The ONE Group's Q3 2025: Contradictions Highlight Franchising, Holiday Bookings, Loyalty, and Pricing Strategies

Date of Call: November 6, 2025

Financials Results

• Revenue: $180.2M total consolidated GAAP revenues, down 7.1% YOY (from $194.0M)
• EPS: $2.75 net loss per share, compared to $0.53 net loss per share in Q3 2024 (net loss available to common shareholders $85.3M vs $16.4M)
• Gross Margin: Implied company-owned gross margin 78.9%, compared to 79.1% in prior year (company-owned cost of sales 21.1% vs 20.9% prior year)
• Operating Margin: Restaurant operating profit 11.3% of company-owned net revenue vs 12.8% in Q3 2024; consolidated operating loss $7.9M vs $3.6M loss prior year

Guidance:

• Total GAAP revenues for FY2025 projected at $820M–$825M (consolidated comparable sales -3% to -2%).
• Managed/franchise/license fee revenues $14M–$15M; company-owned operating expenses ~83.5% of company-owned net revenue.
• Adjusted EBITDA $95M–$100M; G&A ex-stock comp ~ $46M; preopening expenses $5M–$6M.
• Effective income tax rate 1%–4% excluding valuation allowance; total capex (net) $45M–$50M; plan to open 5–7 new venues.

Business Commentary:

* Traffic Improvement and Pricing Strategy: - The ONE Group Hospitality reported its best traffic quarter of the year in Q3, with a 6.9% decrease, which was improved from 7.5% in Q2 and 7.8% in Q1. - The improvement in traffic was partially due to a strategic pause in pricing actions in the middle of August, followed by effective pricing actions in November. - The change in pricing strategy helped offset regional macroeconomic pressures, particularly in California, which experienced a negative seven-point sequential sales decline.

• Loyalty Program Growth:
• The company's Friends with Benefits loyalty program reached over 6.5 million members, with 200,000 new sign-ups in the quarter.
• The growth in membership is attributed to the conversion of members from other marketing programs and increased organic sign-ups.

• Early returns show promise in increasing frequency of use and engagement, particularly at Kona Grill locations.

• Financial Performance and Cost Management:

• Total consolidated GAAP revenues were $180.2 million, decreasing 7.1% year-over-year, with company-owned restaurant net revenue decreasing 6.9%.
• Management implemented cost management initiatives, including strategic adjustments to protein sourcing and a temporary hiring freeze.

• These actions aimed to offset inflation in commodity costs and fixed cost deleveraging, partially supported by increased marketing investments.

• Benihana Franchising and Conversion Strategy:

• The ONE Group announced significant progress in Benihana franchising, including potential deals for Benihana Express and STK license sites.
• The company is converting older restaurants to Benihana and STK formats, with plans to open additional venues and expand into non-traditional venues like professional sports stadiums.
• These conversions are expected to generate significant returns, averaging over $1 million in annual EBITDA, with a focus on high-quality real estate and optimized traffic flow.

Sentiment Analysis:

Overall Tone: Neutral

• Management repeatedly expressed optimism about execution and Q4 ("I'm optimistic about our fourth quarter"), emphasized strategic initiatives and franchise growth, but reported a large GAAP net loss driven by a $3.4M impairment and a full valuation allowance (net loss attributable $76.7M; net loss to common $85.3M).

Q&A:

• Question from Joseph Gomes (NOBLE Capital Markets, Inc., Research Division): You discussed Benihana having two quarters of same-store sales growth and STK three quarters of positive traffic previously — can you update us?
  Response: Q3 was the best traffic quarter of the year (traffic down 6.9% vs down 7.5% in Q2 and down 7.8% in Q1); pricing in Q3 was +4% after pausing, pricing reinstated in November and management expects improved Q4 sales.

• Question from Joseph Gomes (NOBLE Capital Markets, Inc., Research Division): What is driving the traffic improvement in Q4 so far?
  Response: Sequential traffic improvement driven by marketing, easing geographic pressures (notably California), and operational steps like reducing Benihana table turns to increase capacity.

