Q2 2023 The ONE Group Hospitality Inc Earnings Call
Greetings and welcome to the one group second quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation today.
As a reminder, this conference is being recorded at this time I would like to turn the conference over to Tyler Loy. Please begin sir.
Thank you operator, and Hello, everyone.
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.
Please 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 of these forward looking statements.
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.
During today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance.
However, the presentation of these measures or other information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
For reconciliations of these measures such as adjusted EBITDA adjusted net income restaurant operating profit comparable sale and total food and beverage sales at owned and managed and licensed units to GAAP measures.
Along with a discussion of why we consider these measures useful.
Please see our earnings release issued today.
With that I'd like to turn the call over to Daniel area.
Thank you Tyler and Hello, everyone. We sincerely appreciate you joining us today and for your interest in the one group.
First off let me begin by thanking all of our team members for their hard work, providing world class operations as we build a strong portfolio of restaurants with industry leading returns.
We recently opened our new Kona Grill, and Riverton, Utah and the restaurant is off to a strong start.
This marks our second Kona grill opening this year and the seventh venue opening in the last 12 months.
And we will only be accelerating the space.
We've been diligently preparing and building our construction pipeline and it's finally Prime then we anticipate a new venue opening every four to six weeks for the foreseeable future.
In addition to the strong start at our Riverton location or other new store openings continue to perform above our investment model.
Kona Grill, Columbus averaged approximately 100000 per week and our SDK has averaged approximately 250000 per week during the quarter for.
For the <unk> this is significantly above our new store sales target.
154000 or SDK.
Turning now to the second quarter comparable sales faced tough post on the chronic comparisons from last year, especially at SDK. As you may recall, our SDK same store sales volumes as compared to the pre pandemic baseline were positive eight 2% during the second quarter of 2022.
And significantly above industry averages for this benchmark.
To put this in perspective, the fine dining segment has increased 20% to 30% versus 2019, and the SDK is up 70% versus the pre pandemic baseline.
While we believe we could hurdle this incredibly robust performance, our comparable sales faced greater macro pressure than anticipated.
That said.
We are maintaining our share gains from the last few years and our SDK average unit volumes continue to be over $16 million.
Importantly, we did see accelerating comparable sales throughout the core and Kona grill sales in particularly our gathering momentum going into the back half of the year.
Moving on to restaurant operating profit we continue to show best in class performance relative to cost of goods sold as we posted our third consecutive quarter of 24% cost of goods.
While we continue to see more moderate year over year inflation much of the basket seems to be flattening compared to where we've been over the last 12 months.
As discussed earlier because of the macro pressure on sales, we invested graded and digital marketing, where we drove more than 10% increase versus the first quarter in social media impressions in.
In addition, we invested in restaurant staffing to ensure strong guest loyalty for the long term and to replace the high quality talent that we moved into our opening teams.
We are happy with our current guest loyalty metrics and we believe they bode well for future performance.
Lastly, we carried some additional manager head counts in order to support our growth initiatives and they are being deployed to our new store openings for the balance of the year.
Macro pressures on sales coupled with our strategic investments in brand awareness guest experience and staffing ahead of our robust development pipeline impacted our adjusted EBITDA year over year.
Based on these factors, we have adjusted our guidance, but believe we have actions in place that will deliver positive comparable sales and increased margin versus the prior year for the back half of 2023.
Looking ahead, we are committed to robust growth and margin expansion. Our strategic focus is as follows one driving the in restaurant experience at both brands by making sure that we are delivering exceptional and unforgettable experiences to every guest every time. This is fundamental to our operating model.
That's what sets us apart from our peers.
We have an amazing talented group of restaurant teams and will be leveraged them to up sell our premium menu items and high margin add ons.
To continue investment in digital marketing, especially focused on our valley offerings. It's imperative that we keep the brands accessible to our entry level price points. Our branch in 369 happy hour offerings are especially relevant in the current economic environment and some of the best values in the industry.
In addition to our value layers, our takeout and delivery business continues to grow in dollars and percentage of total revenue and Thats. Another area, where we will continue to invest.
Three taken targeted price increases as we have lagged our peer group and the industry in the amount of pricing we have taken during this highly inflationary period.
Based on our peer comparisons and our guest satisfaction levels. We believe we have additional pricing opportunities that we plan to take <unk>.
<unk> committed to opening a new restaurant every four to six weeks for the foreseeable future and five right sizing labor and other operating costs for post initial investment and growth. We've talked about the increased managers that was carried in order to support our growth initiatives, while we have additional opportunity to scale our <unk>.
