Shares of hibachi and sushi restaurateur Benihana (NASDAQ:BNHN) were on a roll until May when an earnings warning skewered the stock chart. But the company is currently in the midst of revitalizing certain stores, which is affecting sizzling top-line growth as it trickles down to bottom-line earnings results.
For the first quarter, Benihana reported a total sales increase of 7.9% and an impressive growth in same-store sales of 9.2%. However, operating earnings fell about 6.9% and diluted earnings fell about 9% as the company spends to redo certain stores and loses out on some sales in the process.
Older Benihana stores are being rejuvenated, so the ones that were closed obviously reduced sales a bit for the quarter, and there was additional depreciation and expenses as a result of the renovations. At this point, overall earnings and cash flow results will be more difficult to discern until the dust settles on the modernization program. The only insight offered from the quarterly press release from management was that the five or so revitalized, reopened stores "continue to exceed our expectations and adds to our confidence that we can generate a substantial return on invested capital through this rejuvenation program." But overall Benihana store comps were solid for the quarter, up 7.7%, although total sales grew only 1.2%.
To give you a feel for the concept mix at Benihana, as of May it operated 57 namesake teppanyaki-style (or where a chef cooks from a hibachi grill right at the table) stores; seven urban, Japanese-fusion Haru restaurants on the East Coast, and 11 Ra Sushi concepts. It also franchises about 18 namesake stores. In other words, it has three different franchises but not a high number of overall stores, leaving plenty of room for expansion.
The namesake stores account for the bulk of company performance and will be a work in progress for a while, but overall sales trends continue to be strong and can be attributed to the impressive numbers being posted at the smaller chains. For the quarter, comparable sales swam quickly at Ra, up 18.6%, and were equally impressive at Haru, growing 10.6%. And total sales grew just over 60% at Ra and 14.5% at Haru. Combined, Ra and Haru accounted for approximately 25% of total sales for the quarter, and certain analysts suggest Ra could easily grow to a couple hundred stores over the next five years.
In total, the company generates impressive operating cash flow that has been more than two times reported net income for at least the past three fiscal years. Most of that is being reinvested into the Benihana renovation and new store expansion currently, but that is a good thing if returns on that investment are high, which they appear to be.
In other news, a Delaware court dismissed a case against the company, filed by Benihana of Tokyo, related to a $20 million preferred stock issuance to BFC Financial (NYSE:BFF). BFC owns about 10% of Benihana's common stock and has just over 20% of total voting control. Additionally, a new CFO was appointed as former CFO Michael Burris moved over to become VP of Investor Relations. Minor yes, but worth getting Fools up to speed.
At about 19 times projected earnings for next year, shares of Benihana are worth a closer look given the double-digit growth expectations and strong cash flow generation. And the namesake restaurant rejuvenation could further spice up bottom-line results, barring any construction snafus or delays. I'd place Benihana along with Buffalo Wild Wings (NASDAQ:BWLD) and Cheesecake Factory (NASDAQ:CAKE) in the growth-stock category in the restaurant space, an area that can bring happy shareholder returns as long as growth continues as projected.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.
