The ONE Group Hospitality, Inc.

Hello and welcome everyone joining today's the one group third quarter 2025 earnings conference call. At this time all participants are in a listen only mode. Later you will have an opportunity to ask questions during the question and answer session. To register to ask a question at any time please press star 1 on your telephone keypad. Please note this call is being recorded and I am standing by should you need any assistance. It is now my pleasure to turn the meeting over to CFO, Nicole Tong. Please go ahead.

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 guaranteed with 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 of the date of this call. We undertake no obligation to revise or publicly release any revisions of these forward-looking statements considering 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 PREPARED IN ACCORDANCE WITH GAP. FOR RECONCILIATIONS OF THESE MEASURES, SUCH AS ADJUSTED EBITDA, RESTAURANT OPERATING PROFIT, COMPARABLE SALES, AND FOOD AND BEVERAGE SALES AT COMPANY-OWNED, MANAGED, LICENSED, AND FRANCHISED UNITS TO GAP MEASURES, ALONG WITH A DISCUSSION OF WHY WE CONSIDER THESE MEASURES USEFUL, PLEASE SEE OUR EARNINGS RELEASE ISSUES TODAY. With that, I would like to turn the call over to Manny Hilario.

Thank you, Nicole, and good afternoon, everyone. I appreciate you joining us today for our third quarter earnings call. Before reviewing our results, I would like to welcome Nicole Thong as our new chief financial officer. Nicole joined us through the Benihana acquisition in May 2024, where she served as CFO and has over 15 years of financial leadership experience. She has been instrumental in the integration of Benihana, and her deep business understanding and proven financial expertise position us well as we execute our strategic priorities. Now turning to our financial results. Our third quarter faced headwinds from external factors that temporarily affected gas traffic in key markets. We saw shifts in consumer behavior including beverage consumption within our core demographics, which created additional revenue pressures. We had initially planned to implement our annual pricing increases in the middle of the third quarter. However, given the traffic environment, we made the strategic decision to defer these adjustments to the fourth quarter, where there's less guest sensitivity due to the celebratory nature of the holiday season. These price increases have been implemented as of the beginning of November. In total, revenue declined 7% to $180 million, while adjusted EBITDA decreased to $10.6 million. It is worth noting that the third quarter is historically our smallest revenue period, which can make performance trends more difficult to predict. The positive news is that we already are seeing an improvement in our business trends across our portfolio, and we are cautiously optimistic about the momentum building into our strongest seasonal period. Our teams are well prepared to deliver exceptional guest experiences during this historically busy and critically important upcoming holiday period, and we are pleased to have robust advanced bookings already in place. Moving forward, our focus centers on four strategic priorities. Number one, accelerating same-store sales through operational excellence, culinary innovation, and target marketing. Number two, pursuing capital, efficient growth with discipline expansion. Number three, optimizing our portfolio for maximum returns. Number four, maintaining balance sheet strength and financial flexibility. Let me walk through our progress on each priority. Priority one, accelerating same-store sales. While our same-store sales were negative across the portfolio in the third quarter, as I said a moment ago, we are seeing sequential improvement as we move through the fourth quarter, demonstrating that our strategic initiatives are gaining traction. Our barbell strategy is driving momentum. Accessible offerings such as our $3, $6, $9 happy hour and our $39 and $69 pre-fee menus attract value-seeking guests while our premium selections reinforce our upscale position. At SDK, we are introducing a new premium holiday menu focused on Wagyu and premium seafood aligning with today's selective diners who are more intentional about what they choose to dine. At Kona Grill, we are strategically expanding our menu to reduce reliance on categories facing current market pressures. The brand has historically been centered around seafood, sushi, and our distinctive bar experience, but we are seeing headwinds across those core areas. Our menu diversification introduces broader culinary options that appeal to more frequent dining occasions and are less sensitive to economic fluctuations. Our Friends with Benefits loyalty program continues to gain momentum with over 6.5 million members. During the quarter, we added over 200,000 new members. Newly enrolled guests are showing the most repeat participation in the program. We are focused on growing a best-in-class program that fuels long-term business growth. Our key objectives of the Friends with Benefits Loyalty Program are, one, maximize membership size by converting members from other TOG marketing programs. Number two, drive organic sign-ups through increased awareness and engagement. And number three, increase member engagement within the program to strengthen brand connection and repeat visits. We have also upgraded our brand websites. Benihana, SDK, Kona Grill, and Rasushi now feature fresh, mobile-optimized designs that are increasing both traffic and conversion rates. These digital enhancements, combined with our loyalty platform, position us to compete effectively as national chains ramp up promotional activity. Priority two, capital efficient