In a rare turn, a restaurant has gone public.
Kura Sushi USA, a “revolving sushi bar” that offers small plates featuring 140 items, began trading on the Nasdaq under the symbol “KRUS” on Thursday.
The IPO priced late Wednesday at $14, on the low end of the $14-to-$16 price range. The stock’s first trade was at $14.89, with shares immediately rising. The company raised $40.6 million in the IPO. Shares closed up 40% at $19.61 on the first day of trading.
BMO Capital Markets and Stephens Inc. were the lead underwriters for the deal with three other banks acting as co-managers.
The only other restaurant to go public in 2019 was Luckin Coffee Inc.
LK, -2.55%,
a coffee chain that has become a key competitor to Starbucks Corp.
SBUX, +0.73%
in China. Luckin Coffee began trading on May 17, debuting at $25. Shares are trading above $26 on Thursday, and are up 36.7% over the last month.
Read: 5 things to know about newly public Chinese Starbucks competitor Luckin Coffee
“Prior to 2019, the last time we saw a restaurant IPO was in 2015 when five restaurant chains went public including Wingstop
WING, -7.29%
and Shake Shack
SHAK, +0.52%,
” said Kathleen Smith, principal at Renaissance Capital, which provides institutional research and IPO ETFs.
Since then, a number of restaurant companies have returned to the private markets or been taken out by strategic buyers. Del Frisco’s Restaurant Group Inc. announced in June that it would be taken private via a $650 million deal with private-equity firm L Catterton.
Chicken chain Bojangles was taken private in November 2018 through an all-cash deal with Durational Capital Management LP and The Jordan Company LP, priced at $16.10 per share.
And in February 2017, Burger King parent Restaurant Brands International Inc.
QSR, -1.25%
agreed to buy Popeyes Louisiana Kitchen Inc. for $1.8 billion in cash.
“Because wage costs are rising, the key to success is efficiency of operation and automation,” said Smith.
See: Beyond Meat drives ‘flexitarians’ to Del Taco but same-store sales still fall short
Kura Sushi USA
KRUS, +40.07%
launched in 2008 as Kula West, a subsidiary of Kura Japan, a chain with more than 400 locations that opened its first restaurant in 1984. Kula West opened its first restaurant in Irvine, Calif. in 2009, which is also where the current executive offices are located. In October 2017, Kura Sushi reincorporated its U.S. subsidiary and renamed it Kura Sushi USA.
As of July 22, Kura Sushi operated 22 restaurants in the U.S., with 90% concentrated in California and Texas and one each in Georgia, Nevada and Illinois. The company says it has long-term potential for more than 290 locations in the U.S. with a goal of 20% average annual restaurant growth over the next five years, according to the prospectus.
The company is planning to open six to seven new restaurants in fiscal 2020. There is a “flexible real estate” model in place, such that restaurant size can be as small as 1,600 square feet or as large as 5,600 square feet.
The “Kura Experience” is centered on the conveyor belt delivery of dishes. Diners can choose items that travel on a moving conveyor belt, with all dishes priced below $3. Guests can also place an order using a touchscreen system. Items on the on-demand menu are priced between $2.25 and $6.90 and are sent directly to customers on an “express belt.”
The “experience” also includes anime video and toy rewards based on the number of plates a customer takes.
Read: Goldman Sachs warns that Chick-fil-A is taking a bite out of Wendy’s, KFC, Popeyes
Kura Sushi, like many restaurants and food brands nowadays, says its mission is to “encourage healthy lifestyles” with a menu that is free from preservatives and other additives and heavy with items like vegetables and seafood. Dishes include organic rice, broths that are made in-house and vinegar sourced from Japan.
Sales in fiscal 2018 totaled $51.7 million, up from $37.3 million the previous year. Net income totaled $1.74 million, up from $707,000. Same-restaurant sales growth in fiscal 2018 was 2.9%.
Kura Sushi USA has a fiscal year ending August 31.
Here are five things you need to know about Kura Sushi:
It has a dual-class structure
The company has opted for a dual-class structure; Class A shares carry one vote per share while Class B stock will have 10 votes per share. All of the Class B shares are owned by Kura Sushi Inc., giving them about 82.8% combined voting power, or 80.8% if underwriters exercise their option to buy additional shares of Class A stock.
It has not plans to pay a dividend
There are no plans to pay a cash dividend for the foreseeable future as all earnings will finance growth of the company.
Sushi robots keep labor costs down
Kura Sushi uses automation to cut down on the number of human workers the company has to pay. Sushi robots, robotic arms and “food replenishment algorithms” are among the technologies used to cut labor costs.
Watch: How AI can take the guesswork out of farming
It’s not entirely sure how it will spend proceeds of the IPO
Kura Sushi says it will spend about $3.1 million of its IPO proceeds to repay its term loans. After that, it’s not sure — but it may invest some in securities, including U.S. Treasurys.
“We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend,” says the prospectus.
“The amounts and timing of our actual use of net proceeds will vary depending on numerous factors. As a result, our management will have broad discretion in the application of the net proceeds of this offering, and investors will be relying on our judgment regarding the application of the net proceeds.”
Before it decides, it may invest the money. “We may invest the net proceeds in short-and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.”
It had accounting problems in the past
Kura Sushi identified a material weakness in its internal control of financial reporting in fiscal 2017. The company attributed the problem to “a lack of sufficient segregation of duties within the company’s financial recording and reporting IT systems.”
There was no material weakness identified for 2018.
In fiscal 2019, there was an error related to the classification of labor and related costs and general expenses that affected previous financial statements, including interim periods during fiscal 2017. An adjustment was made to fiscal 2017 financial data.
“Although we have initiated remedial measures, we cannot be certain that any such measures are sufficient to address the material weakness or that other material weaknesses and control deficiencies will not be discovered in the future,” the prospectus said.
The Renaissance IPO ETF
IPO, -1.66%
was up 0.8% Thursday and has gained 40% in 2019, outperforming the S&P 500
SPX, -0.90%
which has gained 20% and the Dow Jones Industrial Average
DJIA, -1.05%,
which has gained 16%.
Source : MTV
