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Date

May 6, 2026

Call participants

  • President & Chief Executive Officer — Emanuel Hilario
  • Chief Financial Officer — Nicole Thaung

Takeaways

  • Total GAAP revenues -- $212.8 million, representing a 0.8% increase, primarily due to the fiscal calendar shift that moved New Year’s Eve into the quarter and new restaurant openings, partially offset by $1.8 million in revenue loss from closed growth locations.
  • Consolidated comparable sales -- Negative 0.3%, indicating flat performance, with U.S. STK up 1.4%, Benihana flat, and growth concepts down 4.9% but showing sequential improvement.
  • Cost of sales (company-owned) -- 19.4% of net revenues, a 140 basis point improvement primarily driven by menu optimization, supply chain initiatives, increasing menu prices, and Benihana integration synergies.
  • Restaurant operating profit -- $39.9 million, a year-over-year increase of 11%, with margins up 100 basis points to 19.1% for owned restaurants, and STK margins up 280 basis points to 21%.
  • Adjusted EBITDA -- $28.8 million, up 12.1% compared to $25.7 million, reflecting benefits from disciplined cost management and portfolio optimization.
  • General and administrative expenses (ex-stock comp) -- $13.9 million, 6.0% of revenues, up from $11.5 million and 5.4%, primarily due to salary inflation, technology investments, and increased marketing.
  • Net income attributable to STKS -- $3.2 million, up from $1 million, with $6.2 million in net loss available to common stockholders, or $0.20 per share.
  • Operating income -- $13.9 million, an increase from $10.7 million, primarily from improved restaurant profit and lower integration costs.
  • Capital expenditures (net) -- $10 million, down 22% year over year, driven by capital discipline; $6.5 million attributed to new construction.
  • Cash & liquidity -- $6.6 million in cash and equivalents, with $33.7 million available under the revolver and no borrowings outstanding as of quarter-end.
  • Debt reduction -- $2 million repaid under the credit agreement and $7 million on the revolver, resulting in a zero balance for the revolving facility.
  • Franchise & licensing revenue -- $3.5 million, down slightly from $3.7 million, due to the exit of a management agreement in Scottsdale, Arizona.
  • Consolidated comparable sales (early Q2 trend) -- Positive for the first five weeks, with gains in both overall transactions and specific strength in STK and Benihana brands.
  • Loyalty program growth -- "Friends with Benefits" added over 8,000 new members per week since launch, with higher spend per visit from loyalty members than non-members.
  • Unit pipeline and openings -- Two company-owned STKs and one Benihana under construction, with plans to open six to ten new venues in 2026, focusing on locations that require average net capital investment of $1.5 million or less.
  • Portfolio optimization -- Five growth locations closed in January for conversion to Benihana or STK; all are expected to reopen in 2026 at conversion costs of $1 million to $1.5 million each and targeted to be EBITDA accretive.
  • Scottsdale conversion performance -- Management stated, "our first conversion, the RA Sushi to STK in Scottsdale, Arizona, is currently operating at a run rate of approximately $7 million in annual sales, delivering an increase of over $4 million in sales and a return on investment of approximately four times."
  • Contracted beef pricing -- Cost certainty achieved through beef contract locked through September 2026, which contributed to cost declines and margin improvement.
  • Adjusted EBITDA guidance, FY26 -- $100 million to $110 million, with full-year GAAP revenue guidance of $840 million to $850 million and comparable sales guidance of 1%-3%.

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Risks

  • Third quarter is expected to produce lower margins due to seasonal volume declines, with management cautioning on "modest margin compression" in the back half.
  • General and administrative expenses increased by $1.9 million, driven by salary, audit, technology, and marketing cost inflation, impacting SG&A leverage.
  • Company guidance was described as "cautious" due to ongoing environmental uncertainty, including volatile gas prices affecting supply chain costs.
  • Management commented on softness in the Dallas market citing "very competitive" dynamics and persistent competition.

Summary

The ONE Group Hospitality (STKS +1.62%) delivered modest top-line growth and notable margin expansion driven by disciplined cost management and supply chain efficiencies, despite flat comparable sales and limited comp growth in certain concepts. Cash flow from operations more than doubled, enabling accelerated debt reduction and maintenance of strong liquidity, with management stressing their execution-based approach to margin gains and portfolio repositioning. Guidance for 2026 was reiterated across key metrics, with a slight increase in the expected effective tax rate; current quarter trends indicate positive comp sales and transaction momentum, and loyalty program metrics show improved guest frequency and engagement.

