Earnings call transcript: One Group Hospitality Q3 2025 earnings miss, stock drops

ONE Group Hospitality (NASDAQ:STKS) reported its third-quarter earnings for 2025, revealing a significant earnings miss and a drop in revenue compared to forecasts. The company's earnings per share (EPS) came in at -$0.75, far below the forecasted -$0.16, marking a surprise of -368.75%. Revenue also fell short, reaching $180.2 million against an expected $191.29 million, a surprise of -5.8%. Following the earnings release, the company's stock fell by 6.67% in after-hours trading, closing at $2.1.

Key Takeaways

• EPS of -$0.75 missed the forecast of -$0.16.
• Revenue decreased by 7.1% year-over-year, totaling $180.2 million.
• Stock price dropped by 6.67% in after-hours trading.
• Impairment charges and deferred tax asset valuation impacted financial results.
• Strategic initiatives include a new premium holiday menu and expanded loyalty program.

Company Performance

ONE Group Hospitality faced a challenging quarter, with financial results falling short of expectations. The company reported a net loss of $76.7 million, or $2.75 per share. Despite efforts to manage costs and streamline operations, the company struggled with macroeconomic pressures and geographic challenges, particularly in California. However, some operational improvements were noted, such as a reduction in table turn times at Benihana locations.

Financial Highlights

• Revenue: $180.2 million, down 7.1% YoY
• EPS: -$0.75, compared to the forecast of -$0.16
• Net loss: $76.7 million
• Adjusted EBITDA: $10.6 million, down 28.9% YoY
• Cash and equivalents: $6 million

Earnings vs. Forecast

The company missed its EPS forecast significantly, with a reported EPS of -$0.75 compared to the expected -$0.16. This represents a negative surprise of 368.75%. Revenue also fell short, missing the forecast by 5.8%, with actual revenue at $180.2 million against a forecast of $191.29 million.

Market Reaction

The market reacted negatively to the earnings miss, with the stock price dropping by 6.67% in after-hours trading, closing at $2.1. This decline places the stock closer to its 52-week low of $1.86, indicating investor concerns about the company's performance and future outlook.

Outlook & Guidance

Despite the current challenges, ONE Group Hospitality maintains its revenue projection for 2025 at $820-$825 million, with a consolidated comparable sales decline of 2% to 3%. The company plans to open 5-7 new venues and expects adjusted EBITDA to reach $95-$100 million. Total capital expenditures are projected to be between $45-$50 million.

Executive Commentary

CEO Manny Hilario emphasized the company's strategic initiatives, stating, "We are not relying on macroeconomic recovery or waiting for consumer sentiment shifts." He highlighted the enhancements in reservation technology and operational flow, which are expected to improve execution. Hilario also pointed out the company's strong real estate assets, which provide flexibility in navigating economic challenges.

Risks and Challenges

• Geographic challenges, particularly in California, continue to impact performance.
• Macroeconomic pressures, including inflation and consumer spending shifts.
• Competition in the hospitality sector remains fierce, requiring constant innovation.
• Supply chain disruptions and cost management remain critical areas of focus.
• Seasonal fluctuations may affect revenue and profitability in the coming quarters.

Q&A

During the earnings call, analysts raised questions about the performance of the expanded loyalty program, the company's pricing strategy, and plans for restaurant conversions. Executives addressed market challenges in key locations like Las Vegas and California, emphasizing strategic adjustments to overcome these hurdles.

Full transcript - One Group Hospitality (STKS) Q3 2025:

Manny Hilario, CEO, The ONE Group Hospitality: New premium holiday menu focused on Wagyu and premium seafood aligning with today's selective diners who are more intentional about what they choose to dine. At Kona Grill, we are strategically expanding our menu to reduce reliance on categories facing current market pressures. The brand has historically been centered around seafood, sushi and our distinctive bar experience, but we are seeing headwinds across those core areas. Our menu diversification introduces broader culinary options that appeal to more frequent dining occasions and are less sensitive to economic fluctuations. Our Friends with Benefits loyalty program continues to gain momentum with over six point five million members.

During the quarter, we added over 200,000 new members. Newly enrolled guests are showing the most repeat participation in the program. We are focused on growing a best in class program that fuels long term business growth. Our key objectives with the Friends with Benefits Loyalty program are: one, maximize membership size by converting members from other TOG marketing programs number two, drive organic sign ups through increased awareness and engagement and number three, increase member engagement within the program to strengthen brand connection and repeat visits. We have also upgraded our brand websites, Benihana, STK, Kona Grill and Rasushi now feature fresh, mobile optimized designs that are increasing both traffic and conversion rates.

