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Kona Grill, Inc. (NASDAQ:KONA)

Q4 2011 Earnings Call

February 9, 2012 5:00 p.m. ET

Executives

Berke Bakay - President and Chief Executive Officer

Jim Jundt - Chairman, Board of Directors

Larry Ryback - Chief Operating Officer

Christi Hing - Vice President of Finance and Controller

Analysts

Ross Licero - Craig Hallum

Mark Smith - Feltl and Company

Conrad Lyon - B. Riley & Co.

Matt Schwarz - Emerson Capital

David Khan - Raymond James

Operator

Good afternoon, everyone, and thank you for joining us today to discuss Kona Grill’s results for the fourth quarter of 2011. Joining us today are Berke Bakay, Kona’s President and Chief Executive Officer, Jim Jundt, the Chairman of the Company’s Board of Directors, Larry Ryback, the Company’s Chief Operating Officer, and Christi Hing, the Company’s Vice President of Finance and Controller.

Following the remarks we will open the call up to your questions. (Operator instructions) Before we go further I would like to remind everyone that the financial guidance the Company provides for its first quarter 2012 results, statements regarding the Company’s future sales, future profit and expectations regarding the same-store sales are forward-looking.

The Company has attempted to identify these statements by using forward-looking terminology such may, will, anticipate, expect, believe, intends, should or comparable terms. All forward-looking statements during this call are based on information available to company as of today and the Company assumes no obligation to update these forward-looking statements for any reason.

These statements are subject to risk and uncertainties that could cause actual results to differ materially from those described in the statements. Investors are referred to the full discussion of risk and uncertainties associated with forward-looking statements and the discussion of risk factors contained in the Company’s filings with the Securities and Exchange Commission.

I would now like to turn the call over to the Chief Executive Officer of Kona Grill, Berke Bakay. Please go ahead, sir.

Berke Bakay

Thanks. Good afternoon, everyone. As you saw at the close of the market today, we issued a press release announcing our fourth quarter full-year 2011 results. I will begin the call by sharing a few brief highlights of the quarter and will then turn the call over to our Controller, Christi Hing, who will take us through the financial highlights for the quarter and full year. Larry will then address operational initiatives and I will end the call with some closing remarks.

For the fourth quarter we continued our strong sales momentum and delivered solid top line and bottom line results driven by 7.8% increase in same-store sales. We are pleased with our same-store sales increase this quarter as (inaudible) at 6.4% increase in Q4 of last year. This increase in same-store sales posed a 10.6% increase in Q3 and 9.1% increase in Q2, a 7.6% increase in Q1. For 2011 same-store sales comps were 8.8%.

The fourth quarter was also the eighth consecutive quarter that we expressed positive traffic trends which we believe demonstrates the strength and momentum of the brand in multiple markets. During the fourth quarter we were also able to leverage our sales to drive another quarter of strong earnings which enabled us to achieve our goal of profitability for 2011.

Moving on to our CFO search, our audit committee is leading this process. While I do not have anything specific to report today, we’re committed to finding the best possible candidate to lead this position and I’m confident we will do so.

As noted on our press release, we are pleased to announce that we secured a $5.5 million credit facility that enhances our flexibility for funding new restaurant openings and remodels.

I would now like to turn the call over to our Controller, Christi. Christi?

Christi Hing

Thanks, Berke. For the fourth quarter ended December 31, restaurant sales increased 9.2% over the same year ago period to $23.1 million reflecting a 7.8% increase in comparable restaurant sales and incremental sales from our Baltimore restaurants, which opened last October. The increase in same-store sales reflects higher average guest checks driven by our food-based promotion, strong holiday sales and 3% growth in guest traffic. The sales increase includes about 1.5% in pricing that we took in June to offset higher commodity costs.

As Berke mentioned, our comps have been strong throughout 2011. In fact, this quarter represents our fifth consecutive quarter of comps greater than 6%. We believe that our same-store sales will continue to outperform peer group, however, the comp comparison becomes quite a bit more difficult as we roll over our strong 2011 comps.

