Flanigan’s Enterprises, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first 39 weeks of fiscal 2016, ended July 2, 2016; comparable periods ended June 27, 2015. Amounts below are in millions unless noted. The company operates restaurants and package liquor stores and consolidates eight limited partnerships it controls.
Financial performance
| Metric | 13 weeks ended July 2, 2016 | 13 weeks ended June 27, 2015 | 39 weeks ended July 2, 2016 | 39 weeks ended June 27, 2015 |
|---|---|---|---|---|
| Revenue | $26.383 | $24.796 | $78.635 | $74.010 |
| Operating income | $2.411 | $1.947 | $5.740 | $5.626 |
| Net income before noncontrolling interests | $1.771 | $1.391 | $4.141 | $3.962 |
| Net income attributable to company stockholders | $1.147 | $0.842 | $2.645 | $2.673 |
| Basic and diluted EPS | $0.62 | $0.45 | $1.42 | $1.44 |
- Quarterly revenue increased 6.4%; management attributed the increase mainly to menu price increases and, to a lesser extent, higher restaurant traffic. Quarterly same-store weekly food sales rose 5.91%, bar sales 8.13%, and package-store sales 6.96%.
- Quarterly operating income rose 23.8%. Company-reported net income margin increased to 6.71% from 5.61%; stockholder net income margin rose to 4.35% from 3.40%.
- For the 39-week period, revenue rose 6.25%, while operating income increased 2.0%. Net income attributable to stockholders fell 1.05%, and EPS declined from $1.44 to $1.42. Management cited higher food costs and overall expenses as partially offsetting price increases and sales growth.
- Restaurant food-and-bar gross margin was 65.36% for the quarter and 65.10% for the 39 weeks, up from 64.15% and 64.37%, respectively. Package-store gross margin was 28.01% for the quarter and 28.56% year to date, below the comparable prior-year margins of 29.17% and 29.10%.
- Operating costs and expenses rose 4.91% for the quarter and 6.60% year to date. Year-to-date payroll costs increased 8.18%, occupancy costs 10.64%, and SG&A 7.19%.
Cash flow, liquidity and debt
- For the 39 weeks, operating cash flow was $6.775 million, down from $9.579 million. Investing cash use was $2.822 million; financing cash use was $3.484 million. Cash increased $0.469 million to $9.736 million.
- At July 2, 2016, current assets were $14.593 million and current liabilities $10.533 million, yielding working capital of $4.060 million, compared with $3.068 million at October 3, 2015.
- Total long-term debt, including current maturities, was $10.708 million, versus $11.380 million at October 3, 2015. The company reported compliance with all lender covenants. It used interest-rate swaps to manage variable-rate exposure; swap fair values were not material. Insurance-premium financing had an outstanding principal balance of $0.458 million.
- Capital spending was $2.913 million year to date. The company paid a $0.18-per-share dividend during the period; future dividends remain at the board’s discretion.
Outlook, risks and notable items
- Management expects restaurant food-and-bar gross margins to remain stable through fiscal 2016 as price increases offset higher food costs; it also expects package-store sales and margins to remain stable. It anticipates continued increases in operating costs and SG&A. These are management expectations, not formal earnings guidance.
- Menu prices were increased in February 2016, targeting annual revenue increases of approximately 3.0% for bar offerings and 3.7% for food offerings. Management planned to limit further price increases as long as possible and continue increased advertising. It was searching for restaurant locations and considering a possible expansion of The Whale’s Rib concept.
- Management said existing cash and expected operating cash flow should fund operations and capital expenditures for at least 12 months. A planned Store #20 relocation and restaurant renovation, including construction of a new building, was estimated at approximately $2.5 million, partly to be financed; timing and execution were uncertain. A related construction contract was $1.061 million.
- The company had a fixed-price commitment to purchase approximately $5.076 million of baby back ribs during calendar 2016. It also reported ordinary-course litigation, including personal injury, accessibility, employment, and food-quality claims; none had materially affected the company to date. No material subsequent events were reported.
- Key risks noted include customer demand, competition, rising food and labor costs, minimum-wage increases, and interest-rate fluctuations. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether price increases and comparable-store sales growth persist, and whether traffic or customer demand changes.
- Whether food, labor, occupancy, and SG&A cost increases pressure margins and stockholder earnings.
- Cash generation, debt repayment and covenant compliance, including funding needs for the Store #20 project and other capital spending.
- Actual performance against management’s stated expectations for fiscal 2016 sales, margins, and costs; interim results are not necessarily indicative of full-year results.
- Any developments in litigation, the rib-supply commitment, or the proposed construction and relocation plans.