The ONE Group Hospitality, Inc. (STKS) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: while there are positive aspects like improved traffic trends, franchising efforts, and loyalty program growth, there are concerns over declining same-store sales and cash flow limitations. The Q&A section highlights management's optimism but lacks concrete details, and the market strategy is unclear. Despite potential growth from new venues and conversions, the financial health and guidance appear weak, leading to a neutral sentiment. The stock price is likely to remain stable, with no strong catalysts for significant movement.
Key Financial Performance
Total consolidated GAAP revenues $180.2 million, decreasing 7.1% from $194 million for the same quarter last year. The decrease was primarily due to a 5.9% reduction in consolidated comparable sales and the closure of underperforming restaurants from the prior year period.
Company-owned restaurants' net revenue $177.4 million, which decreased 6.9% from $190.6 million for the prior year quarter. The decrease was primarily due to a 5.9% reduction in consolidated comparable sales and the closure of underperforming restaurants from the prior year period.
Management license, franchise, and incentive fee revenues $2.8 million, decreased from $3.4 million in the prior year. The decrease is attributed to lower management license and incentive fee revenue at managed STK restaurants in North America and reduced franchisee revenues due to exiting 2 license agreements.
Company-owned restaurant's cost of sales as a percentage of net revenue Increased slightly to 21.1% from 20.9%. This was primarily due to sales deleveraging, coupled with higher-than-anticipated inflation in certain commodity costs, partially offset by additional integration synergies from the Benihana acquisition.
Company-owned restaurant operating expenses as a percentage of net revenue Increased 140 basis points to 67.6% from 66.2% in the prior year quarter. This was primarily due to investments in marketing, general cost inflation, and fixed cost deleveraging driven by a decrease in same-store sales.
Restaurant operating profit Decreased to $20.1 million or 11.3% of owned restaurant net revenue compared to $24.5 million or 12.8% in the prior year quarter.
General and administration costs Increased $0.5 million to $13.3 million from $12.8 million in the same quarter prior year, driven by increased marketing expenses. Adjusted general and administrative expenses were $12 million compared to $11.2 million in the third quarter of 2024.
Depreciation and amortization expenses $11.5 million compared to $9.4 million in the prior year quarter. The increase was primarily related to depreciation and amortization of new venues and capital expenditures to maintain and enhance the guest experience in restaurants.
Preopening expenses Approximately $700,000, primarily related to preopening rent for restaurants under development and payroll costs associated with preopening training. Preopening expenses decreased $1.4 million compared to the prior year period.
Operating loss $7.9 million compared to an operating loss of $3.6 million in the third quarter of 2024, mostly impacted by the $3.4 million in noncash loss on impairment.
Interest expense $10.5 million compared to $10.7 million in the prior year quarter.
Provision for income taxes $59.1 million compared to a benefit of $4.9 million in the prior year quarter. The increase is primarily the result of the establishment of a full valuation allowance against deferred tax assets during the third quarter.
Net loss attributable to Wes Hospitality $76.7 million compared to a net loss of $9.3 million in the third quarter of 2024. The 2025 loss was primarily driven by the noncash loss on impairment and the noncash recognition of the valuation allowance.
Net loss available to common shareholders $85.3 million or $2.75 net loss per share, compared to $16.4 million in the third quarter of 2024 or $0.53 net loss per share. The noncash loss on impairment and establishment of the deferred tax asset valuation allowance represent $2.02 of the third quarter 2025 net loss per share.
Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. $10.6 million compared to $14.9 million in the prior year, a decrease of 28.9%.
Cash and cash equivalents and restricted cash $6 million at the end of the quarter.
Available under revolving credit facility $28.7 million, with $5.5 million outstanding on the revolving credit facility.
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Operating Highlights
New premium holiday menu: Focused on Wagyu and premium seafood to align with selective diners.
Menu diversification: Broader culinary options introduced to reduce reliance on seafood and sushi, appealing to more frequent dining occasions.
Friends with Benefits loyalty program: Gained over 200,000 new members in the quarter, reaching 6.5 million total members. Focused on maximizing membership, driving organic sign-ups, and increasing engagement.
Website upgrades: Enhanced mobile-optimized designs for Benihana, STK, Kona Grill, and RA Sushi, increasing traffic and conversion rates.
Benihana redesign success: The redesigned Benihana in San Mateo became the top-performing opening in the brand's history, validating the new format.
Franchise expansion: Opened second Benihana Express in Miami, with more in development. Expanding into nontraditional venues like sports stadiums and airports.
New venue openings: Opened 4 company-owned venues and 1 franchise location year-to-date, with plans for 5-7 new venues in 2025.
Operational flow improvements: Enhanced reservation technology and team training to optimize Benihana table efficiency, reducing table turn times from 120 to 90 minutes.
