaurant in Irvine, California in 2009, and currently operates 54 restaurants across fifteen states and Washington, DC. Kura Japan owns 4,126,500 shares of our Class A common stock and all of our 1,000,050 Class B common stock.
Site Development and Expansion Site Selection Process We consider site selection and real estate development to be critical to our success. As part of our strategic site selection process, our national broker team receives potential site locations from networks of local brokers, which are then reviewed by our restaurant development and senior management teams.
Site Development and Expansion Site Selection Process We consider site selection and real estate development to be critical to our success. As part of our strategic site selection process, our national broker team receives potential site locations within pre-approved target markets from networks of local brokers, which are then reviewed by our restaurant development and senior management teams.
This review includes site visits, key deal terms, and analyses of the estimated profitability of proposed properties. Our current real estate strategy focuses on high-traffic retail centers in markets with a diverse population and above-average household income. In site selection, we also consider factors such as visibility, traffic patterns, accessibility, parking and competition.
This review includes multiple site visits, key deal terms, analyses of the estimated profitability and cash-on-cash returns of proposed properties. Our current real estate strategy focuses on high-traffic retail centers in markets with a highly educated and diverse population with above-average household incomes. In site selection, we also consider factors such as visibility, traffic patterns, accessibility, parking and competition.
Our Bikkura-Pon promotional programs, which include the licensing of other popular brands from time-to-time, are an additional form of marketing that we believe differentiates the Kura brand. We maintain a presence on several social media platforms allowing us to regularly communicate with guests, alert guests of new offerings, and conduct promotions.
Our Bikkura-Pon promotional programs, which include the licensing of other popular brands from time-to-time, are an additional form of marketing that differentiates the Kura brand. We maintain a strong social media presence allowing us to communicate regularly with guests, inform guests of new offerings, and conduct promotions.
We promote these new menu additions through various social media platforms, our website and in-restaurant signage. Periodically, we offer guests our limited-time offer promotions during which our restaurants feature premium, seasonal, and limited-availability ingredients. Most premium items are priced the same as standard menu items, thereby offering significant value to our guests. We also maintain a loyalty program.
We promote these new menu additions through various social media platforms, our website and in-restaurant signage. We offer guests our monthly limited-time offer promotions which feature premium, seasonal, and limited-availability ingredients. Most premium items are priced the same as standard menu items, thereby offering significant value to our guests.
Human Capital Resources As of August 31, 2022, we had approximately 2,100 employees, of whom 130 were exempt employees and the remainder were non-exempt employees. None of our employees are unionized or covered by collective bargaining agreements, and we consider our current employee relations to be good.
Human Capital Resources As of August 31, 2023, we had approximately 3,219 employees, of whom 161 were exempt employees and the remainder were non-exempt employees. None of our employees are unionized or covered by collective bargaining agreements, and we consider our current employee relations to be good.
Fresh registers over two hours, a robotic arm in our kitchen automatically removes the plate from the revolving conveyor belt; 8 • Suppliers and Third-Party Reviews. Our restaurants undergo internal safety audits and routine health inspections.
Fresh registers over two hours, a robotic arm in our kitchen automatically removes the plate from the revolving conveyor belt; and 8 • Suppliers and Third-Party Reviews. Our restaurants undergo internal safety audits and routine health inspections. We also consider food safety and quality assurance when selecting our distributors and suppliers.
All credit card transactions are processed through third party terminals using secure network and processing systems. Transaction data is used to generate customizable reports that our restaurant managers, operations team, and senior management use to analyze sales, product mix, and check averages.
We use our current point-of-sale system to tally food consumption and produce the final bill. All credit card transactions are processed through third-party terminals using secure network and processing systems. Transaction data is used to generate customizable reports that our restaurant managers, operations team, and senior management use to analyze sales, product mix, and check averages.
See also our real estate strategy under “Site Development and Expansion – Site Selection Process.” We believe that we have the potential to become a national Japanese restaurant brand, with a long-term total restaurant potential in the United States of over 290 restaurants, and we aim to maintain a 20% average annual restaurant growth rate for a five-year period beginning with fiscal year 2019.
See also our real estate strategy under “Site Development and Expansion – Site Selection Process.” We believe that we have the potential to become a national Japanese restaurant brand, with a long-term total restaurant potential in the United States of over 290 restaurants.
Our dining experience is built to provide our guests social media shareable moments, which we believe extends our advertising reach. We focus advertising efforts on new menu offerings to broaden our appeal to guests and drive traffic. Periodically, our menu changes to introduce new items and remove underperforming items.
Our unique dining experience is built to provide our guests with social media shareable moments, which extends our advertising reach. We focus advertising efforts on new menu offerings to broaden our appeal to guests and drive traffic. We periodically update our offerings with new menu items based on our consumer testing results.
Our relationships with both JFC and Wismettac have been in place since 2009. We also source from other distributors. Our suppliers deliver to our restaurants approximately three times per week.
Our spend with Wismettac was 20%, 25% and 27% of our total food and beverage cost for fiscal year 2023, 2022 and 2021. Our relationships with both JFC and Wismettac have been in place since 2009. We also source from other distributors. Our suppliers deliver to our restaurants approximately three times per week.
Restaurant Management and Operations Restaurant Management and Employees Our restaurants typically employ one restaurant manager, two to four assistant managers, and approximately 30 to 70 additional team members depending on the restaurant size.
Restaurant Management and Operations Restaurant Management and Employees Our restaurants typically employ one restaurant manager, two to four assistant managers, and approximately 30 to 70 additional team members depending on the restaurant size. Managers, assistant managers, and management trainees are cross-trained throughout the restaurant to create competency across critical restaurant functions, both in the dining area and the kitchen.
Furthermore, we are subject to import laws and tariffs which could impact our ability to source and secure food products, other supplies and equipment necessary to operate our restaurants.
Furthermore, we are subject to import laws and tariffs which could impact our ability to source and secure food products, other supplies and equipment necessary to operate our restaurants. For a discussion of the various risks we face from regulation and compliance matters, see “Item 1A.
For a discussion of the various risks we face from regulation and compliance matters, see “Item 1A. Risk Factors.” 12 Intellectual Property and Trademarks Kura Japan owns several patents, trademarks and service marks registered or pending with the U.S. Patent and Trademark Office (“PTO”).
Risk Factors.” Intellectual Property and Trademarks Kura Japan owns several patents, trademarks and service marks registered or pending with the U.S. Patent and Trademark Office (“PTO”).
To complement our sushi selection, we offer a variety of side dishes and desserts including gyoza, tempura, soups, ramen, ojyu boxes, mochi, and cheesecake. In our commitment to our Japanese heritage and traditional cooking methods, we have prepared our food without artificial sweeteners, seasonings, colorings, or preservatives since our formation. “Revolutionary” and Engaging Dining Experience .
In our commitment to our Japanese heritage and traditional cooking methods, we have prepared our food without artificial sweeteners, seasonings, colorings, or preservatives since our formation. “Revolutionary” and Engaging Dining Experience .
In response to the COVID-19 pandemic, we have implemented additional training and operational manuals for our restaurant employees to provide a safe and sanitary environment for our customers and employees. Our traveling “opening teams” provide training to team members in advance of opening a new restaurant.
In addition, we have extensive training manuals that cover all aspects of restaurant-level operations. We have implemented additional online training through our learning management system and operational manuals for our restaurant employees to provide a safe and sanitary environment for our customers and employees. Our traveling “opening teams” provide training to team members before opening a new restaurant.
Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages.
Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. 11 Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages.
Our various sushi items are made fresh using high-quality fish and certified 100% organic rice. Our vinegar, made using old-world methods, is sourced from Japan. Our broths are made in-house daily using ingredients that impart complex umami flavors.
Our various sushi items are made fresh using high-quality fish and rice. Our vinegar, made using old-world methods, is sourced from Japan. Our broths are made in-house daily using ingredients that impart complex umami flavors. To complement our sushi selection, we offer a variety of side dishes and desserts including gyoza, tempura, soups, ramen, ojyu boxes, mochi, and cheesecake.
We make a portion of our purchases annually in bulk at fixed prices, and we do not engage in any hedging agreements to manage our exposure to fluctuations in the price of seafood or other food commodities. We source through the following two major Japanese-related distributors: JFC International Inc. (“JFC”), a subsidiary of Kikkoman Corporation, and Wismettac Asian Foods, Inc.
We identify and procure high-quality ingredients at competitive prices. We make a portion of our purchases annually in bulk at fixed prices, and we do not engage in any hedging agreements to manage our exposure to fluctuations in the price of seafood or other food commodities.
We also consider food safety and quality assurance when selecting our distributors and suppliers; and Shared Services Agreement with Kura Japan Kura Sushi operates independently from Kura Japan but does utilize Kura Japan for certain services.
Shared Services Agreement with Kura Japan Kura Sushi operates independently from Kura Japan but does utilize Kura Japan for certain services.
These team members are responsible for different components of the restaurant: cleanliness, service, and food quality. We believe that establishing the operations team has enabled our restaurant managers to focus on guest service and efficient operations in our restaurants and has permitted a smaller regional management structure.
We believe that establishing the operations team has enabled our restaurant managers to focus on guest service and efficient operations in our restaurants and has permitted a smaller regional management structure. Training and Employee Programs We devote significant resources to identifying, selecting, and training all employees. Restaurant management trainees undergo training to develop a deep understanding of our operations.
Suppliers We carefully select suppliers based on product quality and authenticity and their understanding of our brand, and we seek to develop long-term relationships with them. We identify and procure high-quality ingredients at competitive prices.
We also maintain a loyalty program while focusing on member growth and high engagement. This program allows us to build relationships with our guests while increasing brand loyalty. Suppliers We carefully select suppliers based on product quality and authenticity and their understanding of our brand, and we seek to develop long-term relationships with them.
The health and safety of our employees is our highest priority and particularly during the COVID-19 pandemic. In protecting our employees’ safety, we have invested in creating a safe work environment for our employees by taking additional measures. For our office employees, we have added work from home flexibility.
In protecting our employees’ safety, we have invested in creating a safe work environment for our employees by taking additional measures. For our office employees, we have added work from home flexibility. For our restaurant employees, we have increased cleaning protocols, implemented temperature screenings and provided additional personal protective equipment and cleaning supplies.
Managers, assistant managers, and management trainees are cross-trained throughout the restaurant in order to create competency across critical restaurant functions, both in the dining area and in the kitchen. In addition, our operations team monitors restaurants in real-time from our headquarters using our remote management system of approximately 20 to 30 cameras installed in each restaurant.
In addition, our operations team monitors restaurants in real-time from our headquarters using our remote management system of approximately 20 to 30 cameras installed in each restaurant. These team members are responsible for different components of the restaurant: cleanliness, service, and food quality.
Management Information Systems All of our restaurants use computerized management information systems, which we believe are scalable to support our future growth plans. We use proprietary technology developed by Kura Japan to record a table’s food consumption. Our current point-of-sale system is used to tally food consumption and produce the final bill.
In fiscal year 2024, we expect our two major suppliers to be JFC and Mutual Trading Co., Inc. Management Information Systems All of our restaurants use computerized management information systems, which we believe are scalable to support our future growth plans. We use proprietary technology developed by Kura Japan to predict a restaurant’s food consumption.
Our human capital objectives include attracting, developing, motivating, rewarding, and retaining our existing and new employees. We offer our employees online training courses and on-the-job training. Restaurant management trainees undergo training to understand all aspects of the restaurant operations.
We also offer our employees online training courses and on-the-job training. Restaurant management trainees undergo training to understand all aspects of the restaurant operations. We are committed to conducting pay analyses to help ensure that we are paying fairly and equitably.
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Training and Employee Programs We devote significant resources to identifying, selecting, and training all employees. Restaurant management trainees undergo training to develop a deep understanding of our operations. In addition, we have extensive training manuals that cover all aspects of restaurant-level operations.
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Our human capital objectives include attracting, developing, motivating, rewarding, and retaining our existing and new employees. We are committed to providing equal opportunities and seek to ensure there is equity in hiring, development, and advancement. We provide inclusive leadership training for our employees and our interview processes focus on enhancing opportunity and development for candidates.
