Q2 2025 ONE Group Hospitality Inc Earnings Call
Greetings and welcome to the 1 group. Second quarter 2025 earnings conference call.
At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.
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After today's presentation, there'll be an opportunity to ask questions to join the question queue. You may press star then 1
On your touchtone phone to withdraw your question. Please press star. Then 2 as a reminder, this conference is being recorded. I would now like to turn the conference call over to Tyler lloy, please go ahead.
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 the date of this call.
We undertake no obligation to revise or publicly release any revisions of these for looking statements, considering new information or future events.
We refer you to our recent SEC. Filings for more detailed discussion of the risk that could impact our future, operating results in financial condition.
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 and 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. Eva dab, adjusted net income restaurant, Evita comparable sales and total food and beverage sales at company-owned manage licensed and franchised units to gaap measures along with the 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 Manny Hilario.
Thank you Tyler, and thanks to everyone joining us on today's call.
Before we get into the results, I want to take a moment to recognize the incredible dedication of our more than 10,000 teammates across the organization.
Your commitment to excellence not only drives our performance; it creates the great guest memories that keep our guests coming back time and time again.
With that, I'd like to discuss our second quarter highlights.
We are pleased to have delivered results that matter expectations.
We achieved strong top-line growth of 20%, driven by the successful integration of our Benihana acquisition and continued execution of our key strategic initiatives.
Adjusted IBA dial was $23.4 million, and the scoring our ability to drive efficiencies and profitability despite the challenging consumer environment.
Traffic at SDK the second and third consecutive quarters for each metric respectively.
Integration efforts following, the Benihana acquisition are progressing ahead of schedule and we are already realizing meaningful operational synergies.
Across multiple business areas.
And finally our development strategy continues to gain momentum. So far this year, we have opened 3, new company owned restaurants and our second franchise Benny Han Express location.
Now, let's discuss our strategic priority number one first.
Drive and accelerate same store, sales growth.
Same store, sales growth remains our top priority and we continue to execute against our proven framework.
Built around three pillars: operational excellence, culinary innovation, and relevant and timely marketing.
Demand remains strong during Peak periods, particularly on Fridays and Saturdays. And we are focused on maximizing throughput through enhanced reservation systems and centralized Logistics.
These tools also allow us to better manage high volume occasions. Like our record-breaking Mother's Day by balancing know shows and walk-in traffic to deliver exceptional guest experiences.
To address weekday traffic. We've continued to emphasize value focused programming, including our prefe menus at $9 for SDK and $9 across all other brands, along with our highly popular, $3 $6 $9, happy hour menus,
these offerings are resonating with more value conscious guests, while maintaining our premium position
As we see more thoughtful spending Behavior, particular SDK with increased demand for shared dishes and prefix selections, we've leaned into these patterns to drive weekday, traffic and engagement.
On The Culinary Innovation front. Our you program at Benihana continues to meet expectations and we are preparing exciting. New premium menu enhancements across the portfolio. Intended to drive engagement and average check.
Marketing continues to be a core growth lever.
Our new friends with benefits loyalty program launched in Q2 is designed to deepen guest relationships across our brands.
With more than 7 million contacts in our marketing database. This initiative is already showing strong traction and repeat visitation.
Members earn points for every dollar spent and receive exclusive rewards.
Including birthday and half-birthday offers that encourage frequency and celebration across our portfolio.
As national casual dining chains intensify promotional campaigns, we are responding with investments in targeted grassroots marketing, including stronger local store marketing and digital engagement to build brand affinity and increase guest frequency.
Secondly, focus on asset light or low-cost growth opportunities and prioritize high quality relocations.
we continue to execute our multi-pronged growth strategy balancing company-owned development with asset, like models, that deliver Capital efficient returns,
So far this year, we have opened a new Banning hand in Sato California which is the highest performing new banana in the company 6 year history.
Followed by a new SDK in to panga and we relocated SDK Westwood to a larger higher capacity location to strengthen our presence in that key Market.
Additionally, we open our second franchise. Banyan Express in Miami Bayside Marketplace.
As you can see, franchising is gaining momentum and we are inactive discussions with high-quality partners.
Over time we expect franchise license and manage locations to represent over 60% of our total footprint, driving scalable growth and reduced Capital intensity.
Looking ahead, we plan to open 5 to 7 new venues in 2025, including a company-owned Benny Hunt in Seattle, Washington, and the relocation of Kona Grill, San Antonio, to a higher-performing trade area.
Relocations remain a key strategy to unlock stronger. Returns in existing markets by prioritizing nearby. High-quality real estate opportunities in markets that are already embraced Our Brands. We can increase capacity, optimized, traffic, and better position Our Brands for long-term success.
