Market Overview

Kona Grill Reports Fourth Quarter 2016 Results

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SCOTTSDALE, Ariz., Feb. 27, 2017 (GLOBE NEWSWIRE) -- Kona Grill, Inc. (NASDAQ:KONA), an American grill and sushi bar, reported financial results for the fourth quarter and year ended December 31, 2016.  The Company also initiated 2017 annual guidance.

Fourth Quarter 2016 Key Items vs. Year-Ago Quarter

  • Restaurant sales increased 14.5% to $43.6 million.
  • Same-store sales decreased 4.1% compared to a 3.2% gain from the prior year.
  • Opened restaurants in Huntsville, Alabama; Winter Park, Florida and San Antonio, Texas.
  • Net loss of $16.6 million, or ($1.58) per share, including $12.5 million, or $1.19 per share, in non-cash asset impairment charges for five restaurants that will remain open, compared to net loss of $2.0 million, or ($0.18) per share, in 2015.
  • Restaurant operating profit*, a non-GAAP measure, decreased 16.8% to $4.7 million compared to $5.6 million in 2015.

* For a reconciliation of restaurant operating profit to the most directly comparable financial measures presented in accordance with GAAP and a discussion of why the Company considers them useful, see the financial information accompanying this release.

"As previously announced, we faced a challenging environment during the fourth quarter which led to our first same-store sales decline in the last 14 quarters and only our second quarterly decline in the last six years.  Despite this setback, we were still able to mark our sixth consecutive year of positive same-store sales with a 0.5% increase, which speaks to the long-term viability of our brand," said Berke Bakay, President and CEO of Kona Grill.

"Over the past three years, we have nearly doubled our footprint from 23 to 45 restaurants and have learned so much about our brand.  We will continue to refine our site selection strategy and review our restaurant opening process, from marketing to staffing to sales forecasting.  Through this expansion, however, we have also come to appreciate which types of markets and real estate work best for us and which do not.  The asset impairment charges that we have recorded during the fourth quarter reflect some of our less successful real estate decisions.  We have no current plans to close any of these five restaurants and will continue to work diligently to improve their operating performance," he continued.

"For 2017, we have targeted only three restaurant openings compared to eight in 2016, which will enable us to digest our recent high growth and increase our operational focus on ramping up margins across the entire system.  By scaling back development, we will significantly reduce our preopening and depreciation expense to drive improvement in the bottom line while our lower capital expenditures will increase our financial flexibility," he concluded.

Fourth Quarter 2016 Financial Results
Restaurant sales increased 14.5% to $43.6 million in the fourth quarter of 2016 compared to $38.1 million in the fourth quarter of 2015.  The increase was primarily driven by operating week growth from eight restaurants opened since April 2016.  

Same-store sales decreased 4.1% in the fourth quarter of 2016 as compared to a 3.2% increase in the fourth quarter of last year.  The decrease in same-store sales this year reflects a 3.5% decline in guest traffic and unfavorable menu mix, partially offset by higher menu prices.

The Company recorded a non-cash asset impairment charge of $12.5 million or $1.19 per share for five restaurants.  The asset impairment charge was based upon an assessment of historical performance and projected cash flows from these five restaurants compared to their net book value.

Net loss in the fourth quarter of 2016 was $16.6 million, or ($1.58) per share (including the $1.19 per share impairment charge), compared to net loss of $2.0 million, or ($0.18) per share, in the year-ago quarter.

Restaurant operating profit*, a non-GAAP measure, decreased 16.8% in the fourth quarter of 2016 to $4.7 million compared to $5.6 million in the same quarter of 2015.  Restaurant operating profit for the comparable restaurant base remained strong but was more than offset by inefficiencies from twelve restaurants opened since October 2015 and underperformance by the five restaurants for which the Company recorded impairment charges during the fourth quarter.  As a percentage of sales, restaurant operating profit was 10.7% compared to 14.7% in the fourth quarter of last year.

Full Year 2016 Financial Results
Restaurant sales for 2016 increased 18.5% to $169.5 million compared to $143.0 million in 2015. The increase was driven by operating week growth of 23.7% driven by twelve restaurants opened since October 2015.  Same-store sales increased 0.5% marking the Company's sixth consecutive year of positive growth.

Restaurant operating profit*, a non-GAAP measure, increased 2.1% in 2016 to $23.7 million compared to $23.2 million in 2015.  As a percentage of sales, restaurant operating profit was 14.0% compared to 16.2% in the prior year.  The decrease in restaurant operating margins was primarily due to new unit inefficiencies and underperformance at certain locations.

EBITDA*, a non-GAAP measure, increased 3.3% in 2016 to $5.9 million compared to $5.7 million in 2015.  Net loss for 2016 was $21.6 million or ($2.00) per share compared to net loss for 2015 of $4.5 million, or ($0.40) per share.  The increased net loss was primarily driven by $12.5 million in non-cash asset impairment charges and operating inefficiencies associated with new restaurant openings.

Financial Guidance
For 2017, the Company forecasts restaurant sales of $200 million compared to $169.5 million in 2016, representing 18.0% year-over-year growth.  The forecasted increase in restaurant sales is primarily driven by operating week growth and assumes flat same-store sales on an annual basis.