Office sales as a percentage of restaurant sales decreased 140 basis points to 26.9% during the fourth quarter from 28.3% last year. The decrease reflects pricing leverage, various purchasing and culinary initiatives, as well as lower year-over-year pricing for beef, chicken and certain seafood products.

We are continuing to work diligently with our vendors to ensure the best pricing available and mitigate the impact of rising fuel costs. For 2011 we expect a modest increase in these costs year-over-year, but we’re optimistic that improvements in seafood purchasing and produce pricing resulting from a mild winter will help mitigate any material impact to food costs.

Labor expenses as a percentage of restaurant sales decreased 180 basis points to 32.6% during the fourth quarter to 34.4% last year. The lower labor cost percentage is attributable to the leveraging of fixed wages and benefit costs from the 7.8% increase in comp sales.

Restaurant operating expenses, as a percentage of restaurant sales, decreased 110 basis points to 15.1% during the fourth quarter from 16.2% last year. The lower operating expense percentage is primarily attributable to the lower marketing expenses, lower credit card processing fees as the result of the Durbin Act and leveraging of a fixed portion of operating costs due to higher sales volumes.

Occupancy expenses, as a percentage of restaurant sales decreased 140 basis points to 6.3% during the fourth quarter from 7.7% last year. The decrease reflects our continued efforts to pursue rent reductions of certain locations, including a significant change in the lease provisions for one restaurant, a leveraging of the fixed portion of these costs from higher same-store sales.

Combining these four line items, restaurant operating profit increased $1.6 million to $4.4 million for the fourth quarter. As a percentage of restaurant sales, restaurant operating profit improved 570 basis points to 19.1% during the fourth quarter compared to 13.4% last year. For the full year restaurant operating profit as a percentage of sales improved 310 basis points to 17.8%.

General and Administrative expenses increased $632,000 from the prior year quarter primarily due to severance and related costs for our former CFO, higher legal fees and the write-up of certain costs as we refined our (inaudible) core specs. As a percentage of sales, G&A increased 200 basis points to 9.7% compared to 7.7% last year. Excluding the severance charges, G&A would have been 8.1%.

Net income increased $1.2 million for the quarter to $747,000 or $0.08 per share compared to a net loss of $491,000 or $0.05 per share in the prior year quarter. Excluding the previously mentioned severance charges, net income was $1.1 million or $0.12 per share.

We ended the quarter with $6.5 million in cash and investments. During the fourth quarter net cash provided by operating activities was $3.3 million. We spent about $400,000 for capital expenditures during the quarter which represents planning remodeling costs and maintenance CapEx for our existing restaurants.

During the quarter we purchased and retired 428,000 shares at an average cost of $5.63 per share for a total cost of $2.4 million under our $500 million share repurchase authorization. As of today, we have substantially completed our share repurchase program of approximately 790,000 shares purchased at an average price of $5.80 per share.

For our first quarter 2012 financial guidance, we are forecasting sales of $22.5 million to $23.2 million, a net income of $100,000 to $200,000 or earnings of $0.01 to $0.02 per share. Our guidance reflects the expectations of same-store sales increase of approximately 4% for the first quarter as we roll over to 7.6% comp last year. As a reminder, the first quarter is historically our lowest quarter in terms of sales and profit due to seasonality.

I will now turn the call over to Larry to provide an update on our operations.

Larry Ryback

Thanks, Christi. During the quarter, we completed several initiatives that contributed to our strong results. Gift card sales remain strong aided by our Black Friday and holiday bonus card promotion, which had positively impacted sales in the first quarter. We ran our fourth food-based promotion of the year, which continues to be a hit with our guests while also driving sales and helping us trial potential new menu items.

We also completed major remodels at two of our restaurants and have seen strong ROI results on these projects. Going forward, we will look at remodeling certain older restaurants to update the design and decor while also adding seating capital to drive incremental sales opportunities. In November we launched a re-engineered website to improve end-user functionality, search engine optimization, and the ability to customize in-house.

In December, we began testing a new menu vehicle in select restaurants in an effort to improve readability, durability, cost, quality and sophistication. During this test we made several changes to existing menus offerings and introduce new items several of which were successful prior food-based promotion offerings.

