CONCLUSION
The One Group Hospitality (STKS) performed well in Q2’25 relative to important long-term priorities. Menus were adjusted at all brands to better respond to the value driven consumer. The purchase of Benihana was validated by way of successful openings, and the multi-branded portfolio was adjusted by way of 5 Grill closings to better utilize hard assets. Results were therefore supportive of continued expansion of company operated Benihana and STK units while preparing to expand franchising of Benihana. Traffic was slightly positive at STK, though SSS remained negative. Benihana managed a positive SSS comparison. Importantly, the Company is sufficiently confident of H2’25 that all financial targets for calendar ’25, shown below, were maintained including Adjusted EBITDA in the range of $95-115M. We have written extensively about STKS, which readers can access through the SEARCH function on our Home Page.
We continue to judge that the appreciation possibility of STKS stock far outweighs the downside risk at this point. Though industry-wide traffic and sales trends remain challenging, Benihana, generating 2/3 of STKS’ current restaurant cash flow, is performing best, both in terms of current sales trends and store level margins. Though sales per unit and store level margins are not what they were for all three STK brands, both BNHN and STK provide cash on cash returns at the unit level that are among the best among publicly held restaurant chains. Together they provide expansion potential that seems relatively unique in today’s restaurant marketplace. We judge management capable of (in the worst case) maintaining current sales and margins at STK, more than sufficient to justify continued expansion, at the same time expected to exploit the untapped potential at recently purchased Benihana. Since Benihana represents well over half of Company Revenues and about two thirds of company operated restaurant cash flow, Benihana’s potential, including franchising, has become the potential “multiple maker”. At the current STKS stock price the Enterprise Value of STKS (at about 5.0x estimated Adjusted ’25 EBITDA) provides no credit for that possibility and, as our calculations below indicate, could support a price many times the current level.
THE SECOND QUARTER
There were predictably quite a few moving parts in Q2 that require adjustments to GAAP Reporting to provide the most accurate picture of the work in progress. The largest adjustment related to the closing of five Grill locations ($5.6M), “nearly all non-cash”) with pending lease expirations.
GAAP Revenues were up 20.2% to $207.4M due to 30 extra days of Benihana (and RA Sushi) ownership and 7 new restaurants YTY, partially offset by a 4.1% decline in SSS (especially Kona Grill). Comparable sales were up slightly at Benihana, +0.4%, while down at STK (6.0% system wide) and especially within the Grill segment (14.6%).
Cost of Sales at Company owned restaurants was flat at 21.2%, with integration synergies offsetting commodity inflation. Company owned restaurant operating expenses increased 210 bp to 63.5%, primarily due to Benihana and RA Sushi results in April, which typically have lower revenues and margins than in the rest of the quarter. Investments in marketing as well as general deleveraging from lower SSS also contributed. Restaurant EBITDA decreased 210 BP to 15.4%, including 18.5% at Benihana and 15.9% at STK. Startup inefficiencies at 2 new STK restaurants impacted margins by 80 bp, expected to normalize over the balance of ’25. As reported G&A expenses were up by $1M to $11.7M, driven by a full quarter YTY with Benihana, offset by lower performance-based compensation. Adjusted for stock compensation, G&A was up $1.1M to $10.2M, representing a modest 4.9% of Net Revenues, 40 bp better YTY. The other major expense item was interest expense of $10.3M, up $2.4M YTY, because of the Benihana acquisition. The GAAP net loss was $10.1M, up $2.8M YTY, including the $5.6M in (mostly non-cash) lease expense.
Adjusted net income was $1.7M or $0.05 adjusted net income per share, vs $6.3M or $0.19per share a year earlier. Adjusted EBITDA was $23.4M, up 7.3% YTY. Cash and short-term credit card receivables were $15.1M, a decrease from $34.1M at 3/31 due to the impact of biweekly payroll and lower accrued payroll. In addition, the company has an unchanged $33.6M available under a revolving credit facility, which remains undrawn and does not have a financial covenant under current conditions.
