Kona Grill works to turn around struggling salesKona Grill works to turn around struggling sales

Kona Grill Inc. has negotiated rent abatements for five of its restaurants and amended its credit agreement as the casual-dining operator works to turn around struggling sales, executives said on Thursday.

The Scottsdale, Ariz.-based grill-and-sushi chain narrowed its loss to $12.4 million, or $1.23 per share, for the fourth quarter ended Dec. 31, from $16.6 million, or $1.58 per share, the previous year. Revenue fell 2.5 percent, to $42.5 million, from $43.6 million the previous year.

Same-store sales declined 6.5 percent, including an estimated 0.5-percent impact from the temporary closure of its Puerto Rico restaurant due to Hurricane Maria in late September and early October.

“The restaurant is back up and running,” said Christi Hing, Kona Grill chief financial officer, in a call with analysts. “Although, as you can imagine, traffic has been impacted given the devastation caused by the hurricane. We also lapped honeymoon periods for restaurants that opened last year, which contributed to the sales decline.”

Hing acknowledged that Kona Grill was facing “difficult times” and indicated the negative same-store sales trends continued into the first quarter of this year.

Berke Bakay, Kona Grill CEO and president, said, “The industry remains competitive as we continue to fight to drive sales and improve the profitability of our restaurants, especially those that are significantly underperforming.”

The company has revamped its training program and worked on menu innovation.

“We continue to see an uptick in sushi sales, which is great to see given that sushi on average has a lower food cost than items from our scratch kitchen,” he said. “Also, we're evaluating everything that we do and the service offerings provided by different partners. We believe there are opportunities to consolidate the products and services we purchase from multiple vendors and ultimately realize cost savings from these efforts.”

Kona took $9.3 million in non-cash asset-impairment charges for three restaurants that were underperforming.

“We believe that these three restaurants, combined with the five restaurants impaired in 2016, encapsulate the extent of our underperforming units,” Bakay said. “All of these restaurants remain open and operating, and our focus is improving their performance and/or strategic alternatives.”

Kona Grill has negotiated rent abatements for five of those restaurants “to help reduce the cash burn while we seek to turn them around,” he added.

Hing said Kona Grill’s credit agreement was amended after the end of the quarter “to, among other things, provide relief on our financial covenants to allow time for the many initiatives Berke spoke about to take effect.”

The amendment reduced Kona’s total credit facility by $5 million, to $39 million, she said.

Kona Grill has no plans to open additional restaurants in 2018 as it works to lower capital expenditures, the executives said.

Kona Grill owns and operates 46 restaurants in 23 states and Puerto Rico. The company has three franchised units abroad.

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