Kura Sushi USA Inc (KRUS) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal First Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Steve Benrubi, Chief Financial Officer; and Benjamin Porten, VP of Investor Relations and Business Development.

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

Thank you, operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have accessed our fiscal first quarter 2022 earnings release. It can be found at www.kurasushi.com in the Investor Relations section. A copy of the earnings release has also been included in the 8-K we submitted to the SEC.

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

Also, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation nor as a substitute for results prepared in accordance with GAAP and the reconciliation to the comparable GAAP measures are available in our earnings release.

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

Thank you, Ben, and thank you, everyone, for joining us today. I'm very pleased to announce a strong start we've had to fiscal 2022 and that we are on track to achieve the goals that will be shared in our annual guidance.

The sales momentum we discussed in the previous earnings call have continued into the new fiscal year, resulting in Q1 comparable sales growth of 19.9% as compared to the prepandemic fiscal first quarter 2020. As a reminder, our fiscal 2020 first quarter refer to the September through November of calendar 2019. We believe this is a demonstration of the resilience of our business model in the face of renewed COVID concerns due to the Delta variant, and I couldn't be more proud of how far the company has come in adapting to the changes created by COVID.

We continue to make excellent progress in returning to prepandemic performance with Q1 restaurant-level operating profit margin of 19.5% as compared to 17.3% in Q1 fiscal 2020. Q1 is typically our weakest quarter from a seasonality perspective and that will be so close to our historical peak annual restaurant-level operating profit margin of 20%. It's a great sign for our recovery.

Regional sales points observed in the previous quarter remained in place as Texas continues to be our strongest market with regional comps of 27.8% as compared to California regional comps of 12.4%.

Looking at the monthly cadence of sales. We benefited from additional weekend in October as compared to the same period in fiscal 2020, which was offset by one less weekend in November as compared to the same period in fiscal 2020. These differences in calendar timing resulted in a minor compensation in November as compared to the preceding 2 months. After adjusting for this calendar sales, however, we demonstrated consistent comp strength [past the] fiscal 2020 throughout the quarter. Off-premise sales revenue was $1.3 million and a sales mix of 4.5% against Q4 off-premises revenue of $1.4 million and a mix of 5%.

Now I would like to provide an update on the pricing event we mentioned in our last earnings call. We increased pricing high-single digit at the beginning of September and saw minimal guest pushback despite this being the largest single operating move we've ever taken. I'm pleased to report that this response continued to be just as favorable, and I would like to discuss the effect this has had on our most recent quarter as well as for our business going forward.

Looking at our comp breakdown is particularly instructive in terms of understanding the impact of our pricing. Most of the growth seen in Q1 2-year stacked comp of 19.9% was driven by price taken over this 2-year period. Our guests are able to control their appetite due to our small great menu. We believe greater consumption rate [is an] effective measure of price elasticity. It is encouraging that over the same period, average number of plate consumed by guests increased. The increase in per-guest consumption in spite of pricing leads us to believe we have yet to approach a threshold of price sensitivity for our guests and that our guests understand and appreciate the premium value that Kura offers.

The increased plate consumption was partially offset by a dining room profit deflation of approximately 11% versus 2 years ago, of which we believe a portion of our operating sales started to offset. We absolutely believe this is a positive signal, but we think this profit deflation is being driven by longer table turn times due to more time-consuming but important COVID safety measures as opposed to any change in demand as demonstrated by how long our wait times remain. Secondly, the Q1 comp of 19.9% and restaurant-level operating profit margin of 19.5% were achieved in spite of a double-digit dining room profit headwind, underscoring the potential for improvement on historical AUVs and lead profitability as we exit the pandemic and traffic normalizes.

Turning to development. We opened our first new restaurant of the fiscal year in October at Stonestown Galleria in San Francisco. Subsequent to the quarter, we entered a new market of Arizona, with one unit in Phoenix and one unit in Chandler, both of which opened in late December. While it is still early days, we are encouraged by the performance of this year's class of restaurants. Our full year development plans remain on track with 2 more units under construction and fully executed leases for the remainder of the pipeline.

Now I would like to touch on 3 topics that are the current focus of the restaurant industry, supply chain, staffing, and the impact of COVID variants.

