On Tuesday, Kura Sushi USA (NASDAQ:KRUS) discussed third-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Kura Sushi USA Inc reported fiscal third quarter 2026 total sales of $85.9 million, with comparable sales at -0.4% due to a 5.1% decline in traffic offset by a 4.7% increase in price and mix.
The company improved its restaurant-level operating profit margin by 90 basis points to 19.1% and adjusted EBITDA margin by 40 basis points to 7.7%, despite higher costs due to tariffs.
Seven new restaurants were opened in the third quarter, with plans to open 16 in total for the fiscal year; however, unexpected delays have impacted revenue expectations.
Kura Sushi is launching several marketing initiatives, including collaborations with popular IPs like Persona and Yoshi, and is enhancing its rewards program to boost guest satisfaction and repeat visits.
Labor costs improved by 250 basis points to 30.6% due to operational efficiencies, and the company expects to achieve further improvements with upcoming automation initiatives.
Guidance for fiscal year 2026 predicts total sales between $330.5 million and $331.5 million, maintaining an annual unit growth rate above 20%, and expects restaurant-level operating profit margins to be approximately 18.5%.
Management expressed confidence in their strategic initiatives and operational improvements, despite the challenging macro environment.
Full Transcript
OPERATOR
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Kura Sushi USA Inc Fiscal Third Quarter 2026 Earnings Conference Call. At this time, 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 line today, we have Hijame Jimmy Uba, President and Chief Executive Officer, and Benjamin Porten, SVP Investor Relations and System Development.
And now I would like to turn the call over to Mr. Benjamin Porten.
Benjamin Porten, SVP Investor Relations and System Development
Thank you, Operator. Good afternoon, everyone, and thank you all for joining. By now, everyone should have access to our fiscal third quarter 2026 earnings release. It can be found at www.kurosushi.com in the Investor Relations section. A copy of the earnings release has also been included in the IQ submitted to the SEC. Before we begin our formal remarks, I need to remind everyone that part of our discussions 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 reported in accordance with GAAP, and the reconciliations 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.
Hijame Jimmy Uba, President and CEO
Thanks, Benjamin, and thank you to everyone who's joining us on our call today. During the fiscal third quarter, we were able to make significant progress towards our goals of sustainable margin improvement and returning to our historical 20% restaurant-level operating profit margins regardless of tariff relief. Despite our cost of goods sold as a percentage of sales being 200 basis points higher than last year due to tariffs, our operational testing allowed us to more than offset this impact and improve our restaurant-level operating profit margin by 90 basis points over the prior year to 19.1%.
We were also able to improve adjusted EBITDA margins by 40 basis points to 7.7% and grew our adjusted EBITDA dollars by more than 20% over the prior year. Our ability to improve profitability in a challenging environment speaks to what we do best: responding rapidly to control what we can control. Total sales for the fiscal third quarter were $85.9 million, representing comparable sales of minus 0.4% with negative 5.1% of traffic offset by positive 4.7% in price and mix.
Effective pricing for the quarter was 4.5%. During our last earnings call, we mentioned that mix being close to flat at negative 0.2% was the best flow-through in pricing that we had ever seen. Mix actually saw further improvement in the third quarter with average GAAP growth exceeding effective pricing. We lapped 1% as of June 1, which we offset with 1% pricing on July 1, making our effective pricing for fiscal fourth quarter 4.2%. Cost of goods sold as a percentage of sales was 30.2% as compared to 28.3% in the prior year quarter due to the impact of tariffs.
While costs remain meaningfully higher than historical levels, we are pleased with the progress of our PENDA negotiations and cost management efforts, which resulted in a sequential improvement of 20 basis points over Q3. Our full-year COGS expectations as a percentage of sales remain approximately 30%. Labor as a percentage of sales improved by 250 basis points to 30.6% due to operational initiatives. At the beginning of the fiscal year, we had shared an expectation to level labor cost by 100 basis points over fiscal 2025 full-year labor cost of 32.9%.