  • Management disclosed that "targeting company-owned development to projects requiring on average $1.5 million or less in build-out costs." in capital outlays, with a heightened emphasis on capital efficiency and the avoidance of new lease commitments.
  • Synergies from the Benihana acquisition, especially surrounding beef contracts and operational supplies, continue to generate measurable cost savings and further margin benefit.
  • Off-premises operations represented "very low double digits" as a percentage of the sales mix, with delivery still outpacing store pickup but strategic focus shifting toward more profitable in-store pickup transactions.
  • Franchise and licensing pipeline remains active, especially for the Benihana Express format, which is cited as highly attractive to franchisees due to lower labor, rent, and development costs.
  • Seasonal promotions and high-volume event days—specifically Valentine's Day and Easter—set new single-day sales records, supporting brand positioning as a preferred celebration destination.
  • Contracted beef price certainty through September 2026 is expected to further protect margins against commodity volatility in the near-term.

Industry glossary

  • Comparable sales (comps): Change in sales from existing locations open at least one year, a key metric of organic growth and brand performance.
  • PMIX management: Product mix management; actively adjusting menu offerings and promotional focus to optimize margins and cost of goods.
  • TI allowances: Tenant improvement allowances; funds provided by landlords to cover build-out costs for leased restaurant locations.

Full Conference Call Transcript

Nicole Thaung: 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 considering 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 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 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, restaurant operating profit, comparable sales, annual adjusted operating income, and total food and beverage sales at company-owned, managed, licensed, and franchised 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 would like to turn the call over to Emanuel Hilario.

Emanuel Hilario: Thank you, Nicole, and good afternoon, everyone. I appreciate you joining us today. I want to start where I always do by thanking our teammates. Every day, our teams across every brand and market show up focused on creating memorable experiences for our guests. These days, consistency is more important than ever and I appreciate all that they do in executing with excellence and upholding the Vibe Dining experience that defines our brands. Today, I will begin with an overview of our first quarter performance, and then I will walk you through our progress with respect to our strategic priorities before turning it over to Nicole for the financial details. We are excited about our continued momentum.

Our operational performance is resulting in strong financial results. Total GAAP revenues grew year over year and comparable sales are sequentially better than the previous quarter. Owned restaurant cost of sales improved to 19.4% from 20.8% in the prior-year quarter. Operating income increased 30%, adjusted EBITDA increased 12.1%, and capital expenditures, net of tenant improvement allowances, reduced 23% year over year as we prioritize capital efficient growth and free cash flow generation. Total GAAP revenues for the first quarter were $[inaudible], an increase from $211 million in the same quarter last year. First quarter consolidated comparable sales were relatively flat at negative 0.3%, representing a continuation of the positive momentum we experienced exiting the fourth quarter.

For clarity, consolidated comparable sales are reported on the same number of days year over year. Looking at each brand, U.S. STK total comparable sales reported another positive quarter at 1.4%. Benihana comparable sales were flat, reflecting stable demand for the brand, and our growth concept comparable sales, while down 4.9%, represented the strongest quarterly performance since early 2023, and growth transactions were positive for the quarter. Each segment continues to improve from the previous quarter. What is most notable, particularly in a period of elevated inflation, is the strength of our margin performance, a direct result of the hard work we have been doing across our supply chain, including, most importantly, beef sourcing.

Restaurant operating profit increased 11% to $40 million, while restaurant operating profit margins expanded 100 basis points to 19%. The margin improvement was driven by a 140 basis point reduction in food and beverage costs, reflecting menu optimization, integration synergies, and supply chain efficiencies. We also achieved a 40 basis point improvement in restaurant operating expenses as a percentage of restaurant revenues. STK delivered particularly strong results with restaurant operating profit margins expanding 280 basis points to 21%, while Benihana margins improved 130 basis points to 21%. Adjusted EBITDA grew 12% to $29 million. The improvement was driven by cost management discipline, our contracted beef pricing, continued Benihana integration synergies, and the benefit of portfolio optimization actions.

