Lackluster 4Q for Kona Grill - Analyst Blog
February 27 2013 - 7:00AM
Zacks
Kona Grill Inc.’s (KONA) fourth-quarter 2012
earnings of 10 cents per share beat the Zacks Consensus Estimate by
11.1% and the year-ago earnings by 25%. Efficient cost containment
resulted in earnings increase despite a choppy sales scenario.
Total restaurant sales in the quarter were $23.0 million, down 0.9%
year over year. However, the results were in line with the Zacks
Consensus Estimate. The downside in sales can be traced back to
macro issues like higher television viewership of the national
political debates prior to the presidential election in November
and also the uncertainty regarding the election, which deterred
consumers from dining out.
Hurricane Sandy resulted in store closures for quite some time.
Adverse weather during the holidays also marred sales to some
extent. Same-store sales (comps) increased 10 basis points (bps),
excluding the impact of the Arizona store remodel, driven by higher
average guest check partially offset by a slight decline in guest
traffic.
Restaurant operating profit margins declined 200 basis points to
17.1% in the reported quarter due to higher proportion of
occupancy-related costs, labor expenses and cost of sales to
revenues. However, lower restaurant operating expense compensated
the decline in margins partially.
However, the company’s operating margins witnessed an increment of
60 bps to 3.7%, owing to a considerable decline in general and
administrative costs as a portion of revenues.
Full-Year Update
Kona Grill’s earnings per share were 59 cents, up 127% year over
year. Restaurant sales in 2012 increased 2.5% to $96.0 million on
the back of a 2.7% increase in comps achieved due to a 2.5%
increase in guest traffic.
Store Update
At quarter-end, Kona Grill owned and operated 23 restaurants in 16
states. The restaurateur expects to open 2 new units in 2013.
Guidance
For the first quarter of 2013, the company expects total restaurant
sales of $23.9 million, down 1.2% year over year. Management stated
the decline in sales will be due to one less operating day in the
upcoming quarter compared to 2012, which was a leap year.
The guidance indicates same-store sales growth to be flattish.
Comps will face tough year-over-year comparison due to weather
issues. Also, the shift of Easter into the first quarter this year
versus second quarter last year will adversely impact sales by
about 40 to 50 basis points. Earnings per share are expected to
range between 9-10 cents per share.
Our Take
Although Kona Grill has managed to beat earnings estimate and meet
the revenue estimate in the reported quarter, slowdown in sales
remains a concern. It has been facing sluggish sales environment
for quite some time. Nevertheless, its bottom line increased due to
the company’s efficient cost-control measures.
Although Kona Grill is resorting to several strategies like
offloading unprofitable locations, restaurant remodeling and
promotions in an attempt to accelerate traffic, any notable impact
is yet to be noticed. An anemic economy and stiff competition will
continue to pose challenges going ahead.
Kona Grill currently retains a Zacks Rank #4 (Sell). However,
others players in the same industry, which look attractive at
current levels include Red Robin Gourmet Burgers
Inc. (RRGB), carrying a Zacks Rank #1 (Strong Buy) and
AFC Enterprises Inc. (AFCE) and Burger
King Worldwide Inc. (BKW) carrying a Zacks Rank #2
(Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis Report
BURGER KING WWD (BKW): Free Stock Analysis Report
KONA GRILL INC (KONA): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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