Executive Summary / Key Takeaways

• The ONE Group Hospitality is strategically transforming its business through the pivotal Benihana acquisition, leveraging a "Vibe Dining" concept to differentiate itself in the competitive restaurant industry.
• Operational and digital technologies, including an advanced loyalty program and enhanced reservation systems, are central to improving customer experience, driving efficiency, and expanding capacity, particularly at Benihana.
• Despite a challenging consumer environment, the company is actively optimizing its portfolio by converting underperforming Grill Concepts locations into higher-return STK or Benihana formats and accelerating asset-light franchising.
• Recent financial performance reflects the impact of macroeconomic headwinds and non-cash charges, yet management's outlook for 2025 anticipates sequential comparable sales improvement driven by internal execution and strategic initiatives.
• The long-term vision targets significant system-wide sales growth, underpinned by disciplined capital allocation and a balanced approach to company-owned and franchised expansion for its core brands.

The Vibe Dining Vision: Setting the Scene in a Dynamic Industry

The ONE Group Hospitality, Inc. (STKS) has carved a distinct niche in the global restaurant industry with its "Vibe Dining" philosophy, aiming to meld high-quality service, ambiance, high-energy, and cuisine into one unforgettable experience. This approach underpins its primary brands: STK, a modern American steakhouse; Benihana, an interactive Japanese dining destination; and Grill Concepts, which includes Kona Grill and RA Sushi. Founded in 2004, the company's journey has been marked by a strategic focus on upscale and polished casual segments, culminating in a transformative acquisition that reshaped its scale and market position.

The restaurant industry currently faces a challenging consumer environment, characterized by shifts towards value-driven offerings, alternative dining occasions, and intense promotional activity from larger casual dining chains. STKS operates within this dynamic landscape, where traffic generation across the industry remains a significant hurdle. Against this backdrop, the company's overarching strategy is to drive market share through differentiated experiences, operational excellence, and disciplined growth, rather than relying on broader macroeconomic recovery.

Operational Excellence and Technological Edge

STKS's competitive differentiation is significantly bolstered by its strategic application of operational and digital technologies, which enhance both the customer experience and internal efficiencies. The company's "Friends with Benefits" loyalty program, soft-launched in Q2 2025, has already amassed over 6.5 million members, with newly enrolled guests showing strong repeat participation. This program is designed to maximize membership, drive organic sign-ups, and increase engagement, fostering long-term brand connection and repeat visits. The "so what" for investors is clear: a robust loyalty program can translate into more predictable revenue streams and higher customer lifetime value, creating a valuable competitive moat against rivals.

Furthermore, STKS has invested in upgrading its brand websites for Benihana, STK, Kona Grill, and RA Sushi, featuring fresh, mobile-optimized designs that are increasing both traffic and conversion rates. These digital enhancements, combined with the loyalty platform, position the company to compete effectively as national chains ramp up promotional activity. Operationally, STKS leverages enhanced reservation technology and centralized logistics to improve table turn times and overall efficiency. A key initiative for Benihana in Q4 2025 is to reduce table turn times from 120 minutes to a target of 90 minutes, which is expected to significantly expand capacity and serve more guests during peak dinner periods. This focus on throughput directly impacts revenue potential and operational leverage.

The redesign of the San Mateo Benihana, which became the brand's top-performing opening in its 60-year history, exemplifies this technological and operational innovation. It included relocating the sushi station to the back of the house to create more Techniaki table capacity, expanding the bar seating area, and creating a dedicated takeout station to improve overall restaurant flow. These learnings are being implemented system-wide, with plans to add 2 to 3 Techniaki tables per restaurant. From an investor's perspective, these operational and digital advancements contribute to a more efficient, scalable, and resilient business model, allowing STKS to optimize its existing footprint and enhance profitability. The company's strengthened supply chain management, a result of the Benihana acquisition, further enhances its competitive position by allowing for better negotiation with suppliers and resilience against commodity fluctuations.