The key point I want to make is that these results are execution driven. We are not dependent on macroeconomic recovery or shifts in consumer sentiment, but would certainly welcome them. Over the past eighteen months, we have implemented a series of strategic initiatives—operational improvements at Benihana, the barbell strategy at STK, portfolio optimization across the growth concepts, and rigorous cost management. It is those initiatives that are driving our performance. Now, let me update you on our four strategic priorities. Priority one, accelerating comparable sales through execution. Our first strategic priority is accelerating comparable sales through disciplined execution. I want to highlight that Valentine’s Day 2026 was a record-breaking day for our portfolio.

Easter was also strong across our brands, with sales up high single digits compared to last year. These results are a testament to both the operational capabilities we have built and the strength of our brands as a celebration destination. As we look ahead, we are gearing up for what we expect to be a strong Mother’s Day and graduation season. Both occasions are critically important to us and our teams are focused on delivering exceptional guest experiences during these high-volume periods. Through the first five weeks of the second quarter, the company has positive comparable sales and transactions.

Momentum has continued through all of our brands with STK and Benihana so far delivering positive comparable sales, and the growth concepts sequentially improving. We have made operational improvements to position the brands for a strong spring and summer and are seeing encouraging trends as happy hour has been a real driver and is working well, while lunch traffic is also returning. Our Friends with Benefits loyalty program continues to gain momentum. Since launching last year, we added over 8,000 new organic members into the program per week. Newly enrolled guests continue to show strong repeat participation and we are seeing loyalty members spend more per visit compared to non-loyalty guests.

We will be actively targeting our Friends with Benefits members for Mother’s Day and graduation celebrations, leveraging personalized outreach to drive traffic during these occasions. We continue to focus on growing membership, driving organic sign-ups, and increasing engagement within the program to strengthen brand connection and repeat visits. We are driving growth through seasonal innovation, launching new food and beverage menus four times a year across all brands. This keeps our offerings fresh, differentiates us from competitors, and generates strong engagement on social media. We are expanding our off-premises business with a focus on core operations.

Highlights include burgers and sides, which continue to drive strong takeout and delivery volume across all brands, and Benihana and RA Sushi’s fried rice burritos for takeout and delivery, which have performed well. Priority two, capital efficient growth with disciplined expansion. We currently have two company-owned STK restaurants and one company-owned Benihana restaurant under construction: an STK in Phoenix, Arizona, a relocation of STK Downtown in New York City, and a Benihana in Seattle, Washington. We intend to open six to ten new venues in 2026 as we prioritize locations requiring $1.5 million or less in net capital investment to open.

Capital expenditures, net of TI allowances, were 22% lower at $10 million in the first quarter compared to the year-ago period. Of this amount, $6.5 million was related to new construction with the remainder supporting existing restaurants. This reduction reflects our disciplined approach to capital allocation as we focus on high-return, capital efficient growth. On the franchise side, our 10-unit California Benihana and Benihana Express development agreement continues to progress, and our commitment for a franchised Benihana and a licensed Benihana Express in the Fort Keys remains on track.

The Benihana Express format continues to generate strong franchise interest as it delivers the Benihana food experience without the teppanyaki tables, making it more labor efficient and more appealing from a cost-of-entry perspective for potential franchisees. In January, we completed the relocation of our Kona Grill in San Antonio, Texas to a smaller footprint location. And in February, we converted a franchised Benihana in Monterey, California to a company-owned restaurant to accommodate a long-term franchise partner who wished to retire. Both are tracking in line with our expectations. Priority three, portfolio optimization to improve returns. We have made significant progress improving the quality and returns of our portfolio.

As we discussed last quarter, we are converting growth locations to higher-performing STKs and Benihanas. In 2025, we exited six RA Sushi and Kona Grill locations. And in January 2026, we exited one additional RA Sushi location that did not fit our conversion criteria. The remaining growth locations are healthy, profitable restaurants in quality real estate and we expect them to generate approximately $10 million in restaurant-level EBITDA and over $100 million in revenue. Five growth locations closed on 01/05/2026 for conversion to either Benihana or STK, with construction in progress and all five expected to reopen by the end of 2026. Each conversion is expected to cost between $1 million and $1.5 million and to be EBITDA accretive.

