Kona Grill Reports Second Quarter 2018 Results
August 09 2018 - 4:05PM
- Margin Improvements from Cost-Savings
Initiatives Drives Adjusted EBITDA Growth of 90%- Implements
Points-Based Loyalty Program to Drive Guest Frequency
Kona Grill, Inc. (NASDAQ: KONA), an American grill and sushi bar,
reported financial results for the second quarter ended June 30,
2018.
Second Quarter 2018 Key Items Compared to Second Quarter
2017
- Restaurant operating profit*, a non-GAAP measure, improved to
$6.1 million or 14.3% as a percentage of revenue compared to $5.1
million or 10.9% as a percentage of revenue.
- Net loss of $1.0 million, or ($0.08) per share compared to net
loss of $4.3 million, or ($0.43) per share in 2017.
- Adjusted EBITDA improved $1.4 million to $3.0 million compared
to $1.6 million in 2017.
- Revenues decreased 9.9% to $42.3 million.
- Same-store sales decreased 12.1% compared to a 5.3% decrease
from the prior year.
* For a reconciliation of restaurant operating
profit, EBITDA and Adjusted EBITDA 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.
“Profitability significantly improved compared
to the prior year quarter as cost-savings initiatives implemented
earlier this year are taking hold. Four-wall margins improved 340
basis points to 14.3% as a percentage of revenue, our highest level
in two years. For the first half of 2018, our adjusted EBITDA more
than doubled compared to the same period last year. The higher
profitability is a result of our continued focus on driving
earnings as this is the key factor to meeting our bank covenants
and the ultimate success of Kona Grill. In order to achieve higher
profits, we strategically made adjustments to reduce the amount of
promotionality within our restaurants,” said Jim Kuhn, President
and CEO of Kona Grill.
“Given the changes we have made to both our
happy hour and closing hours, we expect to see improved
profitability on a lower overall sales base on a year-over-year
basis. As we lap these changes in 2019, we expect to build
same-store sales and further improve the profitability of the
brand,” he continued.
“With cost-savings measures in place and
sustainable, the focus for the remainder of 2018 is on execution
and driving guests into our restaurants. We recently revamped our
menu with a new design and layout, including the addition of 30 new
menu items, and have recently implemented our new Konavore
points-based loyalty program to drive guest frequency. These
initiatives are framed around our mission to make every experience
exceptional for our guests,” he concluded.
“We are also continuing to evaluate our
underperforming restaurants and engage in discussions with our
landlords regarding rent abatement, closing certain locations or
strategic alternatives. As a result, we recently closed one of our
underperforming restaurants. Our success in addressing these
opportunities and issues will put us in a better long-term
financial position,” said Berke Bakay, Executive Chairman of
Kona Grill.
“We continue to engage in discussions with
potential partners for franchising the Kona Grill brand, both
domestically and internationally. We believe that a dual-strategy
of both company-owned and franchised restaurants provides us with
the best opportunity to grow the brand in the U.S. and we are
working to solidify some deals in the second half of the year,” he
concluded.
Conference Call
Kona Grill will hold a conference call today at
5:00 p.m. Eastern time to discuss its financial results for the
second quarter ended June 30, 2018. The Company’s President and CEO
Jim Kuhn and CFO Christi Hing will host the call, followed by a
question and answer session.
The conference call will be broadcast over the
internet via the investors section of the Company’s website at
www.konagrill.com. Additionally, investors may dial 1-323-794-2423
to participate in the call.
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 45 restaurants, guided by
a passion for quality food and exceptional service. Restaurants are
located in 22 states and Puerto Rico. Additionally, Kona Grill has
two restaurants that operate under a franchise agreement in Dubai,
United Arab Emirates, and Vaughan, Canada. 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 2018, expectations of new store openings as well
as international franchise development in 2018 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.
