Business context and reporting period
Flanigan’s Enterprises, Inc. operates and controls restaurants and package liquor stores, and franchises additional locations. This unaudited Form 10-Q covers the 13 and 39 weeks ended June 27, 2020; comparisons are with the periods ended June 29, 2019. Unless stated otherwise, amounts are in millions of dollars.
Financial performance and position
| Metric | 13 weeks ended June 27, 2020 | 39 weeks ended June 27, 2020 |
|---|---|---|
| Revenue | $23.663 | $84.732 |
| Operating income (loss) | $(0.732) | $2.016 |
| Net income (loss) | $(0.863) | $1.478 |
| Net income (loss) attributable to stockholders | $(0.455) | $0.687 |
| Basic and diluted EPS | $(0.24) | $0.37 |
- Revenue mix: Quarterly restaurant food sales were $14.514 million and bar sales $1.630 million; package store sales were $7.099 million. For the 39 weeks, those amounts were $51.469 million, $12.836 million, and $18.833 million, respectively.
- Margins: Quarterly operating margin was approximately -3.1% versus 6.6% a year earlier; for the 39 weeks it was approximately 2.4% versus 5.2%. Restaurant food-and-bar gross margin was 66.63% for the quarter and 66.24% for the 39 weeks. Package-store gross margin was 26.14% and 27.21%, respectively.
- Cash flow: For the 39 weeks, operating cash flow was $7.438 million, investing cash flow $(2.448) million, and financing cash flow $11.821 million. Cash increased $16.810 million to $30.482 million.
- Liquidity: Current assets were $37.288 million and current liabilities $21.164 million, yielding working capital of $16.124 million, versus $6.464 million at September 28, 2019.
- Debt and leases: Current and long-term debt totaled $27.157 million, compared with $13.080 million at September 28, 2019. Operating lease liabilities totaled $26.562 million; these are separate from reported debt. Institutional lender loans outstanding were approximately $12.6 million.
Material changes versus prior periods
- Quarterly revenue declined 19.8% year over year; 39-week revenue fell 2.8%. Quarterly stockholder-attributable results shifted from $0.968 million income to a $0.455 million loss; 39-week attributable income declined 74.9% to $0.687 million.
- COVID-19 restrictions sharply reduced restaurant activity, particularly bar sales: quarterly restaurant bar sales fell from $5.652 million to $1.630 million. In contrast, package-store sales rose from $4.752 million to $7.099 million for the quarter, helped by higher traffic and a new store.
- Operating expenses were $24.395 million in the quarter, down 11.5%, but exceeded revenue. For the 39 weeks, operating expenses were nearly flat year over year at $82.716 million.
- Cash and debt increased substantially, reflecting approximately $10.0 million of PPP loans to the company and consolidated limited partnerships, plus mortgage refinancing. The company’s $5.9 million PPP loan and $4.1 million of limited-partnership loans are included in the filing’s consolidated borrowing discussion; franchisee and managed-store loans are not consolidated.
- Adoption of ASC 842 added $27.8 million of right-of-use assets and lease liabilities at adoption and increased occupancy costs. The company also canceled a previously declared $0.30-per-share dividend in March 2020; no dividend was paid in the 39 weeks.
Outlook, risks and unusual items
- Management expected COVID-19 to continue adversely affecting restaurant sales, results, liquidity and financial condition through the remainder of fiscal 2020 and potentially into fiscal 2021. At filing, restaurants outside Miami-Dade were generally limited to 50% capacity with no bar service; Miami-Dade locations had suspended indoor dining. Store #19, closed after a fire, was expected to remain closed for the balance of fiscal 2020.
- Management anticipated continued package-store sales strength, but warned of lower package-store margins from higher costs and price competition. Restaurant recovery and the duration of restrictions remained uncertain.
- The company and related borrowers received approximately $13.1 million in PPP loans in total; only $5.9 million for the company and $4.1 million for consolidated limited partnerships are reflected in the consolidated financial statements. Forgiveness was not assured.
- The company reported a financial covenant breach on institutional loans as of June 27, 2020, related to the Rent Adjusted Funded Debt to EBITDA Ratio. The lender waived the breach through June 30, 2021; future compliance is uncertain, and an unwaived default could permit acceleration of the loans.
- Management said cash, operating cash flow and borrowing availability should fund operations and planned capital expenditures for at least 12 months. This outlook is subject to pandemic-related revenue declines and other unforeseen expenses. Planned refurbishment spending for fiscal 2020 was approximately $0.750 million, excluding Store #19 and Store #85; $0.692 million had been spent through June 27.
- Other commitments include a fixed-cost 2020 rib-purchase agreement of approximately $5.314 million. The filing reports no current dram-shop claims and states other ordinary-course claims were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether restaurant restrictions, customer demand and bar-service limitations materially changed after the filing, and how these affected sales and cash generation.
- The status and terms of PPP loan forgiveness; any unforgiven balances remain debt obligations.
- Compliance with institutional loan covenants after the waiver expires on June 30, 2021, including any amendments or further waivers.
- Whether cash, operating cash flow and financing availability remain sufficient amid operating losses, debt service and planned capital spending.
- Progress, timing and remaining costs for the Store #19 rebuild and Store #85 development, and the effect of lease accounting on occupancy expense.