Higher Sales Drive Benihana

Benihana Inc. (BNHN - Snapshot Report), the leading operator of Japanese restaurants in the U.S, reported earnings of 5 cents per share in the second quarter of 2012, which improved considerably from both the Zacks Consensus Estimate of break-even earnings and the year-ago quarter loss of 21 cents. The better-than-expected results were driven by higher sales.

Total revenue jumped 5.6% year over year to $76.2 million during the quarter, benefiting from restaurant sales growth and marked the seventh consecutive quarter of comparable restaurant sales growth.

Quarter Performance 

Comparable restaurant sales during the quarter rose 6.4%, riding on improved same-store sales at all three restaurant concepts.  The same-store sales increased 7.7% at Benihana Teppanyaki restaurants attributable to higher guest count arising from the Benihana Teppanyaki Renewal Program and improved 5.3% at RA Sushi restaurants, attributable to higher traffic.

Moreover same-store sales inched up 0.6% at Haru restaurants notwithstanding the inclement weather conditions along with Hurricane Irene, which hurt the smooth running of the eight Haru outlets.

The Miami-based Japanese restaurant company derives 99.5% of its revenues from restaurant sales and 0.5% from franchisee fees and royalty. Restaurant sales increased 5.6% to $75.8 million in the reported quarter, while franchisee fees and royalty sales climbed 11.3% year over year to $0.4 million. 

Cost of food and beverage sales spiked 90 basis points (bps) year over year to 25.3% due to food cost inflation. General and administrative expenses fell from 14.6% in the year-ago quarter to 8.8%. However, restaurant operating expenses contracted 190 bps to 64.9%, due to improved cost and labor management.

Operating income during the quarter improved to $0.9 million from a loss of $4.0 million in the year-ago quarter. Restaurant segment operating income expanded 32% to $6.2 million.   

Financial Position

As of October 9, 2011, Benihana had cash and cash equivalents of $6.3 million compared with $4.0 million as of March 27, 2011. At the end of the reported quarter, total current assets were $19.1 million and stockholders' equity was $171.0 million.

Our Take

Benihana has been successful in driving traffic at Benihana Teppanyaki restaurants and continues to focus on enhanced guest experience, operating efficiency, promotions and marketing initiatives at RA Sushi and Haru, respectively. Benihana has also started the third quarter of 2011 on a positive note with comps rising 7.4% for the first four-week period.

The company is also looking for expansion opportunities by opening new Benihana and RA Sushi restaurants going forward. However, increasing food costs and stiff competition from peers like Domino's Pizza Inc. (DPZ - Snapshot Report) and Red Robin Gourmet Burgers Inc. (RRGB - Analyst Report) will drag profits.

The Zacks Consensus Estimates have not budged in the last 60 days, implying an absence of catalysts in the near term. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 32 cents and 47 cents per share, respectively. 

Benihana currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock.

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