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Upon opting-in, guests share their purchase history with us allowing us to create customized advertising messages and promotional offerings relative to how each guest accesses Kura Sushi. We believe this builds a relationship with guests that results in increasing brand loyalty.
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To help ensure that we are paying fairly and equitably, we are committed to conducting both internal reviews and external 10 third-party audits and verification. We have also trained our recruiters to help enable them to identify and address pay equity issues during the hiring process utilizing internal reporting and partnership with the compensation team.
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For 10 our restaurant employees, we have increased cleaning protocols, implemented temperature screenings and provided additional personal protective equipment and cleaning supplies.
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At the heart of our culture is the belief that our employees are the foundation of our success. We depend on our employees to effectively execute all aspects of our day-to-day operations that differentiate our concept. Our ability to attract highly motivated employees and retain an engaged, experienced team is key to the successful execution of our strategy.
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Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time.
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While we continue to operate in a competitive labor environment, we believe our people practices contribute significantly to our ability to attract talent and to our historically industry-leading retention rates. Our investment and support, particularly through our culture, fosters retention and engagement of our members.
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Following the declaration of the COVID-19 pandemic in March 2020, federal, state and local governments responded by implementing numerous regulations that have had an effect on, and continue to have an effect on, our business.
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Cultivating and maintaining our culture is a key focus and fosters retention and engagement of our members. Our core values and purpose reflect who we are and how our employees interact with one another, as well as with our guests and other external stakeholders. Diversity, Equity, Inclusion and Belonging is a key initiative for us.
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Regulations relating to employee sick leave, opening and closing of restaurants and dining rooms, business hours, sanitation practices, guest spacing within dining rooms and other social distancing practices and personal protective equipment usage by both our employees and guests have materially affected the way we operate our business and serve our customers.
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We strive to offer an atmosphere of inclusion and belonging for all. We believe the cultural alignment we cultivate around respect and inclusion builds trust and promotes teamwork to achieve our common goals.
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Furthermore, when our employees feel valued and respected for their worth as individuals, they are better able to maximize their potential at work and more likely to share their perspectives, opinions and ideas, which contributes to our ability to innovate.
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We believe access to healthcare is a compelling benefit for many employees, and we provide benefits and wellness offerings, including free mental health resources, to support our employees, and their families. The health and safety of our employees is our highest priority.
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We require our local store management and service staff to take required responsible beverage service training through applicable state programs along with internal mandatory training providing proper guidance on minimizing risk of over serving or serving someone not of age.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeNew restaurants, once opened, may not be profitable, and the increases in average restaurant sales and comparable restaurant sales that we have experienced in the past may not be indicative of future results. Our new restaurants have historically opened with above-average volumes, which then decline after the initial sales surge that comes with interest in a new restaurant opening.
Biggest changeOur new restaurants have historically opened with above-average volumes, which then decline after the initial sales surge that comes with interest in a new restaurant opening. New restaurants may not be profitable and their sales performance may not follow historical patterns as expected, which could adversely affect our business, financial condition or results of operations.
The risks and costs associated with nutritional disclosures on our menus could also impact 23 our operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with respect to testing and disclosure, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained from third-party suppliers.
The risks and costs associated with nutritional disclosures on our menus could also impact our operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with respect to testing and disclosure, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained from third-party suppliers.
It is possible such initiatives will not be successful, that we will not achieve our target comparable restaurant sales growth or that the change in comparable restaurant sales could be negative, which may cause a decrease in our profitability and would materially adversely affect our business, financial condition or results of operations. See “Item 7.
It is possible such initiatives will not be successful, that we will not achieve our target comparable restaurant sales growth or that the change in comparable restaurant sales could be negative, which may cause a decrease in our profitability and would 18 materially adversely affect our business, financial condition or results of operations. See “Item 7.
We 24 may ultimately be held liable for the unauthorized use of a cardholder’s card number in an illegal activity and be required by card issuers to pay charge-back fees. In addition, most states have enacted legislation requiring notification of security breaches involving personal information, including credit and debit card information.
We may ultimately be held liable for the unauthorized use of a cardholder’s card number in an illegal activity and be required by card issuers to pay charge-back fees. In addition, most states have enacted legislation requiring notification of security breaches involving personal information, including credit and debit card information.
The considerable expansion in the use of social media over recent years can further amplify any negative publicity that could be generated by such incidents. Many social media platforms immediately publish the content 25 their subscribers and participants post, often without filters or checks on accuracy of the content posted.
The considerable expansion in the use of social media over recent years can further amplify any negative publicity that could be generated by such incidents. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted.
In addition, our success depends in part upon our ability to attract, motivate and retain a sufficient number of well-qualified restaurant operators and management personnel, as well as a sufficient number of other qualified employees, to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short supply in some geographic areas.
In addition, our success depends in part upon our ability to attract, motivate and retain a sufficient number of well-qualified restaurant operators and management personnel, as well as a sufficient number of other qualified employees, to keep pace with our expansion schedule. Qualified individuals needed to fill these 26 positions are in short supply in some geographic areas.
Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes, as well as adversely affect the attractiveness of our restaurants to new or returning guests.
Additionally, if consumer health regulations or consumer eating habits and health perceptions change significantly, we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes, as well as adversely affect the attractiveness of our restaurants to new or returning guests.
This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our restaurants. A number of other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse effect on their operations.
This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our 22 restaurants. A number of other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse effect on their operations.
We could 27 also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. These factors could materially adversely affect our business, financial condition or results of operations.
We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. These factors could materially adversely affect our business, financial condition or results of operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparable Restaurant Sales Growth.” 18 Our failure to manage our growth effectively could harm our business and operating results. Our growth plan includes opening new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our planned expansion.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparable Restaurant Sales Growth.” Our failure to manage our growth effectively could harm our business and operating results. Our growth plan includes opening new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our planned expansion.
The majority of our operating leases have lease terms of twenty years, inclusive of customary extensions which are at the option of the Company. Most of our leases require a fixed annual rent which generally increases each year, and some require the payment of additional rent if restaurant sales exceed a negotiated amount.
The majority of our operating leases have lease terms of twenty years, inclusive of customary extensions which are at the option of the Company. Most of our leases require a fixed annual rent which generally increases each year, and some require 25 the payment of additional rent if restaurant sales exceed a negotiated amount.
Those fluctuations could be based on various factors in addition to those otherwise described in this report, including those described under “—Risks Related to Our Business and Industry” and the following: • our operating performance and the performance of our competitors or restaurant companies in general; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry; • global, national or local economic, legal and regulatory factors unrelated to our performance; • future sales of our common stock or our equity interests by our officers, directors and significant stockholders; 31 • the arrival or departure of key personnel; and • other developments affecting us, our industry or our competitors.
Those fluctuations could be based on various factors in addition to those otherwise described in this report, including those described under “—Risks Related to Our Business and Industry” and the following: our operating performance and the performance of our competitors or restaurant companies in general; the public’s reaction to our press releases, our other public announcements and our filings with the SEC; changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry; global, national or local economic, legal and regulatory factors unrelated to our performance; future sales 30 of our common stock or our equity interests by our officers, directors and significant stockholders; the arrival or departure of key personnel; and other developments affecting us, our industry or our competitors.
Our brand’s reputation and image as an employer could also be harmed by these types of security breaches or regulatory violations. Our marketing programs may not be successful, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits.
Our brand’s reputation and image as an employer could also be harmed by these types of security breaches or regulatory violations. 24 Our marketing programs may not be successful, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits.
A judgment in such an action significantly in excess of, or not covered by, our insurance coverage could adversely affect our business, financial condition or results of operations. Further, adverse publicity resulting from any such allegations may adversely affect our business, financial condition or results of operations. Our current insurance may not provide adequate levels of coverage against claims.
A judgment in such an action significantly in excess of, or not covered by, our insurance coverage could adversely affect our business, financial condition or results of operations. Further, adverse publicity resulting from any such allegations may adversely affect our business, financial condition or results of operations. 28 Our current insurance may not provide adequate levels of coverage against claims.
Additionally, any changes we may make to the services we obtain from our vendors, or new vendors we employ, may disrupt our operations. These disruptions could materially adversely affect our business, financial condition or results of operations. 21 Changes in food and supply costs and/or availability of products could adversely affect our business, financial condition or results of operations.
Additionally, any changes we may make to the services we obtain from our vendors, or new vendors we employ, may disrupt our operations. These disruptions could materially adversely affect our business, financial condition or results of operations. Changes in food and supply costs and/or availability of products could adversely affect our business, financial condition or results of operations.
Sales by Kura Japan in the public market could depress our Class A common stock price. Kura Japan is not subject to any contractual obligation to maintain its ownership position in our shares. Item 1B. Unresolve d Staff Comments None. 35
Sales by Kura Japan in the public market could depress our Class A common stock price. Kura Japan is not subject to any contractual obligation to maintain its ownership position in our shares. Item 1B. Unresolve d Staff Comments None.
Restaurants we open in new markets may take longer 17 to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy or operating costs than restaurants we open in existing markets, thereby affecting our overall profitability.
Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy or operating costs than restaurants we open in existing markets, thereby affecting our overall profitability.
If menu prices are increased by us to cover increased labor costs, the higher prices could adversely affect sales and thereby reduce our margins and adversely affect our business, financial condition or results of operations. Changes in employment laws may adversely affect our business, financial condition, or results of operations.
If menu prices are increased by us to cover increased labor costs, the higher prices could adversely affect sales and thereby reduce our margins and adversely affect our business, financial condition or results of operations. 27 Changes in employment laws may adversely affect our business, financial condition, or results of operations.
If we fail to negotiate renewals, we may have to dispose of assets at such restaurant locations and incur closure costs as well as impairment of property and equipment. Furthermore, if we fail to negotiate renewals, we may incur additional costs associated with moving transferable furniture, fixtures and equipment.
If we fail to negotiate renewals, we may have to dispose of assets at such restaurant locations and incur closure costs and additional costs associated with moving transferable furniture, fixtures and equipment, as well as incur impairment of property and equipment.
For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. 33 Risks Related to Our Organizational Structure We are controlled by Kura Japan, whose interests may differ from those of our other stockholders.
For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. 32 Risks Related to Our Organizational Structure We are controlled by Kura Japan, whose interests may differ from those of our other stockholders.
Any one or more of these could have a material adverse impact on our business, prospects, financial condition, results of operations, or cash flows, in addition to presenting other possible adverse consequences, many of which are described below. 15 These risk factors and other risks we may face are also discussed further in other sections of this Annual Report on Form 10-K.
Any one or more of these could have a material adverse impact on our business, prospects, financial condition, results of operations, or cash flows, in addition to presenting other possible adverse consequences, many of which are described below. 16 These risk factors and other risks we may face are also discussed further in other sections of this Annual Report on Form 10-K.
If the party claiming infringement were to prevail, we could be 20 forced to pay significant damages, or enter into expensive royalty or licensing arrangements with the prevailing party.
If the party claiming infringement were to prevail, we could be forced to pay significant damages, or enter into expensive royalty or licensing arrangements with the prevailing party.
Remediation of such problems could result in significant, unplanned capital investments and any equipment failure may have an adverse effect on our business, financial condition or results of operations due to our reliance on such equipment. We rely significantly on information technology, and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.
Remediation of such problems could result in significant, unplanned capital investments and any equipment failure may have an adverse effect on our business, financial condition or results of operations due to our reliance on such equipment. 23 We rely significantly on information technology and cybersecurity, and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.
The strength of our revenues and results of operations are dependent upon, among other things, the price and availability of food, ingredients, labor, construction and utilities. In fiscal year 2021 and fiscal year 2022, the costs of commodities, labor, energy and other inputs necessary to operate our restaurants have significantly increased.
The strength of our revenues and results of operations are dependent upon, among other things, the price and availability of food, ingredients, labor, construction and utilities. In fiscal year 2021, 2022 and 2023, the costs of commodities, labor, energy and other inputs necessary to operate our restaurants significantly increased.
We expect the inflationary pressures and other fluctuations impacting the cost of these items to continue to impact our business in fiscal year 2023. Our attempts to offset cost pressures, such as through menu price increases and operational improvements, may not be successful.
