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Kona Grill Reports Fourth Quarter and Full Year 2011 Results

2012-02-14

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Kona Grill Restaurant sales increased 9.2% to $23.1 million - Same-store sales increased 7.8%

Kona Grill, Inc. (NASDAQ: KONA), an American grill and sushi bar, reported results for its fourth quarter and full year ended December 31, 2011.

Fourth Quarter 2011 Highlights vs. Year-Ago Quarter:

Restaurant sales increased 9.2% to $23.1 million
Same-store sales increased 7.8%
Restaurant operating profit margin increased 570 basis points to 19.1%
Net income of $0.7 million or $0.08 per share, compared to a net loss of $0.5 million or $(0.05) per share
Net income of $1.1 million or $0.12 per share, excluding severance charges of $0.4 million or $0.04 per share

"Our 7.8% increase in same-store sales drove another strong quarter of earnings and more importantly, enabled us to deliver our first profitable year since 2004," said Berke Bakay, president and CEO of Kona Grill. "This quarter's sales results also represent our fifth consecutive quarter of positive same-store sales, which demonstrates the strength and momentum of our brand and includes lapping a 6.4% increase in the fourth quarter of 2010."

Credit Facility

The company has entered into a $5.5 million credit agreement with Stearns Bank National Association. The agreement provides for a $5.0 million line of credit that can be drawn on for a period of 36 months with each draw converting into a 72 month term loan and a $0.5 million term loan to refinance existing debt and for general corporate purposes. The company plans to use the proceeds from the line of credit to fund new restaurant construction and remodel existing restaurants.

Fourth Quarter 2011 Financial Results

Restaurant sales in the fourth quarter of 2011 increased 9.2% to $23.1 million, compared to $21.1 million in the year-ago quarter. The sales improvement reflects a 7.8% increase in same-store sales, driven by higher average guest check and 3% growth in guest traffic. The 7.8% increase in same-store sales compares to a 6.4% increase in the fourth quarter of 2010 and a 10.6% increase in the third quarter of 2011.

Net income in the fourth quarter of 2011 was $0.7 million or $0.08 per share, an improvement from a net loss of $0.5 million or $(0.05) per share in the year-ago quarter. Excluding $0.4 million of severance and other charges related to the departure of the company's former CFO, net income in the fourth quarter of 2011 was $1.1 million or $0.12 per share (see "Reconciliation of Net Income (Loss) Excluding Special Charges," below).

Full Year 2011 Financial Results

Restaurant sales in 2011 increased 13.2% to $93.7 million, compared to $82.7 million in 2010, primarily attributable to an 8.8% increase in same-store sales and additional revenue from the Baltimore, Maryland location that opened during the fourth quarter of 2010.

Net income in 2011 was $2.0 million or $0.21 per share, a significant improvement from a net loss in 2010 of $1.6 million or $(0.17) per share. Excluding $0.6 million of severance and other charges related to the departure of the company's former CEO and CFO, net income in 2011 was $2.7 million or $0.28 per share, compared to a net loss in 2010 of $1.1 million or $(0.12) per share excluding $0.5 million of special charges (see "Reconciliation of Net Income (Loss) Excluding Special Charges," below).

Financial Guidance

For the first quarter of 2012, the company forecasts growth over the year-ago quarter, with restaurant sales of $22.5 million to $23.2 million, and net income of $0.1 million to $0.2 million, or $0.01 to $0.02 per share, compared to a net loss of $0.1 million, or $(0.01) per share for the first quarter of 2011.

About Kona Grill

Kona Grill (NASDAQ: KONA) features American favorites with an international influence and award-winning sushi in a casually elegant atmosphere. Kona Grill owns and operates 23 restaurants, guided by a passion for quality food and personal service. Restaurants are currently located in 16 states: Arizona (Chandler, Gilbert, Phoenix, Scottsdale); Colorado (Denver); Connecticut (Stamford); Florida (Tampa); Illinois (Lincolnshire, Oak Brook); Indiana (Carmel); Louisiana (Baton Rouge); Maryland (Baltimore); Michigan (Troy); Minnesota (Eden Prairie); Missouri (Kansas City); Nebraska (Omaha); New Jersey (Woodbridge); Nevada (Las Vegas); Texas (Austin, Dallas, Houston, San Antonio); Virginia (Richmond).


