Flanigan’s Enterprises, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Thirteen weeks ended December 30, 2023; comparative period ended December 31, 2022. Unaudited consolidated results include the Company and ten controlled limited partnerships. Unless noted, amounts are in U.S. dollars.
Business context and results
At quarter-end, the Company operated or controlled 31 units and franchised five additional units. Its reportable segments are restaurants and package stores.
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $45.140 million | $41.861 million | +7.8% |
| Income from operations | $0.793 million | $1.197 million | -33.8% |
| Net income, consolidated | $0.594 million | $0.874 million | -32.0% |
| Net income attributable to Flanigan’s stockholders | $0.109 million | $0.624 million | -82.5% |
| Basic and diluted EPS | $0.06 | $0.34 | -$0.28 |
| Operating cash flow | $3.450 million | $5.879 million | -$2.429 million |
Revenue growth reflected higher menu prices, new restaurant and package-store locations, and increased package-store traffic. Restaurant revenue rose to $33.818 million from $31.755 million; package-store revenue rose to $10.602 million from $9.403 million. Comparable weekly sales softened: restaurant food -0.58%, restaurant bar -0.19%, and same-store package-store sales -0.56%.
Restaurant food-and-bar gross margin fell to 65.02% from 65.97%, primarily due to higher food costs. Package-store gross margin was 25.67% versus 25.73%. Operating costs and expenses increased 9.1% to $44.347 million and rose to 98.24% of revenue from 97.14%. Consolidated net margin was 1.32% versus 2.09%; net income attributable to Company stockholders was 0.24% of revenue versus 1.49%.
Restaurant segment operating income increased to $1.171 million from $0.779 million, while package-store segment operating income declined to $0.632 million from $0.799 million. Corporate expenses, net of other revenues, increased to $1.010 million from $0.381 million.
Liquidity, debt and cash flow
Cash and cash equivalents were $26.897 million at December 30, 2023, up $1.365 million from September 30, 2023. Working capital was $11.916 million, down from $12.923 million. The Company reported current assets of $36.246 million and current liabilities of $24.330 million.
Long-term debt, including its current portion, totaled $22.816 million, down from $23.128 million at fiscal year-end. Operating lease liabilities totaled $27.653 million. Operating cash flow was $3.450 million; investing activities used $0.774 million and financing activities used $1.311 million. Capital expenditures were reported as $1.378 million in MD&A, while cash-flow purchases of property, construction in progress, deposits and leaseholds netted to $0.791 million before sale proceeds and partnership distributions.
Management said available cash and positive operating cash flow should fund operations and planned capital expenditures for at least the next twelve months. No dividend was declared or paid during either comparative quarter.
Outlook, risks and unusual items
- Management expects restaurant food and bar sales to increase during the balance of FY2024, citing anticipated traffic and a full-year contribution from the Miramar restaurant. It also expects package-store sales to increase, partly due to stores opened in Hollywood and Miramar. These are expectations, not quantified guidance.
- Management anticipates operating costs and expenses will continue to increase through FY2024. It expects package-store gross margin to decline for the balance of the year due to higher costs and price reductions on certain products. Inflation in food, beverage, fuel and labor, supply-chain issues, and a tight labor market remain risks.
- The Company’s six institutional loans require a Post-Distribution Basic Fixed Charge Coverage Ratio of at least 1.15:1.00. A prior covenant breach, determined as of December 31, 2022, was waived by the lender in February 2023. The reported ratio for the twelve months ended December 30, 2023 was 1.55:1.00.
- A variable-rate mortgage loan is hedged with an interest-rate swap. The quarter included a $0.338 million after-tax other comprehensive loss from the swap’s fair-value change.
- The rebuild of the fire-damaged Store #19 restaurant has a contract price of $3.767 million after change orders; $2.625 million had been paid by quarter-end, with a further $0.350 million paid afterward. Management said it expected the restaurant to be operational during FY2024.
- The Company committed to purchase approximately $7.0 million of baby back ribs during calendar 2024 at a prescribed cost. It also paid approximately $3.920 million in annual insurance premiums on January 4, 2024; the amount includes franchise coverage not consolidated in the financial statements. The general-liability self-insured retention increased from $10,000 to $50,000 per occurrence for the Company, while remaining $10,000 for limited partnerships.
- The Company repurchased a 4% interest in a ground lease and sublease for $31,000, increasing its ownership to 56% and reducing its rent obligation under that sublease to 44%.
- Management reported no current dram-shop claims and believes other ordinary-course claims will not materially affect financial position or results. The filing notes potential adverse effects from litigation, supply and labor disruptions, and interest-rate changes.
Controls and investor verification points
Management concluded disclosure controls were not effective as of quarter-end because of a material weakness in internal control over financial reporting: insufficient trained and knowledgeable accounting personnel to prevent or detect errors timely. The Company engaged accounting consultants and began staffing a Financial Reporting Division, but stated remediation was not assured.
- Verify the progress and effectiveness of remediation of the material weakness, including whether later filings report improved controls.
- Track covenant compliance and lender terms, particularly given the earlier breach and waiver.
- Assess whether comparable-store trends, cost inflation, and the expected package-store margin decline affect subsequent-period profitability.
- Monitor Store #19’s rebuild spending, completion timing and opening, and the related capital commitments.
- Reconcile capital expenditure disclosures and cash-flow classifications in subsequent reporting, and review the impact of lease obligations and the interest-rate swap.