Casually in order to drive sales and increase labor efficiency.
In addition, we have launched several initiatives to reduce costs that do not impact sales such as system wide optimization of our paper supplies.
Card processing fees and various outside services.
Year to date, our store level margin was 15, 7%, we anticipate finishing the year in the 17% range.
We believe these strategic initiatives are Paramount as we look to drive positive comparable sales and margin improvement during the back half of the year.
Moving on to our development pipeline, we expect to open eight to 12, new venues in 2023, and we plan to open a new venue every four to six weeks for the foreseeable future.
Already this year, we opened Kona grill in Columbus, Ohio to reef kitchen licensed locations and Kona Grill in Riverton, Utah. In addition, we added a rooftop at the SDK in Scottsdale, Arizona.
By the end of the year, we are on track to open one to two additional Kona grills in the following cities Phoenix, Arizona and Tigard, Oregon.
And three to four new company owned <unk> in the following cities Charlotte North Carolina, Washington, DC, South Lake City, Utah in Boston, Massachusetts.
And finally, we plan to add one manage our license SDK.
Over the long term, we view our addressable market is 200, SDK restaurants globally, and 200, Kona Grill's domestically with best in class Rois of between 40% and 50%.
There is clearly a long runway of opportunity ahead of us that we are just beginning to actualize now I'll turn the call over to Tyler.
Thank you Barry let me start by discussing our second quarter financials in greater detail totaled.
Total GAAP revenues were $83 4 million, increasing two 8% from $81 1 million for the same quarter last year.
Included in our total revenues is our owned restaurant net revenues of $79 9 million, which increased three 9% from $76 9 million for the same quarter of last year.
The increase in revenue is primarily attributable to the opening of the SDK San Francisco in August of 2022.
<unk> of SDK Dallas in November of 2022 zero and the opening of Kona Grill Columbus in January of 2023.
This was partially offset by a four 7% decrease in comparable sales consol.
Consolidated comparable sales were 46, 5% compared to 2019, our pre pandemic base year.
Management license and incentive fee revenues were $3 5 million during the quarter at $4 2 million in the second quarter of 2022.
This decrease was primarily attributable to lower profitability or manage SDK restaurants in North America and decreased revenue at a managed property in London, England.
Owned restaurant cost of sales as a percentage of owned restaurant net revenue was better by 180 basis points to 24% in the second quarter of 2023 compared to 25, 8%. The prior year, primarily due to menu mix management pricing and operational cost reduction initiatives.
Owned restaurant operating expenses as a percentage of owned restaurant net revenue increased 340 basis points to 61% in the second quarter of 2023 from 57, 6% in the second quarter of 2022, primarily due to staffing ahead of growth increased marketing expenses and general operating expenses.
Sure.
This was partially offset by single digit pricing taken in the back half of last year.
In August we will be taking an approximate 4% price increase at Kona grill, reflecting our current covenant the performance of the brand.
Restaurant operating profit was 14, 9% for the second quarter of 2023 compared to 16, 6% in the second quarter of 2000 points here.
Restaurant operating profit of SDK was 18, 9% and Kona Grill operating profit was nine 9% for the quarter, we anticipate restaurant operating profit to increase year over year as a percentage of revenue during the back half of the year.
On a total reported basis general and administrative expenses were $8 million compared to $7 3 million in the prior year.
The increase was attributable to increased stock based compensation expense and additional investments required ahead of new restaurant openings.
When adjusting for stock based compensation adjusted General and administrative expenses were $6 8 million in the second quarter of 2023 at $6 4 million in the same quarter last year.
Preopening expenses were $1 6 million compared to <unk> 8 million in the prior year.
This increase was primarily related to <unk>, which opened in July 2023.
The SDK and Kona Grill restaurants currently under development.
Both years include non cash preopening rent required for U S GAAP.
Interest expense was $1 6 million in the second quarter of 2023 compared to <unk> 4 million in the second quarter of 2022.
The increase was driven by increases in our outstanding balance and benchmark rates year over year.
Income tax expense was nominally beneficial in the second quarter of 2023, and <unk> 9 million in the second quarter of 2022.
Net income attributable to the one group Hospitality, Inc. Was <unk> 6 million or <unk> <unk> net income per share compared to a net income of $4 3 million second quarter of 2022 or <unk> 13 per share.
Adjusted net income was $1 8 million or <unk> <unk> adjusted net income per share compared to an adjusted net income of $4 9 million in second quarter of 2022 or 15 net income per share.
