Q4 2020 One Group Hospitality Inc Earnings Call
Greetings and welcome to the one group business update call.
All participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
One should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I'd now like to turn this conference over to Mr. Tyler Loy, Mr. Lloyd you may begin.
Thank you operator, and good afternoon before we begin our formal remarks, let me remind you that part of our discussion today will include forward looking statements.
These forward looking statements are not guarantees of future performance and you should not place undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
I'd also note that these forward looking statements reflect our opinion only as of the date of this call. We undertake no obligation to revise or publicly release any revisions from these forward looking statements in light of new information or future events.
We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.
With that I'd like to turn the call over to Manny hilarious Manny.
Thank you Tyler and Hello, everyone. We hope that everyone has to stay safe and healthy during these extraordinary times and appreciate your continued interest in the one group.
I would like to offer some brief thoughts on our fourth quarter results, but more importantly discuss one of the business has been since the beginning of the year.
Recovery continues to strength.
Finally, I will discuss our near term development plans.
It was March 15, 2021, Ohio Governor ordered all restaurants to close their dining rooms, and bars and within a week most states followed suit.
On a journey.
And for our industry and for our company.
I'm pleased to watch this conference call by reporting debt so far for the first quarter through March 14th 2021.
Solid comparable sales on a two year basis have increased 1%.
Be it we are still limited by many restrictions.
We are pleased with the strong momentum I'm still hopeful for the future.
Governmental capacity is true since that'd be gone too far to relax in many of our key markets, California, Nevada, and Minnesota Nashville.
For example, starting on March 15, 2021 Vegas is changing to 50% capacity.
To put it in perspective, what that Las Vegas for the first quarter through March 14th 2021 a consolidated comparable sales on a two year basis increased seven 1%.
As we discussed on our last conference call, we began the fourth quarter with encouraging trends in October as it was.
Exhibited by positive comparable sales across both SDK and Kona grill, resulting in a consolidated increase of 4.2% from the months.
This was largely a result of us reaching our highest indoor dining capacity since the pandemic began on 51%.
However, as Danny restrictions were reinstated over the course of the fourth quarter comparable sales trends naturally soft and resulting in an 18, 4% decrease in November and at $26 four per cent decrease in December at the consolidated level.
Additionally, in November and December we typically have a very large events business across our restaurants.
Due to Covid restrictions, we were unable to host large events in the quarter.
We were very pleased with our teams are doing such a great job on managing through the decrease dining capacity and comparable sales had one while containing costs.
It is also worth mentioning that takeout and delivery comprise approximately 50% of sales during the fourth quarter.
Which has almost tripled compared to the first quarter of 2021.
We attribute the success to our investments in technology, which has enabled our guests to order for curbside pickup or delivery from nine separate delivery partners.
To help drive takeout sales will have an adapter on mountain use particular obstacle.
More controllable items that walking it take out environment.
Certainly on a long way towards elevating this channel and we are confident that off premises sales.
On a meaningful on high margin layer of the business going forward, even as we welcome more and more guests back with you the dining rooms.
There is no denying that guests are increasingly eager to return to normal life to the extent possible and from many that includes visiting pulsar from its restaurants for a great night out.
Vibe dining experience that we offer is particularly attractive to so many people because it's really a differentiate it from and vibrant experience.
Two other higher end steakhouses in upscale casual restaurants.
We firmly believe that we are the leader in this highly differentiated category and that on offer goes beyond great food and a unique bar cocktail program and include so much more and exceptional service program complemented by quit energy and great ambiance that results in an unmatched unforgettable.
Mining experience.
Moving on one of the biggest cost advantages of our business is our emphasis on digital marketing relative to our peers.
We have over 1.3 million people and our friends with benefits database and we will be enhancing our loyalty program. Later this year margin to a new program that will be calling the vibe society.
We also have other digital assets across Facebook Instagram on Linkedin.
Have enabled us to stay on top of mind with our guests.
And whenever one dark even in the worst of the pandemic rather we have always made sure that our guests new debt, we were out there and eager to serve them well.
One through delivery or takeout or even within our restaurants as possible.
