Kona Grill Inc.
) recently reported first quarter 2012 earnings of 13 cents per
share, which comprehensively beat the Zacks Consensus Estimate by
10 cents and improved substantially from the year-ago loss of a
penny per share.
Total restaurant sales in the quarter were $24.2 million, up
8.6% year over year. The upside in sales can be traced back to a
solid 8.7% increase in same-store sales, buoyed by higher average
guest check and 6.4% growth in guest traffic. The sales enjoyed a
1.5% pricing that was taken last year.
Quarterly same-store sales growth increased 8.7% from growth of
7.6% in the first quarter of 2011 and 7.8% in the previous quarter.
This also represents the sixth consecutive quarter of positive
same-store sales. The comfortable winter weather throughout the
country pushed the quarterly same-store sales leading to a
double-digit sales increase in the bar and patio.
Restaurant operating profit margin increased 480 basis points
(bps) to 19.9% in the reported quarter attributable to cost
containment efforts. The company's expenditures were palpably less,
with cost of sales, labor expenses, occupancy costs and restaurant
operating expenses falling 110 bps to 26.9%, 90 bps to 32.9%, 110
bps to 6.3% and 170 bps to 14.0%, respectively, based on total
Kona Grill currently owns and operates 23 restaurants in 16
Kona Grill ended the quarter with current assets of $7.3 million
and long-term obligations of $13.6 million.
For the second quarter of 2012, the company expects total
restaurant sales of $24.7 million. The guidance reflects
approximately 1% same-store sales increase as the company will lap
9.1% comps from last year. Net income per share is expected to be
14 cents per share.
We remain impressed with the company's profit momentum and
continuous market share gain in a highly competitive bar and grill
segment. The company is also in an expansion mode with two openings
anticipated for 2012 and more for 2013. The company is also
assessing opportunities untapped in new and existing markets.
The company also embarked upon several strategies like
offloading unprofitable locations, restaurant remodeling and
promotions in an attempt to create awareness and accelerate
On the expense control front, management will likely show its
expertise ahead. Although the food cost environment has heated up,
management remains optimistic on seafood purchasing which will help
the company withstand food cost inflation.
However, a modest year-over-year increase in beef costs is
expected in 2012. Additionally, Kona is unlikely to enjoy the
favorable impact of weather in the coming quarter unlike the first
Kona Grill, which competes with the likes of
), currently, retains a Zacks #1 Rank, which translates into a
short-term Strong Buy rating. We maintain our long-term Outperform
recommendation on the stock.
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