Number 3, continued optimization of the growth portfolio.
We continue to assess and optimize performance across our portfolio and the growth Concepts remain a clear area of focus.
While execution at the store level is strong, traffic in the upscale, casual segments remains challenged.
And Grassroots efforts to drive awareness trial and repeat visits.
This past quarter, we closed 5 reel locations that were coming up on lease renewals or whose real estate quality did not match that of the rest of the portfolio.
Our growth strategy for the growth concepts will be very disciplined. We will grow selectively, focusing only on top-tier opportunities that align with our brand standards and return profile.
as the broader, casual dining segment experiences pressure, we remain committed to enhancing performance while making strategic decisions to ensure long-term viability
Number 4: Maintain balance sheet flexibility.
Our balance sheet remains strong, with approximately $50 million in liquidity, including cash, short-term receivables, and revolver availability.
This provides us with operational flexibility to navigate near-term challenges. While supporting long-term Investments
We continue to prioritize positive cash flow generation and have implemented costs discipline across our functions from labor optimization to marketing efficiency.
Lastly the Benny hunt integration is progressing ahead of plan. We've already captured a significant portion of the 20 million in expected synergies with full realization targeted by the year end 2026. Importantly, this integration is not just about cost savings. We are leveraging our strengths and operations culinary Innovation and marketing to unlock Topline growth across Benihana and rasushi.
Looking longer term, we remain focused on scaling from 1 billion to 5 billion dollars in System, Light sales.
Our development roadmap includes over 200 potential SDCO locations and more than 400 Benihana opportunities in the U.S.
Supported by a blend of company owned franchise, licensed and managed locations.
SDK continues to deliver industry-leading unit economics generating approximately 11 million dollars in annual revenues with 20% plus rational level margins. And as we previously mentioned the Benihanas
We anticipate net, capital expenditures would be between 3 million and 5 million dollars per location and expect significant franchise interest in this model.
As we move into the back half of 2025, we remain confident in our strategy and our ability to execute, despite a challenging macro environment. We are seeing positive signals and are well positioned to gain, shared through our differentiated Vibe dining model.
We are building a unique portfolio of accounting brands that deliver not only for guests, but for our shareholders. With that, let me turn it over to Tyler for the financial details.
Thank you, Manny.
As a reminder of beginning this year, we are reporting financial information on a fiscal quarter basis using 4 13. Week quarters with the addition of a 53rd week when necessary.
For 2025, our fiscal calendar began on January 1, 2025, and will end on December 28, 2025. Our second quarter contains 91 days.
Let me start by discussing our second quarter financials in Greater detail before providing our outlook for the third quarter and the current year.
As a reminder, we realize 61 days of the Benihana and Rosie acquisition in the previous year quarter.
In addition, the current quarter includes 5.6 million in lease, termination, and exit, expenses related to the 5 Grille locations. We exited nearly all of which was non-cash flowing through our operating and net income.
Total Consolidated, Gap revenues were 207.4 million increasing 20.2% from 172.5 million for the same quarter last year.
included in total revenues, where our company owned restaurant, net revenue of 2003.9 million, which increased 20.6% from 169 million, for the prior year quarter,
The increase was primarily due to the 30 days of ownership of Benihana, raw sushi, and contributions from the opening of 7 restaurants since the beginning of the second quarter of 2024.
These were partially offset by 4.1% reduction in Consolidated comparable sales.
Management licensed and Insanity revenues remained flat at $3.5 million for both quarters.
Revenue remains flat at 21.2% for both quarters.
This was primarily due to integration synergies opts out by higher than anticipated, inflation driven by chicken eggs and certain custom fees.
Company-owned restaurant operating expenses as a percentage of company-owned restaurant. Net revenue, increased 210 basis points.
To 63.5% from 61.4% in the prior year quarter.
This was primarily due to the addition of Benny Hannah and Raju result in April which typically have lower revenues and lower margins than that of the rest of the quarter.
In addition company-owned operating expenses were impacted.
By investments in marketing general cost inflation and fixed cost deal leveraging driven by decreasing comparable store sales.
Restaurant ibaa decreased 210 basis points to 15.4% compared to 17.5% in the pre prior year quarter.
This included restaurant IBA Dub, 18.5% for the Benihana location, and 15.9% at the SDK location.
The 2 new SDK restaurants open during the quarter impacted SDK margins by 80 basis points. Due to increased costs during the startup period. And we anticipate these costs of normalized during the balance of the year.
On a total recorded basis. General administrative costs, increased 1 million or 9.7%. To 11.7 million from 10.6 million in the prior year quarter driven by the addition of Benihana. In the second quarter of last year, a step by reduction in performance-based compensation effects.