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

		December 31,		December 31,
		2011		2010
		(Unaudited)

ASSETS
	Current assets	$	7,709	$	3,951
	Other assets		694		650
	Property and equipment, net		32,944		37,459
	Total assets	$	41,347	$	42,060

LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities	$	10,089	$	8,829
	Long-term obligations		13,574		16,242
	Stockholders' equity		17,684		16,989
	Total liabilities and stockholders' equity	$	41,347	$	42,060


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

		Three Months Ended December 31,						Year Ended December 31,
		2011			2010			2011			2010
		(Unaudited)						(Unaudited)

Restaurant sales		$	23,065		$	21,121		$	93,657		$	82,735
Costs and expenses:
	Cost of sales		6,205			5,967			25,456			22,397
	Labor		7,531			7,273			30,896			28,640
	Occupancy		1,448			1,634			6,573			6,523
	Restaurant operating expenses		3,472			3,421			14,100			12,985
	General and administrative		2,247			1,616			8,395			7,072
	Preopening expense		-			58			-			567
	Depreciation and amortization		1,437			1,474			5,856			5,612
Total costs and expenses			22,340			21,443			91,276			83,796
Income (loss) from operations			725			(322	)		2,381			(1,061	)
Nonoperating income (expense):
	Interest income and other, net		1			1			3			52
	Interest expense		(14	)		(4	)		(61	)		(123	)
Income (loss) from continuing operations before provision for income taxes			712			(325	)		2,323			(1,132	)
Provision for income taxes			(35	)		-			9			10
Income (loss) from continuing operations			747			(325	)		2,314			(1,142	)
Loss from discontinued operations, net of tax			-			(166	)		(288	)		(435	)
Net income (loss)		$	747		$	(491	)	$	2,026		$	(1,577	)

Net income (loss) per share - Basic
	Continuing operations	$	0.08		$	(0.03	)	$	0.25		$	(0.12	)
	Discontinued operations		-			(0.02	)		(0.03	)		(0.05	)
	Net income (loss)	$	0.08		$	(0.05	)	$	0.22		$	(0.17	)

Net income (loss) per share - Diluted
	Continuing operations	$	0.08		$	(0.03	)	$	0.24		$	(0.12	)
	Discontinued operations		-			(0.02	)		(0.03	)		(0.05	)
	Net income (loss)	$	0.08		$	(0.05	)	$	0.21		$	(0.17	)

Weighted average shares outstanding:
	Basic		9,294			9,180			9,242			9,167
	Diluted		9,445			9,180			9,428			9,167


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

	Three Months Ended December 31,					Year Ended December 31,
	2011		2010			2011		2010

Net income (loss)	$	747	$	(491	)	$	2,026	$	(1,577	)
Special charges included in general and administrative		386		-			643		451
Net income (loss) excluding special charges	$	1,133	$	(491	)	$	2,669	$	(1,126	)

Diluted net income (loss) per share	$	0.08	$	(0.05	)	$	0.21	$	(0.17	)
Special charges included in general and administrative		0.04		-			0.07		0.05
Diluted net income (loss) per share excluding special charges	$	0.12	$	(0.05	)	$	0.28	$	(0.12	)

(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 December 31,					Year Ended December 31,
		2011		2010			2011		2010

Restaurant sales		$	23,065	$	21,121		$	93,657	$	82,735
Costs and expenses:
	Cost of sales		6,205		5,967			25,456		22,397
	Labor		7,531		7,273			30,896		28,640
	Occupancy		1,448		1,634			6,573		6,523
	Restaurant operating expenses		3,472		3,421			14,100		12,985
Restaurant operating profit			4,409		2,826			16,632		12,190
Deduct - other costs and expenses:
	General and administrative		2,247		1,616			8,395		7,072
	Preopening expense		-		58			-		567
	Depreciation and amortization		1,437		1,474			5,856		5,612
Income (loss) from operations		$	725	$	(322	)	$	2,381	$	(1,061	)


		Percentage of Restaurant Sales				Percentage of Restaurant Sales
		Three Months Ended December 31,				Year Ended December 31,
		2011		2010		2011		2010

Restaurant sales		100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
	Cost of sales	26.9		28.3		27.2		27.1
	Labor	32.6		34.4		33.0		34.6
	Occupancy	6.3		7.7		7.0		7.9
	Restaurant operating expenses	15.1		16.2		15.1		15.7
Restaurant operating profit		19.1		13.4		17.8		14.7
Deduct - other costs and expenses:
	General and administrative	9.7		7.7		9.0		8.5
	Preopening expense	-		0.3		-		0.7
	Depreciation and amortization	6.2		7.0		6.3		6.8
Income (loss) from operations		3.2	%	(1.5	)%	2.5	%	(1.3	)%

Certain amounts do not sum to total due to rounding