These digital enhancements combined with our loyalty platform position us to compete effectively as national chains ramp up promotional activity. Priority two, capital efficient growth. The newly redesigned Benihana location we opened in San Mateo, California earlier this year has become the top performing restaurants opening in the brand's sixty year history. This outstanding start validates the effectiveness of our redesigned restaurant format. In this redesign, we made several meaningful changes to the Beniana footprint.

We relocated the sushi station to the back of the house to create more teppanyaki table capacity, expanded the bar seating area, modernized interior with a brighter, more contemporary look and created a dedicated takeout station that improves overall restaurant flow. We are now implementing these learning system wide, adding two to three Teppanyaki tables per restaurant to create meaningful capacity increases that directly boost revenue potential. This success gives us confidence that future locations can achieve $8,000,000 in annual sales with restaurant level profit margin in the mid-twenty percent range. Franchise momentum continues to accelerate. We opened our second Benihana Express location in Miami in the second quarter with more in development.

The Express format offers the full menu without Teppanyaki tables, generating strong franchise interest while enabling asset light expansion. Over time, we expect franchise license and managed locations to represent over 60% of our total footprint. We are also expanding Benihana into more nontraditional venues. We currently operate in three professional sports stadiums, generating 9,000,000 fan impressions annually with additional airport and arena opportunities under discussion. Across our portfolio, we have opened four company owned venues and one franchise location year to date with additional fourth quarter openings plan, bringing our total twenty twenty five openings to five to seven new venues.

In the fourth quarter, we already opened an STK in Scottsdale, Arizona and plan to open a company owned STK in Oakbrook, Illinois and our Corner Grill, San Antonio relocation. Relocations remain a key strategy to unlock strong returns in existing markets by prioritizing nearby high quality real estate opportunities in areas that already embrace our brands, we can increase capacity, optimize traffic and better position our brands for long term success. For example, our recently relocated Westwood SDK has delivered margin improvement over the previous location. Remodels are also showing promise and success. During the third quarter, we remodeled our stated Tampa Bay Kona Grill.

With modest capital investment, it has delivered a significant turnaround in same store sales performance. Priority three, portfolio optimization. We have taken decisive action to strengthen our portfolio quality through strategic location optimization. After conducting a thorough evaluation of our World Concepts portfolio, we closed six underperforming locations in the second quarter and one additional location in the third quarter within challenging trade areas. These were primarily older units, which would have required substantial capital investments.

Looking ahead, we have identified up to nine additional grow locations to convert to either Benihana or STK formats through the 2026. These conversions represent an excellent capital allocation opportunity. They require about $1,000,000 in capital investments and the average STK generates over $1,000,000 in annual EBITDA. Our first conversion of a Ross Sushi location to an STK location has already happened in Scottsdale, Arizona, which opened at the October. After completing all plant conversions, we will operate all profitable locations that we expect to generate approximately $10,000,000 in restaurant level EBITDA and over $100,000,000 in revenue, with all units maintaining positive cash flow.

Priority four, balance sheet strength. With approximately $45,000,000 in liquidity, we have the means to invest in growth while maintaining discipline. Our Board authorized the $5,000,000 share repurchase program last year, and we view our stock as an attractive investment. Additionally, we expect to further reduce discretionary capital expenditures in the coming year across all of our brands, allowing us to strengthen our balance sheet while enhancing financial flexibility. Finally, I'm optimistic about our fourth quarter.

This is historically our strongest period and we are better positioned than ever to capitalize on that strength. 2024 marked our first holiday season with Beniana in the portfolio and we set records across every holiday with exceptional demand. This year, we have made targeted investments to capture even greater holiday demand. Our enhanced reservation technology, streamlined operational flow and comprehensive team training initiatives position us to execute flawlessly during our busiest periods. A key operational focus is optimizing Penihana table efficiency.

We are targeting a reduction from one hundred and twenty minutes to ninety minutes table turns throughout the fourth quarter, which will significantly expand our capacity to serve more guests during the busy dinner periods. The items that I have outlined today are fundamentally execution driven and within our direct control. We are not relying on macroeconomic recovery or waiting for consumer sentiment shifts. Instead, we are focused on strategic initiatives that position us to deliver strong results regardless of broader economic trends. Before I turn it over to Nicole for the financial details, I want to thank our teammates.