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KONA GRILL INC. |
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CONDENSED CONSOLIDATED BALANCE
SHEETS |
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(In thousands) |
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June 30, |
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December 31, |
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2018 |
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2017 |
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Assets |
(unaudited) |
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Cash and
cash equivalents |
$ |
5,335 |
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$ |
5,042 |
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Other
current assets |
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3,241 |
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4,002 |
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Other assets |
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1,144 |
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1,116 |
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Property and equipment,
net |
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75,305 |
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81,639 |
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Total
assets |
$ |
85,025 |
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$ |
91,799 |
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Liabilities and Stockholders' Equity |
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Current
liabilities |
$ |
12,901 |
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$ |
16,603 |
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Long-term debt,
net |
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32,604 |
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36,921 |
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Deferred
rent and other long-term liabilities |
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31,670 |
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32,612 |
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Stockholders'
equity |
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7,850 |
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5,663 |
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Total
liabilities and stockholders' equity |
$ |
85,025 |
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$ |
91,799 |
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KONA GRILL, INC. |
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CONSOLIDATED STATEMENTS OF
OPERATIONS |
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(In thousands, except per share amounts) |
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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(Unaudited) |
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(Unaudited) |
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Revenue |
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$ |
42,346 |
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$ |
46,977 |
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$ |
84,363 |
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$ |
92,202 |
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Costs
and expenses: |
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Cost of
sales |
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10,722 |
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12,996 |
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21,530 |
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25,549 |
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Labor |
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14,986 |
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17,104 |
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30,385 |
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33,829 |
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Occupancy |
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4,200 |
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4,201 |
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8,428 |
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8,281 |
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Restaurant operating expenses |
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6,363 |
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7,532 |
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12,960 |
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14,815 |
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General
and administrative |
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3,154 |
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3,084 |
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6,624 |
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6,716 |
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Preopening expense |
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- |
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461 |
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- |
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797 |
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Depreciation and amortization |
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3,359 |
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3,637 |
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6,721 |
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7,295 |
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Lease
termination costs and other |
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(75 |
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1,384 |
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(75 |
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1,384 |
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Total
costs and expenses |
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42,709 |
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50,399 |
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86,573 |
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98,666 |
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Loss from
operations |
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(363 |
) |
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(3,422 |
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(2,210 |
) |
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(6,464 |
) |
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Write-off of deferred financing costs |
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- |
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472 |
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37 |
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472 |
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Interest
expense, net |
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624 |
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|
408 |
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1,228 |
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|
714 |
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Loss
before income taxes |
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(987 |
) |
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(4,302 |
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(3,475 |
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(7,650 |
) |
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Income tax (expense)
benefit |
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(13 |
) |
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(25 |
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15 |
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(50 |
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Net
loss |
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$ |
(1,000 |
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$ |
(4,327 |
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$ |
(3,460 |
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$ |
(7,700 |
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Net loss per
share: |
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Basic and
diluted |
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$ |
(0.08 |
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$ |
(0.43 |
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$ |
(0.31 |
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$ |
(0.76 |
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Weighted
average shares outstanding: |
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Basic and
diluted |
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12,117 |
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10,099 |
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11,113 |
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10,138 |
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| KONA GRILL, INC. |
| NON-GAAP RECONCILIATIONS |
| (In thousands) |
| (Unaudited) |
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| We prepare our financial statements in accordance with U.S.
GAAP. Within our press release, we make reference to non-GAAP
EBITDA, Adjusted EBITDA and Restaurant Operating Profit. Restaurant
Operating Profit is defined as revenue 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. EBITDA and
Adjusted EBITDA are not measurements of our financial performance
under GAAP and should not be considered as alternatives to net
income, operating income, or any other performance measures derived
in accordance with GAAP, or as alternatives to cash flow from
operating activities as a measure of our liquidity. |
| |
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Three Months Ended |
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Six Months Ended |
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| |
June 30, |
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June 30, |
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|
2018 |
|
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|
2017 |
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2018 |
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2017 |
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| Net loss |
$ |
(1,000 |
) |
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$ |
(4,327 |
) |
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$ |
(3,460 |
) |
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$ |
(7,700 |
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| Income
tax expense (benefit) |
|
13 |
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25 |
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(15 |
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50 |
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| Interest
expense, net |
|
624 |
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|
408 |
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|
1,228 |
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|
714 |
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Depreciation and amortization |
|
3,359 |
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|
3,637 |
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|
6,721 |
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|
7,295 |
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| EBITDA |
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2,996 |
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(257 |
) |
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|
4,474 |
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|
359 |
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| Lease
termination and exit costs |
|
48 |
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|
1,384 |
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|
48 |
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|
1,384 |
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| Write-off
of deferred financing costs |
|
- |
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|
|
472 |
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37 |
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|
472 |
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| Adjusted EBITDA |
$ |
3,044 |
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$ |
1,599 |
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$ |
4,559 |
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$ |
2,215 |
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| General
and administrative |
|
3,154 |
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|
3,084 |
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|
6,624 |
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|
6,716 |
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|
Preopening Expense |
|
- |
|
|
|
461 |
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|
- |
|
|
|
797 |
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| Gain on
insurance recoveries |
|
(123 |
) |
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|
- |
|
|
|
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(123 |
) |
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|
- |
|
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| Restaurant operating
profit |
$ |
6,075 |
|
|
$ |
5,144 |
|
|
|
$ |
11,060 |
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|
$ |
9,728 |
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| Restaurant operating
profit margin (A) |
|
14.3 |
% |
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10.9 |
% |
|
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|
13.1 |
% |
|
|
10.6 |
% |
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|
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| (A)
Restaurant operating profit margin is calculated as restaurant
operating profit divided by restaurant sales |
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Kona Grill Investor Relations
Contact:Kona Grill, Inc.Christi Hing, Chief Financial
Officer(480) 922-8100investorrelations@konagrill.com