growth. The newly redesigned Benihana location we opened in San Mateo, California earlier this year has become the top performing restaurant opening in the brand's 60-year history. This outstanding start validates the effectiveness of our redesigned restaurant format. In this redesign, we made several meaningful changes to the Benihana footprint. We relocated the sushi station to the back of the house to create more teppanyaki table capacity expanded the bar seating area, modernized interior with a brighter, more contemporary look, and created a dedicated takeout station that improves overall restaurant flow. We are now implementing these learnings system-wide, adding two to three techni-active tables per restaurant to create meaningful capacity increases that directly boost revenue potential. This success gives us confidence that future locations can achieve $8 million in annual sales with restaurant-level profit margin in the mid-20% range. Franchise momentum continues to accelerate. We opened our second Bennehan Express location in Miami in the second quarter with more in development. The express format offers the full menu without teppanyaki tables, generating strong franchise interests while enabling asset-light expansion. Over time, we expect franchise license and managed locations to represent over 60% of our total footprint. We are also expanding Benihana into more non-traditional venues. We currently operate in three professional sports stadiums, generating 9 million fan impressions annually, with additional airport and arena opportunities under discussion. Across our portfolio, we have opened four company-owned venues and one franchise location year-to-date, with additional fourth quarter openings planned, bringing our total 20-25 openings to five to seven new venues. In the fourth quarter, we already opened an SDK in Scottsdale, Arizona, and plan to open a company-owned SDK in Oakbrook, Illinois, and our Corner Grill San Antonio relocation. Relocations remain a key strategy to unlock strong returns in existing markets. By prioritizing nearby high-quality real estate opportunities in areas that already embrace our brands, we can increase capacity, optimize traffic, and better position our brands for long-term success. For example, our recently relocated Westwood SDK has delivered margin improvement over the previous location. Remodels are also showing promise and success. During the third quarter, we remodeled our dated Tampa Bay Kona grill. With modest capital investment, it has delivered a significant turnaround in same store sales performance. Priority three, portfolio optimization. We have taken decisive action to strengthen our portfolio quality through strategic location optimization. After conducting a thorough evaluation of our World Concepts portfolio, we closed six underperforming locations in the second quarter and one additional location in the third quarter within challenging trade areas. These were primarily older units which would have required substantial capital investments. Looking ahead, we have identified up to nine additional grow locations to convert to either Benihana or SDK formats through the end of 2026. These conversions represent an excellent capital allocation opportunity. They require about $1 million in capital investments, and the average SDK generates over $1 million in annual EBITDA. Our first conversion of a raw sushi location to an SDK location has already happened in Scottsdale, Arizona, which opened at the end of October. After completing all planned conversions, we will operate all profitable relocations that we expect to generate approximately $10 million in restaurant-level EBITDA and over $100 million in revenue, with all units maintaining positive cash flow. Priority four, balance sheet strength. With approximately $45 million in liquidity, we have the means to invest in growth while maintaining discipline. Our board authorized a $5 million share repurchase program last year, and we view our stock as an attractive investment. Additionally, we expect to further reduce discretionary capital expenditures in the coming year across all of our brands, allowing us to strengthen our balance sheets while enhancing financial flexibility. Finally, I'm optimistic about our fourth quarter. This is historically our strongest period, and we are better positioned than ever to capitalize on that strength. 2024 marked our first holiday season with Benihana in the portfolio, and we set records across every holiday with exceptional demand. This year we have made target investments to capture even greater holiday demand. Our enhanced reservation technology, streamlined operational flow, and comprehensive team training initiatives position us to execute flawlessly during our busiest periods. A key operational focus is optimizing Benihana table efficiency. We are targeting a reduction from 120 minutes to 90 minutes table turns throughout the fourth quarter which will significantly expand our capacity to serve more guests during the busy dinner periods. The items that I have outlined today are fundamentally execution-driven and within our direct control. We are not relying on macroeconomic recovery or waiting for consumer sentiment shifts. Instead, we are focused on strategic initiatives that position us to deliver strong results regardless of broader economic trends. Before I turn it over to Nicole for the financial details, I want to thank our teammates. Every day, they live our mission of creating great guest memories by operating the best restaurants in every market that we operate by delivering exceptional and unforgettable guest experiences to every guest, every time. They are the foundation of everything we do. With that, I'll turn it over to Nicole.

