What happened
Shares of Kura Sushi (KRUS 6.67%) were moving higher this week, a week after the casual dining company delivered better-than-expected results in its fiscal second-quarter earnings report and after it announced a secondary offering to fund its growth plan.
As a result, the stock was up 12.6% as of Friday afternoon, according to data from S&P Global Market Intelligence.
So what
Kura Sushi soared on Tuesday after the company announced the pricing of its secondary offering.
It said it had priced its public offering of 1.1 million shares at $54 a share, expecting it to yield $56.4 million in proceeds for the company after fees. Kura said the offer was expected to close on Thursday, and it intends to use the net proceeds for general corporate purposes, such as capital expenditures, working capital, and other business purposes.
Surprisingly, the stock jumped on the news, a possible sign of excess interest from investors. That could reflect increased interest in the stock after a strong second-quarter earnings report the week before, or it might be a sign of a short squeeze since 27% of the float is sold short and the stock spiked on especially high volume.
After that jump, the stock pulled back in the three subsequent sessions, but still held on to enough of the gains from earlier in the week.
In its earnings report the week prior, Kura Sushi said comparable-restaurant sales jumped 17.4% in the quarter, driving a 40% increase in revenue to $43.9 million, ahead of estimates at $41.8 million.
Restaurant-level operating profit was $8.9 million, for a margin of 20.3%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $2.3 million.
On the bottom line, Kura reported a net loss of $1 million, or $0.10 per share, which was better than the consensus at $0.22.
Now what
Kura's heavy short ratio is a sign that a number of investors think the stock is overvalued, but the second-quarter report is encouraging on a number of levels.
The company is delivering strong comps growth, and it's rapidly adding new locations, but most impressive is its restaurant-level operating margin, which should improve over time as the business scales up.
The company plans to open 9 to 11 new restaurants this year, and currently has 45 locations across 14 states and Washington, D.C.
Keep an eye on restaurant-level margins as that should be the key to profitability for Kura.