As a reminder, our first conversion, the RA Sushi to STK in Scottsdale, Arizona, is currently operating at a run rate of approximately $7 million in annual sales, delivering an increase of over $4 million in sales and a return on investment of approximately four times. This validates our conversion strategy and gives us confidence in the pipeline. As we have said before, we will continue to evaluate the portfolio as leases expire. We have approximately one to two growth leases that come up each year as part of the natural end-of-cycle process, and we will make decisions on a case-by-case basis. Priority four, maintaining balance sheet strength and flexibility.

Our fourth priority for 2026 is conserving cash and optimizing the balance sheet. We are significantly reducing discretionary capital expenditures, targeting company-owned development to projects requiring on average $1.5 million or less in build-out costs. We are also working through our existing lease pipeline rather than adding new commitments. This discipline gives us flexibility in an uncertain environment and positions us to invest selectively in the highest-return opportunities. We finished the quarter with $6.6 million in cash, cash equivalents and restricted cash. We have $33.7 million available under our revolving credit facility. Under current conditions, our term loan does not have a financial covenant.

Cash flow from operations was a strong $22 million compared to $9 million in the prior-year quarter. This improvement was primarily attributable to increased net income and collections on holiday credit card receivables. We also reduced our debt with $2 million in repayments under the credit agreement and $7 million in repayments on the revolving facility, bringing our revolving facility balance to zero. As we discussed on our previous call, we expect to generate free cash flow in 2026. Debt reduction and creating shareholder value remain a top priority. Before I turn it over to Nicole for the financial details, I want to reiterate the items that I have outlined today are fundamentally execution driven and within our direct control.

We are focused on strategic initiatives that position us to deliver results regardless of broader economic trends. With that, I will turn the call over to Nicole.

Nicole Thaung: Thank you, Manny. As a reminder, beginning this year, we are reporting financial information on a quarterly basis using four thirteen-week quarters, with the addition of a fifty-third week when necessary. For 2026, our fiscal calendar began on 12/29/2025, and our first quarter contained 91 days. Consolidated comparable sales are reported on the same number of days year over year. Let me start by discussing our first quarter financials in greater detail, before introducing our outlook for 2026 and reiterating our fiscal 2026 guidance with the exception of an update to our expected effective tax rate. Total consolidated GAAP revenues were $212.8 million, increasing 0.8% from $211.1 million for the same quarter last year.

Growth was driven by two primary factors: the fiscal calendar shift that moved New Year’s Eve into fiscal 2026, which added approximately $8.3 million to our top line, as well as contributions from new openings and conversions completed in the second half of 2025. These gains were partially offset by the closure of underperforming growth locations as part of our portfolio optimization strategy, which reduced revenues by approximately $1.8 million. Included in total revenues were our company-owned restaurants’ net revenues of $209.3 million, which increased 0.9% from $207.4 million for the prior-year quarter.

The increase was primarily due to the change in the fiscal year calendar, which resulted in a shift of New Year’s Eve into fiscal year 2026 and the sales generated by eight new restaurants. These gains were partially offset by a decrease in revenue from the growth restaurants closed and a 0.3% decrease in comparable restaurant sales. Management, license, franchise and incentive fee revenues decreased slightly to $3.5 million from $3.7 million in the prior-year quarter. The decrease is primarily attributable to the exit of a management agreement in Scottsdale, Arizona, in 2025. As Manny noted, we converted a former RA Sushi to a company-owned STK in that market. Now turning to expenses.

We continue to implement targeted cost management initiatives. Last year, we made strategic adjustments to our beef tenderloin sourcing and have contracted pricing through September 2026, eliminating our exposure to significant U.S. base price fluctuations and providing significant cost certainty. We also optimized our labor structure across the business last year by improving scheduling management, and we are still realizing synergies from the Benihana acquisition. Company-owned restaurant cost of sales as a percentage of company-owned restaurant net revenue improved 140 basis points to 19.4% from 20.8%. This improvement was primarily due to menu optimization, integration synergies, supply chain initiatives, increased menu pricing, and more efficient cost of sales associated with New Year’s Eve and our record-breaking Valentine’s Day.

Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue improved 40 basis points to 61.7% from 62.1%. This reflects improvement in labor costs. Restaurant operating profit, excluding growth concepts restaurants closed, was $39.9 million, or 19.1% of owned restaurant net revenue, improving by 100 basis points from 18.1% in the prior-year quarter. On a total reported basis, general and administrative costs increased $1.9 million to $15 million from $13.1 million in the prior-year quarter, driven by inflation on salaries and bonus, higher audit-related fees, investments in information technology, specifically AI-related technologies, and increased marketing expenses. When adjusting for stock-based compensation of $1.1 million, adjusted general and administrative expenses were $13.9 million compared to $11.5 million in 2025.

