On Jan 15, Zacks Investment Research upgraded Kona Grill Inc. (KONA) to a Zacks Rank #1 (Strong Buy). Kona Grill has been witnessing rising earnings estimates after it announced solid preliminary restaurant sales for the fourth quarter of 2014 on Jan 12, 2015.
Why the Upgrade?
Kona Grill announced preliminary fourth-quarter 2014 results, wherein restaurant sales increased about 29% year over year to $31.5 million. Comps increased approximately 3.1% as against an increase of 2.7% in the prior quarter. In fact, Kona Grill has successfully grown same-store sales in 17 out of the last 18 quarters, including an excellent comps growth in 2014.
For 2014, restaurant sales increased roughly 21.2% year over year to $119.1 million, primarily due to comps growth of around 3.8% and increased sales related to 7 unit openings since Oct 2013.
The company continues to deliver solid comps growth on the back of significant volume growth at restaurants. Currently, the company operates 30 restaurants in 19 states across the U.S. and the success of the existing units indicates that it is poised for more rapid expansion.
Kona Grill, which operates as an upscale casual restaurant, has remained attractive in an intensely competitive sector. Management focuses on keeping the menu pricing attractive compared to competitors. This has driven the strong traffic at the company’s restaurants.
Further, Kona Grill’s diversification of the menu — like combining sushi with the American grill and entrees — caters to health conscious customers. Additionally, with the fast casual segment growing rapidly over the past few years, with a shift in consumer preference toward quality and hygienic food, the coming quarters look bright for Kona Grill.
Such a trend of strong earnings growth, along with a positive outlook for the coming period, prompted our upgrade.
Other Stocks to Consider
Other stocks in the same industry that are attractive at current levels include Red Robin Gourmet Burgers Inc. (RRGB), Chipotle Mexican Grill, Inc. (CMG) and Cracker Barrel Old Country Store, Inc. (CBRL). While Red Robin and Chipotle sport a Zacks Rank #1, Cracker Barrel carries a Zacks Rank #2 (Buy).
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