Kona Grill, Inc. (NASDAQ:KONA), an American grill and sushi bar,
reported financial results for the third quarter ended September
30, 2017.
Third Quarter 2017 Key Items vs. Year-Ago
Quarter
- Restaurant sales increased 2.4% to $44.4 million.
- Same-store sales decreased 7.2%, including an estimated 1.1%
impact from closures as a result of Hurricanes Harvey, Irma and
Maria which impacted 30% of the Company’s restaurant base; compared
to a 0.7% gain from the prior year.
- Net loss of $3.3 million, or ($0.33) per share, which included
an estimated ($0.02) per share impact from the aforementioned
hurricanes, compared to net loss of $2.6 million, or ($0.24) per
share in 2016.
- Restaurant operating profit*, a non-GAAP measure, decreased
24.3% to $4.5 million compared to $6.0 million in 2016.
* For a reconciliation of restaurant operating
profit to the most directly comparable financial measures presented
in accordance with GAAP and a discussion of why the Company
considers them useful, see the financial information accompanying
this release.
“We continue to fight for market share in this
challenging industry environment and have several initiatives in
place to drive traffic and deliver a great guest experience. We
believe that our brand appeals to today’s consumer as evidenced by
our sushi sales that continue to grow and now represent over 25% of
our total sales,” said Berke Bakay, President and CEO of Kona
Grill.
“We remain resilient in spite of the challenges
that we encountered during this quarter, including one-third of our
restaurants being impacted by closures from the three major
hurricanes that hit during August and September which we estimate
resulted in approximately $500,000 of lost sales. Our restaurant in
San Juan recently reopened with scaled back hours and a limited
menu after the devastation caused by Hurricane Maria. We are
fortunate that minimal physical damage was sustained at our
restaurants. We are proud of our teams in these affected areas in
how they helped feed first responders and others in the community
during this time of need and we are grateful for the support of our
guests and co-workers in raising funds for employees displaced by
the hurricanes,” he continued.
“We continue to evaluate our underperforming
restaurants and have discussions with our landlords regarding rent
abatement or potentially closing certain locations. Our success in
addressing these opportunities and issues will put us in a better
financial position for the future.”
“Our franchise partner opened the first Kona
Grill internationally with a restaurant opening in Monterrey,
Mexico in August and our franchise partner, RAK Hospitality is
scheduled to open a restaurant in Dubai later this month. It is
exciting to see this initiative come to fruition and we look
forward to the Zzen Group’s opening a restaurant in Toronto later
this year,” he concluded.
Third Quarter 2017 Financial
ResultsRestaurant sales increased 2.4% to $44.4 million in
the third quarter of 2017 compared to $43.4 million in the third
quarter of 2016. The increase was primarily driven by operating
week growth from six restaurants opened since August 2016 partially
offset a decline in same-store sales and lost sales associated with
hurricane-related closures.
Same-store sales decreased 7.2% in the third
quarter of 2017 as compared to a 0.7% increase in the third quarter
of last year. Excluding the impact of hurricane-related closures,
same-store sales are estimated to decrease 6.1%.The decrease in
same-store sales this year reflects a decline in guest traffic and
unfavorable menu mix, partially offset by slightly higher menu
prices.
Net loss was $3.3 million, or ($0.33) per share
in the third quarter of 2017, and was negatively impacted by an
estimated $0.02 per share from the aforementioned hurricanes. This
compared to net loss of $2.6 million, or ($0.24) per share in the
same quarter of 2016.
Restaurant operating profit*, a non-GAAP
measure, was $4.5 million in the third quarter of 2017 compared to
$6.0 million in the third quarter of 2016. Restaurant operating
profit in the third quarter of 2017 was adversely impacted by
higher food and operating costs compared to the prior year quarter.
As a percentage of sales, restaurant operating profit was 10.2%
compared to 13.8% in the third quarter of last year.
Financial
GuidanceIn light of the current environment, the
Company is updating its forecast to restaurant sales of $180
million and Adjusted EBITDA, which excludes lease termination costs
and asset write-offs, of $4.5 million.
The Company has not reconciled Adjusted EBITDA
guidance to the corresponding GAAP financial measure because it
does not provide guidance for the various reconciling items. The
Company is unable to provide guidance for these reconciling items
since certain items that impact net income are outside of its
control and cannot be reasonably predicted. Accordingly,
reconciliations to the corresponding GAAP financial measures are
not available without unreasonable effort.
The Company reaffirms its capital expenditures,
net of tenant allowances to range from $7 million to $9 million,
which is primarily related to restaurant development, maintenance
capital expenditures and technology initiatives.
