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Kona Grill Reports Second Quarter 2012 Financial Results

Restaurant operating profit margin increased 100 basis points to 19.4%

Kona Grill, Inc. (NASDAQ: KONA), an American grill and sushi bar, reported results for its second quarter ended June 30, 2012.

Second Quarter 2012 Highlights vs. Year-Ago Quarter:

“The 2.3% same-store sales growth during the quarter represents our seventh consecutive quarter of positive same-store sales,” said Berke Bakay, president and CEO of Kona Grill. “We continue to drive top-line growth through innovative menu offerings and guest service initiatives. More importantly, our ability to leverage these sales resulted in four-wall margins that drove record earnings and positioned us at the top of our peer group. Our operating margin, excluding the estimated impact of the fire damage at our Troy restaurant, was 20.0% compared to 18.4% in the year-ago quarter.

“For the remainder of 2012, we expect to continue to drive guest-centric initiatives designed to strengthen the Kona Grill brand, such as the recent launch of our [Flare] menu. We will also remain steadfast in our rigorous site selection process and are currently reviewing opportunities in both new and existing markets. We plan to update our target for new restaurant openings when leases are executed.”

Second Quarter 2012 Financial Results
Restaurant sales in the second quarter of 2012 increased 2.0% to $25.0 million, compared to $24.5 million in the second quarter of 2011. The sales improvement reflects a 2.3% increase in same-store sales, driven by 2.5% growth in guest traffic. The 2.3% increase in same-store sales laps a 9.1% increase in the second quarter of 2011.

Total restaurant operating expenses increased marginally to $20.1 million in the second quarter of 2012, compared to $20.0 million in the second quarter of 2011. Restaurant operating profit increased 8% to $4.9 million, compared to $4.5 million in the same quarter last year. As a percentage of sales, restaurant operating profit increased 100 basis points to 19.4% from 18.4% in the second quarter of 2011.

Net income in the second quarter of 2012 was a record $1.8 million or $0.20 per share, compared to net income of $0.8 million or $0.08 per share in the year-ago quarter.

At June 30, 2012, cash and cash equivalents totaled $8.2 million, compared to $6.3 million at December 31, 2011. During the second quarter, Kona Grill repurchased 95,500 shares at an average cost of $7.93 per share under the company’s $5 million stock repurchase program, which was initiated in May 2012. Total debt was $0.4 million at June 30, 2012, compared to $0.1 million at December 31, 2011.

On July 24, 2012, Kona Grill amended its $5.0 million credit line with Stearns Bank National Association. The amendment allows the company to increase the credit line by $1.5 million to $6.5 million, under which the company can borrow up to $2.5 million for its stock repurchase program. The amendment also allows the company to reduce the interest floor by 130 basis points to 4.95% per year on borrowings for restaurant remodeling and new construction projects.

Financial Guidance
For the third quarter of 2012, Kona Grill expects restaurant sales of $24.1 million compared to $23.8 million for the third quarter of 2011. The company also expects net income of $1.1 million, or $0.12 per share, compared to net income of $0.6 million, or $0.06 per share, for the third quarter of 2011.

 

 
 
KONA GRILL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
         
    June 30,   December 31,
    2012   2011
    (Unaudited)    
             
ASSETS            
  Current assets   $ 9,612   $ 7,709
  Other assets     827     694
  Property and equipment, net     30,477     32,944
  Total assets   $ 40,916   $ 41,347
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
  Current liabilities   $ 8,922   $ 10,089
  Long-term obligations     13,034     13,574
  Stockholders’ equity     18,960     17,684
  Total liabilities and stockholders’ equity   $ 40,916   $ 41,347
               
               
   
   
KONA GRILL, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(in thousands, except per share data)  
                         
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  
    (Unaudited)     (Unaudited)  
                                 
