Kona Grill Inc. (KONA) has recently raised its revenue and net income guidance for the third quarter of 2011 on the back of strong sales growth. Total revenue is now expected to remain in the $24.1–$24.2 million range versus the previous expectation of $23.1–$24.1 million. An encouraging sales momentum was driven by menu improvement, restaurant remodels and marketing initiatives in an attempt to create awareness and accelerate traffic.
The updated guidance assumes same-store sales growth of approximately 9% over the year-ago quarter compared with 6% forecast previously. This will represent the eighth consecutive quarter of sequential improvement in same-store sales.
Management increased its net income expectation to the range of $0.5–$0.6 million or 5–6 cents per share. The previous expectation was $0.01–$0.03 million or 1–3 cents per share. The Zacks Consensus Estimate for the third quarter before the announcement of the preliminary results was 3 cents.
The American grill and sushi bar company has been reporting strong same-store sales in recent times. In the second quarter of 2011, the company delivered solid top-line results, driven by a 9.1% increase in same-store sales. This upswing followed increases of 7.6% in the first quarter and 6.4% in the fourth quarter of last year. Second quarter 2011 was the sixth consecutive quarter that Kona Grill experienced positive traffic growth, reflecting the strength of the brand in multiple markets.
We remain impressed with the company’s continuous market share gain in a highly competitive bar and grill segment. Guest frequency also remains unscathed by a pricing action taken in June to offset higher commodity costs. Increased outlook for the third quarter also calls for a profitable year for Kona Grill. The company is also in an expansion mode with two openings anticipated for 2012 and even more for 2013.
Kona Grill, which competes with peers like Brinker International Inc. (EAT) and Darden Restaurants Inc. (DRI), is slated to report its third quarter 2011 earnings on October 25. The stock has outperformed the Zacks Consensus Estimate in each of the last four quarters. The earnings surprise ranges from 16.67% to a massive 175.0%, with the average being 70.84%. Kona Grill currently retains a Zacks #1 Rank, which translates into a short-term Strong-Buy rating. We are also maintaining our long-term Outperform recommendation on the stock.
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