Adjusted EBITDA for the second quarter attributable to the one group Hospitality, Inc was $8 5 million compared to $10 4 million in the second quarter of 2022.
We have included a reconciliation of adjusted EBITDA and adjusted net income and the tables in our second quarter 2023 earnings release.
During the second quarter, we repurchased approximately half a million shares of our common stock.
In total we have purchased one 7 million shares or approximately 5% of our outstanding shares under our buyback program.
We have approximately $3 7 million in share repurchases that remained available under our $15 million share repurchase program.
We will continue to use discretion in determining the conditions under which shares may be purchased from time to time if at all.
Now I'd like to provide some forward looking commentary regarding our business. This commentary is subject to risks and uncertainties associated with forward looking statements as discussed in our SEC filings with always remind our investors the actual numbers and timing of new restaurant openings for any given period is subject to a number of factors outside the company's control.
Including weather conditions as doctors under control of landlords contractors licensees and regulatory and licensing authorities.
Just on the information available now and the expectations as of today, we are updating the following financial targets for 2023.
Beginning with revenues, we project, our total GAAP revenues of between 350 and $365 million.
Embedded in this top line range is our expectation of flat consolidated comparable sales for the third quarter versus 2022 and positive 4% to 8% in the fourth quarter when compared to 2022.
Manage license and incentive fee revenues are now expected to be between 15, and $15 5 million due to lower revenues at our properties in London.
Total owned operating expenses as a percentage of owned restaurant net revenue of 83% to 82%.
Total G&A, excluding stock based compensation of approximately $27 million to $29 million we.
We now expect adjusted EBITDA of $45 million to $50 million, which represents an approximately 10% to 20% increase compared to 2022.
Restaurant Preopening expenses between five.
At $6 5 million, an effective income tax rate of between 5% and 10%.
Total capital expenditures net of allowances received from landlords of approximately two 5% of company owned revenue and approximately three to $3 5 million for company owned venue.
And finally, we plan to open eight to 12, new venues in 2023, including adding one manage our licensee SDK restaurants.
I will now turn the call back to management.
Thank you Tyler and thank you all for your time today.
Let me conclude by saying that we are in the early stages of our long term growth strategy as we continue to build a portfolio of high volume brands with compelling returns for our shareholders.
Thank you all for your interest in the one group.
I always say none of this would be possible without the fantastic support of our teammates who bring our mission of great execution to life every day.
We have some exciting times ahead, and we'll be opening a lot of restaurants in the near future.
And I look forward to seeing you all out there.
We appreciate everyone joining us on our call today.
And I are happy to answer any questions that you may have operator.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys. If you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Joshua long with Stephens. Please proceed.
Great. Thank you for taking the question. Good afternoon was wondering if you could talk through the trends that you thought.
Through the quarter.
In terms of understanding that there is certainly some substantial year over year comparisons that you were lapping up against but underlying that did you see any kind of pushes and pulls that things progressed through the quarter, what kind of what can you tell us there and then.
When we think just broadly about the consumer's demand and overall appetite for experiential dining, which your portfolio embodies what are you seeing there and how should we be thinking about that as the back half of the year.
Josh This is Manny on that question I would say that the softer.
Part of the quarter was probably earlier in the quarter and the reason was with.
Omnicom, many conventions got deferred.
And pushed into the second quarter. So those are a little bit of a shift.
Convention business. So we did benefit last year early on when the convention business of just people.
Salaries and the conventions at that point, so I would say that probably was the in the in.
In quarter Big.
Parison year over year was lapping over just to catch up on conventions, and then I think.
That as we've gotten back.
<unk>.
Closer to today I think the sales momentum has become or not the momentum, but obviously the lapping has become easier.
For us and.
And in terms of trends and what we see in the environment.
Not anything different from what we've seen earlier, which is we do see a continued.
Interest on Friday started business in the $6 30.
830 timeframe. So the dinner hour on the weekends I will continues to be very strong and then we do have.
A slight drop off in the later hours in terms of demand for for dining and then on weekdays.
As I mentioned earlier, because we were getting the benefit of conventions and convention traffic, we do see a <unk>.
Lights impacts on on Monday Tuesday, once it's by the way that is.
SDK in relation to Kona grill, or actually I think the momentum on Carnival ROE is very strong and it's actually.
On a year over year lap we have seen.
Very strong performance in June and July as a matter of fact is Fowler mentioned in his prepared statements.