Just as an example, we sold a tremendous amount of Turkey on Thanksgiving This past year, selling more Turkey to take that on in person dining.
We ever had before.
And the bigger picture. This was frankly, a result of our commitment to stay true to our core business model of owning the holidays.
Looking at the corner growth, specifically, the Brian generating an eight 6% increase in comparable sales in October.
First off in November and December because.
Capacity restrictions were reinstated.
From the fourth quarter comparable sales declined only 8%, which exceeded most other polished casual dining chains.
We attribute throughout the outperformance at Kona grill to our strategies implemented since the acquisition.
Specifically, our numerous sales drivers, including the launch of focused menus. The addition of craveable food offerings.
One thing I revived bar and patio program, featuring more active music and aggressive and sustained market vs that leverage our social media capabilities.
Our top one initiatives have also been complemented by better restaurant level execution of the guest experience.
Lastly, our corner growth suburban footprint has been a competitive advantage, particularly in the current environment.
Now some additional comments on 2020 one.
We are encouraged that our sales trends have improved since the onset of the new year.
Our dining capacity rose to 41% in January which marked an improvement from December in Paris.
Finally, our January consolidated comparable sales declined 32 per cent.
For SDK comparable sales decreased 20, 312%, while our Kona grill comparable sales decreased only one 1%.
February was even stronger.
With a mere 111% decrease in consolidated comparable sales and an increase in indoor dining capacity to 46%.
As T K decreased 1.7, and Kona Grill decreased one 2%.
And finally from March 1st of the 14th of 24% increase in consolidated comparable sales on an increase in an indoor dining capacity to over 50%.
Our guests want to dine with us for all the reasons I have already identified and we'll do so as permitted by law.
And when they choose to come into our restaurants, we are providing them with exceptional forgettable experiences that they crave.
As we look ahead, our key focus is operational readiness for what we expect will be high volumes as Covid cases continue to decline the vaccines become more widely available on restrictions are lifted.
Note that we have yet to open our events private dining business, but will do so one of the time is ready.
From a development standpoint, we opened up Manish as ticket restaurant in Scottsdale, Arizona in January.
The restaurant is off to an incredible start averaging $180000 in sales volume per week, which is a very encouraging beginning for our newest location.
Recall that for restaurants and value are managed our license, we typically generate management fees based on top line revenues and incentive fee revenue based on the percentage of the locations net profit.
As of today. There are currently four SDK and three managed F&B other brand restaurants under construction.
Between this year and next year, we intend to open 13, new venues.
In addition, we are receiving a lot of inbound inquiries from current and prospective partners and we are carefully evaluating these opportunities on a case by case basis.
Longer term, we have identified over 75 additional major metropolitan areas across the globe, where we could grow our SDK brand to 200 restaurants over the foreseeable future.
To conclude our team has certain proven our resiliency. During these trying times and we are doing a fantastic job welcoming guests back into our restaurants or a great vibe dining experience.
Now I'll turn the call back to Tyler.
Thank you Manny and.
And thank you for joining us on the call today.
We expect that we will be filing our 2020 form 10-K in the near future.
I'll now provide you an update on current sales performance day.
Domestic consolidated comparable sales declined 14, 8% for the fourth quarter of 2020 for SDK comparable sales decreased 27% and for Kona grill comparable sales decreased 8%.
As Manny commented sales sequentially decelerated throughout the quarter for both SDK and Kona Grill as a result of state mandated indoor dining closures.
Our cities begin to reopen consolidated comparable sales comparable sales for January February and March through the 14th continue to sequentially improve most importantly comparable sales year to date 2021 versus 2019 are now positive a reflection of consumer demand for vibe dining.
Because of the impact of COVID-19, we have decided to permanently consolidate all Dubai business into one location, we will closely monitor the progress on business conditions in that market and decided we reopened a second location at a later time.
As a reminder, due to these unprecedented market conditions and uncertainties surrounding the effects of the pandemic, we cannot reasonably estimate when our business will return to normal operations and therefore suspended all financial guidance last March we do however, intend to provide further business updates if warranted by this evolving situation I will now turn the call.
Back to Manny.
Thank you Tyler and thank you all for your time today.
