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spk01: Greetings and welcome to the One Group Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star and zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to Tyler Loye.
spk02: Thank you, operator, and hello, everyone. Before we begin our formal remarks, let me remind you that part of our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Please also note that these forward-looking statements reflect our opinion only as the date of this call. We undertake no obligation to revise or publicly release any revisions of the forward-looking statement in light of new information or future events. We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. During today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. However, the presentation of these measures or other information should not be considered in isolation or as a substitute for results repaired in accordance with GAAP. The reconciliations of these measures, such as adjusted EBITDA, adjusted net income, restaurant operating profit, comparable sales, and total food and beverage sales at owned and managed and licensed units to GAAP measures, along with the discussion of why we consider these measures useful, please see our earnings release issued today. With that, I'd like to turn the call over to Manny Valerio. Manny?
spk05: Thank you Tyler and hello everyone. We sincerely appreciate you joining us today and for your interest in the company. Here at the one group, we are committed to executing on our mission to be the best restaurant in every market that we operate by delivering exceptional and unforgettable experiences to every guest every time. Let me thank all of our team members who continue to work exceptionally hard to provide world-class operations and bring our mission to life every day. It is because of them that we have been able to strengthen our leadership position in high-end and upscale casual dining and that we have great confidence moving forward. For the third quarter, our total revenue grew to $73 million reflecting our U.S. average weekly sales of 290,000 at SDK and 95,000 at Kona Grill. On a trailing 12-month basis, we believe our U.S. average unit volumes of 16.5 million for SDK and 5.4 million for Kona Grill remain among the highest in the industry. In addition to those impressive average unit volumes, we opened SDK San Francisco in August, which is averaging over 350,000 per week in sales. Our consolidated comparable sales increased 0.5%, consisting of an increase of 3.5% at SDK and a 3.6% decrease at ConoGrow. When compared to 2019, our pre-pandemic base year, consolidated comparable sales increased 45.6%, consisting of an increase of 70.6 at SDK and a 22.3% increase at Kona Grill, which shows that we've retained the share increases for both brands and that our differentiated vibe dining experience is resonating with our guests. It is important to note that Hurricane Ian had a negative impact on both SDK and Kona Grill comparable sales, as 14% of our sales base resides in the state of Florida. Adding more color to these results, we took advantage of numerous activations to drive buzz at our restaurants. In July, we celebrated National Steakhouse Month with Waigu specials at SDK and Conogrow. In addition, we celebrated National Tequila Day, National Mac and Cheese Day, and National Cheeseburger Day to drive excitement with our culinary innovations and differentiated beverage programs. Lastly, on Labor Day, we offered 50% off for all frontline workers, which was very successful and incredibly well received by local communities. Additionally, we continue to emphasize and enhance our happy hour offerings at both SDK and Kona Grove, and our $3, $6, and $9 happy hour menu is working well with our guests. We have put a lot of market behind this value offering on our social channels, and through our loyalty program allow us to capture traffic during our shorter periods with excess capacity and exposes guests to our brands at approachable price points. We then see many of these guests back in our dining rooms in order to celebrate their special occasions with us. In addition to happy hour at both brands, we are currently running other value-driven programs such as the weekday power lunch, midweek date night offerings, pre-theater menus, and takeout and delivery specials. We also continue to leverage the important brunch day part with craveable and newsworthy culinary offerings and bottomless mimosas. Lastly, we are seeing our events business come back after two years of a pause. As we look to the fourth quarter, our event bookings are building and more expense check-driven business is returning as we have an incredible slate of exciting holiday and seasonal money offerings planned. Moving on to the current cost environment. As you are aware, we are currently in a period of historically high double-digit inflation across our industry. Based on our interest in building market share in the current economic environment, we decided to take modest price increases during the third quarter, a slower seasonal quarter, knowing that we would not offset all the inflationary headwinds. At SDK, we took an approximate 3% price increase, and at Kona Grill, we took an approximate 5% increase, both midway through the quarter. Based on the results, I'm pleased to say that we saw no noticeable resistance, and I'm confident that we can take more price during the fourth quarter, which is our stronger seasonal quarter as guests come to celebrate