Development UpdateThe Company
opened a restaurant in Scottsdale, Arizona on June 12, 2017. The
Company has one signed lease for a restaurant at Pinecrest Village
near Cleveland, Ohio that is scheduled to open in 2018.
The Company’s international franchise partner in
Mexico opened the first franchised Kona Grill restaurant in
Monterrey, Mexico in August. The Company’s franchise partner in the
United Arab Emirates is scheduled to open in Dubai later this month
while the first Kona Grill in Toronto, Canada is scheduled to be
opened in December 2017. The Company continues to engage in
discussions with additional franchise partners.
Conference CallKona Grill will
hold a conference call today at 5:00 p.m. Eastern time to discuss
its financial results for the third quarter ended September 30,
2017. The Company’s President and CEO Berke Bakay and CFO Christi
Hing will host the call, followed by a question and answer
session.
To access the conference call investors may dial
1-719-325-4783. The conference call will be followed by a question
and answer session. Please call the conference telephone number
5-10 minutes prior to the start time so that an operator may
register your name and organization.
The conference call will be broadcast
simultaneously over the internet via the investors section of the
Company’s website at www.konagrill.com.
A replay of the conference call will be
available after 8:00 p.m. Eastern time on the same day through
December 10, 2017 by calling 1-412-317-6671. To access the replay
please use the ID number 3528818. The replay will also be available
via the investors section of the Company’s website at
www.konagrill.com.
About Kona GrillKona Grill
features a global menu of contemporary American favorites,
award-winning sushi, and specialty cocktails in an upscale casual
atmosphere. Kona Grill owns and operates 46 restaurants, guided by
a passion for quality food and exceptional service. Restaurants are
located in 23 states and Puerto Rico: Alabama (Huntsville); Arizona
(Chandler, Gilbert, Phoenix, Scottsdale (2)); California (Irvine);
Colorado (Denver); Connecticut (Stamford); Florida (Miami, Tampa,
Sarasota, Winter Park); Georgia (Alpharetta); Hawaii (Honolulu);
Illinois (Lincolnshire, Oak Brook); Indiana (Carmel); Idaho
(Boise); Louisiana (Baton Rouge); Maryland (Baltimore); Michigan
(Troy); Minnesota (Eden Prairie, Minnetonka); Missouri (Kansas
City); Nebraska (Omaha); New Jersey (Woodbridge); Nevada (Las
Vegas(2)); Ohio (Cincinnati, Columbus); Puerto Rico (San Juan);
Tennessee (Franklin); Texas (Austin, Dallas, El Paso, Friendswood,
Fort Worth, Houston, Plano, San Antonio(2), The Woodlands);
Virginia (Arlington, Fairfax, Richmond). Additionally, Kona Grill
has one restaurant in Monterrey, Mexico that operates under a
franchise agreement. For more information, visit
www.konagrill.com.
Forward-Looking
StatementsVarious remarks we make about future
expectations, plans, and prospects for the Company constitute
forward-looking statements for purposes of the Safe Harbor
provisions under the Private Securities Litigation Reform Act of
1995. Forward-looking statements include statements regarding our
expectations, beliefs, intentions, plans, objectives, goals,
strategies, future events, or performance and underlying
assumptions and other statements that are not purely historical.
These statements relate to our future financial performance and
development plans, including but not limited to those relating to
our sales trends, projected earnings, expenses, and capital
expenditures for 2017, expectations of new store openings as well
as international franchise development in 2017 and beyond and
availability of capital. We have attempted to identify these
statements by using forward-looking terminology such as “may,”
“will,” “anticipates,” “expects,” “believes,” “intends,” “should,”
or comparable terms. All forward-looking statements included in
this press release are based on information available to us on the
date of this release and we assume no obligation to update these
forward-looking statements for any reason. These statements are
subject to risks and uncertainties that could cause actual results
to differ materially from those described in the statements.
Investors are referred to the full discussion of risks and
uncertainties associated with forward-looking statements and the
discussion of risk factors contained in the company's filings with
the Securities and Exchange Commission.