Feedback from this test has been positive and menu engineering analysis indicates a modest improvement to check average. We plan to implement the menu company-wide at the end of quarter one. Early in Q4, we implemented a system-wide uniform change for all of our servers and bartenders to update the sophistication of the look, further differentiate the brand, and to provide a uniform for our employees that they're proud to wear.

Toward the end of Q4, we began a test in select restaurants to improve our take-out program. The test includes an improved IT component, better packaging quality, improved internal training. We feel that this initiative has significant upside potential as our take-out sales are below many of those in our peer group.

I will now turn the call back over to Berke before we go to Q&A.

Berke Bakay

Thanks, Larry. I'm very excited to be part of the team in leading this great Company. Over the course of the past five years of my involvement with Kona Grill, I have had the opportunity to meet many dedicated passionate and hardworking team members. As the largest shareholder of this company, I have confidence in the potential of this brand and I have significant vested interest and commitment to see it succeed. I believe we have substantial growth opportunities as we only operate 23 locations in 16 states. There are companies in our peer group that have 100 plus restaurants and are in fewer states than us.

With that said, we are mindful of each start-up we spend and do not want to make the same mistakes in some of our previous real estate decisions. We will take time necessary to build a strong pipeline so that we have the choice of taking our selected size from a breadth of options rather than choosing a B side. Some of our past decisions happened closely as the three restaurants that have been closed to date cost us more than $10 million to build, opening and closing costs.

For a company of our size we cannot afford to repeat our past mistakes. On the development front, we hired Marci Rude as our VP of Development in December and believe her extensive business development experience particularly the vital role she served at P.F. Chang's critical phase of expansion will play a key role as we execute our growth strategy.

Currently, we are assessing sites in new markets while also looking at locations to back fill some of our existing markets to provide us with better leverage and efficiencies. We're confident that we will be able to build a strong pipeline that will enable us choose the best sites for our concepts, while also ensuring that the economics of each prospective site meet our ROI targets. With that said, we will update our target for restaurant openings when new leases are executed.

In conclusion, the steps we have taken over the past 12 months have been instrumental in achieving our first profitable year since 2004. We delivered 19.1% restaurant level cash flow for the quarter which we believe is near the top in our class. We're confident that we have a strong future ahead of us and are excited for what we believe can be another strong year in 2012.

Now, with that, I would like to open the call for any questions you might have.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from the line of Mike Malouf with Craig Hallum. Please, go ahead.

Ross Licero - Craig Hallum

Hi. Thanks. This is Ross Licero for Mike. Congratulations on a great quarter. Really impressive. My question centers around commodity costs. You said beef was going to be up this year and seafood and produce were probably going to be down a little bit. Do you see that being a wash for the year or is one going to have more of an impact?

Larry Ryback

While we anticipate an increase in beef cost year-over-year we're optimistic that improvements in seafood purchasing and producing pricing, as noted earlier, resulting from a mild winter, will help mitigate any material impact to cost.

I think it's also worth noting that because roughly 25% of our sales come from sushi and 30% come from beverage, that beef is not as big a part of our business as it is to other concepts in our segment.

Ross Licero - Craig Hallum

OK, great. On the two new restaurants that you were planning on opening this year, are you rethinking that? Just starting over and taking time to develop the new pipeline? Or there's two still in the plans for this year?

Berke Bakay

As you heard, through my prepared comments, we're excited about the growth potential of Kona. Again, considering some of the mistakes that were done in the past and recent higher retail development and frankly a lack of current acceptable platform for the board we're not going to be specific on the time of our future openings.

Ross Licero - Craig Hallum

OK, great. Really appreciate it. Thank you.

Operator

Thank you. The next question is from the line of Mark Smith with Feltl and Company. Please go ahead.

Mark Smith - Feltl and Company

Berke, not to hammer to much on new openings, but can you just remind us from the time you get a lease signed, what about the quickest is that you could get it open? Just to give us a rough idea?

Berke Bakay

Sure, again, the whole process before from the pipeline to opening prospective is 12 to 18 months, but from once you sign the lease where looking about less than a year.

Mark Smith - Feltl and Company

OK, perfect. How many remodels do you guys have left? I think you did two in Q4, if I remember right, but how many do you have left to do?

