Upcoming Restaurant Openings And South Korea Expansion Will Strengthen Future Outlook

Key Takeaways

• Expansion with new store openings domestically and internationally could drive substantial revenue growth and increase brand presence in key markets.
  
• Menu price increases and gift card expansion strategies are designed to enhance revenue and margins without negatively impacting customer traffic.
  
• Challenges such as delays in new restaurant openings, declining same-store sales, rising costs, and international expansion risks could hinder GEN Restaurant Group's revenue and profitability.

Catalysts

Operates restaurants in California, Arizona, Hawaii, Nevada, Texas, New York, and Florida.

• GEN Restaurant Group is planning significant new store openings, with a target of 10 to 13 new restaurants in 2025 and a total of 75 locations by the end of 2026, which will likely increase revenue from these additional locations.
  
• The company is engaging in international expansion with plans to open at least two locations in South Korea in 2025, presenting opportunities for revenue growth in international markets.
  
• The introduction of a 3% menu price increase across most locations without affecting customer traffic suggests potential improvement in revenue and net margins through increased average transaction value.
  
• The launch and success of GEN gift cards in Costco and plans to expand with additional retail partners could drive revenue growth by increasing brand visibility and sales volume.
  
• A stock buyback program of up to $5 million may signal management’s confidence in the company's future financial performance and can positively impact earnings per share by reducing the number of shares outstanding.

GEN Restaurant Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GEN Restaurant Group's revenue will grow by 19.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 0.4% in 3 years time.
• Analysts expect earnings to reach $1.2 million (and earnings per share of $0.01) by about March 2028, up from $592.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 480.6x on those 2028 earnings, up from 54.5x today. This future PE is greater than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.83%, as per the Simply Wall St company report.

GEN Restaurant Group Future Earnings Per Share Growth

Risks

• Delays in opening new restaurants due to permit issues could continue to impact revenue growth, as seen with the 2024 setbacks where openings were pushed into 2025.
  
• The decline in same-store sales by 5.6% in 2024 raises concerns about the company’s ability to maintain customer interest, which could negatively affect consistent revenue streams from existing locations.
  
• Increases in cost of goods sold, which rose 80 basis points to 33.1% for the year, could compress net margins, especially with the added expense of premium menu items.
  
• The increase in general and administrative expenses, up from 7.8% of revenue in 2023 to 8.8% in 2024, indicates rising overhead costs that could impact net margins if not controlled as the company expands.
  
• The company’s international expansion into South Korea poses execution risks, such as potential cultural differences and market-specific challenges, which could affect projected earnings and investment returns.

Valuation

• The analysts have a consensus price target of $11.333 for GEN Restaurant Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $13.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $353.7 million, earnings will come to $1.2 million, and it would be trading on a PE ratio of 480.6x, assuming you use a discount rate of 9.8%.
• Given the current share price of $6.0, the analyst price target of $11.33 is 47.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.