GEN Restaurant Group, Inc. (Closed)
NasdaqGM:GENK
Initiation Price: $8.26 | Current Status: Closed | Result: -26.0%
UPDATE (Feb 6, 2025): I initially wrote about the company ahead of its 2Q24 print, expecting a raise in their FY24 store opening guidance. I noted, “With three restaurants already opened year to date, GENK’s website has been updated to reflect seven “coming soon” locations. If “soon” is within the next five months, GENK will exceed its goal of 8-9 openings for FY24.”
Just three days later, GENK updated its guidance to 10-11 openings for FY24. Since then, comp sales have deteriorated materially, even though newly opened stores have far exceeded expectations. That said, several red flags have emerged, signaling potential deceptive reporting or other dishonest practices:
The company claims to have never had a restaurant closure. However, using the Wayback Machine to review previous versions of its website, three Californian restaurants, Milpitas, Rowland Heights, and Montclair, have been removed, and Yelpers report them as closed. The first two locations were operational as recently as FY21.
The company has not disclosed any overseas operations. However, it appears it has franchised a restaurant in the Philippines, managed by a third-party entity.
The company switched auditors in 2021 just prior to their first SEC filing. According to the LinkedIn profile of Jason M. Geraci, ex-CFO, it was audited by KPMG before downgrading to Marcum.
Combined with the ambiguous role of Jae Chang, the company’s co-founder who recently stepped down as co-CEO, along with a leadership team with little industry experience (e.g., the CFO previously worked for the Pancreatic Cancer Action Network), I’ve no choice but to close the position at today's open price, despite my continued belief that initiatives like the premium menu and alcoholic beverage rollouts will eventually turn comps around.
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