KRUS - NASDAQ

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. Fiscal Second Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be open for your questions following the presentation. Please note that this call is being recorded. On the call today, we have Hajime Jimmy Uba, President and Chief Executive Officer; Jeff Uttz, Chief Financial Officer; and Benjamin Porten, Senior Vice President of Investor Relations and System 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 access to our fiscal second quarter 2024 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 financial 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 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.

Thanks Ben and thank you to everyone for joining us today. I'm very pleased to report that the ongoing strength of our business as we progress through a record fiscal year. Jeff will go into greater later, but for those of you have read our earnings release, I'm sure you know the result. We have announced further raises in guidance. It was unprecedented for us when we announced our guidance raise so early in the year with our first quarter call and being able to follow the next quarter, is rightly [ph] for each of our guidance items demonstrates our incredible confidence in our business. We've opened 10 restaurants to-date, putting us well on track for our new unit guidance of 13 to 14 openings this fiscal year. We leverage G&A year-over-year by 190 basis points and grew adjusted EBITDA dollars by 23%. We've introduced big new projects and our operational teams have more than risen to the challenge of implementing them. I'm extremely proud of everyone's efforts and wanted to begin the call by acknowledging all of our team members and thanking them for creating so much great news that I get to share today. Total sales for the fiscal second quarter were $57.3 million, representing comparable sales growth of 3%. A profit growth of 5.9% is a meaningful acceleration over the prior quarter's profit growth of 3.3%. We are very pleased that we have achieved these results in spite of the severe weather that impacted the entire industry. During our fiscal second quarter, Black Box [ph] Restaurant Industry Traffic Index was negative 3.5%, a spread of 940 basis points. Compared to the casual dining industry, our profit outperformance was 1,180 basis points. It's clear that our guest love Kura as much as we love them. As a reminder, 7% of the pricing paid off during the first week of December, which we offset with only 1% in January for current effective pricing of 3%. [Indiscernible] tailwinds in January and we are very pleased to see that this is continuing through the quarter. This clearly has been a special quarter for Kura and I'm proud of that. We provide the kind of guest experience that keeps guests coming back to us. During the second quarter, commodity costs continued to be right where we want them, up 29.6% of sales. Labor as of percentage of sales was 32.8% as compared to 31.5% in the prior year quarter. In addition to the meaningfully higher pre-opening labor cost due to accelerated openings, we experienced the same severe weather that impacted the rest of the restaurant industry. We are confident that this increase in labor costs is not structural in nature and expected the same seasonal leverage in good labor that we've always seen. As I previously mentioned, we are aggressively executing on one of our key strategic pillars to drive overall corporate profitability, leveraging G&A. We were able to bring G&A cost down to 14.3% as a percentage of sales as compared to last year's 16.3%. And as a result, we now expect to achieve even greater G&A leverage for the year, which Jeff will discuss later. Our support center team have done a great job in managing incremental headcount and we expect further tailwinds in future years as we infill markets and the benefit from efficiencies in regional Restaurant management. In the fiscal second quarter, we opened five new restaurants; Kansas City, Missouri; Skokie, Illinois; Columbus, Ohio; and Euless and Webster in Texas. Subsequent to quarter end, we opened one more restaurant in Orlando, Florida. We also have five units currently under construction. In the fiscal year-to-date alone, we've opened as many restaurants as we did during the first six years of Kura Sushi's operations in the U.S. I'm incredibly proud of what our brand have become and for us to have established our footprint as a truly national brand with restaurants in 17 states today. We are also pleased with the performance of our new Rewards program. U.S. members are now responsible for approximately a third of our sales as compared to less than the quarter with our prior program. Our recent analysis on average Rewards members spend 10% more per ticket, even after factoring in discounts and visit 1.3 times per month. For the last several calls, I've hinted up our IT collaboration that I was extremely excited about and it's my pleasure to finally be able to share that our next IT partner is Dragon Ball [ph]. I think this might be our first non-American property that everybody on this call is already familiar with. We believe Dragon Ball is the most exciting partnership we've ever had and I'm truly looking forward to sharing the results. I have a lot of great news this year regarding our tech pipeline as well. We have completed our first in-restaurant test of our robotic dishwasher in Japan and early results have confirmed our expectations on how meaningful they will be for our operations. While we don't have timelines for safe side [ph] implementation, I'm very pleased with our flood momentum. Our table-side mobile ordering function implementation is going smoothly as well and I'm happy to be able to announce a new teaser for table-side mobile ordering that we are developing in parallel. The ability for guests to club-on [ph] prices through side menu purchases rather than just through sushi place. One more thing on the tech front. We have a completely new battle-tested technology from Kura Japan that we are currently getting certified for the U.S. We call it the Sushi Slider. We put our rice balls directly on to our sushi plates and then takes them to each dine-in employee, [indiscernible]. During peak hours, we can have two to three employees spending half of their shift, placing rice balls on the sushi plates and handling them to the next person on the make line [ph]. So, the operational upside here is obvious. Our expectation is that we'll be able to bring the Sushi Slider certified for testing this summer and that we'll actually be able to retrofit some of our existing restaurants to accommodate it. As you can see, we've made a lot of progress in this last quarter. Lastly, I'm pleased to announce that we were able to secure a very favorable review with DoorDash, prompting our exclusive partnership and rapid rollout of the program. In these difficult times, we are able to keep our menu prices the same as in-store dining, and we expect the DoorDash sales to be beneficial to the margins. We are very pleased with our partnership with DoorDash so far and I'm looking forward to providing quantitative color in future calls. I would like to again thank all of our team members at our restaurants and our support center. Every department can point to a remarkable achievement this quarter. We are looking at some 10 restaurants that we've already opened, the incredible traffic outperformance of our restaurants, G&A leverage of 190 basis points, our IT collaboration pipeline, and the success of new device program, our progress in technology or a successful and rapid rollout of DoorDash. It's been an amazing quarter. Thank you, everyone. Jeff, now I'll turn it over to you to discuss our financial results and liquidity.

