The ONE Group (STKS) Q3 2026 earnings review
The ONE Group lifts store margins, but cuts its sales plan
The ONE Group, the owner of Benihana and STK steakhouses, widened its restaurant margins and grew cash flow even as diners spent less per visit. Sales at restaurants open at least two years dipped 0.4%, missing the company's own quarterly plan, because lower average checks outweighed a 2% rise in guest traffic. Chief executive Emanuel Hilario credited beef purchasing contracts for lifting restaurant-level profit margins by nearly 2 percentage points to 13%.
| Same-store sales | -0.4% 0% to 2% outlook for Q3 |
|---|---|
| Restaurant operating profit margin | 13.2% +1.9 percentage points from a year ago |
| Operating cash flow (9M) | $41.8M +143% from a year ago |
| Full-year revenue outlook | Cut $7.5M middle of the range: $805M (second cut) |
⚖️ Verdict: 🔴 Bearish
The story got worse because rising foot traffic is no longer translating into higher revenue, forcing a second straight cut to the full-year sales and profit plan. US STK same-store sales turned negative again, and third-quarter operating profit missed the bottom of the company's range. On the brighter side, nine-month operating cash flow more than doubled to $42 million, and the Miami Benihana Express takeout prototype is tracking at $1.8 million in yearly sales.
The question now is whether the holiday quarter can deliver the sharp jump implied by the reduced full-year plan after the beef contract's September expiration. By our math, hitting the full-year targets requires fourth-quarter same-store sales to grow 3.5% and quarterly operating profit excluding one-offs to climb 32%. Fourth-quarter results will show if holiday bookings can overcome smaller check sizes and open-market beef costs.
🐂 Bull Case
Lower Food Costs Lifted Store Margins
"Our beef strategy, supply chain initiatives and menu optimization drove a 190-basis point improvement in restaurant operating profit margin, enabling us to navigate a higher inflationary environment," chief executive Emanuel Hilario said. Restaurant operating profit — sales at company-owned locations minus food and store-level operating costs — rose to 13.2% of owned restaurant revenue from 11.3% a year ago.
- Food and beverage costs: 19.5% of owned restaurant sales, down 1.6 percentage points from a year ago
- Store operating expenses: 67.3% of owned restaurant sales, down 0.3 percentage points
- Benihana store profit margin: 15.8%, up 1.9 percentage points
- STK store profit margin: 13.2%, up 0.4 percentage points
Cheaper ingredients did the heavy lifting because the restaurant group locked in beef tenderloin prices through September 2026 after buying Benihana. That purchasing power expanded margins at both major chains even while total revenue shrank 1.8% to $177.0 million. Core Grill Concepts — Kona Grill and RA Sushi — went the other way, with store margins falling a full point to 3.0%.
What to watch: food and beverage costs as a share of owned restaurant sales in the fourth quarter. Because the previous beef contract ran only through September, next quarter's cost line will show whether purchasing savings can survive open-market beef prices during the holiday season.
Operating Cash Flow More Than Doubled
Stronger store-level margins are turning into cash. Hilario noted that "cash flow from operations through the first three quarters more than doubled to $41.8 million after paying $29.4 million in interest." In the third quarter alone, operating cash flow rose 50% from a year ago to $8.8 million, up from $5.9 million.
At the same time, the hospitality group spent $35.2 million on investing activities over the first nine periods, down from $44.2 million a year earlier, while collecting $6.3 million in landlord construction allowances. On the back of that cash generation, the board added $5.0 million to its share repurchase authorization on November 3, after nearly exhausting its prior $20.0 million limit.
What to watch: fourth-quarter capital spending against the raised full-year target of $30 million to $34 million. If construction bills stay inside that band while holiday cash flow arrives, the group can fund restaurant conversions without borrowing on its credit line.
Express Prototype and Conversions Advance Capital-Light Plan
To grow without heavy construction debt, Hilario said "our growth is now centered on franchise and license development and low cost conversions of select Grill Portfolio venues." The centerpiece is Benihana Express, a takeout-heavy fast-casual format without tableside chefs that occupies 800 to 1,000 square feet and costs $400 to $500 per square foot to build.
