Flanigan’s Enterprises, Inc. — Form 10-Q Summary
Reporting period: Third quarter ended July 3, 2021 (13 weeks), with year-to-date results for the 39 weeks ended July 3, 2021. Comparatives are the 13 and 39 weeks ended June 27, 2020. Dollar amounts below are in millions unless stated otherwise.
Business and results
The company operates restaurants and package liquor stores, including locations held through consolidated limited partnerships, and franchises additional locations. At quarter-end it reported 27 company-owned or operated units and five franchised units. Store #19 remained closed following a 2018 fire.
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Revenue | $37.935 | $23.663 | $103.672 | $84.732 |
| Income from operations | $2.609 | $(0.732) | $6.672 | $2.016 |
| Net income | $8.421 | $(0.863) | $15.145 | $1.478 |
| Net income attributable to company stockholders | $7.199 | $(0.455) | $10.430 | $0.687 |
| Operating cash flow | Not separately presented | Not separately presented | $11.523 | $7.437 |
Q3 revenue increased 60.3%; year-to-date revenue rose 22.4%. Q3 restaurant food sales were $23.484 million, bar sales $5.617 million, and package-store sales $8.082 million. Management attributed growth to stronger sales, menu price increases, and the more severe COVID-19 impact on the prior-year comparison. Q3 comparable weekly restaurant food sales rose 60.9%, bar sales 245.6%, and same-store package-store sales 13.9%. Year-to-date comparable weekly food sales rose 21.4%, bar sales 17.6%, and same-store package-store sales 26.9%.
Reported net income included gains from forgiveness of PPP loans of $6.483 million in Q3 and $10.136 million year to date; these gains materially boosted earnings. Operating costs and expenses were 93.1% of Q3 revenue versus 103.1% in the prior-year quarter, and 93.6% year to date versus 97.6%. Restaurant food-and-bar gross margin was 65.76% in Q3 and 66.57% year to date; package-store gross margin was 26.86% and 27.14%, respectively. Management cited higher food costs and payroll, including increased hours, cook costs, and performance bonuses.
Cash, debt and investment
- Cash was $31.953 million at July 3, 2021, up $2.031 million from October 3, 2020. Working capital was $18.972 million, versus $11.146 million at fiscal year-end.
- For the 39 weeks, operating cash flow was $11.523 million, investing cash flow $(8.374) million, and financing cash flow $(1.118) million. Capital expenditures were $9.683 million, compared with $2.171 million in the prior-year period.
- Long-term debt, including current maturities, was $20.211 million, down from $26.323 million at October 3, 2020. The company reported compliance with loan covenants. Operating lease liabilities totaled approximately $27.055 million.
- After quarter-end, the company refinanced its North Miami mortgage, increasing principal from $1.5 million to $4.3 million and receiving approximately $2.8 million in net proceeds for working capital. The new loan carries a fixed 3.63% rate.
- Management said cash, operating cash flow, and borrowing capacity were expected to fund operations and planned capital expenditures for at least 12 months. It anticipated approximately $0.95 million in fiscal 2021 refurbishments, excluding major projects.
Outlook, risks and notable items
- Management expected operating costs to continue rising through fiscal 2021, particularly from payroll and food costs. It expected occupancy costs to decline and SG&A as a percentage of revenue to decrease, while noting these expectations depend on revenue trends.
- COVID-19 continued to pose uncertainty for restaurant operations, liquidity, and financial condition. Management stated the impact could persist and could not be accurately predicted. Food, beverage, labor, and potential inflation in food and fuel costs were additional risks.
- The company raised food menu prices effective December 6, 2020 and April 11, 2021, targeting annual revenue increases of approximately 2.45% and 4.60%, and raised bar prices effective November 29, 2020, targeting approximately 1.83%.
- The initial PPP loans were fully forgiven by July 3, 2021, generating the reported forgiveness gain. Separate second-round PPP loans included approximately $3.35 million to consolidated limited partnerships and $0.63 million to a managed store; forgiveness was uncertain, and any unforgiven amounts remain payable.
- Construction and development included the Sunrise restaurant and two planned Miramar locations. After quarter-end, landlords delivered possession of the Miramar restaurant and liquor-store premises; the company estimated each lease would add a right-of-use asset and lease liability of approximately $2.8 million and $0.9 million, respectively.
- The company had a fixed-price 2021 rib purchase commitment of approximately $6.42 million and subsequently increased the fixed cost of remaining supply by approximately $0.408 million to help secure supply for 2022.
- Management concluded disclosure controls were ineffective due to a material weakness in distinguishing operating leases from finance leases under ASC 842. It reported no identified material misstatements and described remediation measures, including staff training and enhanced review.
- The company reported no current dram-shop claims; it is subject to ordinary-course legal matters that management did not expect to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings reflects ongoing operations versus PPP forgiveness gains, and the eventual forgiveness or repayment status of second-round PPP loans.
- Whether sales growth and margins persist as COVID-19 comparisons normalize and food, labor, and other costs rise.
- Progress, spending, opening dates, and funding plans for the Sunrise, Miramar, and Store #19 projects, including remaining construction commitments.
- Debt service and liquidity following the North Miami refinancing, alongside lease liabilities and planned capital expenditures.
- Whether the ASC 842 material weakness is remediated and disclosure controls are determined effective in a subsequent filing.