Thanks Jimmy. For the second quarter, total sales were $57.3 million as compared to $43.9 million in the prior year period. Comparable restaurant sales performance compared to the prior year period was positive 3%, with regional comps of 8.7% in our West Coast market and flat comparable sales in our Southwest market. Turning now to our costs. Food and beverage costs as a percentage of sales were 29.6% compared to 30.1% in the prior year quarter, largely due to pricing and supply chain initiatives. Labor and related costs as a percentage of sales were 32.8% as compared to 31.5% in the prior year quarter. This increase was largely due to adverse weather conditions, increased training costs associated with new store openings, and general wage increases. Occupancy and related expenses as a percentage of sales were 6.9% compared to the prior year quarter's 7%. Depreciation and amortization expenses as a percentage of sales increased to 4.7% compared to the prior year quarter's 4%, largely due to additional newly-opened units as well as the accelerated depreciation of assets that were being replaced due to planned remodels. Other costs as a percentage of sales increased to 14.6% compared to 13.3% in the prior year quarter, due mainly to preopening costs associated with a greater number of store openings as well as an increase in marketing costs, repairs and maintenance, and general cost inflation. General and administrative expenses as a percentage of sales decreased to 14.3% compared to 16.2% in the prior year quarter due to greater sales leverage, which was partially offset by incremental public company costs and recruiting and travel costs associated with new unit openings. Operating loss was $1.7 million compared to an operating loss of $1 million in the prior year quarter, largely driven by incremental other costs associated with a greater number of unit openings and units under construction and depreciation and amortization. Income tax expense was $50,000 compared to $15,000 in the prior year quarter. Net loss was $1 million or $0.09 per diluted share compared to a net loss of $1 million or $0.10 per diluted share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.6% compared to 20.3% in the prior year quarter. Adjusted EBITDA was $2.9 million compared to $2.3 million in the prior year quarter. Now, turning to our cash and liquidity. At the end of the fiscal second quarter, we had $56.8 million in cash and cash equivalents and no debt. And lastly, I'd like to update the following guidance for fiscal year 2024. We now expect our total sales to be between $243 million and $246 million. We now expect to open between 13 and 14 new units with average net capital expenditures per unit of approximately $2.5 million. And we now expect G&A expenses as a percentage of sales to be between 14% and 14.5%. And with that, I'd like to turn the call back over to Jimmy.

