GEN Restaurant Group, Inc. Q3 FY2025 earnings call

• The third quarter was a challenging environment for the restaurant business, but the company continued to implement its business plan, including opening new stores, delivering exceptional service, and building brand recognition.
• Opened 15 restaurants in the first 9 months of 2025, 8 in the third quarter, including 6 in South Korea, totaling 57 restaurants in operation. Scheduled to open 2 more stores by the end of 2025, exceeding the initial estimate of 12 - 13 stores for 2025.
• Launched ready-to-cook Korean branded meats for sale at Albertsons, Vons, and Pavilions grocery stores in California and Hawaii, with 4 product choices, and anticipates annual revenues from grocery stores could exceed $100 million over the next 4 to 5 years.
• In the third quarter, same-store sales dropped by 9.9%, but restaurant level adjusted EBITDA margin was 15% in the third quarter of 2025 and 15.6% year-to-date. AUV revenue is $5.2 million per restaurant in the casual dining space.
• Since IPO 2 years ago, added 24 new stores with total costs of approximately $2.5 million each, increasing store count by 73%.
• Gift cards sold exceptionally well at Costco and Sam's Club locations. Expanding reach beyond restaurants through initiatives like bulk sales of Korean BBQ meats, e-commerce growth, sales of Korean beef, turkey, sauces, and proprietary products.

In the third quarter of 2025, GEN Restaurant Group, Inc. had total revenue of $50.4 million, a 2.7% year-over-year increase. Cost of goods sold as a percentage of company restaurant sales increased to 34.8% in the third quarter of 2025 from 31.4% in the same period last year. Payroll and benefits as a percentage of company restaurant sales decreased to 28.5% in the third quarter of 2025 from 30.4% in the same period last year. Occupancy expenses as a percentage of company restaurant sales increased to 10.8% in the third quarter of 2025 from 8.4% in the same period last year. Other operating expenses as a percentage of company restaurant sales increased to 12.2% in the third quarter of 2025 from 11.6% in the same period last year. Restaurant level adjusted EBITDA for the third quarter of 2025 was $7.6 million or 15% of total revenue, compared to $9 million or 18.2% in the third quarter of 2024. The company opened 15 restaurants in the first 9 months of 2025, with 8 opened in the third quarter, totaling 57 restaurants in operation. It is scheduled to open an additional 2 stores by the end of 2025, aiming for full-year revenue of $220 million to $225 million and restaurant-level adjusted EBITDA margins in the 15% to 15.5% range. By the end of 2025, it anticipates an annual run rate of approximately $250 million in revenue when all new restaurants are open (excluding new initiatives).

• Anticipates opening 2 stores by the end of 2025 for a total of 17 new restaurants in 2025, including 6 international units in South Korea.
• Targets full-year revenue of $220 million to $225 million and restaurant-level adjusted EBITDA margins in the 15% to 15.5% range.
• By the end of 2025, anticipates an annual run rate of approximately $250 million in revenue when all new restaurants are open (excluding new initiatives).
• If the current economic climate does not turn around in the near term, will consider slowing growth plans for 2026 and focus on improving operations and margins at existing restaurants and growth through grocery store initiatives.

• Macro pressures continue to persist, which could impact restaurant customer traffic and sales.
• Uncertain economic conditions may lead to reduced consumer spending, affecting restaurant business.
• Grocery store sales may face challenges in negotiating shelf space, discounts, etc., which could impact margins.
• Poor execution of new menu rollout may impact business.
• Competitors' activities may intensify competition.

Q: I thought I might start by getting an understanding of the Korean units. And first, I wanted to clarify in terms of -- I think some of those locations are Kan Sushi and some are GEN Korean. I don't know if some of them are kind of joint locations and just want to understand what the economics look like, what do you anticipate the AUVs to be with those stores in year 1? And what's the cost to build those locations?

A: Okay. So we have right now 4 GENs and 2 Kans. The Kans are way outpacing the sales of GENs at this point. We anticipate the Kans to do around, I would say, $3 million to $4 million, maybe more in the $4 million. The GEN side still needs more time. So we're probably going to do about $2 million to $3 million to GENs. What was the second question, Jeremy? I apologize.

Q: Just the cost, yes, the cost to build.

A: Yes, the cost of build is coming out to be about less than $1 million a store. That's about $800,000. So substantially lower than the U.S.

Q: And then in terms of the softer trends on existing locations, can we assume that, that's kind of continued here in Q4? I mean, are you kind of expecting down 10 or something like that in Q4?

A: Correct. Yes. Right now, we're seeing softness. It started from the tariff days to the ICE crack down especially in areas where we have our customer are a lot Hispanic and they have been impacted for sure in the California region and we're starting to see some in the Texas or mostly California. And it's just an assumption that -- and of course, we're not just comparing to other sitdowns -- actually sit down restaurants that are doing well, but a lot of them are struggling with the comp sales we have not seen as of last week, a substantial improvement on the traffic.

Q: And then I wanted to switch gears just to ask about the grocery store initiative, 600 locations. That's kind of an impressive ramp. What is the current run rate on kind of annualized revenue of that portion of the business? I mean getting to $100 million in 4 to 5 years, it would be quite impressive. But wanted to get an understanding of the velocity there. And then also in terms of the cost to run that business, right, I don't know if you're having to pay slotting fees or kind of what is the start-up cost of that initiative?

A: Okay. We did a test with 31 locations by the name of Pavilions. Our data show that they are much less traffic than the other brands they own. Why? We were able to get the first orders and get bin spaces and et cetera, is the response that they've gotten in the 31 test locations was anywhere from 60% or more of the consumers that were buying the products already new GEN or GEN customers. So it really helped solidify our strength of our brands. The buying department have mandates in grocery stores now that they want to take more directions of merchandising Asian foods and Hispanic foods, and we happen to fall in that category. And because of the strong brand presence and the strong custom or acceptance of our brand, the 31 store data came in high in terms of new products going into their shelves without any discounting. And how we were able to go into the 570 stores is the other brands that they own, which is a higher traffic brand like Albertsons and Safeway is where we think that the sales of those stores will be much higher than the Pavilions brand. The Velocity, we just got into the Pavilions for less than 1.5 month, and the 570 stores will go into the month of November. They normally don't slot products during these times because they're focused on the holiday season but for some reason they saw such a popularity of our brand, they made concessions and did a last minute -- last-minute adjustments, but most retailers don't do that. They're locked in until I think February, and that's when they do their schematics again. So we don't have the Velocity, but what they're telling us on the 31 locations is as a brand new brand, they're very happy with how we are selling down our products. The cost to manage this, it's substantially less than the cost of running the restaurant division. There is going to -- the margin erosions will happen once they start approaching us, which they have had discussions with us on shelf space and discounts and, et cetera. They did say that in the history of their corporation, it was the first time they allowed a brand to come in without committing to a slotting fee on Southern California. Northern California and Hawaii, we have negotiated a very small slotting fees, but that's just being worked out, but the products are all made and already in their warehouses. There is another 300 stores in the Midwest from Texas on with the same company. I think that is going to -- it's between 300 to 400, they'll probably put us in there but they're telling us certain areas in the Midwest margins are not that better than the West Coast. We are now -- we have appointments to discuss with the big boxes in about 2 weeks because we have had very high successes with our gift card program and they want to now see what kind of products that they can enhance with the gift card and cross work so that customers who buy our gift cards can be introduced to our other branded meat products, et cetera.