Upscale restaurant company The One Group Hospitality (NASDAQ:STKS) fell short of analysts' expectations in Q3 FY2023, with revenue up 5.3% year on year to $76.9 million. Its full-year revenue guidance of $340 million at the midpoint came in 3.9% below analysts' estimates. Turning to EPS, The ONE Group made a GAAP loss of $0.10 per share, down from its profit of $0.01 per share in the same quarter last year.
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The ONE Group (STKS) Q3 FY2023 Highlights:
- Revenue: $76.9 million vs analyst estimates of $83.3 million (7.7% miss)
- EPS: -$0.10 vs analyst estimates of $0.04 (-$0.14 miss)
- The company dropped its revenue guidance for the full year from $357.5 million to $340 million at the midpoint, a 4.9% decrease
- Gross Margin (GAAP): 16%, down from 17.3% in the same quarter last year
- Same-Store Sales were down 3% year on year
- Store Locations: 64 at quarter end, increasing by 2 over the last 12 months
Doubling as a hospitality services provider for hotels and resorts, The One Group Hospitality (NASDAQ:STKS) is an upscale restaurant company that operates STK Steakhouse and Kona Grill.
Sit-Down DiningSit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.
Sales GrowthThe ONE Group is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 36.9% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it added more dining locations and increased sales at existing, established restaurants.
This quarter, The ONE Group's revenue grew 5.3% year on year to $76.9 million, missing analysts' expectations. Looking ahead, the analysts covering the company expect sales to grow 24.5% over the next 12 months.
Number of StoresThe number of dining locations a restaurant chain operates is a major determinant of how much it can sell and how quickly company-level sales can grow.
When a chain like The ONE Group is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, The ONE Group's restaurant count increased by 2, or 3.2%, to 64 locations in the most recently reported quarter.
Over the last two years, The ONE Group has rapidly opened new restaurants, averaging 8.3% annual increases in new locations. This growth is among the fastest in the restaurant sector and gives The ONE Group a chance to scale towards a mid-sized company over time. Analyzing a restaurant's location growth is important because expansion means The ONE Group has more opportunities to feed customers and generate sales.
Same-Store SalesThe ONE Group's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 12.4% year on year. This performance suggests its steady rollout of new restaurants could be beneficial for shareholders. When a company has strong demand, more locations should help it reach more customers seeking its meals.
In the latest quarter, The ONE Group's same-store sales fell 3% year on year. This decline was a reversal from the 0.5% year-on-year increase it posted 12 months ago. A one quarter hiccup isn't material for the long-term prospects of a business, but we'll keep a close eye on the company.
Key Takeaways from The ONE Group's Q3 Results With a market capitalization of $143.9 million and more than $22.1 million in cash on hand, The ONE Group can continue prioritizing growth.
We struggled to find many strong positives in these results. The company missed analysts' revenue, adjusted EBITDA, and EPS expectations. These shortcomings were driven by declines in its same-store sales (Wall Street was assuming flat same-store sales). On top of that, The ONE Group downgraded Its full-year revenue and adjusted EBITDA guidance, which were below estimates. Overall, this was a bad quarter for The ONE Group. The company is down 1.3% on the results and currently trades at $4.51 per share.
The author has no position in any of the stocks mentioned in this report.