Berke Bakay

Sure. Well, I would approach it from a different angle. It's not so much we have to do, and again, this is a concept that is fresh and its new. Our remodels have been and will be done with the mindset of maximizing return in investment capital. So we will look at the opportunities, again, being on the job for only nine days, that's an area that we're aggressively looking at, and I don't have an answer yet. But I want you to consider this not so much the remodels that we have to do, but there only down with increasing the same store sales and return invested capital. So, I will leave it at that.

Mark Smith - Feltl and Company

OK. Then just as we look at severance expense and any separation here in Q1 from the transition can you give us any rough ideas on that?

Christi Hing

They're only minimal expenses, nothing like we had seen in 2011.

Berke Bakay

There was an AK filed that had the actual specific dollar amount, it's minimal.

Mark Smith - Feltl and Company

OK. I just wanted to make sure there was nothing outside of that filing that could throw that off. Lastly, just looking at the seasonality of the business in Q1 guidance versus what you just did in Q4, can you just walk us through the kind of delta between your top line guidance, which is what you just did, to the bottom line and how that seasonality occurs and what exactly that is?

Berke Bakay

Sure. First of all the guidance is not flat, we're assuming around 4% same-store sales growth for Q1. Which is lapping a pretty tough comparison, and, again, as mentioned in the prepared remarks, Q1 is our slowest quarter of the year in terms of both sales and earnings. Again, a year ago it was a lost quarter and we're guiding for profitability. What you need to keep in mind is because of the low sales volume, if you have a pretty strong same-store sales growth, it's pretty hard to level G&A, just by the absolute amount of things. So the guidance reflects that.

Mark Smith - Feltl and Company

OK, great.

Operator

The next question comes from the line of Conrad Lyon of B. Riley & Company. Please go ahead.

Conrad Lyon - B. Riley & Co.

Before I get into just operational questions, I'd like to just talk about the turnover of late, both between the CFO and CEO. Can you provide any additional color surrounding that? Just to give investors confidence about where the company is going and headed? I say that, just because, I know there are capable hands there, but it's just the fear that I have is there might be more turmoil, and instability may just make it more difficult to lead the growth going forward, so I would just appreciate any commentary first, about that if you could.

Jim Jundt

This is Jim Jundt speaking. It's true that there's been a lot of turnover, but I think if you were to poll the Board members one by one, that they're very confident that we're moving in the right direction. The restaurant business is a very hands on business, and Kona Grill has a lot of great people at the operating level and we think that Berke will do a great job of empowering these people to continue the good work they've done in the last couple of years. We've had great comp store sales.

We've added, as Berke mentioned, someone in the development area. As you are aware there is a situation where top management hasn't resided in Phoenix in the past, and there are very few corporations that are operated with management living in one major city a thousand miles away from the headquarters. So we're very confident that Berke has probably spent more time here in the last two weeks, then part of our management spent in a month.

Conrad Lyon - B. Riley & Co.

OK, got it. So basically you're saying relocation issues has kind of been the bulk of the problem in the past.

Jim Jundt

That's been one of the issues, but in all candor the Board, while the turnover has been significant, the Board is satisfied in the direction we're going.

Berke Bakay

This is Berke. I'll just add to Jim's comments. To be specific, if you look at composition, especially in the past three years, we've had zero turnover in our ops team, which includes culinary training, district managers, and the CEO position, so that turnover has been 0%. You had some concerns about future turnover, but I can tell, again it's been only nine days, and I've been coming to these headquarters for five years now, I would characterize the mood and morale to be extremely positive.

Conrad Lyon - B. Riley & Co.

Got you. In terms of the board composition, clearly there's a vacancy there. Might you add a person that may have, say some extensive restaurant experience, can you provide any color about who you would like to have Board, as well?

Jim Jundt

The nominating committee is currently reviewing people and will consider their attributes and whether they add or duplicate the existing skills of the Board. So we have no comment on the specific skills that we're looking for at this time. But there is a restaurant experience on the Board and, secondly, the Board currently owns about 40% of this company, so they're very profit-oriented, and return on capital as Berke talked about is critical issue.