the holidays and are less likely to notice the increases. Long-term, we believe that we still have significant pricing power in both brands and will exercise it. Expectantly, our third quarter Russian consolidated operating profit decreased from last year. Russian operating profit SDK decreased but it was still a strong 18.5%. Both brands saw inflationary pressures, uptake price increases during the quarter. It's important to remember that the third quarter is historically a lower margin quarter as we make investments to be fully staffed for the busy fourth quarter. Over the long term, after we address the current inflation to price differential, we still expect STK restaurant operating profit to be in the 20 to 25% range and Kona Gros restaurant operating profit to be in the 15 to 20% range. Despite the cost headwinds, we still delivered over $7 million and adjusted EBITDA for the quarter, bringing our trailing 12-month adjusted EBITDA to approximately 41.5 million. Now turning to development. In August, we opened our first company-owned SDK of 2022 in downtown San Francisco on Market Street. As previously mentioned, the restaurant is off to a terrific start, and we could not be more excited about the future of this location. Also this week, we opened SDK Dallas on McKinney Avenue. This restaurant has an elevated dining room with plentiful outdoor space to enjoy great culinary selections, world-famous cocktails, and live music spun by renowned DJs. In July, we opened our first of three virtual locations through a licensed deal with Reef Kitchens in Austin, Texas. Guests in Austin can now enjoy delivery of select menu items from our award-winning dining concepts, Kona Grill and Bal Young. This partnership enables us to further expand and capture a new customer base with limited capital investments. Despite the challenging construction environment, we plan to open during the main of 2022 and first quarter of 2023. One, within the next couple of weeks, a managed SDK in Stratford, London, UK. Three company-owned corner grows. Kona Grill in Riverton, Utah, Kona Grill in Columbus, Ohio, and Kona Grill in Desert Ridge, Arizona. And finally, we plan to open two additional license units in partnership with Beef Clip Kitchens and provide takeout and delivery only featuring offerings from Kona Grill and Die Yum Concepts in Texas. Additionally, our remaining 2023 pipeline is strong for the second through fourth quarter we plan to open seven new units which include three company-owned SDKs, one managed or licensed SDK, and three company-owned Kona grills. As we have long stated, we are early in our growth strategy with significant white space ahead. We are excited about our long-term opportunity as we believe our units deliver best-in-class returns. For new restaurants, we're targeting between 40 and 50% ROIs for new company-owned SDKs and for company-owned Kona grills. We foresee a total addressable market of at least 400 restaurants, including 200 SDK restaurants globally, and at least 200 Kona grills domestically. To conclude, our team is doing a fantastic job providing our guests exceptional and unforgettable dining experiences. Ultimately, our focus on operations and day-to-day execution has proven effective in translating to a strong P&L, and we plan to continue on our current trajectory of industry-leading comparable sales, disciplined cost management, and new store development. Now, I'll turn the call back to Tyler.
spk02: Thank you, Manny. Let me start by discussing our third quarter financials in greater detail. Third quarter total gap revenues were $73.0 million, increasing 1.6% from $71.9 million for the same quarter last year. Included in our total revenues is our own restaurant net revenue of 69.5 million, which increased 2.3% from 68 million for the same quarter last year. The increase in revenue is primarily attributable to the opening of SDK San Francisco in August of 2022. Domestic consolidated comparable sales increased 0.5% for the quarter compared to 2021. For SDK, comparable sales increased 3.5% versus 2021, and Cone and Grill comparable sales decreased 3.6% versus 2021. Versus 2019, the domestic consolidated comparable sales increased 45.6%. SDK comparable sales increased 70.6%, and Cone and Grill comparable sales increased 22.3%. Management license and incentive fee revenues were 3.5 million, decreasing 10.8% from 3.9 million in the third quarter of 2021. This decrease is primarily the result of decreased revenues in our managed properties in London, England. Owned restaurant cost of sales as a percentage of owned restaurant net revenue decreased 120 basis points to 24.9% in the third quarter of 2022 compared to 26.1% in the prior year primarily due to operational cost reduction initiatives partially offset by increased commodity prices. This represents a 90 basis point improvement versus the second quarter of 2022. Owned restaurant operating expenses as a percentage of owned restaurant net revenue increased 510 basis points to 62.0% in the third quarter of 2022 from 56.9% in the third quarter of 2021 primarily due to consolidated average wage increases and higher operating expenses. Restaurant operating profit decreased 400 basis points to 13.1% for the quarter, compared to 17.1% in the prior year third quarter. Restaurant operating profit at SDK decreased approximately 410 basis points, but was still a strong 18.5%. Kona Grill operating profit decreased 460 basis points, and was 6.4% for the period. Both brands saw inflationary pressures