| |
|
|
|
|
| |
KONA GRILL INC. |
| |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
| |
(In thousands) |
| |
|
|
|
|
| |
|
September 30, |
|
December 31, |
| |
|
2017 |
|
2016 |
| |
Assets |
(unaudited) |
|
|
| |
Cash and
cash equivalents |
$ |
3,511 |
|
$ |
3,476 |
| |
Other
current assets |
|
4,647 |
|
|
5,256 |
| |
Other assets |
|
1,099 |
|
|
1,383 |
|
|
Property, plant and
equipment, net |
|
94,338 |
|
|
98,268 |
| |
Total
assets |
$ |
103,595 |
|
$ |
108,383 |
| |
Liabilities and Stockholders' Equity |
|
|
|
| |
Current
liabilities |
$ |
15,034 |
|
$ |
19,277 |
|
|
Long term debt |
|
37,190 |
|
|
25,921 |
| |
Long-term obligations |
|
33,392 |
|
|
31,610 |
| |
Stockholders'
equity |
|
17,979 |
|
|
31,575 |
| |
Total
liabilities and stockholders' equity |
$ |
103,595 |
|
$ |
108,383 |
| |
|
|
|
|
| |
KONA GRILL, INC. |
|
| |
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) |
|
| |
(In thousands, except per share amounts) |
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
| |
|
|
|
|
September 30, |
|
September 30, |
|
| |
|
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Restaurants sales |
|
|
$ |
44,390 |
|
|
$ |
43,358 |
|
|
$ |
136,592 |
|
|
$ |
125,931 |
|
|
| |
|
Costs
and expenses: |
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of
sales |
|
|
|
12,038 |
|
|
|
11,602 |
|
|
|
37,587 |
|
|
|
33,316 |
|
|
| |
|
Labor |
|
|
|
16,343 |
|
|
|
16,005 |
|
|
|
50,172 |
|
|
|
45,602 |
|
|
| |
|
Occupancy |
|
|
|
4,154 |
|
|
|
3,499 |
|
|
|
12,435 |
|
|
|
10,006 |
|
|
| |
|
Restaurant operating expenses |
|
|
|
7,327 |
|
|
|
6,269 |
|
|
|
22,142 |
|
|
|
17,973 |
|
|
| |
|
General
and administrative |
|
|
|
3,297 |
|
|
|
3,127 |
|
|
|
10,013 |
|
|
|
9,980 |
|
|
| |
|
Preopening expense |
|
|
|
13 |
|
|
|
1,430 |
|
|
|
810 |
|
|
|
3,443 |
|
|
| |
|
Depreciation and amortization |
|
|
|
3,982 |
|
|
|
3,837 |
|
|
|
11,277 |
|
|
|
10,338 |
|
|
| |
|
Asset
impairment charge |
|
|
|
30 |
|
|
|
- |
|
|
|
30 |
|
|
|
- |
|
|
| |
|
Lease
termination and exit costs |
|
|
|
8 |
|
|
|
- |
|
|
|
1,392 |
|
|
|
- |
|
|
| |
|
Total
costs and expenses |
|
|
|
47,192 |
|
|
|
45,769 |
|
|
|
145,858 |
|
|
|
130,658 |
|
|
| |
|
Income (loss) from
operations |
|
|
|
(2,802 |
) |
|
|
(2,411 |
) |
|
|
(9,266 |
) |
|
|
(4,727 |
) |
|
| |
|
Write-off of deferred financing costs |
|
|
|
- |
|
|
|
- |
|
|
|
472 |
|
|
|
- |
|
|
| |
|
Interest
expense, net |
|
|
|
500 |
|
|
|
138 |
|
|
|
1,214 |
|
|
|
263 |
|
|
| |
|
Income
(loss) before income taxes |
|
|
|
(3,302 |
) |
|
|
(2,549 |
) |
|
|
(10,952 |
) |
|
|
(4,990 |
) |
|
| |
|
Income tax expense |
|
|
|
21 |
|
|
|
6 |
|
|
|
71 |
|
|
|
56 |
|
|
| |
|
Net
income (loss) |
|
|
$ |
(3,323 |
) |
|
$ |
(2,555 |
) |
|
$ |
(11,023 |
) |
|
$ |
(5,046 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
| |
|
Basic |
|
|
$ |
(0.33 |
) |
|
$ |
(0.24 |
) |
|
$ |
(1.09 |
) |
|
$ |
(0.46 |
) |
|
| |
|
Diluted |
|
|
$ |
(0.33 |
) |
|
$ |
(0.24 |
) |
|
$ |
(1.09 |
) |
|
$ |
(0.46 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Weighted
average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
| |
|
Basic |
|
|
|
10,102 |
|
|
|
10,500 |
|
|
|
10,126 |
|
|
|
10,897 |
|
|
| |
|
Diluted |
|
|
|
10,102 |
|
|
|
10,500 |
|
|
|
10,126 |
|
|
|
10,897 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive income (loss) |
|
|
$ |
(3,323 |
) |
|
$ |
(2,555 |
) |
|
$ |
(11,023 |
) |
|
$ |
(5,046 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
KONA GRILL, INC.NON-GAAP
RECONCILIATIONS(in thousands)(Unaudited)
We prepare our financial statements in accordance with U.S.
