The ONE Group Hospitality, Inc. (STKS) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlighted strong operational improvements, including expanded profit margins and increased cash flow. Despite a slight revenue miss due to seasonality, the company demonstrated robust same-store sales growth and effective cost management. The Q&A session revealed positive franchise interest and strategic debt reduction, which supports a positive outlook. While some uncertainties remain, the overall sentiment is positive, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Total GAAP Revenues $213 million, an increase from $211 million in the same quarter last year (0.8% increase). Growth was driven by the fiscal calendar shift moving New Year's Eve into fiscal '26, adding $8.3 million, and contributions from new openings and conversions. This was partially offset by closures of underperforming Grill locations, reducing revenues by $1.8 million.
Restaurant Cost of Sales Improved to 19.4% from 20.8% in the prior year quarter (140 basis point improvement). This was due to menu optimization, integration synergies, supply chain initiatives, increased menu pricing, and efficient cost of sales during New Year's Eve and Valentine's Day.
Operating Income Increased 30% to $13.9 million from $10.7 million in the prior year quarter. The improvement was driven by better restaurant operating profit and reduced transition and integration costs.
Adjusted EBITDA Increased 12.1% to $28.8 million from $25.7 million in the prior year quarter. The improvement was driven by cost management discipline, contracted beef pricing, Benihana integration synergies, and portfolio optimization actions.
Capital Expenditures (Net of Tenant Improvement Allowances) Reduced 23% year-over-year to $10 million. This reflects a disciplined approach to capital allocation, focusing on high-return, capital-efficient growth.
Restaurant Operating Profit Increased 11% to $40 million, with margins expanding 100 basis points to 19%. Margin improvement was driven by a 140 basis point reduction in food and beverage costs and a 40 basis point improvement in operating expenses as a percentage of revenues.
STK Restaurant Operating Profit Margins Expanded 280 basis points to 21%. This was attributed to cost management, contracted beef pricing, and operational improvements.
Benihana Restaurant Operating Profit Margins Improved 130 basis points to 21%. This was attributed to integration synergies and operational improvements.
Cash Flow from Operations Increased to $22 million from $9 million in the prior year quarter. The improvement was due to increased net income and collections on holiday credit card receivables.
Net Income Attributable to The ONE Group Hospitality, Inc. $3.2 million, compared to $1 million in the prior year quarter. The increase was driven by improved restaurant operating profit and reduced transition and integration costs.
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Operating Highlights
Seasonal Menu Innovation: The company is launching new food and beverage menus four times a year across its brands to keep offerings fresh and differentiate from competitors.
Off-Premises Business Expansion: Focus on curbside operations, with highlights including burgers and sides driving strong takeout and delivery volume, and fried rice burritos performing well for Benihana and RA Sushi.
New Restaurant Openings: Two company-owned STK restaurants (Phoenix, Arizona, and New York City) and one company-owned Benihana restaurant (Seattle, Washington) are under construction. Plans to open 6 to 10 new venues in 2026.
Franchise Expansion: Progress on a 10-unit California Benihana and Benihana Express development agreement. Franchise Benihana and licensed Benihana Express in the Florida Keys remain on track. Benihana Express format is gaining strong franchise interest due to its cost efficiency.
Cost Management: Restaurant cost of sales improved to 19.4% from 20.8% due to menu optimization, integration synergies, and supply chain efficiencies. Operating income increased by 30%, and adjusted EBITDA grew by 12.1%.
Loyalty Program Growth: The Friends with Benefits Loyalty Program added over 8,000 new organic members per week, with loyalty members spending more per visit compared to non-loyalty guests.
Portfolio Optimization: Conversion of underperforming Grill locations to higher-performing STKs and Benihanas. Five Grill locations are being converted, expected to reopen by the end of 2026, with each conversion costing $1-1.5 million and being EBITDA accretive.
Balance Sheet Strength: Cash flow from operations increased to $22 million from $9 million year-over-year. Debt reduction efforts included $2 million in term loan repayments and $7 million in revolving facility repayments, bringing the revolving facility balance to zero.
