Flanigan’s Enterprises, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended October 1, 2022, comprising 52 weeks. This is an annual report, not a standalone fourth-quarter filing. Unless stated otherwise, financial amounts are in U.S. dollars.
Business context
Flanigan’s operates restaurants and package liquor stores primarily in South Florida. At year-end it operated or controlled 30 units and franchised five. Its restaurant and package-store operations are reported in two segments; results also include controlled limited partnerships consolidated despite the Company’s minority ownership interests.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $158.1 million | $137.3 million |
| Income from operations | $6.9 million | $8.7 million |
| Net income | $9.0 million | $16.8 million |
| Net income attributable to Company stockholders | $6.3 million; $3.40 per share | $11.8 million; $6.34 per share |
| Cash provided by operating activities | $10.5 million | $14.0 million |
| Cash and cash equivalents at year-end | $42.1 million | $32.7 million |
| Long-term debt, including current portion | $25.4 million | $22.1 million |
| Working capital | $28.7 million | $19.6 million |
- Revenue increased 15.2%. Restaurant food sales were $97.4 million, bar sales $26.2 million, and package-store sales $31.7 million.
- Operating costs and expenses increased 17.5% to $151.2 million. Operating margin declined to approximately 4.4% from 6.3%; net margin declined to 5.7% from 12.2%.
- Restaurant food-and-bar gross margin fell to 64.0% from 65.8%, chiefly reflecting higher food costs. Package-store gross margin rose to 26.5% from 23.7%.
- Operating cash flow decreased despite higher revenue. Investing activities used $9.5 million; financing activities provided $8.5 million, including $8.6 million from limited-partnership interest offerings. Cash increased by $9.5 million.
- The $25.4 million debt balance included $23.1 million owed to the institutional lender. The Hallandale mortgage was refinanced to $8.9 million and fixed at 4.90% through a swap. The Company reported covenant compliance at year-end. Its $367,000 remaining term-loan balance was repaid on December 28, 2022.
- Operating lease liabilities totaled approximately $30.5 million. Current assets were $50.9 million and current liabilities $22.2 million.
Material changes and fourth-quarter results
- Annual net income fell 46.0%; income attributable to Company stockholders fell 46.4%. A key comparison is the prior year’s larger $10.1 million gain from PPP debt forgiveness, versus $3.5 million in FY2022. Higher food costs and operating expenses also weighed on FY2022 earnings.
- Comparable weekly restaurant food sales increased 11.7% and bar sales increased 21.5%. Same-store weekly package-store sales increased 8.0%. These comparisons exclude new FY2022 locations where applicable.
- For the fourth quarter ended October 1, 2022, revenue was $39.7 million, operating income $2.2 million, and net income attributable to stockholders $1.3 million, or $0.68 per share. In the comparable prior-year quarter, these were $33.6 million, $2.0 million, and $1.4 million, or $0.73 per share.
- The Company opened a limited-partnership restaurant in Sunrise and acquired and began operating Brendan’s Sports Pub. It also raised $9.0 million through limited-partnership offerings for Sunrise and a Miramar restaurant in development.
Outlook, risks, and unusual items
- Management expected FY2023 restaurant sales to benefit from increased traffic and the planned opening of the Miramar restaurant; package-store sales were expected to benefit from increased traffic and new Hollywood and Miramar stores. These are expectations, not guaranteed results.
- Management anticipated continued increases in operating costs and expenses, with inflation in food, fuel, and labor materially affecting results. It expected package-store gross margin to decrease in FY2023 due to higher costs and more competitive pricing. Management said available cash, operating cash flow, and borrowing capacity should fund operations and planned capital spending for at least the next 12 months.
- COVID-19 effects, staffing shortages and wage inflation, food and liquor supply disruptions, intense competition, customer-spending uncertainty, and Florida hurricane exposure are prominent risks. One major food supplier represented 42% of cost of goods sold; a distributor represented 23% of alcoholic-beverage cost of goods sold.
- Management warned that future covenant compliance is uncertain; an uncured or unwaived default could permit acceleration of institutional debt. The Company also depends on insurance coverage: premiums for policies commencing December 30, 2022 totaled approximately $3.3 million, including coverage for franchises. Windstorm deductibles and the possibility of inadequate or costly future coverage remain risks.
- A 2018 fire had kept the Hollywood restaurant and liquor store closed through year-end. The rebuilt package store reopened after year-end; the restaurant rebuild remained under way. Planned FY2023 refurbishment spending was approximately $650,000, excluding major development and reconstruction projects.
- The Company paid a $1.00-per-share dividend in FY2022; it paid none in FY2021. A related-party entity controlled by a director who is also CFO advanced funds under a mortgage, bringing the balance to $1.1 million at 6%. Several franchisees and limited-partnership investors are affiliated with officers, directors, or their families.
- The auditor issued an unqualified opinion and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- How much of FY2022 revenue and comparable-sales growth reflected pricing versus traffic, and whether those trends persisted after year-end.
- The effect of ongoing food, labor, insurance, and other cost inflation on operating and gross margins.
- Actual timing, capital requirements, and returns for the Miramar projects and Hollywood restaurant reconstruction.
- Debt maturities, covenant headroom, post-year-end term-loan repayment, and the interest-rate swap and mortgage terms.
- The relationship between consolidated results and the earnings, cash distributions, and noncontrolling interests of controlled limited partnerships.
- Future dividend decisions, insurance renewals and deductibles, and the financial impact of the related-party mortgage and affiliated franchise arrangements.