As a percentage of revenues, adjusting for stock-based compensation, adjusted general and administrative costs were 6.0% compared to 5.4% in the prior year. Depreciation and amortization expense was $10.4 million compared to $9.8 million in the prior-year quarter. The increase is attributed to new restaurants opened during fiscal year 2025. Lease termination and restaurant closure expenses were $2 million for this quarter, primarily as a result of the growth portfolio optimization, which included $0.5 million in non-cash expenses related to closed restaurants. Preopening expenses were approximately $1.5 million, primarily related to preopening rent for restaurants under development, including $0.5 million in non-cash rent and payroll costs for Kona Grill Landmark, opened in January 2026.

Preopening expenses decreased by $0.2 million compared to the prior-year period. Transition and integration were $0.5 million, down significantly from $3.7 million in the prior-year quarter, as we are nearing completion of the integration of the Benihana and RA Sushi acquisition. Operating income was $13.9 million compared to operating income of $10.7 million in 2025, an increase of $3.2 million primarily due to improved restaurant operating profit and the reduction in transition and integration costs. For a reconciliation, please refer to our press release issued earlier today. Interest expense was $9.7 million compared to $9.8 million in the prior-year quarter. Our weighted average interest rate was 10.2% compared to 10.9% in the prior-year quarter.

Provision for income taxes was $1.2 million compared to $0.3 million in the prior-year quarter, as a result of an increase in pre-tax book income. Net income attributable to The ONE Group Hospitality, Inc. was $3.2 million compared to net income of $1 million in 2025. Net loss available to common stockholders was $6.2 million, or $0.20 net loss per share, compared to $6 million in 2025, or $0.21 net loss per share. Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. was $28.8 million compared to $25.7 million in the prior-year quarter, an increase of 12.1%. We finished the quarter with $6.6 million in cash and cash equivalents and restricted cash and cash equivalents.

We have $33.7 million available under our revolving credit facility, subject to certain conditions. And as Manny said, as of quarter end, we had no borrowings outstanding on our revolving facility, nor does our term loan currently require a financial covenant. Now I would 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. We remind our investors that the actual number and timing of new restaurants for any given period is subject to factors outside of the company's control, including macroeconomic conditions, weather, and factors under the control of landlords, contractors, 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 2026. Beginning with the top line, we project total GAAP revenues of between $[inaudible] and $[inaudible], which reflects our anticipation of consolidated comparable sales of 1% to 2%. Management, license, franchise and incentive fee revenue are expected to be approximately $3 million to $4 million. Total company-owned operating expenses as a percentage of company-owned restaurant net revenue between 81%–82%. Total G&A, excluding stock-based compensation, between $13 million and $14 million. Adjusted EBITDA of between $24 million and $26 million. And finally, restaurant preopening expenses of between $1 million and $2 million.

Based on the information available to us now and our expectations as of today, we are reiterating the following financial targets for fiscal year 2026, with the exception of increasing the range of the effective tax rate. We project total GAAP revenues of between $840 million and $850 million, which reflects our anticipation of consolidated comparable sales of 1% to 3%. Management, license, franchise and incentive fee revenues are expected to be between $14 million and $15 million. Total company-owned operating expenses as a percentage of company-owned net revenue of approximately 82% to 83%. Total G&A, excluding stock-based compensation, of approximately $53 million. Adjusted EBITDA of between $100 million and $110 million.

Restaurant preopening expense of between $5 million and $6 million. An effective income tax rate of approximately 10% to 20%. Total capital expenditures, net of allowances received from landlords, of between $38 million and $42 million. And finally, we plan to open six to ten new venues. With that, I will now turn the call back to Manny.

Emanuel Hilario: Thank you, Nicole. Before we open up for questions, I want to emphasize how excited we are about our business. Although the current environment remains challenging, our future looks bright. With our proven ability to execute, strengthened portfolio and expanded franchise capabilities, we are 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 quarters ahead. And as always, a special thanks to all teammates all over the globe that live our mission every day—creating great guest memories by operating the best restaurants in every market by delivering exceptional and unforgettable guest experiences to every guest every time.

