Kona Grill Reports First Quarter 2014 Results
Restaurant sales increased 17.5% to $27.6 million - Same-store sales increased 6.2%
Kona Grill, Inc. (NASDAQ: KONA), an American grill and sushi bar, reported financial results for the first quarter ended March 31, 2014.
First Quarter 2014 Highlights vs. Year-Ago Quarter
- Restaurant sales increased 17.5% to $27.6 million
- Same-store sales increased 6.2%
- Restaurant operating profit margin was 18.1%, which included a 120 basis point impact from new restaurant inefficiencies, compared to 18.7%
- Opened a new restaurant in Fort Worth, Texas
Management Commentary
"The first quarter of 2014 marks our fourth consecutive quarter -- and 14 out of 15 quarters -- of same-store sales growth," said Berke Bakay, President and CEO of Kona Grill. "This growth was primarily driven by a 4.2% increase in guest frequency which also contributed to our strong sales performance relative to our polished casual dining peer group and further validates Kona Grill's unique, multi-daypart concept."
Bakay continued, "Our growth strategy is well underway, and guests' response to the updated look and feel of our newest locations and remodels has been very positive. We are pleased to report that first quarter sales volumes from our newest locations in Boise, The Woodlands and Fort Worth, which opened in February, are meeting our internal expectations.
"Our development pipeline has never been stronger. We are excited to announce leases for three new restaurants: Columbus, Ohio; Fairfax, Virginia and Plano, Texas. Looking towards the rest of 2014, we anticipate opening El Paso this summer and three other openings in the fourth quarter."
First Quarter 2014 Financial Results
Restaurant sales in the first quarter of 2014 increased 17.5% to $27.6 million compared to $23.5 million in the first quarter of 2013. Same-store sales increased 6.2% compared to a 2.6% decrease in comparable sales in the first quarter of 2013, with first quarter 2014 customer traffic increasing 4.2% and average check rising 2.0%. The contribution from new restaurants to first quarter sales was $2.7 million, reflecting 33 additional operating weeks.
Net income in the first quarter of 2014 was $0.3 million, or $0.03 per share, compared to net income of $1.0 million, or $0.12 per share, in the year-ago quarter. Net income in the first quarter of 2014 included $0.13 per share in costs related to opening and initial operation of new restaurants, incremental corporate infrastructure investments, and a shift in the Company's annual general manager and executive chef conference into the first quarter.
At March 31, 2014, cash and cash equivalents totaled $4.9 million compared to $5.9 million at December 31, 2013. The Company has drawn $3.5 million against its line of credit as of March 31, 2014, which represents the Company's total outstanding debt. This amount is unchanged from December 31, 2013.
Financial Guidance
For the second quarter of 2014, the company expects restaurant sales of $29.7 million, compared to $25.8 million in the same year-ago quarter, driven by a 3.0% same-store sales increase and a 13.0% operating week growth assumption. The company expects net income of $1.0 million, or $0.11 per share, which includes approximately $0.08 to $0.10 per share in costs associated with preopening and new unit inefficiencies.
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 26 restaurants, guided by a passion for quality food and personal service. Restaurants are currently located in 17 states: Arizona (Chandler, Gilbert, Phoenix, Scottsdale); Colorado (Denver); Connecticut (Stamford); Florida (Tampa); Idaho (Boise); 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, Fort Worth, Houston, San Antonio, The Woodlands); Virginia (Richmond).