A Portfolio Transformed: The Benihana Acquisition

A pivotal moment in STKS's history was the May 1, 2024, acquisition of Safflower Holdings Corp., encompassing most Benihana and all RA Sushi restaurants in the U.S. This $365 million Benihana Acquisition significantly expanded The ONE Group's footprint to 157 venues as of September 28, 2025, and was strategically aimed at capturing market share in the "Vibe Dining" segment. The acquisition was a transformative event, enabling the company to achieve a scale that would have taken years to build organically.

The integration efforts are progressing ahead of schedule, with STKS targeting $20 million in annual cost synergies by year-end 2026. These savings stem from streamlined operations, consolidated professional services and insurance, centralized purchasing, and optimized supply chain management. For investors, these synergies are crucial for margin expansion and demonstrate the company's ability to extract value from strategic acquisitions. Benihana now represents over 55% of the company's total revenue, making its performance a significant driver for STKS's overall financial health. The success of the newly redesigned Benihana in San Mateo, California, which is expected to achieve $8 million in annual sales with mid-20% restaurant-level profit margins, validates the effectiveness of the new format and provides a strong blueprint for future growth.

Differentiated Brands, Targeted Strategies

STKS employs distinct strategies for its core brands, adapting to market conditions and leveraging unique strengths.

STK: Premium Experience, Traffic Focus

STK, the company's flagship steakhouse brand, continues to deliver industry-leading unit economics, with new locations averaging over $11 million in annual revenues and 20%+ restaurant-level margins. STK achieved positive traffic for three consecutive quarters as of Q2 2025, a notable achievement in a challenging industry. The strategy for STK focuses on driving traffic through value-focused programming, such as Happy Hour and pre-fixe menus, while simultaneously offering premium items like Wagyu to cater to discerning guests. This barbell approach aims to maintain guest frequency and brand engagement. The company views STK as a priority for development, with a clear path to 200 restaurants globally, given its exceptional cash-on-cash returns.

Benihana: Interactive Dining, Capacity Expansion

Benihana's performance is critical, contributing over half of STKS's total revenue. The brand has seen significant operational improvements, including the targeted reduction of table turn times to 90 minutes in Q4 2025. This efficiency gain is expected to substantially increase capacity and revenue potential during peak periods. Franchise momentum for Benihana is accelerating, with the Benihana Express format generating strong interest. This asset-light expansion model offers the full menu without Techniaki tables, enabling a lower build-out cost of approximately $500,000 to $600,000 and projected store-level margins of 15% to 20% after royalties. The company anticipates franchise, licensed, and managed locations to represent over 60% of its total footprint over time, driving scalable growth with reduced capital intensity. Benihana is also expanding into non-traditional venues, including professional sports stadiums, generating significant fan impressions.

Grill Concepts: Strategic Optimization

The Grill Concepts segment, comprising Kona Grill and RA Sushi, has faced significant headwinds. Challenges include a connection to the struggling movie business, high seafood consumption (a category less frequent in uncertain economic times), the proliferation of low-cost sushi competitors, and a slight decline in alcohol consumption. In response, STKS has initiated a strategic portfolio optimization. The company closed seven underperforming Grill locations in Q2 and Q3 2025, primarily older units in challenging trade areas that would have required substantial capital investment.

Looking ahead, STKS has identified up to nine additional Grill locations for conversion to either Benihana or STK formats through the end of 2026. These conversions require approximately $1 million in capital investment per unit, with an average STK conversion expected to generate over $1 million in annual EBITDA. The first such conversion, an RA Sushi to STK in Scottsdale, Arizona, opened in October 2025. This disciplined approach aims to operate only profitable Grill locations, expected to generate approximately $10 million in restaurant-level EBITDA and over $100 million in revenue, all maintaining positive cash flow. Kona Grill is also strategically expanding its menu to reduce reliance on categories facing current market pressures, introducing broader culinary options.