Due to the variety of our commodity basket, we continue to be relatively insulated from recent supply chain pressures. While we have seen the impact of the pressures that apply across commodities such as freight cost, our lack of reliance on any single primary protein has protected us from the cost of volatility that others are experiencing. This main strategy, in conjunction with the pricing we have taken in September, has allowed us to maintain ongoing control of our COGS spend, as Steve will discuss later.

Our investment in recruitment and retention continues to pay dividends, resulting in fully staffed restaurant chains, which enabled our strong Q1 sales.

Looking to the current quarter, the Omicron variant has caused some operational complications for us due to occasional supervised quarantining out of an abundance of caution. In late December, we saw some of our restaurants reduce their seating capacities or operating hours due to reduced workforces, which unfortunately coincided with a more lucrative holiday season, but we believe this is a temporary setback. These labor pressures are a result of the increase of transmissibility of Omicron and our prioritization of the safety of our employees and the guests as opposed to difficulties with hiring and retention, and we expect normalization following this initial wave.

During the month, we also locked on mid-December 2019 pricing event, representing several points of comp headwind for Q3. Consequently, we saw December comp growth of just over 14% when compared to December of calendar 2019.

Now I would like to provide an update on our recent initiatives. Table-side payment is fully rolled out with guest reception exceeding initial expectations. The pilot for touch-panel drink ordering continues to expand across our system with full rollout expected in this over the next quarter. Lastly, I'm very excited to announce one more initiative, robot servers. As of today, [high wall] restaurants are testing robot servers, which assists our waiter staff doing deliveries. Even beyond the labor efficiencies, it's been a true pleasure to watch our guests delighted in the future coming to life in our restaurant. Pending the return of the pilot, we expect full rollout by the end of the fiscal year.

Our rewards program continues to grow with 73,000 new members joining in Q1 for a total of 313,000 members, representing growth of over 30%. Reward program enrollment and engagement remains a top priority as our members have significantly higher ticket averages and dining frequency than non-members.

While we all look forward to the end of the pandemic, I am extremely proud of our recent performance and amazing work that our team has done to deliver these results. I would like to extend my thanks to everyone in our restaurant teams and the corporate support center for making this possible.

With that, let me turn the call over to Steve to briefly discuss our financial results and the liquidity. Steve?

Thank you, Jimmy. For the fiscal first quarter, total sales were $29.8 million as compared to $9.4 million in the prior year period. We believe measurement of comp sales growth is most relevant versus the pre-COVID period of fiscal first quarter 2020. On that basis, comp sales grew by 19.9%, with regional comps of 12.4% for California and 27.8% for Texas.

Turning to cost. Food and beverage costs as a percentage of sales were 30% compared to 32.4% in the prior year quarter due to pricing taken at the start of the quarter and largely normalized performance as sales volume improved. Labor and related costs as a percentage of sales decreased to 32.5% from 46.3% in the prior year quarter due to higher sales leverage. Occupancy and related expenses as a percentage of sales improved to 7.4% from 18% in the prior year quarter, also primarily due to higher sales leverage. Other costs as a percentage of sales decreased to 12.1% compared to 22.1% in the prior year quarter due to higher sales leverage as well.

General and administrative expenses were $5.4 million compared to $3.5 million in the prior year quarter. This increase was primarily due to compensation-related expenses as we made investments in our team to support our accelerated growth plans. As a percentage of sales, general and administrative expenses were 18% compared to 37.4% in the prior year quarter.

Operating loss was $1.3 million compared to an operating loss of $6.3 million in the first quarter of fiscal 2021. Income tax expense was $12,000 compared to an income tax expense of $29,000 in the prior year quarter. Note that we expect to continue to incur nominal income tax expense quarterly irrespective of our pretax income or loss as a result of the full valuation allowance against our deferred income tax assets and incurrence of minor income taxes payable at state levels. Net loss was $1.3 million or $0.13 per diluted share compared to net loss of $6.4 million or $0.76 per diluted share in the first quarter of 2021.

Restaurant-level operating profit as a percentage of sales was 19.5% compared to restaurant-level operating loss as a percentage of sales of 9.9% in the prior year quarter. Adjusted EBITDA was $800,000 compared to a negative $4.1 million in the first quarter of fiscal 2021.

Turning to our cash and liquidity. At the end of the fiscal first quarter, we had $44.4 million in cash and cash equivalents and no debt.

