Kona Grill, Inc. ( KONA) Q2 2011 Earnings Call July 27, 2011 5:00 PM ET Executives Mark Robinow - EVP, CFO and Secretary Mike Nahkunst - Interim President and CEO Analysts Ross Licero - Craig-Hallum Conrad Lyon - B. Riley & Co Lee Giordano - Imperial Capital Presentation Operator
I would like to take a few moments to introduce Mike Nahkunst, our Interim President and Chief Executive Officer. Many of you know Mike from his days at Chilies during their early growth period, as well as his executive level operating roles at BJ’s, Cheesecake Factory and Max & Erma. Mike joined our board in November 2010 and was asked by our board to take on the CEO role when Mark Buehler resigned last month. We are happy to have Mike is with us and appreciated his knowledge and experience in guiding us as we re-initiate growth and profitability.With that, I’ll turn it over the call to Mike, welcome Mike. Mike Nahkunst Thank you, Mark and thank all of you for joining us today. I’ll start with some general comments about our second quarter results and then Mark will discuss our financial details for the quarter as well as provide some guidance for Q3. I will then ramp up the call with an update of some of the current initiatives and then provide some final thoughts before turning the call over for Q&A. Now with that, let’s begin. We continued our strong sales momentum delivering solid top line results driven by a 9.1% increase in same-store sales. The strong increase in same-store sales follows the 7.6% increase in Q1 and a 6.4% increase in Q4 of last year and represent the seventh consecutive quarter of sequential improvement in our same-store sales. We continue to experience favorable sales momentum, that is driven by our many improvement, our restaurant remodels, and marketing initiatives aimed at building awareness and guest frequency. The recent quarter was the sixth consecutive quarter that we experienced positive traffic trends, which we believed demonstrates the strength and the popularity of the brand in multiple markets. During the second quarter, we were able to leverage higher average weekly sales to drive stronger earnings for the quarter. We continue to believe, we will be profitable for 2011.
I would now like to turn the call over to our CFO, Mark Robinow, who will take us to the financial details for Q2. Mark?Mark Robinow Thanks, Mike. For the second quarter ended June 30, restaurant sales increased 13.6% to 25.8 million reflecting additional revenue from the Baltimore locations over the last fall. Higher sale for two restaurants not in the comp base and a 9.1% increase in comparable restaurant sales. The increase in same store sale is attributed to strong guest traffic and higher average guest check aided by our new food and beverage items rolled out in May for a Slim Chance promotion. The sales increase includes about 2.2% in pricing as we took about 150 basis points in June to offset higher commodity cost. As Mike mentioned our comps have improved sequentially in each of the last seven quarters. We believe that we can continue strong sales momentum throughout the remainder of 2011, however the continued sequential improvement becomes more difficult as we roll over last year strong fourth quarter. Cost of sales as a percentage of restaurant sales increased 90 basis points to 27.4% during the second quarter from 26.5% last year. We continue to see higher year-on-year cost for Salmon and Sea bass, while certain produce and dry good items also were higher compared to last year. We improved cost of sales 80 basis points from the first quarter this year as we continued to work diligently with our vendors to ensure the best pricing is available and reasonable delivery charges are set. Labor expenses as a percentage of restaurant sales decreased 110 basis points to 33.2% during the second quarter from 34.3% last year. The lower labor cost percentage is attributable to the leveraging of fixed management wages and hourly labor from a 9.1% increase in comp sales. Restaurant operating expenses as a percentage of restaurant sales decreased 10 basis point to 15.0% during the second quarter from 15.1% last year. The lower operating expenses percentage was primarily due to the leveraging of the fix portion of these operating costs through higher sale volumes. Read the rest of this transcript for free on seekingalpha.com