I'm very pleased to share that as of the end of our third quarter, we've been able to drive down our year-to-date labor cost as a percentage of sales to 31.2%. It now looks like we are going to land in the neighborhood of 200 basis points of improvement on our labor line. Turning to unique development, we opened seven new restaurants in the third quarter: Orange, Union City, Temecula, and San Diego in California; Goodyear, Arizona; Wellington, Florida; and Denton, Texas. Subsequent to quarter-end, we opened restaurants in Tulsa, Oklahoma; Sunset Valley, Texas; and Charlotte, North Carolina, bringing us to 15 new unit openings to date. While we continue to expect to open 16 new restaurants for this fiscal year, we have unfortunately faced significant unexpected delays for a number of restaurant openings in both Q3 and Q4, and a loss of approximately 6 revenue months has impacted our revenue expectations for the year, which we will discuss shortly.
These delays occurred following the April earnings call across different geographies and for different reasons, and for many unrelated delays to coincide with one another is highly unusual. Our marketing team has been hard at work building our IP pipeline for fiscal 27, which is shaping up to be one of our strongest ever. Following our current collaboration with Honkai Star Rail, we have a collaboration with Atlas's Persona. In June, Atlas officially announced the release of the much-awaited Persona 6, marking the end of a decade-long wait for fans since 2016's Persona 5.
In September and October, we are partnering with Apostle 3 Diaries, coinciding with the release of the anime's latest season. I'm extremely excited to announce that November marks our third collaboration with Nintendo. Our IP campaign for November and December is Yoshi to celebrate the recently released Yoshi and the Mysterious Book for the Nintendo Switch 2. In other marketing news, we remain on track for a fiscal 2027 launch for our upgraded Status Tier Rewards program.
We are also in the process of introducing an opportunity to our big global system by giving guests a choice between the capsule price and the free desired voucher that can be redeemed on their next visit. We believe this addition will improve guest satisfaction, encourage repeat visits, and reduce our price production costs. Development is currently underway, and we hope to have updates for you at our November earnings call. Now I'll discuss our finances and liquidity for the third quarter.
Total sales were $85.9 million as compared to $74 million in the prior year period. Comparable restaurant sales growth compared to the prior year period was minus 0.4% with minus 5.1% from traffic and 4.7% from price and mix. Comparable sales growth in our west coast market was minus 1.0% and minus 2.1% in our Southwest market. Effective pricing for the quarter was 4.5%. As a reminder, beginning in the first quarter of fiscal 2027, we will no longer provide regional breakdowns for comparable sales as regional comps are largely determined by the timing of in-fares, and we do not believe they are indicative of overall company trends.
Turning to costs, food and beverage cost as a percentage of sales was 30.2% compared to 28.3% in the prior year quarter due to tariffs on imported ingredients. Labor and related costs as a percentage of sales was 30.6% as compared to 33.1% in the prior year quarter due to operational efficiencies and pricing partially offset by low single-digit wage inflation. Occupancy and related expenses as a percentage of sales were 7.8% compared to prior year quarter's 7.5%.
Depreciation and amortization expenses as a percentage of sales were 4.9% as compared to the prior year quarter's 4.7%. Other costs as a percentage of sales were 14.6% as compared to the prior year quarter's 14.7%. General and administrative expenses as a percentage of sales were 11.9% as compared to 11.8% in the prior year quarter. Operating loss was $39,000 compared to an operating loss of $162,000 in the prior year quarter. Income tax expense was $49,000 as compared to $55,000 in the prior year quarter.
Net income was $423,000 or $0.03 per share compared to net income of $565,000 or $0.05 per share in the prior year quarter. Restaurant-level operating profit as a percentage of sales was 19.1% compared to 18.2% in the prior year quarter. Adjusted EBITDA was $6.6 million as compared to $5.4 million in the prior year quarter, and at the end of the fiscal third quarter, we had $66.1 million in cash equivalents and investments and no debt. Lastly, I would like to update and reiterate the following guidance for fiscal year 2026.