Thank you, Jeff. 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 to English. Thank you for your attention.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question will come from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Great. Thank you very much. A couple of questions. The first one, just looking at the comp, I think you said 3%. Just wondering if you can talk about maybe the trends through the quarter and what you've seen in the month of March, it does seem like the industry is perhaps talking about a little bit of a slowdown in March going into April, especially in the lower-income consumer. So, just trying to get your perspective on the consumer environment and what trends you've seen in recent months?

[Foreign Language] In terms of the monthly cadence of the comps, obviously, we saw some pressure in January with the inclement weather that everybody else saw. We're very [Technical Difficulty] we think there were 45 [ph] remodels, especially after promotion appears to be slow. One thing that we really feel tremendous on 5.9% traffic that we did, which really have a 1,000 basis points spread between ourselves and the casual dining increased tremendously. We're incredibly pleased with how markets performed and we're just [indiscernible] we're very happy with April's as well and so it's great to see that we're maintaining positive momentum that we've seen as we've exited Q2. It's been really great.

No, that's encouraging. And then just separately on the new markets you're going into from a geography standpoint, any surprises in terms of reception from the consumer whether positive or negative? Just curious your learnings in your newest markets you've got such a big opportunity for you.

In terms of geographic trends, we've seen the same trends as before in terms of new markets, every single one of them has been a hit. So, in other words, no surprises, we've expected hits and we've gotten hits and so that's really nice. In terms of differences in geographic performance, that would really just be associated with wherever the weather was. For us, we've got a lot of places in California and so when it rains in California that can have an impact on the West Coast comps.

-- was pressured relative to at least Street expectations on the labor line and the other line, both being well above expectation, which drove pressure on the margin, but I get the feeling those aren't necessarily structural. It sounds like the labor was because of some accelerated unit opening, does that mean other costs that were some unusual. So, just wondering, as you think about the restaurant margin for the second half of fiscal 2024, what your thoughts are there and maybe what line item you think has the greatest visibility versus the greatest level of uncertainty as we think about the back half of the year restaurant margin? Thank you.

We're very confident about the restaurant-level operating profit margins for the second half of the year. As you know, we've already opened the bulk of the units for this fiscal year and so those preopening labor-related headwinds are largely behind us. The other factor is that we're going to see the same seasonality, the same sales leverage that we've seen every year. We also have a number of promotions that are in the pipeline that we could not be more excited about. As Jimmy mentioned, we've got Dragon Ball. We think that's literally, the biggest promotion ever. Jimmy and I are super, super proud and pleased to have that there. And so we've got a lot of tailwinds and even besides that, we've got the tech stuff, we've got DoorDash. There are a lot of things to look forward to for restaurant-level operating profit margin.

And the other would be the first month that you open a restaurant it's typically not profitable and we're over the hub for all those restaurants. They're operating at full capacity. There'd be tailwind for the back half of the year. So, yes, we're really excited.

And Jeff too, what I'll add is, as we talked about the restaurant-level margins, which are really excited about all these new things we have in the pipeline, we also really want to point out the G&A reduction and leverage that we're getting on the total adjusted EBITDA on the G&A. I mean, we went from 15.8% in 2022 to 15% in 2023. And with earning guidance, if we hit the midpoint, that's another 80 bps [Technical Difficulty] basis points of [Technical Difficulty], something very proud and very excited about.

Absolutely. Thank you guys very much.

Thanks Jeff.

Thank you.

Our next question comes from the line of Jon Tower with Citigroup. Please proceed with your question.

Great. Thanks for taking the questions. Maybe starting off with the comps and specifically during the period. It's great to see the traffic growth, that's awesome, but the price/mix implications behind that, you guys moved into negative territory. And I know there's not a ton of history here, but I'm curious that would seem to indicate that consumers are perhaps managing their check a little bit differently than in years past. So, how is that manifesting? Are people just getting fewer plates? Are they pulling less off of the -- or ordering less off of the tablets and pulling more off of the belts? Just curious to see how it's showing up in your business?

