Kan Sushi's Q3 2025 Earnings Call: Contradictions on Same-Store Sales, Labor Efficiency, and Store Expansion Strategies

Date of Call: November 7, 2025

Financials Results

• Revenue: $50.4M, up 2.7% YOY
• EPS: $0.11 loss per diluted share before income taxes (net loss); compared to $0.01 income per diluted share in Q3 2024; adjusted net loss $0.02 per diluted share vs adjusted net income $0.07 in Q3 2024
• Gross Margin: Cost of goods sold 34.8% of company restaurant sales, up 334 bps YOY and up 95 bps sequentially
• Operating Margin: Restaurant-level adjusted EBITDA margin 15%, compared to 18.2% in prior year (down ~320 bps); total adjusted EBITDA $0.2M vs $3.4M prior year; adjusted EBITDA excluding preopening costs $1.8M vs $4.5M prior year

Guidance:

• Targeting full-year 2025 revenue of $220M to $225M and restaurant-level adjusted EBITDA margins of 15% to 15.5%.
• Plan to open 2 stores by year-end for a total of 17 new restaurants in 2025; expect ~ $250M annual run rate when new restaurants are fully open.
• If macro conditions do not improve, company may slow or pause 2026 unit growth and refocus on improving operations/margins and grocery initiatives.

Business Commentary:

* Revenue Growth and New Store Openings: - GEN Restaurant Group reported total revenue of $50.4 million for Q3 2025, marking a 2.7% year-over-year increase. - This was driven by the opening of 15 new restaurants in the first nine months of 2025, with 8 opening in Q3.

• Challenges in Same-Store Sales and Traffic:
• Same-store sales declined by 9.9% for Q3 2025 compared to the previous year, reflecting a downturn in customer traffic post-global tariffs.

• The decrease is largely attributed to the impact of tariffs on customer traffic, particularly affecting Hispanic communities.

• Cost Management and Labor Efficiency:

• Cost of goods sold as a percentage of company restaurant sales increased by 334 basis points to 34.8%.

• Despite this, payroll and benefits as a percentage of sales decreased by 196 basis points, due to recently implemented labor efficiencies.

• Grocery Store Initiatives and Revenue Potential:

• GEN launched branded Korean meats in 600 grocery store locations, with a projected annual revenue of $100 million within the next 4-5 years.
• This expansion is aimed at enhancing brand awareness and leveraging existing operations to drive sustained growth.

Sentiment Analysis:

Overall Tone: Neutral

• Revenue grew 2.7% YOY to $50.4M, but same-store sales fell 9.9% and the company reported a $3.9M pre-tax loss ($0.11/sh). COGS rose to 34.8% (up 334 bps YOY); restaurant-level adjusted EBITDA margin declined to 15% from 18.2% YOY. Management highlighted grocery expansion and cost/efficiency initiatives but flagged possible slowing of new openings if trends persist.

Q&A:

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): I thought I might start by getting an understanding of the Korean units. And first, I wanted to clarify in terms of -- I think some of those locations are Kan Sushi and some are GEN Korean. I don't know if some of them are kind of joint locations and just want to understand what the economics look like, what do you anticipate the AUVs to be with those stores in year 1? And what's the cost to build those locations?
  Response: Kans are outperforming GEN in Korea; Kans AUVs ~ $3M–$4M (maybe more), GEN AUVs ~ $2M–$3M; build cost in Korea ~ $800k per store, substantially lower than U.S.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): Got it. And then in terms of the softer trends on existing locations, can we assume that, that's kind of continued here in Q4? I mean, are you kind of expecting down 10 or something like that in Q4?
  Response: Traffic remains soft—declines began after tariffs and ICE enforcement impacts (notably in California); management has not seen a material improvement and expects continued softness into Q4 absent change.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): I wanted to switch gears just to ask about the grocery store initiative, 600 locations. What's the current run rate on annualized revenue of that portion? And what is the cost to run that business (slotting fees/start‑up cost)?
  Response: 31-store Pavilions pilot showed strong take-up with many buyers being new GEN customers; 570-store rollout in November; initial slotting fees minimal in some regions, small fees in others; grocery margins lower than restaurants but operating costs are substantially lower; velocity and exact run rate not yet established.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): On the idea of slowing or halting unit growth going forward — have you and Tom modeled what the cash flow would look like if you paused openings?
  Response: Yes — they've modeled scenarios: 7 stores currently under construction (2–3 will open this year and can't be stopped); remaining ~11 planned locations can be paused; management will monitor year-end sales and may pause new openings if consumer trends remain weak.

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): Quarter‑to‑date trends — have they stabilized vs the down ~10% in Q3 or have trends slowed further?
  Response: Trends are mixed week-to-week; management needs more data, especially through Thanksgiving/Christmas season, before declaring stabilization or further decline.

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): Regarding the $100M packaged-food opportunity in 4–5 years, what assumptions on SKUs, doors and per‑store velocity underpin that?
  Response: Assumptions are informed by competitor per-store volumes (e.g., Trader Joe's analogue) and a strong 31-store test; plan to expand SKUs beyond four and scale into larger banners, but no precise per‑store cadence or specific sales run-rate disclosed yet.

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): Labor efficiency delivered ~200 bps improvement YOY — how are you achieving that?
  Response: Efficiency gains come from technology deployments (including advanced automation/AI tools) and labor optimization, though management notes service constraints limit how far staffing can be reduced.

