THE ONE GROUP HOSPITALITY, INC. (STKS) MAY 14, 2026
Summary and Conclusion
The One Group Hospitality (STKS) reported continued progress in Q1’26 very much in line with expectations, and reiterated prior guidance for all of ’26. Broadly speaking, their largest division, operating and franchising Benihana restaurants, seems poised for predictable growth. At the same time STK’s menu was adjusted to appeal to increasingly value driven diners, while the Grill division (their weak and smallest, division) reported its best sales quarter in several years, is being pruned and should be less of a drag going forward. Most importantly, a disciplined capex plan was put into place to more quickly improve the obviously leveraged balance sheet. Q1’26 operating parameters were encouraging; stable to improving comp sales at all divisions, with the improving store margins especially encouraging, considering the increasingly value driven menus.
These trends should allow for sufficient operating cash flow in ’26 to continue unit expansion as well as service and reduce modestly the existing long-term debt ($335M at 3/31/26) that was incurred as a result of the Benihana acquisition in May ’24. Also put in place while acquiring Benihana, the 13% Preferred stock ($201M at 3/31/26), the interest on which has been Paid in Kind, matures in ’29 but can be redeemed in ’27, which is an obvious corporate objective. Adjusted EBITDA increased 16.3% in ’25 to $89M and $93M for the TTM ending 3/31/26. Company guidance for Consolidated Adjusted EBITDA is $100 – $110M in calendar ’26, which should allow for $38-42M of capex (exclusive of landlord allowances), cash interest expense, which is about $40M annualized, as well as modest long term debt reduction.
The common stock of STKS is valued at a modest 6.2x trailing TTM Adjusted EBITDA and 5.6x the guide for calendar ’26. Production of the projected cash flow should demonstrate the company’s ability to reduce the debt over time and allow the Company to reduce the currently high interest rates. With $105M at the midpoint of the calendar ’26 guided Adjusted EBITDA and only 31M shares outstanding, each upside “turn” in EBITDA is worth an additional $3+ per share, or over 150% of the current stock price.
THE COMPANY
FISCAL YEAR ENDS – DECEMBER
MOST RECENT QUARTER – MARCH ‘26
The One Group Hospitality reported results for the quarter ending 3/31/26 very much in line with guidance. Though sales were “flattish”, there was sequential comp sales improvement within all three segments (STK, Benihana, Grill), store level margins improved materially and Adjusted EBITDA was at the high end of guidance. Management’s reiteration of previous guidance for all of ’26, along with their confident dialogue relative to product and marketing initiatives, apparent control of labor and cost of goods, and implementation of increasingly asset light unit expansion, seem to augur well for continued improved results.
FIRST QUARTER ’26 DISCUSSION
THE HEADLINES
The headlines included: GAAP revenues increasing by 0.8% to $212.8M. Comp Sales were virtually flat, decreasing 0.3% (negatively affected by the Grill Concepts segment), based on the same number of days. GAAP net income was $3.2M vs. $1.0M. Overall Restaurant Operating Profit, excluding Grill Concepts closings, was 100 basis points better at 19.1% of Revenues. Adjusted Corporate EBITDA was up 12.1% to $28.8M, near the $29M top of guidance. STK’s 1.4% positive comp was its 2nd in a row and restaurant margin improved by 280 basis points. While Benihana’s comp was exactly flat, it was just slightly up from Q4’25, and the restaurant margin improved by 130 basis points YTY.
STRATEGIC PROGRESS
There was notable progress from a cash flow and capital allocation standpoint, especially important, as the Company works to reduce interest expense and ultimately reduce balance sheet leverage. In the March quarter, $21.7M was generated from operations and capital expenditures were reduced by 23% YTY.
The Strategic Portfolio Optimization plan, along with Asset Light Expansion, is also showing promise. Six underperforming Grill location were closed in ’25, and one so far in ’26. The recently converted Scottsdale, AZ location has increased sales by about $4M, so should improve EBITDA by something like a 100% return on the $1M cost of conversion. Further progress in this area will be reflected by the three Kona Grills and two RA Sushi restaurants that were closed in January, 2026, to be converted to Benihana or STK by the end of ’26, expected to generate a 100% ROI on the $1.0-1.5M investment per store. Below we will detail the ’26 unit growth plan for both concepts.
THE DETAILS
Continued challenging macro conditions did not prevent The One Group from demonstrating their control over the most important operating parameters. While sales were slightly softer than all stakeholders would like, well controlled operating expenses allowed for store level EBITDA margin to improve to 19.1%. As the tables (from 10Q) below show, store level margin was 280 bp better at STK and 130 bp at Benihana, at 21.3% and 21.1% respectively, restrained by the 5.0% store level margin at the relatively small Grill division. As a result of the Grill closings and conversions to STK or Benihana, as well as carefully chosen new sites, overall corporate margins should be able to rise materially, in turn aiding corporate cash flow.
There are a wide range of operating initiatives that have been put in place, including value driven menus at all brands and a focus on table turns at Benihana that are just beginning to be reflected in reported results. We’ve provided just below a link to the most recent conference call (on 3/6/26) in which these details are provided.
RECENT UNIT GROWTH AND FORWARD PLANS
The company has made clear its intention to focus on “asset light” expansion, converting current locations to far more productive STK or Benihana units. As described above, conversions of current locations can be done for $1.0-$1.5M, expected to increase sales by several million dollars, generating an C/C return from 50-100%. The following is a listing of recent openings and plans for ’26. It seems reasonable that the Company can open 6-10 new locations annually, at an affordable cash cost, providing an ability to steadily increase corporate EBITDA and free cash flow.
Owned Kona Grill (relocation) in San Antonio, TX opened in January 2026
Converted franchised Benihana to owned in Monterey, CA in February 2026.
Converted franchised Benihana Express to owned in Miami, FL in March 2026.
Currently Under Construction (3 locations):
- Owned STK restaurant in Phoenix, Arizona
- Owned STK restaurant in New York, New York (relocation of an existing STK restaurant)
- Owned Benihana restaurant in Seattle, Washington
- At the same time the asset light expansion program is moving forward with a Ten-restaurant franchise development agreement for Benihana/Benihana Express in Greater San Francisco Bay Area, California and a two-restaurant commitment for a franchised Benihana and a licensed Benihana Express in the Florida Keys.
CASH FLOW CONSIDERATIONS
All stakeholders are sensitive to the Company’s ability to service the combined long-term debt and 13% Preferred Stock. While the Preferred interest rate has been Paid in Kind, the Company is looking forward to refinancing that obligation as well as the long-term debt at a materially lower interest rate. As the Company continues to meet operating objectives, lenders are increasingly likely to refinance both the long-term debt and the Preferred, the latter of which can be paid off in ’27.
In the meantime, cash interest payments are about $40M annually, which combined with the $38-42M of planned capex, leaves about $25M of “free cash flow” at the midpoint of EBITDA expectations for calendar ’26. The Company’s increased focus on “asset light” expansion, by way of conversions for new company operated locations, franchised Benihana expansion and additional management contracts, along with interest rate relief, should allow for steadily increasing free cash flow.
CONCLUSION:
Provided at the beginning of this report.