The company just reported a record year and I think the Board is very confident that 2012 will see another record year, primarily because of the expertise and the energy of the people at the operating level.

Conrad Lyon - B. Riley & Co.

OK. If you don't mind I have some operational questions here. I would like to follow up to with the growth. So just to make sure, I think, Berke, I didn't quite catch the tail end of the piece, but I think that the 2012 closures are off the table, potentially? Is that right or is it still to be determined?

Berke Bakay

You're referring to closures?

Conrad Lyon - B. Riley & Co.

No, sorry, not closures, openings, sorry.

Berke Bakay

OK. So repeat the question? Are you asking about timing of potential 2012 openings?

Conrad Lyon - B. Riley & Co.

Yeah, I just want to see if they're off the table or that if you can find the right side. Somehow, otherwise, it might have some units opening in the fourth quarter.

Jim Jundt

There's been some disappointment in the past on that at the Board level and pipeline as Berke talked about it in his opening remarks, we're not going to compromise just to eat those two units. But if an ideal type were to present itself we would obviously take advantage of that, but right now everything's under review and the pipeline, in all candor, is very limited. But we can't really commit to the timing of new units at this time.

Conrad Lyon - B. Riley & Co.

Got you. Let's say once, kind of, you've got a better handle on the pipeline, what level of new unit opening would you feel comfortable with on an annual basis?

Berke Bakay

Look, Conrad, again, we're not going to be specific at this time and, candidly, again, to Jim's point, the pipeline as it exists today is not acceptable for us to make two or three or whatever unit openings. We need to increase our financing and, candidly, as I mentioned, we just had Marci join our team a couple months ago, so we need to give her an opportunity to create that pipeline. So, the idea that was optical if you will change of the management is not opening the stores for the sake of opening them, not remodeling stores for the sake of remodeling, but really trying to do the right things for the shareholders, which is trying maximize return investment capital.

So, in an idea world, if tomorrow Marci comes in and convinces us that we have right location, there's no reason for us to not move on it, but we're not ready to give you a timeline on when those stores will be open because then we will be putting ourselves in a box.

Conrad Lyon - B. Riley & Co.

I got you. I know.

Jim Jundt

The Company's in an excellent financial situation as Berke indicated, we just arranged for a line of credit of $5 million, so we're in a great financial position to take advantage of any situation that would present itself, but right now there are not comments.

Conrad Lyon - B. Riley & Co.

Sure. Got you. In terms of capital expenditures for 2012, do you have a range of what you plan to spend?

Berke Bakay

Conrad, again, it's a function of all of these things that we talked about. Its impossible to give you a precise number and I'm not trying avoid the question, but also I don't want to be misleading.

Conrad Lyon - B. Riley & Co.

OK. I'm just wondering because you do have a nice cash balance and I guess the acquisition of the line of credit that was just to give you that, like you said, that flexibility in the case that you do have future openings on the table. Correct?

Berke Bakay

Correct. I mean you saw the cash balance and you can do the math on what kind of cash flow we continue to generate. You saw our guidance and you saw the credit line that we have. So, we have all the instruments for growth if we choose to proceed.

Conrad Lyon - B. Riley & Co.

OK. Got you.

Jim Jundt

There will be no compromise on the quality of the sites.

Conrad Lyon - B. Riley & Co.

Understood and I appreciate that. Let me just talk some of the remodels briefly here. I think Mr. Ryback talked about new seating or additional seating with some of the remodels, is there kind of a hard, fast rule how much you'd like to add, say, 10% of the square footage or is just sort of more of a fluctuating type of thing, depending on the circumstance?

Larry Ryback

Conrad, this is Larry. It is very fluctuating [because] it is facility specific. Many of our restaurants are very different, so we look to take opportunities where we can get them.

Conrad Lyon - B. Riley & Co.

OK. Got you. Last question. In terms of some food promotions coming up, can you give us a sense of what you might be putting out there on the menu?

Larry Ryback

It's always a surprise.

Conrad Lyon - B. Riley & Co.

OK. Got you. All right. Well, thank you.

Operator

Thank you. The next question is from the line of Matt Schwarz with Emerson Capital. Please go ahead.

