Kona Grill (NASDAQ:KONA) offers guests freshly prepared food, personalized service and a warm contemporary ambiance that creates an exceptional, yet affordable dining experience.
The menu offers a diverse selection of appetizers, salads, sandwiches, chicken, seafood, steaks, pasta and pizzas that incorporate over 40 signature sauces and dressings that are made from scratch using high-quality, fresh ingredients. Kona Grill also offers guests a wide selection of award-winning sushi, including sashimi, traditional favorites and several proprietary dishes.
It features American favorites with an international influence and award-winning sushi in a casually elegant atmosphere. Kona Grill owns and operates 31 restaurants. Its sophisticated and diverse menu boasts a wide array of options for guests with all tastes – freshly prepared sushi, innovative American grill fare and a comprehensive selection of cocktails.
It boasts of exceptional customer loyalty. According to the company’s website, 17% of guests dine at Kona at least once every 10 days. It is a leading retail center with 15 million annual visitors; half the visits include dining.
- Warning! GuruFocus has detected 1 Warning Sign with KONA. Click here to check it out.
- KONA 15-Year Financial Data
- The intrinsic value of KONA
- Peter Lynch Chart of KONA
The company reported a strong first quarter and raised its annual same-store sales outlook. It experienced 3.6% same-store sales growth.
Restaurant sales increased by 19.7% and were $39.3 million in the first quarter ($32.8 million during the prior-year quarter).
Same-store sales increased by 3.6% in the first quarter (a 2.2% increase in the prior-year quarter).
Restaurant operating profit, a non-GAAP measure, increased by 7.0% in the first quarter and was $5.8 million ($5.4 million in the prior-year quarter).
As a percentage of sales, restaurant operating profit was 14.7% (16.4% in the prior-year quarter).
Adjusted EBITDA, a non-GAAP measure, increased by 5.9% in the first quarter and was $2.6 million ($2.4 million in the prior-year quarter).
Net loss in the first quarter was $1.7 million, or (15 cents) per share, a net loss of $0.9 million, or (8 cents) per share, in the prior-year quarter.
As of March 31, cash and cash equivalents totaled $3.5 million ($9.1 million on Dec. 31, 2015).
During the first quarter, the company repurchased and retired 80,406 shares totaling $1.0 million under its $10.0 million stock repurchase plan authorized in November 2015.
Expectations for 2016
8 (Representing 20% growth)
To be around $179 million
Same-store sales growth estimate
2.0% to 2.5%
To be around $15 million
To be between $33 million and $35 million
Positive attributes of the quarter
- Same-store sales growth.
- The company outpaced the industry benchmark by 420 basis points (its highest rate of outperformance since 2014).
- Improvement in operating profit margins.
On April 5, the company entered into an agreement with Hakaya Collection, a subsidiary of RAK Hospitality Holding, for the development of six franchise locations in the United Arab Emirates over the next seven years. Earlier this year, the company signed an agreement with Grupo Roma for the development of six franchise locations in Mexico over the next seven years.
With the planned opening of eight restaurants during 2016, it has almost doubled the size of the company in a little over three years. The company has plans to grow sales and adjusted EBITDA by 25%, making Kona Grill one of the few restaurant companies that have the ability to grow both of these important metrics at this pace. It generated positive same-store sales in 21 of the past 22 quarters. It recently launched a new website and online ordering capabilities. The new website incorporates a modern, sophisticated look and feel that reflects the ambiance of the restaurants while online ordering provides convenience for guests on the go in today’s mobile age.
It is also expanding the business internationally. It is continually putting in other initiatives to continue enhancing the guest experience.
(Source: Company’s Website)
A peek into the restaurant industry
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this has been the strongest three-month period). Consumer behavior has changed and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc.
As per the National Restaurant Association, restaurant industry sales are expected to reach $783 billion in 2016 and will represent the seventh consecutive year of real growth in restaurant sales. Further, the National Restaurant Association has predicted that the restaurant industry will remain the nation’s second-largest private sector employer with a workforce of 14.4 million and will create 1.7 million new restaurant jobs by 2026.
On a concluding note
The company reported another solid top line result. Noncomparable restaurants continue to perform ahead of the company’s internal forecast both on the top line and through the realization of operating efficiencies as trends shift toward normalized and identifiable patterns. It has planned a 20% growth initiative for the next few years.
It opened four restaurants during the fourth quarter, a total of seven restaurants in 2015, and is on track to open eight restaurants in 2016. It is well positioned to grow domestically through robust pipeline and to develop internationally through franchising. It has already executed an agreement for six restaurants in Mexico over the next seven years. It is working to finalize an agreement for the Middle East and holding ongoing discussions with potential franchisees for other territories.
Restaurant stocks are booming, and this company is no exception. Perceptions have changed as regards the way people eat out. This company posted solid quarterly report and is expected to create shareholder returns in the near future. Investors may add this company to their portfolios.
This American grill and sushi bar has huge potential and is currently focusing on brand building and expansion. It is a long-term stock. Now people are more health conscious, and this company boasts of an array of healthy food options. The company boasts of new menu offerings, affordability, speed and hospitality. It has managed to carve a niche for itself in the market. This company is a buy.
Disclosure: I do not hold any position in the company.
Start a free seven-day trial of Premium Membership to GuruFocus.