Flanigan’s Enterprises, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023 (52 weeks), compared with the 52 weeks ended October 1, 2022. The filing is an annual report, not a standalone Q4 filing; it also reports results for the quarter ended September 30, 2023. Flanigan’s operates restaurants, sports bars and package liquor stores, primarily in South Florida, and consolidates ten limited-partnership restaurants it controls. At year-end it operated 31 company-owned or managed units and franchised five.
Key financial results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $174.396 million | $158.132 million | +10.3% |
| Income from operations | $7.024 million | $6.929 million | +1.4% |
| Net income | $5.416 million | $9.049 million | -40.2% |
| Net income attributable to company shareholders | $3.999 million | $6.312 million | -36.6% |
| Basic and diluted EPS | $2.15 | $3.40 | -36.8% |
| Operating cash flow | $8.489 million | $10.502 million | -19.2% |
| Capital expenditures | $20.574 million | $9.442 million | More than doubled |
Revenue comprised restaurant food sales of $107.238 million, restaurant bar sales of $29.000 million and package store sales of $35.187 million; franchise-related revenue was $1.857 million. Net margin was 3.1% versus 5.7% in FY2022; operating margin was approximately 4.0%. FY2022 net income included a $3.488 million gain from PPP loan forgiveness, which did not recur. FY2023 restaurant food-and-bar gross margin was 66.61% (63.96% in FY2022); package-store gross margin was 26.65% (26.45%).
Q4 disclosed results: Quarter ended September 30, 2023 revenue was $43.360 million, operating income $416,000, and net loss attributable to shareholders $127,000, or a loss of $0.07 per share. The comparable prior-year quarter reported revenue of $39.724 million, operating income of $2.231 million, and shareholder net income of $1.253 million, or $0.68 per share.
Cash, liquidity and debt: Cash and cash equivalents were $25.532 million at year-end, down from $42.138 million. Current assets were $35.294 million and current liabilities $22.371 million, for working capital of $12.923 million, down from $28.717 million. Net cash used in investing activities was $18.559 million; net cash used in financing activities was $6.536 million. Total debt, including current maturities, was $23.128 million, versus $25.389 million; operating lease liabilities were a further $28.235 million. Management said cash on hand, operating cash flow and borrowing capacity should fund operations and planned capital spending for at least 12 months.
Material changes versus the prior period
- Sales increased with price changes, new and recently reopened locations, and reduced comparative COVID-19 impacts. However, comparable weekly restaurant food sales fell 3.56% and comparable bar sales fell 1.23%; same-store package sales rose 3.61%.
- Operating costs rose 10.69% to $167.372 million. Payroll and related costs increased 13.81% to $56.607 million and SG&A increased 18.29% to $31.901 million. Costs and expenses rose slightly faster than revenue, and operating costs as a share of revenue increased to 95.97% from 95.62%.
- Cash declined mainly because of $8.5 million spent on a Hallandale Beach shopping center, $3.2 million for El Portal property, the $3.281 million insurance premium paid without financing, and continued construction of the Hollywood restaurant.
- The company opened package stores in Hollywood and Miramar and a limited-partnership restaurant in Miramar. The rebuilt Hollywood restaurant remained under construction at year-end.
Outlook, risks and unusual items
- Management expected FY2024 sales to benefit from full-year operation of newer locations and the anticipated opening of the rebuilt Hollywood restaurant, targeted for March 2024. It also expected operating expenses to increase with full-year operations and anticipated SG&A as a percentage of revenue to rise. These are management expectations, not guarantees.
- The company reported a covenant breach as of December 31, 2022 on institutional loans; the lender waived the breach and acceleration rights. The required fixed-charge coverage ratio was at least 1.15:1; the company reported 1.40:1 for the 12 months ended September 30, 2023 and expected future compliance. A future unwaived breach could permit acceleration of debt.
- Management identified a material weakness in internal control over financial reporting, citing inadequate trained accounting personnel and errors in recording transactions and calculating debt covenants. Disclosure controls and internal control over financial reporting were deemed ineffective at year-end. Consultants and new financial-reporting staff were engaged to address the issue. The auditor gave an unqualified opinion on the financial statements, but did not audit or attest to internal-control effectiveness.
- Inflation, food and labor costs, staffing constraints, competition, South Florida hurricane exposure, liquor licensing, and supply interruptions are key risks. One major food supplier represented 42% of cost of goods sold; a liquor distributor represented 24%. The company committed to purchase approximately $7.0 million of ribs in calendar 2023 and $7.0 million in 2024.
- Insurance premiums for the policy year beginning December 30, 2023 totaled approximately $3.932 million, including franchise coverage, and were to be paid in full. The company noted exposure to uninsured liability claims above $11 million and a higher self-insured retention for its own general-liability coverage.
- The board declared a $0.45-per-share dividend in FY2023, compared with $1.00 per share in FY2022. Future dividends are discretionary. No common shares were repurchased in FY2023.
Most important facts for investors to verify
- Whether the company sustains covenant compliance and maintains sufficient liquidity after property purchases, construction spending and full cash payment of insurance premiums.
- Whether management remediates the disclosed material weakness and whether future filings report effective controls without recurring accounting or covenant-calculation errors.
- Whether new locations and the Hollywood rebuild open on schedule and deliver expected sales, while comparable restaurant sales and margins stabilize.
- How labor, food, insurance and other inflationary costs affect margins, and whether supplier concentration creates disruption or pricing exposure.
- The distinction between consolidated net income and earnings attributable to Flanigan’s shareholders, given the noncontrolling interests in consolidated limited partnerships.