We now expect total sales to be between $330.5 and $331.5 million. We continue to expect to open 16 new units, maintaining an annual unit growth rate above 20% with average net capital expenditure per unit continuing to approximate $2.5 million. We continue to expect G&A expenses as a percentage of sales to be approximately 12%, excluding litigation expense, and we now expect full-year restaurant-level operating profit margins to be approximately 18.5%.
Before we open the call to Q&A, I want to conclude my prepared remarks by acknowledging our team whose execution during the quarter was excellent despite the challenging top line. This is best showcased in our improved guidance on decline margin and decline margin dollars, which are both higher than our previous expectations for the year. We remain confident in our team's ability to deliver this kind of execution going forward, and I thank all of our team members for their continued efforts.
This concludes our prepared remarks. We're 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.
OPERATOR
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
Our first question is from Jeremy Hamblin with Craig. Please proceed with your question.
Jeremy Hamblin, Analyst at Craig
Thanks for taking the questions. I thought I might start with the comp trends. Obviously, a little bit disappointing with where traffic fell down 5% in the quarter. Wanted to see if you could provide us an update on how current quarter trends are looking, how kind of June shaped up, and with the guidance range that you provided on revenues for FY26, what's the implied same-store sale range that you would expect to hit those revenue figures given what you expect for unit openings the remainder of the year?
Hijame Jimmy Uba, President and CEO
Sure. Thank you, Jeremy, for your first question.
Benjamin Porten, SVP Investor Relations and System Development
Hi Jeremy, this is Ben. We were certainly disappointed that traffic came in negatively as well, but we believe that this is largely due to elevated gas prices and along the lines of what we discussed in the prior earnings call. As the gas prices have eased, we're beginning to see a little bit of benefit as we've entered Q4, but those benefits are partially offset by how popular the World Cup is. And so the guidance that we're providing for the revenue contemplates the Q3 and Q4 macro background as well as the construction ways camera company.
Jeremy Hamblin, Analyst at Craig
Jeremy, as it relates to comps, we continue to be confident in our ability to deliver slightly positive comps for the full year. This year's been choppy, but we're very much looking forward to fiscal 27. As we've discussed in the past, the real estate pipeline is extremely promising. It's the first time that we've had a majority new market ratio in many years, and so that'll be a cannibalization tailwind for us. The fiscal 27 IP pipeline is phenomenal.
I could not be happier with it, and so that should be a pretty meaningful tailwind as well. And we have the rewards program Step up coming on as we enter the new year. And so as it relates to fiscal 27, we're very bullish about where we can land for the comps. Gotcha. Okay. I think it implies something more like down 3, 4% maybe in Q4. But I did have a follow-up question. Just, you know, the company had a fairly consistent history of comp performance, consistently positive with some volatility, but there's clearly been a bit more volatility over the past two years. I wanted to just understand what you think might be driving that. And then in terms of thinking about as the company is closing in on 100 locations over the coming couple of quarters, how should we be thinking about kind of the long-term growth algorithm for Kura as a concept?
Is this something where you think of kind of long-term comps in the range of, let's say, low single digit, positive low single digit, obviously with some variability? But color on what internally you expect and whether obviously there has been some noise in 26, but it seems as though the IP collaborations have had maybe a bit of a bigger impact than typical on results. Of course, you got to throw in there the higher gas prices, but thoughts on those two questions.
Great. All right, well thanks for taking my questions and best wishes.
Benjamin Porten, SVP Investor Relations and System Development
Thanks, Jeremy.
OPERATOR
Thank you. Our next question is from Andrew Charles with TD Cowan and Co. Please proceed with your question.
Zach Ogden
Thank you. This is Zach Ogden on for Andrew, and I just have a follow-up to Jeremy's first question. I know you called out the delayed openings being partly responsible for the lower revenue guidance, but can you just talk about where that down 40 basis points, same store sales for the quarter fell relative to your expectations and then how your expectations for 4Q have changed over the last 90 days?
Benjamin Porten, SVP Investor Relations and System Development
Hey, Zach, this is Ben. In terms of the negative 0.4 for comps, this was within our range of possibilities. And so it was not a surprise to us, just given the overall macro pressure and the meaningfully elevated gas prices, especially in California. In terms of our thoughts on comps over the last 90 days, they haven't really changed. We continue to believe that we can deliver positive comps for the full year. If we are talking about surprises, though, the restaurant delays are certainly the biggest surprise for us.
