Business Context and Reporting Period
Company: Flanigan's Enterprises, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Thirteen and twenty-six weeks ended March 31, 2007 (Fiscal Year 2007 Q2).
Business Overview: The Company operates full-service restaurants, package liquor stores, and an adult entertainment club in Florida. As of March 31, 2007, it operated 22 units and held equity interests in six franchised units. The Company is a non-accelerated filer.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Mar 31, 2007 | 26 Weeks Ended Mar 31, 2007 | 13 Weeks Ended Apr 1, 2006 | 26 Weeks Ended Apr 1, 2006 |
|---|---|---|---|---|
| Total Revenues | $16,304 | $31,289 | $14,477 | $27,725 |
| Net Income | $332 | $656 | $582 | $944 |
| Income from Operations | $810 | $1,522 | $512 | $1,173 |
| Diluted EPS | $0.17 | $0.34 | $0.30 | $0.50 |
| Cash from Operations (26 wks) | $2,042 (2007) vs $1,355 (2006) | |||
| Net Cash Used in Investing (26 wks) | ($1,248) (2007) vs ($1,109) (2006) | |||
| Long-Term Debt (incl. Line of Credit) | $6,741 (Mar 31, 2007) vs $5,181 (Sep 30, 2006) | |||
| Working Capital | $1,529 (Mar 31, 2007) vs $1,396 (Sep 30, 2006) |
Margins (13 Weeks): Restaurant food/bar gross profit margin was 66.23% (vs 65.93% prior year). Package store gross profit margin was 28.66% (vs 28.79% prior year).
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 12.6% for the quarter and 12.9% for the year-to-date period. Growth was driven by the opening of the Pinecrest, Florida restaurant and menu price increases.
- Net Income Decline: Despite revenue growth, net income decreased 43% for the quarter and 30% year-to-date. This was primarily due to the absence of a $405,000 insurance recovery (net of casualty loss) recognized in the prior year's second quarter.
- Expense Increases: Operating expenses rose due to the new Pinecrest location, higher real property taxes, increased insurance costs, and higher interest expense ($125k vs $38k for the quarter) related to a new mortgage and line of credit usage.
- Segment Performance: Restaurant sales grew significantly, while package store sales remained relatively flat or declined slightly due to increased competition.
Guidance, Outlook, and Risks
- Outlook: Management expects continued revenue growth from the Pinecrest location and the anticipated opening of new restaurants in Pembroke Pines (Q4 2007) and Davie (Q1 2008). Package store sales are expected to decrease due to competition.
- Cost Management: Higher food costs and operating expenses are expected to continue. Management believes menu price increases implemented in Q1 2007 will offset these costs.
- Liquidity: Working capital is expected to improve following a private offering by the Pembroke Pines limited partnership ($2.35M raised) and the sale of real property in North Miami. However, working capital may be temporarily strained by advances to the Davie limited partnership pending its private offering.
- Risks and Contingencies:
- Litigation: The Company lost an appeal regarding parking rights at its corporate offices and is pursuing a rehearing. It is also involved in a lawsuit with a landlord in Pinecrest regarding structural repairs.
- Liability: The Company faces potential "dram shop" liability claims, though none are currently pending.
- Interest Rate Risk: The Company has a variable rate line of credit; rising rates could materially affect results.
Investor Verification Checklist
- Verify the timeline and funding status of the private offerings for the Davie and Pembroke Pines limited partnerships.
- Confirm the status of the litigation regarding parking rights at the corporate office and the structural repair dispute in Pinecrest.
- Monitor the impact of increased competition on package store sales margins.
- Review the Company's ability to maintain gross profit margins given rising food costs and the effectiveness of recent menu price increases.
- Track the utilization and repayment schedule of the $1.96M line of credit and the new $450k mortgage.