(KONA) Kona Grill First Quarter Earnings Beat – Revenues Miss

Kona Grill Inc.’s (KONA) first-quarter 2013 earnings of 12 cents per share beat the Zacks Consensus Estimate by 9.1% but were 7.7% lower than the year-ago earnings of 13 cents. A choppy sales environment coupled with higher operating expenses resulted in the year-over-year decline in earnings.

Total restaurant sales in the quarter were $23.5 million, down 2.3% year over year. The downside in sales can be traced back to macro issues, inclement weather in Midwest and Northeast markets, including restaurants closures due to snowstorms and heavy snowfall in certain markets, which deterred consumers from dining out. However, the results missed the Zacks Consensus Estimate of $24 million.

Same-store sales (comps) fell 206 basis points (bps) owing to lower guest traffic as volatile macroeconomic condition adversely affected consumer sentiment. Moreover, tough comparisons due to an early Easter this year and one less operating day from the year-ago quarter also impacted sales.

Restaurant operating profit margins declined 120 basis points to 18.7% in the reported quarter attributable to higher proportion of occupancy-related costs, labor expenses and cost of sales to revenues. However, lower restaurant operating expense partially compensated the decline in margins.

Store Update

At quarter-end, Kona Grill owned and operated 23 restaurants in 16 states. The restaurateur expects to open 2 new units in 2013.

Second Quarter Guidance

For the second quarter of 2013, the company expects total restaurant sales of $25.3 million, up 1.2% year over year. The guidance indicates same-store sales growth to be around 1%. Earnings per share are expected to range between 15 cents – 20 cents per share.

Our Take

Kona Grill managed to beat the earnings estimate but missed out on sales. Persistent slowdown in sales remains a concern. It has been facing a sluggish sales environment for quite some time.

Although Kona Grill is resorting to several strategies like offloading unprofitable locations, restaurant remodeling and promotions in an attempt to accelerate traffic, any notable impact is yet to be seen. An anemic economy and stiff competition will continue to pose challenges going ahead.

Kona Grill currently retains a Zacks Rank #4 (Sell). However, others players in the same industry, which look attractive at current levels include Cracker Barrel Old Country Store Inc. (CBRL), The Wendy’s Co (WEN) and Burger King Worldwide Inc. (BKW). While Cracker Barrel and The Wendy’s carry a Zacks Rank #1 (Strong Buy), Burger King carries a Zacks Rank #2 (Buy).

BURGER KING WWD (BKW): Free Stock Analysis Report

CRACKER BARREL (CBRL): Free Stock Analysis Report

KONA GRILL INC (KONA): Free Stock Analysis Report

WENDYS CO/THE (WEN): Free Stock Analysis Report

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