The Company forecasts EBITDA* of $11.5 million, representing 95% year-over-year growth. 

The Company has not reconciled EBITDA guidance to the corresponding GAAP financial measure because it does not provide guidance for the various reconciling items.  The Company is unable to provide guidance for these reconciling items since certain items that impact net income are outside of its control and cannot be reasonably predicted.  Accordingly, reconciliations to the corresponding GAAP financial measures are not available without unreasonable effort.

The Company forecasts capital expenditures, net of tenant allowances to range from $16 million to $18 million, primarily related to new restaurant development and remodeling initiatives.

Stock Repurchase Program
The Company completed its October 2016 $5 million stock repurchase program in February 2017.  Under this authorization, the Company repurchased and retired 532,576 shares at an average cost of $9.37 per share.  The Company currently has 10,081,444 shares outstanding.

Development Update
The Company plans to open three restaurants in 2017 but currently only has two lease commitments for 2017.  This flexibility enables the Company to alter its growth plans based upon market conditions. 

The Company's international franchise partners in the United Arab Emirates and Mexico continue to make progress on the development of Kona Grill restaurants outside of the United States.  Each of the Company's franchisees is expected to open a Kona Grill restaurant in their respective country during 2017.  The Company also has signed a non-binding letter of intent for the development of a Kona Grill restaurant in Toronto, Canada.

Conference Call
Kona Grill will hold a conference call today at 4:30 p.m. Eastern time to discuss its financial results for the fourth quarter ended December 31, 2016.  The Company's President and CEO Berke Bakay and CFO Christi Hing will host the call, followed by a question and answer session.

To access the conference call investors may dial-in using the toll free number of 1-877-857-6149. The conference call will be followed by a question and answer session.  The conference call will be broadcast simultaneously over the internet and will be accessible via the investors section of the Company's website at www.konagrill.com

A replay of the conference call will be available after 7:30 p.m. Eastern time on the same day through March 27, 2017 by calling the toll-free number of 1-844-512-2921.  To access the replay please use the ID number 3175824.  The replay will also be available via the investors section of the Company's website.

About Kona Grill
Kona Grill features a global menu of contemporary American favorites, award-winning sushi, and specialty cocktails in an upscale casual atmosphere. Kona Grill owns and operates 45 restaurants, guided by a passion for quality food and exceptional service. Restaurants are located in 23 states and Puerto Rico: Alabama (Huntsville); Arizona (Chandler, Gilbert, Phoenix, Scottsdale); California (Irvine); Colorado (Denver); Connecticut (Stamford); Florida (Miami, Tampa, Sarasota, Winter Park); Georgia (Alpharetta); Hawaii (Honolulu); Illinois (Lincolnshire, Oak Brook); Indiana (Carmel); Idaho (Boise); Louisiana (Baton Rouge); Maryland (Baltimore); Michigan (Troy); Minnesota (Eden Prairie, Minnetonka); Missouri (Kansas City); Nebraska (Omaha); New Jersey (Woodbridge); Nevada (Las Vegas(2)); Ohio (Cincinnati, Columbus); Puerto Rico (San Juan); Tennessee (Franklin); Texas (Austin, Dallas, El Paso, Friendswood, Fort Worth, Houston, Plano, San Antonio(2), The Woodlands); Virginia (Arlington, Fairfax, Richmond). For more information, visit www.konagrill.com.

Forward-Looking Statements
Various remarks we make about future expectations, plans, and prospects for the Company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, or performance and underlying assumptions and other statements that are not purely historical. These statements relate to our future financial performance and development plans, including but not limited to those relating to our sales trends, projected earnings, expenses, and capital expenditures for 2017, expectations of new store openings as well as international franchise development in 2017 and beyond and availability of capital. We have attempted to identify these statements by using forward-looking terminology such as "may," "will," "anticipates," "expects," "believes," "intends," "should," or comparable terms. All forward-looking statements included in this press release are based on information available to us on the date of this release and we assume no obligation to update these forward-looking statements for any reason. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements and the discussion of risk factors contained in the company's filings with the Securities and Exchange Commission. 

           
  KONA GRILL INC.  
  CONDENSED CONSOLIDATED BALANCE SHEETS  
   (In thousands)  
           
    December 31,   December 31,  
    2016   2015  
  Assets (unaudited)      
  Cash and cash equivalents $   3,476   $   9,055  
  Other current assets     5,256       4,391  
  Other assets     1,383       1,146  
  Property, plant and equipment, net      98,268       87,252  
  Total assets $   108,383   $   101,844  
  Liabilities and Stockholders' Equity        
  Current liabilities $   19,277   $   18,830  
  Long term debt     25,921       -   
  Long-term obligations     31,610       20,323  
  Stockholders' equity     31,575       62,691  
  Total liabilities and stockholders' equity $   108,383   $   101,844  

 

KONA GRILL, INC.  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  
 (In thousands, except per share amounts)  
   
                     
      Three Months Ended   Year Ended  
      December 31,   December 31,  
      2016   2015   2016   2015  
      (Unaudited)          
                     
Restaurant sales     $   43,592     $   38,066     $   169,523     $   143,023    
Costs and expenses:                    
Cost of sales          11,998         10,252         45,314         38,803    
Labor          16,425         13,716      
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