This was not something that we had anticipated at all during the time of the last call.
Zach Ogden
Got it. Okay, thank you. And then the second question is on mix. Can you just unpack what made that flip positive in the quarter last call? It did sound like you weren't expecting that to remain flat. So what drove mix to actually be positive and better than you were expecting? Got it. Thanks, guys.
Benjamin Porten, SVP Investor Relations and System Development
Thanks, Zach.
OPERATOR
Thank you. Our next question is from Todd Brooks with Benchmark Stone X. Please proceed with your question.
Todd Brooks
Hey, thanks for taking my questions. Just one, to kind of dimensionalize the permitting delays in getting the new units open that you've experienced and that kind of caught you by surprise. I think you framed it up maybe six months of lost unit operating time, 4 million AUVs. I mean, can we ballpark the revenue guide down kind of couple million attributable to the delays and the balance just same store sales before Okay, great, thanks. And then just looking forward, you talked about how pleasantly surprised you've been by the mixed performance the last couple quarters. I think coming into this quarter you had looked for mix to revert. That did not happen. Based on what you're learning here. And as you're thinking about Q4, are you still assuming that you can kind of hold the hill on mix?
Are you expecting in kind of the guidance horizon going forward for the balance of the fiscal year mix to switch back to slightly negative? Great. And then one final and I'll jump back in queue. You quickly ripped through the review of the upcoming IP collab schedule. I know that Honkai just recently launched. Can we just review kind of the calendar for the back of this fiscal or this last quarter of the fiscal year. And then more importantly, can you quantify or maybe even qualify a product of the quality of Yoshi as a platform with Nintendo and this phenomena that seems like you keep earning your way up into higher tier and maybe more impactful promotions with Nintendo. Thanks.
And just Yoshi relative to Kirby. Just on magnitudes of expected impact I Thank you both.
OPERATOR
Thank you. Our next question is from Matt Curtis with DA Davidson. Please proceed with your question.
Matt Curtis
Hi, good afternoon. I was just wondering if we could get back to the third quarter for a minute. Could you guys describe maybe the sales impact that IP collabs had in the third quarter relative to the second quarter and then maybe more importantly, how were same store sales trends affected as you began to lap the resumpt of IP collabs, which correct me if I'm wrong, I believe happened at the end of April.
Benjamin Porten, SVP Investor Relations and System Development
Hey Matt, this is Ben. For really any IP, our base case expectation is a low single digit contribution. When we have marquee items like Kirby or Yoshi, the expectation is a mid single digit contribution. We're excited to continue to introduce more and more mid single digit contributing IPs as we continue. And so as it relates to Q3, we believe the IPs contributed low single digits. And part of the, well part of the offset for the traffic pressure that we saw through the quarter was the success of our food collaborations.
The current reserve was very meaningful in terms of not just getting people to come in, but to spend more than they have before. That's been a pretty big part of the mix growth. And so we're very excited for the incremental benefit that we'll have next year by having an extra three of these.
Matt Curtis
Okay, thanks. And then a different topic. I think last quarter you mentioned the 1% comp lift from the reservation system. I was just wondering if that persisted in the third quarter. Okay, great. Thank you.
Benjamin Porten, SVP Investor Relations and System Development
Thank you.
OPERATOR
Thank you. Our next question is from Sharon Zakfia with William Blair. Please proceed with your question.
Sharon Zakfia
Hey, thanks for taking the question. I'm curious, as you've seen a slowdown in traffic, is there any difference in what you're seeing with new customer acquisition versus your existing customer frequency?
Hijame Jimmy Uba, President and CEO
We aren't seeing too much of a difference in terms of behavior between non-members and members. The defining feature really for Q3 is just a reduction of frequency. And again, going back to the reduction of frequency being tied to the macro environment with the higher gas prices, competing attention with the World Cup. All of these factors, we understand, are transitory, and we're very confident we'll be able to maintain the momentum of our mix and come out stronger than before.
