Business Context and Reporting Period
Company: Flanigan's Enterprises, Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended October 3, 2009 (53-week period).
Business Overview: The Company operates a chain of restaurants ("Flanigan's Seafood Bar and Grill") and package liquor stores ("Big Daddy's Liquors") primarily in South Florida. As of October 3, 2009, the Company operated 23 units (excluding an adult entertainment club), owned but did not operate one adult entertainment club ("Mardi Gras"), and franchised six additional units. Operations are conducted directly, through wholly-owned subsidiaries, and via limited partnerships where the Company acts as the general partner.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Total Revenues | $67,060,000 | $64,209,000 |
| Net Income | $1,389,000 | $1,057,000 |
| Net Income Margin | 2.07% | 1.65% |
| Operating Cash Flow | $5,217,000 | $4,363,000 |
| Cash and Equivalents (End of Period) | $4,580,000 | $3,244,000 |
| Total Debt (Including Line of Credit) | $6,800,000 | $6,745,000 |
| Working Capital | $2,087,000 | $2,348,000 |
| Capital Expenditures | $1,934,000 | $4,337,000 |
Segment Performance: Restaurant revenues totaled $52,979,000 (79% of total), while package store revenues were $12,632,000 (19%). Gross profit margins for restaurant food and bar sales were 65.67%, and package liquor store margins were 31.17%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 4.44% to $67.06 million. This increase was primarily driven by the full-year contribution of the Davie, Florida limited partnership restaurant (opened July 2008), which generated $3.84 million in revenue. Excluding the Davie location, total revenue would have decreased 0.27%.
- Same-Store Sales: Comparable weekly restaurant food sales decreased 1.13% due to the financial crisis reducing customer traffic and a shift toward lower-priced menu items. Comparable weekly bar sales increased 2.40%.
- Profitability: Net income increased 31.41% to $1.389 million. Operating costs as a percentage of sales decreased slightly to 96.35% from 96.89%.
- Capital Structure: The Company changed its primary banking relationship, securing a new $2.5 million line of credit. The outstanding balance on the line of credit was $1.586 million at period end. Working capital decreased by $261,000 primarily due to the reclassification of the line of credit as a current liability.
Guidance, Outlook, and Risks
Outlook and Trends:
- Revenue: Management expects aggregate restaurant sales to increase in fiscal 2010 due to the acquisition of the Boca Raton restaurant (purchased from a franchisee in October 2009) and a new half-price drink promotion. However, same-store food sales are expected to decline due to the economic climate.
- Costs: Higher food costs and overall expenses are anticipated, which may adversely affect net income. The Company plans to limit menu price increases to maintain competitiveness.
- Capital Expenditures: Budgeted refurbishment costs for fiscal 2010 are approximately $565,000.
Risks and Contingencies:
- Economic Conditions: The global credit crisis has reduced disposable income and consumer confidence, impacting traffic and profitability.
- Legal Proceedings: The Stuart, Florida limited partnership restaurant is facing potential displacement due to foreclosure proceedings against its landlord. The lease is currently month-to-month, and vacating the premises would have a material adverse effect.
- Competition: Intense competition in the restaurant and liquor industries limits the ability to raise prices.
- Insurance: The Company is self-insured for the first $50,000 of general liability claims per occurrence. A significant judgment in excess of coverage could materially affect the Company.
Investor Verification Checklist
- Stuart, FL Lease Status: Verify the outcome of the foreclosure proceedings against the landlord of the Stuart, Florida restaurant and the likelihood of lease renewal or relocation.
- Boca Raton Acquisition: Confirm the integration of the Boca Raton restaurant (purchased Oct 2009) and its impact on fiscal 2010 revenue projections.
- Line of Credit Terms: Review the terms of the new $2.5 million line of credit and the status of the extension negotiated subsequent to the fiscal year-end.
- Same-Store Sales Trends: Monitor same-store food sales performance to validate management's expectation of a decline in fiscal 2010.
- Insurance Exposure: Assess the adequacy of the $7 million aggregate liability coverage given the Company's self-insured retention and the nature of the business.