Kona Grill Reports Fourth Quarter and Full Year 2012 Results

 

 

Income from continuing operations increased 18%

Kona Grill

Kona Grill, Inc. (NASDAQ: KONA) reported results for its fourth quarter and full year ended December 31, 2012.

Fourth Quarter 2012 Highlights vs. Year-Ago Quarter

  • Same-store sales increased 10 basis points excluding the effect of the Chandler location remodel, lapping 7.8% same-store sales growth,
  • Income from continuing operations increased 18% to $884,000 or $0.10 per share, and
  • Signed a new restaurant lease in Boise, Idaho, which is expected to open in the fourth quarter of 2013.

Management Commentary

"Our continued focus on innovative menu offerings, guest service initiatives and prudent expense management helped drive yet another strong quarter of earnings," said Berke Bakay, president and CEO of Kona Grill. "Although we continued to face a challenging sales environment, the fourth quarter represented our ninth consecutive quarter of positive same-store sales.

"We have also achieved our second sequential year of profitability and record annual income from continuing operations, which was up 127% to $0.59 per share. This strong earnings improvement is attributed to our focus on building sales, while also being disciplined with our costs.

"We completed the remodel of our Chandler restaurant in November, and have received very favorable guest feedback. The remodel incorporated modern design elements, including a new lounge area, as well as a revamped bar and patio. Altogether, we expect the remodel to translate into increased guest activity.

"We continue to focus on our growth strategy and are diligently evaluating several prospective locations, including multiple sites in the state of Texas. We currently expect to open two new restaurants in 2013."

Fourth Quarter 2012 Financial Results

Restaurant sales in the fourth quarter of 2012 were $23.0 million compared to $23.1 million in the fourth quarter of 2011. Excluding the effect of the Chandler, Arizona store remodel, same-store sales increased 10 basis points, with higher average guest check partially offsetting a slight decline in guest traffic. The 10 basis point increase laps a 7.8% increase in the fourth quarter of 2011. The company estimates same-store sales for the fourth quarter would have increased approximately 100 basis points excluding the impact of inclement weather, including Hurricane Sandy.

Income from continuing operations in the fourth quarter of 2012 increased 18.3% to $884,000 or $0.10 per share, compared to $747,000 or $0.08 per share in the year-ago quarter. Net income in the fourth quarter of 2012 increased 13.9% to $851,000 or $0.10 per share, compared to net income of $747,000 or $0.08 per share in the year-ago quarter.

During the fourth quarter, the company repurchased 76,000 shares at an average cost of $8.43 per share under a $5.0 million stock repurchase program that was initiated in May 2012. In total, the company has repurchased 363,000 shares for $3.0 million under the current program.

At December 31, 2012, cash and cash equivalents totaled $8.0 million compared to $6.3 million at December 31, 2011. Total debt was $0.4 million at December 31, 2012, compared to $0.1 million at December 31, 2011. The company has not drawn on its $6.5 million credit line.

Full Year 2012 Financial Results

Restaurant sales in 2012 increased 2.5% to $96.0 million compared to $93.7 million in 2011. Same-store sales increased 2.7% primarily due to a 2.5% increase in guest traffic, which laps an 8.8% same-store sales increase in 2011.

Income from continuing operations in 2012 increased 127% to $5.3 million or $0.59 per share, compared to $2.3 million or $0.24 per share in 2011. Net income for 2012 increased 136% to $4.8 million or $0.54 per share, compared to net income of $2.0 million or $0.21 per share in 2011.

Financial Guidance

For the first quarter of 2013, the company expects restaurant sales of $23.9 million, compared to $24.2 million in the same year-ago quarter and flat same-store sales, excluding the extra day due to leap year in 2012. The company also expects net income of $0.9 million or $0.11 per share.

