Nathan’s Famous, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended March 27, 2022 (52 weeks), compared with the 52 weeks ended March 28, 2021. Although the request metadata says “2021 Q4,” this filing reports a full fiscal year, not a standalone quarter.
Business context
Nathan’s is a branded food company with retail product licensing, foodservice product sales, company-operated restaurants, franchising, and virtual kitchens. At year-end, it had four company-owned restaurants, 239 franchised units, and 287 virtual kitchens. Its channels included approximately 79,000 product locations. Retail licensing and the Branded Product Program are important contributors to revenue and profit.
Financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $114.882 | $75.839 | +$39.043; 51.5% |
| Income from operations | $29.863 | $25.515 | +$4.348; 17.0% |
| Net income | $13.596 | $11.075 | +$2.521; 22.8% |
| Diluted EPS | $3.30 | $2.69 | +$0.61 |
| Adjusted EBITDA | $31.153 | $27.225 | +$3.928 |
| Cash from operations | $16.477 | $11.766 | +$4.711 |
Sales were $77.227 million, up from $41.326 million. Branded Product Program sales rose to $66.322 million from $33.617 million, reflecting reopened venues, approximately 78% higher hot-dog volume, and higher selling prices. Company-owned restaurant sales increased to $10.905 million from $7.709 million. License royalties were $31.824 million, up modestly from $31.368 million; franchise fees and royalties rose to $3.859 million from $1.601 million.
Reported gross profit, defined in the filing as sales less cost of sales, increased to $12.063 million from $8.790 million, but gross margin declined to 15.6% from 21.3%. Branded Product Program cost per pound rose 19%, and higher beef, labor, packaging, and freight costs pressured profitability. Company operating expenses also increased, including general and administrative expenses of $13.145 million versus $12.041 million.
Interest expense was $10.135 million, down from $10.601 million. Net income included a $1.354 million loss on early debt extinguishment. The effective tax rate was 26.7%, versus 27.7%.
Liquidity, cash flow, and debt
Cash and cash equivalents were $50.063 million at year-end, compared with $81.064 million a year earlier. Net working capital was $48.988 million, down from $80.072 million, primarily reflecting the debt redemption. Operating cash flow was $16.477 million; investing cash use was $0.636 million, mainly for capital expenditures; and financing cash use was $46.842 million, principally for debt redemption and dividends.
The company redeemed $40 million principal amount of its 6.625% senior secured notes in January 2022, paying $41.288 million including premium and accrued interest. Notes outstanding at year-end were $110 million, due November 2025, with no scheduled principal amortization before maturity. The company reported covenant compliance. It paid $6.173 million in dividends during FY2022 and increased its quarterly dividend to $0.45 per share. Management stated that cash, cash equivalents, and operating cash flow should be sufficient for operations and expected obligations for at least the next 12 months.
Material changes, outlook, and risks
- Recovery and expansion: Most Branded Product Program customers reopened, and the company reported total program volume back to pre-pandemic levels. It added 54 franchised outlets and 179 virtual kitchens during the year; virtual kitchens increased from 130 to 287.
- Cost and margin pressure: Management expected labor and commodity inflation, especially beef and beef trimmings, to continue into FY2023 and anticipated beef-product price volatility. It may raise prices, but timing and ability to recover higher costs are uncertain. The company had no open hot-dog purchase commitments at year-end and does not hedge most commodity exposure.
- Concentration: John Morrell & Co. generated approximately $28.970 million of royalties, or 25.2% of total revenue, and is the key retail licensee and a major supplier. The five largest Branded Product Program customers represented 77.6% of program revenue.
- Operational and geopolitical risks: COVID-19-related labor, supply, and traffic effects could recur. Twenty-seven Branded Menu Program locations in Ukraine were temporarily closed due to the Russia-Ukraine conflict. The company said the impact could not be determined, though it did not expect those closures alone to significantly affect restaurant operations.
- Debt and seasonality: The $110 million notes, interest costs, indenture restrictions on dividends and other actions, weather sensitivity, and concentration of restaurants in the Northeast remain relevant risks. The company expects sales and profits to be strongest in the first two fiscal quarters and typically weakest in the fourth.
- No quantified earnings guidance: The filing provides management commentary on inflation, growth initiatives, and liquidity, but no specific revenue or earnings forecast. Future dividends remain subject to Board approval and debt-indenture restrictions.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; no critical audit matters were identified. Management reported effective disclosure controls and internal control over financial reporting.
Investor verification priorities
- Track whether beef, labor, packaging, and freight inflation continues and whether price increases preserve Branded Product Program and restaurant margins.
- Review the durability and terms of the John Morrell licensing relationship, minimum royalties, product supply, and its concentration in company earnings.
- Monitor major Branded Product Program customer exposure, receivables, and the ability of reopened venues to sustain demand.
- Verify cash generation, dividend affordability, and progress toward refinancing or repaying the $110 million notes before their November 2025 maturity.
- Check the status of the 27 Ukraine locations, franchise and virtual-kitchen openings and closures, and the reported return of program volume to pre-pandemic levels.