We are very encouraged by our results in the fourth quarter, and especially by the positive trends so far in 2020 one.
We're in a better position now than we were just a few months ago and this is due to the efforts of our exceptional team.
They have helped us to navigate through these trying times and are now positioning us for what we believe is yet to come and recovery characterized by strong demand for our differentiated five experience.
Our team is doing an exceptional job bring our mission to life every day to be the best freshman in every market, where we operate by delivering exceptional and unforgettable guest experiences to every guest every time.
And our guests are validating what we know to be true to their feedback social media post and of course their frequency.
Our team has also enabled us to build a sustainable takeout delivery and e-commerce capabilities.
Excess of their efforts will pay dividends for our business long into the future.
Let me conclude by thanking all of our value gas, we're having joined SDK and Kona grill at our dining rooms at our outdoor areas for takeout and delivery or have ordered are of high quality Stakes from our SDK meat market.
We have greatly enjoyed serving you and appreciate your support and look forward to seeing you in our restaurants real soon.
But not least we also appreciate everyone joining us on the call today.
Tyler and I are happy to answer any questions that you may have operator.
Yeah.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad it come from.
So I will indicate your line is on the question queue. You May press starts you true.
A question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the starkey one.
Momentum, while we poll for questions.
Our first question comes from the line of Ryan Meyers with Lake Street Capital Markets. You May proceed with your question.
Hey, guys. Thanks for taking my questions.
First one from me so the commentary that you gave in the press release on capacity in comps was a pretty helpful. So I appreciate that just wanted to get some insight on do you guys think that January was the trough here and then how are you sort of thinking about you know the business for the rest of the year and tenants, which one has seen a better recovery that's T K or the Kona, just kind of any sort of commentary on that.
Would be helpful.
Sure so.
You know from what we've seen so far this year I would agree that January was what I consider to be a transitional months I think that in January we did see.
The impact of a pretty cold weather across the country and being in locations with only outdoor.
Facilities was a was very challenging I would think so I believe starting in February that we saw a little bit better wet weather patterns and also the lifting of restrictions. So what we've seen January February and March has been an ongoing pattern of the restrictions being lifted.
You also have some additional lifting coming up for instance, New York is shortly going to be at 50%, which is a big market for us and we also have vegas coming into 50 per cent here very very soon so I would say that we're now on a more positive momentum going forward, particularly as the restrictions continue to be.
<unk> relative to SDK on Kona Grill.
My experience so far since we've you know we've been in recovery mode is that both of them have done exceptionally well, meaning that there is a lot of demand I do believe that Kona grill because of its suburban.
Exposure does do very well all seven days of the week, whereas F. P. K with less of business travelers and group dining is doing very well Thursday through Sunday, So there's a little bit of a shift on on how the customers use the brand, but overall I believe that both brands have done extremely well.
As you look at the numbers that we reported for the month of March So I'm very pleased with both our SDK on Kona Grill and feel pretty strong about their continued recovery for the rest of the year.
Great. That's helpful. Our next one from me. So can you kind of walk through the cadence of new openings and if theyre going to be license or company operated and then also the 13 units you expect to open here in 2020 one how many of them are Kona grills.
So the cadence is just to reiterate we opened.
Scottsdale, SDK, which is doing fantastic as you probably saw the the numbers on the press release and in those we discussed here. So so we've been very happy with that and so they're opened on January 4th the next opening there we're having it will be.
Probably.
Bellevue, Washington, which is the next one that we have scheduled.
And then thereafter, we have a cabo location in Mexico, and then we have some.
UK locations after that obviously the U K is still currently not allowing for indoor dining at Investor day or at least they were planning to go to outdoor dining in April then going to dining in in May. So we probably will open those UK locations in June or slightly later, depending on when the.
The restrictions get lifted there and then the three three F&B restaurants that we mention in our on our.
Our prepared remarks, we probably won't be opening in late second quarter early third quarter again, depending on how the Uh huh.
The market conditions are so that's kind of the spread I would say that we will open the majority of those locations by the end of the third quarter. This year and then.
Yeah on the question was in relation to.
If any of them it.
It means they're gonna be Kona grills.