Momentum has been strong enough that we feel pretty confident in taking pricing.
Without impacting transactions as we've spoken in the past.
Opening traffic is paramount for us because we view that as a.
Our long term strategy of keeping market share. So we feel really good about the trends with Kona growth.
That's helpful color in your prepared comments on the forward look you offered some context on <unk> and <unk> I'm curious is that the kind of the total combined level can you provide any sort of additional color there by SDK or Kona as we think about the either the pricing or other menu initiatives.
It might have in place.
Yes, Josh.
Thanks for the question.
I think thats definitely.
Definitely on a combined basis.
Manny touched on Kona Grill and.
And the strength that we're seeing there along with that pricing.
We've taken I think from our SDK perspective, you can kind of see the patterns in the lab.
Relative to <unk>.
We were lapping kind of an 82 versus <unk> 19.
In the second quarter kind of goes to 70 in the third and then 61 down in the fourth quarter. So I think thats where were.
So we're kind of modeling that is as we were 70% above 2019 in the second quarter and so you can kind of see a little bit of pattern there in the lab.
Got it that's helpful and then last one for me.
Think about the strong unit growth potential here can you talk about some of the investments you've made and you have made or will continue to make to support that I mean, the opening one opening every four to six weeks is very impressive, especially within the backdrop of others.
Others in the industry continuing to talk about permitting permitting.
Permitting delays.
That are facing.
Providing a headwind there can you talk about some of the efforts and maybe the blocking and tackling that youre doing with your team to address that and be able to reach your empress.
Impressive unit growth targets.
Yes, so I mean, two things come to mind right away.
Number one is we have had to carry a significant amount of extra managers and the reason is.
Particularly for SDK, we have made a decision to open up the restaurants with employees, who do know the brand. So we're training them in existing restaurants, which then puts pressure on the restaurant margin that SDK.
We want to start off the new operations with minimal two managers, who have already been in the system. So so right now we've been hearing as I mentioned only about 15 to 25 extra managers suggests too.
To support that strategy and then the second item is that.
We put together our training team, which to open them number of restaurants, we have we have a team of about 25% to 30 individuals and those individuals who are some of our best employees in the restaurants. So we have to backfill those positions in the restaurant so.
We're investing in the references walk as we now are replacing top talent with additional half council. So really where you see the pressure of that line is on labor force and so.
And really the commitment there is that <unk>.
Vibe dining requires very high level of execution.
In the restaurants and Thats one of the things that we're very proud about.
In the second quarter, although we didn't talk about it is just.
The quality of operations in our feed.
Feedback from consumers was extremely positive.
So we know that we're doing the growth and getting ready for that growth.
And we're still creating great experiences in the existing restaurants. So so frankly, that's really good for the long term. When you are able to work on experience and get yourself ready for the growth. So.
I think the mention was accomplish there to keep quality, while youre getting ready for the growth.
I think just relative to permitting.
I think.
Bidding environments I'm sure you've heard from everybody if staff I mean, theres a lot of competition with lots of big projects in every big city going on right now.
The permitting licensing establishment, just does not seem to be organized.
I mean, we have restaurants that have been in permitting for.
Nine months and then in some cases.
Some of them, even nearing a whole year in terms of getting them cleared and the process. Obviously, our restaurants are have a lot of mechanical amount of.
Complexity in the build out so it does take a little bit of time to clear it out.
To the to the governmental agencies, but I would say right now the process here is that we have a tremendous amount of real estate that we signed on and it's a little bit like priming of Pompe was kind of timed it awfully locations where that permitting.
Time is no longer an issue too well because we have a lot of backlog now in terms of available real estate to bill. So now it really gets back down to its a training.
And getting the training teams in and out of the restaurants and get the operations go.
Yeah.
That's how I view the world.
And the investments that we've made it's really labor and preserving the quality of the experience in the long term, which is very important to us.
I appreciate the context, thanks, so much.
Our next question is from Nick <unk> with Wedbush Securities. Please proceed.
Thanks, just to clarify on the comp.
And in Florida.
What was that consolidator or was that in reference to specific brands.
Yes, Nick this is Tyler.
On a consolidated basis.
Let me break it out by brand.
Yes, I think that kind of the.
What I was alluding to regarding Joshua's question I think SDK is kind of running at plus 70 versus 2019, and if you look at what they are lapping last year, it's kind of plus 70, and then plus 62 for the.
For the third quarter and the fourth quarter of last year, and then with Kona Grill I think manage kind of touch on I think we are seeing.