Matt Schwarz - Emerson Capital

Hi, guys. You mentioned the 4% comp guidance for Q1. Is that at the midpoint of your sales data?

Christi Hing

Four percent represents what we expect for Q1. There's some seasonality into that, but 4% is what we expect over the life of the quarter.

Matt Schwarz - Emerson Capital

OK. And now that we're five weeks into the quarter, would you care to disclose what you guys are seeing in terms of the quarter-to-date comps?

Berke Bakay

Look, we're not going to be specific on the quarter-to-date trends, but obviously we issue the guidance today, so we feel comfortable that's a number that we expect to achieve by the quarter end.

Matt Schwarz - Emerson Capital

Got you. OK. Thanks.

Operator

Thank you. The next question is from the line of David Kahn with Raymond James. Please go ahead.

David Kahn - Raymond James

First of all, thank you very much for taking my question. You've got a tough crowd today for such a great quarter, excellent numbers, very solid numbers. So just a couple of specific questions. You have a fantastic template. You've shown success in your template and there's plenty of room to expand throughout the country. Do you expect after this year maybe you'll be able to accelerate some of the new store openings when you put a team together? That's my first question. My second question is massive consolidation in your industry. Clearly you are far less expensive than many of the companies that have been taken out already, and your operational improvements probably continue to make the business undervalued. Have you considered putting the business up for sale?

Berke Bakay

Can I answer the first two questions before I forget what you're asking me?

David Khan - Raymond James

Certainly, Berke.

Berke Bakay

OK. Well, first, look, again, I go back to the prepared comments, and we are setting up our team, and with Marci joining our team in December, we're looking forward to the pipeline that the Board is going to see as the result of our products. So to answer your question, if we can accelerate, we certainly have the financial capability between the cash on hand, the cash flow that is generated, and the credit line that we announced today to grow past it if we choose. But, again. it's too early to make a commitment on that.

And the second question that you have, was your question if we would consider putting the company on sale?

David Khan - Raymond James

Yes, there's been quite a bit of consolidation on a cash flow basis. Your business is a much higher quality than, for example, the O'Charley's that just got taken out yesterday, or was bid yesterday. So, you might command a materially higher price for an acquisition. Is that something that the Board has considered?

Berke Bakay

It's a very public company, so we will never categorically say this company is not for sale, but at the same time, the Board has not, as of today, come up with any actions to put this company on sale, otherwise we would have shared that with you. So, that's not the direction that we're going and that's why I'm here full time, to take this company to the next level it deserves to be.

David Khan - Raymond James

In terms of valuations, the economy is just beginning to recover, we've just gotten now, a fairly decent unemployment number, real estate prices are beginning to firm. You're not concerned that waiting another 12 to 18 months to commit to an expansion, might end up in significantly higher prices to you?

Berke Bakay

No, because as I've said in my prepared remarks, the cost of rushing and utilizing a pipeline that is not strong and making a $10 million plus mistake opening two stores is significantly costlier than what you just described.

David Khan - Raymond James

OK. Then, with respect to the stock buyback, you completed that. Is there any consideration....

Berke Bakay

Substantially completed.

David Khan - Raymond James

Pardon me?

Berke Bakay

Substantially completed.

David Khan - Raymond James

Substantially. What remains open on the buyback, Berke?

Berke Bakay

Around $420,000. I could be off $10,000, $20,000.

David Khan - Raymond James

And you average cost on the purchase you said was approximately $5.80?

Christi Hing

$5.63 through today.

David Khan - Raymond James

$5.63, OK. So then you won't commit to buying back additional shares until you've completed the outstanding portion, or should we anticipate that the company will be willing to buy back additional shares?

Berke Bakay

That's the Board of Directors' discretion, so we always reserve the right to increase our buyback plan. We believe in the current environment the prices are the best interest of shareholders.

David Khan - Raymond James

OK. Then my last question, as I've suggested in my initial comments that operational improvements have been rather significant. It's somewhat confounding that with the improvements you made, and as I said, the template that you have for a much larger base of restaurants, that you can't attract and keep a very high quality CEO. Are you, if we're on this call in 18 months, are you relatively comfortable Berke that you are still going to be the guy running the business, assuming you're still a independent public trading company?