Every day, they live our mission of creating great guest memories by operating the best restaurants in every market that we operate by delivering exceptional and unforgettable guest experiences to every guest every time. They are the foundation to everything we do. With that, I'll turn it over to Nicole.

Nicole, CFO, The ONE Group Hospitality: Thank you, Manny. As a reminder, beginning this year, we're reporting financial information on a fiscal quarter basis using four thirteen week quarters with the addition of a fifty third week when necessary. For 2025, our fiscal calendar began on 01/01/2025, and will end on 12/28/2025, and our third quarter contained ninety one days. Let me start by discussing our third quarter financials in greater detail before updating our outlook for 2025. Total consolidated GAAP revenues were $180,200,000 decreasing 7.1% from $194,000,000 for the same quarter last year.

Included in total revenues were our company owned restaurants net revenue of $177,400,000 which decreased 6.9% from $190,600,000 for the prior year quarter. The decrease was primarily due to a 5.9% reduction in consolidated comparable sales and the closure of underperforming restaurants from the prior year period. Management license, franchise and incentive fee revenues decreased to $2,800,000 from $3,400,000 in the prior year. The decrease is attributed to lower management license and incentive fee revenue at our managed STK restaurants in North America and reduced franchisee revenues due to exiting two license agreements. It is important to note that our sales at our Managed STK in Las Vegas have notably improved quarter to date.

Additionally, we exited our management deal with STK Scottsdale and converted a former raw sushi to a company owned STK. Now turning to expenses. We continue to implement targeted cost management initiatives, including strategic adjustments to our protein sourcing to reduce costs and a temporary hiring freeze that will optimize our labor structure. Company owned restaurant cost of sales as a percentage of company owned restaurant net revenue increased slightly to 21.1% from 20.9%. This was primarily due to sales deleveraging, coupled with higher than anticipated inflation in certain commodity costs.

This was partially offset by additional integration synergies from our Benihana acquisition. Company owned restaurant operating expenses as a percentage of company owned restaurant net revenue increased 140 basis points to 67.6% from 66.2% in the prior year quarter. This was primarily due to investments in marketing, general cost inflation and fixed cost deleveraging, driven by a decrease in same store sales. Restaurant operating profit decreased to $20,100,000 or 11.3% of owned restaurant net revenue compared to $24,500,000 or 12.8% in the prior year quarter. On a total reported basis, general and administration costs increased $05,000,000 to $13,300,000 from $12,800,000 in the same quarter prior year, driven by increased marketing expenses.

When adjusting for stock based compensation of 1,200,000.0 adjusted general and administrative expenses were $12,000,000 compared to $11,200,000 in the 2024. As a percentage of revenues, when adjusting for stock based compensation, adjusted general and administrative costs were 6.7% compared to 5.8% in the prior year. Depreciation and amortization expenses was $11,500,000 compared to $9,400,000 in the prior year quarter. The increase was primarily related to depreciation and amortization of new venues and capital expenditures to maintain and enhance the guest experience in our restaurants. During the quarter, we completed our regular assessment of the recoverability of the net book value of our fixed assets.

A noncash loss on impairment may be necessary when the net book value exceeds the future expected cash flows of the restaurant and can happen due to economic factors, end of lease or restaurant performance. As a result of this assessment, we identified five restaurants that required impairment charges that totaled $3,400,000 mostly related to grills that we plan not to extend the lease upon. Preopening expenses were approximately $700,000 primarily related to the preopening rent for restaurants under development and payroll costs associated with the preopening training team as we prepare restaurants scheduled to open in the 2025. Preopening expenses decreased $1,400,000 compared to the prior year period. Operating loss was $7,900,000 compared to an operating loss of $3,600,000 in the 2024, mostly impacted by the $3,400,000 in noncash loss on impairment.

Interest expense was $10,500,000 compared to $10,700,000 in the prior year quarter. Provision for income taxes was $59,100,000 compared to a benefit of $4,900,000 in the prior year quarter. The increase in income tax expense is primarily the result of the establishment of a full valuation allowance against our deferred tax assets during the third quarter. This is a noncash income tax expense item that was recorded because of management's assessment of the future usability of our deferred tax assets and liabilities. Net loss attributable to the ONE Group Hospitality was $76,700,000 compared to net loss of $9,300,000 in the 2024.