Some strong results from the Kona Grill brand right now enough that we feel pretty confident taking some additional pricing here this month.
That basically implies.
Cloud is confidence.
In Q4, and then corn actually up in Q3.
I mean, right now I mean, as I think I've said on the statements as many by the way not power anymore, but.
R.
Our performance that Kona Grill is really strong right now so and again there has been.
A lot of work that we've done there so I do think of that.
It's just executing high level, so I'm very feel very good about the same store sales for growth this year, particularly for the backend.
Got it and then the 17%.
Margin.
During the year is that.
For the full year, 17% over Q4, 17%.
It's a full year version and I think that after the fourth quarter for us this year will be a very good.
Margin quarters, we will have lots more SDK is in operation. This fourth quarter. So I think that bodes very well for the margin in the fourth quarter.
Okay.
I think you guys had said for Q1, there was about 6% pricing and two 3% mix for both brands.
What was the pricing and mix in Q2.
So pricing is still running around six points.
Positive.
For both brands and mix is around plus two three right.
Yes, I think mix shifted down just slightly I'm, sorry write down two to three for the quarter.
Okay, so down to the grid.
Yes, that's correct.
Okay. Okay. Thank you very much.
Our next question comes from Mark Smith with Lake Street Capital. Please proceed.
Hey, guys just.
Curious just big picture here as you look at the consumer or do you guys seen any different trends from kind of.
Metro versus suburban.
As we look at maybe quantum versus SDK or even some of your SDK restaurants are you seeing any trends that way and kind of consumer trends or is there anything else Big picture that you see as far as changes in behavior during the quarter.
I think just.
Right now I would say that.
<unk>.
Predictable predictability in the sub urban is better I would say that.
Government sales seem to be.
More consistent and with lots more visibility I think urban sales continued to be a little bit less visible just because of the.
The business and convention business, I would say that right.
Right now the <unk>.
Since he is more on those.
On the suburban locations also Jim on.
On smaller cities I do see.
A little bit more strength than perhaps in the bigger cities I think the biggest cities.
That benefit a lot from tourism.
Last year I think there was a lot of U S tourism, whereas this year you see more of a global tourism business. So I do think.
The big savings with lots of tourism.
<unk> are a little tougher this year, but.
Again, I would just say that promise to fiber or not is really where the strength is.
Alright.
And then as you.
You guys are taking price or we call it.
See most or all of the colon out or do you have plants.
Take any price in the second half year SDK.
So right now we are planned pricing that Tyler mentioned is Kona grill.
And thats going in here in the next couple of weeks.
SDK, we always look in November and so we will take another look in in.
The fourth quarter mid fourth quarter, and take a look and see.
Where the opportunities may be again, I think of that as we've said in the past.
The pricing.
<unk> strategy is always has to be really thoughtful because obviously you always get the short term.
<unk> bump ups when you do that but then we should think about the longer term. So youre, sometimes trading short term margin for long term traffic and market share and as you know where our market share of long term driver of sales in which we try to protect.
Our pricing position and keep much pricing power because I think thats good for the brands in the long term.
It allows you to do the right decisions.
For the brand and really work on the experiences.
Okay, and then lastly last one from me just looking at restaurant cost of sales.
<unk> been running about 24% and assume that you see the changes that any changes in commodities anything to call out other either good or bad.
Some kind of near term on the horizon.
I mean, I think for US commodities is kind of in a particularly on food items.
And beverage items.
Our performance on an.
On cost of goods I couldnt be happier with that I mean, that's usually one of the big hardest areas that it's hard to control and hyper inflationary high inflationary environments. I think we've done a really good job. We're in the 24 range, which is kind of on the low end of our.
Long term guided range for that item. So we feel pretty good about that I think that the pace of increase in commodities has.
Soft and so thats. Good so we've I think we've seen a slowdown there for us.
I think we keep repeating this as we did have wage inflation thats clear on our numbers, but really the bigger.
Area of margin if you will pressure for US was our decision to continue to invest on labor in advance of the restaurants.
And earlier, we do want to start these new restaurants with high quality management and crew staff to frankly go off the blocks really strong with revenues and maximize profitability for us.
Fourth quarter, I mean, thats release, or a big quarter and Thats, a time that we will show up with.
Very strong margin and profitability results.
Excellent. Thank you.
Thank you Mark.
Our next question is from JP <unk> with Roth. Please proceed.
Okay.
Great Hi, guys. Thanks for taking the questions.