• Question from Joseph Gomes (NOBLE Capital Markets, Inc., Research Division): Can you give color on Benihana franchising efforts and pipeline?
  Response: Franchise pipeline strengthened—near-complete Benihana Express deals in California and potential Bay Area franchise, plus advancing STK license leads.

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): You previously called out Vegas softness — did you see that and any Q4 improvement?
  Response: STK in Las Vegas is improving (helped by a stronger convention schedule); other concepts in the market show mixed results.

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): Can you share differences in behavior between loyalty members and non-members (ticket, frequency)?
  Response: Friends with Benefits has ~6.5M members (200k added this quarter); early data—especially from Kona Grill—shows increased visit frequency among members, but rollout is still early.

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): Any early read on customer reaction to recent price increases?
  Response: Price increases began late October and early monitoring shows no material customer pushback per listening tools.

• Question from Mark Smith (Lake Street Capital Markets, LLC, Research Division): Benihana comps fell more—can you talk traffic and ticket drivers for Benihana?
  Response: Benihana weakness primarily due to not replacing roughly five points of prior pricing and outsized California softness where higher-volume Benihana units are concentrated.

• Question from Mark Smith (Lake Street Capital Markets, LLC, Research Division): Was the impairment charge all on Grill concepts or other brands?
  Response: Majority of impairment related to Kona Grill; a small amount related to STK downtown NYC due to lease exit.

• Question from Mark Smith (Lake Street Capital Markets, LLC, Research Division): Please walk through conversion economics, timing, and lease implications (cost ~$1M mentioned)—how many conversions and lease treatment?
  Response: Conversions cost ~ $1M, take ~6–8 weeks, reuse existing infrastructure and often secure lease extensions; up to 9 potential conversions targeted and STK conversions aim for ~$8M AUV with ~20% restaurant-level margin.

• Question from Mark Smith (Lake Street Capital Markets, LLC, Research Division): Difference in cost/returns converting to Benihana vs STK?
  Response: Benihana conversions have slightly higher mechanical/engineering costs (exhaust/electrical for tables) but still roughly ~$1M; format choice driven by real estate suitability (malls favor Benihana).

• Question from James Sanderson (Northcoast Research Partners, LLC): You exited Q3 with ~4% pricing and took action in November—what impact should we expect on Q4 same-store sales from menu price?
  Response: Weighted pricing impact expected to be ~4.5%–5.5% (Benihana slightly >5 pts; STK and others ~2–3 pts).

• Question from James Sanderson (Northcoast Research Partners, LLC): That pricing will last ~36 weeks — correct?
  Response: Yes—management expects the pricing layer to persist for about 36 weeks.

• Question from James Sanderson (Northcoast Research Partners, LLC): How are holiday/event bookings comparing to last year?
  Response: Bookings into December show significant progress versus recent years, aided by a stronger convention schedule and an experienced sales team.

• Question from James Sanderson (Northcoast Research Partners, LLC): What share of Q4 is group/event business?
  Response: About 15% of fourth-quarter business is from group/events.

• Question from James Sanderson (Northcoast Research Partners, LLC): Timing and quantification for Benihana redesign rollout and capacity/AUV benefit?
  Response: Redesigns will be funded through regular CapEx (typical 1.5%–2.5% of sales), prioritizing HVAC/smoke reduction and adding tables to raise capacity and reduce turns; rollout will be implemented over time within existing CapEx plans.

• Question from James Sanderson (Northcoast Research Partners, LLC): How should we think about lower CapEx in 2026 versus this year?
  Response: 2026 CapEx will focus on ~$1M conversions and new units built for ≤$1.5M; management has paused new lease signings to work through an existing pipeline of ~12 leases.

• Question from James Sanderson (Northcoast Research Partners, LLC): Describe Benihana Express economics (AUVs, margins, build cost) versus larger Benihana.
  Response: Benihana Express is a ~1,000 sq ft model targeting ~$1.0–1.5M AUV, estimated build cost ~$500–600k, and projected store-level margins ~15%–20% after royalties—positioned as a high-ROI franchise option.