The 2025 loss was primarily driven by the noncash loss on impairment and noncash recognition of the valuation allowance. Net loss available to common shareholders was $85,300,000 or $2.75 net loss per share compared to $16,400,000 in the 2024 or $0.53 net loss per share. The previously discussed noncash loss on impairment and establishment of the deferred tax asset valuation allowance represent $2.2 of the third quarter twenty twenty five net loss per share. Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. Was $10,600,000 compared to $14,900,000 in the prior year, a decrease of 28.9 percent.

We finished the quarter with $6,000,000 in cash and cash equivalents and restricted cash. We have $28,700,000 available under our revolving credit facility. And as of quarter end, we had $5,500,000 outstanding on our revolver credit facility. Under current conditions, our term loan does not have a financial covenant. Now I would like to provide some forward looking commentary regarding our business.

This commentary is subject to risks and uncertainties associated with forward looking statements as discussed in our SEC filings. We remind our investors that the actual number and timing of new restaurant openings for any given period is subject to factors outside of the company's control, including macroeconomic conditions, weather and factors under the control of landlords, contractors, licensees and regulatory and licensing authorities. Based on the information available now and our expectations as of today, we are updating the following financial targets for fiscal year twenty twenty five. Please note this does not include the potential impact of tariffs on broader economic conditions. We project total GAAP revenues of between $820,000,000 and $825,000,000 which reflects our anticipation of consolidated comparable sales of negative 3% to negative 2%.

Managed franchise and licensee revenues are expected to be between $14,000,000 and $15,000,000 Total company owned operating expenses as a percentage of company owned restaurant net revenue of approximately 83.5%. Total G and A, excluding stock based compensation, of approximately $46,000,000 adjusted EBITDA of between $95,000,000 and $100,000,000 restaurant preopening expenses of between 5,000,000 and $6,000,000 an effective income tax rate of between 14% when excluding the valuation allowance and the items subject to valuation allowance Total capital expenditures, net of allowances received from landlords, of between 45,000,000 and $50,000,000 And finally, we plan to open five to seven new venues. I will now turn the call back to Manny.

Manny Hilario, CEO, The ONE Group Hospitality: Thank you, Nicole. Before we open it up for questions, I want to emphasize how excited we are about the future of our business. Although the current environment is challenging, our future looks bright. With our strengthened portfolio and our expanded franchise capabilities, we are well positioned to capture the significant opportunities ahead of us. We thank you for your continued support and look forward to sharing our progress in the quarters ahead.

Nicole and I look forward to your questions. Operator?

Operator: Thank We'll take our first question from Joe Gomes with NOBLE Capital. Please go ahead. Your line is open.

Joe Gomes, Analyst, NOBLE Capital: Good evening. Thanks for taking my questions.

Manny Hilario, CEO, The ONE Group Hospitality: Hi, Joe. So I want

Joe Gomes, Analyst, NOBLE Capital: to start, last couple of quarters, talked about Benihana having two quarters in a row of same store sales growth in STK, three quarters in a row positive traffic. And I might have missed it, but I didn't hear that discussion today. Was wondering if you could kind of give us a little update on those.

Manny Hilario, CEO, The ONE Group Hospitality: I mean, I think probably the best thing to do is talk about maybe our traffic overall as a company. I think if I look at the third quarter twenty twenty five, I think that's been our first our best quarter in traffic actually for the whole year. As a consolidated company, I think we were down 6.9% in traffic for the third quarter, whereas in the second quarter, we're down 7.5%. And in Q1, we're down 7.8%. So the third quarter this year was by far our best or better traffic quarter.

The big difference for us in the third quarter, though, is that until the end of the second quarter, beginning of the third quarter, we had about 7% effective pricing in there. So that offsets part of the traffic experience that we were having. And then going into the middle of the third quarter around August, we began lapping some pricing from last year. And we just saw a lot of noise in the August in traffic. So we decided to just hold off on the pricing.

And so our pricing in the third quarter was only plus four for the quarter. So we effectively lost about three points of pricing in the third quarter. So I would say from my perspective or our perspective, we made significant or we're doing improvements on traffic, which is one of the reasons why going into the fourth quarter and we put some pricing in effect right at the November, I think that we're we've basically put the pricing back on. And with the sequential improvement in traffic, I think we feel pretty good about the sales position going to the fourth quarter.

