Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• GEN Restaurant Group Inc (NASDAQ:GENK) reported a 7.8% increase in revenue for Q3 2024, reaching $49.1 million, driven by the success of newer restaurants.
• The company opened three new restaurants, which are performing exceptionally well, with one potentially becoming the top revenue-generating location.
• Cost of goods sold decreased by 50 basis points to 31.4% of total revenue, indicating improved cost management.
• The company has a strong expansion pipeline with 17 additional locations lined up and plans to open 10 to 11 new restaurants in 2024.
• GEN Restaurant Group Inc (NASDAQ:GENK) launched a successful gift card program with Costco, which has been the best-selling gift card in the participating locations.

Negative Points

• Same-store sales growth declined by 9.6% year over year, affected by inflationary pressures and temporary disruptions from hurricanes.
• The company experienced cannibalization in Texas and Hawaii due to new restaurant openings, impacting existing locations.
• General and administrative expenses increased to 9.1% of total revenue, reflecting investments in team and infrastructure.
• The company faced increased operating expenses due to higher utility rates and costs related to new restaurant openings.
• Net income for the quarter was only $0.2 million, a decrease from $2.6 million in the same quarter of the previous year.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Sign with GENK.

Q: Can you provide more details on the improvement in sales for October and November compared to the third quarter? A: (David Kim, Co-CEO) The improvement in sales for October and November is significant, with a reduction in negative sales trends by at least 50% compared to the third quarter. This improvement is attributed to a combination of factors, including better weather conditions and increased consumer traffic. However, the peak season is approaching, and we are optimistic about the upcoming weeks.

Q: What factors contributed to the success of the new restaurant openings, and how do you plan to replicate this success in new markets? A: (David Kim, Co-CEO) The success of the new restaurant openings exceeded our expectations, and while we are pleased, we are also cautious to maintain high standards. The success is attributed to strong management and operational focus. We are committed to replicating this success by focusing on operational details and leveraging our brand's growing recognition.

Q: Can you elaborate on the new initiatives like Gen Grills and participation in outdoor fairs? How do these initiatives impact revenue and staffing? A: (David Kim, Co-CEO) These initiatives are designed to generate additional revenue rather than just serve as marketing opportunities. We are leveraging our brand's recognition to explore new revenue streams without significantly increasing corporate overhead. The initiatives are part of our strategy to proactively drive sales.

Q: How is the premium menu performing, and what percentage of total sales does it represent? A: (David Kim, Co-CEO) The premium menu is showing improvement, currently representing about 5% of total sales. Our goal is to increase this to 10%. We are focusing on enhancing staff training to boost sales of premium items, and we are also looking to increase drink sales.

Q: Can you discuss the impact of the Costco gift card program on margins and sales? A: (David Kim, Co-CEO) The Costco gift card program has been very successful, with redemption rates lower than industry averages, which positively impacts our margins. Customers using gift cards tend to spend more, particularly on drinks and premium menu items. We are still gathering data to quantify the exact impact, but initial results are promising.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.