Berke Bakay

You should ask that to my boss, who's representing the Board, to Jim. That's not for me to answer.

Jim Jundt

The Board would be very disappointed if Berke is not here 18 months from now. He understands the philosophy of the Board. He buys into the vision of the company 100%. Berke is a young, talented, energetic man who I think understands the importance of people at the operating level and he will empower them to continue to do the great job that they've done and not even a better job. So there would be a great disappointment if he is not here 18 months from now. As a Board substantial investor myself, my money is on Berke being here 18, 24, and 36 months from now.

David Khan - Raymond James

Excellent. Could I just ask one follow-up? Was he considered for the CEO candidacy before you hired Nahkunst?

Jim Jundt

That's a difficult question to answer. We considered a lot of different people at the time.

David Khan - Raymond James

OK. I said you made tremendous improvements and I appreciate the quality of the operating results you came out with today. Thank you very much.

Jim Jundt

Let me make one comment. As a member of the Board and Chairman of the Board, I would make one comment. I'd say that Berke as a director has been one of the most active directors in getting to understand how the company operates and why it's successful and why it's not successful in other areas. I think he's being too modest when he says he's only been on the job ten days. I think he fully appreciates the quality of the people that we have at the operating level.

David Khan - Raymond James

I get that and without his financial commitment the business might not exist today. So continued success to you.

Operator

Thank you. (Operator Instructions) The next question is a follow-up from the line of Mark Smith with Feltl and Company. Please go ahead.

Mark Smith - Feltl and Company

Larry, I think that you mentioned alcohol sales and sushi, but I missed some of those numbers. Can you just give us maybe where that end up for quarter or maybe trailing '12?

Larry Ryback

Sushi as a percentage of sales is in the 24%, 25% range and then our total beverage sales is in the 30% range.

Mark Smith - Feltl and Company

Thirty percent. I think alcohol is been running about 32. Has there been any real change there?

Larry Ryback

No, there really hasn't been a material shift.

Mark Smith - Feltl and Company

Perfect. Then, Berke, I swear I'm not trying to beat new restaurants into the ground here. Just curious, there's been talk on a couple of prior conference calls about looking more at conversions and building from ground up. Is that still on the table or is it still too early to ask that question with Marci?

Berke Bakay

Look, again everything could be a part of the pipeline that she's working on so we're not categorically opposed to different real estate options. Having said that, there's a significant opportunity on a traditional level too, so we're working on all the aspects of real estate growth.

Jim Jundt

The key point there is there will be no compromise in terms of the quality and expect a number of openings. We have four great opportunities. We'll open four. If it's only one, we'll open one. We have the financial capabilities to take advantage of as many opportunities that present themselves.

Mark Smith - Feltl and Company

Perfect. Then, lastly, in the past you guys have given average weekly sales, I believe, for those in your comp base and outside. I know we're just looking at one unit, but could you give that level of specificity here?

Berke Bakay

Christi, do you have that number for Baltimore?

Christi Hing

For the quarter we're averaging in the 70,000 range, 70,000 to 75,000.

Mark Smith - Feltl and Company

70,000, 75,000 just on Baltimore?

Christi Hing

Just in general,  Baltimore's doing well with our comp group.

Mark Smith - Feltl and Company

I'll ask you a different way and maybe I'm fishing too much here. Is Baltimore then running just below average weekly sales for the comp group?

Christi Hing

It's running probably right in line.

Mark Smith - Feltl and Company

Right in line. OK. Perfect, thanks.

Operator

Thank you. There are no further questions at this time. This does conclude the question-and-answer session. I would like to turn the call back over to Mr. Bakay.

Berke Bakay

Thank you. As always, I want to thank each of you for joining us this afternoon and we look forward to finishing out the year in great shape as we continue to build Kona Grill into one of the great names in casual dining. Thank you for your continued support of Kona Grill.

Operator

I would like to remind everyone that this call will be available for replay later this evening. A webcast replay will also be available via the link provided in today's press release, as well as available on the Company's website at www.konagrill.com. Thank you, ladies and gentlemen, for joining us today. You may now disconnect.

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