Business context and reporting period
Flanigan’s Enterprises, Inc. operates restaurants and package liquor stores, alongside franchising and managing limited-partnership-owned restaurants. This unaudited Form 10-Q covers the 13 and 39 weeks ended June 28, 2014; comparisons are with the periods ended June 29, 2013. Unless stated otherwise, financial amounts below are in millions of dollars.
At quarter-end, the company reported 26 company-owned or operated units and five franchised units. Its restaurant and package-store segments operate in the United States.
Financial performance and position
| Metric | 13 weeks ended June 28, 2014 | 13 weeks ended June 29, 2013 | 39 weeks ended June 28, 2014 | 39 weeks ended June 29, 2013 |
|---|---|---|---|---|
| Total revenue | $22.817 | $21.012 | $68.063 | $62.880 |
| Operating income | $1.972 | $1.629 | $5.264 | $3.770 |
| Income before taxes | $1.825 | $1.434 | $4.821 | $3.203 |
| Consolidated net income before noncontrolling interests | $1.390 | $1.119 | $3.751 | $2.451 |
| Net income attributable to stockholders | $0.857 | $0.660 | $2.302 | $1.756 |
| Basic and diluted EPS | $0.46 | $0.35 | $1.24 | $0.94 |
- Quarterly revenue rose 8.6%; revenue for the 39-week period rose 8.2%. Stockholder-attributable earnings increased 29.9% and 31.1%, respectively.
- For the 13 weeks, comparable weekly restaurant food sales increased 8.0% and bar sales increased 13.9%; same-store package-store sales rose 6.8%. For the 39 weeks, comparable food and bar sales increased 6.8% and 11.6%, respectively; same-store package-store sales rose 3.8%.
- Restaurant food-and-bar gross margin was 65.20% for the quarter and 65.45% year to date, versus 65.66% and 64.92%. Package-store gross margin was 30.28% and 29.95%, versus 31.28% and 29.93%.
- Operating costs and expenses increased 7.5% for the quarter and 6.2% year to date, but declined as a share of sales: 91.36% versus 92.25% for the quarter, and 92.27% versus 94.00% year to date.
- Cash from operations was $6.245 million, compared with $5.026 million. Investing used $1.961 million and financing used $3.907 million; cash increased $0.377 million to $7.435 million.
- At June 28, cash was $7.435 million; working capital was $2.539 million; total assets were $52.500 million. Debt was $13.616 million, including $2.039 million current, versus $13.546 million total at September 28, 2013. The company reported compliance with lender covenants.
- Capital expenditures and acquired property and equipment were reported at $3.140 million for the 39 weeks, including financed purchases. Management expected fiscal 2014 refurbishment costs of about $0.875 million; $0.699 million had been spent by quarter-end.
Material changes, outlook, and risks
- Year-to-date growth included revenue from a Miami limited-partnership restaurant opened in December 2012: $2.764 million in the current period versus $1.799 million. Excluding that restaurant, revenue increased 6.9%.
- Management attributed higher costs partly to expected food-cost increases, while lower rib costs and cost-control actions helped. It expected operating costs and SG&A to continue rising through fiscal 2014; restaurant food-and-bar gross profit and package-store margins were expected to remain stable, and package-store sales were expected to remain stable.
- Management expected restaurant food and bar sales to increase over the next 12 months, but warned that higher food costs, insurance and health premiums, and other expenses could pressure earnings. It planned continued advertising, sought to limit menu-price increases, and noted prices might need to rise where competitive conditions allow.
- The company said cash on hand and expected operating cash flow should fund operations and capital expenditures for at least 12 months. This is management’s assessment, not a guarantee; it also cited possible unanticipated expenses or revenue declines.
- During the quarter, the company paid about $0.425 million to settle a 10% mortgage note and made payments that reduced or modified other mortgages owed to entities controlled by directors. Modified notes carried 5% interest and included balloon payments due in 2021. A subsequent $0.280 million advance under one such note increased its principal to about $0.720 million as of July 1, 2014.
- A new seller-financed $0.900 million mortgage for property used by a franchised restaurant bears 7.5% interest. Separately, the company agreed to buy about $4.260 million of baby back ribs during calendar 2014 at a fixed cost.
- After quarter-end, the company obtained four five-year lease-renewal options for a restaurant location, subject to specified parking and lighting work estimated at about $0.113 million.
- Ordinary-course litigation includes premises, accessibility, employment, and customer claims; the company said none had materially affected it to date. It reported no off-balance-sheet arrangements and effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Whether comparable-store sales and margin trends continue, particularly given management’s warnings about food, labor, insurance, and other cost inflation.
- Debt maturities, balloon payments, interest-rate exposure, swap terms, and the continuing transactions with director-controlled lenders; confirm covenant compliance in subsequent filings.
- Whether operating cash flow supports planned capital spending, debt service, and the stated liquidity outlook.
- The performance of the newer Miami restaurant and whether further restaurant openings or renovations require material cash or pre-opening costs.
- The eventual cost and execution of the post-quarter lease improvements, and any material developments in litigation or other contingencies.