Sharon Zakfia
Thanks for that. And then on the restaurant delays, are there steps that you're taking to help ensure that we don't see kind of any incremental issues in 2027? Are you adding more buffer to the pipeline as you think about that?
Hijame Jimmy Uba, President and CEO
Of the four stores, three of the delays were caused by fire inspections. And in fact, when we do have delays, it's typically because of the fire inspection. When we do have a correction that we need to make, it's usually something that we can do in two weeks. But the asks this time were much more involved, and so they took on average six weeks with extra time added on top and on the end as we were waiting for a re-inspection to be scheduled. And so that was pretty frustrating.
Obviously, we adjust our practices with every hiccup of these types that we face. But unfortunately, it's always a different issue. Different counties have different rules, and different inspectors, even in the same county, are idiosyncratic. And so that makes it pretty hard to head off. We do bake into our expectations a certain degree of delays. But for so many to fall on each other at the same time and for them to be much longer than we typically experience, that was so unexpected.
So we're happy to say that we actually just opened our Charlotte, North Carolina location today. It's our 94th restaurant. As part of that inspection process, there was a request for a third-party inspection of our conveyor belts, which had never happened with our preceding 93 restaurants. And so these kinds of surprises can always pop up. But now that that's happened, we know whenever we're opening up in a new county to come with that third-party inspection ready and head off that issue for the future.
OPERATOR
Thank you. Our next question is Mark Smith with Lake Street Capital. Please proceed with your question.
Mark Smith
Hi guys. You mentioned some cannibalization kind of easy here, but I'm curious, any real impact in the quarter as well as your outlook for many of the restaurants that you've opened over the last several months from cannibalization?
Benjamin Porten, SVP Investor Relations and System Development
Hey, Mark, this is Ben. In the past, I think our estimate for the comp headwinds, probably speaking, were between 300 to 400 basis points. Now we've been able to bring it down to about 250 basis points. We would expect this headwind to continue into the first half of fiscal 27, just given the timing of some of the openings, especially the first infills and next key performers. But as we continue to, as we start to benefit from the 55% new market mix, we would expect that cannibalization impact to steadily lessen over fiscal 27 and 28.
Mark Smith
Okay, and then you talk about opening delays. I'm curious if that's added any incremental costs. I know that you guys maintain your guidance here for kind of new restaurant build-out costs, but are you seeing any incremental costs from delays or just inflationary pressure that's leading to higher opening costs?
Benjamin Porten, SVP Investor Relations and System Development
Hey, Mark. And so when we have an opening delay by an inspection, really the primary cost would be in training costs or rehiring costs because you can't ask somebody to wait for a month with no job. That being said, in spite of those incremental costs, we were able to raise our restaurant level operating profit margin guidance to 18.5%. And so we are spectacularly proud of just how efficient all of our restaurant level members have been. And as we get closer to the end of the year and have more visibility into fiscal 27, we think that we are going to get a lot closer to that 20% historical goal.
A lot faster than we'd expected. And so we're very excited to give you guys an update on that as well in November.
Mark Smith
The last one for me is just thinking about menu price increases, what you guys have taken. It sounds like you're seeing positive results out of, you know, offering a value proposition. But I'm curious just if you want to speak to elasticity and the price increases that you've taken and kind of response from consumers.
Benjamin Porten, SVP Investor Relations and System Development
Well, I mean, I think the mix growth really speaks for all, speaks for all of it. And so we're just, we're. Our plan is really to just keep the value as intact, as aggressive as it has been, and wait for that traffic to return and then just benefit on both ends. So we're actually in the process of performing an analysis to get an empirical view of just how much pricing our competitors have been taking. We can speak anecdotally that against our 4% ish, it's much typically closer to 20%.
It's really just a gulf that has continued to widen exactly as we'd expected post tariff. And so while it's unfortunate that the Q4 top line, we expect some pressure, we believe that as long as we keep the pricing at a minimum and continue to drive margin improvement in spite of that, when traffic returns, we'll really. The margins will just. We're extremely excited.