Competitive Arena and Strategic Positioning

STKS operates in a highly competitive restaurant industry, positioning itself as a specialized player in experiential dining rather than a dominant market leader. Its "Vibe Dining" concept, strong brand portfolio (STK, Benihana), global operational network, and expertise in hospitality advisory services are key competitive advantages. These strengths foster a sense of exclusivity, potentially leading to recurring revenue and superior margins through premium pricing, particularly in urban and entertainment-driven markets. STKS's niche innovation speed, especially in operational technology and digital engagement, allows it to adapt quickly to evolving consumer preferences.

However, STKS faces formidable competition from larger, more diversified players like Darden Restaurants (DRI), Brinker International (EAT), Bloomin' Brands (BLMN), and Cheesecake Factory (CAKE). These competitors benefit from greater scale, broader market presence, and often more established supply chain networks, which can translate into superior financial health, more efficient cost management, and robust cash flow generation. For instance, Darden's broader accessibility and family-oriented dining offer greater resilience, while Brinker's focus on affordability and operational simplicity can lead to stronger efficiency. Bloomin' Brands leverages its established footprint and focused operational model for scale, and Cheesecake Factory benefits from wide appeal and volume-based strategies.

STKS's smaller scale can lead to higher operational costs per venue and a dependence on specific markets, making it more vulnerable in price-competitive segments. While STKS's digital and operational technologies (e.g., loyalty program, reservation systems, table turn optimization) help it compete against broad discounting and high-budget TV advertising from larger casual dining chains, it must continuously innovate to maintain its edge. The company's strategy of targeted grassroots marketing and digital engagement is a direct response to the significant advertising spend of its larger rivals.

Financial Performance and Liquidity

The ONE Group Hospitality's recent financial performance reflects a mixed landscape, influenced by both strategic expansion and macroeconomic headwinds. For the three periods ended September 28, 2025, total revenues decreased by 7.1% to $180.20 million, primarily due to a 5.9% decline in consolidated comparable sales, attributed to the challenging economic and macro environment. This led to an operating loss of $7.90 million, an increase from a $3.60 million loss in the prior year, largely due to non-cash impairment on long-lived assets, decreased same-store sales, fixed cost deleveraging, and increased inflation. Restaurant Operating Profit also decreased by 17.9% to $20.10 million.

However, for the nine periods ended September 28, 2025, total revenues increased significantly by 32.6% to $598.80 million, primarily driven by the full impact of the Benihana Acquisition on May 1, 2024. Operating income for this nine-month period improved to $3.50 million, compared to an operating loss of $3.20 million in the prior year, largely due to the acquired restaurants' contributions, partially offset by impairment charges.

Profitability metrics show the impact of current conditions. Owned restaurant cost of sales as a percentage of owned restaurant net revenue slightly increased to 21.1% in Q3 2025 due to commodities inflation. Owned restaurant operating expenses as a percentage of owned restaurant net revenue rose by 140 basis points to 67.6% in Q3 2025, reflecting investments in marketing, general cost inflation, and fixed cost deleveraging. General and administrative costs also increased, partly due to higher information technology expenses.

A significant non-cash event impacted the net loss. For the three and nine periods ended September 28, 2025, the company recorded a substantial income tax provision of $59.10 million and $60.10 million, respectively. This was primarily due to the establishment of a full non-cash valuation allowance against its deferred tax assets, driven by a cumulative loss incurred over the preceding three-year period. Consequently, the net loss attributable to The ONE Group Hospitality, Inc. for Q3 2025 was $76.74 million.

Liquidity remains a focus. As of September 28, 2025, the company held $6 million in cash and cash equivalents and restricted cash, with $28.70 million available under its revolving credit facility. Long-term debt stood at $355 million. Capital expenditures for the nine periods ended September 28, 2025, totaled $44.20 million, with a net of $41 million after $3 million in landlord contributions. The company expects to receive an additional $1 million to $1.80 million in landlord contributions in the next three months. The company's Board authorized an additional $5 million for its share repurchase program in March 2024, with $19.30 million spent to repurchase 3.40 million shares as of September 28, 2025.

