Flanigan’s Enterprises, Inc. — Q1 FY2014 Form 10-Q
Reporting period: Thirteen weeks ended December 28, 2013; comparisons are to the thirteen weeks ended December 29, 2012, unless otherwise noted. Unaudited consolidated results include nine controlled limited partnerships. The company operates restaurants and package liquor stores, primarily in Florida.
Financial results
| Metric | Q1 FY2014 | Prior-year quarter |
|---|---|---|
| Total revenue | $21.475 million | $19.613 million |
| Income from operations | $1.216 million | $636,000 |
| Income before taxes | $1.039 million | $436,000 |
| Net income | $809,000 | $288,000 |
| Net income attributable to stockholders | $538,000 | $345,000 |
| Diluted earnings per share | $0.29 | $0.19 |
| Operating cash flow | $1.876 million | $1.642 million |
| Capital expenditures | $563,000 | $4.230 million |
| Cash and cash equivalents, period-end | $7.426 million | $5.992 million |
Revenue increased 9.5%. Operating margin rose to approximately 5.7% from 3.2%; net income attributable to stockholders was 2.5% of sales versus 1.8%. Restaurant food-and-bar gross margin improved to 64.92% from 64.22%; package-store gross margin was 29.39% versus 29.49%.
Restaurant segment revenue was $17.307 million, up from $15.519 million, while package-store revenue was $3.661 million, up from $3.550 million. Restaurant operating income increased to $1.547 million from $938,000; package-store operating income declined to $245,000 from $286,000.
Balance sheet and liquidity
At December 28, 2013, current assets were $12.983 million and current liabilities were $10.767 million, for working capital of $2.216 million and a current ratio of about 1.21. Working capital was $2.383 million at September 28, 2013. Total assets were $51.732 million and total equity was $28.562 million.
Total long-term debt, including current maturities, was $14.559 million, compared with $13.546 million at September 28, 2013 and $15.327 million a year earlier. The company reported compliance with all loan covenants. It had five variable-rate debt instruments, with interest-rate swaps intended to convert the associated obligations to fixed rates; management reported the swaps’ fair values were not material.
Operating cash flow less capital expenditures was approximately $1.313 million. Cash increased $368,000 during the quarter, reflecting operating cash flow of $1.876 million, investing outflow of $519,000, and financing outflow of $989,000. Financing included $456,000 of debt payments, $378,000 of distributions to limited-partnership noncontrolling interests, and a $145,000 purchase of limited-partnership interests.
Changes, outlook, and risks
- Revenue growth was driven in part by a Miami limited-partnership restaurant opened December 27, 2012, which generated $856,000 in the quarter. Excluding that restaurant, revenue increased 5.1%. Comparable weekly restaurant food sales rose 5.74% and bar sales rose 7.87%; same-store package-store sales rose 3.30%.
- Operating costs and expenses increased 6.8%, less than revenue growth, and declined to 94.34% of total sales from 96.76%. Management cited the new restaurant and generally higher food costs, partly offset by lower rib costs and cost controls. Payroll expense rose 10.5%, primarily reflecting the new restaurant.
- Management expects restaurant food and bar sales to increase, but anticipates lower restaurant food-and-bar gross profit from higher food costs, partly offset by lower rib costs during calendar 2014. Package-store sales and margins are expected to remain stable. It expects higher food, insurance, health-insurance, and other expenses to pressure net income, and may raise menu prices where competition permits. No formal earnings or revenue guidance was provided.
- Management said cash on hand and expected operating cash flow should fund operations and capital expenditures for at least 12 months, while noting unanticipated expenses or revenue declines could affect that assessment. Planned FY2014 refurbishment costs were approximately $875,000, of which $248,000 had been spent by quarter-end. The company was not developing a new restaurant but continued to seek locations, likely using its limited-partnership model.
- The company committed to purchase approximately $4.260 million of baby back ribs at a fixed cost during calendar 2014. It reported no off-balance-sheet arrangements and no subsequent events requiring disclosure. Ordinary-course litigation, including personal injury, accessibility, employment, and food-quality claims, had not had a material effect to date.
- Disclosure controls and internal control over financial reporting were reported effective; no material control changes were reported. The company did not pay a cash dividend.
Important facts for investors to verify
- Whether restaurant same-store sales and margins sustain their growth as food and other operating costs rise.
- The earnings impact and actual purchasing terms of the $4.260 million fixed-price rib commitment.
- Debt maturities, interest-rate exposure, swap terms, and the effect of insurance-premium financing; insurance financing principal was $1.469 million at quarter-end.
- Capital spending and refurbishment needs, and the company’s ability to maintain liquidity while servicing debt and making partnership distributions.
- The distinction between consolidated net income of $809,000 and stockholder-attributable net income of $538,000, reflecting the quarter’s noncontrolling-interest allocation.