Upscale restaurant company The One Group Hospitality (NASDAQ:STKS) fell short of analysts' expectations in Q1 CY2024, with revenue up 3% year on year to $85 million. On the other hand, the company's full-year revenue guidance of $720 million at the midpoint came in 91.3% above analysts' estimates. It made a non-GAAP loss of $0.02 per share, down from its profit of $0.10 per share in the same quarter last year.

Is now the time to buy The ONE Group? Find out by accessing our full research report, it's free.

"We grew our top-line, held restaurant-level margins stable, improved G&A as a percentage of revenue, and delivered adjusted EBITDA nearly even with the prior year despite the choppy consumer environment. We are pleased that the cost savings initiatives implemented in 2023 are working effectively and they will be even more evident upon the return to a more normalized sales environment. Our priorities remain driving sales through initiatives such as our elevated food program, national happy hour offerings, and social media-driven marketing campaigns, while maintaining disciplined control over restaurant-level operating costs and general and administrative expenses,” said Emanuel “Manny” Hilario, President and CEO of The ONE Group.

Doubling as a hospitality services provider for hotels and resorts, The One Group Hospitality (NASDAQ:STKS) is an upscale restaurant company that operates STK Steakhouse and Kona Grill.

Sit-Down Dining

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Sales Growth

The ONE Group is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.

As you can see below, the company's annualized revenue growth rate of 30.4% over the last five years was incredible as it added more dining locations and expanded its reach.

This quarter, The ONE Group's revenue grew 3% year on year to $85 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 16.2% over the next 12 months, an acceleration from this quarter.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Same-Store Sales

Same-store sales growth is an important metric that tracks organic growth and demand for a restaurant's established locations.

The ONE Group's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 1% year on year. This performance isn't ideal and the company should reconsider its growth strategy before opening new restaurants with its precious capital.

In the latest quarter, The ONE Group's same-store sales fell 7.9% year on year. This decline was a reversal from the 1.6% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from The ONE Group's Q1 Results

We were impressed by The ONE Group's optimistic full-year revenue guidance, which blew past analysts' expectations. We were also excited its gross margin outperformed Wall Street's estimates. On the other hand, its EPS missed analysts' expectations and its revenue missed Wall Street's estimates. Overall, this was a mediocre quarter for The ONE Group. The stock is flat after reporting and currently trades at $4.8 per share.

The ONE Group may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.