Thank you, Manny. As a reminder, beginning this year, we're reporting financial information on a fiscal quarter basis using four 13-week quarters with the additional of a 53rd week when necessary. For 2025, our fiscal calendar began on January 1st, 2025, and will end on December 28th, 2025, and our third quarter contained 91 days. Let me start by discussing our third quarter financials in greater detail before updating our outlook for 2025. Total consolidated gap revenues were $180.2 million, decreasing 7.1% from $194 million for the same quarter last year. Included in total revenues were our company-owned restaurant's net revenue of $177.4 million, which decreased 6.9% from $190.6 million for the prior year quarter. The decrease was primarily due to a 5.9% reduction in consolidated comparable sales and the closure of underperforming restaurants in the prior year period. Management, license, franchise, and incentive fee revenues decreased to $2.8 million from $3.4 million in the prior year. The decrease is attributed to lower management, license, and incentive fee revenue at our managed SDK restaurants in North America and reduced franchisee revenues due to exiting two license agreements. It is important to note that our sales at our managed SDK in Las Vegas have notably improved quarter to date. Additionally, we exited our management deal with SDK Scottsdale and converted a former raw sushi to a company-owned SDK. Now turning to expenses, we continue to implement targeted cost management initiatives, including strategic adjustments to our protein sourcing to reduce costs and a temporary higher increase that will optimize our labor structure. Company-owned restaurant cost of sales as a percentage of company-owned restaurant net revenue increased slightly to 21.1% from 20.9%. This was primarily due to sales fee leveraging, coupled with higher than anticipated inflation in certain commodities costs. This was partially offset by additional integration synergies from our Benihana acquisitions. Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue increased 140 basis points with 67.6% from 66.2 in the prior year quarter. This was primarily due to investments in marketing, general cost inflation, and fixed cost due leveraging driven by a decrease in same-store sales. Restaurant operating profit decreased to $20.1 million, or 11.3% of owned restaurant net revenue, compared to $24.5 million, or 12.8% in the prior year quarter. On a total reported basis, general and administration costs increased a half a million dollars to 13.3 million from 12.8 million in the same quarter prior year, driven by increased marketing expenses. When adjusting for stock-based compensation of 1.2 million, adjusted general and administrative expenses were $12 million, compared to $11.2 million in the third quarter of 2024. As a percentage of revenues, when adjusting for stock-based compensation, adjusted general and administrative costs were 6.7% compared to 5.8% in the prior year. Depreciation and amortization expenses was $11.5 million compared to $9.4 million in the prior year quarter. The increase was primarily related to depreciation and amortization of new venues and capital expenditures to maintain and enhance the guest experience in our restaurant. During the quarter, we completed our regular assessment of the recoverability of the net book value of our six assets. A non-cash loss on impairment may be necessary when the net book value exceeds the future expected cash flows of the restaurant and can happen due to economic factors, end of lease, or restaurant performance. As a result of this assessment, we identified five restaurants that required impairment charges that total $3.4 million, mostly related to grills that we plan not to extend the leases