Cost management initiatives: Implemented protein sourcing adjustments and a temporary hiring freeze to optimize labor structure.
Portfolio optimization: Closed 7 underperforming locations and identified 9 additional conversions to Benihana or STK formats, aiming for $10 million in EBITDA and $100 million in revenue.
Relocations and remodels: Relocated and remodeled venues to unlock strong returns, with examples like Westwood STK and Tampa Bay Kona Grill showing improved margins and sales.
Balance sheet strength: Maintained $45 million in liquidity, reduced discretionary capital expenditures, and authorized a $5 million share repurchase program.
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Risk or Challenges
Market Pressures on Core Categories: The company is facing headwinds in its core areas of seafood, sushi, and bar experiences, which are central to its brand.
Economic Sensitivity: The company is diversifying its menu to reduce reliance on categories sensitive to economic fluctuations, indicating challenges in maintaining revenue stability during economic downturns.
Underperforming Locations: Closure of 7 underperforming locations and plans to convert up to 9 additional locations highlight challenges in maintaining profitability across all venues.
Cost Inflation: Higher-than-anticipated inflation in certain commodity costs has increased the cost of sales as a percentage of revenue.
Sales Decrease: A 5.9% reduction in consolidated comparable sales and a 7.1% decrease in total consolidated GAAP revenues compared to the prior year.
Fixed Cost Deleveraging: Fixed cost deleveraging due to a decrease in same-store sales has increased operating expenses as a percentage of revenue.
Impairment Charges: Noncash loss on impairment of $3.4 million related to underperforming restaurants, indicating challenges in asset utilization and profitability.
Deferred Tax Asset Valuation: Establishment of a full valuation allowance against deferred tax assets, resulting in a significant noncash income tax expense.
Franchise and License Revenue Decline: Decrease in management license, franchise, and incentive fee revenues due to exiting license agreements and lower performance in managed locations.
Labor and Hiring Challenges: Temporary hiring freeze to optimize labor structure, which may impact operational efficiency.
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Guidance & Outlook
Revenue Projections: The company projects total GAAP revenues of between $820 million and $825 million for fiscal year 2025, reflecting anticipated consolidated comparable sales of negative 3% to negative 2%.
Managed Franchise and License Fee Revenues: Expected to be between $14 million and $15 million for fiscal year 2025.
Operating Expenses: Total company-owned operating expenses as a percentage of company-owned restaurant net revenue are projected to be approximately 83.5%.
General and Administrative Costs: Excluding stock-based compensation, total G&A costs are expected to be approximately $46 million.
Adjusted EBITDA: Projected to be between $95 million and $100 million for fiscal year 2025.
Preopening Expenses: Expected to range between $5 million and $6 million.
Effective Income Tax Rate: Projected to be between 1% and 4%, excluding the valuation allowance and items subject to valuation allowance.
Capital Expenditures: Total capital expenditures, net of allowances received from landlords, are expected to be between $45 million and $50 million.
New Venue Openings: The company plans to open 5 to 7 new venues in fiscal year 2025.
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Shareholder Return Plan
Share Repurchase Program: Our Board authorized a $5 million share repurchase program last year, and we view our stock as an attractive investment.
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Key Q&A
Q:Can you provide an update on Benihana's same-store sales growth and STK's positive traffic trends?
A:The third quarter of 2025 was the best traffic quarter for the company, with a consolidated traffic decline of 6.9%, an improvement from 7.5% in Q2 and 7.8% in Q1. Pricing adjustments were made, with a 4% pricing increase in Q3, down from 7% earlier in the year. Sequential traffic improvements and pricing adjustments are expected to positively impact Q4 sales.
Q:What is driving the traffic improvement in the fourth quarter so far?
A:Sequential traffic improvement in Q3 is attributed to the value proposition and marketing efforts. Macro pressures, particularly in California, impacted Q3 traffic, but conditions have slightly improved. Additionally, reducing Benihana's turn times from 120 to 90 minutes in December is expected to increase table availability and capacity.
Q:Can you provide an update on Benihana franchising efforts?
A:One Benihana location opened in Florida in Q2. A deal for Benihana Express operations in California is nearly finalized, and a potential franchise deal for the Bay Area is progressing. Improvements have been made to the pipeline for both Benihana and STK licensing deals.
Q:What is the current status of the Las Vegas market?
A:STK in Las Vegas has shown improvement, partly due to a shift in the conference and convention schedule. Other restaurants in the market have shown mixed results.
Q:Can you share details about the loyalty program and its impact?
A:The loyalty program has 6.5 million members, with 200,000 new sign-ups. Early results show increased frequency of use, particularly for Kona Grill, which has been on the program longer. The program is expected to gain momentum.
Q:What is the customer reaction to recent price increases?
A:Price increases were rolled out in late October, coinciding with the high season. No significant customer pushback has been observed through social media and other feedback tools.