In terms of mix, our per person plate consumption has stayed flat at 6.3 plates year-over-year and so really no difference there. The delta would be in side-menu orders or people trading out from soft drinks to water. In terms of mix, we're actually -- we're very pleased. I don't know if you caught what we mentioned at ICR in January. But as of December, mix has gone from negative high single-digits to negative mid-single-digits. And as you can see from our comp breakdown back into from traffic, that strength has helped. And so the consumer is showing greater strength in the most recent quarter relative to the last couple of quarters where we've mentioned mix being negative high single-digits. We're exceptionally proud, again, of the 6% traffic. If there is mix pressure, we're very proud to have been able to offset that with incremental traffic growth. We do have a number of things that we expect in terms of opportunities for side menu ordering, namely the biggest one being guests being able to order from their phones instead of just having to reach over their buddies sitting closer to the conveyor belt -- the tablet. People can just use their smartphones as their menu. But the bigger thing is that now as a Stage 2 for that, our guests will be able to earn prizes by ordering side menu items, which have never been a consideration before. And so we've got a lot of things to look forward to in addition to the fact that mix is already been improving.

Got it. Thank you. Appreciate that color. Maybe jumping around a little bit to -- on the DoorDash partnership that you've got. And I think, Jimmy, you had mentioned the idea that this is going to be margin-neutral relative to in-store transactions, while keeping the prices the same, if I understood that correctly. So, are effectively this just getting passed along to consumers in the higher -- in the form of higher delivery fees. I'm just curious how you guys manage that?

So, our expectation is that it's going to be margin-neutral to margin-accretive. We're really excited about the partnership with DoorDash. And in terms of passing along cost to guests, we're actually -- one of the reasons that we're partnering with DoorDash is because we can offer a better guest experience than ever before. We're on DashPass, so if you have a DashPass membership, you can now get delivery for free, where before, it costs $7 or $8. And so to be able to offer the same prices as in our restaurants and give guests free delivery and be market-accretive, it was really a no-brainer for us. But this really came down to the deal terms we were able to secure with DoorDash. And as Jimmy mentioned in the prepared remarks, if we hadn't been able to arrive at these terms, this wasn't something that we were entertaining the fact that we got these terms is really what triggered our decision to go forward with this.

Got it. In terms of, I mean, maybe it's early days for it, but I'm curious either what you're seeing in stores that were -- maybe it was deployed already in terms of how it's mixed in or what your internal expectations are? And then separately, but related how are you managing this within the store? Because obviously, your kitchens are super busy already, you've got a lot of traffic running through. How are you handling these delivery orders versus the in-store transactions that are taking place?

Yes, the operations team has done an amazing job in terms of implementing and integrating it into their operations. We're able to throttle orders and so if we are busy and our kitchen's already at capacity, we're always going to prioritize the guests that are already in our restaurants. And so we just slowed down or shut down our upfront orders and it really hasn't been an issue.

Got it. Awesome. Yes, I'll pass it along and maybe hop back in the queue. Thank you.

Thank you, Jon.

Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Hi guys. First off, I just wanted to dig in the margins a little bit more on the labor expense up here. Can you break down at all how much of that was due to the higher openings here versus just kind of pure labor inflation? And then I'm also curious, any impact that you guys are seeing in California restaurants on labor with hire faster with minimum wage there?

So, if you look at our Q, you can see that our preopening costs for Q2 are $700,000 higher than preopening costs in the prior year's Q2. And the bulk of that $700,000, which that's about 1.2% of sales, the bulk of that $700,000 is labor. So, you can see immediately just how big of an impact that the accelerated preopening labor did. In terms of the full year, we expect mid-single-digit labor inflation, which is what we've said in past quarters. The change in labor is really -- again, it's really driven by the preopening labor compounded by the lever that we saw across our markets. We're very pleased with the margins that we put up in spite of that and we have zero concerns in terms of recurring to normal since we entered Q3. As we've mentioned, we have a lot of tailwinds and we think -- we know that the elevated labor from the last quarter is due to things that were either out of our control, weather, or we're pleased with, which is that we were able to open our restaurants. And so yes, we're pretty happy.

