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Kona Grill Q2 Sales Up 13.6%

2011-07-28

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Restaurant sales increased 13.6% to $25.8 million from $22.7 million in the same year-ago quarter. The sales improvement reflects a 9.1% increase in same-store sales driven by strong traffic, higher average guest check and approximately 2.2% in menu pricing, as well as additional revenue from the Kona Grill in Baltimore, Maryland that opened during the fourth quarter of 2010.

Kona Grill, Inc. (NASDAQ: KONA), an American grill and sushi bar, reported results for its second quarter ended June 30, 2011.

Second Quarter 2011 Highlights Include:

Restaurant sales increased 13.6% to $25.8 million
Same-store sales increased 9.1%
Restaurant operating profit margin increased 90 basis points to 17.2%
Net income increased 199% to $0.8 million or $0.08 per share
Net income excluding severance charges of $1.0 million or $0.11 per share

"Top-line results exceeded the high end of our sales guidance for the quarter, driven by a 9.1% increase in same-store sales," said Michael Nahkunst, interim president and CEO of Kona Grill. "Our restaurants did a fantastic job driving additional sales through recent marketing and menu improvement initiatives, while also leveraging these sales to improve our restaurant operating margins. The strong earnings during the quarter firmly support our forecast of achieving profitability for 2011."

Second Quarter 2011 Financial Results

Average weekly sales for the 23 restaurants in the comparable base were $80,140 in the second quarter of 2011, compared to $73,450 in the same year-ago quarter. Average weekly sales for restaurants not in the comparable base increased 16.6% to $68,550 in the second quarter of 2011 versus $58,800 last year.

Net income for the second quarter of 2011 was $0.8 million or $0.08 per share, an improvement from net income of $0.3 million or $0.03 per share in the same year-ago quarter. Excluding severance and other charges related to the departure of the company's former CEO, net income for the second quarter of 2011 was $1.0 million or $0.11 per share. This compares to net income of $0.4 million or $0.05 per share in the same year-ago quarter, excluding legal and professional fees associated with a contested proxy solicitation (see "Reconciliation of Net Income or Loss Excluding Special Charges," below).

Financial Guidance

For the third quarter of 2011, the company forecasts restaurant sales of $23.1 million to $24.1 million, and net income of $0.1 million to $0.3 million, or $0.01 to $0.03 per share.


KONA GRILL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

		June 30,		December 31,
		2011		2010
		(Unaudited)

ASSETS
	Current assets	$	5,856	$	3,951
	Other assets		700		650
	Property and equipment, net		35,123		37,459
	Total assets	$	41,679	$	42,060

LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities	$	8,010	$	8,829
	Long-term obligations		15,721		16,242
	Stockholders' equity		17,948		16,989
	Total liabilities and stockholders' equity	$	41,679	$	42,060


KONA GRILL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
		(Unaudited)						(Unaudited)

Restaurant sales		$	25,767		$	22,686		$	49,399		$	43,738
Costs and expenses:
	Cost of sales		7,052			6,014			13,709			11,589
	Labor		8,551			7,782			16,644			15,365
	Occupancy		1,872			1,769			3,663			3,550
	Restaurant operating expenses		3,856			3,418			7,645			6,874
	General and administrative		2,149			1,873			4,031			4,010
	Preopening expense		-			119			-			127
	Depreciation and amortization		1,482			1,395			2,972			2,794
Total costs and expenses			24,962			22,370			48,664			44,309
Income (loss) from operations			805			316			735			(571	)
Nonoperating income (expense):
	Interest income and other, net		2			29			2			51
	Interest expense		(9	)		(73	)		(21	)		(115	)
Income (loss) before provision for income taxes			798			272			716			(635	)
Provision for income taxes			15			10			25			10
Net income (loss)		$	783		$	262		$	691		$	(645	)

Net income (loss) per share:
	Basic	$	0.08		$	0.03		$	0.07		$	(0.07	)
	Diluted	$	0.08		$	0.03		$	0.07		$	(0.07	)

Weighted average shares outstanding:
	Basic		9,214			9,165			9,208			9,160
	Diluted		9,392			9,265			9,377			9,160


Reconciliation of net income (loss) excluding special charges (1)
(in thousands, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Net income (loss)	$	783	$	262	$	691	$	(645	)
Special charges included in general and administrative		257		157		257		451
Net income (loss) excluding special charges	$	1,040	$	419	$	948	$	(194	)

Diluted net income (loss) per share	$	0.08	$	0.03	$	0.07	$	(0.07	)
Special charges included in general and administrative		0.03		0.02		0.03		0.05
Diluted net income (loss) per share excluding special charges	$	0.11	$	0.05	$	0.10	$	(0.02	)

(1) The Company believes excluding special charges from its financial results is a useful measure to its investors as it provides a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results.

Reconciliation of Restaurant Operating Profit to Income (Loss) from Operations

The Company defines restaurant operating profit to be restaurant sales minus cost of sales, labor, occupancy, and restaurant operating expenses. Restaurant operating profit does not include general and administrative expenses, depreciation and amortization, or preopening expenses. The Company believes restaurant operating profit is an important component of financial results because it is a widely used metric within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance. The Company uses restaurant operating profit as a key metric to evaluate its restaurants' financial performance compared with its competitors. Restaurant operating profit is not a financial measurement determined in accordance with generally accepted accounting principles ("GAAP") and should not be considered in isolation or as an alternative to income (loss) from operations. Restaurant operating profit may not be comparable to the same or similarly titled measures computed by other companies. The table below sets forth the Company's calculation of restaurant operating profit and a reconciliation to income (loss) from operations, the most comparable GAAP measure (in thousands).


		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010

Restaurant sales		$	25,767		$	22,686		$	49,399		$	43,738
Costs and expenses:
	Cost of sales		7,052			6,014			13,709			11,589
	Labor		8,551			7,782			16,644			15,365
	Occupancy		1,872			1,769			3,663			3,550
	Restaurant operating expenses		3,856			3,418			7,645			6,874
Restaurant operating profit			4,436			3,703			7,738			6,360
Deduct - other costs and expenses:
	General and administrative		2,149			1,873			4,031			4,010
	Preopening expense		-			119			-			127
	Depreciation and amortization		1,482			1,395			2,972			2,794
Income (loss) from operations		$	805		$	316		$	735		$	(571	)


		Percentage of Restaurant Sales						Percentage of Restaurant Sales
		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010

Restaurant sales			100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
	Cost of sales		27.4			26.5			27.8			26.5
	Labor		33.2			34.3			33.7			35.1
	Occupancy		7.3			7.8			7.4			8.1
	Restaurant operating expenses		15.0			15.1			15.5			15.7
Restaurant operating profit			17.2			16.3			15.7			14.6
Deduct - other costs and expenses:
	General and administrative		8.3			8.3			8.2			9.2
	Preopening expense		-			0.5			-			0.3
	Depreciation and amortization		5.8			6.1			6.0			6.4
Income (loss) from operations			3.1	%		1.4	%		1.5	%		(1.3	)%

Certain amounts do not sum to total due to rounding.