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Kona reported strong sales and earnings last night after the market close, confirming our bullish thesis on KONA.

KONA reported a 7.6% increase in 1Q same-store sales after the close yesterday, bringing the two-year average trend to a very strong +2.6%.  This two-year numbers constitutes a sequential gain of 350 basis points from 4Q10.  Looking to 2Q11, the company is guiding to a conservative 5% print for same-store sales.

Overall, restaurant sales increased 12.3% and restaurant operating margin increased to 14%.  The company stated, in its earnings release, that the company is being impacted by commodity costs but top-line sales have aided management in gaining leverage over these costs and improve profit margins.  Net loss for the quarter was $0.01 per share and the company is guiding to earnings in the second quarter of $0.02 to $0.04 per share.  

See our not from 04/14 titled, "KONA - GAIN ALPHA ON THE KONAVORE DIET", for detail on why we think the stock could trade between $7.50 and $8.00 in the next 12-18 months.  

KONA – MONEY MAKER - KONA POD 1

Howard Penney

Managing Director