We expect the inflationary pressures and other fluctuations impacting the cost of these items to continue to impact our business in fiscal year 2024. Our attempts to offset cost pressures, such as through menu price increases and operational improvements, may not be successful.
Shortages or interruptions in the availability of certain supplies caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations.
Shortages or interruptions in the availability of certain supplies caused by unanticipated demand, problems in production or distribution, food contamination, inclement weather, natural disasters, or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations.
Although we try to manage the impact that these fluctuations have on our operating results, we remain susceptible to increases in food costs and loss of supply as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, product recalls and government regulations.
Although we try to manage the impact that these fluctuations have on our operating results, we remain susceptible to increases in food costs and loss of supply as a 21 result of factors beyond our control, such as general economic conditions, inflationary pressures, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, product recalls and government regulations.
These requirements may be different or inconsistent with requirements we are subject to under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act, collectively, the “ACA,” which establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus.
These requirements may be different or inconsistent with requirements we are subject to under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act, collectively, the “ACA,” which establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus. See “Item 1.
Loss of management members and key employees, labor shortages, increased labor costs, 14 unionization activities or labor disputes could adversely affect our business, financial position and results of operations. • Compliance with Laws and Regulations .
Loss of management members and key employees, labor shortages, increased labor costs, 15 unionization activities or labor disputes could adversely affect our business, financial position and results of operations. • Compliance with Laws and Regulations .
Any termination or limitation of, or loss of exclusivity under, our exclusive license agreement with Kura Japan would have a material adverse effect on our business, financial condition or results of operations. We have entered into an amended and restated exclusive license agreement with regard to the intellectual property we license from Kura Japan. See “Note 5.
Any termination or limitation of, or loss of exclusivity under, our exclusive license agreement with Kura Japan would have a material adverse effect on our business, financial condition or results of operations. We have entered into an amended and restated exclusive license agreement with regard to the intellectual property we license from Kura Japan.
Our restaurant base is geographically concentrated in California and Texas, and we could be negatively affected by conditions specific to these states. Approximately 65% of our restaurants are located in California and Texas.
Our restaurant base is geographically concentrated in California and Texas, and we could be negatively affected by conditions specific to these states. Approximately 54% of our restaurants are located in California and Texas.
On average, our restaurants opened during fiscal year 2022 required a cash build-out cost of approximately $2.2 million per restaurant, net of landlord tenant improvement allowances and assuming that we do not purchase the underlying real estate.
On average, our restaurants opened during fiscal year 2023 required a cash build-out cost of approximately $2.56 million per restaurant, net of landlord tenant improvement allowances and assuming that we do not purchase the underlying real estate.
The opening of a new restaurant in or near markets in which we already have restaurants could adversely affect the sales of these existing restaurants. Existing restaurants could also make it more difficult to build our consumer base for a new restaurant in the same market.
Opening new restaurants in existing markets may negatively affect sales at our existing restaurants. The opening of a new restaurant in or near markets in which we already have restaurants could adversely affect the sales of these existing restaurants. Existing restaurants could also make it more difficult to build our consumer base for a new restaurant in the same market.
The number and timing of new restaurants opened during any given period may be negatively impacted by a number of factors including, without limitation: • duration and severity of the COVID-19 pandemic and the restrictive measures adopted by governments to contain the pandemic; • identification and availability of locations with the appropriate size, traffic patterns, local retail and business attractions and infrastructure that will drive high levels of guest traffic and sales per unit; • competition in existing and new markets, including competition for restaurant sites; • the ability to negotiate suitable lease terms; • the lack of development and overall decrease in commercial real estate due to a macroeconomic downturn; • recruitment and training of qualified personnel in the local market; • our ability to obtain all required governmental permits, including zoning approvals, on a timely basis; • our ability to control construction and development costs of new restaurants; • landlord delays; • the proximity of potential sites to an existing restaurant, and the impact of cannibalization on future growth; • anticipated commercial, residential and infrastructure development near our new restaurants; and • the cost and availability of capital to fund construction costs and pre-opening costs.
The number and timing of new restaurants opened during any given period may be negatively impacted by a number of factors including, without limitation: • identification and availability of locations with the appropriate size, traffic patterns, local retail and business attractions and infrastructure that will drive high levels of guest traffic and sales per unit; • competition in existing and new markets, including competition for restaurant sites; • the ability to negotiate suitable lease terms; • the lack of development and overall decrease in commercial real estate due to a macroeconomic downturn; • recruitment and training of qualified personnel in the local market; • our ability to obtain all required governmental permits, including zoning approvals, on a timely basis; • our ability to control construction and development costs of new restaurants; • landlord delays; • the proximity of potential sites to an existing restaurant, and the impact of cannibalization on future growth; 17 • anticipated commercial, residential and infrastructure development near our new restaurants; and • the cost and availability of capital to fund construction costs and pre-opening costs.
For example, Kura Japan may have different tax positions from us that could influence their decisions regarding whether and when to dispose of assets and whether and when to incur new or refinance existing indebtedness. Such indebtedness could contain covenants that prevent us from declaring dividends to stockholders.
For example, Kura Japan may have different tax positions from us that could influence their decisions regarding the structuring of future transactions, whether and when to dispose of assets, or whether and when to incur new or refinance existing indebtedness. Such indebtedness could contain covenants that prevent us from declaring dividends to stockholders.
Our quarterly operating results may fluctuate significantly because of several factors, including: • recent and ongoing inflationary trends impacting our cost of food, labor and other costs: • duration and severity of the COVID-19 pandemic and the restrictive measures adopted by governments to contain the pandemic; • the timing of new restaurant openings and related expense; • restaurant operating costs for our newly-opened restaurants, which are often materially greater during the first several months of operation than thereafter; • labor availability and costs for hourly and management personnel; • profitability of our restaurants, especially in new markets; • changes in interest rates; • increases and decreases in AUVs and comparable restaurant sales; • impairment of long-lived assets and any loss on restaurant closures; • macroeconomic conditions, both nationally and locally; • negative publicity relating to the consumption of seafood or other food products we serve; • changes in consumer preferences and competitive conditions; • expansion in existing and new markets; • increases in infrastructure costs; and • fluctuations in commodity prices.
Our quarterly operating results may fluctuate significantly because of several factors, including: recent and ongoing inflationary trends impacting our cost of food, labor and other costs: the timing of new restaurant openings and related expense; restaurant operating costs for our newly-opened restaurants, which are often materially greater during the first several months of operation than thereafter; labor availability and costs for hourly and management personnel; profitability of our restaurants, especially in new markets; changes in interest rates; increases and decreases in AUVs and comparable restaurant sales; impairment of long-lived assets and any loss on restaurant closures; macroeconomic conditions, both nationally and locally; negative publicity relating to the consumption of seafood or other food products we serve; changes in consumer preferences and competitive conditions; expansion in existing and new markets; increases in infrastructure costs; and fluctuations in commodity prices.
Related Party Transactions” to our audited financial statements included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information.
See “Note 5 — Related Party Transactions” to our audited financial statements included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information.
Our restaurants are concentrated in California and Texas and in retail centers and shopping malls and could be negatively affected by conditions specific to these states and locations. • Reliance on Kura Japan . We rely on our parent company Kura Japan in strategic, operational and financial respects.
Our restaurants are concentrated in California and Texas and in retail centers and shopping malls and could be negatively affected by conditions specific to these states and locations. • Reliance on Kura Japan . We rely on our majority stockholder, Kura Japan, in strategic, operational and financial respects.
Our failure to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could have a material adverse effect on our business, financial condition or results of operations.
In addition, restaurants have traditionally experienced relatively high employee turnover rates. Our failure to recruit and retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could have a material adverse effect on our business, financial condition or results of operations.
Factors that may result in declining visitor rates include a public health pandemic such as the COVID-19 pandemic, economic or political conditions, anchor tenants closing in retail centers or shopping malls in which we operate, changes in consumer preferences or shopping patterns, changes in discretionary consumer spending, increasing petroleum prices, or other factors, which may adversely affect our business, financial condition or results of operations.
Factors that may result in declining visitor rates include public health pandemics, economic or political conditions, anchor tenants closing in retail centers or shopping malls in which we operate, changes in consumer preferences or shopping patterns, changes in discretionary consumer spending, increasing petroleum prices, or other factors, which may adversely affect our business, financial condition or results of operations.
JFC provided us with food products and supplies equaling 52%, 58%, and 59% of our total food and beverage costs in fiscal years 2022, 2021, and 2020 respectively.
JFC provided us with food products and supplies equaling 49% and 52%, and 58% of our total food and beverage costs in fiscal years 2023, 2022, and 2021 respectively.
This would include sales by Kura Japan, as detailed below under “—Risks Related to Our Organizational Structure—Future sales of our shares by Kura Japan could depress our Class A common stock price.” Our amended and restated certificate of incorporation authorize us to issue up to 50,000,000 shares of Class A common stock and 10,000,100 shares of Class B common stock, of which, as of August 31, 2022, 8,788,211 shares of Class A common stock and 1,000,050 shares of Class B common stock are outstanding, and 677,442 shares of Class A common stock will be issuable upon the exercise of outstanding stock options.
This would include sales by Kura Japan, as detailed below under “—Risks Related to Our Organizational Structure—Future sales of our shares by Kura Japan could depress our Class A common stock price.” Our amended and restated certificate of incorporation authorize us to issue up to 50,000,000 shares of Class A common stock and 10,000,100 shares of Class B common stock, of which, as of August 31, 2023, 10,147,126 shares of Class A common stock and 1,000,050 shares of Class B common stock are outstanding, and 653,395 shares of Class A common stock will be issuable upon the exercise of outstanding stock options.
Any events or circumstances that result in the termination or limitation of our rights under our agreement between us and Kura Japan of our intellectual property could have a material adverse effect on our business, financial condition or results of operations.
Any events or circumstances that result in the termination or limitation of our rights under our agreement between us and Kura Japan of our intellectual property could have a material adverse effect on our business, financial condition or results of operations. The intellectual property that is critical to our business has been licensed to us by Kura Japan.
If we identify weaknesses in our internal control over financial reporting, are unable to comply with the requirements of Section 404 in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.
In addition, we may identify material weaknesses in our internal control over financial reporting that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. 29 If we identify weaknesses in our internal control over financial reporting, are unable to comply with the requirements of Section 404 in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.
In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations.
In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. We are subject to the U.S.
We have experienced and continue to experience inflationary conditions with respect to the cost for food, ingredients, labor, construction and utilities, and may not be able to increase prices or implement operational improvements sufficient to fully offset inflationary pressures on such costs, which may adversely impact our revenues and results of operations. • Impact of the COVID-19 Pandemic .
We have experienced and continue to experience inflationary conditions with respect to the cost for food, ingredients, labor, construction and utilities, and may not be able to increase prices or implement operational improvements sufficient to fully offset inflationary pressures on such costs, which may adversely impact our revenues and results of operations. • Ability to Execute Our Growth Strategy and Grow Sales and Profitability of Our Restaurants .
We have been a subsidiary of Kura Japan since 2008 and have benefited from our relationship as a consolidated and wholly-owned subsidiary. We are a majority owned subsidiary of Kura Japan and we utilize Kura Japan for certain strategic, operational and financial support. We currently have a $45 million revolving credit facility with Kura Japan.
We have been a subsidiary of Kura Japan since 2008 and have benefited from our relationship as a consolidated and wholly-owned subsidiary. We are a majority owned subsidiary of Kura Japan and we utilize Kura Japan for certain strategic, operational and financial support.
As of August 31, 2022, we had no outstanding balance and $45 million available under our Credit Facility. In the future, we may, from time to time, incur additional indebtedness under our Credit Facility, up to the aggregate principal amount of $45 million.
As of August 31, 2023 and 2022, we had no outstanding balance and $45.0 million available under our Credit Facility, respectively. In the future, we may, from time to time, incur additional indebtedness under our Credit Facility.
Our amended and restated certificate of incorporation and amended and restated bylaws, and Delaware law, contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors.
Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party. Our amended and restated certificate of incorporation and amended and restated bylaws, and Delaware law, contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors.
To the extent that price increases are not sufficient to offset higher costs adequately or in a timely manner, and/or if they result in significant decreases in revenue volume, our revenues and results of operations may be adversely affected. The COVID-19 pandemic has adversely affected, and may continue to adversely affect, our operations, financial condition, liquidity and financial results.
To the extent that price increases are not sufficient to offset higher costs adequately or in a timely manner, and/or if they result in significant decreases in revenue volume, our revenues and results of operations may be adversely affected.
We may have experienced an ownership change in the past and may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control.
Similar rules may apply under state tax laws. We may have experienced an ownership change in the past and may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control.
Failure to comply with certain covenants could result in the acceleration of our obligations under the Credit Facility, which would have an adverse effect on our liquidity, capital resources and results of operations. We have licensed certain intellectual property critical to our business from Kura Japan.
Failure to comply with certain covenants could result in the acceleration of our obligations under the Credit Facility, which would have an adverse effect on our liquidity, capital resources and results of operations.
As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income may be subject to significant limitations.
As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income may be subject to significant limitations. Changes in tax laws and unanticipated tax liabilities could adversely affect our financial results.
Sales cannibalization between our restaurants may become significant in the future as we continue to expand our operations and could affect our sales growth, which could, in turn, materially adversely affect our business, financial condition or results of operations.
Sales cannibalization between our restaurants may become significant in the future as we continue to expand our operations and could affect our sales growth, which could, in turn, materially adversely affect our business, financial condition or results of operations. Our sales and profit growth could be adversely affected if comparable restaurant sales are less than we expect.
These potential increased occupancy and moving costs, as well as closures of restaurants, could materially adversely affect our business, financial condition or results of operations.
Such potential increased costs and closures of restaurants could materially adversely affect our business, financial condition or results of operations.
The federal minimum wage has been $7.25 per hour since July 24, 2009. Any of federally-mandated, state-mandated or municipality-mandated minimum wages may be raised in the future which would increase our labor costs and could have a materially adverse effect on our business, financial condition or results of operations.
Any of federally-mandated, state-mandated or municipality-mandated minimum wages may be raised in the future which would increase our labor costs and could have a materially adverse effect on our business, financial condition or results of operations.
Although we expect Kura Japan to continue providing services to us, Kura Japan does not have any contractual obligation to provide strategic, operational or other support to us except as required under our shared services agreement and amended and restated exclusive license agreement with them. See “Note 5. Related Party Transactions” to our audited financial statements included in “Item 8.
Although we expect Kura Japan to continue providing services to us, Kura Japan does not have any contractual obligation to provide strategic, operational or other support to us except as required under our shared services agreement and amended and restated exclusive license agreement with them.
This growth strategy and the substantial investment associated with the development of each new restaurant may cause our operating results to fluctuate and be unpredictable or adversely affect our business, financial condition or results of operations.
We may in the future open restaurants in markets where we have little or no operating experience. This growth strategy and the substantial investment associated with the development of each new restaurant may cause our operating results to fluctuate and be unpredictable or adversely affect our business, financial condition or results of operations.
We rely significantly on information systems, many of which are controlled by third-party providers, including point-of-sale processing in our restaurants for management of our supply chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. We also operate tableside access to touch screen ordering systems to allow guests to place special orders.
We rely significantly on information and cybersecurity systems, many of which are controlled by third-party providers, including point-of-sale processing in our restaurants for management of our supply chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in ownership by “5 percent shareholders” over a rolling three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited.
These decisions could, for example, relate to: • disagreement over corporate opportunities; • management stock ownership; 34 • employee retention or recruiting; • our dividend policy; and • the services and arrangements from which we benefit as a result of our relationship with Kura Japan.
These decisions could, for example, relate to: disagreement over corporate opportunities; management stock ownership; employee retention or recruiting; our dividend policy; and the services and arrangements from which we benefit as a result of our relationship with Kura Japan. Potential conflicts of interest could also arise if we enter into any new commercial arrangements with Kura Japan in the future.
Our inability to raise capital could impede our growth and could materially adversely affect our business, financial condition or results of operations. 26 We depend on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, integrate and retain highly skilled personnel could have an adverse effect on our business, financial condition or results of operations.
We depend on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, integrate and retain highly skilled personnel could have an adverse effect on our business, financial condition or results of operations. Our success depends largely upon the continued services of our key employees.
Our amended and restated certificate of incorporation authorizes our board of directors to issue new series of preferred stock without stockholder approval. Depending on the rights and terms of any new series created, and the reaction of the market to the series, the rights and value associated with our Class A common stock could be negatively affected.
Depending on the rights and terms of any new series created, and the reaction of the market to the series, the rights and value associated with our Class A common stock could be negatively affected.
New restaurants may not be profitable and their sales performance may not follow historical patterns. In addition, our average restaurant sales and comparable restaurant sales may not increase at the rates achieved over the past several years.
In addition, our average restaurant sales and comparable restaurant sales may not increase at the rates achieved over the past several years.
The corporate opportunity provisions in our amended and restated certificate of incorporation could enable Kura Japan to benefit from corporate opportunities that might otherwise be available to us. Our amended and restated certificate of incorporation contains provisions related to corporate opportunities that may be of interest to both Kura Japan and us.
Our amended and restated certificate of incorporation contains provisions related to corporate opportunities that may be of interest to both Kura Japan and us.
Infringements on Kura Japan’s intellectual property rights, including Kura Japan’s service marks and trade secrets, could result in additional expense and could devalue our brand equity, as well as substantially affect our business, financial condition or results of operations.
Infringements on Kura Japan’s intellectual property rights, including Kura Japan’s service marks and trade secrets, could result in additional expense and could devalue our brand equity, as well as substantially affect our business, financial condition or results of operations. 20 Other parties may infringe on our intellectual property rights, including those which we develop or otherwise license to use, and may thereby dilute our brand in the marketplace.
The introduction of new accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future, such as the new lease accounting 29 standard, which we adopted on September 1, 2019. Future changes to accounting rules or regulations could materially adversely affect our business, financial condition or results of operations.
Changes to accounting rules or regulations may adversely affect our business, financial condition or results of operations. Changes to existing accounting rules or regulations may impact our business, financial condition or results of operations. The introduction of new accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future.
Our methods or Kura Japan’s methods of protecting this information may not be adequate. Moreover, we or Kura Japan may face claims of misappropriation or infringement of third parties’ rights that could interfere with our use of this information.
In addition, we rely on trade secrets, proprietary know-how, concepts, and recipes, some of which we license from Kura Japan. Our methods or Kura Japan’s methods of protecting this information may not be adequate. Moreover, we or Kura Japan may face claims of misappropriation or infringement of third parties’ rights that could interfere with our use of this information.
In addition, if we issue additional shares of Class B common stock in the future, there will be further dilution to investors or potential future purchasers of our Class A common stock. 30 Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
As of the date of this report, Kura Japan controls 75% of the combined voting power of our equity interests through their ownership of both Class A common stock and Class B common stock.
As of the date of this report, Kura Japan controls 70% of the combined voting power of our equity interests through their ownership of both Class A common stock and Class B common stock, and effectively controls the outcome of matters submitted to stockholders that require a majority vote based on our outstanding equity interests.
As such, we are exempt from certain corporate governance requirements of the Nasdaq Stock Market, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that we have a Nominating and Corporate Governance Committee that is composed entirely of independent directors and (iii) the requirement that we have a Compensation Committee that is composed entirely of independent directors.
As such, we are exempt from certain corporate governance requirements of the Nasdaq Stock Market so long as we are considered a “controlled company,” including: that we have a majority of independent directors on our board of directors, an entirely independent compensation committee and an independent nominating function.
Our limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants makes us susceptible to significant fluctuations in our results of operations. As of August 31, 2022, we operated 40 restaurants.
Our limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants makes us susceptible to significant fluctuations in our results of operations. The capital resources required to develop each new restaurant are significant.
We may rely on the above-stated exemptions so long as we are considered a “controlled company” under the Nasdaq Stock Market requirements. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Stock Market.
Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Stock Market.
We also rely on Wismettac which provided us with food products and supplies equaling 25% of our total food and beverage costs in fiscal year 2022 and 27% in fiscal years 2021 and 2020.
We also rely on Wismettac which provided us with food products and supplies equaling 20%, 25% and 27% of our total food and beverage costs in fiscal year 2023, 2022 and 2021, respectively. In fiscal year 2024, we expect our two major suppliers to be JFC and Mutual Trading Co., Inc.
As of the date of this report, Kura Japan owns 75% of the combined voting power of our equity interests. Future sales of our shares by Kura Japan could depress our Class A common stock price. If Kura Japan’s ownership interest in our company declines significantly in the future, this may affect our ongoing relationship.
We also benefit from the intellectual property that we license from Kura Japan in the operation of our business. Future sales of our shares by Kura Japan could depress our Class A common stock price. If Kura Japan’s ownership interest in our company declines significantly in the future, this may affect our ongoing relationship.
Reductions in staff levels, asset impairment charges and potential restaurant closures could result from prolonged negative restaurant sales, which could materially adversely affect our business, financial condition or results of operations. 22 Food safety and foodborne illness concerns as well as outbreaks of flu, viruses or other diseases could have an adverse effect on our business, financial condition or results of operations.
Food safety and foodborne illness concerns as well as outbreaks of flu, viruses or other diseases could have an adverse effect on our business, financial condition or results of operations.
These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding equity interests. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock.
These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. Our amended and restated certificate of incorporation authorizes our board of directors to issue new series of preferred stock without stockholder approval.
Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems.
We also operate tableside access to touch screen ordering systems to allow guests to place special orders. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems.
Our expansion into new markets may present increased risks due in part to our unfamiliarity with the areas and also due to consumer unfamiliarity with our revolving sushi bar concept and may make our future results unpredictable. As of August 31, 2022, we operate our restaurants in twelve states and Washington D.C.
Our expansion into new markets may present increased risks due in part to our unfamiliarity with the areas and also due to consumer unfamiliarity with our revolving sushi bar concept and may make our future results unpredictable and the increases in average restaurant sales and comparable restaurant sales that we have experienced in the past may not be indicative of future results.
Related Party Transactions” to our audited financial statements included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information. Our indebtedness to Kura Japan may limit our ability to be acquired by a third party or acquire a third party.
For additional information about our relationships with Kura Japan, you should read the information under “Note 5 — Related Party Transactions” to our audited financial statements included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeNov-2020 Cupertino California Feb-2016 Los Angeles (Koreatown) California Nov-2020 Plano Texas May-2016 Aventura Florida Jan-2021 Carrollton Texas Jul-2016 Troy Michigan Feb-2021 Austin Texas May-2017 Sherman Oaks California Apr-2021 Doraville Georgia Jul-2017 Bellevue Washington Jun-2021 Houston (Westchase) Texas Aug-2017 Stonestown California Oct-2021 Sugar Land Texas Jan-2018 Camelback Arizona Dec-2021 Houston (Midtown) Texas Mar-2018 Chandler Arizona Dec-2021 Pleasanton California Apr-2018 San Antonio Texas Feb-2022 Frisco Texas May-2018 Watertown Massachusetts Mar-2022 Cerritos California Oct-2018 Novi Michigan Jul-2022 Schaumburg Illinois Nov-2018 Orlando Florida Aug-2022 Cypress California Jan-2019 Tysons Virginia Aug-2022 We are obligated under non-cancelable leases for the majority of our restaurants, as well as our corporate offices.
