Release Date: May 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 (STKS, Financial) reported a 3% increase in sales to $85 million, driven by strong performance from newly opened company-owned restaurants.
- Restaurant-level margins were maintained at 16% despite inflationary pressures, thanks to cost-saving initiatives that generated approximately $3 million in restaurant operating profit.
- The company successfully opened a new STK Steakhouse in Washington, D.C., marking a significant step in its strategic expansion and long-term growth strategy.
- The One Group Hospitality Inc (STKS) has a robust pipeline for new units, expecting to open five to seven new venues including STK and Kona Grill brands.
- The acquisition of SFR and Holdings Corp. has expanded the company's portfolio and is expected to generate synergies, particularly in managing commodity costs and leveraging digital capabilities.
Negative Points
- Comparable store sales decreased due to a challenging consumer environment, reflecting ongoing volatility in customer spending patterns.
- The company reported a net loss of $2.1 million for the quarter, a decrease from a net income of $2.6 million in the same quarter last year.
- Management noted a 7.9% decrease in comparable sales, with declines observed at both STK and Kona Grill brands.
- Preopening expenses increased to $2.9 million, up from $1.3 million in the prior year, due to costs associated with new restaurant openings.
- The company faces challenges with underperforming locations, particularly those acquired through the recent acquisition, which are dragging down overall profitability.
Q & A Highlights
Q: Hey, guys, good afternoon. Thanks for taking our question. Manny, I was curious if you could maybe level set what you saw from the consumer during the quarter and just kind of run that versus the results versus your expectations.
A: Yes. So a great question. I think as we mentioned in our earlier in our last quarter's call, we certainly see choppiness in the sales environment. So it's a little bit more an uneven environment in terms of predictability on sales week-over-week. So it's a little bit choppier in terms of the consumer behavior, we clearly see consumer gravitating towards the happy hour the $3,$6, $9 price points are holding up very well. So we do see trading to happy hour. And then within the dinner sets at STK, we will also see and we actually see two things we have a group of consumers that actually trading and sharing more at the table. And then we have a group of consumers that still trade up to the premium items like white goods. So we do have a little bit of a bifurcated behavior within STK. So I would say that's kind of what I've been noticing is a lot more attraction to the entry price points in the menu. But at the higher end, I still see a lot of consumers opting for the high end product.
Q: Okay, great. And then maybe if I could just ask a question on the new unit side. Can you just give us an update on your new unit environment permitting, how many labor delays?
A: Another great question. I mean, historically, we always plan three to six months for the permitting cycle. Now we actually think it's nine months, we've actually added three extra months to the permitting cycle. They are longer. There seems to be a lot more back and forth, and the responses seem to be a little slower in terms of one was centered submission. So I would say that's still part of the environment, but generally new units and new unit development. And the one thing I will tell you is that when we open new stores, there's a lot of excitement for new stores. So that's the upside on development right now is when we open great locations like we just did in Washington, D.C., we see an incredible amount of business coming to us because I think the consumer right now in addition to they're looking for something different and experiential. So I think that anytime we open one of our restaurants, we do get rewarded with some very strong upfront revenues.
Q: I guess it's similar to the last question, just on consumers. Just curious as you look at actually first, can you just talk anymore about Kona Grill consumers maybe more so than STK and any changes in behavior during the quarter?
A: I mean, I was actually for the quarter in our Tyler and I were talking about this earlier, we actually I would expected that they would have traded down on the P mix and actually our RP. mix is only down three points. So we don't see a lot of a trade down at Kona Grill. So I would say that consumer, it actually has not traded down as much as I would have expected, but a but you know, but the reality of it is they still are gravitating towards, as I mentioned earlier, $3, $6, $9 price points on on the happy hour. And then we also now feature $39 steak night America at Kona Grill. So I do think that right now, value is king and that the consumer world gravitate towards that, except as I mentioned earlier, higher end consumer still is going for the Y, do and still ordering the premium product quota. But the other consumers are definitely trading to the value propositions.
Q: Hi. This is actually Michael on for Nick at Wedbush. I guess maybe just a modeling question to start. Could you guys provide the comp breakdown in Q1 for both STK and Kona?
A: Yes. Give me second. It was minus [$6.8] for STK, Michael and minus [$9.7] for kind of grown.
Q: Great. Thanks. And then you guys have talked about targeting a 17% margins at Cona. Just wondering if you could provide an update on the margin profile you're seeing at the new units and how that really compares to some of the older legacy units that you've talked about needing to potentially look at a little bit of work.
A: I mean, the prototype ones have done really well. The new ones. So and the reason is, I think labor has been a better. I mean, I'll just preface that by saying that we're still early on their lifecycle, so their profitability will be improving there as well. But I would say the new stores been on on how we expected on the margin, I would say in general, the Kona Grill brand, we do have a core restaurants, which we kind of refer two from the acquisition, around 18 of the restaurants have an average margin of about 13% plus. And then we have about six corners in there that, frankly, the real estate is not what we would do today. So I think really the the margin fix with clinical role is to continue opening those new restaurants. I think the core ones are still in solid margins for for the casual sector. And then we've got to work out the plan for this other six restaurants and get them to a better place. So that's that's really how we're targeting that. But I'm pretty pleased with the progress on the new restaurants on the margin side.
Q: Yes, hi, Mani. Hi, Tyler. Congratulations on getting the deal completed so quickly, it seems like about five weeks from announcement to closing. So the lawyers must have been busy. A couple of questions on sounds like the synergies from that combining the companies is going to be in place pretty quickly. Can you give us some idea of where that's coming from that run rate sound like you'd like by the end of this year, it will be pretty much in place to why that's the first question. Second question is what does the current balance sheet look like post the closing in terms of cash and long-term debt?
A: Yes. I mean so I think the synergies, a lot of the initial ones which we are already working on our supply chain. So I think that's going to be a really good area of synergies for us. We've we've already started looking at beef and integrating our supply chain because we have a lot of purchasing power on that side. And I think that's going to be significant for us. And I think there's also and some other efficiencies with rebates and some of the stuff in supply chain. So that will be Level one, they'll be relatively inactive quickly. I think the on the on the outlook on them on
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
