Business context and reporting period
Flanigan’s Enterprises, Inc. operates restaurants and package liquor stores in South Florida, and franchises additional units. This unaudited Form 10-Q covers the 13 weeks ended January 1, 2022, compared with the 13 weeks ended January 2, 2021. The company reported 27 company-owned or operated units and five franchised units.
Financial performance
| Metric | 13 weeks ended Jan. 1, 2022 | Prior-year period |
|---|---|---|
| Total revenue | $37.403 million | $31.380 million |
| Income from operations | $0.765 million | $1.270 million |
| Net income | $3.938 million | $1.032 million |
| Net income attributable to company stockholders | $1.564 million | $0.780 million |
| Basic and diluted EPS | $0.84 | $0.42 |
| Operating cash flow | $4.531 million | $3.770 million |
Revenue grew 19.2%, led by restaurant food and bar sales. Restaurant revenue was $28.212 million versus $22.771 million; package-store revenue was $8.511 million versus $8.011 million. Comparable weekly restaurant food sales rose 24.8% and bar sales rose 35.1%; same-store package sales increased 9.6%.
Operating costs and expenses rose 21.7% to $36.638 million, outpacing revenue growth. They equaled 97.95% of revenue versus 95.95% in the prior-year period. Restaurant food-and-bar gross margin fell to 63.37% from 66.97%; package-store gross margin declined to 25.51% from 26.96%. Payroll costs increased 29.3%, primarily due to higher employee costs and performance bonuses.
Net income included a $3.488 million gain from forgiveness of PPP loans, a material nonrecurring item. Excluding that gain, the filing does not provide a directly stated adjusted earnings figure. Of reported net income, $2.374 million was attributable to noncontrolling interests.
Liquidity, debt and cash flow
At January 1, 2022, cash and cash equivalents were $33.602 million, compared with $32.676 million at October 2, 2021. Working capital was $17.719 million, down from $19.567 million at fiscal year-end. Current assets were $42.655 million and current liabilities were $24.936 million.
Total long-term debt, including its current portion, was $19.651 million, compared with $22.115 million at October 2, 2021 and $26.904 million at January 2, 2021. Operating lease liabilities totaled $28.748 million. The company said it was in compliance with loan covenants and believed available cash, operating cash flow and borrowing capacity would fund operations and planned capital expenditures for at least 12 months.
Operating cash flow was $4.531 million; investing activities used $1.979 million and financing activities used $1.626 million. Cash increased $0.926 million. Capital expenditures and construction-in-progress purchases were significant, with the filing reporting $2.402 million of property, equipment and construction-in-progress acquisitions during the quarter.
Changes, outlook and risks
- Revenue growth reflected higher sales, menu price increases and less adverse COVID-19 effects than in the comparison period. Management cited food, labor and other cost pressures; it expected operating costs to continue increasing during fiscal 2022.
- Menu price increases were implemented during the quarter, targeting annual food-revenue increases of approximately 8.83% in aggregate and bar-revenue increases of approximately 7.80%.
- Management expected a new Hollywood package store to open during fiscal 2022, but did not expect the fire-damaged Hollywood restaurant to reopen that year. Sunrise and Miramar restaurant/package-store developments were underway; new locations may add pre-opening and occupancy costs.
- Management anticipated approximately $1 million of fiscal 2022 refurbishment spending, excluding specified development and rebuilding projects. Construction commitments include a $2.515 million restaurant rebuild contract and renovation contracts for Miramar locations. A 2022 rib-supply agreement calls for purchases of approximately $10.414 million at market prices.
- COVID-19, Omicron-related operating precautions, supply availability and labor access remained risks. The company warned that the pandemic could continue to adversely affect operations, liquidity and financial condition; its impact could not be accurately predicted.
- Other disclosed exposures include food, beverage and labor inflation, interest-rate fluctuations, leases, and ordinary-course legal claims. The company reported no current dram-shop claims and said other claims were not expected to have a material adverse effect. No formal earnings guidance was provided.
Important facts for investors to verify
- How much of the earnings and EPS increase is attributable to the $3.488 million PPP-forgiveness gain, and what were underlying operating trends?
- Whether menu pricing can offset food, labor and other cost inflation without weakening demand or margins.
- Timing, remaining costs and funding for the Hollywood rebuild and Sunrise and Miramar developments, including the subsequent private offerings disclosed for Sunrise and Miramar limited partnerships.
- Whether COVID-19-related supply and labor constraints, and the market-priced rib purchase commitment, affect costs or product availability.
- Debt repayment and refinancing requirements, including the disclosed term-loan maturities in December 2022 and January 2023, and the effect of interest-rate exposure.