OPERATOR
Thank you. Our next question is from JP Wallam with Roth Capital Partners. Please proceed with your question.
JP Wallam
Great. Hi guys. Appreciate you taking my questions. I want to kind of just follow up on maybe sort of the new customer or sort of the understanding that you talked about earlier guests going to competitors and then coming to you guys and spending a little bit more. But curious, is there anything to show that new customers or customers may be trading down from others is actually increasing as a percent of mix relative to your repeat customers. I'm trying to get a sense of whether you think there's some real market share gains that are going on here that maybe some customers have fallen off, but as that lower income traffic, maybe returns, you see this big boost ahead.
Hijame Jimmy Uba, President and CEO
Yeah. The biggest point in favor of that that I could point out now is that the average check growth is actually the growth rate is faster among non-members than reward members, which has never been the case before. And so our interpretation is that that is the reflection of a higher spending tranche of guests coming. And we commissioned a consumer study twice a year. And so obviously our, you know, that'll be one of the top questions that we'll have for the next analysis.
And we look forward to updating you guys on just, you know, how much we, how much market we've been able to capture.
JP Wallam
Okay, great. And then one more, maybe more on a sort of strategic lens. But you know, as you sit here, almost 100 units thinking about your guys centralized operations management at HQ, like as you think about, you know, the next hundred units from here, how would you categorize where your infrastructure is at to support that? Is there anything that you're sort of seeing in the next six to 12 months that's needed?
Benjamin Porten, SVP Investor Relations and System Development
Hey JP, this is Ben. And so as it relates to fiscal 27, we already have the pipeline locked and loaded and we know that it's higher than 20%. So we're happy to report that in terms of GNA and support center, we really do think that we have everything intact. We'll just sort of need proportionate growth to manage the more volume of work as we continue to grow. And so really nothing out of the ordinary there. And we would continue to expect to leverage GNA just in terms of growth unit growth broadly.
The constraining factors for us have historically been the availability of high quality sites, our availability capital and our management pipeline. We feel very good about our training department and our personnel. We've got a great bench and we opened seven restaurants in Q3, but our cash burn was only $3 million. And so we're doing, we're very, very pleased with how our balance sheet management has been going. And so really the remainder is just the availability of high quality sites.
And so we want to be flexible on that just so that we don't, you know, force ourselves to commit to sites that we wouldn't otherwise choose.
JP Wallam
Great, thanks guys. Best of luck.
OPERATOR
Thank you. Our next question is from John Tower with Citi. Please proceed with your question.
John Tower
Great, thanks for taking the questions. Maybe real quick. Obviously you had spoke to the idea of seeing labor leverage and expecting that to be down, I believe 200 basis points or so in fiscal 26. Can you just speak to exactly what you're doing at the store level to get that level of leverage, particularly in the context of very modest same store sales growth on the year.
Benjamin Porten, SVP Investor Relations and System Development
Hey John, so in terms of the labor gains this year, a lot of it comes down to the work that we did in fiscal 25. The reservation system was installed system-wide by Q4 of last year and so that's resulted in headcount reduction in front of house. We've also gotten better scheduling appropriately. We've gotten a lot tighter with that. And so those two factors have really been the driving factors for the improvement in fiscal 26. We'll be lapping the benefit of the reservation system implementation in Q4, but we have the robotic dishwashers to look forward to for fiscal 27.
And so this again, you know, going back to your comment about leveraging 200 basis points on modest comps, this is really, I think, something that only Kura could do.
John Tower
Okay. And then I appreciate all that color. Thank you for that. In terms of thinking about the other OPEX line into next year, you know, obviously right now you've upped the IP cadence, which I know is going to or has cost a little bit more money, but it does look like year over year, at least on a per week basis. That came down pretty nicely in the third quarter. The expectations for next year, given that you're going to be, I think, launching one more IP and then also you're going to have these reserve 12 months or 12 reserve options throughout the year versus nine this year. So broadly, how are you thinking about marketing spend next year versus this year?