outpace price increases during the quarter. On a total reported basis, general and administrative expenses were $6.4 million compared to $6 million in the prior year. The increase was attributable to additional investments ahead of growth, increased accounting and legal fees, and increased stock-based compensation expense, partially offset by a decrease in performance-based variable compensation expense. In addition, the company experienced increased travel expenses due to rising hotel and airfare costs. When adjusting for stock-based compensation, adjusted general and administrative expenses were $5.4 million in the third quarter of 2022 and $5.3 million in the same quarter last year. Interest expense was $0.4 million in the third quarter of 2022 compared to $0.8 million in the third quarter of 2021. The decrease was driven by lower average outstanding balances and lower interest rates driven by the refinancing of our credit facility in August of last year. Income tax benefit was $0.3 million in the third quarter of 2022 compared to an income tax expense of $1.5 million for the third quarter of 2021. Our 2022 annualized effective tax rate is estimated at 15.9%. Net income attributable to the One Group Hospitality Inc. was $0.4 million, or $0.01 net income per share, compared to a net income of $11.6 million in the third quarter of 2021, or $0.34 net income per share. Prior year net income included a $10 million gain related to the forgiveness of CARES Act loans. When adjusting for the gains on CARES Act loans, COVID-19-related expenses and other non-recurring expenses or gains, adjusted net income was $2.1 million or $0.07 adjusted net income per share compared to an adjusted net income of $3.7 million in the third quarter of 2021 or $0.11 adjusted net income per share. Adjusted EBITDA for the third quarter attributable to the one group hospitality Inc. was $7.1 million compared to $10 million in the third quarter of 2021. We have included a reconciliation of adjusted EBITDA in the tables in our third quarter 2022 earnings relief. During the third quarter of 2022, we repurchased 500,000 shares of our common stock. As of September 30th, 2022, $6.5 million in share repurchases remained available under the $10 million share repurchase program announced on September 7th, 2022. Management will continue to use its discretion in determining the conditions under which shares may be purchased from time to time, if at all. I will now turn the call back to Manny.
spk05: Thank you, Tyler, and thank you all for your time today. Let me conclude by saying that our business remains very solid despite the obvious headwinds. We are in the early stages of our long-term growth strategy as we continue to build a portfolio of high volume high margin brands with compelling returns. Above all, I'm grateful to all our teammates who bring our mission to life every day to be the best restaurant in every market where we operate. They do this by delivering exceptional and unforgettable guest experiences to every guest every time. I also like to thank our customers that visit and continue to return to our restaurants so that they can enjoy the highly differentiated vibe dining experience they have been craving. We appreciate everyone joining us on the call today. Tyler and I are happy to answer any questions that you may have. Operator.
spk09: Thank you. Our first question comes from the line of Mark Smith with Lake Suite. Please proceed with the question.
spk04: Hi, guys. First, I just wanted to dig in a little bit more on the Kona Grill. Can you guys just talk a little bit more about the comps there and what you saw as far as consumer behavior, any insight into traffic versus check or how people kind of use the restaurants during the quarter?
spk05: Sure. So for the quarter, as we had on the prepared statements, Kona Grill was down about three points for the for the quarter and we were down about seven, eight on traffic and then that was offset by check going up. I think that the check going up is primarily due to more, we're selling more stakes than historically have. In terms of consumer behavior, I don't think that we've seen anything significant other than if you look at our comps for Kona Grow on a three-year stack, They're still pretty significant on that three-year stack. So I wouldn't say per se that there's a lot other than we just had a very strong third quarter for Kona Grill last year.
spk04: Okay. And then as we look at the restaurant operating profit for Kona Grill, did mixed have a negative impact, you know, or was it just inflationary pressure and labor that really pushed that lower?
spk05: I mean, I think as we said in our prepared statement, I think our biggest, you know, item with Conor Grill is obviously, you know, we want to preserve market share and we want to make sure that we look after traffic in the long term. So our biggest concern was really about how much pricing we should take. As you saw in our prepared comments, we did raise, we took about five points at Conor Grill mid-quarter. in pricing, and I think we didn't see a lot of resistance, so we'll do another five points in the fourth quarter. So I would say that all of what you saw in Kuna Grill margin pressure was mostly related to the fact that we didn't take enough pricing to offset the inflation pressure. As a matter of fact, COVs in general help out pretty good for the whole company. So it was mostly about not having enough pricing to offset the increases that we saw in operating expenses and labor.