Two company-owned Express prototypes are now open in Miami and Denver, and Hilario said the Miami store "paces at an annual volume of $1.8 million" — above the $1.0 million to $1.5 million target discussed a year ago. Alongside two more Express openings planned for 2026, the group converted a Kona Grill in Riverton, Utah into a Benihana and has seven temporarily closed Grill venues awaiting conversion at $1.0 million to $1.5 million each.
What to watch: signed franchise and license openings in 2027 from the San Francisco Bay Area and Florida Keys agreements. Converting prototype store volumes into royalty revenue is what will prove third-party operators are willing to fund the expansion.
🐻 Bear Case
Diners Spend Less, Pulling Sales Below Plan
Hilario said the company's brands and value promotions are winning over diners in a cautious consumer environment, pointing to a 1.8% rise in comparable transactions. "The next step is to convert those traffic gains into sales," he added. Yet comparable sales — revenue at US restaurants open at least 24 months — slipped 0.4%, missing the company's own 0% to 2% target for the quarter.
- Consolidated comparable sales: down 0.4%, down from 0.9% growth in the second quarter
- US STK total comparable sales: down 0.9%, reversing 3.2% growth last quarter
- Benihana comparable sales: up 0.7% on a 2.7% rise in transactions
- Grill Concepts comparable sales: down 4.0% despite a 1.7% increase in transactions
Because transactions rose 1.8% while sales fell 0.4%, the average check dropped by about 2 percentage points across the portfolio, and by roughly 5.7 points at the Grill brands. Discounting and lower-priced lunch menus are bringing guests through the door, but diners are trading down enough to erase the traffic gain and push STK back into negative territory.
What to watch: fourth-quarter comparable sales against the 3.5% growth rate implied by the full-year outlook. With nine-month comparable sales up just 0.1%, missing the full-year 1% target would show that value menus are cannibalizing regular check sizes.
Management Cut the Full-Year Profit Plan Again
Weak check sizes and store closures are forcing steady reductions to the annual forecast. Third-quarter Adjusted EBITDA — earnings before interest, taxes, depreciation and one-off items — rose 5.4% from a year ago to $11.1 million, but fell short of the $12 million to $15 million outlook set three months ago.
The company lowered its full-year revenue outlook for a second consecutive quarter, trimming the middle of the range by $7.5 million to $805 million, and cut the top end of its Adjusted EBITDA plan by $5 million to a range of $95 million to $100 million. At the same time, it raised expected pre-opening costs by $1 million and lifted the top of its capital spending range by $4 million.
What to watch: fourth-quarter Adjusted EBITDA, which by our math must reach $37.1 million at the middle of the full-year range, up 32% from $28.1 million a year ago. Any shortfall during the peak holiday quarter would mean full-year profit misses even the twice-reduced target.
Preferred Stock Accretion Swallows Operating Progress
Below the operating line, financing costs from the 2024 Benihana acquisition continue to weigh on common shareholders. In addition to $10.0 million in quarterly cash interest expense, the company recorded $10.3 million in Series A Preferred Stock paid-in-kind dividends and accretion — non-cash charges that compound the preferred liability rather than paying cash.
That preferred charge grew 21.1% from $8.5 million a year ago and pushed the preferred stock balance on the balance sheet up by $29.6 million over the first nine months to $220.9 million. Combined with the third quarter's seasonal operating loss of $5.8 million, common shareholders absorbed a net loss of $26.4 million, or $0.79 per share, widening the stockholders' deficit to $117.7 million.
What to watch: whether management uses future cash flow to begin redeeming the Series A Preferred Stock or paying its dividend in cash. Until the compounding stops, preferred accretion adds roughly $40 million a year in claims ahead of common equity.
💲 Other KPIs
Total debt edged down 1.1% from $343.3 million at the end of 2025, though it ticked up by $1.0 million from the second quarter. Short-term liquidity — cash, credit card receivables and available credit line borrowing — stood at $40.3 million, down from $45.8 million last quarter and $51.6 million in the first quarter.