Hijame Jimmy Uba, President and CEO
John, we're happy you asked this because this is something that Jimmy and I have been working on. So Jimmy kind of touched on this in the prepared remarks, but the bicrapon we think, is actually maybe a bigger lever than people are initially appreciating. So to give you some context, with the last consumer study, we saw that guests really saw the challenge of getting to that 15th plate and getting the prize as very compelling, but they found the prizes themselves not compelling.
And so we were dispersing these prizes every time, regardless of whether the guests were interested in it or not. And by introducing the ability to give guests the option to choose between the capsule prizes or a food coupon, we no longer have that wasted toy that's left on the table. And the cost of the dessert is really offset by the incremental visit that we get when guests come to redeem it. And so altogether, once this is fully in place, we would expect up to a benefit of 50 basis points.
And that would more than offset the incremental adjustments in the additional frequency of IP campaigns and food LTOs.
Hajime Jimmy Uba, President and CEO
So we're really putting in every effort that allows us to expect meaningful leverage in fiscal 27 over fiscal 26 as it relates to other costs as a percentage of sales. As we get ready for fiscal 27, we've been pretty aggressively negotiating our contracts with our vendors for our other cost items. We're in the process of bringing a lot of our preventive maintenance work in-house, and that would be a very meaningful cost savings. And so with that and the Bicker Pond savings as well, we're feeling very good about the other cost expectations for fiscal 27.
And this connects back to our earlier comment about you might be pleasantly surprised by how quickly we get back to that 20% restaurant level operating profit margin.
Sean Allameh, Chief Operating Officer
Great. Thank you for taking the questions. Appreciate it.
Hajime Jimmy Uba, President and CEO
Thanks, Sean.
OPERATOR
Thank you. Our next question is from Jim Sanderson with North Coast Research. Please proceed with your question.
Jim Sanderson, Analyst at North Coast Research
Hey, thanks for the question. Wanted to go back to the margin discussion. I think you're guiding towards 18.5% on a non-GAAP basis, which is comparable to last year. Is the biggest factor in the fourth quarter going to be that continued improvement in labor rate that you would expect to continue into fiscal 27?
Hajime Jimmy Uba, President and CEO
As it relates to margin? Yes. A lot of the benefit is coming from the labor. We will be lapping the introduction in Q4, and so the benefit will be partial, but the bulk of it will be coming from the initiatives that we discussed earlier as well as the tight scheduling, the other costs improvements that we expect for fiscal 27. We're already starting to see a little bit of benefit in Q4, and so some of that is part of our higher margin expectation as well.
We're also getting some refunds on our tariffs paid for our other cost items where we are the importer of record. And so that's a one-time tailwind. But that does play into the 18.5% expectation as well.
Jim Sanderson, Analyst at North Coast Research
And that one-time tailwind.
Hajime Jimmy Uba, President and CEO
That being said, you know, all of our efforts, they're designed to be structural, and so they're just baked into the business now. And we expect the gains to only accelerate as we enter fiscal 27.
Jim Sanderson, Analyst at North Coast Research
So there would still be the opportunity for the robotic dishwashers to add value in fiscal 2017.
Hajime Jimmy Uba, President and CEO
Yes. And so really everything except outside of the nominal refund that we received on the tariffs for other costs, all of those factors continue to benefit us.
Jim Sanderson, Analyst at North Coast Research
Okay. And the one-time tariff will be fourth quarter pending. Okay. I want to also go back to traffic. The negative 5.4%, can you break that up by month so we can try to get an understanding of how that trended in the quarter.
Hajime Jimmy Uba, President and CEO
There really wasn't enough difference between the months to really call out any sort of trend.
Jim Sanderson, Analyst at North Coast Research
Okay. So pretty much the,
Hajime Jimmy Uba, President and CEO
the only thing I was going to add is that the June mix has seen a pretty, it genuinely surprised me. So that's really. It's good to be surprised in a positive way.
Jim Sanderson, Analyst at North Coast Research
Right. But relatively stable traffic trend throughout the quarter by month is the right way to look at this. All right, I'll pass it on. Thank you.
Hajime Jimmy Uba, President and CEO
Thanks, Jim.
OPERATOR
This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.
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