ONE Group Hospitality (NASDAQ:STKS) reported higher third-quarter restaurant profitability and a second consecutive quarter of traffic growth, even as revenue slipped and comparable sales edged lower.
The restaurant operator reported revenue of $177 million for the quarter ended Sept. 27, down from $180.2 million a year earlier. Consolidated comparable sales fell 0.4%, while comparable traffic rose 1.8%. At Benihana, comparable sales increased 0.7% and transactions climbed 2.7%.
President and CEO Manny Hilario said comparable sales had been positive through Labor Day before storms disrupted East Coast operations toward the end of September. He said customers remained cautious about spending, seeking value during the week while continuing to buy premium offerings for celebrations.
Adjusted EBITDA increased to $11.1 million from $10.6 million, despite an additional $2 million in pre-opening expenses. The company’s operating loss narrowed to $5.8 million from $7.9 million, while its net loss attributable to ONE Group narrowed to $16.1 million from $76.7 million. The prior-year result included a noncash valuation allowance against deferred tax assets.
Lower food costs lift restaurant margins
Restaurant operating profit rose 14.7% to $23.1 million, or 13.2% of company-owned restaurant revenue, up from 11.3% a year earlier. Cost of sales fell to 19.5% of company-owned restaurant revenue from 21.1%, helped by beef sourcing, supply chain initiatives and menu changes, CFO Nicole Thaung said.
Hilario said the company had beef contracts providing visibility through approximately September 2027. Cost of goods had remained at 19.5% for three consecutive quarters, he said.
Pre-opening expenses rose to $2.7 million from $700,000, primarily reflecting costs associated with recent restaurant openings and rent for sites under development. Thaung said the company did not anticipate additional significant transition and integration expenses following work on equipment acquired with the Benihana restaurants.
Conversions and Express expansion
ONE Group is converting selected Kona Grill and RA locations into Benihana and STK restaurants. The company reported four temporarily closed Kona Grills and three temporarily closed RA locations awaiting conversion to Benihana.
Hilario said the Scottsdale conversion from RA to STK had delivered returns in line with expectations, with higher sales and profitability. The converted Benihana in Riverton, Utah, had significantly increased sales from its time as a Kona Grill, though management is still assessing long-term profitability. In Baltimore, the company opened an STK and a smaller Kona Grill in the former Kona Grill space; Hilario said the STK was generating about twice the sales of the previous restaurant.
Conversions generally cost approximately $1 million to $1.5 million net per location, according to management. Hilario said one of the seven remaining conversions could reopen in 2026, with the other six expected in 2027 at roughly one every two months.
The company is also focusing its near-term licensing efforts on Benihana Express, a smaller fast-casual format. A company-owned Denver location recently opened, and a licensed Florida Keys location with a drive-through is expected before year-end. Hilario said the Miami prototype was pacing at $1.8 million in annual revenue.
Hilario said existing franchise and licensing staff had been redirected toward Benihana Express. The company could eventually need additional resources to support growth, he said, but does not currently see a need to build a new operating team.
Cash flow and full-year outlook
Cash flow from operations rose to $41.8 million through the first three quarters of 2026 from $17.2 million a year earlier. After $34.6 million in capital expenditures, free cash flow was $7.2 million. Total debt was $347.9 million, down about $6 million from year-end, and the company said it continues to evaluate refinancing its credit facility.
For 2026, ONE Group projected revenue of $800 million to $810 million, consolidated comparable sales growth of approximately 1%, and adjusted EBITDA of $95 million to $100 million. It expects to open six to eight new systemwide venues and spend $30 million to $34 million on capital expenditures net of landlord allowances.
The board approved a $5 million increase to the existing share repurchase program, Thaung said.
Management described fourth-quarter holiday bookings as strong, including year-over-year growth in STK event bookings. Hilario cautioned, however, that it was too early to assess spending at those events. He also said the company’s guidance assumes Benihana table turn times will move close to its 90-minute target during the holiday period, aided by tablets used to take orders at tables.
About ONE Group Hospitality (NASDAQ:STKS)
ONE Group Hospitality, Inc is a hospitality company that develops, owns, operates, manages and licenses upscale and polished-casual restaurants and lounges. Its concepts emphasize high-energy dining, premium food and beverage offerings, and entertainment-oriented guest experiences.
The company’s principal brands are STK Steakhouse and Kona Grill. STK combines the traditional steakhouse with a contemporary lounge atmosphere, serving premium steaks, seafood, cocktails and other upscale menu items.
