Business context and reporting period
Flanigan’s Enterprises, Inc. operates restaurants and package liquor stores, primarily in South Florida, and franchises additional locations. This unaudited Form 10-Q covers the 13 and 26 weeks ended April 2, 2022; comparisons are with periods ended April 3, 2021. The company reported 28 units under its operational control or partial ownership and five franchised units in its overview; its unit table separately lists 29 company-owned/operated units, including a restaurant it operates for a franchisee.
Key financial results
| Metric | 13 weeks ended Apr. 2, 2022 | 13 weeks ended Apr. 3, 2021 | 26 weeks ended Apr. 2, 2022 | 26 weeks ended Apr. 3, 2021 |
|---|---|---|---|---|
| Revenue | $40.330 million | $34.357 million | $77.733 million | $65.737 million |
| Operating income | $1.850 million | $2.793 million | $2.615 million | $4.063 million |
| Net income | $1.343 million | $5.692 million | $5.281 million | $6.724 million |
| Net income attributable to Flanigan’s stockholders | $1.660 million | $2.451 million | $3.224 million | $3.231 million |
| Basic and diluted EPS | $0.89 | $1.32 | $1.73 | $1.74 |
Quarterly revenue grew 17.4%, while operating income declined 33.8%. For the first half, revenue increased 18.3% and operating income fell 35.6%. Restaurant food and bar gross margin was 63.83% for the quarter and 63.61% for the first half, down from 67.12% and 67.05%, respectively. Package-store gross margin was 27.97% for the quarter and 26.71% for the first half.
- Restaurant food sales rose to $24.775 million for the quarter and $46.980 million for the first half; bar sales were $6.669 million and $12.676 million. Package-store sales were $8.148 million and $16.659 million, respectively.
- Comparable weekly restaurant food sales increased 14.2% in the quarter and 19.2% in the first half; comparable weekly bar sales increased 30.9% and 32.9%. Same-store package-store sales rose 7.0% and 6.6%, respectively.
- Quarterly operating costs and expenses increased 21.9% to $38.480 million and were 95.4% of revenue, versus 91.9% a year earlier. First-half costs increased 21.8% to $75.118 million, or 96.6% of revenue.
- Quarterly net income was affected by the absence of the prior-year $3.653 million PPP-loan forgiveness gain. First-half results included $3.488 million of PPP-loan forgiveness gains in 2022 versus $3.653 million in 2021. Parent-attributable income also reflects noncontrolling interests, including losses at newly developed partnership restaurants.
Cash flow, liquidity and debt
For the 26 weeks, operating cash flow was $7.225 million, investing cash outflow was $4.574 million, and financing cash inflow was $5.339 million. Cash increased $7.990 million to $40.666 million. Capital expenditures and construction-in-progress purchases totaled $4.111 million in the cash-flow statement; MD&A reports $4.795 million of capital expenditures on a broader basis.
At April 2, 2022, working capital was $23.196 million, compared with $19.567 million at October 2, 2021. Long-term debt, including current maturities, was $18.787 million, down from $22.115 million. The company reported compliance with loan covenants. It declared a $1.00-per-share dividend, or $1.861 million, payable April 19, 2022. Management believes available cash, operating cash flow and borrowing capacity can fund operations and planned capital spending for at least 12 months.
Outlook, risks and notable items
- No formal earnings or revenue guidance was provided. Management expects operating costs and SG&A as a percentage of revenue to continue increasing through fiscal 2022, citing food, labor and other cost inflation.
- Menu price increases were implemented for food and bar offerings to offset higher costs. Management also cites COVID-19-related uncertainty, potential supply and labor disruptions, customer demand and competition as risks.
- The Sunrise limited-partnership restaurant opened March 22, 2022. The Miramar partnership restaurant was expected to open in October 2022; the company said it did not expect that restaurant to open during fiscal 2022. A new Hollywood package store was expected to open during fiscal 2022. The Hollywood restaurant damaged by fire in 2018 remained closed.
- The company completed private offerings raising $5.0 million for the Sunrise partnership and $4.0 million for the Miramar partnership. It recorded $8.595 million of proceeds from noncontrolling-interest offerings in financing cash flow.
- The company agreed to buy approximately $10.414 million of baby back ribs during calendar 2022 at market cost. Management says inflation is materially affecting results. COVID-19 may continue to adversely affect operations, liquidity and financial condition.
- The filing reports no current dram-shop claims; management considers other ordinary-course legal matters not expected to have a material adverse effect. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How food, labor and other cost inflation, and further price changes, affect restaurant margins and operating income.
- Whether new Sunrise, Miramar and Hollywood locations open on the stated schedules, and their start-up costs and contribution to results.
- The reconciliation of the unit counts in the overview and unit table, and the basis for the different capital-expenditure totals presented in MD&A and the cash-flow statement.
- Debt repayment timing, interest-rate exposure and the effect of the planned $1.861 million dividend on liquidity and capital spending.