GEN Restaurant Group, Inc. Q1 FY2025 earnings call

• Revenue Growth: In Q1 2025, despite economic pressures, total revenues saw a 13% year-over-year increase to $57.3 million, driven by a growing restaurant footprint and successful existing locations.
• Restaurant Openings: Opened 6 restaurants in Q1, bringing the total to 49, and remains on track to open 12 - 13 new stores by the end of 2025. There are 6 restaurants under construction.
• Same-Store Sales: Same-store sales were down 0.7% in Q1 compared to a 5.6% decline in all of 2024, showing improvement. Restaurant level adjusted EBITDA margin was around 15.6% in Q1 due to higher costs from new restaurant openings.
• Business Model and ROI: 2024 new stores have a 2.1 year payback and over 40% ROI. The company has added 16 new stores since going public in June 2023 without taking on debt or equity, proving the value of the high free cash flow model.
• Initiatives: Implemented a 2.8% price increase in late 2024 that didn't impact customers; enhanced training programs; testing e-gift cards at Costco and signing to sell at Sam's Clubs; launched a dual-concept store in Texas (Kan Sushi) with an efficient back-of-house setup; reached an agreement with Sysco to sell proprietary GEN Korean barbecue meat products; and plans for international expansion into South Korea with 3 new stores planned in 2025, with the first opening end of Q2.

In the first quarter of 2025, total revenues reached $57.3 million, marking a 13% year-over-year increase. Regarding cost breakdown: Cost of goods sold as a percentage of Company restaurant sales was 33.6% in Q1 2025, a 20 basis points increase from the prior year but a 50 basis points decrease from the fourth quarter of 2024. Payroll and benefits as a percentage of Company restaurant sales decreased by 10 basis points to 31.7%. Occupancy expenses as a percentage rose by 40 basis points to 8.9%. Other operating expenses as a percentage increased 30 basis points to 10.3%. G&A excluding stock-based compensation was $5.6 million, or 9.8% of revenue. Adjusted net income was $1.4 million, with an EPS of $0.04 per share. Total adjusted EBITDA for the first quarter was $1.2 million.

• Openings: Anticipate opening 12 - 13 new restaurants in 2025, including 3 in South Korea.
• Revenue: Target full-year revenues of $245 million to $250 million.
• EBITDA Margin: Aim for restaurant level adjusted EBITDA margins between 17% and 18%.
• Revenue Run Rate: Anticipate an annual run rate approaching $300 million in revenue by the end of 2025 when all new restaurants are opened.

• Tariff Impact: There could be a material impact on equipment costs and construction materials sourced from China due to tariffs. If tariffs significantly affect new restaurant development costs, the company may slow or pause new unit expansion until conditions stabilize.

Q: Talk about the same-store sales progression across Q1 and quarter-to-date commentary on Q2.

A: January and February were strong months, but March dipped, and the trend continued negative in April and the beginning of May, which is macro-based due to the economic situation and customer sentiment.

Q: Provide a framework for the incubator initiatives and how the $300 million revenue run rate exiting 2025 relates to the core GEN franchise.

A: Incubators are new projects to enhance the brand, but all the growth contributing to the $300 million revenue run rate comes purely from new store restaurants and existing restaurants.

Q: Operationally, talk about Kan Sushi and the dual-branded restaurant.

A: Kan Sushi has no grills as it's an all-you-can-eat sushi concept. There are differences between the Kan and GEN concepts. The model is performing better than expected, and they are optimistic about it. They created the dual-concept to capture customers who might otherwise go to competitors, and they plan to test more such dual-concepts.

Q: Break out the same-store sales comp trends in terms of average check versus traffic and how it's progressed into Q2 so far.

A: Overall, there was a 2.5%+ increase due to price. There was about a 10 - 11% reduction in the overall customer base but a 7% improvement from the premium menu, ending up less than 1% off. The progression into Q2 was discussed.

Q: Discuss the unit growth cadence for the remainder of the year and notes on the South Korea market.

A: The unit growth cadence continues ongoing. In the South Korea market, although it's competitive, labor and construction costs are lower. The market is estimated to be 100 - 200 stores, and it's worth taking the risk despite uncertainties as losses would be small if things don't go as planned.

Q: Talk about the gift cards, including redemption rate and lift in average check from gift users.

A: Redemption rate has stabilized around 60 - 65% (industry average is 70 - 75%). There's no raw data on incremental sales from gift users, but managers report that gift card users spend more on premium menus and drinks