on. Pre-opening expenses were approximately $700,000, primarily related to the pre-open rent for restaurants under development and payroll costs associated with the pre-opening training team as we prepare restaurants scheduled to open in the fourth quarter of 2025. Pre-opening expenses decreased $1.4 million compared to the prior year period. Operating loss was $7.9 million compared to an operating loss of $3.6 million in the third quarter of 2024, mostly impacted by the $3.4 million in non-cash loss on impairment. Interest expense was $10.5 million compared to $10.7 million in the prior year quarter. Provision for income taxes with $59.1 million compared to a benefit of $4.9 million in the prior year quarter. The increase in income tax expense is primarily the result of the establishment of a full valuation allowance against our deferred tax assets during the third quarter. This is a non-tax income tax expense item that was reported because of management's assessment of the future usability of our deferred tax assets and liabilities. Net loss attributable to the ones of hospitality was $76.7 million compared to net loss of $9.3 million in the third quarter of 2024. The 2025 loss was primarily driven by the non-cash loss on impairment and non-cash recognition of the valuation allowance. Net loss available to common shareholders was $85.3 million or $2.75 net loss per share. compared to 16.4 million in the third quarter of 2024, or 53 cents net loss per share. The previously discussed non-cash loss on impairment and establishment of the deferred tax asset valuation allowance represent $2.02 of the third quarter 2025 net loss per share. Adjusted EBITDA attributable to the one group Hospitality Inc. was $10.6 million compared to $14.9 million in the prior year, a decrease of 28.9%. We finished the quarter with $6 million in cash and cash equivalents and restricted cash. We have $28.7 million available under our revolving credit facility. And as of quarter end, we had $5.5 million outstanding on our revolving credit facility. Under current conditions, our term loan does not have a financial covenant. Now I would like to provide some forward-looking commentary regarding our business. This commentary is subject to risks and uncertainties associated with forward-looking payments as discussed in our SEC filing. We remind our investors that the actual number and timing of new restaurant openings for any given period is subject to factors outside of the company's control, including macroeconomic conditions, weather, and factors under the control of landlords, contractors, licensees, and regulatory and licensing authorities. Based on the information available now and our expectations as of today, we are updating the following financial targets for fiscal year 2025. Please note this does not include the potential impact of tariffs on broader economic conditions. We project total gap revenues of between $820 and $825 million. which reflects our anticipation of consolidated comparable sales of negative 3 to negative 2%. Managed franchise and license fee revenues are expected to be between $14 million and $15 million. Total company-owned operating expenses as a percentage of company-owned restaurant net revenue of approximately 83.5%. Total G&A excluding stock-based compensation of approximately $46 million. Adjusted EBITDA of between $95 and $100 million. Restaurant pre-opening expenses of between $5 and $6 million. An effective income tax rate of between 1 and 4% when excluding the valuation allowance and the item subject to valuation allowance. Total capital expenditures net of allowances received from landlords of between $45 and $50 million. And finally, we plan to open five to seven new venues. I will now turn the call back to Manny.