Restaurant sales   $ 24,992     $ 24,512     $ 49,147     $ 46,754  
Costs and expenses:                                
  Cost of sales     6,814       6,696       13,309       12,932  
  Labor     8,211       8,026       16,159       15,550  
  Occupancy     1,548       1,732       3,081       3,383  
  Restaurant operating expenses     3,562       3,556       6,938       7,037  
  General and administrative     1,521       2,149       3,605       4,030  
  Preopening expense     -       -       -       -  
  Depreciation and amortization     1,455       1,470       2,918       2,946  
Total costs and expenses     23,111       23,629       46,010       45,878  
Income from operations     1,881       883       3,137       876  
Nonoperating income (expense):                                
  Interest income and other, net     -       1       -       2  
  Interest expense     (7 )     (9 )     (19 )     (21 )
Income from continuing operations before provision for income taxes     1,874       875       3,118       857  
Provision for income taxes     60       15       120       25  
Income from continuing operations     1,814       860       2,998       832  
Loss from discontinued operations, net of tax     (47 )     (78 )     (47 )     (141 )
Net income   $ 1,767     $ 782     $ 2,951     $ 691  
                                 
Net income per share – Basic                                
  Income from continuing operations   $ 0.21     $ 0.09     $ 0.34     $ 0.09  
  Loss from discontinued operations     (0.01 )     (0.01 )     (0.01 )     (0.02 )
  Net income   $ 0.20     $ 0.08     $ 0.33     $ 0.07  
                                 
Net income per share – Diluted                                
  Income from continuing operations   $ 0.21     $ 0.09     $ 0.34     $ 0.09  
  Loss from discontinued operations     (0.01 )     (0.01 )     (0.01 )     (0.02 )
  Net income   $ 0.20     $ 0.08     $ 0.33     $ 0.07  
                                 
Weighted average shares outstanding:                                
  Basic     8,815       9,214       8,809       9,208  
  Diluted     8,903       9,392       8,937       9,377  
                                 
Comprehensive income   $ 1,767     $ 782     $ 2,951     $ 691  
                                 
                     
Reconciliation of net income excluding special items (1)
(in thousands, except per share data)
                     
    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2012     2011   2012     2011
                             
Net income   $ 1,767     $ 782   $ 2,951     $ 691
Severance and related items in general and administrative expenses     (156 )     257     (156 )     257
Net income excluding special items   $ 1,611     $ 1,039   $ 2,795     $ 948
                             
Diluted net income per share   $ 0.20     $ 0.08   $ 0.33     $ 0.07
Severance and related items in general and administrative expenses     (0.02 )     0.03     (0.02 )     0.03
Diluted net income per share excluding special items   $ 0.18     $ 0.11   $ 0.31     $ 0.10
                             
(1) The Company believes excluding special items from its financial results is a useful measure to its investors as it provides a clearer perspective of the Company’s ongoing operating performance and a more relevant comparison to prior period results.
                             
                         
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, depreciation and amortization, or preopening expenses. 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
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  
                                 
Restaurant sales   $ 24,992     $ 24,512     $ 49,147     $ 46,754  
Costs and expenses:                                
  Cost of sales     6,814       6,696       13,309       12,932  
  Labor     8,211       8,026       16,159       15,550  
  Occupancy     1,548       1,732       3,081       3,383  
  Restaurant operating expenses     3,562       3,556       6,938       7,037  
Restaurant operating profit     4,857       4,502       9,660       7,852  
Deduct – other costs and expenses:                                
  General and administrative     1,521       2,149       3,605       4,030  
  Preopening expense     -       -       -       -  
  Depreciation and amortization     1,455       1,470       2,918       2,946  
Income from operations   $ 1,881     $ 883     $ 3,137     $ 876  
                                 
                                 
    Percentage of Restaurant Sales     Percentage of Restaurant Sales  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  
                                 
Restaurant sales     100.0 %     100.0 %     100.0 %     100.0 %
Costs and expenses:                                
  Cost of sales     27.3       27.3       27.1       27.7  
  Labor     32.9       32.7       32.9       33.3  
  Occupancy     6.2       7.1       6.3       7.2  
  Restaurant operating expenses     14.2       14.5       14.1       15.1  
Restaurant operating profit     19.4       18.4       19.6       16.8  
Deduct – other costs and expenses:                                
  General and administrative     6.1       8.8       7.3       8.6  
  Preopening expense     -       -       -       -  
  Depreciation and amortization     5.8       6.0       5.9       6.3  
Income from operations     7.5 %     3.6 %     6.4 %     1.9 %
                                 
Certain amounts do not sum to total due to rounding.                                
                                 
                                 

Posted by on July 31, 2012.

Categories: Financial

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