Steak cut up on a plate from STK.
The One Group

The STK Steakhouse units in Las Vegas, Los Angeles, Orlando, Florida, and Puerto Rico, have temporarily closed.

The ONE Group Goes from 4,000 Employees to Under 100

The Kona Grill and STK owner is also working with landlords to suspend rent payments.

Due to the COVID-19 pandemic, The ONE Group Hospitality cut its workforce of about 4,000 employees to fewer than 100 workers.

CEO Manny Hilario said there’s only about two to three people at a time working in some units. All cash bonuses have been deferred and the executive team chose to take their incentive compensation in the form of equity. Non-employee board members will take all of their compensation this year in the form of company equity, as well.

“As a career executive in hospitality business, this is absolutely the most challenging time I have ever seen,” Hilario said during the company’s Q4 and annual review. “We have been forced to make very difficult and tough decisions that impact the team members we care so much about, and of course our guests. The rapidly evolving coronavirus pandemic has required  unprecedented actions.”

Open restaurants are operating via takeout and delivery, generating sales between $300,000 to $400,000 total per week for the company. CEO Manny Hilario estimated payroll to be approximately $100,000 to 150,000 per week. After covering for payroll, Hilario said there is “plenty of cash” available for other needs, including the purchase of produce that must be replaced at stores.

Hilario said The ONE Group had a solid takeout/delivery business prior to the pandemic, pointing toward the newly acquired Kona Grill, which has a 3 percent to 6 percent off-premises sales mix.

But he remains cautious because of changing consumer preferences.

“You just have to be careful to overestimate them and obviously we're monitoring what people are doing,” Hilario said. “Although we ran a history of x in the 4th quarter right now, I think all bets are off and it's really kind of figuring out the new reality and how to manage the marketing these days.”

The company has $9.5 million in cash and $10.7 million available in its credit facility. Hilario said The ONE Group can’t draw down from the credit facility unless it’s below $4 million in cash, but he doesn’t anticipate that happening in the foreseeable future.

Hilario said the brand has reached agreements with partners and landlords to not pay rent in the next 90 days on restaurants comprising almost 45 percent of U.S. revenues. The team is now working with other landlords to form similar compromises.

In addition, The ONE Group has an arrangement to not pay food vendors between March 31 and May, and to have those owed amounts spread over at least 10 weeks. All nonessential outside services have been suspended, as well.

“It's really a game of preserving cash, and frankly right now the way we've set up this business is to be around in the foreseeable future,” Hilario says. “ … I think we will be around for quite a long time. So we feel pretty bullish—or I would say call it bullish—we feel pretty good about our cash in the short term. And like I said, we will continue to tweak the business model to stay around as long as possible.”

The STK Steakhouse units in Las Vegas, Los Angeles, Orlando, Florida, and Puerto Rico, have temporarily closed. Hilario said other locations are being evaluated on a case by case basis. He expects more units to temporarily close or have reduced hours over the coming days and weeks.

All capital expenditures and development on unfinished restaurants have been stopped. However, Hilario did note that the STK Steakhouse in Scottsdale, Arizona, has been completed and employees have been fully trained. The company is waiting on clearance to open the new unit.

Before the virus outbreak, The ONE Group experienced a healthy Q4. Comp sales at U.S. STK restaurants rose 8.9 percent (two-year stack of 23.9 percent), while same-store sales at Kona Grill lifted 3.9 percent. For 2019 overall, comps rose 8.3 percent at STK units. Total GAPP revenues increased 102.2 percent to $52.2 million in Q4, driven by $23.7 million in sales from Kona Grill, which was acquired by The ONE Group in October. The brand opened two licensed STK units internationally and one U.S. company-owned STK unit.

The brand suspended its 2020 financial guidance because of the unknown effects from the COVID-19 pandemic.

“It goes without saying that we are looking forward to the rebound in our business once the uncertainties around the coronavirus begins to subside and mandated restrictions are lifted. We will be ready when the time comes and we know our guests are going to be ready for a great meal out,” Hilario said.