Kona Grill's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Kona Grill, Inc. ( KONA)

Q4 2011 Earnings Call

February 9, 2012 5:00 p.m. ET

Executives

Berke Bakay - President and Chief Executive Officer

Jim Jundt - Chairman, Board of Directors

Larry Ryback - Chief Operating Officer

Christi Hing - Vice President of Finance and Controller

Analysts

Ross Licero - Craig Hallum

Mark Smith - Feltl and Company

Conrad Lyon - B. Riley & Co.

Matt Schwarz - Emerson Capital

David Khan - Raymond James

Presentation

Operator

Good afternoon, everyone, and thank you for joining us today to discuss Kona Grill’s results for the fourth quarter of 2011. Joining us today are Berke Bakay, Kona’s President and Chief Executive Officer, Jim Jundt, the Chairman of the Company’s Board of Directors, Larry Ryback, the Company’s Chief Operating Officer, and Christi Hing, the Company’s Vice President of Finance and Controller.

Following the remarks we will open the call up to your questions. (Operator instructions) Before we go further I would like to remind everyone that the financial guidance the Company provides for its first quarter 2012 results, statements regarding the Company’s future sales, future profit and expectations regarding the same-store sales are forward-looking.

The Company has attempted to identify these statements by using forward-looking terminology such may, will, anticipate, expect, believe, intends, should or comparable terms. All forward-looking statements during this call are based on information available to company as of today and the Company assumes no obligation to update these forward-looking statements for any reason.

These statements are subject to risk and uncertainties that could cause actual results to differ materially from those described in the statements. Investors are referred to the full discussion of risk 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.

I would now like to turn the call over to the Chief Executive Officer of Kona Grill, Berke Bakay. Please go ahead, sir.

Berke Bakay

Thanks. Good afternoon, everyone. As you saw at the close of the market today, we issued a press release announcing our fourth quarter full-year 2011 results. I will begin the call by sharing a few brief highlights of the quarter and will then turn the call over to our Controller, Christi Hing, who will take us through the financial highlights for the quarter and full year. Larry will then address operational initiatives and I will end the call with some closing remarks.

For the fourth quarter we continued our strong sales momentum and delivered solid top line and bottom line results driven by 7.8% increase in same-store sales. We are pleased with our same-store sales increase this quarter as (inaudible) at 6.4% increase in Q4 of last year. This increase in same-store sales posed a 10.6% increase in Q3 and 9.1% increase in Q2, a 7.6% increase in Q1. For 2011 same-store sales comps were 8.8%.

The fourth quarter was also the eighth consecutive quarter that we expressed positive traffic trends which we believe demonstrates the strength and momentum of the brand in multiple markets. During the fourth quarter we were also able to leverage our sales to drive another quarter of strong earnings which enabled us to achieve our goal of profitability for 2011.

Moving on to our CFO search, our audit committee is leading this process. While I do not have anything specific to report today, we’re committed to finding the best possible candidate to lead this position and I’m confident we will do so.

As noted on our press release, we are pleased to announce that we secured a $5.5 million credit facility that enhances our flexibility for funding new restaurant openings and remodels.

I would now like to turn the call over to our Controller, Christi. Christi?

Christi Hing

Thanks, Berke. For the fourth quarter ended December 31, restaurant sales increased 9.2% over the same year ago period to $23.1 million reflecting a 7.8% increase in comparable restaurant sales and incremental sales from our Baltimore restaurants, which opened last October. The increase in same-store sales reflects higher average guest checks driven by our food-based promotion, strong holiday sales and 3% growth in guest traffic. The sales increase includes about 1.5% in pricing that we took in June to offset higher commodity costs.

As Berke mentioned, our comps have been strong throughout 2011. In fact, this quarter represents our fifth consecutive quarter of comps greater than 6%. We believe that our same-store sales will continue to outperform peer group, however, the comp comparison becomes quite a bit more difficult as we roll over our strong 2011 comps.

Office sales as a percentage of restaurant sales decreased 140 basis points to 26.9% during the fourth quarter from 28.3% last year. The decrease reflects pricing leverage, various purchasing and culinary initiatives, as well as lower year-over-year pricing for beef, chicken and certain seafood products.

We are continuing to work diligently with our vendors to ensure the best pricing available and mitigate the impact of rising fuel costs. For 2011 we expect a modest increase in these costs year-over-year, but we’re optimistic that improvements in seafood purchasing and produce pricing resulting from a mild winter will help mitigate any material impact to food costs.

Labor expenses as a percentage of restaurant sales decreased 180 basis points to 32.6% during the fourth quarter to 34.4% last year. The lower labor cost percentage is attributable to the leveraging of fixed wages and benefit costs from the 7.8% increase in comp sales.

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