Q:Can you explain the decline in Benihana's same-store sales in Q3?
A:The decline is attributed to not replacing 5 points of pricing and additional pressure in the California market, which has a significant weight in Benihana's portfolio.
Q:What was the nature of the impairment taken in the quarter?
A:The majority of the impairment was on Kona Grill, with a minor amount from STK in downtown New York due to the lease ending and relocation of the restaurant.
Q:Can you provide details on the economics of restaurant conversions?
A:The first conversion, a RA Sushi to STK in Scottsdale, cost about $1 million and took 6-8 weeks. The lease was extended by 5 years. Up to 9 other sites are being considered for conversion, with costs expected to be around $1 million each. Benihana conversions may cost slightly more due to additional mechanical upgrades.
Q:What is the expected impact of menu pricing on Q4 same-store sales?
A:Menu pricing is expected to contribute 4.5% to 5.5% to Q4 same-store sales, with the impact lasting for the next 36 weeks.
Q:How significant are holiday bookings and special events to Q4 performance?
A:Holiday bookings and special events account for about 15% of Q4 business. Bookings have shown significant progress compared to previous years.
Q:What changes are being implemented in Benihana stores, and how will they impact capacity and AUVs?
A:Changes include reducing smoke in dining rooms, upgrading HVAC systems, adding tables, and enhancing artwork. These changes will be funded within the typical CapEx allocation and are expected to increase capacity and AUVs over time.
Q:How will CapEx change in 2026 compared to 2025?
A:CapEx will focus on $1 million restaurant conversions and new brand restaurants costing $1.5 million or less. No new leases will be signed, as the company will work through its existing pipeline of 12 leases.
Q:What is the concept and expected performance of Benihana Express?
A:Benihana Express will be a smaller, fast-casual concept with limited seating and a focus on takeout. Expected revenues are $1 million to $1.5 million, with build-out costs of $500,000 to $600,000. Store-level margins are projected to be 15% to 20%, offering a high ROI for franchisees.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact timeline for implementing changes across all Benihana stores and the precise impact on AUVs. Additionally, while optimistic about the loyalty program and holiday bookings, they did not provide detailed numerical comparisons or concrete data to substantiate the claims.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Benefits loyalty
Friends Benefits
Grill
Nicole
Preopening
Priority
STK Scottsdale
Scottsdale Arizona
allowance loss
asset noncash
book value
capital investment
conversion location
decrease
end conversion
establishment
fee
format
franchise license
holiday demand
lease
loss impairment
loss noncash
margin
member
minute
noncash loss
opportunity
optimization
repeat
restaurant assessment
seafood
station
success
sushi
table capacity
tax asset
tax expense
valuation allowance
STKS Transcript
The ONE Group Hospitality, Inc. (STKS) Q1 2026 Earnings Call Transcript
Positive5-7
The earnings call highlighted strong operational improvements, including expanded profit margins and increased cash flow. Despite a slight revenue miss due to seasonality, the company demonstrated robust same-store sales growth and effective cost management. The Q&A session revealed positive franchise interest and strategic debt reduction, which supports a positive outlook. While some uncertainties remain, the overall sentiment is positive, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
The ONE Group Hospitality, Inc. (STKS) Q4 2025 Earnings Call Transcript
Unknown3-13
The earnings call reveals several negative factors: a significant net loss, decreased EBITDA, and missed revenue targets due to operational inefficiencies. Despite some positive guidance on same-store sales and cost synergies, the Q&A highlighted concerns about traffic impacts and lack of clear guidance on gas price effects. The strategic priorities and marketing efforts are positive, but the overall financial performance and uncertain future impacts outweigh them, leading to a negative sentiment.
The ONE Group Hospitality, Inc. (STKS) Q3 2025 Earnings Call Transcript
Unknown11-7
The earnings call reveals mixed signals: while there are positive aspects like improved traffic trends, franchising efforts, and loyalty program growth, there are concerns over declining same-store sales and cash flow limitations. The Q&A section highlights management's optimism but lacks concrete details, and the market strategy is unclear. Despite potential growth from new venues and conversions, the financial health and guidance appear weak, leading to a neutral sentiment. The stock price is likely to remain stable, with no strong catalysts for significant movement.
The ONE Group Hospitality, Inc. (STKS) Q2 2025 Earnings Call Transcript
Positive8-6
The earnings call summary reflects strong financial performance with significant revenue and EBITDA growth, driven by strategic initiatives like new venue openings and franchising efforts. The Q&A section highlights proactive measures to address past challenges, strong market strategies, and confident guidance despite economic uncertainties. The company also plans to enhance shareholder returns through strategic capital allocation. Overall, the positive sentiment from effective management strategies and optimistic future guidance outweighs any concerns, suggesting a positive stock price movement.
STKS Report
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