When adjusting for stock-based compensation, adjusted General and administrative expenses were 10.2 million and 9.1 million in the second quarter of 2025 and 2024 respectively.
As a percentage of revenues, when adjusting for stock-based compensation, adjusted General and administrative costs approved, 40 basis points to 4.9% compared to 5.3%.
The Improvement is due to the sales. Leverage realized through the benanna acquisition, the implementation of cost savings, and integration Synergy, and a reduction in performance-based, compensation expense.
To appreciation and amortization expense was 10.9 million compared to 8 million in the prior year quarter.
The increase was primarily related to depreciation and amortization for the Benihana and raw sushi restaurants, depreciation associated with the opening of seven new company-owned venues since July 2024, and capital expenditures to maintain and enhance the guest experience in our restaurants.
Pre-opening expenses were 1.4 million consisting, primarily of payroll, training, and other costs with any honest and Matteo and SDK to Pongo which opened in March, 2025 and April 2025 respectively.
Payroll and travel costs for the training team and pre-opening expenses for restaurants currently under development.
Pre-opening expenses were $2.5 million in the prior year quarter.
Operating income was 0.7 million compared to 1.1 million in the second quarter of 2024 and included 5.6 million of these, termination and exit costs in the current recorder. Excluding those costs operating income would have been 6.3 million
interest expense was 10.3 million compared to 7.9 million in the prior quarter, due to our higher level of outstanding debt post-acquisition, which occurred during the second quarter last year.
Provision for income tax with 0.7 million compared to a benefit of 3.5 million in the prior year quarter, the effective income tax rate year to date through the second quarter over with negative 11.3%. Compared to 27.1% with the same time in the previous year, which is driven by the company's FICA. Tip credit
Net loss was 10.1 million compared to a net loss of 7.3 million in the second quarter of 2024 and the current year includes the 5.6 million in affirmation lease X expenses, the majority of which were non-ash.
Net loss available common stockholders with the 18.2 million or 59 cents net loss per share compared to 1 1. 9 2 4.
Adjusted net income was 1.7 million or 5 cents. Adjusted net income per share compared to an adjusted. Net income of 6.3 million or 19 cents adjusted net income per share of the prior quarter.
Adjusted EBITDA attributable to the ONE Group Hospitality was $23.4 million compared to $21.8 million in the prior year quarter, an increase of 7.3%.
We finished the quarter with 15.1 million in cash and short-term credit card receipts.
And reduction of a crude payroll. At the end of its second quarter, versus the end of the first quarter.
We finished the quarter with $33.6 million available under our revolving credit facility, which remained on.
Under the current conditions. Our term loans does not have a financial Covenant.
Now, I would like to provide some forward-looking commentary regarding our business. This commentary is subject to the risks and uncertainties associated with forward-looking statements, as discussed in our SEC filing.
We, as always, remind our investors that the actual number and timing of new restaurant openings for any given period is subject to a number of factors outside the company's control, including macroeconomic conditions, weather, and factors that are the control of landlords, contractors, and licensees.
And Regulatory and Licensing authorities.
Based on the information available now and the expectations as of today, we are issuing the following financial targets for the third quarter of 2025.
Beginning with the top line, we project total Gap revenues of between $190 million and $195 million, which reflects our anticipation of consolidated comparable sales of between -4% to -2%.
Manage franchise and licensee revenues are expected to be between 3 million and 4 million.
Total companies operating expenses as a percentage of company-owned restaurant net revenue of approximately 86%.
Total GNA excluding stock-based compensation of approximately 11 million.
Adjusted EBITDA between $15 million and $18 million, and finally, restaurant pre-opening expenses inspected between...
million.
Based on the information available now and the expectations as of today.
We are reiterating the following Financial targets for fiscal year 2025.
Please note, this does not include the potential impact of tariffs on broader economic conditions.
We project total Gap revenues of between 835 and 870 million.
Which reflects our anticipation of Consolidated comparable sales of minus 3 to 1%.
Managed franchise and licensee revenues are expected to be between 15 and 16 million.
Total company-owned operating expenses at the percentage of company-owned restaurant, net revenue of an 83.5 to 82.2%.
total G&A, excluding stock-based compensation of approximately 47 million
Adjusted, Eva dove between $95 million and $115 million.
Restaurant pre-opening expenses of between 7 and 8 million.
In effective income tax rate of approximately 7 and a half percent.
Total Capital expenditures, net of allowances received from landlords of between 45 and 50 million.
And finally, we plan to add 5 to 7, new venues.
I will now turn the call back to Manning.
Thank you, Tyler, before we open it up for questions. I want to emphasize how excited we are about the future of our business.
Our path to 5 billion dollars in systemwide sales remains clear and achievable.