Nicole and I look forward to your questions. Operator,

Operator: Thank you. We will now open the call for questions. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question we have is from Joe Gomez of Noble Capital Markets. Please go ahead.

Joseph Gomes: Good afternoon, Manny and Nicole. Thank you for taking my questions. I just want to start. You know, the revenues were a little below what the guide was for the first quarter, and the comps were a little off from where the guide was. Maybe give us a little more color there, Manny, on what transpired during the quarter to cause that slight miss?

Emanuel Hilario: Hi, Joe. Hey, Joe. Yeah. I mean, I think the only thing that was less than we expected in the quarter was the volume at our STKs in malls. Really the first year where we have had two restaurants fully operating in the first quarter in the mall. I think that the first quarter is a little different from the other quarters for those restaurants. So I would say just the seasonality of our mall STKs was a little bit different than what we expected. But other than that, I think that the quarter was solid.

I think the only other noise in the quarter was just spring break this year seemed to have a lot of different changes in terms of how people took their holidays, and then I think just Easter being much earlier, it is just a little bit of a different cadence of sales in the year. But overall, I thought the business was very strong in all our brands.

Joseph Gomes: I think also last quarter, you talked about the conversions—you were hoping to have them all done by mid-July, and now it sounds like at the end of the year. Anything there? Is it just extended construction cycles or just being a little more conservative in the conversion opportunity?

Emanuel Hilario: No. I just think it is the pacing and resources to reopen them properly. I mean, they are reloads and, if you will, conversion sites, but you still have to go through the full training cycle. So I think the timing of all these restaurants is really based on how we feel about the right pace of opening the units without being negatively impactful to operations. It is really just timing, pace, making sure that you are moving your opening teams to the right places at the right time. So it is just an internal judgment relative to when we want to open the restaurants.

Joseph Gomes: Okay, great. And then last one for me, I will jump back in queue. Anything new on the franchising front or some more of the nontraditional venues? You had some success that you reported in the past couple of quarters, but just wondering if there is new in the pipeline there.

Emanuel Hilario: Yeah. I think franchising—still lots of interest. We are actively talking to people all the time. We have amped up our resources behind getting new deals. So I think that it is progressing really well, and interest is very high. I am very pleased with the progress, and I feel very positive about the outlook relative to franchising, particularly for Benihana.

Joseph Gomes: Great. Thank you. I will get back in queue.

Emanuel Hilario: Thank you, sir.

Operator: The next question we have is from Anthony Lebiedzinski of Sidoti & Co. Please go ahead.

Anthony Lebiedzinski: Good afternoon, everyone, and thank you for taking the question. So Manny, just wondering if you guys saw any notable regional differences in terms of your same-store sales performance in the quarter?

Emanuel Hilario: Yeah. I mean, I think for us, if there was one market that stood out a little bit differently, it was Texas. We did see a little bit of different trends in Texas. But other than that, everything was relatively very similar. So that is probably the only market, and if I had to drill down a little bit more, I think Dallas per se was one of the markets where we saw a little bit more softness in the business. But other than that, as our results show, coming into the second quarter, we have a lot of momentum and sales are positive for the company in sales and transactions.

So in this environment, I believe that to be a really strong testament to the initiatives and all the activities that we are doing in building traffic and sales.

Anthony Lebiedzinski: Mhmm. So as it relates to Texas, was there any change in the competitive landscape, or was it something else that drove some of the softness there, you think?

Emanuel Hilario: I think in Dallas specifically, it is just a very competitive market, and there is always a lot of competition coming into that market. So at least from our perspective in that market, there are a lot of people playing in that market. It is an attractive market, it is a large market, and everybody wants to have a restaurant in Dallas. So I think it is just a matter of what competitors are doing in the marketplace.

Anthony Lebiedzinski: Mhmm. Understood. Okay. And then in terms of the commentary about the second quarter same-store sales, which are tracking positive, can you give us a sense as to traffic versus ticket? What is the kind of breakdown approximately?

Emanuel Hilario: We are up in traffic. So it is a good lead-in, and I think that to me, that is the most important part of that mix of sales—that our initiatives, particularly around value and our continuous messaging around happy hour and some of the great price points we have at lunch and at dinner, are starting to really resonate, and our marketing is starting to really make lots of progress in communicating those value points. So I feel very good about that. And then Benihana, we also launched our power lunch offering, which is a starting at $15.95 forty-five-minute guarantee. Lunch is starting to also gain traction.