Finally, I would like to reaffirm our previously shared full year guidance for fiscal year 2022. We expect total sales between $130 million and $140 million. We expect general and administrative expenses as a percentage of sales of approximately 17%, and we expect the opening of 8 to 10 new units with net capital expenditures per unit of $2.1 million. It bears mentioning that these expectations assume that we experience no further operating restrictions or material downturns resulting from the ongoing COVID-19 pandemic. Our expectations are based on the results that we have seen in recent quarters. And while we believe the expectations are appropriate given our current operating environment, the company and the restaurant industry generally remain highly vulnerable to COVID-related volatility.

Now I'll turn the call back to Jimmy.

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

(Operator Instructions) Our first question comes from the line of James Rutherford with Stephens Inc.

All right. Congrats on the results here. Could you help quantify the extent of capacity limitations that you're seeing today just so we can calibrate where we are today on that? And then if you have any estimate -- I know it's hard, but any estimate on how much of a headwind that may have been to the comp you reported for December.

Thank you, James, for your first question. Please allow me to answer in Japanese. Ben is going to translate. (foreign language)

[Interpreted] In terms of the current situation, it remains highly fluid. But what we can say is that it has had a meaningful impact on our sales particularly as it began in the latter half of December leading into now with the holidays. It's been on a rolling basis because of Omicron.

(foreign language)

[Interpreted] That being said, our operations department, our opening team, our recruiting team are working on all cylinders. And as a result, the majority of our restaurants are able to operate without issues. So that's something that we're very proud of and grateful for the work that they're doing. Also, I just want to mention that these operating limitations are a result of quarantine shifts as opposed to anything like government mandate.

That's helpful. It kind of leads in the second question I had, which is regarding the traffic discussion. You mentioned demand is very robust. And I've seen that myself and I've eaten in your restaurants, but you said table turns have crept up, limiting some of the traffic recovery. So my question is, what can you do to increase those table turns and claw back some of that traffic? Maybe it's through technology. Or can you push people to shoulder period? Just do you have any ideas about what you can do to bring those table turns down?

Sure. (foreign language)

[Interpreted] In terms of reducing table turn times, the immediate focus would be those 3 initiatives that we've been discussing historically. That would be our table by payment or touch-panel drink orders and now our robot servers, which are working very well at least as we've seen in the pilot so far. What we want to emphasize here is the table turn times are not a permanent impact on our operational throughput. It's really a result of the additional cleaning procedures that we take in between parties. And so that efficiency will be naturally regained as we exit the pandemic. Besides efficiency, some traffic pressures have been ongoing in metropolitan areas where our restaurants are highly dependent on foot traffic. But we do believe that we can make up those traffic losses through increased marketing efforts. The robot servers, besides being an efficiency measure, are really a meaningful addition to the core experience, and they're highly Instagramable. It's been a great draw for our guests.

Our next question comes from the line of Andrew Strelzik with BMO Capital Markets.

Congrats on a very nice quarter. I guess first, I just wanted to clarify on the sales guidance that you gave. I know the commentary was -- assuming no further, I guess, implications from COVID, et cetera, but what exactly does that mean? I mean if you held kind of at this relative to pre-COVID comp level that you would be in that range? Or you're assuming that things go back to where they were? I'm just trying to square exactly what the commentary is with the recent trends.

Sure, Andrew. I mean it takes into account what we saw in the business in December, which included, as the month progressed, some more impact or challenge from Omicron. And I'd just emphasize that, that situation itself, it's truly for our operations team and our HR folks. It's a daily monitoring situation. Something can arise in a given restaurant with a positive case, let's say, among the team members and then result in the need to quarantine a certain number of the members who had been in contact with that individual, and they're working very hard day-to-day to work through that.

Our view is that -- we believe the level of that activity is a temporary situation. Hard to say what temporary exactly means. But for the near term, we're just really pivoting and adjusting on an almost daily basis in some of our restaurants given the circumstances. And so as we think out for the entire year and the guide that we gave on revenue, I mean there's some expectation that over time, the Omicron situation will moderate within the year here and not be as much of a challenge maybe from 1 day to the next as it's been of late. But we certainly built in some expectation right now for some difficulties that go along with that, that we're living through and have been for the last few weeks.

