• Total Revenue: $194 million, a 152.3% increase from $76.9 million in the same quarter last year.
• Owned Restaurant Net Revenue: $190.6 million, up 158.6% from $73.7 million last year.
• Comparable Sales: Decreased 4.2% overall; STK down 11.1%, Kona Grill down 7.0%.
• Restaurant Operating Profit Margin: Increased 90 basis points to 13.2%.
• Adjusted EBITDA: $14.9 million, compared to $3.1 million in the prior year.
• Net Loss: $16 million, or $0.52 per share, compared to a net loss of $3.1 million last year.
• Cash and Short-term Credit Receivables: $36.2 million.
• Available Credit Facility: $34.1 million, undrawn.
• Store Closures: Closed four Raw Sushi locations.
• New Openings: Plan to open six new venues by the end of 2024.

• Warning! GuruFocus has detected 6 Warning Signs with STKS.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The One Group Hospitality Inc (NASDAQ:STKS) reported a significant revenue increase of 152% to a record $194 million, driven by the acquisition of Benihana and RA Sushi.
• Restaurant operating profit improved by 90 basis points, with robust restaurant-level margins of 17%.
• The company has implemented $10 million in annualized run-rate synergies, enhancing restaurant-level margins.
• The One Group Hospitality Inc (NASDAQ:STKS) finished the quarter with over $70 million in liquid resources, providing financial flexibility.
• The company plans to open six new venues by the end of 2024, indicating a strong growth trajectory.

Negative Points

• Comparable sales decreased by 4.2%, with specific declines of 11.1% at STK and 7% at Kona Grill.
• The company reported a net loss available to common stockholders of $16 million, or $0.52 per share.
• Restaurant operating expenses as a percentage of owned restaurant net revenue increased by 300 basis points to 65.9%.
• The company incurred nonrecurring costs totaling $7.1 million related to the acquisition of Benihana.
• Interest expense increased significantly to $10.7 million in the third quarter of 2024 from $1.7 million in the same quarter of 2023.

Q & A Highlights

Q: Can you update us on the competitive landscape and how The One Group is handling negative comp trends? A: Emanuel Hilario, President and CEO, noted that competitors are heavily promoting happy hours and discounted items. The One Group is responding with its own happy hour offerings and value dinners at Kona Grill and STK. They are also focusing on loyalty programs to sustain value without heavy discounting. Hilario mentioned seeing a stabilization in economic trends and expects improvement in same-store sales.

Q: What is causing delays in restaurant development, and how are you addressing them? A: Hilario explained that the timing of development is more about pacing and a shift towards asset-light growth. They have opened three restaurants recently and are focusing on franchising opportunities, particularly with Benihana. There have been no significant changes in permitting or construction processes recently.

Q: With the closure of four Raw Sushi locations, do you anticipate more closures? A: Hilario stated that closures are part of optimizing the portfolio, especially where locations are close to Kona Grill outlets. Future closures will be evaluated based on lease terms and profitability. The focus remains on maintaining a portfolio of high-volume, high-margin restaurants.

Q: Can you discuss the trends in sales and traffic throughout the quarter? A: Tyler Loy, CFO, noted a choppy July, improvement in August, and a slight decline in September, but overall better than July. The exit rate into Q4 suggests improvement, aligning with their guidance for better performance in the fourth quarter compared to the third.

Q: What are the targets for four-wall margins across your brands? A: Hilario mentioned a consolidated margin target of 17%, with potential to reach 18% due to synergies and cost savings from the Benihana acquisition. They are working on improving restaurant base margins and expect positive impacts from economic stabilization and potential interest rate reductions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.