Biggest changeNov-2020 Torrance California Apr-2012 Los Angeles (Koreatown) California Nov-2020 Brea California May-2012 Aventura Florida Jan-2021 Rancho Cucamonga California Aug-2012 Troy Michigan Feb-2021 Los Angeles (Sawtelle) California Aug-2013 Sherman Oaks California Apr-2021 San Diego California Mar-2015 Bellevue Washington Jun-2021 Cupertino California Feb-2016 Stonestown California Oct-2021 Plano Texas May-2016 Camelback Arizona Dec-2021 Carrollton Texas Jul-2016 Chandler Arizona Dec-2021 Austin Texas May-2017 San Antonio Texas Feb-2022 Doraville Georgia Jul-2017 Watertown Massachusetts Mar-2022 Houston (Westchase) Texas Aug-2017 Novi Michigan Jul-2022 Sugar Land Texas Jan-2018 Orlando Florida Aug-2022 Houston (Midtown) Texas Mar-2018 Tysons Virginia Aug-2022 Pleasanton California Apr-2018 Bloomington Minnesota Nov-2022 Frisco Texas May-2018 Jersey City New Jersey Nov-2022 Cerritos California Oct-2018 Philadelphia Pennsylvania Dec-2022 Schaumburg Illinois Nov-2018 Edison New Jersey Feb-2023 Cypress California Jan-2019 Oak Brook Illinois Feb-2023 Sacramento California Mar-2019 Buford Georgia May-2023 Las Vegas Nevada Jul-2019 Framingham Massachusetts Jun-2023 Garden Grove California Aug-2019 Carle Place New York Jul-2023 Katy Texas Dec-2019 San Jose California Jul-2023 Glendale California Feb-2020 Dorchester Massachusetts Aug-2033 We are obligated under non-cancelable leases for the majority of our restaurants, as well as our corporate offices.
Item 2. Pr operties As of August 31, 2022, we operated 40 restaurants in twelve states and Washington, D.C. We operate a variety of restaurant formats, including in-line and end-cap restaurants located in retail centers of varying sizes. Our restaurants range in size from 1,600 to 6,800 square feet, with an average of approximately 3,400 square feet.
Item 2. Pr operties As of August 31, 2023, we operate 50 restaurants in fifteen states and Washington, D.C. We operate a variety of restaurant formats, including in-line and end-cap restaurants located in retail centers of varying sizes. Our restaurants range in size from 1,600 to 7,920 square feet, with an average of approximately 3,400 square feet.
The table below shows the locations of our restaurants as of August 31, 2022: City State Opened City State Opened Irvine California Sep-2009 Sacramento California Mar-2019 Los Angeles (Little Tokyo) California Jan-2012 Las Vegas Nevada Jul-2019 Torrance California Apr-2012 Garden Grove California Aug-2019 Brea California May-2012 Katy Texas Dec-2019 Rancho Cucamonga California Aug-2012 Glendale California Feb-2020 Los Angeles (Sawtelle) California Aug-2013 Fort Lee New Jersey Sep-2020 San Diego California Mar-2015 Washington, D.C.
We lease the property for our corporate office located in Irvine, California and all of the properties on which we operate our restaurants. 34 The table below shows the locations of our restaurants as of August 31, 2023: City State Opened City State Opened Irvine California Sep-2009 Fort Lee New Jersey Sep-2020 Los Angeles (Little Tokyo) California Jan-2012 Washington, D.C.
Removed
We lease the property for our corporate office located in Irvine, California and all of the properties on which we operate our restaurants.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings For a description of our legal proceedings, see Part II, Item 8, Note 10 – Commitments and Contingencies, of the Notes to Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference. Item 4. Mine Saf ety Disclosures Not applicable. 36 PART II
Biggest changeItem 3. Legal Proceedings For a description of our legal proceedings, see Part II, Item 8, Note 11 — Commitments and Contingencies, of the Notes to Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference. Item 4. Mine Saf ety Disclosures Not applicable. 35 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTotal Return Analysis 8/1/2019 8/31/2019 8/31/2020 8/31/2021 8/31/2022 Kura Sushi USA, Inc. $ 100.00 $ 127.84 $ 62.32 $ 259.10 $ 381.23 Nasdaq Composite $ 100.00 $ 98.17 $ 145.18 $ 188.13 $ 145.68 S&P 600 Restaurants Index $ 100.00 $ 106.77 $ 103.04 $ 142.99 $ 95.81 Offering of Class A Common Stock On July 23, 2021, we completed a common stock offering and sold an aggregate of 1,265,000 shares of Class A common stock, including the exercise in full of the underwriters’ option to purchase 165,000 additional shares, at a price of $45.00 per share less an underwriting discount of $2.48 per share.
Biggest changeTotal Return Analysis 8/1/2019 8/31/2019 8/31/2020 8/31/2021 8/31/2022 8/31/2023 Kura Sushi USA, Inc. $ 100.00 $ 127.84 $ 62.32 $ 259.10 $ 381.23 $ 445.54 Nasdaq Composite $ 100.00 $ 98.17 $ 145.18 $ 188.13 $ 145.68 $ 173.03 S&P 600 Restaurants Index $ 100.00 $ 106.77 $ 103.04 $ 142.99 $ 95.81 $ 107.77 Recent Sales of Unregistered Securities During fiscal year 2023, we did not sell any securities without registration under the Securities Act of 1933.
Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, our results of operations, our liquidity, legal requirements, restrictions that may be imposed by the terms of current and future financing instruments and other factors deemed relevant by our board of directors. 37 Stock Performance Graph The following graph presents a comparison from August 1, 2019 through August 31, 2022 of the cumulative return of our common stock, the Nasdaq Composite Index and the S&P 600 Restaurants Index.
Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, our results of operations, our liquidity, legal requirements, restrictions that may be imposed by the terms of current and future financing instruments and other factors deemed relevant by our board of directors. 36 Stock Performance Graph The following graph presents a comparison from August 1, 2019 through August 31, 2023 of the cumulative return of our common stock, the Nasdaq Composite Index and the S&P 600 Restaurants Index.
The number of holders of record is based upon the actual number of holders registered as of such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities in security position listings maintained by depositories.
The number of holders of record is based upon the actual number of holders registered as of such date and does not include holders of shares in “street name” accounts through brokers, or persons, partnerships, associates, corporations or other entities in security position listings maintained by depositories.
Issuer Purchases of Equity Securities We did not repurchase any of our equity securities during fiscal year 2022. 38 Equity Compensation Plan Information For equity compensation plan information, refer to “Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K. Item 6. [Reserved] 39
Issuer Purchases of Equity Securities We did not repurchase any of our equity securities during fiscal year 2023. Equity Compensation Plan Information For equity compensation plan information, refer to “Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K. Item 6. [Reserved] 37
Holders of Record As of November 7, 2022, we had four holders of record of our Class A common stock and one holder of our Class B common stock.
Holders of Record As of November 2, 2023, we had three holders of record of our Class A common stock and one holder of our Class B common stock.
Removed
We received aggregate net proceeds of $53.5 million after deducting the underwriting discount and commissions and offering expenses payable by us.
Removed
We used a portion of the net proceeds to repay all of the $17.0 million borrowings outstanding under our credit facility with Kura Japan, with the remaining proceeds to be used to support new unit growth, for working capital and general corporate purposes.
Removed
No payments were made by us to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our affiliates. Recent Sales of Unregistered Securities During fiscal year 2022, we did not sell any securities without registration under the Securities Act of 1933.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFiscal Years Ended August 31, 2022 2021 $ Change % Change (dollar amounts in thousands) Sales $ 141,089 $ 64,891 $ 76,198 117.4 % Restaurant operating costs: Food and beverage costs 42,510 20,686 21,824 105.5 Labor and related costs 43,997 16,430 27,567 167.8 Occupancy and related expenses 9,917 7,093 2,824 39.8 Depreciation and amortization expenses 5,258 4,126 1,132 27.4 Other costs 17,517 10,448 7,069 67.7 Total restaurant operating costs 119,199 58,783 60,416 102.8 General and administrative expenses 22,289 15,701 6,588 42.0 Depreciation and amortization expenses 355 396 (41 ) (10.4 ) Total operating expenses 141,843 74,880 66,963 89.4 Operating loss (754 ) (9,989 ) 9,235 (92.5 ) Other expense (income): Interest expense 87 220 (133 ) (60.5 ) Interest income (151 ) (20 ) (131 ) 655.0 Loss before income taxes (690 ) (10,189 ) 9,499 (93.2 ) Income tax expense 74 106 (32 ) (30.2 ) Net loss $ (764 ) $ (10,295 ) $ 9,531 (92.6 ) % Fiscal Years Ended August 31, 2022 2021 (as a percentage of sales) Sales 100.0 % 100.0 % Restaurant operating costs Food and beverage costs 30.1 31.9 Labor and related costs 31.2 25.3 Occupancy and related expenses 7.0 10.9 Depreciation and amortization expenses 3.7 6.4 Other costs 12.4 16.1 Total restaurant operating costs 84.5 90.6 General and administrative expenses 15.8 24.2 Depreciation and amortization expenses 0.3 0.6 Total operating expenses 100.5 115.4 Operating loss (0.5 ) (15.4 ) Other expense (income): Interest expense 0.1 0.3 Interest income (0.1 ) (0.0 ) Loss before income taxes (0.5 ) (15.7 ) Income tax expense 0.1 0.2 Net loss (0.5 ) % (15.9 ) % 42 Fiscal Year Ended August 31, 2022 Compared to Fiscal Year Ended August 31, 2021 Sales.
Biggest changeFiscal Years Ended August 31, 2023 2022 $ Change % Change (dollar amounts in thousands) Sales $ 187,429 $ 141,089 $ 46,340 32.8 % Restaurant operating costs: Food and beverage costs 56,631 42,510 14,121 33.2 Labor and related costs 56,547 43,997 12,550 28.5 Occupancy and related expenses 13,141 9,917 3,224 32.5 Depreciation and amortization expenses 7,422 5,258 2,164 41.2 Other costs 24,911 17,517 7,394 42.2 Total restaurant operating costs 158,652 119,199 39,453 33.1 General and administrative expenses 28,035 22,289 5,746 25.8 Depreciation and amortization expenses 410 355 55 15.5 Total operating expenses 187,097 141,843 45,254 31.9 Operating income (loss) 332 (754 ) 1,086 (144.0 ) Other expense (income): Interest expense 69 87 (18 ) (20.7 ) Interest income (1,472 ) (151 ) (1,321 ) 874.8 Income (loss) before income taxes 1,735 (690 ) 2,425 (351.4 ) Income tax expense 233 74 159 214.9 Net income (loss) $ 1,502 $ (764 ) $ 2,266 (296.6 ) % Fiscal Years Ended August 31, 2023 2022 (as a percentage of sales) Sales 100.0 % 100.0 % Restaurant operating costs Food and beverage costs 30.2 30.1 Labor and related costs 30.2 31.2 Occupancy and related expenses 7.0 7.0 Depreciation and amortization expenses 4.0 3.7 Other costs 13.3 12.4 Total restaurant operating costs 84.6 84.5 General and administrative expenses 15.0 15.8 Depreciation and amortization expenses 0.2 0.3 Total operating expenses 99.8 100.5 Operating income (loss) 0.2 (0.5 ) Other expense (income): Interest expense 0.0 0.1 Interest income (0.8 ) (0.1 ) Income (loss) before income taxes 0.9 (0.5 ) Income tax expense 0.1 0.1 Net income (loss) 0.8 % (0.5 ) % 40 Fiscal Year Ended August 31, 2023 Compared to Fiscal Year Ended August 31, 2022 Sales.
General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses for corporate-level employees, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs.
General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and the development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses for corporate-level employees, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs.
At commencement of a lease, we determine the appropriate classification as an operating lease or a finance lease and all of our restaurant and office leases are classified as operating leases. Our office leases provide for fixed minimum rent payments.
At the commencement of a lease, we determine the appropriate classification as an operating lease or a finance lease. All of our restaurant and office leases are classified as operating leases. Our office leases provide for fixed minimum rent payments.
For operating leases that include free-rent periods and rent escalation clauses, we recognize rent expense based on the straight-line method. For the purpose of calculating rent expenses under the straight-line method, the lease term commences on the date we obtain control of the property.
We recognize rent expense based on the straight-line method for operating leases that include free-rent periods and rent escalation clauses. For the purpose of calculating rent expenses under the straight-line method, the lease term commences on the date we obtain control of the property.
Lease incentives used to fund leasehold improvements are recognized when probable of being earned upon signing the lease and reduce the operating right-of-use asset related to the lease. These are amortized through the operating right-of-use asset as reductions of expense over the lease term.
