Flanigan’s Enterprises, Inc. — Form 10-Q Summary
Business context and period: The filing covers the 13 and 39 weeks ended July 2, 2022, compared with the periods ended July 3, 2021. Flanigan’s operates restaurants and package liquor stores in South Florida. At quarter-end, it reported 30 company-owned or company-operated units and five franchised units. The results consolidate ten limited partnerships that the Company controls.
Financial performance
| Metric | 13 weeks ended July 2, 2022 | 13 weeks ended July 3, 2021 | 39 weeks ended July 2, 2022 | 39 weeks ended July 3, 2021 |
|---|---|---|---|---|
| Revenue | $40.675 million | $37.935 million | $118.408 million | $103.672 million |
| Operating income | $2.083 million | $2.609 million | $4.698 million | $6.672 million |
| Net income | $1.964 million | $8.421 million | $7.245 million | $15.145 million |
| Net income attributable to Flanigan’s shareholders | $1.835 million | $7.199 million | $5.059 million | $10.430 million |
| Diluted EPS | $0.99 | $3.87 | $2.72 | $5.61 |
| Operating margin | 5.1% | 6.9% | 4.0% | 6.4% |
- Quarterly revenue grew 7.2%; restaurant food sales rose to $25.574 million and bar sales to $6.755 million, while package-store sales declined 5.6% to $7.626 million. For the 39-week period, revenue grew 14.2%.
- Comparable weekly restaurant food sales increased 4.0% in the quarter and 13.4% for the 39 weeks; comparable bar sales rose 13.9% and 26.1%, respectively. Same-store package liquor sales declined 5.6% in the quarter but increased 1.6% for the 39 weeks.
- Quarterly operating costs and expenses rose 9.3%, faster than revenue, and reached 94.9% of revenue versus 93.1% a year earlier. Restaurant food-and-bar gross margin fell to 63.3% from 65.8%; package-store gross margin was 26.2% versus 26.9%.
- The decline in reported net income largely reflects lower gains from PPP loan forgiveness: the 2021 quarter included $6.483 million, while the 2022 quarter included none. For the 39 weeks, forgiveness gains were $3.488 million in 2022 versus $10.136 million in 2021. Higher food costs and other expenses also weighed on results.
Cash, debt, and liquidity
- Cash was $35.659 million at July 2, 2022, up from $32.676 million at October 2, 2021. Working capital was $22.388 million, compared with $19.567 million.
- For the 39 weeks, operating cash flow was $7.825 million, investing cash outflow was $6.519 million, and financing cash inflow was $1.677 million; cash increased $2.983 million. Capital expenditures and construction-in-progress purchases were significant components of investing outflow.
- Long-term debt, including current maturities, was $17.773 million, down from $22.115 million at fiscal year-end. The Company reported compliance with loan covenants. It stated that cash, operating cash flow, and borrowing availability should fund operations and planned capital expenditures for at least 12 months.
- Operating lease liabilities totaled about $31.073 million, including current and non-current amounts. The Company paid a $1.00-per-share dividend during the period, totaling $1.858 million.
Developments, outlook, and risks
- Management attributed revenue growth to menu price increases, the March 2022 opening of the Sunrise restaurant, and a less adverse COVID-19 impact than in the prior-year period. It said operating costs would continue to rise through fiscal 2022 and anticipated higher SG&A as a percentage of revenue.
- Inflation in food, fuel, and labor was materially affecting results. Management cited COVID-related risks to labor and supply availability, and said the extent of further effects could not be predicted.
- The Company acquired Brendan’s Sports Pub in Pompano Beach for $75,000 and began operating it during the quarter. It expected the Miramar restaurant to open in January 2023; a new package store was expected to open during fiscal 2022. The fire-damaged Hollywood restaurant remained closed, with reconstruction underway.
- Two limited-partnership offerings raised $9.0 million gross to fund the Sunrise and Miramar projects; the Company purchased $370,000 of interests in the Sunrise partnership. These offerings increased noncontrolling interests and helped fund development.
- Construction commitments included rebuilding the Hollywood restaurant and work at Sunrise and Miramar. The Company also agreed to purchase about $10.414 million of baby-back ribs during calendar 2022 at market cost.
- Subsequent to quarter-end, the Company completed a $445,000 purchase of a Broward County liquor license. It also received a $697,000 advance under a mortgage note held by an entity controlled by a director; the note’s balance was $1.1 million at August 1, 2022, with its interest rate increased to 6%.
- The filing disclosed no current dram-shop claims and stated that other ordinary-course legal matters were not expected to have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts to verify
- Whether revenue growth and comparable restaurant sales persist, especially as package-store sales weakened in the quarter.
- Whether menu pricing can offset food, labor, fuel, and other inflation without materially impairing margins or customer demand.
- Progress, remaining costs, and opening timing for the Miramar and Hollywood projects, as well as the new package store.
- Debt repayment schedules, variable-rate exposure, and the terms and related-party nature of the post-quarter mortgage advance.
- Cash generation and liquidity after planned capital spending, construction commitments, dividends, and market-priced rib purchases.