Kona Grill's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Kona Grill Inc,. (KONA)

Q1 2012 Earnings Call

April 30, 2012 05:00 pm ET

Executives

Berke Bakay – President, Chief Executive Officer & Director

Christi Hing – Secretary, Chief Financial & Accounting Officer

Analysts

Mike Malouf – Craig-Hallum Capital Group

Conrad Lyon – B. Riley & Co.

Shawn Patrick Bitzan – Feltl & Company

David Khan – Raymond James

Lee J. Giordano – Imperial Capital, LLC

Presentation

Operator

Good afternoon. Thank you for joining us to discuss Kona Grill’s results for the First Quarter of 2012. Joining us today are Berke Bakay, Kona’s President and Chief Executive Officer; and Christi Hing, the company’s Chief Financial Officer.

Following their remarks we will open up the call for questions. (Operator Instructions) Before I begin, I would like to remind everyone that the financial guidance the company provides for its second quarter 2012 results, statements regarding the company’s future sales, profits, and expectations regarding same-store sales are forward-looking.

All forward-looking statements made during this call are based on information available to the company as of today and the company assumes no obligation to update these statements to reflect events or circumstances after the date of this call.

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 discussion of risks and uncertainties contained in the company’s filings with the Securities and Exchange Commission.

I would now like to turn the call over to Kona Grill’s President and CEO, Mr. Berke Bakay. Please go ahead, sir.

Berke Bakay

Thanks, Vince. Good afternoon, and thank you all for joining us. The momentum we gained last year rolled into the first quarter of 2012. Our 8.7% same-store sales growth during the quarter represents Kona Grill’s sixth consecutive quarter of positive same-store sales. We were able to leverage this strong sales growth to drive 19.9% unit level margins, which we believe are some of the best in polished casual segment of the restaurant industry.

For today’s call, Christi will walk us through the financials for the first quarter and provide guidance for the second quarter of 2012. Afterwards, I will discuss some of the initiatives we’re working on for the future development of Kona Grill and then wrap up the call with Q&A.

Before passing the call over, I would like to welcome Christi to our first call as CFO of Kona Grill. Christi has been with Kona Grill for over six years now, where she most recently served as a Vice President and Controller. For increasing levels of financial responsibility and leadership skills make her the perfect fit for this position and we are excited to have her on the executive management team.

With that, I would like to turn the call over Christi. Christi?

Christi Hing

Thanks, Berke. For the first quarter ended March 31, 2012, restaurant sales increased 8.6% over the same year-ago period, $24.2 million, reflecting an 8.7% increase comparable restaurant sales. Q1 comps were favorably impacted by 90 basis points due to the extra day in February and by a 170 basis points for the calendar shift resulting in 13th Friday in Q1 versus 12 last year.

If you normalize those three items, same-store sales would have been about 6%. Although, it is difficult to quantify the warm winter weather throughout the country positively impacted same-store sales as we saw double-digit increases in sales generated from the bar and patio. Patio sales from our East Coast and Midwest restaurants increased on average over 20%, compared to last year.

If you normalize our comps for weather and the above mentioned items, we estimate our comps would have been near the 4% range that we guided to you on our last call. The sales increase also includes about 1.5% in pricing that we took last year. Our comps continue to remain strong as this quarter represents our sixth consecutive quarter of comps greater than 6%. On a trailing two-year basis, our Q1 comps are up over 16% or a 11.6% if you normalize for the items discussed above.

For Q2, the comp compares and becomes increasingly more difficult, as we left 9.1% comp in Q2 of last year and well over the pricing we took last year. On a trailing two-year basis, we estimate our comps would be over 10%, which we believe this among the best in our segment.

Cost of sales as a percentage of restaurant sales decreased a 110 basis points, 26.9% during the first quarter from 28% last year. The decrease reflects lower year-over-year pricing for produce, efficiencies in the kitchen resulting from higher sales volumes, and the benefit of various purchasing initiatives implemented over the past 12 months.

We continue to work diligently with our vendors to ensure the best possible pricing. As discussed on our last call for 2012, we expect a modest increase in beef cost year-over-year, but we’re optimistic that improvements in seafood purchasing will help mitigate any material impact to our food costs.

Labor expenses as a percentage of restaurant sales decreased 90 basis points to 32.9% during the first quarter from 33.8% last year. So lower labor costs percentage is attributable to the leveraging of fixed wages from the 8.7% increase in comp sales. Restaurant operating expenses as a percentage of restaurant sales decreased 170 basis points to 14% during the first quarter from 15.7% last year.

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