Lease incentives used to fund leasehold improvements are recognized when probable of being earned upon signing the lease and reduce the operating right-of-use asset related to the lease. These incentives are amortized through the operating right-of-use asset as reductions of expense over the lease term.
General and administrative expenses are expected to grow as our unit base grows, including incremental legal, accounting, insurance and other expenses. Interest expense. Interest expense includes cash and non-cash charges related to our line of credit and finance lease obligations. Interest income. Interest income includes income earned on our investments. 41 Income tax expense (benefit).
General and administrative expenses are expected to grow as our unit base grows, including incremental legal, accounting, insurance and other expenses. Interest expense. Interest expense includes cash and non-cash charges related to our line of credit and finance lease obligations. Interest income. Interest income includes income earned on our investments. Income tax expense (benefit).
We present Restaurant-level Operating Profit (Loss) because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level. We also use Restaurant-level Operating 45 Profit (Loss) to measure operating performance and returns from opening new restaurants. Restaurant-level Operating Profit (Loss) margin allows us to evaluate the level of Restaurant-level Operating Profit (Loss) generated from sales.
We present Restaurant-level Operating Profit (Loss) because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level. We also use Restaurant-level Operating Profit (Loss) to measure operating performance and returns from opening new restaurants. Restaurant-level Operating Profit (Loss) margin allows us to evaluate the level of Restaurant-level Operating Profit (Loss) generated from sales.
However, you should be aware that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are financial measures which are not indicative of overall results for the Company, and Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures.
However, you should be aware that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are financial measures which are not indicative of overall results for the Company, and 43 Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures.
We believe the following impairment of long-lived assets estimate is affected by significant judgments and estimates used in the preparation of our financial statements and that the judgments and estimates are reasonable. Operating Leases We currently lease all of our restaurant locations and corporate office.
We believe the following impairment of long-lived assets estimate is affected by significant judgments and estimates used in the preparation of our financial statements and that the judgments and estimates are reasonable. 47 Operating Leases We currently lease all of our restaurant locations and our corporate office.
Recoverability of an asset group is measured by a comparison of the 50 carrying amount of an asset group to its estimated undiscounted forecasted restaurant cash flows expected to be generated by the asset group.
Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted forecasted restaurant cash flows expected to be generated by the asset group.
Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales grows. Factors that influence fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, healthcare costs and the performance of our restaurants. Occupancy and related expenses.
Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales grows. Factors that influence 38 fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, healthcare costs and the performance of our restaurants.
Most of our restaurants provide for fixed minimum rent payments and some require additional contingent rent payments based upon sales in excess of specified thresholds. When achievement of such sales thresholds is deemed probable, contingent rent is accrued in proportion to the sales recognized in the period.
Most of our restaurants provide for fixed minimum rent payments and some require additional contingent rent payments based upon sales in excess of specified thresholds. When such sales thresholds are deemed probable, contingent rent is accrued in proportion to the sales recognized in the period.
For a discussion of our results of operations comparing fiscal year 2021 to fiscal year 2020 and a discussion of our cash flows for fiscal year 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, filed with the SEC on November 12, 2021.
For a discussion of our results of operations comparing fiscal year 2022 to fiscal year 2021 and a discussion of our cash flows for fiscal year 2021, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2022, filed with the SEC on November 10, 2022.
Cash Flows Used in Investing Activities Net cash used in investing activities during the fiscal year 2022 was $28.2 million, primarily due to purchases of property and equipment. The increase in purchases of property and equipment in fiscal year 2022 is primarily related to capital expenditures for current and future restaurant openings, maintaining our existing restaurants and other projects.
The increase in purchases of property and equipment in fiscal year 2023 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects. Net cash used in investing activities during the fiscal year 2022 was $28.2 million, primarily due to purchases of property and equipment.
Provision for income taxes represents federal, state and local current and deferred income tax expense. Results of Operations The following table presents selected comparative results of operations from our audited financial statements for the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021.
Provision for income taxes represents federal, state and local current and deferred income tax expense. 39 Results of Operations The following table presents selected comparative results of operations from our audited financial statements for the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022.
The following MD&A includes a discussion comparing our results in fiscal year 2022 to fiscal year 2021.
The following MD&A includes a discussion comparing our results in fiscal year 2023 to fiscal year 2022.
Depreciation and amortization expenses incurred at the corporate level were $0.3 million for fiscal year 2022 as compared to $0.4 million for fiscal year 2021, and as a percentage of sales were 0.3% and 0.6%, respectively. Other costs.
Depreciation and amortization expenses incurred at the corporate level were $0.4 million for fiscal year 2023 as compared to $0.3 million for fiscal year 2022, and as a percentage of sales were 0.2% and 0.3%, respectively. Other costs.
As of August 31, 2022, we did not have any material off-balance sheet arrangements. The significant components of our working capital are liquid assets such as cash, cash equivalents and receivables, reduced by accounts payable and accrued expenses.
As of August 31, 2023, we did not have any material off-balance sheet arrangements. The significant components of our working capital are liquid assets such as cash and cash equivalents, receivables and short-term investments reduced by accounts payable and accrued expenses.
We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO. 51
We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which our annual gross revenues exceed $1.235 billion during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO, or August 31, 2024. 49
The following table shows the growth in our restaurant base for the fiscal years ended August 31, 2022 and August 31, 2021: Fiscal Years Ended August 31, 2022 2021 Restaurant activity: Beginning of period 32 25 Openings 8 7 End of period 40 32 Liquidity and Capital Resources Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant fixtures.
The following table shows the growth in our restaurant base for the fiscal years ended August 31, 2023 and August 31, 2022: Fiscal Years Ended August 31, 2023 2022 Restaurant activity: Beginning of period 40 32 Openings 10 8 End of period 50 40 45 Liquidity and Capital Resources Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant fixtures.
Depreciation and amortization expenses incurred as part of restaurant operating costs were $5.3 million for fiscal year 2022 compared to $4.1 million fiscal year 2021, representing an increase of $1.2 million or 27.4%. This increase was primarily due to the depreciation of property and equipment related to the opening of eight new restaurants in fiscal year 2022.
Depreciation and amortization expenses incurred as part of restaurant operating costs were $7.4 million for fiscal year 2023 compared to $5.3 million for fiscal year 2022, representing an increase of $2.1 million or 41.2%. This increase was primarily due to the depreciation of property and equipment related to the opening of ten new restaurants in fiscal year 2023.
Various factors impact comparable restaurant sales, including: • government restrictions on indoor dining capacity due to COVID-19; • consumer recognition of our brand and our ability to respond to changing consumer preferences; • overall economic trends, particularly those related to consumer spending; • our ability to operate restaurants effectively and efficiently to meet consumer expectations; • pricing; • guest traffic; • per-guest spend and average check; • marketing and promotional efforts; • local competition; and • opening of new restaurants in the vicinity of existing locations.
Various factors impact comparable restaurant sales, including: • consumer recognition of our brand and our ability to respond to changing consumer preferences; • overall economic trends, particularly those related to consumer spending; • our ability to operate restaurants effectively and efficiently to meet consumer expectations; • pricing; • guest traffic; • per-guest spend and average check; • marketing and promotional efforts; • local competition; and • opening of new restaurants in the vicinity of existing locations.
Sales Sales represents sales of food and beverages in restaurants, as shown on our statements of operations. Several factors affect our restaurant sales in any given period including the number of restaurants in operation, guest traffic and average check. EBITDA and Adjusted EBITDA EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.
Several factors affect our restaurant sales in any given period including the number of restaurants in operation, guest traffic and average check. EBITDA and Adjusted EBITDA EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.
Cash Flows Used in Financing Activities Net cash used in financing activities during fiscal year 2022 was $0.2 million, primarily due to $1.0 million repayment of principal on financing leases of equipment, $0.2 million taxes paid on vested restricted stock awards, partially offset by $1.0 million proceeds from stock option exercises. 49 Net cash provided by financing activities during fiscal year 2021 was $53.0 million, primarily due to $53.5 million in net proceeds from the common stock offering, offset by repayment of principal on financing leases of equipment.
Net cash used in financing activities during fiscal year 2022 was $0.2 million, primarily due to $1.0 million repayment of principal on financing leases of equipment, $0.2 million taxes paid on vested restricted stock awards, partially offset by $1.0 million proceeds from stock option exercises.
The following table shows the comparable restaurant sales performance for the fiscal years ended August 31, 2022 and August 31, 2021: Fiscal Years Ended August 31, 2022 2021 Comparable restaurant sales performance (%) 81.9 % 16.2 % Comparable restaurant base 25 20 47 Number of Restaurant Openings The number of restaurant openings reflects the number of restaurants opened during a particular reporting period.
The following table shows the comparable restaurant sales performance for the fiscal years ended August 31, 2023 and August 31, 2022: Fiscal Years Ended August 31, 2023 2022 Comparable restaurant sales performance (%) 9.5 % 81.9 % Comparable restaurant base 30 25 Number of Restaurant Openings The number of restaurant openings reflects the number of restaurants opened during a particular reporting period.
We believe that cash provided by operating activities, cash on hand and availability under our existing line of credit will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months. 48 Summary of Cash Flows Our primary sources of liquidity and cash flows are operating cash flows and cash on hand.
We believe that cash provided by operating activities, cash on hand, short-term investments and availability under our existing line of credit will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months.
(c) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods (d) Employee retention credit includes refundable credits recognized under the provisions of the CARES Act and extension thereof. 46 Average Unit Volumes (“AUVs”) “Average Unit Volumes” or “AUVs” consist of the average annual sales of all restaurants that have been open for 18 months or longer at the end of the fiscal year presented due to new restaurants experiencing a period of higher sales upon opening.
(c) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods Average Unit Volumes (“AUVs”) “Average Unit Volumes” or “AUVs” consist of the average annual sales of all restaurants that have been open for 18 months or longer at the end of the fiscal year presented due to new restaurants experiencing a period of higher sales upon opening.
As a percentage of sales, general and administrative expenses decreased to 15.8% in fiscal year 2022 from 24.2% in fiscal year 2021, primarily driven by leverage benefits from the increase in sales. Interest expense. Interest expense was $0.1 million for fiscal year 2022 and $0.2 million for fiscal year 2021. Interest income.
As a percentage of sales, general and administrative expenses decreased to 15.0% in fiscal year 2023 from 15.8% in fiscal year 2022, primarily driven by leverage benefits from the increase in sales. Interest expense. Interest expense was $69 thousand for fiscal year 2023 and $87 thousand for fiscal year 2022. Interest income.
Material Cash Requirements As of August 31, 2022, we had $5.7 million in contractual obligations relating to purchase commitments for goods related to restaurant operations and commitments for construction of new restaurants. All purchase commitments are expected to be paid during the fiscal year 2022 utilizing cash on hand and cash provided by operations.
Material Cash Requirements As of August 31, 2023, we had $9.8 million in contractual obligations relating to the construction of new restaurants and purchase commitments for goods related to restaurant operations. All contractual obligations are expected to be paid during the next 12 months utilizing cash and cash equivalents on hand and provided by operations.
Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grows. Labor and related expenses. Labor and related expenses include all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes.
Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste. Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grow. Labor and related expenses. Labor and related expenses include all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes.
The following table summarizes our cash flows for the periods presented: Fiscal Years Ended August 31, 2022 2021 (amounts in thousands) Statement of Cash Flow Data: Net cash provided by (used in) operating activities $ 23,694 $ (7,146 ) Net cash used in investing activities (28,172 ) (14,668 ) Net cash (used in) provided by financing activities (170 ) 52,985 Cash Flows Provided by (Used in) Operating Activities Net cash provided by operating activities during the fiscal year 2022 was $23.7 million, which results from net loss of $0.8 million, non-cash charges of $5.6 million for depreciation and amortization, $2.4 million for stock-based compensation, $3.2 million in noncash lease expense, and net cash inflows of $13.2 million from changes in operating assets and liabilities.
