Flanigan’s Enterprises, Inc. — Q1 Fiscal 2023
Reporting period: Unaudited 13 weeks ended December 31, 2022; comparable period ended January 1, 2022. Unless otherwise noted, amounts are in millions. The company operates restaurants and package liquor stores, including limited-partnership locations; at quarter-end it operated or controlled 30 units and franchised five.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $41.861 | $37.403 | +11.9% |
| Operating income | $1.197 | $0.765 | +56.5% |
| Net income | $0.874 | $3.938 | -77.8% |
| Net income attributable to Flanigan’s stockholders | $0.624 | $1.564 | -60.1% |
| Basic and diluted EPS | $0.34 | $0.84 | — |
| Operating cash flow | $5.879 | $4.229 | +$1.650 |
| Capital expenditures | $1.499 | $2.011 | -$0.512 |
Restaurant food sales were $24.767 million, bar sales $6.988 million, and package-store sales $9.403 million. Restaurant and package-store segment operating income was $0.779 million and $0.799 million, respectively.
Operating margin increased to approximately 2.9% from 2.0%. Restaurant food-and-bar gross margin rose to 66.0% from 63.4%; package-store gross margin edged up to 25.7% from 25.5%. Net margin was 2.1%, versus 10.5% in the prior-year quarter, which included a $3.488 million gain from PPP loan forgiveness. Excluding that unusual prior-period gain, the headline net-income decline is not a like-for-like measure of underlying operating performance.
Liquidity, debt and cash flow
Cash and cash equivalents were $43.143 million at December 31, up from $42.138 million at October 1, 2022. Working capital was $26.675 million, down from $28.717 million; current assets were $51.374 million and current liabilities $24.699 million. Operating, investing and financing cash flows were +$5.879 million, -$2.680 million and -$2.194 million, respectively.
Total debt was $24.034 million, down from $25.389 million at fiscal year-end; the company paid off the remaining $0.367 million balance of a term loan during the quarter. Operating lease liabilities totaled $29.987 million on the balance sheet. The company reported no cash dividends.
Changes, outlook and material matters
- Revenue growth reflected higher restaurant and package-store sales, menu-price increases implemented in the prior fiscal year, new locations (including Sunrise and Brendan’s Sports Pub), and less adverse COVID-19 effects than in the comparison quarter. Comparable weekly restaurant food and bar sales rose 4.55% and 7.79%, respectively; same-store package sales rose 6.07%.
- Costs and expenses increased 11.0% to $40.664 million. Payroll rose 11.4%, and selling, general and administrative expenses rose 22.5%; inflation, higher labor and food costs, and new-store and pre-opening costs contributed. Management expected operating costs and SG&A as a share of revenue to continue increasing during FY2023.
- Management expected restaurant and package-store sales to increase, citing traffic and planned openings, including the Miramar restaurant and package store. It also anticipated lower package-store gross margins from higher costs and more competitive pricing. These are management expectations, not formal earnings guidance.
- Management said cash on hand, operating cash flow and borrowing capacity should fund operations and planned capital spending for at least 12 months. It anticipated FY2023 refurbishment spending of approximately $0.650 million, excluding specified construction projects; actual refurbishment spending could be higher.
- Debt covenant: The company determined in February 2023 that its trailing-12-month fixed-charge coverage ratio was 1.13, below the required 1.15. The institutional lender waived the noncompliance on February 23, including its right to accelerate the loans. Management expected to regain compliance by the end of FY2023’s second quarter and projected compliance over the following four quarters.
- Internal controls: Management concluded disclosure controls were not effective as of December 31, 2022, due to a material weakness involving insufficient trained accounting personnel. Errors in transaction recording and debt-covenant calculations were identified; the company had begun recruiting and was planning control enhancements, but had not implemented additional controls during the quarter.
- Other risks and commitments: Management cited COVID-19, inflation, labor availability and supply-chain uncertainty. It agreed to purchase approximately $6.8 million of baby-back ribs during calendar 2023. Annual insurance premiums of $3.281 million were paid January 9, 2023. Construction contracts and rebuilding projects create additional cash commitments. The filing reported no current dram-shop claims and said other ordinary-course claims were not expected to have a material adverse effect.
Investor verification points
- Track fixed-charge covenant compliance, lender-waiver conditions and any future debt disclosures.
- Assess whether management’s projected sales growth and new-location openings offset rising operating and SG&A costs.
- Monitor remediation of the material weakness and whether accounting and covenant calculations improve.
- Review cash generation against construction commitments, capital spending and the rib purchase agreement.
- Separate recurring earnings from the prior-year PPP forgiveness gain when comparing periods.