Benihana Inc. (BNHN) reported earnings of 12 cents per share in third quarter 2011, which surpassed the Zacks Consensus Estimate of 3 cents. The company also reported a profit, compared to a loss of 72 cents in the year-ago quarter. The better-than-expected results were due to the fourth consecutive quarters of comparable sales growth and cost saving initiatives.

However, the U.S. chain of Japanese restaurants posted a 3.6% year-over-year rise in total revenue to $72.9 million and also outperformed the Zacks Consensus Estimate of $71.0 million. The total revenue benefited from the Benihana Teppanyaki Renewal Program, which the company initiated in 2009 to improve the dining experience of the guests at the Benihana Teppanyaki restaurants.

The comparable restaurant sales of the company jumped 4.4%, resulting from a 7.3% same store-sales increase at Benihana Teppanyaki restaurants, given the rise in traffic. However, due to the challenging economic environment, same store-sales declined 1.5% at RA Sushi restaurant and dipped by 1.1% at Haru.

The Miami-based Japanese restaurant company drives 99.4% of its revenues from restaurant sales and 0.6% from franchisee fees and royalty. Restaurant sales increased 3.6% to $72.5 million in the reported quarter and franchisee fees and royalty sales fell 1.0% to $403 million. 

Cost of food and beverage sales were flat year over year to 24.1%, and general and administrative expense was up 320 bps to 10.0%. However, restaurant operating expenses fell 270 bps to 64.1%, due to improved cost and labor management.

Operating income during the quarter was $1.3 million versus loss of $10.7 million in the year ago quarter.

Financial Position

As of January 2, 2011, Benihana raised its cash and cash equivalents to $3.4 million from $2.6 million as of March 28, 2010. During the quarter, the company also reduced its borrowings to $12.9 million. At the end of the third quarter, total current assets were $17.6 million and stockholders’ equity was $144.5 million.

Our Take

The company reported strong quarterly results driven by sales growth and cost management. This was quite encouraging and hence we expect estimates to go up in the coming days. Moreover to drive traffic Benihana is focusing on value-based promotions, media advertising and local marketing initiatives at RA Sushi and Haru.

One of Benihana’s primary competitors, Brinker International Inc. (EAT) reported second quarter 2011 adjusted EPS of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents. The upside in earnings was driven by continued margin expansion at Chili’s and top-line growth at Maggiano’s.

We have a Zacks #3 Rank (short-term Hold recommendation) on the stock. We also reiterate our long-term Neutral rating.

 
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