spk04: Okay. And labor, you know, were you staffing pretty heavily and hiring, you know, late in Q3 in preparation for kind of a heavy Q4?
spk05: Yeah, I mean, we were 100% to our par in the quarter, so we kept all our staffing where we wanted to be at, and so the answer is absolutely yes. And, of course, having that many employees on board for the quarter, we obviously have to make sure they're We're scheduling them and we keep training and keep them well trained so that obviously is always reflected, not just this year, but typically on our third quarter, you know, just because that's when we get ready for the big quarter that is usually our fourth quarter.
spk04: Okay. And then any additional on setting the timing of the three CONAs for openings? And I know that a lot of things can shift here in Q4, but do you think that you get those three done here in Q4, or will some of those shift into Q1 of next year?
spk05: Yes, so we just opened Dallas SDK, which we're super excited about that opening. is in its final stage of construction so we should be able to have access to go into it here in the next week or so. The one decision that we're making right now to be honest about it is that, you know, I'm trying to weigh in the risk rewards of keeping the training teams in opening mode or just wait maybe until the first couple weeks in January to open up Columbus. So really that's the decision here that we're going through is You know, do we want to focus on fourth quarter execution or open up? So, you know, really the answer is we'll either open Palumbas in the next two weeks, but if not, we'll open right away in the beginning of 2023. Okay.
spk04: And then the last one for me, just as you look at real estate and opportunities as you start to open more restaurants here on SDK and Kona, are you seeing anything change really as far as availability, you know, and what kind of sites are you looking at these days and seeing available?
spk05: The availability has been significant for us. We have the largest pipeline we've ever had since I've been with the company, so we're super excited. happy about that. We have also seen a tremendous amount of availability of TIs from landlords. The reality of it is that with COVID and the current economic situations, there's not a lot of local operators getting into real estate, so that has made the availability of real estate for more organized companies more easily available just because smaller independent chef-driven concepts are not growing because they're really struggling in the current environment. So we certainly have seen the availability of high-quality real estate be very strong for us.
spk04: Okay. Great. Thank you. I'll get back to you. Thank you.
spk09: As a reminder, to register for questions, press the 1 pop-up at 4 on your telephone keypad. Our next question comes from the line of J.P. Wallen with Ross Capital Partners. Please proceed with your question.
spk03: Great. Thanks for taking the questions, guys. Just the first one, you know, I think you touched on it a little bit, If we could talk about kind of the power launch we say and, you know, maybe Manhattan is more geared towards that but can you just kind of maybe comment on the corporate or expense track business? Has that picked up especially around lunchtime? Anything to highlight there?
spk05: Yeah, so the suits are definitely backed. If you're going to our restaurants in urban centers, you're definitely seeing a lot more business dying. And we're also seeing a significant increase in demand for corporate events. So I would say that that business is definitely back. But obviously, as I look around, there's still a tremendous amount of vacancy in the city. So I look at that as an upside opportunity. So the business has rebounded. and I can actually see an uptick. We're also seeing an increase in conventions. So convention cities like Denver, Orlando, Vegas, we're starting to see a lot of activity on conventions, particularly that small to mid-sized convention business is definitely back. So we're definitely seeing an uptick on that business. And then I think your question was also around lunch specifically. I would say in markets where we have, in urban markets we're seeing an uptick in lunch for different places like Midtown New York, Atlanta, pretty much anywhere where we have presence of office pay. So I would say lunch businesses is definitely starting to pick up in big urban cities.
spk03: Great. Thank you. And then maybe if we could just talk about commodity cost for a minute. You know, anything I think maybe still near-term headwinds, but anything to call out about some of your food inputs? I know you guys do a good job managing the mix at your restaurants, but anything, any trending moves there?
