Flanigan’s Enterprises, Inc. — FY2020 Form 10-K
Business and reporting period. The company operates South Florida restaurants and package liquor stores, including units held through controlled limited partnerships, and franchises five additional units. Fiscal 2020 ended October 3, 2020 and comprised 53 weeks; fiscal 2019 comprised 52 weeks. The year was heavily affected by COVID-19 restrictions.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $112.98 million | $116.20 million |
| Income from operations | $2.91 million | $6.32 million |
| Net income | $2.18 million | $5.38 million |
| Net income attributable to shareholders | $1.11 million; $0.60 per share | $3.65 million; $1.96 per share |
| Cash from operating activities | $8.79 million | $9.63 million |
| Cash and cash equivalents at year-end | $29.92 million | $13.67 million |
| Working capital | $11.15 million | $6.46 million |
| Long-term debt, including current portion | $26.32 million | $13.08 million |
- Total revenue fell 2.8%; operating income declined 53.9%, and shareholder-attributable income fell 69.6%. Net margin was 1.93%, versus 4.63% in FY2019.
- Restaurant food sales decreased 4.4% to $68.69 million; bar sales fell 29.0% to $15.97 million. Package store sales rose 36.0% to $26.28 million, supported by higher demand and the opening of Store #45.
- Comparable weekly restaurant food sales declined 6.67% and comparable weekly bar sales declined 30.32%. Same-store package liquor sales increased 24.19%.
- Restaurant food-and-bar gross margin increased to 66.31% from 64.92%; package-store gross margin eased to 26.96% from 27.26%. Operating costs and expenses were $110.07 million, or 97.42% of sales, versus 94.56%.
- Investing activities used $3.27 million, chiefly for property and equipment. Financing provided $10.74 million, principally reflecting new borrowing; the $16.25 million cash increase was not generated by operations alone.
Liquidity, debt and material changes
- Cash rose by $16.25 million. Management stated that cash on hand, operating cash flow and borrowing capacity were expected to fund operations and planned capital expenditures for at least 12 months.
- The company and certain controlled limited partnerships received approximately $10.0 million of PPP loans recorded in the consolidated accounts ($5.9 million to the company and $4.1 million to eight partnerships). Total PPP loans across the company, partnerships, franchisees and a managed store were approximately $13.1 million; franchisee and managed-store amounts are not consolidated. Loans bear 1% interest, mature in 2022 and may be forgiven, but forgiveness was not assured.
- Institutional loans outstanding were approximately $12.21 million. A FY2020 covenant breach related to the rent-adjusted funded-debt-to-EBITDA ratio was waived through June 30, 2021; the company reported covenant compliance at year-end. Future compliance is uncertain, and an uncured breach could permit acceleration.
- Debt increased partly because of PPP borrowing, a mortgage refinancing that increased principal from $2.72 million to $7.21 million, and financed insurance premiums. The refinancing mortgage bears 3.86% interest and has a November 2026 balloon payment. Operating lease liabilities were $23.45 million, with an additional $4.77 million current finance-lease liability.
- Adoption of ASC 842 added lease right-of-use assets and liabilities; management said the accounting change materially affected the income statement but not cash flows. The filing also reports a $602,000 insurance recovery gain in FY2019 related to the prior fire at Store #19; no such gain was recorded in FY2020.
Outlook, risks and unusual items
- Management expected FY2021 total revenue to decrease because of continuing pandemic effects; restaurant food and bar sales were also expected to decline, while package-store revenue was expected to increase. Management anticipated higher operating costs as temporary cost reductions were reversed and a lower package-store gross margin due to costs and competitive pricing.
- Restaurants shifted to takeout and delivery during restrictions; Miami-Dade locations temporarily ceased dine-in service in summer 2020. Dine-in and bar service resumed with social distancing in September. The company added in-house delivery, reduced staffing and corporate salaries, then partly reversed those measures as restrictions eased and PPP funding arrived.
- The board canceled a previously declared $0.30-per-share dividend in March 2020. No shareholder dividends were paid in FY2020; future dividends are discretionary. Limited-partner distributions were also reduced during the pandemic.
- Store #19 remained closed after a 2018 fire; rebuilding plans and construction timing were uncertain. The company planned approximately $950,000 of FY2021 refurbishments, in addition to development spending for Sunrise and rebuilding Store #19. Subsequent to year-end, it bought the North Lauderdale property for $1.2 million and exercised the Sunrise purchase option, with closing anticipated in FY2021.
- Other notable exposures include pandemic-related demand and operating uncertainty, possible supply or labor disruptions, competition, food and labor cost inflation, liquor-license regulation, hurricane and windstorm exposure, and liability claims. Windstorm coverage carries a $100,000 deductible plus 5% of insured losses per occurrence; liability above $11 million per occurrence and in aggregate is uninsured.
- Subsequent to year-end, menu prices were increased to target annual revenue increases of approximately 1.83% for bar offerings and 2.45% for food. The company also committed to purchase approximately $6.42 million of ribs during calendar 2021 at fixed cost.
- The independent auditor issued an unqualified opinion on the financial statements. Management assessed disclosure controls and internal control over financial reporting as effective; auditor attestation of internal controls was not required.
Key facts for investors to verify
- Progress in restaurant sales and margins, especially bar sales, and whether package-store demand remains elevated.
- PPP loan forgiveness status, remaining debt obligations, and covenant compliance after the waiver expires June 30, 2021.
- Cash generation and liquidity after distinguishing operating cash flow from pandemic-related borrowing.
- Costs, timing and funding for Store #19 rebuilding and planned Sunrise and Miramar projects.
- Whether pandemic restrictions, consumer behavior, labor availability, food costs and insurance costs materially change FY2021 performance.