So they're all SDK is right now and other F&B brands, we do not have any kona grills.
And on the numbers that we quoted for development.
Okay. That's helpful. And then last one from me so as you've seen sort of you know capacity restrictions ease and things get a little bit better have you guys had any trouble, bringing on more employees, whether it's you know bartenders waiters shafts or anything like that have you guys based on any sort of headwinds there as capacity has begun to tick back up here.
I mean generally the answer is no we haven't seen any dramatic.
You know shifts so far obviously, we're monitoring very closely the fact that and unemployment benefits have once again been extended and last time when that happened it was a little bit more difficult to staff some of the positions. So clearly we will benefit.
You know well I should say, we actually will monitor that condition very closely I will tell you. The other thing that we have seen though is the people who are in the restaurants now are staying so we've seen that.
A decrease.
A relative decrease in turnover and retention has gone up so I would say, that's probably the offsets to them.
Maybe some of those future pressures on getting people in is that the people who are who are working for us seem to.
Stay with the company, so I'm very bullish.
Bullish about the retention trend and I also think the fact that our operations have.
Been very busy I think the employees that are working in the restaurants are still a very very good about being in an active environment. So I get a lot of complements and frankly, one of our employees will come up to me and tell me that.
It's good to be in an environment that gets them away from what they consider to be the general seclusion from the pandemics employees seem to want to come to work because that gives an escape.
From other situations outside of work. So I think that's been very positive.
Well that's good to hear thanks for taking my questions.
Youre welcome. Thank you.
Our next question comes from the line of Nicole Miller with Piper Sandler You May proceed with your question.
Thank you three questions, but they're all around the same idea of optimization.
And so from the best that I can but I'm thinking first about the guest behavior and things you've had to do to modify and then of course, you know what used to be normal so.
How do you optimize getting in the perfect guest in the door and optimize the facility that's day a week day part you.
You know on train next food versus alcohol, how are you thinking about optimizing that.
So that's a great question, Nicole I think the way that we think is.
And I would tell you told you on a year and a half ago that things like selling the incremental drink at the table and selling the dessert at the table, where something that we look forward because that would increase the per person average spend at the table I think in today's environment. We think more of table turns so we really think about.
Getting you in and out at an SDK and 90 minutes and for Kona Grill, we target 75, So I think it's more of a.
On the new reality is that it's all about table turns and getting people.
Two particularly the dinner Timeframes and then the other paradigm that's different is that even.
Even for a fine dining.
Type of business Spike S T K, where in the past we would've looked at.
Maybe branches a non core business. We now look at our branch is a core business because now it allows us to use less seats.
On a Sunday and on a Saturday, which are very high demand days. So I think that branch now is playing a key role.
In a in kind of how we think of the business long term and then last but not least I think from an operations and execution perspective, our teams spend a lot more time.
Just measuring and monitoring the steps of service at the table and we really do a very rigorous review of how long it takes for the order to be taken and cocktails to get to the table. So a very disciplined approach to.
Bringing in the.
The steps of service at exact times, and obviously, we always have to balance that with the fact that you don't want to diminish the experience with the GAAP. So it's really balancing the need for turns would meet for a smile on warm necessitate will.
Okay.
Okay, and then I was also thinking about optimization through the lines of development and clearly you've outlined a pipeline today. So that's super helpful. But how did you optimize like less capital intensive license throwing off cash flow opportunity with the SDK Big box big revenue with the Kona mainstream but a lot of white space how did.
You go through that process on these conditions to optimize that.
I think a couple of things so on the under.
On the development side, it's you know.
What I'm seeing from an optimization perspective, if you will is that particularly for F&B hotel operators I'm seeing them.
With the lower occupancy rates there les.
We.
Less willing to take the risk on the F&B side, what I mean by that is that the last thing. They want to do is take a business that already has a low occupancy and potentially low revpar and and and throwing their a high risk.
If you will our restaurants or F&B operations, and particularly if they're a shop that uses lots of labor per F&B. So I'm seeing a lot of people wanting to optimize their F&B footprint by bringing in people that.
Can execute the the F&B program at a very high economic or very or average I should say very profitable economics for them, so that actually optimization there.
