Business Context and Reporting Period
Company: Pizza Inn, Inc. (d/b/a Rave Restaurant Group, Inc.)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended December 26, 2010
Business Overview: The Company operates as a franchisor and food/supply distributor (Norco) for the Pizza Inn restaurant system. As of December 26, 2010, the system included 307 restaurants (5 company-owned, 226 domestic franchisees, 76 international franchisees).
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Dec 26, 2010 |
3 Months Ended Dec 27, 2009 |
6 Months Ended Dec 26, 2010 |
6 Months Ended Dec 27, 2009 |
|---|---|---|---|---|
| Total Revenues | $10,355 | $10,411 | $20,987 | $20,411 |
| Net Income | $379 | $387 | $508 | $753 |
| EPS (Diluted) | $0.05 | $0.05 | $0.06 | $0.09 |
| Cash from Operations | N/A | N/A | $263 | $399 |
| Cash & Equivalents | $326 | N/A | $326 | N/A |
| Total Debt (Current + Long-Term) | $945 | N/A | $945 | N/A |
Note: Debt consists of $313k current bank debt and $632k long-term bank debt as of Dec 26, 2010.
Material Changes vs. Prior Period
- Revenue: Total revenue was flat for the quarter ($10.4M) but increased 2.8% for the six-month period ($21.0M vs $20.4M). The six-month increase was driven by a 39% rise in company-owned restaurant sales due to new openings, offset by declines in franchise revenue.
- Profitability: Net income for the quarter remained flat at $0.4M. However, six-month net income decreased 32.5% to $0.5M from $0.8M. This decline is primarily attributed to a $0.3M non-recurring charge for the closure of a Plano, Texas location.
- Franchise Revenue: Decreased 8.7% in the quarter and 6.0% in the six-month period. This was driven by lower comparable store sales and the impact of a "0% First Year Royalties" incentive program for new buffet units.
- Capital Expenditures: Cash used for investing activities increased significantly to $1.3M for the six months ended Dec 26, 2010, compared to $0.6M in the prior year, primarily for new company stores in Fort Worth and Lewisville, Texas.
Outlook, Risks, and Management Commentary
- Liquidity: Management believes cash on hand, operating cash flows, and available credit facilities are sufficient to fund operations for the next 12 months.
- Debt Facilities: The Company has a $2.0M revolving credit facility and a $2.56M term loan facility with Amegy Bank. As of Dec 26, 2010, the term loan balance was $0.9M (6% interest) and the revolving facility balance was $0.
- Store Activity: The Company opened 5 and closed 5 restaurants in the quarter, maintaining a total count of 307. The closure of the Plano location was strategic, moving operations to a more favorable lease in Lewisville.
- Risks: Key risks include the collectibility of accounts receivable from franchisees, inventory valuation (obsolete/excess stock), and the realization of deferred tax assets. The Company is subject to various claims and contingencies, though management believes none will have a material adverse effect.
- Guidance: No specific forward-looking financial guidance was provided in this filing.
Investor Verification Checklist
- Non-Recurring Charges: Verify the impact of the $0.3M store closure charge on the six-month net income and assess if similar closures are anticipated.
- Franchise Incentives: Monitor the duration and financial impact of the "0% First Year Royalties" program on future franchise revenue streams.
- Capital Allocation: Review the return on investment for the $1.3M in capital expenditures regarding the new Fort Worth and Lewisville locations.
- Liquidity Position: Confirm the trend in operating cash flow, which decreased from $0.4M to $0.3M year-over-year, and its ability to cover debt service and future capex.
- Debt Covenants: Ensure continued compliance with the financial ratios required by the Amegy Bank Loan Agreement.