Joe Gomes, Analyst, NOBLE Capital: Okay. And what do you think is driving the traffic improvements in the fourth quarter so far?

Manny Hilario, CEO, The ONE Group Hospitality: On the third quarter, I'd say the improvement the sequential improvement in the third quarter, I think, is really a testament to the value of proposition and the marketing that we've been doing. We also, as I mentioned in my prepared statements, we do have some macro forces that haven't really supported sales. For instance, if you look at our cross of our portfolio, our concentrations of restaurants are in California, Arizona, Florida and Texas, and then we have the other, which is about 50% of our concentration of sales. And if I just look in the third quarter alone, I think there was a lot of macro pressures, for instance, in our California sales sequential between the second and third quarter actually got negative by seven points. So there's some geographical pressures that came in that quarter since the third quarter.

We've seen some of that loosen up a little bit, but certainly in August and September, saw a lot more pressure in our traffic in California, which is by the way one of the reasons why we put the pause on our pricing actions just because we saw the traffic in there. So again, I think that the combination of the sequential improvement in traffic on the quarters and now I feel as if California is getting slightly better. And last but not least, as I mentioned also in my prepared statements, in the month of December, taking the turn times at Benihana from one hundred and twenty minutes to ninety minutes creates a significant lift in availability and tables to and capacity to take more business.

Joe Gomes, Analyst, NOBLE Capital: Okay. And then one more for me, if I could sneak one in. Maybe just can you give us a little color on your efforts on the Benihana franchising side? I know that's something that you're hoping that to see a little faster growth. So just want to get an update there.

Manny Hilario, CEO, The ONE Group Hospitality: Yes. So I mean, we did open one in the second quarter in Florida and then our activities in the franchising side have also yielded we now have a deal that's almost done for Benihana Express type operations in California. We also have a potential franchise deal for the Bay Area that's also shaping up. So we've made significant improvement on the pipeline. So now our team is out there working with these potential individuals and closing these deals down.

We've also made some improvements on our pipeline for license sites for STKs. So we do have both the franchising move forward on the pipeline for Benny Hound and also SDKs, we've gotten some more leads and actually getting very close to announcing some additional license deals for SDKs.

Joe Gomes, Analyst, NOBLE Capital: Great. Thanks for that update. I'll get back in queue. Thank you.

Manny Hilario, CEO, The ONE Group Hospitality: Thanks, Joe. Take care.

Operator: Thank you. We'll take our next question from Anthony Lebiedowski with COD. Please go ahead. Your line is now open.

Anthony Lebiedowski, Analyst, COD: Yes. Good evening and thank you for taking the question. So Manny, I think also last quarter you called out Las Vegas as being a market where you saw some, I think, softness. Can you comment on that? Did you see that as well?

Have you seen any improvements fourth quarter to date?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. So I will caveat my response on Vegas on the fact that it's our experience. We only have, let's call it, three or four restaurants in that market, actually four in total. But our experience right now with STK is that it's actually improving for STK. So we've seen an improvement on our business on that side.

Again, as I mentioned earlier, part of that has to do with the shifting in the conference and convention schedule. I think if you follow Vegas, you probably are aware that there was a shift in convention calendar. So that's definitely not benefiting us in the fourth quarter having a more robust conference schedule. I think the other restaurants though, I would say that it's more of a little bit of a mixed bag. So I haven't seen the kind of same improvement that I've seen on the SDK business.

Anthony Lebiedowski, Analyst, COD: Got it. Okay. And then you gave us some numbers on the loyalty program, which looks like it's doing well in terms of sign ups. Can you give us maybe some details as far as like the what's the average ticket or frequency or anything else can you share about the loyalty members versus non loyalty members? What do you see in terms of behavior from them?

Manny Hilario, CEO, The ONE Group Hospitality: Yes, a great question. So we have about 6,500,000 people that are in the program. A lot of those members came through our conversion of memberships from other programs. So we have Benny Hanna programs, we had Cone of World, RAP and so in STK. So we brought everybody into the same common program, if you will, and into that loyalty program.

And since then, we've done about 200,000 sign ups of new members coming into the program. We're early, so I'm going to give you what I've seen so far because of all the brands we have, Kona Grill is the one that had been on the loyalty program much longer than anyone else because we were already utilizing Carnivore, which was its the legacy program from Kona. And for that particular brand, it's actually been helpful. So we've seen frequency increase on use of the program. So we feel very the early returns are very promising because we have members in that program who've been around for longer.

