Flanigan’s Enterprises, Inc. — FY2021 Form 10-K
Business context and reporting period. The company operates restaurants and package liquor stores primarily in South Florida. At October 2, 2021, it operated or controlled 27 units and franchised five. Fiscal 2021 was 52 weeks; fiscal 2020 was 53 weeks. Results consolidate eight limited-partnership restaurants controlled by the company, including outside investors’ interests.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $137.3 million | $113.0 million |
| Income from operations | $8.7 million | $2.9 million |
| Net income | $16.8 million | $2.2 million |
| Net income attributable to Flanigan’s stockholders | $11.8 million; $6.34 per diluted share | $1.1 million; $0.60 per diluted share |
| Net cash provided by operating activities | $14.0 million | $8.8 million |
| Cash and cash equivalents, year-end | $32.7 million | $29.9 million |
| Long-term debt, including current portion | $22.1 million | $26.3 million |
| Working capital | $19.6 million | $11.1 million |
Revenue rose 21.5%, with restaurant food sales up to $84.5 million, bar sales to $20.8 million, and package-store sales to $29.3 million. Comparable weekly restaurant food sales increased 25.1%; comparable weekly bar sales increased 33.2%; same-store package-store sales increased 13.7%.
Operating margin was approximately 6.3%, versus 2.6% in FY2020. Net income included a $10.1 million gain from forgiveness of first-round PPP loans; accordingly, reported net income and its 12.2% revenue margin materially reflect this nonrecurring item. Restaurant food-and-bar gross margin was 65.8%, down from 66.3%; package-store gross margin fell to 23.7% from 27.0%.
Operating costs and expenses increased 16.9% to $128.7 million. Payroll and related costs rose 22.8% to $43.5 million, while occupancy costs declined 6.3% to $6.6 million. Investing activities used $11.6 million of cash, including substantial development spending; financing activities provided $0.3 million. The balance sheet also carried $29.2 million of operating lease liabilities, separate from debt. The company reported compliance with loan covenants at year-end.
Material changes versus FY2020
- Revenue and operating income rebounded from the more severe COVID-19 disruption in FY2020; the comparison is also affected by FY2020 having an extra week.
- Net income attributable to stockholders increased to $11.8 million from $1.1 million, principally reflecting stronger sales and PPP-loan forgiveness, partly offset by higher food, labor, and other costs.
- Cash increased by $2.8 million. Debt declined overall, despite new mortgage borrowing and second-round PPP loans to certain consolidated partnerships.
- Capital expenditures increased to $13.3 million from $2.8 million. The company purchased properties in North Lauderdale and Sunrise and continued developing new locations.
- No cash dividend was declared in FY2021. No shares were repurchased during the year.
Outlook, risks, and unusual items
- Management expected FY2022 revenue to increase with traffic, prior menu-price increases, and a new Miramar package store; it did not expect the fire-damaged Hollywood restaurant to reopen in FY2022. The filing provides no specific revenue or earnings guidance.
- After year-end, the company reported additional menu-price increases. The filing gives differing targets in separate sections: approximately 8.55% food and 7.68% bar revenue increases in MD&A, versus 8.83% and 7.80% in the financial-statement subsequent-events note.
- After year-end, the second-round PPP loans were forgiven; the company expected to recognize approximately $3.49 million of other income in FY2022. These loans principally belonged to limited partnerships and a managed store, not solely to the parent company.
- Planned FY2022 refurbishing was approximately $1.0 million, apart from construction and rebuild projects. Developments included the Sunrise restaurant, two Miramar locations, and rebuilding the Hollywood restaurant and package store damaged by a 2018 fire. Timing and funding remain uncertain; the company planned to use operating cash, borrowings, insurance proceeds, and limited-partnership fundraising as applicable.
- Management believed cash, operating cash flow, and borrowing availability would fund operations and planned capital expenditures for at least the next 12 months. It cautioned that COVID-19 could continue to affect sales, liquidity, and financial condition and that future covenant compliance was not assured; covenant breach could permit lenders to accelerate debt.
- Key risks include labor availability and wage inflation, food-cost volatility, competition, dependence on suppliers, pandemic and supply-chain disruption, Florida hurricane exposure, alcohol licensing and dram-shop liability, and execution and financing of new locations. The 2022 rib purchase commitment is approximately $10.4 million at market-based pricing.
- Windstorm coverage has a $100,000 deductible plus 5% of insured losses per occurrence. Liability insurance coverage is capped at $11 million per occurrence and in aggregate; losses above that amount are uninsured.
- Management disclosed a material weakness concerning ASC 842 lease classification, reported remediation measures, and concluded internal control over financial reporting was effective at year-end. The independent auditor issued an unqualified opinion and reported no critical audit matters; it did not audit internal-control effectiveness.
Important facts for investors to verify
- Reconcile the cash-flow figures: MD&A reports FY2021 operating cash flow of $14.361 million, while the audited cash-flow statement reports $14.049 million.
- Confirm the correct post-year-end menu-price targets, which differ between MD&A and the subsequent-events note.
- Assess earnings quality excluding the $10.1 million first-round PPP forgiveness gain and account for the expected FY2022 second-round forgiveness gain separately.
- Track opening dates, remaining construction costs, funding raised from limited partners, and expected economics of new locations and the Hollywood rebuild.
- Monitor labor and food-cost trends, package-store margin pressure, debt covenant headroom, lease commitments, insurance renewals and deductibles, and the effects of the company’s concentrated South Florida footprint.