It is important to note that, as the table just below shows: Benihana has emerged as the Company’s most important brand, both in terms of current sales, profit margin and potential expansion, including franchising.
OPERATIONAL DEVELOPMENTS – IN SUPPORT OF EXPANSION PLANS
Though current same store sales and operating margins are critically important, management is appropriately spending and investing on behalf of successful long-term expansion of both Benihana and STK. It should be noted that the currently lagging Grill segment is not being ignored but clearly takes a back seat in terms of expansion to the more promising Benihana and STK brands. Moreover, the Grill segment at this point is generating under 10% of restaurant cash flow.
The performance of new locations is promising. After successfully opening a new STK in Topanga, CA in March,2025, an STK in Westwood, CA was relocated in April 2025 to a larger, higher capacity location. The important Benihana development was STKS’ first Benihana opening, in San Mateo, CA, a 7,000 square foot unit which has been annualizing at about $8M, the highest grossing new Benihana ever and far above the previous systemwide average of $5.5M. This level of volume has been sufficiently encouraging that the Company redirected a Kona Grill renovation, at Lake Union in Seattle, WA to become a new Benihana. It is also about 7,000 square feet, described as a “beautiful, stunning” location, to open late this year. The second Benihana Express opened, in May 2025 in Miami, FL at Bayside Marketplace and the volumes have apparently been sufficient to accelerate franchise interest in this version of the Benihana brand. Currently under construction are the Seattle Benihana and an owned Kona Grill in San Antonio that is being relocated. In the pipeline also are the 3rd and 4th Benihana Express, with further franchise announcements expected within a matter of months.
In support of future expansion, to some extent affecting current margins, are additional investments in marketing, including expansion of the Friends with Benefits loyalty program that was launched in Q1, now with more than 7M contacts in the database. Members earn points for every dollar spent and receive exclusive rewards. Stronger local store marketing and digital engagement is being employed to build brand affinity and guest frequency.
Culinary innovation is an important aspect of STKS’ skill set, while not foregoing the “Vibe” experience, one example being the recently introduced premium menu Waygu steak program at Benihana. An important response to the current reality of a value driven consumer (especially during the week), introduced have been fixed price meals ($69 at STK and $39 at other brands) and shared dishes, as well as $3, $6 and $9 Happy Hour menus.
CALENDAR ’25 GUIDANCE HAS BEEN MAINTAINED
We provide below the latest table in terms of guidance.
The seasonally slow Q3’25 is projected to generate $190-$195M of revenues, comp sales from -4% to -2% (an implied improvement from negative 4.1% systemwide in Q2), total store level margin of 14% (vs. 15.4% in Q2, G&A of 11M (vs $10.2M in Q2), and Adjusted EBITDA of $15-18M (vs. 23.4% in Q2).
Management continues to expect the full year to generate from $95M to $115M of Adjusted EBITDA, considering that Q4 is seasonally the strongest for both Benihana and STK. With $25.2M in Q1, $23.4M in Q2, $18M at the top of the Q3 range, $38.4M would be required to meet the midpoint of $105M. This would compare to $30.3M in Q4’24, which management obviously feels is reasonable. In our view. Relative to stock performance, we believe the fundamental progress made by the time calendar ’25 results are in, especially relative to Benihana’s outlook, will be more far more important than where ’25 ends up relative to today’s expectations.
APPRECIATION MODEL FOR STKS – FROM 2025 TO 2028
The following table, providing our rough model for possible performance over the next several years was published in our April ’25 report. Guidance from the Company has not changed, and we know of nothing in the outlook that modify this model. The numbers are self-explanatory, and provide upside possibilities, which are especially attractive relative to the modest downside risk from the current level.
Excerpted from Lipton Financial Services’ report dated April ’25:
CONCLUSION:
Provided at beginning of this report.
Roger Lipton