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): The six South Korea stores — is that the near‑term footprint and thoughts on further growth there?
  Response: Management is optimistic about Kan brand expansion in Korea (cheaper and faster to build); further Korean growth would be prioritized if capital is reallocated, while operations are being optimized first.

• Question from Todd Brooks (The Benchmark Company, LLC, Research Division): What are you seeing from competitors — are they slowing openings given the softer environment?
  Response: Bankers report competitors' sales are substantially down, but entrepreneurs continue to open new units, so competitive intensity remains.

• Question from George Kelly (ROTH Capital Partners, LLC, Research Division): Can you give a 4‑wall margin by brand for the South Korean units?
  Response: No current 4‑wall margin data — stores been open only ~2–2.5 months and senior management changes occurred; expect to provide data next quarter.

• Question from George Kelly (ROTH Capital Partners, LLC, Research Division): Clarify openings: 7 under construction, 2–3 open this year leaving 4–5 — are those for sure next year and does the 11 number include those?
  Response: Clarification: 6 under construction (cannot stop), 2–3 of those will open this year; 4–5 are beyond this year; a further ~11 planned locations are not under construction and can be paused.

• Question from George Kelly (ROTH Capital Partners, LLC, Research Division): The premium menu — what's penetration and margin impact?
  Response: Premium menu penetration ~4%–5% of sales and has increased food costs by about 1% (CFO said less than 1%, approaching 1%).

• Question from George Kelly (ROTH Capital Partners, LLC, Research Division): Will you retain the premium menu given the margin hit?
  Response: They are not comfortable with current performance; management is reworking menu presentation, will test updates and potentially include premium items in a revised format before wider rollout.

• Question from George Kelly (ROTH Capital Partners, LLC, Research Division): How are the 2025 U.S. openings performing relative to prior cohorts?
  Response: New-market openings are underperforming expectations, while openings in markets where GEN is already established are performing well.

Contradiction Point 1

Same-Store Sales Trends

It involves differing descriptions of the trend in same-store sales, which directly impacts revenue projections and investor expectations.

Has the same-store sales trend stabilized? - Todd Brooks(The Benchmark Company)

2025Q3: Some weeks are better, some worse. November will provide clearer trends due to the high season for Thanksgiving and Christmas. - Wook Kim(CEO)

Can you quantify the same-store sales progression throughout the quarter and the magnitude of improvement in July? - Unidentified Analyst(Craig-Hallum Capital)

2025Q2: We were down in April, May, and June, but we saw a bounce back in July. - Thomas V. Croal(CFO)

Contradiction Point 2

Labor Efficiency and Artificial Intelligence Implementation

It highlights differing perspectives on the deployment and effectiveness of AI technologies in labor efficiency, which impacts operational efficiency and cost management.

How are you improving labor efficiency? - Todd Brooks (The Benchmark Company, LLC, Research Division)

2025Q3: We're deploying AI technologies for labor efficiency, but human interaction remains crucial. We're looking to optimize efficiency while maintaining quality service. - Wook Kim(CEO)

Can you clarify Kan Sushi's operations and potential market support for the dual-branded restaurants? Are there grills for the GEN menu at Kan Sushi tables? - Todd Brooks (The Benchmark Company)

2025Q1: We are working on initiatives including AI technologies that allow us to look at how we can better optimize our labor. We are very encouraged by the progress and expect to see meaningful improvement in fiscal '25. - Thomas Croal(CFO)

Contradiction Point 3

Store Expansion and Growth Strategy

It addresses the company's approach to store expansion and growth, which is a critical aspect of its business strategy and financial performance.

What are your plans for store openings in 2024? - George Kelly(ROTH Capital Partners, LLC, Research Division)

2025Q3: We have 4-5 stores under construction, which we can't stop. The next 11 could be paused if needed. - Wook Kim(CEO)

Will you consider additional investment or capital spending restrictions if the economy remains weak? - Bob Morris(Morris Capital)

2024Q4: We believe that we're going to be able to continue to open a number of stores and particularly over the next 2 to 3 years. - Thomas Croal(CFO)

Contradiction Point 4

Impact of Economic Conditions on Sales

It reflects differing assessments of the impact of economic conditions on sales, which is crucial for forecasting and strategic decision-making.

Will there be a similar decline in existing locations in Q4? - Jeremy Hamblin(Craig-Hallum Capital Group LLC, Research Division)

2025Q3: We're seeing softness in customer traffic and sales, particularly in areas with Hispanic customers, due to tariffs and ICE crackdown. We assume trends will continue as seen in Q3. - Wook Kim(CEO)

How are guest count and sales being affected by economic conditions? - Adam Handling(MoreHEAD Capital)

2024Q4: It's without question that we're seeing a lot of softness here across the board as it relates to guest counts and sales. It's clearly being driven by the economic conditions that they're facing. - Thomas Croal(CFO)

Contradiction Point 5

Store Performance and Growth Strategy

It involves differing views on the performance of new store openings and the strategic approach to growth, which impacts investor expectations and operational decision-making.

What is the impact of the premium menu item? - George Kelly (ROTH Capital Partners, LLC, Research Division)

2025Q3: New markets are not performing as expected, but existing markets are doing well. - Wook Kim(CEO)

What is the expected cadence for unit growth for the remainder of the year? What factors in South Korea prompted the additional unit, and what are the expected AUVs there? - Will Forsberg (Craig-Hallum)

2025Q1: In South Korea, GEN is the first to offer a large all-you-can-eat beef concept, with lower construction costs and potential for better leases. The market is competitive but offers growth opportunities. - David Kim(CEO)