If we could start just SDK.
Thank you <unk> been pretty clear that you are lapping some big conventions in 2022 that may have been delayed but maybe if we could just talk a little bit more about what youre seeing at Teekay in terms of the different.
Groups of customers and maybe relative to your expectation instead of a sort of comp basis, but I'm. Just wondering if you could provide a little more clarity about.
Where youre seeing some trouble or some strength between let's call. It the convention groups, maybe the expense tractor the suits and then social dining if you could just kind of.
Train each of those relative to maybe where you thought you'd be at this point in the year.
I mean, we will start off with the suits or the business type of consumer.
And this is SDK now so for that Brian .
<unk>.
I think the tough flat has been on.
This is not.
<unk>.
Purely it's really the lap is that less traffic from.
Some of these conventions in the restaurants.
And so I think thats, probably Monday Tuesday, Wednesdays on Fridays and Saturdays I think that the.
Consumers it comes to social occasion is still strong.
There's still appetite to go out and celebrate <unk> and <unk>.
Experience an elevated experience the overall industry dynamic though is that.
There are some restaurants that do have capacity now in the $6 30 to 830 timeframe. So the consumer is now wanting to book.
<unk> nine and 10 o'clock reservation since they have choices to go pretty much anywhere else earlier in the day, so on social occasions, particularly on Fridays and Saturdays Youre seeing.
No.
Really strong <unk> for us.
And then on the later hour.
You do see.
Less.
Fuel dining traffic in the way that we are.
Fighting or adjusting for that is we have launch laid our happy hour and never seen one of our restaurants and so we are starting to see the post 10 o'clock business coming back and that's actually been a very good add and most of our restaurants.
Turning to see that business building in I would say that's kind of been the end of the SDK.
Consumer view I do I do see a little bit more of profit sharing in the restaurants. So I just see.
And I think Tyler mentioned earlier that our check or mix. The mix is down is because we just see a lot more sharing.
And the restaurants that we used to see before but again.
It's not that.
Dramatic, but you definitely do see it would've been in the restaurants now.
Great. Thank you.
Moving over to Kona Grill.
Sure, it's something I think we've kind of been looking forward for a little while and just curious if theres any update but can you just share or maybe quantify at all.
Kind of the Columbus, Kona Grill, if you prefer and have numbers from river team Thats, great, but I imagine it's early just trying.
Anything to point to how much better.
On maybe margin side, the kind of remodeled Columbus, Kona grill is relative to the average.
Yes, I mean, I wouldn't call it a remodeled because we actually built a brand new restaurant in the same property. We did if we go there now we don't we won't even recognize its the same rationale.
In context of that question, though.
I'll tell you that.
That restaurants with a new look field design layout.
It is up over 30% volume and this is actually a really good test because we took the same real estate will just put in there the new platform, new look feel and operation and we gained over 30% of sales per week. So.
To me that was a really good task to really tell me how good.
If you will the revised brand is so we do know that there is a lot of power in the new menu and the new service style.
And a little bit more energetic environment to put in there so check the box and that I'm Super excited about that and that tells me really that some of the stuff.
It gives us some directional look that we've done the right things in terms of what they're doing with Brian in terms of revert and it's obviously.
Very early but I.
I will tell you that we opened that projects frankly with no real marketing, which has opened the doors.
And we're ready.
Above system average on the weekly volume for that restaurant and that just even without doing any of our marketing strategies, there and it's frankly.
<unk>.
Phenomenal project, it's a great.
Timna Center count projects.
And again, the real estate is fantastic and.
It's a beautiful restaurants, if you go out there and look at the videos that people have been posting promise.
We did get an incredible.
A score in our benchmarks with our customers relative to look and feel and the experience and it is really good. So I would say the one two punch coming out of Kona Grill is.
We're really excited about same store sales momentum I think that the new store venue.
The revenues are fantastic coming out of the new units and obviously the third item here that we will.
<unk> strong results is in the end the margin side, because when you go to the new restaurants, you'll notice that the kitchens are smaller the sushi bars are closer to.
To the to the kitchen, so that we don't have as.
As much space allocated to the sushi bar that we really weren't using a lot of Neil the older restaurants, and the margin profile for those restaurants is significantly better just because.
Labor costs are are dramatically lower because we do not have.
Two kitchens in the restaurant anymore, we have.
<unk> kitchen with it with a sushi extension and that will save us several points in margin and last thing I would say about the new Carnival prototypes is was invested in kitchen technology. So a lot of our well not a lot all of our new restaurants that were building has.
