On Thursday, Citi maintained a Neutral rating on Kura Sushi USA Inc . (NASDAQ:KRUS) but lowered the stock's price target to $101 from $124. The revision reflects expectations that the company will increase its forecast for new restaurant openings (NROs) for fiscal year 2024, having already met the lower end of its guidance with 13 openings through May. Despite this, concerns about weaker customer traffic during the quarter may dampen the stock's short-term performance.
The analyst from Citi noted that the softer footfall, despite the launch of a high-profile collaboration with Dragon Ball (NYSE:BALL) on May 1, could limit the potential for the stock's value to increase in the near term. This is especially true given that the upcoming collaboration with One Piece may not resonate as strongly with consumers. The overall challenging macroeconomic environment for consumers is seen as a factor that could influence traffic to Kura Sushi's locations.
Despite the near-term headwinds, Citi sees positive aspects in Kura Sushi's long-term prospects. The company's strong store-level economics, with over 40% cash-on-cash returns, and its leadership position in the fragmented $26 billion sushi market are highlighted as key strengths. Kura Sushi currently operates approximately 59 stores. Additionally, the brand's distinctive format, which features a high level of automation and customizable dining experiences, is also seen as a competitive advantage.
However, the firm emphasized that for the company's shares to rebound, Kura Sushi will need to address the current decline in guest counts. This turnaround is necessary for the stock to recover, given the current consumer spending challenges. The analyst's comments highlight the importance of customer traffic as a critical factor for the company's performance in the stock market.
In other recent news, Kura Sushi USA Inc. reported a solid financial performance for the fiscal second quarter of 2024. The technology-enabled Japanese restaurant chain's total sales reached $57.3 million, with a comparable sales growth of 3%. Despite an operating loss and a net loss for the quarter, the company has maintained a robust cash position with no debt and plans to open 13 to 14 new restaurants by the end of the fiscal year.
Piper Sandler, an investment firm, initiated coverage on Kura Sushi with a Neutral rating and set a price target of $114. The firm expressed admiration for Kura Sushi's unique use of technology in enhancing customer experience and operational efficiency. However, it also noted that the company's stock price already carries a significant premium compared to its industry peers, which influenced the decision to start with a Neutral rating.
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