In terms of the FAST Act, as I'm sure you're aware, we're not -- as the legislation stands, we're not under that umbrella. A lot of other casual dining restaurants or restaurants generally have been impacted by it regardless of whether or not they're directly under that umbrella just continuing to maintain competitive wages. In California, our employees in the back of the house are eligible for tips and so they're already making very competitive wages. We just don't see a scenario where they're going to leave our heavily-automated restaurants to do more work for less pay. And so this really hasn't been a wage pressure for us. We all spend a lot of time in California or live in California. So, we've seen -- we've seen price go up, sometimes high single-digits, sometimes double-digits as the restaurant and cafes that we always go to. And so the fact that we're keeping pricing where we are, we think it's a strategic and meaningful advantage. We think that this is an opportunity to really grow our audience. When everything else seems more expensive than ever and Kura is an affordable luxury, which is really what so many guests want about the brand, we think this is an opportunity from the current experience to tons of new people, especially when our price point just gets closer and closer and closer to QSR as a greater price [Indiscernible] market.

And Mark, one of the things we've always said is that when we thought about the FAST Act or AB 1228 came in, then we thought that would increase the value proposition for Kura Sushi. And I will tell you that yesterday, I ordered a salad for lunch from a chain to be unnamed, but they had -- and it was even before delivery fees or anything, it was almost $20. And you can go to Kura Sushi, a plate for sushi and a soda for about that, maybe just a tiny bit more than that. So, our guess on what people were going to do with pricing on April 1st and how that increases our value proposition seems to be proven true, at least in the early stages of this new Act.

Excellent. Other question for me is just looking at the opening cadence here, you guys did a good job getting restaurants opened here in the first half. With five under construction, the guidance of 13 to 14, are you just being a little conservative on those openings? Or do you think you can get these five open by the end of the year?

In terms of the cadence, we just broke ground on one of them. So, it's very early on in terms of the construction life cycle. The remaining units, we expect about an even split between Q3 and Q4. We think 13 to 14 units is a reasonable expectation, which is why we gave that as guidance.

That’s fair. Thank you guys.

Thank you, Mark.

Thanks Mark.

Our next question comes from the line of Matt Curtis with William Blair. Please proceed with your question.

Hi, good afternoon. You guys ran a promotion to your Rewards members. So, I think with two visits in December, you gave them a 20% coupon valid in January. I was just wondering if you could tell us about how much the traffic benefit that wound-up delivering for you or what redemption rates were like? And then, I guess, related to whether you're planning to run anything like this regularly going forward?

In terms of the coupon campaign, without getting too deep -- overall, we are very pleased. Obviously, with January, we had some noise from weather, which maybe resulted in less traffic than there would have been otherwise. But we still have 5.9% traffic for the quarter, our comps are 3%. We were really pleased. So, yes, overall, we view this as success.

Okay, got it. Do you mind telling us what the weather penalty was for the quarter?

I'm sorry, can you repeat that?

Sorry, would you mind telling us what the weather penalty was for the quarter?

For both January and February, we've about four operating days each that were very heavily-impacted. January, it was largely Texas, the Midwest, and some of the East Coast. California was hit during February. But yes, about eight days.

Okay, got it. Thank you. And then you talked about Dragon Ball being the promotion that's coming this spring, I guess. You have SPY x FAMILY that's been in place since I think March 1st. Could you remind us what promotions you're lapping over this timeframe and how successful they were last year?

So, as we discussed earlier, we're really pleased with March results. We think in the small part was SPY x FAMILY was a very successful campaign. In terms of what we've been lapping, I believe it was Jujutsu Kaisen last year for April and May. So, a pretty strong one, but not the strongest, but -- so we're very pleased to be top rated [ph] the way that we are. Dragon Ball again, is really, I mean, it's huge. It's just huge. It's really hard to predict what the impact is going to be, but we are super, super excited for May 1st.

Okay, understood. Thanks very much.

Thanks Matt.

Thank you, Matt.

Thank you. [Operator Instructions] Our next question comes from the line of CJ Dipolino with Craig-Hallum Capital Group. Please proceed with your question.

Hi everyone, it's CJ on for Jeremy Hamblin. I wanted to touch on labor cost one more time and just see if you were able to give a little more color, kind of quantify the penalty from adverse weather?

So, as we mentioned earlier, we had about $700,000 in incremental preopening costs as compared to the prior year. The majority of those costs are in labor. And then we had about eight days of weather impact and you can't change the schedule in real-time to deal with weather. So, yes, that would be the impact.

