The ONE Group Hospitality, Inc. Q2 FY2026 earnings call

Core Quarterly Operational Results

• Operating cash flow for the first 6 months of 2026 reached $32 million, up from $11 million in the same period 2025; net capital expenditures were reduced 38% YoY, and the company used improved cash flow to pay down $6 million in debt.
• Cost of sales for company-owned restaurants improved 170 basis points to 19.5% YoY, marking 6 consecutive years of cost of sales improvement, driven by sourcing changes, integration synergies from the Benihana acquisition, supply chain initiatives, and menu optimization.
• All segments delivered positive transaction growth, demonstrating market share expansion amid a mixed consumer backdrop.

Strategic Priority 1: Accelerate Comparable Sales via Disciplined Execution

• The barbell brand strategy (value offerings on weekdays, premium offerings for weekends/celebrations) continues to perform well: $3/$6/$9 happy hour drives consistent off-peak traffic, while premium steak/seafood performs strongly for celebratory occasions.
• The Friends With Benefits loyalty program is growing rapidly, with organic member additions, higher per-visit spending from members, and targeted personalized outreach driving traffic during peak seasonal events.
• Quarterly seasonal menu innovation (including new premium cuts, wellness-focused options aligned with GLP diet trends, and innovative cocktails) keeps offerings fresh and drives social media engagement.
• Off-premise (takeout/delivery/curbside) operations are expanded for the summer travel season, delivering strong margins and capturing incremental dining occasions.

Strategic Priority 2: Capital-Efficient Growth

• The company opened 2 new company-owned restaurants and completed 1 conversion in Q2/Q3 2026, with all new openings costing $1 million or less after tenant improvement allowances.
• Full-year 2026 plans call for 6-10 new openings, all prioritizing locations requiring $1.5 million or less in net capital, with the majority being asset-light franchise/license locations requiring little to no upfront capital from The 1 Group.
• New strategic partnerships are advancing: a license agreement to bring RA to Niagara Falls, Canada is signed, with opening expected by year-end; two STK airport license locations are contracted.
• Benihana Express, a new small-format (800-1,000 sq ft) to-go concept, has highly attractive economics: ~20-25% COGS, ~25% labor, over 50% prime margin, annual revenues over $1 million, and ~$500 per square foot development cost. Two new Benihana Express locations are under development, expected to open by year-end.

Strategic Priority 3: Portfolio Optimization

• The company continues converting underperforming RA/Kona Grill locations to higher-margin STK and Benihana locations; 6 locations have been closed for conversion to date, 2 have reopened, and all conversions are expected to be EBITDA-accretive. The portfolio now holds a healthy, profitable base of grill locations, with only 1-2 lease expirations for RA locations annually going forward.

Strategic Priority 4: Conserve Cash and Optimize the Balance Sheet

• The quarter ended with $17.1 million in cash and $28.7 million in availability under the revolving credit facility; the long-term loan facility currently has no financial covenants. The company continues to evaluate refinancing the credit facility on more favorable terms as leverage improves.

Total consolidated GAAP revenue for Q2 2026 was $201 million, a 3.3% decrease year-over-year (YoY). Company-owned restaurant net revenue was $197 million, down 3.2% YoY, while management/license/franchise fee revenue was $3.2 million, down slightly from $3.5 million YoY. Consolidated restaurant-level operating profit margin increased 110 basis points to 16.4% YoY.

• STK segment: Operating margin expanded 130 basis points to 17.4%, with 3.2% comparable sales growth.
• Benihana segment: Operating margin expanded 90 basis points to 18.9% (the highest margin segment), with 0.8% comparable sales growth.
• Grills (RA/Kona Grill) segment: After portfolio optimization, the remaining base is profitable; all segments posted positive transaction growth in Q2.

• Third Quarter 2026 Guidance:
  • Total GAAP revenue: $176 million to $180 million, with consolidated comparable sales expected 0% to 2%;
  • Company-owned operating expenses as a percentage of company-owned net revenue: 85% to 87%;
  • Adjusted EBITDA: $12 million to $15 million;
  • Preopening expenses: $1 million to $2 million.
• Full Fiscal Year 2026 Updated Guidance:
  • Total GAAP revenue: $785 million to $820 million, down from prior guidance, driven by the shift to an asset-light development strategy, with consolidated comparable sales expected 1% to 2%;
  • Adjusted EBITDA: $95 million to $105 million;
  • Net capital expenditures: $30 million, down from $40 million prior guidance;
  • General and administrative expenses (excluding stock-based compensation): ~$50 million, maintained from prior guidance;
  • Preopening expenses: $6.5 million to $7.5 million;
  • Full year 2026 new venue openings: maintained at 6 to 10 total openings.

• Uncertain consumer demand and macroeconomic conditions could impact traffic and same-store sales growth, and the company notes consumers remain cautious about discretionary spending.
• New restaurant opening timelines are subject to factors outside the company's control, including regulatory inspection delays (evidenced by the delayed STK Downtown New York relocation), contractor and landlord delays, and weather events.
• Extreme heat in key markets negatively impacted Benihana traffic in Q2 2026, and unexpected weather events can continue to impact near-term performance.
• The World Cup pulled traffic away from the company's restaurants during peak evening/weekend dayparts in Q2, though this impact was temporary.
• Rising fuel and inflation have increased general and administrative costs including travel and salaries.

Q: What was the Q2 top-line impact of the delayed STK Downtown New York relocation, and why was it delayed? / A: The relocation was scheduled to open at the start of Q2 but was delayed to July due to lengthy regulatory inspection delays in New York City during a local championship event. The restaurant was fully built in April, but the company lost $150 thousand to $200 thousand per week in expected revenue while waiting for approvals, while most fixed staffing costs were already incurred. The delayed opening was a key driver of lower-than-expected Q2 EBITDA, accounting for ~40% of the miss vs prior guidance.

Q: What is the current state of franchisee interest in Benihana Express, and when can we expect larger multi-unit agreements? / A: The company acquired the existing prototype location from a former franchisee at the start of Q2, and has only spent 3-3.5 months developing branding, design, and a prototype. The prototype already demonstrates strong proven economics: ~$1.2 million annual revenue, 50%+ prime margins, which are attractive to franchisees. There has already been early interest from potential franchisees, with all design and operational elements now finalized, so the company expects new multi-unit agreements to be announced as the sales process progresses.

Q: What drove the $35 million reduction in full-year revenue guidance, and what is the strategic reasoning behind the change? / A: The primary driver is the company's deliberate shift to a more asset-light development strategy. Most of the 2026 opening pipeline is now composed of franchise and license locations rather than company-owned locations, and some conversion projects have been deferred with a preference to franchise them instead. This shift reduced capital expenditure guidance from $40 million to $30 million, prioritizing free cash flow generation and debt reduction over top-line revenue growth, with the company earning royalty revenue from franchise locations without significant upfront capital outlay.

Q: What is the size of the potential U.S. market for Benihana Express, and what royalty rate will the brand charge? / A: The company has not released a formal total market size estimate, but notes there is a large supply of available 800-1,000 square foot retail locations across the U.S. The concept brings premium Benihana menu items to a convenient to-go format with low labor requirements, making it accessible to a large pool of potential franchisees. The royalty rate will match the standard 6% to 7% plus marketing contribution that the company charges for its other Benihana franchise locations.