Lowered Expectations May Have Set Up Kona Grill For A Q3 Surprise

There does not appear to be big changes between the firm's and the Street analysts' estimates for the third quarter. Currently, expectations are for a loss of $0.15 a share on $45.0 million revenue for the third quarter.

The brokerage believes the company is doing well to restrict unit growth from 8 percent to 3–4 percent in 2017. This is expected to enhance the profitability of new stores as the firm pointed out that 33 percent of Kona Grill's total sales is below 18-months old.

Related Link: Why There Could Be Upside To Current Expectations

"Management previously cut sales guidance by $3 million and adj. EBITDA guidance by $300,000 to reflect continued construction-related weakness at 3 units. Excluding these units, non-comp AWS, the key metric we follow, was $83,600 in Q2. We view non-comp AWS around or ahead of 90 percent of comp base AWS as an indication that once-inefficiencies end, UL margins at or above system averages are achievable," the said viewed in a research note.

Aside from this, Wedbush expects additional enhancement in SSS growth in the immediate term with potentials for incremental drivers. The firm expects another share buyback authorization before next year ends.

As a result, the firm reiterated its Outperform rating and target price of $18 on the stock implying more than 50 percent upside potentials from the current levels.

At last check, the stock fell $0.25, or 2.20 percent, to $11.11.

Full ratings data available on Benzinga Pro.