Got it. Okay. That's pretty clear. And then second question, I mean -- I guess you were asked last quarter and weren't prepared to kind of commit and obviously wasn't included in the formal guidance. But especially with the commentary you gave around the restaurant-level margins this quarter and what is typically a seasonally weaker period, is there any way or color that you can give on where you think within that sales range your restaurant margins might land? Or maybe some color on being impacted on the COGS side so much from an inflationary perspective but just anything to help us think about the margin trajectory here for the year.

Yes, yes. And I'll start with the caveat about what we just talked about in terms of...

Sure.

And volatility. But typically, for us, our seasonal -- our most recent pre-COVID year had about 23% of our sales base in the first quarter. And that would -- then it went to 24%. So you had 47% in the front half and 53% in the back half of the year. Things like food are going to be -- they should be almost completely variable. Labor is sort of semi-fixed, semi-variable, depending on how you think about it. And then when you get into occupancy costs and some of the other costs, more of that is leverageable once you start growing sales.

So if you think in terms of that balancing but also with the caveat that the quarter we're in right now faces some COVID challenges that weren't as significant at least in the earlier part of Q1, that can help you maybe do some modeling around the business. Suffice it to say, we're very encouraged by being at 19.5%, only 50 basis points from our historical peak annual margin in what is typically in Q1 a lighter seasonal sales quarter. And so the pricing that we've taken, the impact or really positive reception that continues from our customers about our value, we think those all bode well for our future opportunity to grow margin.

Got it. That makes a lot of sense. And I just wanted to squeeze one more in here. Just it's interesting entering a new market in Arizona in this environment, which presumably doesn't have as much of an impact from COVID generally as maybe some others. But I guess I'm curious, is your willingness to enter other markets that may be more impacted -- or would you kind of reprioritize the markets that you're looking at? Or is that 2 kind of prisoners at the moment? I'm just curious for your thoughts on the market level, kind of unit openings and the preference there.

(foreign language)

[Interpreted] In terms of our leases, we typically sign 20-year leases and the impact that we're seeing from the pandemic is going to be temporary. And so we're not making any fundamental changes to our development strategy in response to the pandemic. Largely speaking, we will continue to pursue the strategy that we pursued since going public of doing a 50-50 split between entering new markets and infilling existing markets. And since you brought it up, Arizona, while being a new market, has seen minimal impact or limited impact from Omicron and is performing extremely well.

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

I guess when you think about the trends here in the second quarter, can you talk about where you've seen more of an impact if it's been California or Texas relative to the kind of November trends? And then I understand the reduced hours and the seating capacity dynamics associated with the labor quarantining, but are you sensing or have you had any evidence of consumer reluctance to come into the restaurants?

Sure. (foreign language)

[Interpreted] Sure. In terms of what we're seeing in quarter-to-date, we're not really seeing too much of a geography-specific impact. It really does boil down to each restaurant and the number of employees who are quarantining. So it really does vary case by case as opposed to geography by geography.

(foreign language)

[Interpreted] The Omicron situation remains highly fluid, and so we can only speak to what we've seen so far. But so far, we've been very encouraged by a lack of consumer hesitation or change in consumer behavior. I think this is clearly demonstrated by how long our wait times have -- how are weight times really haven't changed since entering the Omicron era. In terms of the sales pressures that we're seeing, it's really more a result of the quarantining that we're doing out of abundance of caution, whether that results in fewer operating hours or diminished seating capacity. That's where the sales pressure is coming from. It's really not from a demand-related aspect.

Great. That's very helpful. And then I'm also curious if you've seen off-premises tick up. I mean I know seasonally, typically, off-premises would tick up in the winter. But if you kind of level-set it seasonally, if you've seen that increase in December and so far into January.

And then a second question on that. I know there were some potential dynamics associated with new units that you were going to incorporate to kind of make the off-premises business more frictionless. Can you give us any update on that as it relates to unit development?

Sure. In terms of...

I'll speak for the off-premise sales?

I'm sorry. Go ahead, Steve.