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,
    2012   2011
    (Unaudited)    
             
ASSETS            
  Current assets   $ 9,586   $ 7,709
  Other assets     812     694
  Property and equipment, net     28,927     32,944
  Total assets   $ 39,325   $ 41,347
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
  Current liabilities   $ 8,556   $ 10,089
  Long-term obligations     11,901     13,574
  Stockholders' equity     18,868     17,684
  Total liabilities and stockholders' equity   $ 39,325   $ 41,347
             
             
             
KONA GRILL, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(in thousands, except per share data)  
                         
    Three Months Ended

December 31,

    Year Ended

December 31,

 
    2012     2011     2012     2011  
    (Unaudited)    (Unaudited)          
                                 
Restaurant sales   $ 22,987     $ 23,065     $ 96,021     $ 93,657  
Costs and expenses:                                
  Cost of sales     6,397       6,242       26,246       25,579  
  Labor     7,769       7,531       31,968       30,896  
  Occupancy     1,603       1,448       6,253       6,573  
  Restaurant operating expenses     3,286       3,435       13,534       13,977  
  General and administrative     1,671       2,248       7,037       8,395  
  Depreciation and amortization     1,439       1,436       5,749       5,856  
  Insurance recoveries and other     (19 )     -       (120 )     -  
Total costs and expenses     22,146       22,340       90,667       91,276  
Income from operations     841       725       5,354       2,381  
Nonoperating income (expense):                                
  Interest income and other, net     1       1       1       3  
  Interest expense     (42 )     (14 )     (67 )     (61 )
Income from continuing operations before provision for income taxes     800       712       5,288       2,323  
Provision for income taxes     (84 )     (35 )     36       9  
Income from continuing operations     884       747       5,252       2,314  
Loss from discontinued operations, net of tax     (33 )     -       (466 )     (288 )
Net income   $ 851     $ 747     $ 4,786     $ 2,026  
                                 
Net income per share - Basic                                
  Income from continuing operations   $ 0.10     $ 0.08     $ 0.60     $ 0.25  
  Loss from discontinued operations, net of tax     -       -       (0.05 )     (0.03 )
  Net income   $ 0.10     $ 0.08     $ 0.55     $ 0.22  
                                 
Net income per share - Diluted                                
  Income from continuing operations   $ 0.10     $ 0.08     $ 0.59     $ 0.24  
  Loss from discontinued operations, net of tax     -       -       (0.05 )     (0.03 )
  Net income   $ 0.10     $ 0.08     $ 0.54     $ 0.21  
                                 
Weighted average shares outstanding:                                
  Basic     8,579       9,294       8,726       9,242  
  Diluted     8,686       9,445       8,868       9,428  
                                 
Comprehensive income   $ 851     $ 747     $ 4,786     $ 2,026  
                                 
                                 
                                 
                                 
Reconciliation of Restaurant Operating Profit to Income 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, insurance recoveries and other and depreciation and amortization. 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 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 from operations, the most comparable GAAP measure (in thousands).  
                         
    Three Months Ended

December 31,

    Year Ended

December 31,

 
    2012     2011     2012     2011  
                         
Restaurant sales   $ 22,987     $ 23,065     $ 96,021     $ 93,657  
Costs and expenses:                                
  Cost of sales     6,397       6,242       26,246       25,579  
  Labor     7,769       7,531       31,968       30,896  
  Occupancy     1,603       1,448       6,253       6,573  
  Restaurant operating expenses     3,286       3,435       13,534       13,977  
Restaurant operating profit     3,932       4,409       18,020       16,632  
Deduct - other costs and expenses:                                
  General and administrative     1,671       2,248       7,037       8,395  
  Depreciation and amortization     1,439       1,436       5,749       5,856  
  Insurance recoveries and other     (19 )     -       (120 )     -  
Income from operations   $ 841     $ 725     $ 5,354     $ 2,381  
                                 
                                 
    Percentage of

Restaurant Sales

    Percentage of

Restaurant Sales

 
    Three Months Ended

December 31,

    Year Ended

December 31,

 
    2012     2011     2012     2011  
                         
Restaurant sales     100.0 %     100.0 %     100.0 %     100.0 %
Costs and expenses:                                
  Cost of sales     27.8       27.1       27.3       27.3  
  Labor     33.8       32.7       33.3       33.0  
  Occupancy     7.0       6.3       6.5       7.0  
  Restaurant operating expenses     14.3       14.9       14.1       14.9  
Restaurant operating profit     17.1       19.1       18.8       17.8  
Deduct - other costs and expenses:                                
  General and administrative     7.3       9.7       7.3       9.0  
  Depreciation and amortization     6.3       6.2       6.0       6.3  
  Insurance recoveries and other     (0.1 )     -       (0.1 )     -  
Income from operations     3.7 %     3.1 %     5.6 %     2.5 %
                                 
Certain amounts do not sum to total due to rounding                                
                                 



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