Business context and reporting period
Flanigan’s Enterprises, Inc. operates restaurants and package liquor stores, primarily in Florida. This unaudited Form 10-Q covers the 13 weeks ended June 29, 2019 (fiscal third quarter) and the 39 weeks ended June 29, 2019, compared with the corresponding 2018 periods. At quarter-end, the company operated or controlled 26 units and franchised five; results include eight controlled limited partnerships.
Financial performance
Amounts below are in millions, except per-share data and percentages. Quarterly and year-to-date figures are compared with the respective 2018 periods.
| Metric | 13 weeks | 39 weeks |
|---|---|---|
| Revenue | $29.512 (+3.8%) | $87.142 (+1.0%) |
| Operating income | $1.944 (vs. $2.094) | $4.489 (vs. $6.193) |
| Consolidated net income | $1.476 (vs. $1.615) | $3.939 (vs. $4.456) |
| Net income attributable to stockholders | $0.968 (vs. $1.043) | $2.732 (vs. $3.061) |
| EPS, basic and diluted | $0.52 (vs. $0.56) | $1.47 (vs. $1.65) |
Quarterly operating margin was approximately 6.6% versus 7.4%; consolidated net margin was 5.0% versus 5.7%. For the 39-week period, operating margin was approximately 5.2% versus 7.2%, and net margin was 4.5% versus 5.2%. Restaurant food-and-bar gross margin was 65.22% for both periods in the table (quarter and year-to-date), slightly below 2018; package-store gross margin declined to 28.05% for the quarter and 27.19% year to date, from 28.57% and 28.06%, respectively.
Quarterly revenue growth reflected higher traffic despite the closure of Store #19 after a fire. Comparable weekly restaurant food sales rose 8.43% and bar sales rose 7.14%; same-store package sales rose 7.33%. Year-to-date comparable weekly food, bar, and package sales increased 5.30%, 4.38%, and 11.30%, respectively. However, costs grew faster than revenue: year-to-date operating costs and expenses rose 3.2%, and SG&A rose 7.5%.
Cash flow, liquidity and debt
For the 39 weeks, operating cash flow was $6.193 million, down from $7.487 million; investing outflow was $3.470 million, and financing outflow was $3.604 million. Cash declined $0.881 million to $12.533 million. Capital expenditures were $5.244 million, compared with $3.219 million a year earlier.
At June 29, 2019, current assets were $18.817 million and current liabilities $15.529 million, giving working capital of $3.288 million (versus $5.715 million at September 29, 2018) and a current ratio of approximately 1.21. Total long-term debt, including current maturities, was $13.828 million, versus $14.576 million at fiscal year-end. The company reported compliance with loan covenants. A $2.813 million mortgage due November 30, 2019 was reclassified as current; management said it planned to refinance it. Cash dividends paid during the 39 weeks were $0.28 per share.
Material changes, outlook and risks
- Store #19 fire: The Hollywood restaurant/package store remained closed after an October 2018 fire and was expected to remain closed through at least fiscal year-end 2019. The company recorded a $0.602 million net insurance recovery in the 39-week period and said it did not expect further proceeds other than $0.132 million of depreciation recovery still outstanding. Reconstruction and related site work are planned.
- Management outlook: The company expects revenue to benefit from higher traffic and June menu-price increases, while the Store #19 closure remains a headwind. Food and bar price changes targeted annual revenue increases of approximately 3.4% and 6.2%, respectively. Management expects package-store gross margin to decline due to competitive pricing and anticipates higher operating, occupancy and SG&A costs. These are forward-looking expectations, not guarantees.
- Expansion and commitments: A Sunrise restaurant was in development, with $0.239 million of pre-opening costs recognized in the quarter. A Pompano Beach property was purchased for $1.3 million, with plans to develop a restaurant on adjacent leased property. The company also disclosed $1.618 million of site-work contracts related to rebuilding Store #19 and a $5.888 million fixed-cost rib-supply commitment for calendar 2019.
- Accounting and contingencies: Adoption of lease accounting in fiscal 2020 was expected to add approximately $25–30 million of right-of-use assets and lease liabilities, with no expected cash-flow impact. Ordinary-course litigation was reported as having had no material effect to date. The filing describes a fraudulent wire-transfer incident; the funds were recovered with no loss, and procedures were strengthened. Cybersecurity incidents were identified as a risk.
- Liquidity outlook: Management said cash on hand, operating cash flow and available borrowing were expected to fund operations and planned capital expenditures for at least the next 12 months, while acknowledging uncertainty from unanticipated costs or revenue declines.
Important facts for investors to verify
- Progress, timing, total cost and insurance recovery for rebuilding Store #19, and the effect of its continued closure on results.
- Refinancing plans and terms for the $2.813 million mortgage due November 2019, alongside debt maturity and liquidity needs.
- Whether menu-price increases and traffic gains offset food, labor and other cost inflation without further margin deterioration.
- Capital requirements and funding structure for the Sunrise and Pompano Beach projects, and performance of the new restaurant pipeline.
- Lease adoption estimates, outstanding insurance recovery, and the company’s controls following the attempted fraudulent wire transfer.