With our strength and portfolio expanded franchise capabilities and proven ability to deliver industry-leading margins. We're well, positioned to capture significant opportunities ahead of us.
We thank you for your continued support and look forward to sharing our progress in the course ahead.
Tyler, I look forward to your questions, operator.
Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone, if you are using a speaker-phone please pick up your handset before pressing the keys. If at any time you your question has been addressed and you would like to withdraw your question. Please press star. Then 2 at this time we will pause momentarily to assemble our roster.
Our first question comes from Brian. Mullen of Piper Sandler. Please go ahead.
Hey hey thank you guys. Um question on on Benihana. It's it's it's encouraging to see the positive.
Things for sales again at the brand. Um, you know, as we looked at the current quarter, it seems like the brand has an easier comparison. Last year was down 4% in the third quarter. Can you just remind us what some of the issues were last year that you'll be lapping over? Did that have to do with integration or maybe something else? And then just later, talk about any initiatives or particularly exciting things to drive the top line at Benihana over the balance of the year.
We spent quite a bit of time last year, working out the temperature, uh, and air flow issues in the restaurant. So I think that was kind of a year 1 learning from, for us, uh, this year, we're, we're much more proactive going into the summer months. Uh, we made sure that we got all the ventilation and some of those issues taken care of. So, uh, we feel much better about the, uh, the sales opportunity for the brand and the third quarter this year.
Okay, and then speaking with Benny, Hannah can you talk about the recently opened restaurants in San Mateo? Is it sounds like it's been a great opening from an authentic you know, Manny maybe remind everyone, what was different with this opening? Um, versus some of the Legacy restaurants, what have you learned and what does that tell you about the uh, future growth opportunity?
Yeah, I think the the difference. What's the there's several 1 is
On the actual design of the restaurants, we chose to eliminate the sushi bar uh, from within the property. So there's no sushi bar in the restaurant, which created additional space for uh for tables. We also decided to add tables in the bar area, which was new for the uh, for the the model. So we we were able to concentrate more tables within the restaurant.
Um, actually it's only 7,000 square feet, and we were able to get in a significant amount of tables. The other things that we've done include lightening up the colors and adding a takeout delivery station in the property, which helps with the flow of the customers coming in and out.
Um the color scheme of the restaurant is is brighter more welcoming. Um you know, it's a more bright colorful environment new artwork.
Um, so it's significantly better from, uh, an Aesthetics perspective and then from a pre-opening, uh, model. Uh, we did a lot of, uh, earlier marketing which was not really typical, we put, uh, a lot more ads, more. Uh, we but, um,
uh, we, we put them a lot more emphasis on the pre-marketing and then we leveraged our digital assets, uh, right away, to let people know that we were open. So I think the opening from day 1, uh, frankly, we, we were super busy on the first 2 or 3 weeks of the, uh, of the opening. We opened the doors, and frankly it was all about managing capacity, so we've been very happy with that. Uh, and uh, uh, as we continue operating the restaurant. I think that, uh, consumer base, uh, in the market is, is really has embraced that that restaurant. So we feel pretty good about, uh, uh, if you will the new look and feel as well as the new, uh, pre-opening model that we put in place for the location.
Okay, that's great. And then just 1 more for me, you know, question on the SDK brand you spoke to this in the prepared remarks a bit. But can you just talk about how your your managing this business is at the moment is ensuring positive traffic. Does that remain the main objective right now, even if you need to continue to give up a little bit, an average check at least during the week. You know. Is that? Is that how you foresee this?
At least while we're in this consumer environment. Any any color on? That would be great.
Yeah, I mean, I think our strategy with with SDK still is a a traffic working with happy hour, working with, um, you know, um, value price points, obviously, uh, in the in the current economy with the uncertainty with the consumer, uh, we think it's wise to have a great value proposition. So we we continue to emphasize that uh and then I think as we go into the third fourth quarter progressions, 1 of the things we'll continue to do is emphasizing premium products. So the barbell approach uh, to try to mitigate to the impact of value. So so that will continue to be our our strategy there. Um, as if, as if I always said, SDK is about market share. So, we're, we're retaining a market share in the existing restaurants, and then as we continue opening new restaurants, we're gaining market share. So, I, I feel, uh, very positive about the future of SDK, just because, uh, we're really grabbing market share right now in an environment that you should not. If you look at all the industry statistics, um,
Sales are relatively flat in the industry but traffic is down. So I would say that SDK being at the price point that it is and getting traffic is uh, incredible success, in terms of of marketing and execution.
Okay, thanks for me.
Our next question comes from Anthony.
Lee binsky of sidoti and Company. Please go ahead.