Yes, I was just going to speak for a moment on the off-premises sales. Sharon, we'll bring more detail about Q2 into the conversation when we talk about the results overall. What we did see in Q1 was kind of what we would expect, which is a slight percentage decline as a percent of the overall because we had a quarter where all 3 months, we had full dining room capacity versus in Q1. California was only 2.5 out of 3. But in terms of -- it's still an area, off-premises, that we know there's a certain band of customers that like to consume, but we'll share more detail on the quarter when we get through it.

And to answer your second question, the units that are geared towards more frictionless off-premises, whether that's curbside parking or a pickup window, those have yet to be -- those remain in our pipeline. So no updates there.

(Operator Instructions) Our next question comes from the line of Jeremy Hamblin with Craig-Hallum.

I'll add my congratulations on the strong momentum in the business. I wanted to just come back here to the comp breakdown in particular in December. In terms of that split that you saw in Q1, Texas up almost 28%, California up over 12%, how have those splits been in the December period?

So as you look at December, overall, Texas continues to outperform California on a comp basis. And its pullback was a little bit more than the change in California if you just go sequencing Q1 to December. I would add December, in addition to what we've talked about on the Omicron challenges to our staffing, it was also a little bit less favorable from a calendar perspective than 2 years ago. We've kind of lost -- this year, we lost a weekend to both Christmas Eve and New Year's Eve, whereas 2 years ago, it was a midweek set of holidays.

So a few things there. And then as well, I don't know if you caught during our prepared remarks, but we lapped a pricing event as well from December '19. That was a mid-single-digit increase at that time so that the pricing delta between 2-year period is less when you look at December versus Q1. But having said that, Texas continues to comp very strongly positive and more strongly than California in the month of December.

Okay. Got it. And then I just wanted to come back because I did miss the -- in terms of the 19.9% in Q1 versus 2019, what was the breakdown specifics of transaction growth or transaction change, I should say, versus average check?

Sure, sure. So as Jimmy talked about, the vast majority of the difference can be attributed to the pricing that -- change that had happened over that 2-year period. It was -- whereas the comp was the 19.9%. There was about 18% of pricing over a 2-year period and I think at least 3 pricing events during that time window. And so we outcomped the pricing by a slight amount. And the 2 elements that go into that, as Jimmy talked about, the plates being consumed per customer on average between the 2 periods was up. And we attribute -- or that tells us a few things.

One, we don't feel like our customers are pushing up against a price value threshold or anything of that nature at this point. Those pricing moves did not cause them to pull back on their plate count averages to the contrary because of, I would say, the value we offer, our marketing activities, our rewards program success. We're actually selling more plates per customer than we did 2 years ago. And then that increase was partially offset by the traffic reduction over the 2 years, which we called out as approximately 11% reduction in the comp stores over the 2 years with that largely associated with the fact that there's COVID-related activities that do put some pressure on our turn time capabilities in the restaurants, things around how we have to sanitize between table settings and also what things we can leave on the table right now at least for customers versus what has to be replaced every time a new set of customers comes in. So does that give you kind of the anatomy, I guess, of the numbers there?

Yes. That's super helpful. I want to come to unit growth, the timing. I think -- obviously, you opened 2 units subsequent to the quarter end. I think you said you had 2 more that are under construction currently and then leases signed on 3 additional locations. Could you provide a little bit more color in terms of the timing of completion for the units that you have kind of under construction and the timing for the back half of the year as well?

Sure. (foreign language)

[Interpreted] So we do have those 2 units under construction. They're making great progress. One is in San Antonio, Texas. The other is our upcoming location in Watertown, Massachusetts. We're very close to breaking ground on 2 additional units given that we have -- our typical construction time is 4 to 5 months, if you can extrapolate what our expected cadence is there. Obviously, with additional pressures on municipal governments in terms of permitting or inspections, there can be delays that are outside of our control, but currently, that's what we're expecting.

Got it. Helpful. Last one from me. So as we look at your unit volumes here and the comps up 20% versus 2 years ago, when we look at the other operating cost line item where you have your utilities, repairs and maintenance, your credit card fees, you have that line item up, I think, about 40 basis points versus Q1 levels from 2 years ago. I wanted to understand which components were the driver of that. Is that more coming from the utilities and maintenance and repairs? Or is that -- I'm not quite sure how much credit card fees are up as a percent of the sales since that time frame. But any more color you could share on that increase of 40 basis points.