And I think the new program and new activations that we're doing with it has driven a little bit more interest. But again, as I said earlier, it's early. I think we've rolled it out only earlier this year. I think that we will continue to pick up momentum with it going But again, I think that our overall as I look at the overall story for the quarter, I think that the third quarter being our best traffic quarter for the company, I think it bodes well for all the initiatives and the actions that we're taking with marketing and everywhere else.

Anthony Lebiedowski, Analyst, COD: Got you. Okay. And then I guess my last question before I pass it on to others. In terms of recent price increases, I know it's still early on, but any sort of early read on the reaction to the price increases? Have you seen any customer pushback to those higher prices?

Or do you think that you'll be able to successfully pass those along?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. I mean, I think we start rolling out those price increases late October in some places. And so we're really, really early on it. But I think, again, I think the way that we did our pricing increase this time is we really tried to wait until we think the timing is a little better. I think going now into this is actually starts are seasonally better months, weeks, whatever you want to call it, actually for the next thirty six weeks is really kind of our high season period for us.

So I think putting the price right at the beginning of the high season is actually a good strategy for us. Have we seen any noise in terms of feedback? The answer is not. We follow it, obviously, through all our listening tools in social and everything. So we have not seen anything above and beyond what we usually see on the pricing.

Anthony Lebiedowski, Analyst, COD: It. All right. Well, thank you very much and best of luck.

Manny Hilario, CEO, The ONE Group Hospitality: Thank you, sir.

Operator: Thank you. We'll take our next question from Mark Smith with Lake Street Capital Markets. Please go ahead. Your line is open.

Mark Smith, Analyst, Lake Street Capital Markets: Hi, guys. I wanted to dig in a little bit more into Benihana comps here in the quarter. They came down more than we've seen here recently. Can you just talk about traffic and ticket at Benihana?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. I think for the quarter for Benihana, as I mentioned earlier that we had pricing coming off. Benihana was the one that had five points of pricing, might have actually been a little higher than five points that we did not replace in the quarter. So if I look at their differential in same store sales year to date to what we performed in the third quarter, I would attribute it mostly to the pricing, not taking the pricing action. And again, I want to reiterate this.

If I look at our same store sales by geography, California was by far the most impacted of all markets in our portfolio and the Benihana portfolio does have extra it does have a bit of weight in market, some of our higher volume restaurants. Again, I think that I would say that the two items in the Benihana would be not replacing the five points in pricing that we came off and then the additional pressure in the California market.

Mark Smith, Analyst, Lake Street Capital Markets: Okay. And then just on the impairment that you took in the quarter, was all of that on Drill Concepts? Or was there anything on any of the other brands?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. I think the majority of the impact was on Kona Grill. And then we did have a very minor amount coming out of our STK in Downtown New York just because that lease is up. We're in the last year of that lease, and we're moving that restaurant actually relocating that restaurant around the corner. So that will be a reload.

But right now, we just have some additional amounts in the books that we have to accelerate. And by the way, there were all assets that we couldn't move over to the new location because a lot of the assets may move to the new location.

Mark Smith, Analyst, Lake Street Capital Markets: Okay. And then just talking about kind of changing locations here, can you just walk us through a little bit more on your maybe the economics of the conversions? I think you said kind of $1,000,000 maybe on spend, but just the economics there and then maybe your outlook of these that you plan on converting, how many maybe to STK, how many to Benihana. And I'm curious, sorry to throw a lot on you here. Do these come with a new lease signing, or do you typically keep the lease terms that you currently have?

Manny Hilario, CEO, The ONE Group Hospitality: Well, so very good question. So the first one we did is Scottsdale. It was a raw sushi restaurant. And in that one, we actually we converted to an SDK. It took us, I think, from beginning to end, somewhere between six eight weeks to do the full conversion.

The cost of the conversion, I'm putting it out about $1,000,000 in round number. It was a very effective refurbishing of the restaurant, and we kept the majority of all the infrastructure. So it was very cost effective in that. And the question on the leases, that one actually we actually got an extension on the lease by choice. So we got another five year option just because we like the real estate.