Hey, it's Tyler. Yep. So, you know, we definitely saw, um,
Uh, April and May, you know, April with the, with the holiday shift and uh, a little bit of the spring, brake brake shift coming out a little slow. And then we saw sequential approval about the quarter. Uh, and then, June ended up being the most, um, uh,
Having the best of the in in sanor sales of the Cadence throughout the quarter.
Gotcha. All right and then as far as you know, any Regional differences that to speak of or was it consistent throughout the your operating area.
I mean, I think it probably could see that. Um, by the way, this is Manny. Sorry, I didn't introduce myself there but
The, uh, I mean, probably the most meaningful geographical difference for us, has been Vegas. Um, Vegas was, uh, probably a challenge Market from, um, from just, you know, what we saw. But other than that, I, I want to call out anything else other than, um, that 1 particular Market.
Got it. So, so was this because of changing convention schedules, I think you had talked on the last call about that.
Yeah, we we have a I mean there's definitely been shifting. So if you, if you even look at the casino outlooks for the rest of the year, there's there's definitely Gambler shifting in in conferences, but then I also think that the other, uh, Factor impacting Vega has been the decline in Canadian, uh, visitors as well as some even Mexico traffic in the market. So, it's a combination of of, of visited traffic right now as well as shifting of some of the convention, uh, uh, calendar.
Gotcha. Okay. And then uh you know, thinking about your your guidance for the year you kept it unchanged. So it does imply a meaningful step up in the fourth quarter, you know, relative to what you've done so far and uh your guidance for the third quarter. So can you just walk us through? Like what gives you the confidence to maintain the annual guidance?
Well, I can't wait to get to the fourth quarter because as you probably seen in our seasonal results, we do like fourth quarters. Um, I think, uh, for take for us this year. Um, you know, we had Benny Hannah for the first time last year in the fourth quarter and we we frankly have a record days around every single 1 of the holidays and our biggest challenge, frankly was managing the, the logistics and the throughput uh at the tables and frankly that's 1 of the areas that the 1 group is very good at is logistics and management at tables. So we think that there's a a pretty large opportunity for us particularly with bani Hannah going into the fourth quarter, as you know, many
Hannah is a significant part of our sales. Now, it's over 55% of our sales. So we, uh, we feel very good about that. And then, as I mentioned earlier, uh, SDK continues to deliver strong traffic results, and we think that the holidays again will be an opportunity for us to leverage those, uh, traffic, um, uh, build up that we've been having for the last 3 quarters, so I think it'll be, uh, continue track of building the traffic there. So as we look at, uh, um, at the year, obviously, the fourth quarter is the quarter that, uh, we feel very good about
Sounds good? Well, I'm sorry. Go ahead.
Yeah, again, notice that none of my comments have to do with the economical or the economy. It's all have to do with kind of internal identified areas that I think I can get uh the team and organized around. So I think these are all uh within our control manageable situations. Obviously always the background is if the economy gets significantly worse than obviously, they'll be a little bit difficult to achieve, but uh, but in the context of the economy is staying where it is, and just the identified opportunities that we had from last year, I think this year should be a, a very good fourth quarter for us.
Sounds very good. Well, thank you very much and best of luck.
Thank you, sir.
Our next question comes from Mark Smith of Lake. Street Capital, please go ahead.
Hi, guys. I I wanted to ask first just about kind of the differences between Grill Concepts and, you know, SDK and Benny Hana customers. Uh, you know, what kind of behaviors are you seeing different between those customers?
I mean, I I think the
I think the the um, as I speak of grill and and we talked about the, the performance of it.
To the movie business and the movie business has been, uh, frankly challenged since Co. So that's kind of 1 of the things that we've continued to battle. The second thing that we continue to, you know, from a consumer and just and and and brand is that, you know, the girls do, you know, have seafood exposure. They're they're 1 of the higher consumptions of of seafood. And and in reality when you know, the consumer is, is more uncertain about the future or makes changes on the buying patterns Seafood, tends to be 1 of the areas that is been, you know, is less, um, you know, um, if you will frequent. So they tend to take those visits out faster than other other type of culinary. And then the other third item that I mentioned about the, the the grill in general is because we have a concentrated base of sales and Sushi, um, and everybody who's now can get a sushi machine, can be in the sushi business relatively, uh, with a low entry price, uh, point or, or
Or or low barriers of entry. And so there's a lot of there's a proliferation of really low cost Sushi competitors everywhere. So, we've had to deal, uh, with with the fact that those are things that are different about that business and and I guess the fourth item too is is you may recall the, the reason we bought the grill is we like the bars. We like the vibe that came with the bars. And if you look at all the metrics, uh, in in today's, uh, consumption of alcohol, that's 1 of the areas that you see, um, a little bit of a slip. So,
Again, those are all the handicaps, so we understand that, but, uh, those things, um, you know, we do have answers for all of them. Uh, we also have some locations that were not exactly in in real estate that we would have done today. So right now we're working the portfolio. Uh, as you saw on on some of our uh, releases and on our 10q, we did close 5 real locations in the quarter because we're resetting the portfolio. So that's probably number 1 is to reset portfolio priority. Number 2 is we we continue to innovate in the brand. So you were looking at the menus and adding a lot of food offerings that are Beyond Seafood. Um, and the third thing is we just continue to evolve marketing because um in the Casual category right now, marketing is critical and uh there's a lot of big competitors with big budgets. So we do have to step up our marketing and and uh, Investments. So those are kind of like the the the if you will kind of a really long answer to your question but the reality is uh there's some short-term uh
Short-term challenges there, but we still like the grill in the long term because as consumer confidence comes back, we think that they're going out for seafood offerings and everything else will get back in play. Hopefully that's helpful. I mean helpful. That was a pretty long answer.