Contradiction Point 1

Benihana Franchising Efforts

It involves the progress and strategies regarding Benihana's franchising efforts, which are crucial for expanding the company's reach and revenue.

Can you provide details on Benihana franchising efforts? - Joseph Gomes(NOBLE Capital Markets)

2025Q3: We opened one Benihana Express location in Florida and have deals almost done for California. Discussions ongoing for potential license deals. - Emanuel Hilario(CEO)

Can you provide more details on Benihana's franchising efforts? - Joseph Anthony Gomes(NOBLE Capital)

2025Q2: Interest from existing franchisees and the Benihana Express model is growing. Agreements for new development are expected in the coming months. - Emanuel P. N. Hilario(CEO)

Contradiction Point 2

Holiday Booking Outlook

It pertains to the company's expectations for holiday bookings, which can impact revenue and overall performance during the crucial holiday season.

Can you discuss the holiday bookings outlook compared to last year? - James Sanderson(Northcoast Research)

2025Q3: November to December showed significant progress in bookings, reflecting an experienced sales team and favorable scheduling. - Emanuel Hilario(CEO)

What gives you confidence to maintain your annual guidance? - Anthony Chester Lebiedzinski(Sidoti & Company)

2025Q2: We still have a multi-year runway in front of us to continue to drive same-store sales beyond the 3% to 4% growth rate that we've seen historically. - Emanuel P. N. Hilario(CEO)

Contradiction Point 3

Loyalty Program Impact

It involves the expected impact of the loyalty program on customer behavior and revenue, which is a strategic initiative for driving growth and engagement.

How is the loyalty program affecting average ticket and frequency? - Anthony Lebiedzinski(Sidoti & Company)

2025Q3: The program with 6.5 million members shows early promise with increased loyalty and engagement. - Emanuel Hilario(CEO)

What are your expectations for the loyalty program? - James Jon Sanderson(Northcoast Research)

2025Q2: The loyalty program is expected to drive repeat visits and engagement. Launch and scale-up efforts are ongoing, with expected payoff in the fourth quarter and beyond. - Emanuel P. N. Hilario(CEO)

Contradiction Point 4

Benihana's Traffic and Pricing Strategy

It highlights the inconsistency in the explanation of Benihana's traffic performance and pricing strategy, which directly impacts revenue and operational strategies.

Can you provide an update on Benihana's same-store sales growth and STK's positive traffic trends? - Joseph Gomes (Noble Capital Markets, Inc., Research Division)

2025Q3: For the third quarter, the best traffic quarter for the company, despite a 6.9% decline, was better than Q1's 7.8% and Q2's 7.5%. Effective pricing was reduced to 4% mid-quarter. California's traffic was negatively impacted by macroeconomic pressures, causing a pause in pricing. - Emanuel Hilario(CEO)

Are higher-end consumers performing better than real-estate related ones? What initiatives are underway in non-core real-estate units? - Mark Smith (Lake Street Capital Markets)

2025Q1: Consumption trends are more about strategic offerings like happy hours and sharing dishes at STK. Marketing efforts have increased for casual brands, focusing on local grassroots efforts and launching a loyalty program. - Emanuel Hilario(CEO)

Contradiction Point 5

Menu Pricing Strategy and Impact on Traffic

It involves the company's approach to menu pricing and its expected impact on traffic, which are critical aspects of revenue management and customer engagement.

Can you provide an update on Benihana's same-store sales growth and STK's traffic trends in recent quarters? - Joseph Gomes (NOBLE Capital Markets, Inc., Research Division)

2025Q3: For the third quarter, the best traffic quarter for the company, despite a 6.9% decline, was better than Q1's 7.8% and Q2's 7.5%. Effective pricing was reduced to 4% mid-quarter. - Emanuel Hilario(CEO)

Are significant changes in consumer behavior at STK's high-end steak concept prompting a more aggressive pricing strategy than originally expected? - Nick Setyan (Wedbush Securities Inc.)

2024Q4: For STK and our other brands, we expect ticket growth of 1.5% to 2.5%. - Tyler Loy(CFO)