So I feel really good about all the initiatives, and we are starting to see progress made on building traffic.

Anthony Lebiedzinski: Got it. Okay. And the last question for me. Nicole, you mentioned that there were some Benihana cost synergies realized in the quarter. Can you expand on that? And are there any other synergies that you think may be realized this year as it relates to the Benihana acquisition?

Nicole Thaung: Yeah. I think one of the biggest synergies we are still realizing is beef contracts—you know, combining the different brands that are both very heavily reliant on beef products. We are able to secure a pretty decent contract. So that is something that we will continue to see through the coming months. We are also seeing some of our other contracts that we placed over the last year or so in terms of linens and other operating supplies that we are still realizing synergies on as well.

Anthony Lebiedzinski: Got it. Okay. Well, thank you very much, and best of luck.

Emanuel Hilario: Thank you, sir. Thank you.

Operator: The next question we have is from Mark Smith of Lake Street Capital. Please go ahead.

Analyst: Hi, guys. You have got Alex Turnick on the line for Mark Smith today. Thanks for taking my questions. Just, you know, first one for me. Looking at capital allocation priorities, you made good progress on the balance sheet—with the revolver now paid down to zero, free cash flow generation improving. As leverage comes down further, how are you guys thinking about balancing debt reduction, conversion investments, and potentially becoming more active on share repurchases?

Emanuel Hilario: I think as you saw in the quarter, our focus has been that, because we did pay the revolver as well as term loan, and so that will continue to be a priority—to really focus on debt and really balancing that with a growth portfolio of restaurants that is really cost effective. So that is really, in the short term, our primary objective. Of course, capital allocation and shareholder value creation is always a priority of our board. So we always are actively looking at anything and everything that makes sense in terms of creating value for the shareholders.

Analyst: Okay. And last one for me, just switching over to the restaurants. Benihana Express seems to be getting a lot of traction from a franchise interest standpoint. Maybe just talk about how you view that long-term opportunity for that format relative to the traditional Benihana concept, and what you think franchisees are finding most attractive about the model today?

Emanuel Hilario: Yeah. Good question. The franchise interest is around the product itself—the fact that we have fantastic fried rice products and protein offerings going with it. So there is excitement about the product offering. There is also excitement about the price point positioning of that product, because it being a Benihana product, it is a premium in market. They do like that. Then of course, franchising economics are paramount. Within the Benihana Express, we get the best of Benihana in great COGS, and then we also get a very beneficial labor equation, meaning that we do not have to service at the table, at the teppanyaki table. So there is a relatively predictable and strong labor on that.

And then, obviously, the fact that these footprints are small—occupancy is also very effective. And the smaller footprint allows for a lot more flexibility in terms of what real estate is available for that brand. And the cost of development is also very affordable relative to building other full-size stores. So once you add all those up, the franchisees are very interested in pursuing that.

Analyst: That is very helpful. Thank you for taking my questions.

Emanuel Hilario: Thank you.

Operator: The next question we have is from James Sanderson of Northcoast Research. Please go ahead.

James Sanderson: Hey, thanks for the questions. I wanted to go back to your update on same-store sales and traffic and build on that. Any feedback on what your bookings are looking like for Mother’s Day and graduation events relative to where you were, say, one year ago?

Emanuel Hilario: I mean, without getting to precise numbers, I would say that traffic is positive coming into the quarter. And I think in general, our bookings—because we do manage that very closely—are very solid, so I feel very good about the forward look on the books.

James Sanderson: Excellent. Shifting over to your store margin guidance, I noticed that relative to the first half of the year, you are probably expecting some modest margin compression. Can you walk through how margin is going to progress over the year?

Emanuel Hilario: I mean, for us, it is always the third quarter, right? First, second, and fourth quarters are always very good margins. And our third quarter is our lowest-volume quarter, and so we do always get that shift in margin in the third quarter just because of seasonality. Other than that, everything in the margin, as Nicole reported during her update, is strong. We have great momentum in COGS. As a matter of fact, our cost of goods is the lowest we have ever reported as a company, and I think the margin overall outlook for the year is very solid.