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Risk or Challenges
Market Conditions: The current environment remains challenging, which could impact the company's ability to sustain growth and profitability.
Comparable Sales: Consolidated comparable sales were relatively flat at negative 0.3%, indicating potential challenges in driving consistent growth across all brands.
Grill Concepts Performance: Grill Concepts comparable sales were down 4.9%, reflecting weaker performance compared to other brands.
Portfolio Optimization: Closure of underperforming Grill locations and associated lease termination expenses could pose financial and operational risks during the transition.
Cost Management: General & Administrative costs increased due to inflation on salaries, higher audit-related fees, and investments in AI-related technologies, which could pressure margins.
Supply Chain: While beef pricing is contracted through September 2026, any disruptions or cost increases in other supply chain areas could impact margins.
Expansion Risks: The company plans to open 6 to 10 new venues in 2026, but delays or cost overruns in construction and regulatory approvals could affect timelines and financial performance.
Economic Uncertainty: The company acknowledges macroeconomic uncertainties, which could impact consumer spending and overall business performance.
Debt Management: Although debt levels have been reduced, maintaining balance sheet flexibility in an uncertain environment remains a priority and a potential challenge.
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Guidance & Outlook
Second Quarter 2026 Revenue Projection: The company projects total GAAP revenues of between $202 million and $206 million, reflecting anticipated consolidated comparable sales growth of 1% to 2%.
Second Quarter 2026 Adjusted EBITDA: Adjusted EBITDA is expected to range between $24 million and $26 million.
Second Quarter 2026 Operating Expenses: Total company-owned operating expenses as a percentage of company-owned restaurant net revenue are projected to be between 81% and 82%.
Fiscal Year 2026 Revenue Guidance: The company reiterates its projection of total GAAP revenues between $840 million and $855 million, with consolidated comparable sales growth of 1% to 3%.
Fiscal Year 2026 Adjusted EBITDA: Adjusted EBITDA is expected to range between $100 million and $110 million.
Fiscal Year 2026 Capital Expenditures: Total capital expenditures, net of allowances received from landlords, are projected to be between $38 million and $42 million.
Fiscal Year 2026 New Venues: The company plans to open 6 to 10 new venues in 2026.
Fiscal Year 2026 Effective Tax Rate: The effective income tax rate is expected to range between 10% and 20%.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Why were revenues slightly below guidance for the first quarter?
A:The slight miss in revenues was attributed to seasonality at STKs in malls, as it was the first year with two restaurants fully operating in the first quarter. Additionally, changes in spring break patterns and an earlier Easter contributed to a different cadence of sales.
Q:Why has the timeline for conversions been extended to the end of the year instead of mid-July?
A:The timeline was extended due to the pacing of resources to reopen properly, including full training cycles. The decision was based on internal judgment to ensure the right pace of opening units without negatively impacting operations.
Q:Is there any update on franchising or nontraditional venues?
A:Franchising interest remains high, and resources have been increased to secure new deals. Progress is positive, particularly for Benihana.
Q:Were there any notable regional differences in same-store sales performance during the quarter?
A:Texas, particularly Dallas, showed some softness due to the competitive market. However, overall sales and transactions were positive, reflecting strong initiatives to build traffic and sales.
Q:What is driving the positive same-store sales in the second quarter?
A:Traffic is up, driven by initiatives around value, happy hour promotions, and lunch offerings like Benihana's Power Lunch starting at $15.95 with a 45-minute guarantee. Marketing efforts have also been effective in communicating value points.
Q:What cost synergies were realized from the Benihana acquisition?
A:Synergies included favorable beef contracts and savings on linens and other operating supplies.
Q:How is the company balancing debt reduction, conversion investments, and share repurchases?
A:The focus is on debt reduction, as evidenced by paying down the revolver and term loan. Growth investments are being balanced with maintaining free cash flow for debt servicing. Shareholder value creation remains a priority.
Q:What is the long-term opportunity for Benihana Express compared to the traditional Benihana concept?
