Benihana Lags Estimates, Comps Grow

Benihana Inc. (BNHN - Snapshot Report), the leading operator of Japanese restaurants in the U.S, reported earnings of 6 cents per share in the third quarter of 2012, missing both the Zacks Consensus Estimate of 9 cents and the year-ago quarter earnings of 12 cents per share.

Total revenue rose 5.6% year over year to $77.0 million during the quarter on the back of higher restaurant sales, which grew for the eighth consecutive quarter.

Quarter Performance 

Comparable restaurant sales during the quarter climbed 7.0%, riding on improved same-store sales at all three restaurant concepts, particularly at Benihana Teppanyaki, which accounts for around 69% of total restaurant sales followed by RA Sushi and Haru, representing 21% and 9%, respectively.

Same-store sales increased 8.2% at Benihana Teppanyaki restaurants attributable to higher guest count (up 6.4%) arising from the Benihana Teppanyaki Renewal Program and leaped 4.8% at RA Sushi restaurants and 3.7% at Haru.

The Miami-based Japanese restaurant company derives 99.6% of its revenues from restaurant sales and 0.4% from franchisee fees and royalty. Restaurant sales increased 5.8% to $76.8 million in the reported quarter, while franchisee fees and royalty sales fell 18.9% year over year to $0.3 million. 

Cost of food and beverage sales spiked 50 basis points (bps) year over year to 24.6% owing to food cost inflation, partially offset by menu price increases. General and administrative expenses inched up from 10.0% in the year-ago quarter to 10.1%. However, restaurant operating expenses contracted 80 bps to 63.3%, due to lower depreciation and marketing expense as well as fixed cost leverage on higher sales volumes, partially offset by a spike in labor cost.

Operating income during the quarter surged to $1.6 million from $1.3 million in the year-ago quarter. Operating margin expanded 30 bps to 2.1%.   

Financial Position

As of January 1, 2012, Benihana had cash and cash equivalents of $16.2 million compared with $4.0 million as of March 27, 2011. At the end of the reported quarter, total current assets were $29.4 million and stockholders' equity was $172.5 million.

Our Take

We remain encouraged by the company’s success in driving traffic at Benihana Teppanyaki restaurants and debt-free balance sheet. Moreover, to improve performance Benihana continues to focus on enhancing guest experience, operating efficiency, promotions and marketing initiatives. The company’s initiation of dividend in January 2012, further affirms its solid fundamental.

However, increasing food costs, lower consumer spending 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 30 days, implying an absence of catalysts in the near term. The Zacks Consensus Estimates for 2012 and 2013 are pegged at 35 cents and 42 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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