Thank you, Nicole. Before we open it up for questions, I want to emphasize how excited we are about the future of our business. Although the current environment is challenging, our future looks bright. With our strengthened portfolio and our expanded franchise capabilities, we are well positioned to capture the significant opportunities ahead of us. We thank you for your continued support and look forward to sharing our progress in the quarters ahead. Nicole and I look forward to your questions. Operator.

Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star and one to ask a question. We'll take our first question from Joe Gomes with Noble Capital. Please go ahead. Your line is open.

Good evening. Thanks for taking my questions. Hi, Joe. I want to start on the last couple of quarters. You talked about, you know, Benihana having two quarters in a row of same-store sales growth and STK three-quarters in a row of positive traffic. And I might have missed it, but I didn't hear that discussion today. I was wondering if you could kind of give us a little update on those.

I mean, I think probably the best thing to do is talk about maybe our traffic overall as a company. I think if I look at the third quarter, 2025, I think that's been our best quarter in traffic actually for the whole year as a consolidated company. I think we were down 6.9 in traffic for the third quarter, whereas in the second quarter, we're down 7.5. And in Q1, we're down 7.8. So the third quarter this year was by far our best or better traffic quarter. The big difference for us in the third quarter, though, is that until the end of the second quarter, beginning of the third quarter, we had about 7% effective pricing in there. So that offset part of the traffic. experience that we were having. And then going into the middle of the third quarter around August, we began lapping some pricing from last year. And we just saw a lot of noise in the middle of August in traffic. So we decided to just hold off on the pricing. And so our pricing in the third quarter was only plus $4. for the quarter. So we effectively lost about three points of pricing in the third quarter. So I would say from my perspective or our perspective, we made significant or we're doing improvements on traffic, which is one of the reasons why going into the fourth quarter and we put some pricing in effect right at the beginning of November. I think that we're, you know, we've basically put the pricing back on and with a sequential improvement in traffic, I think we feel pretty good about the the sales position going to the fourth quarter.

Okay. And what do you think is driving the traffic improvement in the fourth quarter so far?

Well, in the third quarter, I'd say the improvement, the sequential improvement of the third quarter, I think is really a testament to the value, you know, of proposition and the marketing that we've been doing. We also, as I mentioned in my prepared statements, we do have some macro... forces that haven't really supported sales. For instance, if you look at our cross of our portfolio, our concentrations of restaurants are in California, Arizona, Florida, and Texas. And then we have the other, which is about 50% of our concentration of sales. And if I just look in the third quarter alone, I think there was a lot of macro pressures. For instance, in our California sales, sequential between the second and third quarter, actually got negative by seven points. So there's some geographical pressures that came in that quarter since the third quarter. We've seen some of that loosen up a little bit, but certainly in August and September, we saw a lot more pressure in our traffic. In California, which is, by the way, one of the reasons why we put the pause on our pricing actions, just because we saw the traffic in there. So again, I think that the combination of the sequential improvement in traffic on the quarters, and now I feel as if California is getting slightly better. And last but not least, as I mentioned also in my prepared statement, in the month of December, taking the turn times at Benihana from 120 minutes to 90 minutes creates a significant lift in availability and tables to, and capacity to take more business.

Okay, and then one more for me if I can speak on it. Maybe just can you give us a little color on your efforts on the Benihana franchising side? I know that's something that, you know, you're hoping to see a little faster growth, so just want to get an update there.

Yeah, so, I mean, we did open one in the second quarter in Florida, and then our activities in the franchising side have also yielded. We now have... a deal that's almost done for some Benihana Express type operations in California. We also have a potential franchise deal for the Bay Area that's also shaping up. So we've made significant improvement on the pipeline. So now our team is out there working with these potential individuals and closing these deals down. We've also made some improvements on our pipeline for license sites for SDK, so we do have both the franchising move forward on the pipeline for Benihana and also SDKs. We've gotten some more leads and actually getting very close to announcing some additional license deals for SDK.

Great. Thanks for that update. I'll get back in queue. Thank you. Thanks, Joe. Take care.

Thank you. We'll take our next question from Anthony Lebodowski with COD. Please go ahead. Your line is now open.

Yes, good evening, and thank you for taking the question. So, Manny, I think also last quarter you called out Las Vegas as being a market where you saw some, I think, softness. Can you comment on that? Did you see that as well, and have you seen any improvements fourth quarter to date?

Yeah, so I will caveat my response on Vegas on the fact that it's our experience. We only have, let's call it three or four restaurants in that market, actually four in total. But our experience right now with SDK is that it's actually improving for SDK. So we've seen an improvement on our business on that side. Again, as I mentioned earlier, part of that has to do with the shifting in the conference and convention schedule. I think if you follow Vegas, you probably are aware that there was a shift in the convention calendar. So that's definitely now benefiting us in the fourth quarter, having a more robust conference schedule. I think the other restaurants, though, I would say that it's more of a little bit of a mixed bag, so I haven't seen the kind of same improvement that I've seen on the SDK business.

Got it. Okay. And then you gave us some numbers on the loyalty program, which looks like it's doing well in terms of signups. Can you give us maybe some details as far as what's the average ticket or frequency or anything else? Can you share about the loyalty members versus non-loyalty members? What do you see in terms of behavior from them?