Yes. I don't know that I could speak to the precise change or build it for you necessarily, but components that go in there like credit card fees, they really are straight variable costs. They run as a percentage of sales. Some of the small tools expenditures for the little bit of off-premises business that we do, there are some additional costs that run through the P&L in the other cost area that would perhaps be a minor deleveraging factor on a sales number since we have a meaningful percentage of business happening there. Things like insurance costs with growth in the business as well, they tend to go up along with the exposure metrics, and those exposure metrics are often sales from the insurance company view. So some of those costs may be not as leverageable over a multiyear period as others like in the occupancy, the pure rent category, for instance.

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

So just a couple from me. First, I was hoping you could start with the tech initiatives that you talked about. Did you say that the table-side payment is now fully rolled out across all your restaurants? And if I heard that correctly, how impactful is it? How much of an impact do you think that will have on turns and timing at the table?

Sure. (foreign language)

[Interpreted] In terms of the rollout, yes. Rollout is complete and is now in all of our restaurants. In terms of the impact, we are -- we've already seen a reduction to the workflow that our servers are responsible for, and we've seen that translate into a greater customer sort of satisfaction. In terms of table turn times, the pilot has been going on for too short a period for us to quantify it, but we look forward to providing updates in the future.

(foreign language)

[Interpreted] To provide some additional color, historically, in terms of our customers' payment methods, about 80% has come through credit cards. Looking at our table-side payment, the usage rates across all transactions are about 30% to 35%, so just under half of that 80% that we mentioned earlier. So you can imagine just how much of an impact that's having in terms of producing workloads for our servers.

Okay. That's helpful. And then next question for me is a different topic. In the past, you've run promotions and prices that are really impactful and drive a lot of traffic. And in the last 2 years, since pre-COVID, I mean you've grown so much in units and just absolute level of traffic. And so I was curious, as you look forward, I'm sure that those promotions and special prizes and things take a lot of planning. And just as you kind of map out the next year or so, are there a lot more kind of special partnerships and promotions that are becoming available to you just because of your increased scale?

Absolutely, absolutely. That's the case. That was one of the things that we're most excited about when we went public in 2019. Up until that point, we've really worked with smaller brands, our own proprietary characters or Japanese brands. But since going public, we've had access to much larger internationally known brands. Right now, we're partnering with TETRIS, which is one of the best known in video games of all time. We have an upcoming partnership with PAC-MAN as well. And we just had a -- we completed a recent partnership with Sonic. And so you can see the quality of the partnerships are improving every year. I'm incredibly proud of the work that's being done by our PR -- marketing department. In terms of giving you an update in terms of what's upcoming, we like to stay pretty tight with. Part of that is just the licensures don't let us disclose things too far ahead, but we are very excited for what we have in our pipeline.

Okay. Cool. And then last question from me. I appreciate the info you gave us on leasing on the construction and development pipeline. But if we could go -- and I don't know how much you're going to want to say here, but could you go one layer kind of higher LOIs or things that -- I don't know what other kinds of numbers you could give just on a number of things that are maybe in the pipe for more of a next year event. And what I'm trying to understand better is how much -- if this year was more of a normal environment with time lines, I know that construction is taking longer than normal. But you've made a lot of corporate investments and getting that development team in place. I'm just curious what kind of a normalized year could look like beyond this fiscal year in new store openings.

Sure. (foreign language)

[Interpreted] In terms of LOIs, we'd like to just continue with the information that we've already shared publicly, which is the leases for the remainder of the year fully executed. But as you can imagine, we're very diligent with maintaining a strong pipeline of LOIs given our aggressive growth plans.

(foreign language)

[Interpreted] In terms of current construction periods, we're seeing the same thing that we're -- that the rest of the industry is seeing in that there are some supply chain delays in terms of construction materials and [for mitigant] inspection can take a little bit longer than typical. But that 10-unit annual guidance that we gave and reaffirmed today holds that expectation into it, and we remain confident that we can hit those 8 to 10 units. In terms of a more normalized environment, there are really 3 factors that determine our growth rates. First would be our ability to identify high-quality sites. The second would be the quality and size of our management pipeline. And the third would be our liquidity. We think we're in a great place, and we think we're positioned to grow faster as the right environment is there. And so if we are to fundamentally reevaluate our growth rate and provide a new target, we'd be very excited to [outset] the future.

Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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