Kona Grill Inc.
) fourth-quarter 2012 earnings of 10 cents per share beat the
Zacks Consensus Estimate by 11.1% and the year-ago earnings by
25%. Efficient cost containment resulted in earnings increase
despite a choppy sales scenario.
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Total restaurant sales in the quarter were $23.0 million, down
0.9% year over year. However, the results were in line with the
Zacks Consensus Estimate. The downside in sales can be traced
back to macro issues like higher television viewership of the
national political debates prior to the presidential election in
November and also the uncertainty regarding the election, which
deterred consumers from dining out.
Hurricane Sandy resulted in store closures for quite some time.
Adverse weather during the holidays also marred sales to some
extent. Same-store sales (comps) increased 10 basis points (bps),
excluding the impact of the Arizona store remodel, driven by
higher average guest check partially offset by a slight decline
in guest traffic.
Restaurant operating profit margins declined 200 basis points to
17.1% in the reported quarter due to higher proportion of
occupancy-related costs, labor expenses and cost of sales to
revenues. However, lower restaurant operating expense compensated
the decline in margins partially.
However, the company's operating margins witnessed an increment
of 60 bps to 3.7%, owing to a considerable decline in general and
administrative costs as a portion of revenues.
Kona Grill's earnings per share were 59 cents, up 127% year over
year. Restaurant sales in 2012 increased 2.5% to $96.0 million on
the back of a 2.7% increase in comps achieved due to a 2.5%
increase in guest traffic.
At quarter-end, Kona Grill owned and operated 23 restaurants in
16 states. The restaurateur expects to open 2 new units in 2013.
For the first quarter of 2013, the company expects total
restaurant sales of $23.9 million, down 1.2% year over year.
Management stated the decline in sales will be due to one less
operating day in the upcoming quarter compared to 2012, which was
a leap year.
The guidance indicates same-store sales growth to be flattish.
Comps will face tough year-over-year comparison due to weather
issues. Also, the shift of Easter into the first quarter this
year versus second quarter last year will adversely impact sales
by about 40 to 50 basis points. Earnings per share are expected
to range between 9-10 cents per share.
Although Kona Grill has managed to beat earnings estimate and
meet the revenue estimate in the reported quarter, slowdown in
sales remains a concern. It has been facing sluggish sales
environment for quite some time. Nevertheless, its bottom line
increased due to the company's efficient cost-control measures.
Although Kona Grill is resorting to several strategies like
offloading unprofitable locations, restaurant remodeling and
promotions in an attempt to accelerate traffic, any notable
impact is yet to be noticed. An anemic economy and stiff
competition will continue to pose challenges going ahead.
Kona Grill currently retains a Zacks Rank #4 (Sell). However,
others players in the same industry, which look attractive at
current levels include
Red Robin Gourmet Burgers Inc.
), carrying a Zacks Rank #1 (Strong Buy) and
AFC Enterprises Inc.
Burger King Worldwide Inc.
) carrying a Zacks Rank #2 (Buy).