<unk> see efficient equipment packages that require less people to operate the kitchens and.
Provide better quality products, so we're hitting both quality and cost in the long term with a new kitchen layouts and equipment packages.
Great. That's very helpful. One last one if I can.
Just in terms of of some of the digital marketing.
Anything you can kind of point to that Youre really seeing.
The success from it that you are.
It's worth it is helping its driving traffic.
Anything you can kind of call out or point there.
Yes, I mean as you know, we've always talked about digital marketing being the.
The backbone of the company and we we measure it.
With a click throughs and the <unk> and results in the in reservations and frankly it is.
Variable for SDK and so we're super excited about that that's one of the reasons why we took on more digital I think are a digital model is also evolving.
From what we used to do which I am happy with we're going more into the Influencer and frankly, we want to again gain market advantage of Influencer. So if you look at a lot of our.
Stuff that we do digital.
We've gone away from just specifically hitting on.
The ads on Instagram, and Facebook and stuff I think thats everybody already does that.
Our emphasis now is in building integrated Influencer networks, and so youll see us.
We need to evolve that strategy.
We're very excited about that we actually.
Did very well with.
That network.
With us.
With our <unk>.
<unk>, which was off the charts successful. So we're super excited about some of the things that we're doing with <unk>.
The new evolution of digital and Influencer in the in the market.
And again, that's super efficient.
Cost.
<unk> is very measurable and can track, what's actually getting returns and.
We'll shoot for.
Committed to continuing investing in digital.
Yes, I appreciate the color best of luck guys.
Thank you Sir.
The next question comes from David Cannon with Cannon wealth management. Please proceed.
Hi, guys.
Thanks for taking my questions.
First one is in regards to the second half of the year in your guidance.
What are the levers with the initiatives that you are deploying to grow same store sales that you referenced in the prepared prepared remarks and then.
What are the initiatives that you have underway to drive up restaurant level margin.
On the cost front.
So probably three things one I think as <unk> mentioned earlier, the lack is way easier.
The third quarter and easier in the fourth quarter relative to where we've been.
So I think there is.
Less swimming upstream relative to traffic, so I think thats a favorable item for us number two.
I think as I just mentioned earlier, our continued emphasis on digital and.
Particularly.
Emphasis and Influencer networks, and driving that strategy is going to help with <unk>.
Same store sales I think we also.
Our evolving well and we are <unk>.
<unk> our neighborhood Perks program, which is basically.
Digital App, where we doing our local store marketing through.
Digital so that's another layer of.
Of newness that we didn't have in the past so I think thats going to be a net add to.
Our business and.
And then I think from a margin perspective.
<unk> opened new restaurants, right off the shoots we're moving a significant amount.
Managers of the restaurants to the new boxes.
So thats going to.
We're going to benefit.
On sales.
And the labor has already loaded and so we will get.
A lot of relief on the margins on the labor side for managers.
And then again, just the fact that.
We've now have rebuilt the.
The talent that we took and put into the training teams.
It dramatically helps and I think Paolo mentioned that where we're doing.
Operating cost initiatives and everything from paper.
We're changing.
The paper products in the restaurants I.
I think that's what they'll be.
An important initiative to safeguard I think Tyler mentioned credit card processing fees were doing certain things there to help with those costs and then we also have some contracted vendor cost debt.
That we're just going to probably starting to stop using outside.
Companies and do the work ourselves. So I think just the combination of those items will help but make no mistake that les.
Labor and just the number of bodies on existing stores and moving them to new restaurants will make the most dramatic part on the margin also remember that Kona grill now with.
Same store sales and pricing will also help the margin for us.
The Bakken and I truly believe that the new restaurants with the more efficient kitchen.
Unless fixed flavor on it.
The impact that.
That line pretty well remember that three new units and Kona Grill, which we're now ready to open the.
The Phoenix one year soon is over 10% unit growth for the brand. So we're we're bringing and very effective.
New restaurants with great labor model not to mention that the lease cost on these new restaurants.
It's better than the existing portfolio, so we're going to get to our margin.
Jennifer from having better rents in addition to that of labor out of these restaurants, so I'm pretty pretty hot.
Profitable then we have enough.
Items in the margins is it to bring it back up.
Okay that makes sense.
Year to date.
You spent $24 million on Capex, you have in our growth and aggressive growth plan for the second half of the year.
What do you expect the incremental capex to be in second.
Second half 2023.
Yes, I mean, so that $24 million reflects.