If you want to go to that property, you'll notice that it's in A plus I'm going call it A, I'm not going give it A plus, but we'll call it let's call it A real estate with a very good lease terms and a good presence for there. And we've already reopened it. I would say that we just opened the door. We didn't really do much marketing. We're actually starting the marketing push the next couple of weeks.

And I've been so far, very happy what has happened there. Obviously, as you know, our model for SDK, brand new SDK is about $8,000,000 in volume with margins around 20%. So I would expect that STK to be in that range of value. It's only about it's in a market that we've been already in. So we have pretty good experience there.

So I feel pretty good about that one. Now we have other, I think up to nine other sites that we're looking at converting and the costs should be around that same $1,000,000 type tag, if you will, price tag and the conversion cycle should be relatively fast. And we'll do the same thing in terms of taking advantage of existing infrastructure in electrical, HVAC, kitchen, plumbing, etcetera. So we think those will be very effective. Again, what really drives that decision is the quality of the real estate.

That's one of the things that we're really happy about The ONE Group is we have great real estate, and that's one of the things that having multi brands like we do gives us a lot of flexibility and gives us an opportunity to really leverage the strength in the real estate.

Mark Smith, Analyst, Lake Street Capital Markets: Would there be much of a difference in the cost or maybe return metrics on converting to a Benihana versus SDK?

Manny Hilario, CEO, The ONE Group Hospitality: I mean, again, another great question. I think the biggest the difference between a Benihana and STK conversion is actually the mechanical cost because with the tables in a dining room, we have to do more upgrading on the exhaust system and sometimes electrical systems if we add electrical table. So it's a little bit more on the mechanical side, and it may take a little bit more time because we actually have to have more detailed actually have to have a lot more engineering and architectural into it. So it's a little bit different of a process. But our view on it is the cost will still be around $1,000,000 in either one.

And so we don't foresee a lot of cost incrementality there. Again, I mean, we have a lot of real estate in malls and other places that make a lot more sense for Benihana than STK. So that's part of our decision on the Benihana is that Benihana is a great concept for multiple locations. Okay. Thank you.

Thanks.

Operator: Thank you. We'll take our next question from Jim Sanderson with Northcoast Research. Please go ahead. Your line is open.

Jim Sanderson, Analyst, Northcoast Research: Hey, thanks for the question. I wanted to go back to the issue of pricing. I think you mentioned you exited third quarter with a global price of about four percentage points and that you took price in November. What should we expect as far as the impact of menu price on fourth quarter trend fourth quarter same store sales?

Manny Hilario, CEO, The ONE Group Hospitality: So I think the biggest the bigger part of that increase was Benihana around slightly above five points on pricing. So that will weigh in heavily. And then STK and the other brands, we had about two to three points on pricing. So the other ones are very modest. I would call that just cleanup pricing.

So I would say, overall, somewhere around 4.5 to 5.5 on a weighted basis would be the impact of the new pricing layer.

Jim Sanderson, Analyst, Northcoast Research: Very and that's that probably will last for the next thirty six weeks, give or take. Is that the right way to look at that?

Manny Hilario, CEO, The ONE Group Hospitality: That's right.

Jim Sanderson, Analyst, Northcoast Research: Very okay. Great. Could you talk a little bit more about bookings? I think you mentioned in the press release that you optimistic given the love of holiday bookings. Maybe you can tell us any comparison with respect to last year this time?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. I mean, we actually just reviewed the books this morning. Nicole and I did a very review of our bookings to progress right now. I think this is, frankly, since COVID, if I look at the month of November, looking into December, has been one of the months where I've actually seen a significant amount of progress on the number of bookings that we've seen in events. Obviously, that also reflects a little bit of the fact that we have very experienced we have a very good sales team.

So that team has become very good at working in the current environment of sales. And again, the convention business and a lot of the stuff that used to happen in the third quarter last year also got moved into the fourth quarter this year. So definitely, that helps bring up the books into the fourth quarter.

Jim Sanderson, Analyst, Northcoast Research: And can you remind us how what like share of fourth quarter is related to holiday bookings or special events, that type of thing?

Manny Hilario, CEO, The ONE Group Hospitality: Would say about 10% to 15% of our business comes from the group events business in the fourth quarter.

Jim Sanderson, Analyst, Northcoast Research: Got you. Also wanted to shift gears on Benihana. You mentioned a lot of changes taking place in the design of the store that you're going to be implementing. Can you give us a sense of when that change will be implemented across all Benihana stores? And any feedback on helping us understand to quantify the increased capacity, how you that potentially could benefit AUVs?

