CONCLUSION:
In the six weeks since 4/7, when we recommended The One Group (STKS) for long term investment, the stock has rewarded investors in the short term as well, up as much as 50%. This stock price appreciation is no doubt the result of the encouraging Q1’25 results, “hitting their marks” as they build out STK and integrate Benihana on the way to a much higher level of revenues and cash flow. We have provided at the end of this update our report from April 7th, still relevant, which lays out the calendar ’25 guidance, reiterated as of the Q1’25 report. Investors are no doubt comforted that Q1’25 demonstrated:
Benihana, now their largest brand, reported positive comparable sales, as well as an improved operating margin.
Sequential traffic improvement, at STK (+4%), with operating margin still impressive in a slow seasonal quarter, and value driven menu adjustments, as well as loyalty programs (applying to all brands) promising to support continued improvement.
Consolidated Restaurant level EBITDA was 16.4%, a 50 basis point improvement YTY, in spite of the weather in February, with restaurant level margins strong at the most important brands, Benihana (20.1%) and STK (17.7%), only modestly reduced by the weaker Grill Concepts division.
Well controlled G&A expenses, Adjusted for stock compensation, at 5.4% of revenues vs. 7.3% a year earlier.
Corporate Adjusted EBITDA at $25.2M compared to $7.6M in Q1’24, an increase of 233%, annualizing in a slow seasonal quarter to meet the full year’s midpoint guidance of $105M.
Liquidity maintained with $34.1M of cash and short-term credit card receivables and $33.6M available under the undrawn revolving credit facility.
We fill in more detail of Q1’25 below, and the bottom line is that STKS remains an unusually attractive investment opportunity. As we modeled in our report of 4/7 (provided below), if the Company performs in line with our projections going out to 2028, STKS could conservatively (at 6-9x 2028 EBITDA) sell at $14 to $29/share. The recent move to about $4.50, while obviously up about 50% recently, has far more upside potential over the next 36 months.
REVENUES AND ADJUSTED EBITDA – BY DIVISION – BENIHANA dominant, STK still crucial.
DIVISIONAL RESULTS – From Largest to Smallest
Benihana – One new company operated location opened, “strongly”, in San Mateo, CA in March. Same store sales were up 0.7% in Q1’25, up sequentially from a negative 0.2% in Q4’24 and the first positive comp under STKS ownership since May ’24. Store level EBITDA margin was 20.1%, equal to that of calendar ’24 under STKS ownership, and down just modestly from the 21.8% of seasonally stronger Q4’24. We believe the likelihood is that store level margins will improve over the course of calendar ‘25 from the Q1’25 level, because of improved sales trends and operational improvements. Expansion of happy hour offerings continues to be an important opportunity and menu/beverage pairings at a $39 price point is appealing to customers. A customer database now amounts to about 7 million contacts, available for use by all brands, recently augmented by a new “Friends with Benefits” reward program. least equally important is that the franchising effort at Benihana will pick up steam in the current year, providing investors with increased confidence in systemwide growth from franchising. A new franchised Benihana Express is currently planned for the Bayside Marketplace in Miami, FL. Management believes that the “Vibe Dining” experience applies to both Benihana and STK, differentiating both these brands for long term success. Also within the Benihana segment is Samurai, (an interactive dining experience located in Miami, soon to also be in Westwood, CA).
STK – One new company operated unit opened, post Q1 in April, also “strongly”, in Topanga, CA. Same store sales at Company operated locations were down 2.3%, with transaction growth of 4.1, SSS improved sequentially from negative 5.0% in Q4’24 and the best SSS result since Q1’23. Store level margin was 17.7% (February weather no doubt coming into play), down sequentially from 19.2% in seasonally stronger Q4’24 and 21.0% in Q1’24. The renewed positive transaction trend is a result of menu innovation, more appealing to consumers increasingly value driven, and management is obviously working to sustain the improvement. Priorities include happy hour attractions, menu-sharing options, and entrée/beverage pairings at a $69 price point. Throughput efficiencies at peak Friday and Saturday meal periods continues to be a focus. STK continues to be highly profitable, with recently opened units averaging over $11M per unit and cash on cash returns well over 50%. A relocated STK, in Los Angeles is about to open. Also within the STK segment is Salt Water Social, a high-volume seafood concept located in Denver, CO).
Grill Concepts – This segment consists of Kona Grill and RA Sushi (purchased with Benihana). Same store sales were negative at 13.7%, about equal to the 13.2% for all of calendar ’24, and down from a negative 11.7% in Q4’24. This segment, clearly the laggard within the STKS portfolio, at this point represents less than 20% of revenues and only about 3% of Restaurant Level EBITDA. That said, 3% of restaurant level EBITDA could swing negative rather than stabilize and/or improve and attention is being paid. Menu and operational adjustments are taking place and the multi-concept STKS platform is being utilized by way of reservation systems, marketing strategies, cost of goods and labor efficiencies, etc. While obviously not a current strength, management is dedicated to converting this segment to an opportunity rather than a risk.
CONSOLIDATED RESULTS AND GUIDANCE FOR Q2 AND CALENDAR ‘25
Consolidated GAAP revenues increased 148% YTY as a result of the Benihana acquisition in May’24 and six newly opened. Consolidated same store sales were down 3.2%. Company operated Cost of Sales improved 220 basis points to 20.8%, benefiting from integration synergies and Benihana’s relatively attractive CGS. Restaurant level Operating Expenses were higher by 120 basis points to 62.1%, as a result of lower sales, partially offset by integration synergies. Restaurant EBITDA improved by 50 basis points to 16.4%, as discussed above: driven by 20.1% for Benihana and 17.7% at STK. Adjusting for stock-based compensation, G&A improved 190 basis points to 5.4%. D&A expense increased to $9.8M from $5.3M, as a result of the Benihana acquisition and six new restaurants. Pre-opening expenses were $1.7M, down from $2.9M in Q1’24. Adjusted net income was $4.6M or $0.14 per share, compared to an adjusted net loss of $0.6M or $0.02 a year earlier. Adjusted EBITDA was $25.2M, up from $7.6M in Q1’24. The Company finished Q1’25 with $34.1M in cash and short-term credit card receivables, and $33.6M available (undrawn) under their revolving credit facility.
The following table provides management’s guidance for Q2 and calendar ’25. The full year is unchanged from previous guidance. Both Q2 and the full year seem to be supported by Q1’25 results, especially since the first calendar quarter is typically relatively soft, and weather in Q1’25 reinforced that inclination. It is also worth noting that the $20M of predicted merger synergies, to be implemented over two years, are only partially implemented.
CONCLUSION:
Provided at the beginning of this Report
BELOW IS A LINK TO OUR “BASIC REPORT”, published 4/7/25
SUPPORTING SCHEDULES BELOW