spk05: I mean, I think probably without getting to maybe Matt's economic comments, but more about us specifically, I do see... of stabilization on the wage side. So I think that's been and it was a lot more aggressive in the second quarter and third quarter. I mean it started to kind of slow down a little bit on that but so that's at least a positive to us. In terms of just, you know, the core commodities, you know, beef, fish, et cetera, I mean obviously we're still seeing pressure on those commodities but again as you can see from our cost of goods performance We expect that to be an ongoing in the business. So we manage that through our product offerings and promotions that we do. And I think that continues to be super effective. So at least for me on the short term and for the companies that will continue to look for relief from our better management for COGS through product mix and then for the other wine items, I think we'll take that through the pricing increases that we're doing. And as we said in the call, Although we're taking pricing in the fourth quarter, we still think there's a tremendous amount of pricing power in our business model as we look to our prices compared to our competitors. So I still think we have a lot of leeway in pricing if commodities were to persist into the long term.
spk03: Got it. I appreciate that. And then one last quick one just on the Florida restaurants and the impact on Hurricane Ian. Is there anything that you can quantify in terms of maybe missed revenue or perhaps kind of how long any restaurants had to close? Anything you can quantify around that?
spk05: I mean, I think Tyler mentioned on his comments that the sales base is about 14% of total sales. So, you know, it's not a, you know... a super big portion of our sales base, but it's big enough to make a difference. I would say the whole week around the, you know, the hurricane, maybe four days before and maybe a week after, so let's call it a total of 11 days. We saw a lot of, you know, people just weren't interested to go to the restaurants, one, and then two, we're in places like Disney Springs, and Disney basically closed the parks pretty early and decided to keep them closed you know, after the hurricane. So I think, like I said, probably a 10 to 11 day window around the hurricane and as we said earlier, about 14% of our sales base. And we also have one restaurant in the corner portfolio. Our Baltimore restaurant had a garage, parking garage next to it that collapsed. It's the garage that, you know, the restaurant uses and then we lost both electrical and gas. for a couple of days, and then we basically were without gas for the majority of the quarter. Again, we don't want to get into a whole list of things that cause numbers to be what they are, but we did also have one restaurant that did have, you know, several days where they were not able to be at 100% capacity.
spk03: Got it. Thank you, guys. Thank you, sir.
spk09: Our next question comes from the line of Nicole Miller with Piper Sandler. Please proceed with your question.
spk08: Hi, guys. This is Abby on for Nicole. Thanks for taking my question. My first, I guess, clarification, and I understand the reiteration on the operating margin line of that 20% to 25%. Is there anything else we should be thinking about below the line that might be interesting? I know that seasonally this will be one of your better quarters, but just anything you can provide there?
spk05: Yeah, so I mean, color on the margin, I think we mentioned it on the call. Third quarter is usually one of our lower seasonal quarters. So that's where we'll see the margin be a little lower. And then we also do prepare labor for the fourth quarter in the third quarter. I would say that the fourth quarter by far is our strongest quarter for margin. So we always have a great margin profile there, not only just because of the seasonality of sales, but we also do a tremendous amount of promoting around premium items. We always feature either Waidu or other premium products in the quarter, and the way that we price them, and frankly, just the demand for the product is super high, so that does help us with having a very high margin profile. So the fourth quarter will tend to be significantly higher to the third quarter in terms of margins. So that's what we usually make it up.
spk08: Got it. Okay, thank you for that. And then second question, can you just high level talk about what you're seeing in terms of supply chain? You know, are suppliers delayed? I understand there's still commodity pressure, but more to do with what you're getting in the store or I guess in the units.
spk05: Yeah, I think the good question from a supply chain perspective, I'm not so sure about the not showing up, but there's a lot more substitution that does happen with your suppliers, which is they won't have the primary product that you're trying to order. So they'll, you know, sometimes go to option B and option C on the alternative items that we use. But we haven't seen, you know, just trucks not showing up to restaurants. We'll tend to see more, you know, the vendors submitting the substitute items. And then in the event that, you know, the vendors are out of stock in some of the items, we do always have a backup major supply by restaurant that we go to. So we've been able to get the product, but sometimes they may not be our primary skew. And so that's how we've seen in the environment from the supply chain.
spk08: Okay. And then last one for me. I know you talked about holiday bookings are already coming in and it's looking good. Can you compare this to, like, 2019, at least pre-COVID? Is it beating expectations or in line?