And then the other thing that we see on the optimization as some of the hotels that were in because of the velocity and the the fact that our restaurants are very full on Fridays and Saturdays with weed.
We've become an amenity to the property where people would one want to come to the hotel and stay overnight because it's so fun and exciting I'm thinking for instance, the W and L. A as an example, where we are at that hotel and we we we have frankly become as the hotel management that will tell us one of the key strength of their business.
Because we're actually super active in bringing a lot of a lot of excitement there in terms of Kona grill relative to development as I said earlier, we're being very.
I'm very careful about making sure that the first Kona grill that would do is a super homerun. So we've been very disciplined about the entry in real estate debt, we have received tremendous amount of.
You know opportunities from existing landlords, who now want us to look at other projects and see if there isn't an opportunity for us.
For Kona Grill, I have seen them starting to begin to offer much more tea ice on the Kona grill, so almost going to a point, where they're telling us they could almost spilled the property before us, but frankly right now because of where we add on the pipeline with SDK and there's so much demand there for that product we are focusing on it and.
Obviously, we will only take any kind of look at our Kona grill, if it's an extraordinary level of economics.
So I don't know if that answers really area.
Question, but certainly tells me that there's a lot of demand and we certainly want to focus on where there is higher level of returns and we certainly don't want to take any opportunities that we feel are not high revenue opportunities.
Well and it helps us understand the consumer behaviors on what's going out there on out there. So it's super helpful. Last one I'm going to lead a day open ended.
Purposely so answer or not whatever direction, but how do you optimize your balance sheet, I mean and that could on.
I'll just leave it at that and it ties together with the other parts.
Yeah, I mean, I think right now optimizing the balance sheet as I think of empathy.
Emphasizing store level economics, I mean, ultimately in the restaurant business that ultimately really build your balance sheet is by having a world class economics, and I think if you start looking at it.
Look at our if you look at our same store performance for SDK and unit economic cycle, new stores in Scottsville after $180000 weak levels. Our unit economics are super compelling so our restaurants at all.
Volumes of those levels of revenue becomes super profitable. So that's ultimately our long term strategy to bring in capital and as I said earlier on <unk>.
Comments about development I think that the success of the brands today.
Site landlords and developers are having an exciting brands.
There are great amenities to projects to me is frankly, the ultimate balance sheet Hum a builder, because we won't be able to get amazing deals and create a tremendous amount of cash flow with very little capital outlays. So that's how I look at the.
The short term capital view on this and then hopefully as we continued building profitability will be able to work out the cost of debt in other cost of capital on their balance sheets are ultimately that's our a really long term longer term strategy for the balance sheet. So focused on store margins.
Keep managing G&A Super tightly and then ultimately keep developing on asset light. So that's our basic strategy that we've been following.
Awesome, Thanks for taking my questions.
Thank you Nicole.
Our next question comes from the line of Mustang well.
Maloney locked down on capital you May proceed with your question.
Hi, Thank you for taking my questions I had a couple to start can you give us a bit more color on the capacity constraints. I know you mentioned that SDK typically has more demand on the Thursday to Sunday.
But our restaurants actively turning down potential guests due to space limitations and so what's the demand pressure it effectively see a and is there a sense of the implied capacity that restaurants with it without a coronavirus related capacity constraints.
I mean, so I would answer that question by saying that on Fridays, Saturdays and Sundays, particularly between 630 and 930 in the evening and I would say that all of our restaurants are now receiving lots more demand that we can fulfill on that.
On frame so yeah. So so in those Timeframes I would say that we have received.
You know, it's true extraordinary amount of the Madden frankly, our strategy has been through our how we book reservations and how even we market we try to shift all the a lot of that volume to the 932 11 timeframe and then try to also shift some of that volume to the five.
530 frame. So so the answer is yes. Those days are absolutely no problems I do believe though that on the Mondays through what true Wednesdays, where historically they were more business travelers theres more conventions that were more business type of activities. I think those are the days that we probably have more available capacity.
And so what we've done on those days if you're following what we do on marketing as.