A:Benihana Express offers strong franchise interest due to its premium product offerings, favorable cost of goods, efficient labor model, smaller and flexible footprints, and lower development costs.
Q:What are the bookings for Mother's Day and graduation events compared to last year?
A:Traffic is positive, and bookings are solid, reflecting strong forward momentum.
Q:Why is there expected margin compression in the third quarter?
A:The third quarter is the lowest-volume quarter due to seasonality, which impacts margins. However, cost of goods is at its lowest, and the overall margin outlook for the year is solid.
Q:What is the outlook for beef prices and cost management for the holiday quarter?
A:The beef market remains tough, and the company is focusing on alternative cuts and promotional windows to manage costs effectively. There is no precise forecast for Q4 beef prices.
Q:What drove the decrease in the weighted average interest rate?
A:The decrease was driven by a reduction in Fed rates and the company's focus on using free cash flow to reduce debt.
Q:What was the off-premises mix in the first quarter?
A:The off-premises mix was in the low double digits, with delivery being the majority. Efforts are focused on increasing pickup orders, which are more profitable.
Q:What were the economics of the Scottsdale conversion?
A:The Scottsdale conversion increased revenues from $3-4 million to over $7 million annually, with a $1 million investment yielding a 4x return on sales and significant incremental EBITDA.
Q:Review of Unclear Management Responses
A:Management avoided providing precise numbers for bookings related to Mother's Day and graduation events, citing only that traffic and bookings were solid. Additionally, there was no specific forecast for Q4 beef prices, with management instead discussing general cost management strategies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Arizona
Day graduation
General Administrative
Kona
New Eve
Priority
STK sale
beef
beverage menu
case
cash equivalent
compensation General
conversion STK
decrease restaurant
exception
food beverage
franchise incentive
gain
increase restaurant
lease
license franchise
measure
member
number day
optimization integration
point improvement
portfolio optimization
pricing
priority detail
rate revenue
repayment
restaurant construction
restaurant reduction
sale license
sale transaction
supply chain
synergy supply
STKS Transcript
The ONE Group Hospitality, Inc. (STKS) Q1 2026 Earnings Call Transcript
Positive5-7
The earnings call highlighted strong operational improvements, including expanded profit margins and increased cash flow. Despite a slight revenue miss due to seasonality, the company demonstrated robust same-store sales growth and effective cost management. The Q&A session revealed positive franchise interest and strategic debt reduction, which supports a positive outlook. While some uncertainties remain, the overall sentiment is positive, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
The ONE Group Hospitality, Inc. (STKS) Q4 2025 Earnings Call Transcript
Unknown3-13
The earnings call reveals several negative factors: a significant net loss, decreased EBITDA, and missed revenue targets due to operational inefficiencies. Despite some positive guidance on same-store sales and cost synergies, the Q&A highlighted concerns about traffic impacts and lack of clear guidance on gas price effects. The strategic priorities and marketing efforts are positive, but the overall financial performance and uncertain future impacts outweigh them, leading to a negative sentiment.
The ONE Group Hospitality, Inc. (STKS) Q3 2025 Earnings Call Transcript
Unknown11-7
The earnings call reveals mixed signals: while there are positive aspects like improved traffic trends, franchising efforts, and loyalty program growth, there are concerns over declining same-store sales and cash flow limitations. The Q&A section highlights management's optimism but lacks concrete details, and the market strategy is unclear. Despite potential growth from new venues and conversions, the financial health and guidance appear weak, leading to a neutral sentiment. The stock price is likely to remain stable, with no strong catalysts for significant movement.
The ONE Group Hospitality, Inc. (STKS) Q2 2025 Earnings Call Transcript
Positive8-6
The earnings call summary reflects strong financial performance with significant revenue and EBITDA growth, driven by strategic initiatives like new venue openings and franchising efforts. The Q&A section highlights proactive measures to address past challenges, strong market strategies, and confident guidance despite economic uncertainties. The company also plans to enhance shareholder returns through strategic capital allocation. Overall, the positive sentiment from effective management strategies and optimistic future guidance outweighs any concerns, suggesting a positive stock price movement.
STKS Report
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