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Kona Grill Reports Profits in Q4

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Kona Grill Inc. recently reported fourth quarter 2011 adjusted earnings of 12 cents per share, which beat the Zacks Consensus Estimate by 11 cents and improved substantially from the year-ago loss of 5 cents. On a GAAP basis, net income was 8 cents a share versus a loss of 5 cents in the comparable quarter last year. Notably, Kona Grill recorded a profit for the first time since 2004.

In full-fiscal 2011, adjusted earnings per share were 28 cents versus a loss of 12 cents a share in the prior year. Reported earnings per share were 21 cents, which improved from a loss of 17 cents a share recorded in 2010.

Total restaurant sales in the quarter were $23.1 million, up 9.2% year over year. The upside in sales can be traced back to a solid 7.8% increase in same-store sales, buoyed by higher average guest check despite approximately 1.5% pricing action taken in June and a 3.0% growth in guest traffic. Food-based promotion as well as strong holiday sales also strengthened the comparison.

Quarterly same-store sales growth was quite stable as opposed to a 6.4% growth in the fourth quarter of 2010 and a 10.6% increase in the previous quarter. This also represents the fifth consecutive quarter of positive same-store sales.

Restaurant operating profit margin increased 570 basis points (bps) to 19.1% in the reported quarter attributable to cost containment efforts. The company’s expenditures were palpably less, with cost of sales, labor expenses, occupancy costs and restaurant operating expenses falling 140 bps to 26.9%, 180 bps to 32.6%, 140 bps to 6.3% and 110 bps to 15.1%, respectively, based on total revenue. Lower year-over-year pricing for beef, chicken, and certain seafood products helped contain expenses. 

Store Update

Kona Grill currently owns and operates 23 restaurants in 16 states.

Financial Position

Kona Grill ended the quarter with current assets of $7.7 million and long-term obligations of $13.6 million.


For the first quarter of 2012, the company expects total restaurant sales to remain in the $22.5–$23.2 million range. The guidance reflects approximately 4% same-store sales increase. Net income per share is expected to range between one penny and 2 cents a share.

Our Take

We remain impressed with the company’s profit momentum and continuous market share gain in a highly competitive bar and grill segment. The company is also in an expansion mode with two openings anticipated for 2012 and more for 2013. The company is also assessing opportunities untapped in new and existing markets.

The company also embarked upon several strategies like offloading unprofitable locations, restaurant remodeling and promotions in an attempt to create awareness and accelerate traffic.

Although the food cost environment has heated up, management remains optimistic on seafood purchasing. However, a modest year-over-year increase in beef costs is expected in 2012. 

Kona Grill, which competes with the likes of Jamba Inc. and Benihana Inc. , currently, retains a Zacks #2 Rank, which translates into a short-term Buy rating. We maintain our long-term Neutral recommendation on the stock.

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