So, eight days impacted, but full payroll in there.

Okay. Thank you. And then on the other cost line item on P&L, I know you said you negotiate the DoorDash deal on really favorable terms, are you seeing any incremental expense that's being added to that line item?

No. DoorDash launched in February on a rolling basis. And so the impact in Q2 was not super meaningful. But in either case, we do expect DoorDash to be margin-neutral -- or actually, our expectation is market-accretive, worst case it would be margin-neutral. And the other costs too are impacted also by the preopening costs, the two biggest lines that are impacting our P&L are labor and the other cost line. So, when you look at that other cost line whenever there's a greater number of store openings, there's travel and other costs associated with moving people around for those openings. So, the other cost line is impacted as well.

Okay, right. Thank you. And then one more quick one, if you don't mind. Sorry if you just touched on it, but once you break ground on a new restaurant, how long does it take? What's the typical time to open from that point?

It's typically about five months. So, it's been about five months historically. The last couple of quarters, we've seen that tighten a little bit with inspections at the end of construction going a little smoother. And so it's been closer to four months and five months, but our base expectation is five months.

Okay, got it. Thank you. very helpful.

Thank you.

Thanks CJ.

Our next question comes from the line of George Kelly with ROTH. Please proceed with your question.

Hey everybody. Thanks for taking my questions. So, first one is about Dragon Ball. Clearly, you guys seem super excited about that partnership. And I understand big brands. But I guess the question is, are you also -- you've done so many of these now, I'm curious if your strategy around monetizing big partnerships like that, if that's changed at all? And basically, like are you kind of given the history and what you've seen with these big deals before, is there sort of an ability now to be more aggressive in your monetization plan?

Yes. So, our strategy on this is always evolving. As we mentioned, one of the reasons that we're so pleased with April so far is that we just did our giveaway campaign with SPY x FAMILY where if you cross a certain spending threshold, you got t-shirts. I was actually -- I was at lunch today at Kura and I saw lots of people trying to get those t-shirts and so clearly, it's working. This is -- we realized just how meaningful an opportunity is. As you said, this is a very meaningful driver in terms of getting people into the door, and these are brands that people are very passionate about. And so we have a lot of things in the pipeline. I can't discuss them just yet. Part of them or enabled by the new capabilities of the Rewards program. Some of them are new ideas that we have that are completely separate from that. But we're always looking for new ways to engage our guests in new ways. I mean -- the brands are one of the most fun things about coming into Kura and so we're always looking at new ways to leverage that.

Okay, understood. And then second question on unit growth, taking your guidance up again, I guess, at the midpoint for expected openings this year. Is it all about permitting? Or are there any other factors that explain you raising that a couple of times now? And then the second part of that question is, if you look out beyond this year, is it fair to assume that the 20% growth target that you've put out in the past, is that still a good number to use? And those are my questions. Thank you.

In terms of forward growth, what we've said in the past and what we've achieved would be 20% is a floor, typically coming in closer to 25%. That's what we've been doing. That's what we expect to do. Our organization has demonstrated that it's more than capable meeting that challenge year-after-year, and we're excited to keep delivering on that. Given that we've already opened 10 stores and we have five under construction, just looking at historical patterns in terms of permitting, how construction goes, we think that 13 to 14 is a really fair bet. Obviously, there's opportunity potential to go beyond that. But at this point, with six months less than a year, that's the -- 13 to 14 is where we feel good about.

And also, to your point, George, you had a question about the acceleration [indiscernible] really but drove that. Permitting, it did get a little bit easier this year obviously compared to last year and the year before. But I think the other piece that really helped is that while our management pipeline has always been strong, one of the things that I committed to when I came to the company was to reinvest back in the company in areas where we're going to get a very good return and one of those was recruiting. And we've invested heavily into recruiting and making sure that we have internal candidates ready to come in and external candidates out there that we can hire as well. And because of that, our management pipeline couldn't be better. And we are still able to get -- like I said, if we hit the midpoint this year in G&A, we'll still get an 80 basis point leverage even with the reinvestment back into things like recruiting and construction and operations. So, the formula in the model is working right now in terms of those things helping us, get restaurants open faster than we imagined.

Excellent. Thank you.

Thanks George.