We've been doing a tremendous amount of social type of activities like date nights on Mondays Tuesdays and one is Wednesday, because that's one of the occasions that we see Super high demand for right now so we're marketing for that and I think that actually has been successful to fill in for some of the.
Low lack of demand from the business opportunities.
Awesome and go into a second question slightly different.
Can you give us a sense on what percentage of sales are coming from like drinks vs. Entrees in this period versus the pre Covid period is there any difference here that we're seeing.
Yeah, So I would say that historically pre COVID-19, our liquor sales would be at 30% plus range, whereas you know in in the Covid period, we've been between 25 and 30% on liquor and wine I would tell you is that pre COVID-19, if when the number being a little bit.
Less than 30, I would've been very concerned but in the post COVID-19 considering that when you sell more drinks, particularly at the table E tend to slow down your turn times at the table. So in our higher volume restaurants, particularly between from on Friday Saturday and Sunday is.
Although we like to sell liquor because that's good margin.
We are we will trade having more turns on the table and holding on a table back for an extra 30 minutes. So two individuals can have a drink. So a lot of a lot of the reason why the liquor mix might be a low double laughs, it's because we're actually driving a different strategy to try to drive more traffic and.
Bring more people to the table turns so I don't I don't think per Se I guess, what I'm trying to not make the correlation is that we have less sick or sales because we're in COVID-19 I don't think it's that per se I think it's a combination of the strategy of turning the tables and also the fact that some of the areas we serve.
So not able to use bar, which used to be also a place where people would come in just to have one or two drinks. So I think the combination of that is what drives it down but if you look at our you know in general if you look at our historical results, we've actually been very well managing Cogs and I don't think that that's really a big material impact for us.
In the long term.
Great and one last question from me.
First off congratulations on the takeout and delivery execution I was wondering here do we have a sense on what percent of these deliveries and takeout orders are from recurring customers versus new ads.
So that's a that's a fantastic question. So because it was very early on the strategy of actually a large.
Proportion of our transactions are new transactions, we've been very.
Very actively promoting so we're still in early stages of.
Heavily promoting it so I would say that a big portion of it is just new transactions.
For instance, we've used.
For instance, we use the cheeseburgers, a key product to drive interest.
For SDK and when I say cheeseburger, I mean, why do cheeseburger, probably the best industry, one of the best hamburgers cheeseburgers into industry. So we're using promoting to bring people and and so I think that at least in the early stages, where were add on on takeout and delivery I would say net over 50% of the traffic is still coming from.
People trying the product and frankly I looked at as a huge opportunity because as I talk.
Talk to our teams here our trick is to make sure that.
<unk>, a great experience and take on the waiver, we convert those to long term loyal customers. So I see that as a great opportunity to really build a very robust takeout business and deliver business from a long term.
I'm sorry to quickly add so do you think there's any meaningful difference in the types of customers, who are getting kicked out of delivery versus the customers that are coming in store.
I think that's a day or lots of them at the same customers, but different occasions. So they would take it as a more casual occasion, so I would say and it's also a mix of new people, who are looking at the different products on the takeout delivery.
Manny is that and if you follow our menus that they tend to be lower price points. So it's also an opportunity for other gas to try the brand. So I think we're basically doing both we're serving existing restaurants, I mean existing customers for different occasion, and bring a tremendous amount of customers with one.
With the lower price points particular, SDK to introduce them to the brand and we're totally okay with that because as we saw with the team here is let them try with the tick up menu and then when they have the birth day or the special day or or any other holiday, which is one of our areas that we do very well there.
Remember us and they'll give us not on the holidays. So well so we look on special occasions. So we look even at the consumer there may not be at primary extricate consumer as a potential consumer on a special occasion.
Later on perfect. Thanks for taking my questions.
You're welcome.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Manny Hilario for closing remarks.
Thank you and I would like to close the call by once again thanking the one group team.
And the individuals that truly bring our mission to life every single day. So there's no no team that is more committed to great store level execution. So once again. Thank you for all your work and your dedication and commitment to.
So what we do and I look forward to seeing you all in our restaurants.
Have a nice a nice week.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and grow the rest of your evening.
Okay.
[music].
Okay.
[music].
Yeah.
[music].
Yeah.
[music].