The following table summarizes our cash flows for the periods presented: Fiscal Years Ended August 31, 2023 2022 (amounts in thousands) Statement of Cash Flow Data: Net cash provided by operating activities $ 18,064 $ 23,694 Net cash used in investing activities (49,903 ) (28,172 ) Net cash provided by (used in) financing activities 65,754 (170 ) Cash Flows Provided by Operating Activities Net cash provided by operating activities during the fiscal year 2023 was $18.1 million, which primarily results from net income of $1.5 million, non-cash charges of $7.8 million for depreciation and amortization, $3.6 million for stock-based compensation, $3.7 million in noncash lease expense, and net cash inflows of $1.3 million from changes in operating assets and liabilities.
Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. 48 Subject to certain conditions set forth in the JOBS Act, we are also eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
Stock-based Compensation” to the financial statements in this Annual Report on Form 10-K. (b) Pre-opening costs consist of labor costs and travel expenses for new employees and trainers during the training period, recruitment fees, legal fees, cash-based lease expenses incurred between the date of possession and opening day of our restaurants, and other related pre-opening costs.
(b) Pre-opening costs consist of labor costs and travel expenses for new employees and trainers during the training period, recruitment fees, legal fees, cash-based lease expenses incurred between the date of possession and opening day of our restaurants, and other related pre-opening costs.
Sales were $141.1 million for fiscal year 2022 compared to $64.9 million for fiscal year 2021, representing an increase of $76.2 million, or 117.4%. Comparable restaurant sales increased 81.9% for fiscal year 2022 as compared to fiscal year 2021. AUV was $3.8 million for fiscal year 2022 compared to $2.1 million for fiscal year 2021.
Sales were $187.4 million for fiscal year 2023 compared to $141.1 million for fiscal year 2022, representing an increase of $46.3 million, or 32.8%. Comparable restaurant sales increased 9.5% for fiscal year 2023 as compared to fiscal year 2022. AUV was $4.3 million for fiscal year 2023 compared to $3.8 million for fiscal year 2022.
You should review the reconciliation of net (loss) income to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin below and not rely on any single financial measure to evaluate our business. 44 The following table reconciles net income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin for the fiscal years ended August 31, 2022 and August 31, 2021: Fiscal Years Ended August 31, 2022 2021 (amounts in thousands) Net loss $ (764 ) $ (10,295 ) Interest (income) expense, net (64 ) 200 Taxes 74 106 Depreciation and amortization 5,613 4,522 EBITDA 4,859 (5,467 ) Stock-based compensation expense (a) 2,409 1,409 Non-cash lease expense (b) 1,712 1,212 Employee retention credit (c) — (10,258 ) Executive transition costs (d) 175 390 Litigation accrual (e) — 1,780 Adjusted EBITDA 9,155 (10,934 ) Adjusted EBITDA margin 6.5 % (16.8 )% (a) Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs in the statements of operations and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations, see “Note 6.
You should review the reconciliation of net (loss) income to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin below and not rely on any single financial measure to evaluate our business. 42 The following table reconciles net income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin for the fiscal years ended August 31, 2023 and August 31, 2022: Fiscal Years Ended August 31, 2023 2022 (amounts in thousands) Net income (loss) $ 1,502 $ (764 ) Interest (income) expense, net (1,403 ) (64 ) Taxes 233 74 Depreciation and amortization 7,832 5,613 EBITDA 8,164 4,859 Stock-based compensation expense (a) 3,550 2,409 Non-cash lease expense (b) 2,628 1,712 Executive transition costs (c) — 175 Adjusted EBITDA 14,342 9,155 Adjusted EBITDA margin 7.7 % 6.5 % _______________ (a) Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs in the statements of operations and comprehensive income (loss) and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations and comprehensive income (loss), see “Note 6 — Stock-based Compensation” to the financial statements in this Annual Report on Form 10-K.
Net cash used in investing activities during the fiscal year 2021 was $14.7 million, primarily due to purchases of property and equipment. The increase in purchases of property and equipment in fiscal year 2021 is primarily related to capital expenditures for current and future restaurant openings, maintaining our existing restaurants and other projects.
The increase in purchases of property and equipment in fiscal year 2022 is primarily related to capital expenditures for current and future restaurant openings, maintaining our existing restaurants and other projects.
General and administrative expenses were $22.3 million for fiscal year 2022 compared to $15.7 million for fiscal year 2021, representing an increase of $6.6 million, or 42.0%. This increase was primarily due to $5.4 million in compensation-related expenses due to an increase in headcount, $1.1 million in travel-related expenses, $0.9 million in recruiting, legal, insurance and other costs.
General and administrative expenses were $28.0 million for fiscal year 2023 compared to $22.3 million for fiscal year 2022, representing an increase of $5.7 million, or 25.8%. This increase was primarily due to increases in compensation related costs of $4.9 million due to additional headcount, $0.5 million in travel expenses and $0.3 million in professional fees.
The following table reconciles operating income (loss) to Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin for the fiscal years ended August 31, 2022 and August 31, 2021: Fiscal Years Ended August 31, 2022 2021 (amounts in thousands) Operating loss $ (754 ) $ (9,989 ) Depreciation and amortization 5,613 4,522 Stock-based compensation expense (a) 2,409 1,409 Pre-opening costs (b) 784 873 Non-cash lease expense (c) 1,712 1,212 Employee retention credit (d) — (10,258 ) General and administrative expenses 22,289 15,701 Corporate-level stock-based compensation and employee related credit included in general and administrative expenses (2,112 ) (301 ) Restaurant-level operating profit 29,941 3,169 Operating loss margin (0.5 )% (15.4 )% Restaurant-level operating profit margin 21.2 % 4.9 % _______________ (a) Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs in the statements of operations and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations, see “Note 6.
The following table reconciles operating income (loss) to Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin for the fiscal years ended August 31, 2023 and August 31, 2022: Fiscal Years Ended August 31, 2023 2022 (amounts in thousands) Operating income (loss) $ 332 $ (754 ) Depreciation and amortization 7,832 5,613 Stock-based compensation expense (a) 3,550 2,409 Pre-opening costs (b) 1,730 784 Non-cash lease expense (c) 2,628 1,712 General and administrative expenses 28,035 22,289 Corporate-level stock-based compensation included in general and administrative expenses (3,044 ) (2,112 ) Restaurant-level operating profit 41,063 29,941 Operating income (loss) margin 0.2 % (0.5 )% Restaurant-level operating profit margin 21.9 % 21.2 % _______________ (a) Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs in the statements of operations and comprehensive income (loss) and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations and comprehensive income (loss), see “Note 6 — Stock-based Compensation” to the financial statements in this Annual Report on Form 10-K.
As a percentage of sales, depreciation and amortization expenses at the restaurant-level decreased to 3.7% in fiscal year 2022 as compared to 6.4% in fiscal year 2021, primarily driven by the leverage benefits from the increase in sales.
As a percentage of sales, depreciation and amortization expenses at the restaurant-level increased to 4.0% in fiscal year 2023 as compared to 3.7% in fiscal year 2022.
We have been able to offset to some 40 extent these inflationary and other cost pressures through actions such as increasing menu prices, productivity improvements, and supply chain initiatives, however, we expect these inflationary and other cost pressures to continue into fiscal year 2023.
We have been able to offset to some extent these inflationary and other cost pressures through various actions, such as increasing menu prices, productivity improvements, and supply chain initiatives, however, we expect these inflationary and other cost pressures to level out in fiscal year 2024. Key Financial Definitions Sales. Sales represent sales of food and beverages in restaurants.
Income Taxes.” Key Performance Indicators In assessing the performance of our business, we consider a variety of financial and performance measures. The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, Average Unit Volumes (“AUVs”), comparable restaurant sales performance, and the number of restaurant openings.
The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, Average Unit Volumes (“AUVs”), comparable restaurant sales performance, and the number of restaurant openings. Sales Sales represents sales of food and beverages in restaurants, as shown on our statements of operations and comprehensive income (loss).
On July 23, 2021, we completed a common stock offering and sold an aggregate of 1,265,000 shares of Class A common stock, including the exercise in full of the underwriters’ option to purchase 165,000 additional shares, at a price of $45.00 per share less an underwriting discount of $2.48 per share.
On April 13, 2023, we completed an underwritten public offering of common stock pursuant to our universal shelf registration statement on Form S-3, selling an aggregate of 1,265,000 shares of Class A common stock, including the exercise in full of the underwriters’ option to purchase 165,000 additional shares, at the price of $54.00 per share less an underwriting discount of $2.70 per share.
The following table shows the AUVs for the fiscal years ended August 31, 2022 and August 31, 2021: Fiscal Years Ended August 31, 2022 2021 (in thousands) Average Unit Volumes $ 3,825 $ 2,138 Comparable Restaurant Sales Performance Comparable restaurant sales performance refers to the change in year-over-year sales for the comparable restaurant base.
This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base. 44 The following table shows the AUVs for the fiscal years ended August 31, 2023 and August 31, 2022: Fiscal Years Ended August 31, 2023 2022 (in thousands) Average Unit Volumes $ 4,281 $ 3,825 Comparable Restaurant Sales Performance Comparable restaurant sales performance refers to the change in year-over-year sales for the comparable restaurant base.
We use this to fund investing expenditures for new restaurant openings, reinvest in our existing restaurants, and increase our working capital.
Summary of Cash Flows Our primary sources of liquidity and cash flows are operating cash flows, cash on hand and short-term investments. We use this to fund investing expenditures for new restaurant openings, reinvest in our existing restaurants, and increase our working capital.
Occupancy and related expenses include rent for all restaurant locations and related taxes. Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from three to 20 years. Other costs.
Occupancy and related expenses. Occupancy and related expenses include rent for all restaurant locations and related taxes. Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements.
Other costs include utilities, repairs and maintenance, credit card fees, royalty payments to Kura Japan, stock-based compensation expenses for restaurant-level employees and other restaurant-level expenses. General and administrative expenses.
Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from three to 20 years. Other costs. Other costs include utilities, repairs and maintenance, credit card fees, royalty payments to Kura Japan, stock-based compensation expenses for restaurant-level employees and other restaurant-level expenses. General and administrative expenses.
Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs. Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste.
Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales growth. Food and beverage costs. Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs.
The increase includes costs such as credit card fees, utilities, maintenance services, advertising and promotions, and restaurant supplies. As a percentage of sales, other costs decreased to 12.4% in fiscal year 2022 from 16.1% in fiscal year 2021, primarily driven by leverage benefits from the increase in sales. General and administrative expenses.
As a percentage of sales, other costs increased to 13.3% in fiscal year 2023 from 12.4% in fiscal year 2022, primarily driven by general inflationary pressures on advertising costs, repair and maintenance fees, utilities and restaurant supplies. General and administrative expenses.
Net cash used in operating activities during the fiscal year 2021 was $7.1 million, which results from net loss of $10.3 million, non-cash charges of $4.5 million for depreciation and amortization, $1.4 million for stock-based compensation, $2.7 million in noncash lease expense, and net cash outflows of $5.6 million from changes in operating assets and liabilities.
The net cash inflows from changes in operating assets and liabilities were primarily the result of increases of $1.7 million of accounts payable and $1.6 million for salary and wages payable, $0.3 million in sales tax payable offset by decreases of $1.2 million in prepaid expenses and other current assets, $0.6 million of inventory, $0.3 million in accrued expenses and other current liabilities and $0.4 million of accounts and other receivables. 46 Net cash provided by operating activities during the fiscal year 2022 was $23.7 million, which results from net loss of $0.8 million, non-cash charges of $5.6 million for depreciation and amortization, $2.4 million for stock-based compensation, $3.2 million in noncash lease expense, and net cash inflows of $13.2 million from changes in operating assets and liabilities.
For restaurants that were temporarily closed for renovations during the year, we make fractional adjustments to sales such that sales are annualized in the associated period. We did not make any adjustments for the temporary restaurant closures due to COVID-19 during fiscal year 2021.
For restaurants that were temporarily closed for renovations during the year, we make fractional adjustments to sales such that sales are annualized in the associated period. Measuring our comparable restaurant sales performance allows us to evaluate the performance of our existing restaurant base.
We have experienced inflationary pressures affecting our operations in certain areas such as food and beverage costs, labor costs, construction costs and energy costs.
