Kona Grill Openings Lag

SCOTTSDALE, AZ-Construction delays have pushed back the openings of two new Kona Grill restaurants, one in Illinois and one in Texas, prompting the chain to reduce its financial forecast. At another Texas location, nearby construction has hindered visibility at a new restaurant, resulting in disappointing sales.

The company, which explained the delays in a conference call with financial analysts on Thursday, says that restaurant openings in Oakbrook, IL and Houston have been pushed back because landlords at the two new locations will not be able to turn over the premises to Kona as originally scheduled. Kona says the slipped schedules are entirely the result of construction delays.

“Once the properties are turned over to us, we have an impeccable record” of opening on schedule, Kona president and CEO Donald Dempsey said as he opened the conference call Thursday. Dempsey said that the delays were “due to circumstances beyond our control.”

“Although this is not the kind of news we take pleasure in sharing with you, it in no way affects our long-term development plans,” Dempsey said. The company stands by its previous forecast that it would open five new locations in 2006, but the Oakbrook, IL and Houston restaurants will open later in the year than previously expected.

In contrast with larger chains where a few delayed openings have relatively little effect on the bottom line, the impact of a few delayed store openings “is larger in our case because of the relatively small size of our company,” Dempsey pointed out. He emphasized that the postponements were “100% due to the delays on the part of the landlords” in turning over properties to Kona.

Besides the delays in store openings, the company cited the “disappointing” performance of its Sugarland, TX unit, which opened in August. Dempsey said that the slow start at the restaurant “has been exacerbated by nearby construction that is limiting the restaurant’s visibility and accessibility.” Once that work is completed, Kona is optimistic that the Sugarland store’s volume will gradually reach expected levels, Dempsey said.

For fiscal year 2006, Kona now anticipates revenue of $49 million to $51 million and a net loss per share of 44 cents to 53 cents, compared with previous revenue expectations of $53 million to $55 million and a net loss per share of 26 cents to 35 cents. However, the company still anticipates being profitable in fiscal year 2007, Dempsey said in the conference call.

In addition to the planned new restaurants and the Sugarland location, Kona Grill owns and operates restaurants in Scottsdale and Chandler, AZ; Kansas City, MO; Las Vegas; Denver; Omaha; Carmel, IN and San Antonio. The restaurants serve mainstream American dishes as well as a variety of appetizers and entrees of international cuisines., including an extensive sushi menu and a sushi bar.