Kona Grill Inc. (KONA) — an American grill and sushi bar — recently priced an underwritten public offering of 2 million shares of its common stock at $18.50 per share. Additionally, selling stockholders are offering to sell another 3,00,000 shares in the offering. The offering is expected to close on or about Jun 25, 2014. Further, the company has granted the underwriters a 30-day option to purchase up to an additional 345,000 common shares.
Kona Grill will receive $37.0 million from this secondary public offering, without deducting the underwriting discount and other related expenses. The company plans to use the proceeds for unit expansion, remodeling and maintenance, capital expenditures, working capital and other general corporate purposes.
Small Chain Going Large?
In our view, the capital raise suggests that Kona Grill — currently operating 26 restaurants — has an extensive expansion plan. The company does not have a huge debt burden or liquidity crisis, so a significant portion of the proceeds from the secondary public offering will likely be invested in expansion.
The Arizona-based restaurateur believes that long-term potential exists for over 100 restaurants — more than four times its current size. In fact, the company plans to expand its unit count by 20% in 2014 and has already signed four leases for 2015. In our view, as the chain does not have a large number of locations on a national scale, it has plentiful growth opportunity.
Further, Kona Grill has been benefitting from a sustained positive comps growth trend — 14 of its last 15 quarters. In fact, in the most recent quarter, comps increased 6.2%, despite inclement weather and sluggish macroeconomic trends. The company also aims to double its sales within the next five years buoyed by its growing popularity.
Kona Grill currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Chipotle Mexican Grill, Inc. (CMG), Red Robin Gourmet Burgers Inc. (RRGB) and Burger King Worldwide, Inc. (BKW). All these stocks carry a Zacks Rank #2 (Buy).
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