James Sanderson: And then speaking to margin a little bit more, you mentioned you have got beef visibility until September. Any thoughts on what you are looking at for locking in those prices as we get to the holiday quarter?

Emanuel Hilario: I mean, we are in active dialogue about what we do with beef. I do not have a crystal ball, so I wish I could give you an exact fourth-quarter look on beef. Our view on beef is it is still a tough market right now, and so there is a lot to manage there. Our focus for now is looking at alternative cuts and promotional windows to try to take advantage of other cuts that might be lower cost than maybe a filet or something else. So it is really more about PMIX management, and starting to really plan out for Q4 promotional windows that are not so reliant on filets, because that takes pressure off the cost line.

James Sanderson: Very good. And I think you also reported your weighted average interest rate was down. Could you walk us through what is driving that and what your outlook for the rest of the year is?

Emanuel Hilario: I think that the Fed rates came down a bit, which impacts overall rates. So I think that is the big part of it. And again, our focus right now is—as much as we have free cash flow—to bring debt down, and that is our number one objective as we go forward: to really balance growth and be effective on growth, and still have free cash flow to service debt so we can bring that principal down.

James Sanderson: Alright. Last question for me. Any feedback on what your off-premises mix was in the first quarter and how that was broken up between third-party delivery and pickup?

Emanuel Hilario: As I reported in previous quarters, very low double digits is our percentage of mix in delivery and takeout. The majority of our mix right now is still reliant on delivery—it is more delivery than pickup at the restaurants—and, as you might imagine, our focus right now is building up that pickup at the store because that is more P&L effective, and we think that there are also big opportunities on that.

James Sanderson: Very good. I will pass it on. Thank you very much.

Emanuel Hilario: Thank you, sir.

Operator: The next question we have is from Roger Lipton of Lipton Financial Services. Please go ahead.

Roger Lipton: Yes. Hi, Manny. Hi, Nicole. Thanks for taking my question. A great number of my potential questions have been answered. I did want to just explore a little bit more the store-level margin, which it looks like you could have been in a position to bring down the operating expenses, bring up your margin a little bit in terms of your full-year guidance—doing, beating the first quarter by, I guess, 150 to 160 basis points over the mid-80, the 19.1% instead of 17.5%, the midpoint of your previous guidance. And in the second quarter, you are 81% to 82% instead of 82% to 83% in terms of expense totals.

So it looks like maybe you have got a little room for the full year to improve upon that 82% to 83%.

Emanuel Hilario: Thanks, Roger, and good to hear from you. I think our view on this, as I answered the previous question, is our third quarter is really a big factor, and I just want to make sure that we have numbers that we are super comfortable with. I am very happy with our first quarter results, and I think that we are making tremendous progress in the second quarter and forward. But I always want to make sure that we are realistic about the environment. It is still a challenging environment. Lots of noise with gas prices, and as you know, gas prices over time can impact your supply chain.

So again, I am not saying that we believe that is ultimately going to happen, but we are just being cautious about how we go about guiding for the rest of the year on the margin.

Roger Lipton: Okay. That is fair. It went over so quickly—the new economics on that Scottsdale conversion. You are saying increasing the ROI by four times. Could you just run by those numbers one more time quickly?

Emanuel Hilario: That is a good question. So just for clarity, that restaurant was doing about $3 million to $4 million in revenues. It is now north of $7 million. So we grew revenues there by about $4 million, we think, year over year on an annual basis. We spent about $1 million getting that $4 million in sales. So it is really four times return on sales on the investment we put in the site. The ROI will also be very good because that $4 million increase in revenues will drive a significant amount of incremental EBITDA. So our ROI on that conversion will be very, very high.

Roger Lipton: Got it. Okay. Well, I am glad you clarified that. Thank you so much.

Emanuel Hilario: Thank you, Roger.

Operator: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the conference call back to Manny Hilario for closing remarks.

Emanuel Hilario: Thank you, everyone. I appreciate everyone taking time to be with us here today. As I said earlier, we are very excited about the future for the company. And as I always tell everyone, nothing of this would be possible without the incredible contributions from all our teammates who live our mission every day. So I want to thank them all once again, and I look forward to running into all of you in our restaurants. Everybody have a great summer. Back to you, operator.

Operator: Thank you. This concludes today’s conference. Thank you for joining us. You may now disconnect your lines.