Yeah, a great question. So, we have about six and a half million people that are in the program. A lot of those members came through our conversion of memberships from other programs. So, we have, you know, Benihana Programs, we had Conagraw Rock, and so, and SDK. So, we brought everybody into the same common program, if you will, and into that loyalty program. And since then, we've done about 200,000 signups of new members coming into the program. We're early, so I'm going to give you what I've seen so far because of all the brands we have, Kona Grow is the one that have been on the loyalty program much longer than anyone else because we were already utilizing Conovore, which was the legacy program from Kona. And for that particular brand, it's actually been helpful. So we've seen frequency increase. on use of the program. So we feel very, the early returns are very promising because we have members in that program who've been around for longer. And I think the new program and new activations that we're doing with it has driven a little bit more interest. But again, as I said earlier, it's early. I think we've rolled it out only earlier this year. I think that we will continue to pick up momentum with it going forward. But again, I think that our overall As I look at the overall story for the quarter, I think that the third quarter being our best traffic quarter for the company, I think it bodes well for all the initiatives and the actions that we're taking with marketing and everywhere else.

Gotcha. Okay. And then I guess my last question before I pass it on to others, you know, in terms of recent price increases, I know it's still early on, but any sort of early read on the reaction to the price increases? Have you seen any customer pushback to those higher prices, or do you think that you'll be able to successfully pass those along?

Yeah, I mean, I think we start rolling out those price increases late October in some places, and so we're really, really early on it. But I think, again, I think the way that we did a pricing increase this time is we really tried to you know, wait until we think the timing is a little better. I think we're now into, this is actually starts our seasonally better months, weeks, whatever you want to call it. Actually for the next 36 weeks is really kind of our high season period for us. So I think, you know, putting the price right at the beginning of the high season is actually a good strategy for us. Have we seen any noise in terms of feedback? The answer is not. We followed obviously through all our listening tools and social and everything. So we have not seen anything above and beyond what we usually see on the pricing.

Got it. All right. Well, thank you very much and best of luck. Thank you, sir.

Thank you. We'll take our next question from Mark Smith with Lake Street Capital Markets. Please go ahead. Your line is open.

Hi guys, I wanted to dig in a little bit more into Benihana comps here in the quarter. You know, they came down more than we've seen here recently. Can you just talk about traffic and ticket at Benihana?

Yeah, I think for the quarter for Benihana, as I mentioned earlier, that we had pricing, you know, coming off. Benihana was the one that had five points of pricing might have actually been a little higher than five points that we did not replace in the quarter. So if I look at their differential in same store sales year to date to what we performed in the third quarter, I would attribute it mostly to the pricing, not taking the pricing action. And again, I want to reiterate this. If I look at our same store sales by geography, California was by far the most impacted of all markets in our portfolio, and the Benihana portfolio does have extra, it does have a bit of weight in the California market, some of our higher volume restaurants. So again, I think that I would say that the two items in the Benihana would be not replacing the five points in pricing that we came off, and then the additional pressure in the California market.

Okay. And then just on the impairment that you took in the quarter, was all of that on Grill Concepts or was there anything on any of the other brands?

Yeah, I think the majority of the impact was on Kona Grill and then we did have a very minor amount coming out of our SDK in downtown New York just because that lease is up. We're in the last year of that lease and we're moving that restaurant, actually relocating that restaurant around the corner so that will be a reload but right now we just have some additional um amounts in the books that we have to accelerate and by the way there were all there were all assets that we couldn't move over to the new location because a lot of the assets may move to the new location okay

And just talking about kind of changing locations here, you know, can you just walk us through a little bit more on your, maybe the economics of the conversions? You know, I think you said kind of a million dollars maybe on spend, but just the economics there and then maybe your outlook of these that you're planning on converting, how many maybe to STK, how many to Benihana? And I'm curious, sorry to throw a lot on you here. Do these come with a new lease signing or do you typically keep the lease terms that you currently have?

