Kona Grill Inc.
) recently reported third quarter 2012 earnings of 11 cents per
share, which lagged the Zacks Consensus Estimate of 13 cents but
improved substantially from the year-ago earnings of 6 cents per
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Total restaurant sales in the quarter were $23.9 million, up 0.4%
year over year. However, the results marginally missed the Zacks
Consensus Estimate of $24.0 million. The upside in sales can be
traced back to a 0.2% increase in same-store sales, buoyed by
2.3% growth in guest traffic, offset somewhat by lower average
guest check which was affected by the Happy Hour initiatives.
Same-store sales growth of 0.2% in the quarter compared with
10.6% in the third quarter of 2011 and 2.3% in the previous
quarter. A back-to-school season makes the third quarter
Impact of a fire breakout at Troy, Michigan restaurant in early
May was still felt on comps as sales at Troy unit were down
mid-single digit in the third quarter. Before the catastrophe,
comps were up double-digits at that unit. Comps in September were
marred by the mega-events like the Olympics, political
conventions and the addition of Thursday night NFL games.
Restaurant operating profit margins expanded 20 basis points
(bps) to 18.5% in the reported quarter attributable to lower
occupancy-related costs and other operating expenses based on
total revenue. However, labor expenses and cost of sales provided
a partial offset by increasing a respective 90 bps and 50 bps to
33.7% and 27.4%.
The company's operating margins witnessed a further increment of
240 bps to 5.7%, owing to a considerable decline in general and
administrative costs as well as depreciation and amortization as
a portion of revenue.
At quarter-end, Kona Grill currently owns and operates 23
restaurants in 16 states.
Kona Grill ended the quarter with current assets of $8.2 million
and long-term obligations of $12.4 million.
During the third quarter, Kona Grill bought back 192,000 shares
at an average cost of $8.13 per share as part of the company's $5
million stock repurchase program which commenced in May 2012.
For the fourth quarter of 2012, the company expects total
restaurant sales of $23.1 million. The guidance considers
approximately 1% same-store sales growth excluding the impact of
super-storm Sandy and remodeling at one of its units. Earnings
per share are expected to be 9 cents per share.
For fiscal year 2012, the company expects to more than double its
earnings at $4.7 million. Its income from continuing operations
is anticipated to surge 123% year over year to $5.2 million.
The key takeaways from the reported quarter reveal that Kona
Grill has missed estimates on both lines and witnessed a slowdown
in sales, yet its bottom-line increased due to the company's
efficient cost control measures. The company entered the third
quarter by exercising a 1.1% pricing on new menus after 14
months. However, even higher pricing amid an anemic economy could
not boost Kona's revenue in the reported quarter.
Kona Grill, which competes with the likes of
BJ's Restaurants Inc.
), also embarked upon several strategies like offloading
unprofitable locations, restaurant remodeling and promotions in
an attempt to create awareness and accelerate traffic. We
maintain our long-term 'Outperform' recommendation on the stock.