No, that. That that's very helpful. I I, I did want to dig into, just the, the closures a little bit more if we could just, you know, were these all Corners, you know, where, where all of these lumped into kind of what you call, non-core units. And, and maybe, how many of those closures were were at the end of the lease term.
Yeah, the majority.
The majority of them were on the final option of their leases.
Uh, so they were they're already kind of lapsing out and um, and so that was a, a big important factor in in, in terms of how we've identified some of these locations. And and I don't Not only, would they at the end of their life cycle, they are some of them require significant Capital Investments and we didn't think that, you know, based on their performance. And, and, and the quality of the real estate that we really want to go there. So that's, you know. And so those were the ones that were classifying as a non-core uh, Royals in in our external reports.
Okay.
Um, in the last 1 for me, I, I think Tyler, you talked a little bit about, uh, some places where you've seen some food inflation. I think it was chicken eggs and and a little bit of beef and any other insights or anywhere post quarter where you where you're maybe seeing some inflationary pressure.
Yeah, Mark I think uh you know, we saw some of those Commodities come down a little bit so I think that we anticipate uh a little bit less pressure there on the Commodities coming in the second half of the year. I think the 1 thing that we're watching is just um,
You know, beef prices are just tending to be a little bit more sticky than, uh, than maybe we would like.
Okay.
Frozen Seafood for the fourth quarter, that kind of helps us uh keep the the cost baskets somewhat mitigated.
Great. Thank you.
Our next question comes from Joe Gomez of Noble Capital. Please go ahead.
Good afternoon. Um, I was wondering if you could give us a little more caller in the, the franchising efforts for Benny Hannah. You know, we've talked in the past, we've talked about, you know, you've updated the information of elevating awareness.
And just trying to get a, you know, better handle on when you you think you're going to start to see, you know, agreements come in and the, you know, is there going to be? Do you think 1 store, multiple locations? Um, is it, you know, existing our new franchisees that you think are going to be attracted to the model? Just a little more color. There would be appreciated.
Great, great question. So yeah. So we have, we've obviously already addressed the fact that we've invested in infrastructure, so that's that's, that's been done already. Uh, the second item that we. We've worked on, is obviously with the San Mateo being kind of our new prototype is really working on the, on the cost per square foot because obviously to drive franchising interests. You got to have a, a strong um, and and a a cost. Uh, so that franchise is can afford.
To, uh, to build these restaurants. So I, I think that's that's been something that we've worked on. And and we got a lot of learnings out of San Mateo. So, check the box on on getting to the, to the right cost on that. And then, in terms of Benny and the franchising, specifically, we have 2 models. We have the the full-size restaurant, anyhow the restaurant. And and what we're seeing there is we're seeing a lot of interest, uh, from existing franchises. So we have existing franchises in the system now that are wanting to do number 2 and 3. So you'll see uh, some uh, new agreements and some new uh, commitments coming from existing franchises on The Big Box model and then you probably saw that we opened up uh, our second Benny hunt Express in Miami and we got a tremendous amount of of um of uh, excitement around that Brandy. Basically offers the same food, uh, that you would see at a Benihana, particularly the, we have a really good offering in in fried rice. So definitely a lot of excitement about bringing the venue.
Hannah, um, product without having to put the full tables in the dining room and and that model we've actually showed that off in uh a lot of franchising conferences. We, we started to participate in a lot of Industry events and so forth. So we're starting to get a building up a book of people who are looking at it. And and we've just opened our second 1. We have a third 1 uh in the pipeline. Actually we have a third and fourth 1 in the pipeline that will be announcing uh in the near future. So I think the pipeline is is building up for the been
Express as well. So, you know, we're probably, you know, 90 days out from starting to make some announcements on development agreements.