GAAP. Within our press release, we make reference to non-GAAP
EBITDA and Restaurant Operating Profit. Restaurant Operating Profit
is defined as 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, asset impairment charge or
preopening expenses. We believe Restaurant Operating Profit is an
important component of financial results because: (i) it is a
widely used metric within the restaurant industry to evaluate
restaurant-level productivity, efficiency, and performance; and
(ii) we use Restaurant Operating Profit as a key metric to evaluate
our restaurant financial performance compared to that of our
competitors.
EBITDA and Adjusted EBITDA. EBITDA is defined as net income
(loss) plus the sum of interest, taxes, depreciation and
amortization. Adjusted EBITDA is defined as EBITDA plus unusual or
non-recurring items, such as impairment, lease termination and exit
costs and write-off of deferred financing costs. EBITDA and
Adjusted EBITDA are presented because: (i) we believe it is a
useful measure for investors to assess the operating performance of
our business; (ii) we believe that investors will find these
measures useful in assessing our ability to service or incur
indebtedness; and (iii) we use EBITDA and Adjusted EBITDA
internally as a benchmark to evaluate our operating performance and
compare our performance to that of our competitors.
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
|
2017 |
|
|
|
2016 |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
| |
Net income (loss) |
$ |
(3,323) |
|
|
$ |
(2,555) |
|
|
|
$ |
(11,023) |
|
|
$ |
(5,046) |
|
|
| |
Income
tax expense |
|
21 |
|
|
|
6 |
|
|
|
|
71 |
|
|
|
56 |
|
|
| |
Interest
expense, net |
|
500 |
|
|
|
138 |
|
|
|
|
1,214 |
|
|
|
263 |
|
|
| |
Depreciation and amortization |
|
3,982 |
|
|
|
3,837 |
|
|
|
|
11,277 |
|
|
|
10,338 |
|
|
| |
EBITDA |
|
1,180 |
|
|
|
1,426 |
|
|
|
|
1,539 |
|
|
|
5,611 |
|
|
| |
Asset
impairment charge |
|
30 |
|
|
|
- |
|
|
|
|
30 |
|
|
|
- |
|
|
| |
Lease
termination and exit costs |
|
8 |
|
|
|
- |
|
|
|
|
1,392 |
|
|
|
- |
|
|
| |
Write-off
of deferred financing costs |
|
- |
|
|
|
- |
|
|
|
|
472 |
|
|
|
- |
|
|
| |
Adjusted EBITDA |
$ |
1,218 |
|
|
$ |
1,426 |
|
|
|
$ |
3,433 |
|
|
$ |
5,611 |
|
|
| |
General
and administrative |
|
3,297 |
|
|
|
3,127 |
|
|
|
|
10,013 |
|
|
|
9,980 |
|
|
| |
Preopening Expense |
|
13 |
|
|
|
1,430 |
|
|
|
|
810 |
|
|
|
3,443 |
|
|
| |
Restaurant operating
profit |
$ |
4,528 |
|
|
$ |
5,983 |
|
|
|
$ |
14,256 |
|
|
$ |
19,034 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
Restaurant operating
profit margin (A) |
|
10.2% |
|
|
|
13.8% |
|
|
|
|
10.4% |
|
|
|
15.1% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
(A)
Restaurant operating profit margin is calculated as restaurant
operating profit divided by restaurant sales |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
KONA GRILL, INC. |
| |
Selected Supplemental Operating
Information |
| |
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
| |
|
September 30, |
|
|
September 30, |
|
|
| |
|
2017 |
|
|
2016 |
|
|
|
2017 |
|
|
2016 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Same-store sales percentage change |
-7.2% |
|
|
0.7% |
|
|
|
-5.6% |
|
|
2.2% |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Restaurants opened
during the period |
- |
|
|
2 |
|
|
|
1 |
|
|
5 |
|
|
|
| |
Restaurants at the end
of the period |
46 |
|
|
42 |
|
|
|
46 |
|
|
42 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Restaurant operating
weeks |
|
|
|
|
|
|
|
|
|
|
| |
Comparable restaurant base |
486 |
|
|
394 |
|
|
|
1,443 |
|
|
1,165 |
|
|
|
| |
Non-comparable restaurant base |
118 |
|
|
142 |
|
|
|
328 |
|
|
338 |
|
|
|
| |
Total restaurant
operating weeks |
604 |
|
|
536 |
|
|
|
1,771 |
|
|
1,503 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Non-comparable
restaurant base as a percentage of total restaurant operating
weeks |
19.5% |
|
|
26.4% |
|
|
|
18.5% |
|
|
22.5% |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Kona Grill Investor Relations Contact:Kona
Grill, Inc.Christi Hing, Chief Financial Officer(480)
922-8100investorrelations@konagrill.com