Nathan’s Famous, Inc. — FY2024 Form 10-K
Reporting period: Fiscal year ended March 31, 2024 (53 weeks), compared with the 52 weeks ended March 26, 2023. The filing was signed June 12, 2024. This is an annual report, not a standalone fourth-quarter report.
Business context
Nathan’s is a branded food company with three operating segments: Branded Product Program (foodservice product sales), Product Licensing (primarily royalties), and Restaurant Operations (company-owned and franchised locations). Its asset-light model relies substantially on product sales and licensing. The company reported products distributed through approximately 79,000 locations; at year-end it operated four company-owned restaurants and had 230 franchised locations, including Branded Menu locations. Fiscal 2024 franchise openings (17) were below closures (19).
Financial performance
| Metric | FY2024 | FY2023 |
|---|---|---|
| Revenue | $138.6 million | $130.8 million |
| Operating income | $32.5 million | $34.4 million |
| Net income | $19.6 million | $19.6 million |
| Diluted EPS | $4.80 | $4.80 |
| Operating cash flow | $20.0 million | $19.8 million |
| Capital expenditures | $0.3 million | $0.6 million |
| Cash at year-end | $21.0 million | $29.9 million |
| Senior secured notes, face value | $60.0 million | $80.0 million |
Revenue rose about 6%, but the extra fiscal week contributed an estimated $1.2 million to Branded Product sales and about $1.2 million to franchise restaurant sales. Operating margin declined to approximately 23.5% from 26.3%; net margin was approximately 14.2% in both years. Branded Product sales increased 10% to $86.5 million, while license royalties were nearly flat at $33.6 million and company-owned restaurant sales decreased slightly to $12.1 million. Company-owned restaurant traffic fell approximately 2%.
Cost of sales rose 11% to $83.2 million. The company’s reported gross profit measure for Branded Product and company-owned restaurant sales combined was $15.4 million, down from $15.9 million; this is not consolidated gross profit. Hot dog volume in the Branded Product Program increased about 2%, average selling prices rose about 7%, and average hot dog costs increased about 10%. Company-owned restaurant cost of sales improved to 60% of restaurant sales from 62%.
Interest expense declined to $5.4 million from $7.7 million following debt repayments. Income before tax increased to $27.5 million from $26.8 million, while the effective tax rate rose to 28.5% from 26.8%. Adjusted EBITDA, a non-GAAP measure defined by the company, was $34.8 million versus $36.4 million.
Liquidity, debt and capital returns
Cash decreased $8.8 million during the year, principally because the company used $20.0 million to redeem notes and paid $8.2 million in dividends. Net working capital was $23.2 million, down from $30.7 million. Operating cash flow less capital expenditures was approximately $19.7 million. The company said cash and operating cash generation should be sufficient for operations, debt service, dividends and repurchases for at least the next 12 months.
At March 31, 2024, $60.0 million of 6.625% senior secured notes remained outstanding, due November 1, 2025, with no scheduled principal amortization before maturity. Annual interest is expected to be $3.975 million. The company reported covenant compliance and no ongoing financial maintenance covenants. Its quarterly dividend was $0.50 per share in FY2024 ($2.00 per share for the year); a further $0.50 dividend was declared for July 2024. Future dividends remain subject to board approval and debt-indenture restrictions.
Changes, outlook and principal risks
- Growth was concentrated in Branded Product sales; licensing revenue was stable and company-owned restaurant revenue was slightly lower. Franchise locations ended the year two below the prior-year count.
- General and administrative expenses increased $1.6 million, including a discretionary $0.5 million Chairman bonus, a $0.5 million incentive-compensation accrual, and higher share-based compensation and professional fees. A $0.169 million loss on early debt extinguishment was also recorded.
- Management expects continued beef-price volatility in FY2025; beef prices rose again late in FY2024 and into FY2025. New York minimum wages and other labor costs are also expected to rise. Price increases and product-mix changes are management’s stated mitigation tools, but competitive pressure or weaker consumer spending may limit pass-through.
- The Smithfield Foods agreement runs through 2032 and generated approximately $30.1 million of royalties, about 22% of total revenue. The company also says its primary hot dog supplier accounted for 95% of product purchases. Disruption, termination or reduced performance could materially affect results.
- The five largest Branded Product customers represented 77% of that program’s revenue. Seasonal weather, food safety, competition, labor availability, franchisee performance, cybersecurity, regulation and economic conditions are additional disclosed risks. The company reported no material cybersecurity impact to date.
- No formal quantitative revenue or earnings guidance was provided. Management plans to pursue distribution and franchise growth, while investing selectively in existing restaurants and supporting its product programs. It does not expect significant expansion of company-owned restaurants.
- Ordinary-course litigation was not considered likely by management to have a material adverse effect; the filing notes that outcomes remain uncertain. The auditor issued an unqualified opinion on the financial statements and internal controls and reported no critical audit matters.
Investor facts to verify
- How the November 2025 note maturity will be repaid or refinanced, and what cash remains after dividends and operating needs.
- Whether beef-cost increases can be passed through without weakening product volumes or margins, particularly in the Branded Product Program.
- Smithfield’s continued ability to manufacture and distribute products, and the company’s practical alternatives if supply is disrupted.
- Revenue and receivables exposure to major Branded Product customers and retail licensees, including collection trends.
- Whether franchise openings can exceed closures and whether company-owned restaurant traffic and profitability stabilize.
- The effect of the extra fiscal week when comparing FY2024 growth with future periods, and the sustainability of dividends under debt restrictions.