We also expect our general and administrative expenses to increase in fiscal 2024 to support the growth of the company and the compliance requirements of no longer being an emerging growth company. We have experienced inflationary pressures affecting our operations in certain areas such as food and beverage costs, labor costs, construction costs and energy costs.
Other costs were $17.5 million for fiscal year 2022 compared to $10.4 million for fiscal year 2021, representing an increase of $7.1 million, or 67.7%.
Other costs were $24.9 million for fiscal year 2023 compared to $17.5 million for fiscal year 2022, representing an increase of $7.4 million, or 42.2%. The increase was primarily driven by an increase in costs related to ten new restaurants opened in fiscal year 2023.
Interest income was $0.2 million for fiscal year 2022 and $20 thousand for fiscal year 2021. Income tax expense. Income tax expense was $0.1 million for fiscal year 2022 and fiscal year 2021. For further discussion of our income taxes, see “Note 11.
Income tax expense was $0.2 million for fiscal year 2023 and $0.1 million for fiscal year 2022. For further discussion of our income taxes, see “Note 12 — Income Taxes.” 41 Key Performance Indicators In assessing the performance of our business, we consider a variety of financial and performance measures.
Occupancy and related expenses were $9.9 million for fiscal year 2022 compared to $7.1 million for fiscal year 2021, representing an increase of $2.8 million, or 39.8%. This increase was primarily a result of additional lease expense incurred with respect to eight new restaurants that opened during fiscal year 2022.
This increase was primarily a result of additional lease expense incurred with respect to ten new restaurants that opened during fiscal year 2023. As a percentage of sales, occupancy and other operating expenses remained consistent at 7.0% in fiscal year 2023 and fiscal year 2022. Depreciation and amortization expenses.
As a percentage of sales, labor and related costs increased to 31.2% in fiscal year 2022, compared to 25.3% in fiscal year 2021. The increase in labor and related costs as a percentage of sales was primarily due to the employee retention credits recognized during fiscal year 2021. Occupancy and related expenses.
This increase in labor and related costs was primarily driven by additional labor costs incurred from ten new restaurants opened during fiscal year 2023. As a percentage of sales, labor and related costs decreased to 30.2% in fiscal year 2023, compared to 31.2% in fiscal year 2022.
As a percentage of sales, food and beverage costs decreased to 30.1% in fiscal year 2022, as compared to 31.9% in fiscal year 2021, primarily due to an increase in menu prices, partially offset by food cost inflation, as well as higher inventory spoilage in the prior year. Labor and related costs.
The decrease in cost as a percentage of sales was primarily due to increases in menu prices and technological initiatives, partially offset by increases in wage rates. Occupancy and related expenses. Occupancy and related expenses were $13.1 million for fiscal year 2023 compared to $9.9 million for fiscal year 2022, representing an increase of $3.2 million, or 32.5%.
Labor and related costs were $44.0 million for fiscal year 2022 compared to $16.4 million for fiscal year 2021, representing an increase of $27.6 million, or 167.8%.
As a percentage of sales, food and beverage costs remained consistent at 30.2% in fiscal year 2023, as compared to 30.1% in fiscal year 2022. Labor and related costs. Labor and related costs were $56.5 million for fiscal year 2023 compared to $44.0 million for fiscal year 2022, representing an increase of $12.5 million, or 28.5%.
Food and beverage costs. Food and beverage costs were $42.5 million for fiscal year 2022 compared to $20.7 million for fiscal year 2021, representing an increase of $21.8 million, or 105.5%.
Food and beverage costs were $56.6 million for fiscal year 2023 compared to $42.5 million for fiscal year 2022, representing an increase of $14.1 million, or 33.2%. This increase was primarily driven by costs associated with sales from ten new restaurants opened during fiscal year 2023.
We aim to make quality Japanese cuisine accessible to our guests across the United States through affordable prices and an inviting atmosphere. Business Trends; Effects of COVID-19 on Our Business The negative effects of the COVID-19 pandemic on our business have been significant. In March 2020, the World Health Organization declared the novel strain of coronavirus COVID-19 a global pandemic.
We aim to make quality Japanese cuisine accessible to our guests across the United States through affordable prices and an inviting atmosphere. Business Trends During fiscal year 2023, we opened ten restaurants and expanded our restaurant base to 50 restaurants in fifteen states and Washington, DC as of the end of fiscal year 2023.
Stock-based Compensation” to the financial statements in this Annual Report on Form 10-K. (b) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods (c) Employee retention credit includes refundable credits recognized under the provisions of the CARES Act and extension thereof.
(b) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods. (c) Executive transition costs include severance and search fees associated with the transition of our Chief Financial Officer.
The net proceeds were $53.5 million, after deducting underwriting discounts, commissions and offering expenses payable by us. For further discussion, please see “Note 1. Offering of Class A Common Stock” As of August 31, 2022, we had no outstanding borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining.
No payments were made by us to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our affiliates. As of August 31, 2023, we had no outstanding borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining.
The assumptions and estimated undiscounted forecasted cash flows used in the estimate have not changed materially during the year, and no impairment loss was recognized during fiscal years ended August 31, 2022 and August 31, 2021.
There were no impairment tests performed for the fiscal years ended August 31, 2023 or August 31, 2022 and no impairment loss was recognized during fiscal years ended August 31, 2023 and August 31, 2022.
Removed
For the past two and one-half years, this contagious virus has continued to spread and has adversely affected workforces, customers, economies, supply chains, and financial markets globally. In response to this outbreak, many state and local authorities mandated the temporary closure of non-essential businesses and dine-in restaurant activity or limited indoor dining capacities during our previous two fiscal years.
Added
We expect to open 11 to 13 new restaurants in fiscal year 2024 and therefore, we expect our revenue and restaurant operating costs to increase in fiscal year 2024.
Removed
COVID-19 and the government measures taken to control it have caused a significant disruption to our business operation. Since the end of our fiscal year 2021, and as of the filing date of this Annual Report on Form 10-K, we have been able to operate all of our restaurants with no government restrictions on indoor dining capacity.
Added
The increase in sales was primarily driven by the sales resulting from ten new restaurants opened during fiscal year 2023, as well as increases in menu prices during the same period. Food and beverage costs.
Removed
In response to the ongoing COVID-19 pandemic, we have prioritized taking steps to protect the health and safety of our employees and customers. We have maintained cleaning and sanitizing protocols for our restaurants and have implemented additional training and operational manuals for our restaurant employees, as well as increased handwashing procedures.
Added
Interest income was $1.5 million for fiscal year 2023 and $0.2 million for fiscal year 2022. The increase was primarily driven by investing our net cash proceeds from our $64.3 million follow-on offering completed in April 2023 into cash and cash equivalents and short-term investments. Income tax expense.
Removed
Consistent with our long-term growth strategy, we expect to continue to open new restaurants in locations where we believe such restaurants have the potential to achieve profitability.
Added
We received aggregate net proceeds of $64.3 million after deducting the underwriting discounts and commissions and offering expenses payable by us. The proceeds are to be used for general corporate purposes, including capital expenditures, working capital, and other business purposes.
Removed
The future sales levels of our restaurants and our ability to implement our growth strategy, however, remain highly uncertain, as the full impact and duration of the COVID-19 pandemic continues to evolve as of the filing date of this Annual Report on Form 10-K.
Added
Cash Flows Used in Investing Activities Net cash used in investing activities during the fiscal year 2023 was $49.9 million, primarily due to $9.3 million in purchases of short-term investments, $39.1 million in purchases of property and equipment and $1.7 million in purchases of liquor licenses offset by $0.8 million of redemption of short-term investments.
Removed
It is possible that renewed outbreaks, increases in cases and/or new variants of the virus, either as part of a national trend or on a more localized basis, could result in additional COVID-19 related restrictions, including capacity restrictions, or otherwise limit our dine-in services, or negatively affect consumer demand.
Added
Cash Flows Provided by (Used in) Financing Activities Net cash provided by financing activities during fiscal year 2023 was $65.8 million, primarily due to aggregate net proceeds of $64.3 million after deducting the underwriting discounts and commissions and offering expenses payable, and $2.0 million of proceeds from exercise of stock options offset by $0.5 million in repayments of principal on finance leases.
Removed
We have also experienced temporary shortages in food, equipment and other goods, as well as an increase in freights costs, due in part to supply chain impacts of the pandemic and overall economic conditions in the markets in which we operate.
Removed
Recent Events Concerning Our Financial Position Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, and the subsequent extension of the CARES Act, we were eligible for a refundable employee retention credit subject to certain criteria through the fiscal year ended August 31, 2021.
Removed
We recognized $10.3 million of employee retention credits during fiscal year 2021 of which $9.3 million was included in labor and related costs and $1.0 million was included in general and administrative expenses in the statements of operations. As of August 31, 2021, we had recognized and filed refunds in the amount of $12.0 million of employee retention credits.
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During fiscal year 2022, we received all of the refunds except for $34 thousand. Key Financial Definitions Sales. Sales represent sales of food and beverages in restaurants. Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales growth. Food and beverage costs.
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The increase in sales was primarily driven by all of our restaurants operating with no government restrictions on indoor dining capacity whereas the prior year sales were impacted by the temporary closure of our restaurants as mandated by local government restrictions in response to the COVID-19 pandemic, as well as the sales resulting from eight new restaurants opened during fiscal year 2022.
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This increase was primarily driven by all of our restaurants operating with no government restrictions on indoor dining capacity, whereas the prior year was impacted by the temporary closure of our restaurants as mandated by local government restrictions in response to the COVID-19 pandemic, as well as costs associated with sales from eight new restaurants opened during fiscal year 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThere can be no assurance that future cost increases can be offset by increased menu prices or that increased menu prices will be fully absorbed by our guests without any resulting change to their visit frequencies or purchasing patterns.
Biggest changeFrom time to time, competitive conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional menu price increases imprudent. There can be no assurance that increased menu prices can offset future cost increases or that our guests will fully absorb increased menu prices without any resulting change to their visit frequencies or purchasing patterns.
Historically, inflation has not had a material effect on our results of operations, although inflationary pressures have increased across our business, including with respect to food and beverage costs, due in part to supply chain impacts of the pandemic and overall economic conditions in the markets in which we operate.
Historically, inflation has not had a material effect on our results of operations, although inflationary pressures have increased across our business, including with respect to food and beverage costs, due in part to supply chain impacts of overall economic conditions in the markets in which we operate.
Item 7A. Quantitative and Qualit ative Disclosure of Market Risks Commodity and Food Price Risks Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and beverage and other commodities.
Item 7A. Quantitative and Qualit ative Disclosure of Market Risks Commodity and Food Price Risks Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and beverages and other commodities.
In addition, there can be no assurance that we will generate the same sales growth in an amount sufficient to offset inflationary or other cost pressures. 52
In addition, there can be no assurance that we will generate the same sales growth in an amount sufficient to offset inflationary or other cost pressures. 50
Our restaurant operations are subject to federal and state minimum wage and other laws governing such matters as working conditions, overtime and tip credits. Significant numbers of our restaurant personnel are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in the minimum wage increase our labor costs.
Our restaurant operations are subject to federal and state minimum wage and other laws governing working conditions, overtime and tip credits. Significant numbers of our restaurant personnel are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in the minimum wage increase our labor costs.
We have been able to partially offset cost increases resulting from several factors, including market conditions, shortages or interruptions in supply due to weather or other conditions beyond our control, governmental regulations and inflation, by increasing our menu prices, as well as making other operational adjustments that increase productivity.
We have been able to partially offset cost increases resulting from a number of factors, including market conditions, shortages or interruptions in supply due to weather or other conditions beyond our control, governmental regulations, and inflation, by increasing our menu prices, as well as making other operational adjustments that increase productivity.
However, substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be offset by menu price increases or operational adjustments. Inflation Risk The primary inflationary factors affecting our operations are food and beverage costs, labor costs, construction costs and energy costs.
However, substantial increases in costs and expenses could impact our operating results to the extent that menu prices increase or operational adjustments cannot offset such increases. Inflation Risk The primary inflationary factors affecting our operations are food and beverage costs, labor costs, construction costs and energy costs.
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From time to time, competitive conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional menu price increases imprudent.

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