Well, so very good question. So the first one we did is Scottsdale. It was a raw sushi restaurant. And in that one, we actually we converted to an SDK. It took us, you know, I think from beginning to end, somewhere between six months. and eight weeks to do the full conversion. The cost of the conversion, I'm putting it out about a million dollars in round number. It was a very effective refurbishing of the restaurant and we kept the majority of all the infrastructure. So it was very cost effective in that. And the question on the lease is that one actually, we actually got an extension on the lease by choice. So we got another five-year option just because we like the real estate. If you want to go to that property, You'll notice that it's in A plus, I'm going to call it A, I'm not going to give it A plus, but let's call it A real estate with a very good lease terms and a good presence for there. And we've already reopened it. I would say that we just opened the door. We didn't really do much marketing. We're actually starting the marketing push the next couple weeks. And I've been, so far, been very happy with what's happened there. Obviously, as you know, our model for STK, brand new STK, is about $8 million in volume with margins around 20%. So I would expect that SDK to be in that range of value. It's only about, you know, it's in a market that we've been already in, so we have pretty good experience there. So I feel pretty good about that one. Now we have other, I think up to nine other sites that we're looking at converting, and the cost should be around that same million dollars tag, if you will, price tag, and the conversion cycle should be relatively fast, and we'll do the same thing in terms of taking advantage of existing infrastructure and electrical, HVAC, kitchen, plumbing, et cetera. So we think those will be very effective. Again, what really drives that decision is the quality of the real estate. That's one of the things that we're really happy about the one group is we have great real estate, and that's one of the things that, you know, having multi-brands like we do gives us a lot of flexibility and gives us an opportunity to really leverage the strength in the real estate.

Would there be much of a difference in the cost or maybe return metrics on converting to a Benihana versus SDK?

I mean, again, another great question. I think the biggest difference between a Benihana and an SDK conversion is actually the mechanical cost because with the tables in a dining room, we have to do more upgrading on the exhaust system and sometimes electrical systems. if we add electrical tables. So it's a little bit more on the mechanical side, and it may take a little bit more time because we actually have to have more detailed, actually have to have a lot more engineering and architectural into it. So it's a little bit different of a process, but our view on it is the cost will still be around a million dollars in either one. And so we don't foresee a lot of cost incrementality there. Again, I mean, We have a lot of real estate in malls and other places that make a lot more sense for Benihana than SDK, so that's part of our decision on the Benihana is that Benihana is a great concept for mall type of locations.

Okay.

Thank you.

Thanks. Thank you. We'll take our next question from Jim Sanderson with North Coast Research. Please go ahead. Your line is open.

Hey, thanks for the question. I wanted to go back to the issue of pricing. I think you mentioned you exited third quarter with a global price of about four percentage points and that you took price in November. What should we expect as far as the impact of menu price on fourth quarter trend, fourth quarter same store sales?

So I think the biggest, the bigger part of that increase was Benihana around five, slightly above five. points on pricing. So that will weigh in heavily. And then FTK and the other brands, we had about two to three points on pricing. So the other ones are very modest. I would call that just cleanup pricing. So I would say overall, somewhere around four and a half to five and a half on a weighted basis would be the impact of the new pricing layer.

And that probably will last for the next 36 weeks, give or take. Is that the right way to look at that?

That's right.

Okay, great. Could you talk a little bit more about bookings? I think you mentioned in the press release that you were optimistic given the love of holiday bookings. Maybe you can tell us any comparison with respect to last year this time.

Yeah, I mean, we actually just reviewed the books this morning. Nicole and I did a very – we did a review of our bookings to progress right now. I think this is – Frankly, since COVID, if I look at the month of November, looking into December, it's been one of the months where I've actually seen a significant amount of progress on the number of bookings that we've seen in events. Obviously, that also reflects a little bit of the fact that we have a very experienced, we have a very good sales team. So that team has become very good at working in the current environment of sales. And again, the convention business, and a lot of the stuff that used to happen in the third quarter last year also got moved into the fourth quarter this year. So definitely that helps bring up the books into the fourth quarter.

And can you remind us what share of fourth quarter is related to holiday bookings or special events, that type of thing?

I would say... I would say about 15% of our business comes from the group event business in the fourth quarter. Gotcha.