KONA GRILL, INC. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(in thousands) | |||||||
March 31, | December 31, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 4,945 | $ | 5,881 | |||
Other current assets | 1,607 | 2,521 | |||||
Other assets | 1,124 | 1,114 | |||||
Property and equipment, net | 41,428 | 40,352 | |||||
Total assets | $ | 49,104 | $ | 49,868 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities | $ | 9,350 | $ | 14,878 | |||
Long-term obligations | 16,900 | 12,632 | |||||
Stockholders' equity | 22,854 | 22,358 | |||||
Total liabilities and stockholders' equity | $ | 49,104 | $ | 49,868 |
KONA GRILL, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
(in thousands, except per share data) | ||||||||
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
(Unaudited) | ||||||||
Restaurant sales | $ | 27,616 | $ | 23,496 | ||||
Costs and expenses: | ||||||||
Cost of sales | 7,510 | 6,453 | ||||||
Labor | 9,426 | 7,866 | ||||||
Occupancy | 1,843 | 1,615 | ||||||
Restaurant operating expenses | 3,848 | 3,171 | ||||||
General and administrative | 2,576 | 1,875 | ||||||
Preopening expense | 390 | - | ||||||
Depreciation and amortization | 1,687 | 1,429 | ||||||
Total costs and expenses | 27,280 | 22,409 | ||||||
Income from operations | 336 | 1,087 | ||||||
Interest expense, net | (60 | ) | (3 | ) | ||||
Income before income taxes | 276 | 1,084 | ||||||
Provision for income taxes | 25 | 80 | ||||||
Net income | $ | 251 | $ | 1,004 | ||||
Net income per share | ||||||||
Basic | $ | 0.03 | $ | 0.12 | ||||
Diluted | $ | 0.03 | $ | 0.12 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 8,609 | 8,543 | ||||||
Diluted | 8,882 | 8,643 | ||||||
Comprehensive income | $ | 251 | $ | 1,004 | ||||
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, preopening expenses 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 March 31, | ||||||||
2014 | 2013 | |||||||
Restaurant sales | $ | 27,616 | $ | 23,496 | ||||
Costs and expenses: | ||||||||
Cost of sales | 7,510 | 6,453 | ||||||
Labor | 9,426 | 7,866 | ||||||
Occupancy | 1,843 | 1,615 | ||||||
Restaurant operating expenses | 3,848 | 3,171 | ||||||
Restaurant operating profit | 4,989 | 4,391 | ||||||
Deduct - other costs and expenses: | ||||||||
General and administrative | 2,576 | 1,875 | ||||||
Preopening expense | 390 | - | ||||||
Depreciation and amortization | 1,687 | 1,429 | ||||||
Income from operations | $ | 336 | $ | 1,087 | ||||
Percentage of Restaurant Sales | ||||||||
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Restaurant sales | 100.0 | % | 100.0 | % | ||||
Costs and expenses: | ||||||||
Cost of sales | 27.2 | 27.5 | ||||||
Labor | 34.1 | 33.5 | ||||||
Occupancy | 6.7 | 6.9 | ||||||
Restaurant operating expenses | 13.9 | 13.5 | ||||||
Restaurant operating profit | 18.1 | 18.7 | ||||||
Deduct - other costs and expenses: | ||||||||
General and administrative | 9.3 | 8.0 | ||||||
Preopening expense | 1.4 | - | ||||||
Depreciation and amortization | 6.1 | 6.1 | ||||||
Income from operations | 1.2 | % | 4.6 | % | ||||
Certain amounts do not sum to total due to rounding | ||||||||
KONA GRILL, INC. | ||||||||
Selected Supplemental Operating Information | ||||||||
($ amounts in thousands) | ||||||||
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Restaurants opened during the period | 1 | - | ||||||
Restaurants open at the end of the period | 26 | 23 | ||||||
Comparable restaurants: | ||||||||
Restaurants open at end of period | 23 | 23 | ||||||
Operating weeks | 296 | 296 | ||||||
Average weekly sales | $ | 85 | $ | 79 | ||||
Average unit volume | $ | 1,090 | $ | 1,026 | ||||
Comparable restaurant sales percentage change | 6.2 | % | -2.6 | % | ||||
Non-comparable restaurants: | ||||||||
Restaurants open at end of period | 3 | - | ||||||
Operating weeks | 33 | - | ||||||
Average weekly sales | $ | 80 | $ | - | ||||