spk05: I would say compared to pre-COVID, the biggest trend that we're seeing on the event business is we get a lot more requests. for full venue buyouts, which frankly are very profitable because we were selling the restaurant for the whole day. And so we're seeing a lot of more companies doing holiday parties so they don't want to have their party with other people around. So there's a lot more demand for that business, which frankly we looked at as an opportunity as we charge premium prices for buyouts. And so we see that as an opportunity for us. In terms of just general bookings, we've had actually the last couple weeks due to the convention business, we've seen a lot of bookings, both business and frankly into the holidays now we're starting to see corporate demand for holiday parties. So I would say, all in all, we've seen an uptick on that business. I'm not sure we've recovered 100% throughout this pre-COVID just because, as I mentioned earlier, there's still a significant amount of vacancy in urban markets, but... But I would say overall, I'm pretty pleased and I think it's going to be a very good event and business for us in the fourth quarter.
spk08: Well, that sounds great. Good luck on the quarter, guys. Thank you.
spk05: Thank you, Abby.
spk09: As a final reminder, to register for questions, press the 1, followed by the 4 on your telephone keypad. Our next question comes in line of Daniel with Stevens. Please proceed with your question.
spk07: Hi, thank you for taking my question. I just have a couple of quick ones. First, as far as I missed this earlier, did you disclose how much price was in the 3Q comp and how much you expect to carry moving forward?
spk05: Yeah, so on the third quarter, we said we had a 3% effective for SBK and about five for Kona Grill, and we put it in place mid-quarter, so I would say that's one and a half effective for Kona and about I guess I'm just passing a two and a half for SDK for the full quarter because we put it at midpoint. And then for the fourth quarter, you know, we're looking at another 5% coming in pricing for SDK and point of grill and we're putting that effectively at the beginning of November which is around right now.
spk07: Okay. Thank you. That's helpful. What is your visibility in terms of the basket heading into 2023? I'm sorry. We lost your question. Do you mind repeating your question? Yes. So what is your visibility in terms of your commodity basket? How much of it is lost heading into 2023?
spk05: I mean, our visibility right now is that police from, you know, where we stand here, we don't see any immediate either pressure or relief in... in beef so I would say that's not anything really material shifting there. We have seen some positivity on frozen seafood so we have seen some buys on shrimp and crab and even I think some lobster so I would say seafood overall it seems to be becoming disfavorable but really no change on beef and then on the labor side as I mentioned earlier, on one of the questions. We have seen at least a stabilization on the rates in the third quarter. So we don't see as much, you know, regular increases as we saw in the second quarter for the wage. So I would say basically a stabilization and a slight decrease on, I mean, stabilization on labor and beef and a slight decrease on seafood going forward. I mean, I wouldn't go too far. I mean, those, you know, commodities seem to be very flux these days, so I probably would say that my views on that holds for the fourth quarter and perhaps a little bit early first quarter next year.
spk00: Thank you.
spk09: Our next question comes from the line of David King with King Wealth Management. He's got you with a question.
spk06: Hi, guys. Just a couple of quick questions. When I look at the numbers, it seems like COGS and margins held in pretty nicely for the quarter. So my guess is with the price you're taking, we'll get a little bit of gross margin improvement. But year over year, the item that sticks out at me is operating expenses. I think we're up 4.5 million quarter over quarter. So could you give us a little more color on that? And is there any like pull in or, you know, we're opening up a lot of stores. Is there any hiring that we're doing in advance that potentially, and also rent expense that we weren't able to match up with sales yet from the ensuing revenues we're going to get from the new store openings. How much of that was a factor, if you will?
spk05: Yes, so let me maybe answer the question this way. We did have a question on COGS. The reason that you don't see it as obviously as the other line items is because we did a lot of product introductions and a lot of promoting on other items. We promoted things like our pumpkin pasta, which pasta has a much better cost profile than beef or seafood would from a presentation perspective. So we offset a tremendous amount of inflationary pressure on the cause line by a lot of promoting and a lot of products that we did. We also emphasized the bar business significantly in the third quarter. We went heavy with our cocktail program. For instance, the pumpkin spice martini and so forth and old-fashioned were really successful in the brands and in our list of program carriers premium prices. So that really helps offset pressure on costs. The reason that you see that pressure on the operating line is because of the labor inflation, which was definitely double-digit on the wage side. And then the other thing that comes out is, for instance, a lot of the operating costs that we have are things like janitorial service, DJs, repair and maintenance work which usually use labor. And all of those services in the quarter, you have seen an increase on the per cost just because of the inflation of the labor that is embedded in those services. Obviously, having very modest pricing in the quarter, it was not enough to offset, you know, the impact on those numbers as a percentage of revenue. I would say that as we go into the fourth quarter and with effective more price increases, we got another five points for Kona, five for SDK. I think that alone will bring those percentage line items more in line with the historical. So I would say it's mostly just a function of pricing and cost inflation being off cycle. So I think as we get the pricing in, that will get fixed. In terms of investments, into the growth of the company. Probably where you have seen a bigger impact of that would have been to the G&A line because we have obviously in advance of opening restaurants, we bring in more multi-units leaders. So we've been training and developing a class of leaders for multi-units. But again, if I start to re-summarize the whole margin and cost for the company is very nice job on managing costs with product mix and obviously our opportunities that we haven't taken enough pricing to offset operating costs and the growth investments would be more on the G&A side and really on the operating margin side.
