Flanigan’s Enterprises, Inc. — Q2 FY2015 Form 10-Q
Reporting period: Fiscal quarter ended March 28, 2015 (13 weeks), with year-to-date comparisons covering 26 weeks. Dollar amounts below are in millions unless otherwise stated. Results are unaudited. The company operates restaurants and package liquor stores, and also franchises units and manages affiliated limited partnerships.
Financial results
| Metric | Q2 FY2015 | Q2 FY2014 | 26 weeks FY2015 | 26 weeks FY2014 |
|---|---|---|---|---|
| Total revenue | $25.894 | $23.771 | $49.214 | $45.246 |
| Operating income | $2.357 | $2.076 | $3.679 | $3.292 |
| Net income | $1.712 | $1.552 | $2.571 | $2.361 |
| Net income attributable to stockholders | $1.124 | $0.907 | $1.831 | $1.445 |
| Basic and diluted EPS | $0.60 | $0.49 | $0.99 | $0.78 |
- Q2 operating margin was approximately 9.1% of revenue, versus 8.7% a year earlier; Q2 net margin was 6.6% versus 6.5%. Year-to-date operating margin was approximately 7.5% versus 7.3%; net margin was 5.2% in both periods.
- Q2 sales growth was led by restaurants: restaurant food and bar sales rose 8.3% combined, and package-store sales increased 8.7%. Comparable weekly food sales rose 8.0%, bar sales 9.8%, and same-store package-store sales 8.9%.
- Restaurant food-and-bar gross margin declined to 64.69% from 66.16% in Q2; package-store gross margin declined to 29.15% from 30.20%.
- 26-week operating cash flow was $6.243, versus $4.403 a year earlier. Investing cash outflow was $2.756 and financing cash outflow was $3.392; cash increased $0.095 to $8.194.
- At March 28, cash was $8.194; current assets were $13.324 and current liabilities $11.403, producing working capital of $1.921 (down from $2.904 at September 27, 2014). Long-term debt including current maturities totaled $12.677, versus $13.331 at September 27, 2014. Management said it was in compliance with loan covenants.
Changes and notable developments
- Revenue rose 8.9% in Q2 and 8.8% year to date, which management attributed primarily to increased restaurant traffic; package-store growth was also attributed to higher traffic.
- Stockholder-attributable income grew faster than consolidated net income, partly alongside lower net income attributable to noncontrolling interests. Q2 interest expense declined to $0.153 from $0.193; year-to-date interest expense declined to $0.312 from $0.388.
- Capital investment increased: 26-week property-and-equipment purchases were $2.645, compared with $1.360 in the cash-flow statement for the prior period. The company paid $1.5 for vacant property adjacent to its Store #19 site and intends to relocate the liquor store and expand the restaurant.
- The company purchased the operating assets of a limited-partnership restaurant in September 2014; that restaurant became company-owned.
- A 15-cent-per-share dividend was paid in January 2015; no dividend was paid in the comparable 2014 period.
Outlook, risks and contingencies
- Management expects restaurant food and bar sales to increase, but anticipates lower restaurant gross margins due to higher food costs. It expects package-store sales and margins to remain stable through the balance of FY2015.
- Management expects operating expenses, including selling, general and administrative costs and insurance costs, to rise and potentially pressure net income. It plans to limit menu price increases where possible, while noting that competitive conditions may require increases.
- The company expects cash on hand and operating cash flow to be sufficient for operations and capital expenditures for at least 12 months. It estimates a planned North Miami store relocation and restaurant renovation could cost $2.0–$2.5 million; approximately $0.85 million may be financed with a mortgage, but timing and execution are not assured.
- During Q2, the company cancelled a three-year property insurance policy after its carrier entered administrative supervision. It repaid $0.665 of related financing using refunded premiums, received a further $0.159 refund after quarter-end, and recorded an $0.082 charge. A replacement one-year property policy had a $0.482 premium, with $0.416 financed. Total financed insurance-policy principal was $0.839 at quarter-end.
- Rib purchase commitments included approximately $3.649 of purchases during calendar 2015 under a fixed-cost agreement, plus two smaller spot purchases. Management said alternative suppliers were available.
- Ordinary-course litigation includes premises, accessibility, employment and food-quality claims; the company reported no material effect to date. It disclosed no off-balance-sheet arrangements. Interest-rate exposure remains, although five swaps are used to convert variable-rate debt to fixed rates; management reported the swaps’ fair values as not material.
- Management reported effective disclosure controls and internal control over financial reporting, with no material control changes during the period.
Important facts for investors to verify
- Whether traffic-driven comparable-sales growth continues and whether food-cost inflation reduces restaurant margins as management expects.
- Cash requirements, financing terms and execution plans for the Store #19 project and proposed North Miami relocation and expansion.
- Debt maturities, covenant compliance, variable-rate exposure and the impact of the insurance-policy change and related charge.
- Cash distributions and management fees from affiliated limited partnerships, including the company’s consolidation of controlled partnerships and related-party relationships disclosed in the filing.
- Whether anticipated expense increases, competitive pressure and any menu-price changes affect full-year profitability; the filing provides no numerical earnings or revenue guidance.