Outlook, Guidance, and Growth Trajectory

Management's outlook for fiscal year 2025 reflects a strategy focused on internal execution and capacity optimization, rather than relying on macroeconomic recovery. The company projects total GAAP revenues between $820 million and $825 million, anticipating consolidated comparable sales of negative 3% to negative 2%. Managed, franchise, and license fee revenues are expected to be between $14 million and $15 million. Adjusted EBITDA is guided to be between $95 million and $100 million.

Key operational assumptions underpin this guidance. For Q4 2025, the company expects a weighted pricing impact of 4.5% to 5.5%, which is anticipated to last for the next 36 weeks. Bookings for November and December 2025 show significant progress, with group event business typically contributing about 15% of fourth-quarter revenue. A critical operational target for Benihana is to reduce table turn times from 120 minutes to 90 minutes in Q4 2025, which is expected to significantly expand capacity.

The company plans to open 5 to 7 new venues in 2025, including company-owned STK and Benihana locations, and franchised Benihana Express units. Capital expenditures, net of landlord contributions, are projected to be between $45 million and $50 million. STKS is also reducing discretionary capital expenditures in the coming year, focusing on capital-efficient conversions of Grill locations (approximately $1 million per conversion) and new restaurants with lower build-out costs (under $1.5 million). The company has paused new lease signings to work through its existing pipeline of 12 leases.

The long-term vision for STKS is ambitious, targeting $5 billion in system-wide sales. This growth is expected to come from a development roadmap that includes over 200 potential STK locations and more than 400 Benihana opportunities in the U.S., utilizing a balanced approach of company-owned, franchised, licensed, and managed venues. The acceleration of the Benihana franchising strategy, particularly with the asset-light Benihana Express model, is a key component of this scalable growth.

Risks and Challenges

Despite a clear strategic roadmap, STKS faces several pertinent risks and challenges. The prevailing macroeconomic environment, characterized by consumer uncertainty and inflationary pressures on commodities and general operating costs, continues to impact comparable sales and profitability. While STKS aims to offset these through internal execution, a significant worsening of economic conditions could impede its ability to achieve its financial targets.

The non-cash valuation allowance recorded against deferred tax assets, a result of cumulative losses over the past three years, highlights a historical profitability challenge that the company is working to overcome. While non-cash, it impacts reported net income. Competition from larger casual dining chains, which leverage extensive TV advertising and aggressive discounting, poses a continuous threat, particularly for STKS's casual dining segments. The Grill Concepts portfolio, in particular, remains vulnerable to shifts in consumer preferences, competition from low-cost sushi providers, and broader industry trends affecting seafood and alcohol consumption. Furthermore, the company's reliance on landlord contributions for capital expenditures introduces a degree of uncertainty, as there is no assurance such allowances will always be available. The potential impact of tariffs on broader economic conditions and commodity prices also remains a complex factor to monitor.

Conclusion

The ONE Group Hospitality is undergoing a significant transformation, strategically leveraging its "Vibe Dining" concept and the scale afforded by the Benihana acquisition to drive long-term growth. Despite facing a challenging consumer environment and macroeconomic headwinds, the company's focus on operational excellence, digital innovation, and disciplined portfolio optimization positions it for future success. The strategic shift towards asset-light franchising and high-return conversions of underperforming assets underscores a commitment to capital efficiency and enhanced shareholder value.

While recent financial results reflect the impact of external pressures and non-cash charges, management's forward-looking guidance, underpinned by specific operational targets like improved Benihana table turns and a robust loyalty program, suggests a pathway to sequential comparable sales improvement. The company's unique experiential dining model and its ability to adapt to competitive pressures through targeted marketing and operational technologies provide a distinct competitive edge. For discerning investors, STKS represents an opportunity to invest in a company actively reshaping its restaurant economics, with a clear vision for expanding its differentiated brands and achieving substantial system-wide sales growth in the years ahead.