Great, thanks for that. Um and then I'm just looking at the balance sheet, you know, cash.
At a quarter end, you know, sell, you know, to about 4.5 million from, you know, $21 million at the end of the first quarter.
I was 1 of the anything specific behind that. Are you still comfortable with the liquidity level there? Um just some more, you know, detail on that would be appreciated.
Hey, Hey Joe, this is Tyler. Yeah, so um you know we talked a little bit about it in our prepared remarks around, kind of the shifts and working capital on a week to week basis and so a lot of what you're seeing there is just um, the difference in acred payroll and the amount of acred payroll that we have on the balance sheet between kind of 1 week to the next. So, um, that's that's a big part of what's driving that and then I think from a liquidity perspective. Yeah. I think we feel uh, comfortable um, from a from just an overall liquidity position. Yeah, I think you also, if you look at our Capitol guidance for the year, we and you look at our, our guidance and where we spent the money where front ended on Capitol, and for a lot of reasons, we have the new restaurants coming up right at the beginning of the year. And I think, as I answered 1 of the questions, we did have some
Planned a capex, particularly for Benihana that we got out of the way in the first and second quarter because we want to get the HVAC and everything ready for the summer. So so I think it's a function of both the working capital shift as well as the front end of uh, cap ex uh budget
Great. Thanks for that. I'll get back in queue.
Thanks.
Comes from Jim Sanderson of North Coast research. Please go ahead.
Hey, thanks for the question. I wanted to go back to the outlook for the back, half of the year on same store sales. I think the the guide, uh, has a nice range in there, what would it take? Or how do you look at getting to the, the lower range to the in the third and fourth quarter? Assuming that your egg sitting around -4?
Hey Jim. It's a you know round negative to really for the back half of the year.
Right. And what would it get take you to get to that? Uh,
Stronger Outlook. Another time you're looking at the puts and takes based on the Range. You provided, you mean, getting to the better end of the range on on the okay. So I, I, I
I mentioned earlier uh you know obviously going into the fourth quarter of the big variable is always the event business. So we're still kind of early on kind of figuring out what that ultimately looks looks like. And then as I mentioned earlier on, um, to 1 of the other questions is I I think it's really about how much uh 2 foot we can get through Benny Hannah because that ultimately makes all the difference in the world. You said a little differently is our turn times are not as about uh 2 hours at Benihana. And if we can get it down to about 90 minutes in the in the fourth quarter. That's really what the answer is. So so what whatever we end up between 90 minutes and 2 hours on a
Turn time is really going to make a difference on how much we can really push that fourth quarter.
Sales.
If that makes any sense.
Sure. Yeah. So, uh, so leaning into marketing events for Holiday perhaps and then, uh, improving turn times of Benihana would be 2 variables. We could
We could see you get a little bit further along.
On the guide. Excellent. Um to that point, how do we look at the Loyalty program? That's something you just launched. What do you expect out of that meaning? Um, do you expect higher frequency, higher average, spend anything you can tell us about how that's going to work.
Well, I, I think another great question. So we have 7 million members um, in the, in the database now, and it's really now about creating activity with them. And so, it's now a marketing game of, you know, communication and and driving awareness about it. And then we're also now, uh, really engaging and um, and sign ups at the restaurants. So we we've put a lot of efforts and campaigning be behind that. So I, I think the next 3 to 6 months is going to, you're going to see us uh continue to go, have you and bring people in and then uh utilizing a more direct marketing to that to that group. As you know uh in the industry today, a significant amount of uh visits in the industry now is with loyalty uh in uh attached to it. So we think going into the fourth quarter again as we build momentum with the program in the third quarter. Because we we just very recently launched it, I think as momentum builds in loyal
It will start seeing a payoff of that in the fourth quarter. And for sure, I think the first quarter of next year is where we'll really see the payoff of of really building up these nice databases on loyalty.
Understood and then going back to the new Benihana location in San Mateo and that strong performance any learnings that you can apply to um, the current store base.
That would improve. Um,
yeah, so that's another great question. And um, yeah, so the the first thing that we we're learning on is that uh, we're probably going to move sushi bars to a lot of the, uh, to the back of the house, in, in existing restaurants, which would free Up Room, uh, in a lot of our properties to add 2 to 3 tables, uh, in in some of these properties. So as we start adding 2 to 3 tables, and some of these properties, uh, we should see a significant Improvement, um, throughput. So so that's kind of the, the short term strategy and short-term learning out of it. I think the other thing that we've learned, um, from the, uh, the new opening in San Mateo was having a dedicated, uh, takeout delivery station at the, at the location takes, uh, customers away from the host stand and really opens up the flow, uh, um, of customers in the property. And we already have a very constricted flow, uh, because we're busy, if you go to our Benihanas on Fridays and Saturdays is standing room, only in the front area, so having the tucked away, take out the
When we really help.