Fee revenue declined 3.8% from $2.78 million a year ago and missed the $3.0 million quarterly target. These fees come from hotels, casinos and franchised restaurants that the group manages or licenses rather than owns; underlying food and beverage sales at managed units dropped 7.5% from a year ago to $27.7 million.
Weighted average diluted common shares rose 2.4% from 32.87 million a year ago as employee stock awards vested and no shares were bought back during the first nine months of 2026. Treasury stock remained unchanged at 3.40 million shares prior to the new $5.0 million buyback authorization in November.
🔮 Guidance
Cut. The middle of the full-year sales plan came down by $7.5 million, leaving expected annual revenue unchanged from 2025's $805 million level. By our math, the outlook implies $214.7 million of revenue in the fourth quarter, or 3.7% growth from a year ago. It is the second straight cut since the year began at a $840 million to $855 million range: -$35.0M in Q2, then -$7.5M in Q3.
Cut. Management trimmed the top end of its same-store sales outlook by one percentage point to a flat 1% target. Because comparable sales grew just 0.1% across the first nine months, by our math the fourth quarter must deliver about 3.5% same-store sales growth to reach the full-year number. That is the second trim to the annual range after starting the year at 1% to 3%.
Cut. The hospitality group removed $5 million from the top of its operating profit range, lowering the middle of the plan to $97.5 million. With $60.4 million of consolidated Adjusted EBITDA earned through nine months, by our math the fourth quarter must generate $37.1 million, a 32% jump from $28.1 million in last year's fourth quarter. Second consecutive cut: -$5.0M at the midpoint in Q2, then -$2.5M in Q3.
Cut. The outlook now sits at $13.5 million in the middle of the range, down $0.5 million from the prior target. After collecting $9.4 million over the first nine months, by our math the plan leaves $4.1 million for the fourth quarter, up slightly from $4.0 million a year ago.
Unchanged. Keeping store operating costs at 82% of owned restaurant revenue means full-year restaurant operating profit margin stays targeted at 18%. Because store margins averaged 16.4% over the first nine months, by our math the fourth quarter must reach a 22.4% store margin, up from 19.5% in last year's holiday quarter.
Raised. Corporate overhead excluding stock awards moved up by $0.5 million at the middle of the range to $50.5 million, though still down from the $53 million projected in the first quarter. Having spent $39.1 million through nine months, by our math the fourth quarter carries $11.4 million of overhead.
Raised. Expected store-opening costs rose by $1.0 million, including about $3 million of non-cash rent during construction versus $2 million estimated previously. Because the company has already spent $7.1 million in the first nine months, by our math fourth-quarter pre-opening expenses will drop to roughly $0.9 million.
Unchanged. The full-year net interest bill stays at $38.5 million in the middle of the range. After $29.4 million in the first nine months, by our math fourth-quarter interest expense will be about $9.1 million, down from $10.0 million in the third quarter.
Unchanged. The expected tax rate band remains at 10% to 20%, unchanged since the first quarter.
Raised. Net capital spending after landlord allowances moved up by $2.0 million at the middle of the range to $32 million, as the company completes Grill conversions and Express prototypes. The budget remains well below the $38 million to $42 million range planned at the start of the year.
Cut. Management narrowed its opening target by trimming two venues from the top of the range, lowering the midpoint from eight openings to seven.
❓ Key Questions
Have you locked in beef pricing after September?
The beef tenderloin contract that drove the 1.6-point drop in food costs expired in September 2026. Without a new fixed-price contract, fourth-quarter store margins face open-market beef inflation during peak steakhouse demand.
Why is average check falling while traffic rises?
Transactions grew 1.8% in the third quarter, but comparable sales fell 0.4%, implying an average check drop of more than 2%. Investors need to know how much of that decline comes from discounting and lunch mix versus guests ordering less.
What caused US STK same-store sales to turn negative?
Owned STK comparable sales fell 1.2% after rising 2.5% in the second quarter. Management did not say whether the reversal came from specific regions like Texas or from broader steakhouse trade-down.
When will the seven closed Grill conversion sites reopen?
Four Kona Grills and three RA Sushi locations sit temporarily closed awaiting conversion to Benihana, up from five closed units cited earlier in the year. Only one conversion has reopened year-to-date, and just one more is listed under construction.