Business Context and Reporting Period
Company: Nathan's Famous, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Thirteen and thirty-nine weeks ended December 24, 2000 (Fiscal 2001).
Business Overview: The company operates and franchises restaurants under the Nathan's, Kenny Rogers Roasters, and Miami Subs brands. It also generates revenue through a Branded Product Program and licensing agreements. As of December 24, 2000, the system included 28 company-owned units and 401 franchised/licensed units.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Dec 24, 2000 |
39 Weeks Ended Dec 24, 2000 |
39 Weeks Ended Dec 26, 1999 |
|---|---|---|---|
| Total Revenues | $11,558 | $37,529 | $28,341 |
| Net Income | $145 | $1,823 | $858 |
| Diluted EPS | $0.02 | $0.26 | $0.16 |
| Cash from Operations | N/A | $3,344 | $1,568 |
| Cash & Equivalents | $4,665 | $4,665 | $2,397 (Beg. Period) |
| Total Debt (Notes Payable) | $3,197 | $3,197 | $3,410 |
| Working Capital | $3,749 | $3,749 | ($322) Deficit |
Note: Debt figures represent current maturities plus long-term notes payable and capital lease obligations.
Material Changes vs. Prior Period
- Revenue Trends:
- 13 Weeks: Total revenues decreased 4.1% to $11.56M. Restaurant sales dropped 11.0% due to the closure and franchising of 15 company-owned units. However, Branded Product Program sales surged 87.8%.
- 39 Weeks: Total revenues increased 32.4% to $37.53M, driven primarily by the full inclusion of Miami Subs operations (acquired Sept 1999) and a 63.8% increase in Branded Product sales.
- Profitability:
- 13 Weeks: Net income was $145k compared to a net loss of $227k in the prior year. This improvement was aided by the absence of a $566k impairment charge on notes receivable recorded in the prior year and reduced operating costs from fewer company-owned stores.
- 39 Weeks: Net income rose to $1.82M from $858k. Cost of sales increased due to the Miami Subs acquisition but was partially offset by efficiencies from closing underperforming units.
- Liquidity: Working capital improved significantly from a deficit of $322k to a positive $3.75M, supported by strong operating cash flow of $3.34M for the 39-week period.
Guidance, Outlook, and Risks
- Store Rationalization: Management is executing a plan to permanently close up to 18 underperforming Miami Subs company-owned restaurants. As of December 24, 2000, $1.045M has been accrued for lease termination costs, with 9 leases already terminated at a cost of $502k. Remaining minimum annual lease payments for these stores are approximately $706k.
- Tax Contingency: A tentative settlement with the IRS regarding Miami Subs tax audits (1991-1996) is expected to result in a total tax and interest liability of less than $300k. The company has accrued $345k for this matter.
- Co-Branding Strategy: The company is expanding co-branding opportunities, introducing Arthur Treachers, Nathan's, and Kenny Rogers brands across its existing restaurant footprint.
- Risks: Forward-looking statements are subject to risks including economic conditions, weather impacts (specifically at Coney Island), availability of restaurant sites, and commodity price fluctuations. The company does not hedge against interest rate or commodity price risks.
Investor Verification Checklist
- Lease Termination Costs: Verify the final costs associated with closing the remaining underperforming Miami Subs units against the current accrual of $1.045M.
- IRS Settlement: Confirm the final approval of the Miami Subs tax audit settlement and the exact liability amount.
- Comparable Sales: Monitor the trend of comparable restaurant sales, which declined 0.9% in the quarter and 1.6% year-to-date, to assess the impact of store closures and weather conditions.
- Debt Servicing: Review the repayment schedule for the assumed Miami Subs debt and the utilization of the $7.5M uncommitted bank line of credit.
- Intangible Amortization: Track the impact of the IRS agreement on the deductibility of intangible asset amortization, which may affect future tax provisions.