Uh move through people and and and we see actually frankly a little better turn times in that restaurant just because it's easier to flow customers from the front of the dining room to the to to uh to the table. So I think that's been too uh easily easy to adopt, kind of learnings from that prototype for the rest of the brand.
board with respect to, uh, leases that would indicate further closures or exiting the
Raw sushi business.
Um, I mean again as
I, as I always say, we always look at portfolio and we're always looking at seeing, what makes the most sense, uh, to keep around and and frankly, uh, we're always evaluating that we're looking at, you know, end of end of lease. Uh, restaurants. Uh, you know, the reality of this. We we already have we have a lot of grills. We are kind of that 17 189 year of Life. Uh, you may know this or not, but Corner grills expansion. Period was between 2006 and 2010 was kind of like the Golden Age of growth for them. So, uh, on that note, there's a lot of restaurants approaching, you know, that 20 year, uh, uh, cycle on it. And then obviously, uh, the decision that Tyler and I and the team have to make is, do you chase an old asset that needs a massive remodel at the end of the, the lease and, and has problematic real estate, or do we? Uh, go ahead and, and, you know, as I mentioned, uh, in my, in my, uh, in my prepared statements, the Returns on on on Benihana are great. But so, if you look at the cimato,
Return profile or even as the as the best profile uh of rois in the industry and we're probably you know it really becomes a capital allocation exercise in terms of where we go with our with our capital.
All right. Thank you.
Our next question comes from Roger Lipton of Lipton Financial. Please go ahead.
Yes. Hi, Marian. Hi, Tyler. Thanks for taking my question. Most of my questions have been answered already, but getting back to Meo—um, very impressive, of course. Um, so that leads me to wonder about the Seattle, Washington locations. The next Benihana?
To open for the company. Um what what's the configuration there in terms of size and cost so far? And, and when will it open?
Sir. So the Seattle location is on Lake Union is a fionn. It's going to be a flagship type location as some of the, the best stunning, uh, water views and you can possibly get in a restaurant. So it's it's a really high quality real estate. Uh we we did change it. Originally we're going to do a corner Grill there and and mid design cycle. We we chose to go with a Benihana Grill there. Uh, just because we thought the revenue potential based on what we saw in in Saint Motel is much greater. So, uh, so it's really a matter of obviously, we have to go back to the city with some changes to the the, the design.
And, and the, uh, the electrical requirements. So, we still thinking that we can probably open that 1 by the end of the, of the year. Uh, so that's kind of our Target date for Lake. Union is to get it open by the end of this year, but it's it's a beautiful, uh, stunning location. So we should do very well for the brand.
And how large is it? Manny
um that location is about 7,000 is square feet. So it's almost the identical to what we got in San Antonio.
Right? And you just made reference to re-evaluating your your how you spend your money and allocating a a what was going to be a cone.
There. So, I would I I would imagine you're starting to rethink, assuming San Mateo continue to do as well as it as it has that, that next year, might be a little more, uh, emphasis on on company operated Denny hana's. Then you might have previously thought
Well, I mean we haven't, we haven't gotten there yet, but of course, as I as I said on my prepared statements is, uh, you know, the the great Returns on on the Benihana, uh, full-size footprint, actually drives, you know, franchise interest. And we've seen that coming from Big franchises who who want to you know, invest in the brand. And and the reality is we have a 400 plus footprint, you know, outlook for Benihana in in in the US. So we're very early on in in the, in the growth story of of that.
I know it's a 6 to your brand, but if I look at the potential of it is, we're still very early on. So the reality is is to open all that 400 plus with company-owned. Uh, assets is, is is a big commitment. So having really, uh, sized up to be a great franchise model is, is a good way of us, accelerating the brand. Uh, and then ultimately, I think having a bigger brand allows us for a lot more marketing and advertising synergies with banana. So I I think that's really the goal now is to grow, uh, Banning Hannah uh, a little faster so that we can get more marketing and advertising scale out of the model.
Thank you, sir.
This concludes our question and answer session.
I would now like to turn the conference. Call back over to Manny Hilario for any closing remarks.
Thank you. And as I always uh, close my calls with, I want to thank our um teammates they've done a fantastic job of living our mission every day of executing, uh, on great restaurants and creating, um, memories and forgettable memories all the time. So I appreciate the team continued effort on it and, and frankly, uh, they were the driver of our performance in Q2 and I look forward to seeing everybody on this call out in our restaurants. So everyone have a great afternoon.
For participating and have a pleasant day.