Flanigan’s Enterprises, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Second quarter and first six months ended March 30, 2024; comparisons are with the periods ended April 1, 2023. Amounts below are in millions, except per-share data. The filing is unaudited. The company operated 32 company-owned or managed units and franchised five units at quarter-end. Restaurant #19, rebuilt after a fire, reopened March 26, 2024.
Financial performance
| Metric | 13 weeks | 26 weeks |
|---|---|---|
| Total revenue | $48.069; up 9.7% | $93.209; up 8.8% |
| Operating income | $2.685; down 1.0% | $3.477; down 11.0% |
| Consolidated net income | $2.524; up 15.9% | $3.118; up 2.2% |
| Net income attributable to Flanigan’s shareholders | $1.942; up 2.4%; EPS $1.04 vs. $1.02 | $2.051; down 18.6%; EPS $1.10 vs. $1.36 |
| Operating cash flow | Not presented separately | $2.133 vs. $4.194 |
| Capital expenditures | Not presented separately | $4.314 vs. $4.242 |
Quarterly revenue growth reflected higher restaurant and package-store sales, price increases implemented in March 2023, and newer locations. For the quarter, restaurant food and bar gross margin was 67.09% versus 67.41%; package-store gross margin was 26.11% versus 28.26%. Operating costs and expenses rose 10.4% in the quarter and 9.8% for the half year, outpacing revenue growth in both periods. For the half year, operating costs were 96.27% of revenue versus 95.44%.
Quarterly consolidated net income benefited partly from a $55,000 income-tax benefit, compared with a $290,000 tax expense a year earlier. The six-month tax benefit was $73,000 versus a $353,000 expense. Management attributes the benefits primarily to estimated FICA Tip Credits. A larger share of consolidated earnings was attributable to noncontrolling interests, contributing to the decline in six-month income attributable to company shareholders.
Liquidity, debt and capital resources
- Cash and cash equivalents were $22.002 million, down $3.530 million from September 30, 2023. Working capital was $12.214 million, versus $12.923 million.
- For the first six months, operating cash flow was $2.133 million; investing cash outflow was $3.161 million and financing cash outflow was $2.502 million. Cash declined from $25.532 million to $22.002 million.
- Total long-term debt, including its current portion, was $22.501 million, down from $23.128 million. Operating lease liabilities totaled $27.063 million.
- Management says cash on hand and positive operating cash flow should fund operations and planned capital expenditures for at least the next 12 months. No dividend was declared or paid during either comparable six-month period.
Outlook, risks and notable items
- Management expects FY2024 restaurant food, restaurant bar and package-store sales to increase, citing traffic and newer or reopened locations. It also expects operating costs to continue rising and package-store gross margins to decrease due to higher costs and price reductions on certain merchandise. These are expectations, not formal quantified guidance.
- Management cites inflation and supply-chain pressures, particularly food, beverage, fuel and labor costs, and a tight labor market. It says these factors are materially affecting operating results; future supply or labor disruptions remain possible.
- Cash declined partly because the company paid approximately $3.92 million in annual insurance premiums and completed construction of the rebuilt Hollywood restaurant. The restaurant reconstruction contract rose to $3.96 million after change orders; $3.596 million had been paid by quarter-end.
- The company agreed to purchase approximately $7.0 million of baby back ribs during calendar 2024 at a prescribed cost.
- A prior loan-covenant noncompliance from December 2022 was waived by the lender. At March 30, 2024, the company reported compliance with all loan covenants; the specified fixed-charge coverage ratio was 1.57 to 1.00 against a 1.15 minimum.
- The company reported no current dram-shop claims and believes other ordinary-course claims will not materially affect its financial position or results. It cautions that an uninsured or substantially underinsured alcohol-related judgment could be material.
- Management concluded disclosure controls were effective and stated that previously identified material weaknesses in financial reporting controls had been remediated. Subsequent to quarter-end, the company signed a five-year NetSuite licensing and support agreement at approximately $40,000 annually and an implementation agreement for approximately $237,000.
Most important facts for investors to verify
- Whether same-store traffic and sales support management’s FY2024 growth expectations, separate from price increases and new or reopened locations.
- Whether food, labor, insurance and other cost increases continue to pressure operating income and restaurant or package-store margins.
- Whether operating cash flow can support capital spending, debt service and the rib purchase commitment while maintaining liquidity.
- Continued compliance with loan covenants and the terms and remaining balances of the six institutional loans.
- The earnings and cash-flow contribution of the reopened Hollywood restaurant and newer Miramar locations, including the effect of noncontrolling interests on shareholder earnings.
- Execution, total cost and timing of the NetSuite implementation, and sustained effectiveness of the remediated financial-reporting controls.