Also wanted to shift gears on Benihana. You mentioned a lot of changes taking place in the design of the store that you're going to be implementing. Can you give us a sense of when that change will be implemented across all Benihana stores and any feedback on helping us understand to quantify the increased capacity, how that potentially could benefit

So our planning for that is, you know, we typically, you know, say that our capex is about one and a half to two and a half percent of sales on existing stores. So we're not putting together a special allocation of capital for that. We will do that revamp within our typical allocated basket, if you will, of capex. And so it will take a little bit of time to do that, but our changes will be more around, you know, our priority is one is getting rid of smoke in the dining room. So we do have some things that can help with that. So we're working on that right now for a lot of our restaurants. HVAC, I think I've mentioned HVAC in previous calls. And then the third priority is adding tables, because on Fridays and Saturdays, we can really use more tables in the restaurant. So we'll be upping those tables as we go. And then I'd say the next level of priority are things like the artwork is pretty compelling. The new artwork that we put in the San Mateo location. And we've defined for the brand is actually very cool. So we really want to start working on that. And then, you know, over time is just the key with Benihana is to continue a very strong maintenance program, which we do have in place. We have a very high quality facilities team that keeps these things maintained. But as time goes on, with our typical basket of capital, we'll try to to take care of that. As you probably picked up on my prepared statements and on the press release, we're also tightening down and keeping down the amount of CapEx that we're using because we want to work on the balance sheet. So it's all about balancing all those things, and that's where we'll fund the capital for Benihana from our regular CapEx basket.

Right. A bit of a follow-up question, just to make sure I understood the lower CapEx in 2026 that you mentioned. So how should we put that into perspective based on the plan you have in place this year? How is that CapEx number going to change?

Yeah, very good question. So we're focusing our capital on the conversions, which are about a million per restaurant. And then on brand new restaurants to the world, we're only focusing on restaurants that we can do for 1, 1.5 million or less on the whole cost of the restaurant. So we're really working our low-cost real estate inventory. And also the other thing, too, is we're not doing any new leases right now because we have a pipeline of about 12 leases. So we stopped doing leasing, and we're going to work through the existing pipeline of leases.

All right, and last question for me. I just wanted to better understand the Benihana Express. I think you mentioned that could eventually become a sizable portion of your portfolio. Can you describe any changes, what the AUVs are, store margin, how that's different from, let's say, a larger Benihana?

Yeah, I mean, the box will be much smaller, so we're trying to keep the restaurant, let's just hypothetically right now keep it around 1,000 square feet, so the economic space are different from a top line perspective just because of size. And then there will be no tip on tables in the property. All the food will be order and pick up and take away. And then we'll have some tables in the property and chairs, but it will be very limited seating. And so it will be a much smaller compact box. And so expect revenues. Right now, Nicole and I talk about somewhere around a million to a million and a half but very, very low cost of build-outs because there's nothing really to put in there. So we'll probably build that for around $500,000 to $600,000 in cost. So it will be a very effective box. Think of it most as a fast, casual grab-and-go, take your food back home. Or you may choose to eat there, but it will be a more casual environment.

Just to follow up on that, how do we look at the cash returns or the cash-on-cash returns that franchisees would be reviewing?

Yeah, I mean, we think that's because of the lower cost of goods and the fact that we'll be able to be affecting labor in that box. It will be a very high ROI. I think the store-level margins, even after royalties, can be in the 15% to 20% range. So it will be a very good return vehicle for potential franchisees. The ones that we're talking to, they're super excited about it, and we're to testing that model out.

Very good. Thank you very much. I'll pass it on.

Thank you. We have reached our allotted time for questions. I will now turn the call back over to Manny Hilario. Please go ahead.

All right. Thank you very much, Brittany. As I was closing my call here, I want to thank the team once again. I'm very impressed and very pleased as to how the team put above and beyond effort and really showed progress in the third quarter as our traffic numbers show. So I appreciate that. And we look forward to a great fourth quarter in terms of traffic and sales. And as always, I appreciate your support of the one group. And I look forward to seeing you out in one of our restaurants. Everybody have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.