GEN Restaurant (US:GENK)2025-08-06 22:00Financial Data and Key Metrics Changes - The company generated a 2.2% year-over-year increase in total revenue to $55 million for Q2 2025, attributed to new restaurant openings [15][61] - Cost of goods sold as a percentage of restaurant sales increased by 97 basis points to 33.8% in Q2 2025, reflecting inflationary cost increases and more new restaurants in operation [16][61] - The company reported a net loss before income taxes of $1.8 million, equating to $0.05 per diluted share, compared to a net income of $2.1 million or $0.06 per diluted share in Q2 2024 [18][63] - Adjusted net income was $1.2 million or $0.04 per diluted share in Q2 2025, down from $4.4 million or $0.13 per share in the same period last year [19][64] - Restaurant level adjusted EBITDA was 16.3% for Q2 2025, an increase of 70 basis points from the previous year [20][65] Business Line Data and Key Metrics Changes - The company opened seven new restaurants in 2025, with a total of nine new restaurants opened year-to-date, on pace to exceed the target of 12 to 13 new stores [5][51] - The average unit volume (AUV) revenue is $5.3 million per restaurant, which is considered elite in the casual dining space [9][53] Market Data and Key Metrics Changes - The company experienced a sharp downturn in customer traffic in April due to global tariffs and immigration policies affecting regions with a large Hispanic customer base, which accounts for 35 of its 52 restaurants [6][52] - Improvements in sales and costs were noted starting in July, indicating a recovery from the downturn [8][52] Company Strategy and Development Direction - The company is focused on a value-oriented experimental dining model, which is believed to resonate with guests and support long-term growth [5][50] - Plans for international expansion include additional restaurant openings in South Korea, with the first store opened in a suburb of Seoul [5][50] - The company is enhancing its product offerings, including gift cards and packaged products, to diversify revenue streams beyond restaurant sales [12][58] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing macro pressures but expressed confidence in the company's growth strategy and operational efficiencies [4][5] - The company is implementing automation and AI tools to improve labor efficiency and overall margins [36][83] - Management remains committed to their guidance of 17% to 18% on four-wall margins despite recent challenges [81][82] Other Important Information - As of June 30, 2025, the company had $9.6 million in cash and cash equivalents, with only $7 million in long-term bank debt [20][66] - The balance sheet reflects $166 million in lease liabilities, offset by $142 million in operating lease assets, indicating no material debt [21][67] Q&A Session Summary Question: Can you quantify the same store sales progression throughout the quarter and the improvement seen in July? - Management noted a significant decline in sales during April, May, and June, with a bounce back in July, aided by a 2.8% price increase at the beginning of the year [25][28][73] Question: How have the new units from Q1 been performing, and what is the status of the South Korea location? - The new openings from Q1 are performing at an average level, while the South Korea location is seeing slow but improving sales [29][30][76] Question: What is the tracking of premium menu adoption and its implications for COGS? - Management indicated a COGS differential of 0.5% to 1% with an expected sales increase of 5% to 7% as premium menu items are rolled out [31][32][77] Question: Any updates on guidance for revenue and four-wall margin? - Management confirmed that projections for 17% to 18% on four-wall margins remain unchanged despite the challenging quarter [35][81] Question: What operational efficiencies are being implemented to offset macro challenges? - The company is deploying automation and AI tools to enhance labor efficiency, expecting to see benefits in margins in the upcoming quarters [36][83] Question: Is the quality of general managers the biggest challenge to accelerating unit development? - Management stated that the challenge is multifaceted, including the need for quality managers, real estate, and capital [37][85]