Manny Hilario, CEO, The ONE Group Hospitality: So our planning for that is we typically say that our CapEx is about 1.5% to 2.5% of sales on existing stores. So we're not putting together a special allocation of capital for that. We will do that revamp within our typical allocated basket, if you will, of CapEx. And so it will take a little bit of time to do that, but our changes will be more around our priority is one is getting rid of smoke in the dining room. So we do have some things that can help with that.

So we're working on that right now for a lot of our restaurants. HVAC, I think I've mentioned HVAC in previous calls. And then the third priority is adding tables because on Fridays and Saturdays, we can really use more tables in the restaurant. So we'll be upping those tables as we go. And then I'd say the next level of priority, things like the artwork is pretty compelling.

The new artwork that we put in the San Mateo location and we've defined for the brand is actually very cool. So we really want to start working on that. And then over time, it's just the key with Benihana is to continue a very strong maintenance program, which we do have in place. We have a very high quality facilities team that keeps these things maintained. But as time goes on, with our typical basket of capital, we'll try to take care of that.

As you probably picked up on my prepared statements and on the press release, we're also tightening down and keeping down the amount of CapEx that we're using because we want to work on the balance sheet. So it's all about balancing all those things and that's where we'll fund the capital for Benihana from our regular CapEx basket.

Jim Sanderson, Analyst, Northcoast Research: Right. A bit of a follow-up question just to make sure I understood the lower CapEx in 2026 that you mentioned. So how should we put that into perspective based on the plan you have in place this year? How is that CapEx number going to change? Just any

Manny Hilario, CEO, The ONE Group Hospitality: So we're yes, very good question. So we're focusing our capital on the conversions, which are about $1,000,000 per restaurant. And then on new brand new restaurants of the world, we're only focusing on restaurants that we can do for $1,500,000 or less on the whole cost of the restaurant. So we're really working our low cost real estate inventory. And also the other thing too is we're not doing any new leases right now because we do have a very we have a pipeline of about 12 leases.

So we stopped doing leasing, and we're going to work through the existing pipeline of leases.

Jim Sanderson, Analyst, Northcoast Research: All right. And last question for me. I just wanted to better understand the Benihana Express. I think you mentioned that could eventually become a sizable portion of your portfolio. Can you describe any changes, what the AUVs are, store margin, how that's different from, let's say, a larger Benihana?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. I mean the box will be much smaller. So we're trying to keep the restaurants let's just hypothetically, we're not keeping it around 1,000 square feet. So the economics are different from a top line perspective just because of size. And then there will be no tip on tables in the property.

All the food will be ordered pick up and take away. And then we'll have some tables in the property and chairs, but will be very limited seating. And so it will be a much smaller compact box. And so expect revenues right now, Nicole and I talk about somewhere around $1,000,000 to 1 point dollars but very, very low cost of build outs because there's nothing really to put in there. So we'll probably build that for around 500,000 to $600,000 in cost.

So it will be a very effective box. Think of it most as a fast casual grab and go, take your food back home or you may choose to eat there, but it will be a more casual environment. Just to follow-up on that, how do we

Jim Sanderson, Analyst, Northcoast Research: look at the cash returns or the cash on cash return to franchisees would be reviewing?

Manny Hilario, CEO, The ONE Group Hospitality: Yes. I mean, we think that because of the lower cost of goods and the fact that we'll be able to be effective labor in that box, it will be a very high ROI. I think the store level margins even after royalties can be in the 15% to 20% range. So will be a very good return vehicle for franchise potential franchisees. The ones that we're talking to, they're super excited about it and to testing them a lot.

Jim Sanderson, Analyst, Northcoast Research: Very good. Thank you very much. I'll pass it on.

Operator: Thank you. We have reached our allotted time for questions. I will now turn the call back over to Manny Hilario. Please go ahead.

Manny Hilario, CEO, The ONE Group Hospitality: All right. Thank you very much, Brittany. As I was closing my calls here, I want to thank the team once again. I'm very impressed and very pleased as to how the team put above and beyond efforts and really showed progress in the third quarter as our traffic numbers show. So I appreciate that.

And we look forward to a great fourth quarter in terms of traffic and sales. And as always, I appreciate your support of The ONE Group, and I look forward to seeing you out in one of our restaurants. Everybody have a great day.

Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.