Investment already in a lot of restaurants opening even in the fourth quarter.
And in some cases, we face for some things already in the in the first quarter of next year development, because we pay for architectural and.
Permitting and other.
We order leads items much earlier now because some of these items not take six 912 months to get in there. So we do a lot more capital investment upfront I think Tyler on the on the capital guidance. What are you thinking for the year the range on our capital.
Yes, David So I think the guidance implies something between.
<unk> 35 and $40 million.
Net and remember.
The 23 is a gross number so it does not include <unk>.
<unk> that we've received.
From landlords, which is several million dollars.
Okay. So the back half of the year, we will spend $10 million to $16 million versus roughly $24 million in the first half of the year. So therefore, we will generate.
More significant free cash flow in the second half of the year is that safe to say.
Yes, I think I think that's right and just from a.
The math on the Capex I think Thats, where I remember that's a net number and then from a free cash flow perspective, we do expect positive free cash flow for the backup.
Also just for just from that.
An analysis perspective, we do provide in our 10-Q, a table that shows that ti amounts by quarter three.
Our perspective on what the actual net investment is on the new restaurants. So you can always.
You get down to the net number on that.
Okay, and then in your revised guidance.
The first half of the year was $19 6 million of EBITDA. So the revised guidance is that youll do $25 million to $30 million between 25 to roughly little over 50%. If you hit the high end.
EBITDA in the second half of the year.
Which is good that's encouraging.
My question is exiting the year with the new stores already stood up the better margins some of the cost initiatives.
What will be the run rate before you I know youre going to probably do another 10 stores next year.
But.
Existing the year.
What do you think the run rate is before adding another 10 stores in 2024.
I mean, I think again, depending how they all come off the shoots.
I would say our run rate is north of $55 million anywhere from 55 to over 60, depending on the new units can manage that come at model closer to $55. They are above model.
Lack of experience within USG cash private closer to 60 again, we didn't provide formal guidance in there, but it's a number.
Closer to $55 million to $60 million coming out of run rate.
Okay.
Is that reasonable.
Do another 10 stores next year in 2024 or is that too aggressive.
While we have 18th leases right. So.
And of those 18, we have 12 already.
Under some level of design construction are almost done.
But again, we will have optionality, obviously as we get.
In the middle of next year, we can always do a notable if we continue the accelerated pace or not but everything that we see right now is that.
The new restaurant.
Volumes have been consistently positive and above model where.
You always have to knock on wood when you talk about those things, but we've been above model and the restaurants that we have opened so.
You cannot always anticipate that that will go forever because.
That's not a reasonable expectation, but if you look at the quality of the pipeline. These are super high quality sites I mean, we're talking about.
Boston, Washington D C Charlotte.
I'm going to remodel panga I mean, we're talking some really incredible.
From a real estate and with the Kona Grill is exactly the same thing with data.
Another great project coming.
And Desert Ridge in Phoenix, which is our world class Mall.
Tigard, Oregon, which is an another center cow.
I'll tell you the number one thing that I'm Super pleased about is that for Kona grill.
Developments.
95% of the sites that we have is all landlords are landlords want kind of oil so you're starting to see a very strong trend here, where some of the super high quality landlords.
The new prototype in the view of what we do with the Kona Grill.
<unk> plus for their projects. So it's really encouraging it's a very strong pipeline.
Once again.
As planned we have.
A lot of restaurants now ready to go.
And it's just a matter of getting the training teams through them now and getting them open.
Okay.
So it sounds like the prospects for the long haul are very positive now based on Capex being less in the second half of the year EBITDA being higher you will generate.
Significant free cash flow you have $38 million in cash at the end of the quarter <unk> been actively buying back stock, which I love.
However, there is only about I think just under $4 million last three maybe $3 7 million and the stock I'm looking I don't know if this will.
Sustain itself into tomorrow, but when I look at the stock right now based on the headlines it's trading down to like $6.
Even the prospects that you are articulating the free cash flow is it is it safe to say that you will be more aggressive in retiring shares in the back half of the year. If the stock continues to be weak like this getting down to $6 or youll probably.
Move at the same pace.
And just increase the buyback slightly.
Yes.
I think probably the way for me to answer that question is we will continue focusing on growth.
I am please hold it appears that our speaker line has dropped.
Okay.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Okay.
Excuse me everyone. This is the operator, we are not able to get the speaker line back at this time and this does and the question and answer session.
And the call for today.
I would like to thank you for attending today's presentation and you may now disconnect.