spk06: Okay. And then the numbers that you gave on San Francisco kind of surprised me. It's at a pace much, you know, higher than, you know, what I would have modeled. At that kind of a run rate, you know, north of 15 million, do you hit 20% store level EBITDA with the inflation that we're seeing, especially in labor?
spk05: Yes. So good question. So the volume pattern for, San Francisco is actually close to the $20 million pace. I think it's around 17, 18 million pace, which frankly for a brand new restaurant is fantastic. And it's actually, we've sustained for several weeks and actually we're not on the month's basis with that. So we're very pleased with that performance. It's about double what we expected for the restaurant in revenue. And the restaurant has been incredibly well received in city. The city has been dormant since COVID. So not a lot of activity in that city. There was not a lot of restaurants that had opened or anything really significant there. So the city has really embraced the restaurants and we're very happy with that. In terms of what that means for margin is that San Francisco does have a higher minimum wage in the city. So we do have to put up more dollars for labor. But I think at those kind of volumes, our SDK margins are significantly higher, probably the 20 to 25% higher range, if not even higher than that. So I would expect San Francisco to have a very healthy margin at the volumes that they're running right now.
spk06: Okay, great. Yeah, that's, I was being conservative when I said 15, but yeah, it sounded like you're at a run rate of 17 and a half or better. And then, you know, with the seasonality and, you know, the sort of the tailwind coming from private parties, events, et cetera, new stores, you know, and then the seasonality, do we get back to growth in EBITDA by Q4 or do you expect to grow, assuming the economy is kind of status quo, you know, with the price we're taking, the new stores and, you know, the seasonality, do we start to grow year-over-year in EBITDA in Q4 and beyond?
spk05: Yeah, I mean, great question. I do think that the price increases that we're putting in the fourth quarter are happening right now. So we do have a little bit of, you know, a full week, if you will, into the quarter that we didn't have that pricing. But I would say, as I said in my prepared comments, I do see SDK and Kona Grill margins getting back to where we say they can be. I think we set 15 to 20 on Kona Grill and somewhere between 20 and 25 on SDK. So I do think that with the pricing that we're putting in right now and at the level that we're operating. And frankly the fact that the new stores is a very high quality class. We have Dallas that we just opened this week. We have San Francisco that we opened up, you know, just recently. And then the class of corner grill restaurants that we're opening up, Columbus, Riverton, which is in Phoenix. Those restaurants are what we consider to be the more margin-friendly restaurants with smaller, you know, sushi bar placements and stuff like that. So those restaurants, we actually expect them to be more margin-efficient than the current portfolio of restaurants. So we're actually looking forward to the positive impact of the new class of Kona Grills to the Kona Grill margin profile because they're actually more efficient restaurants the way that we've designed and we plan to operate them. So we're, I'm pretty, you know, bullish on the margin profile for the restaurants into the 23-year and the fourth quarter 22. All right.
spk06: Thank you. Good luck, guys. Have a nice holiday if I don't speak to you.
spk05: Thank you, David. Be well.
spk09: Mr. Hilario, there are no further questions for this time. I will now turn the call back to you.
spk05: Thank you. Thanks everyone for joining us on the call today. As always, I'd like to thank our tremendous team for all their contributions and frankly hard work in what's a very challenging environment but also very rewarding to see us operate great restaurants in every single market that we're in. So thank you all of you for that. And then for all our guests and people who like our brands and love the five dining that we provide. I look forward to seeing you all in our restaurants. So everyone have a good one. Thank you.
spk09: That does conclude the conference call for today. We thank you for your participation and ask you please disconnect your lines.
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