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On Thursday, Benchmark analyst Todd Brooks revised the price target for GEN Restaurant Group (LON:RTN) (NASDAQ:GENK) to $8.00, a decrease from the previous $11.00, while sustaining a Buy rating on the stock. Currently trading at $4.26, GENK has experienced a significant decline of 65% over the past year. The adjustment followed GENK’s first-quarter 2025 operating results, released after market hours on May 13th, which exhibited revenues aligning with consensus expectations and the addition of six new units. However, same-store sales (SSS) slightly declined by 0.7%.According to InvestingPro, there are 12 additional key insights available for GENK, including important metrics about the company’s financial health and market position.
GENK’s recent quarter was marked by increased labor costs, attributed primarily to inefficiencies associated with new store openings. With a significant debt burden of $159.67 million and a weak gross profit margin of 17.16%, these costs contributed to 120 basis points of the 190 basis point shortfall in restaurant-level operating margin (RLOM). Consequently, the company reported a RLOM of 15.6%, leading to earnings per share (EPS) of $(0.06) compared to the consensus estimate of $(0.01). Additionally, adjusted earnings before interest, taxes, depreciation, and amortization (AEBITDA) reached $1.2 million, which fell short of the anticipated $3.7 million.
Despite the lower performance indicators and the subsequent reduction in both earnings estimates and target multiple, Brooks remains optimistic about GENK’s long-term prospects. In his commentary, the analyst expressed confidence in the brand’s future growth potential, which underpins the Buy rating. The revised price target of $8 per share reflects the updated assessment. InvestingPro’s analysis indicates the stock is currently undervalued, with a Fair Value assessment suggesting potential upside. The company maintains a "Fair" overall Financial Health Score of 1.83 out of 5.
The report indicates that GENK is grappling with the challenges of expansion, as the costs associated with opening new locations have impacted its short-term financial performance. Nevertheless, the company’s strategic growth through unit expansion and the maintenance of a Buy rating suggest that analysts see a resilient brand capable of overcoming these temporary setbacks.
Investors will be closely monitoring GENK’s ability to manage labor costs and improve operational efficiency as it continues to expand. The company’s stock performance will likely reflect its progress in these areas and its capacity to meet or exceed market expectations in the future.
In other recent news, GEN Restaurant Group Inc. reported a net loss of $2.1 million for the first quarter of 2025, a significant shift from the $3.8 million net income reported in the same period last year. Despite this, the company achieved a 13% increase in total revenues, reaching $57.3 million. The company continues to expand its footprint, opening six new restaurants and planning further growth. GEN Restaurant Group aims to open 12-13 new restaurants in 2025 and anticipates reaching a $300 million annual revenue run rate by the end of the year. The company also plans to achieve a restaurant-level adjusted EBITDA margin of 17-18%. Analysts from The Benchmark Company and Roth Capital Partners (WA:CPAP) have shown interest in the company’s strategic initiatives, such as the dual-concept restaurant model and international expansion into South Korea. Additionally, the company is cautious about potential impacts from Chinese tariffs on equipment and construction costs, which could affect their expansion plans.
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