Restaurateur Kona Grill
Kona posted tasty fourth-quarter results. Revenues climbed by 37% to $10.4 million on an inspiring 3.3% uptick in same-unit sales. The company earned a profit of $0.01 a share on improved operating margins at a time when Wall Street was expecting the casual-dining chain to post a loss of $0.01 per share.
That's the sweet part. Now comes the sour. In 2006, the company is looking to post a loss of between $0.52 and $0.61 per share on roughly $50 million in revenues. That figure includes $0.09 per share related to the departing CEO as the company's search continues for a replacement. The company insists that it will be profitable by 2007, though investors still haven't gotten over the company backing off from its original guidance last year, which called for it to lose only between $0.26 and $0.35 per share this year, on at least $53 million in revenues.
That explains why the company is trading below its summer IPO price of $11 and well off the $13 it opened at on its first day on the market back in August.
Keep an eye on the chain, though. The first four locations averaged $5.5 million in unit sales last year. With the notable self-destructing exception of Planet Hollywood, high-volume eateries such as P.F. Chang's
This year the company is looking to add five new units to its base of nine existing locations. The additions won't be felt until later, though, since four of the five new units will open in the second half of the year.
Kona Grill is an interesting concept in a few ways beyond its Hawaiian theme in an upscale continental setting. Less than half of its sales come from conventional foodstuffs, for starters. That's because 20% of the typical location's sales comes from sushi and another 33% comes from the lively bar tabs. That kind of revenue mix can play out well with healthy margins, once the company grows its base of units and keeps its corporate overhead in check.
Because Kona expects to close out the year so deep in the red, the stock may meander for a spell. That's why there's no need to chase it at this point. Just make a mental note to check in after another quarter or two. If 2007 holds up as the year in which the company turns the corner and it's able to work on the kind of margins that a high-volume concept like this is capable of, then the surf may be up for Kona in the long run.
Longtime Fool contributor Rick Munarriz has been to Kona but never to a Kona Grill. He does own shares in Cheesecake Factory. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.