BDL

Business Context and Reporting Period

Company: Flanigan's Enterprises, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Thirteen and thirty-nine weeks ended June 27, 2009.
Business Overview: The Company operates restaurants, package liquor stores, and combination units in Florida under the "Flanigan's Seafood Bar and Grill" and "Big Daddy's Liquors" brands. As of June 27, 2009, the Company operated 23 units (excluding one adult entertainment club) and franchised six additional units. The Company is classified as a smaller reporting company.

Key Financial Metrics

Note: Debt figures include $1,586,000 on the line of credit and $771,000 current portion of long-term debt as of June 27, 2009.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 4.61% ($726,000) for the 13-week period and 3.80% ($1,849,000) for the 39-week period compared to the prior year. This growth was primarily driven by the new Davie, Florida restaurant (opened July 2008) and increased package store sales.
• Same-Store Sales Decline: Excluding the new Davie location, same-store restaurant food sales declined 3.07% (13 weeks) and 3.13% (39 weeks) due to the economic downturn. Same-store package store sales increased 2.92% (13 weeks) and 1.19% (39 weeks).
• Net Income: Net income decreased 7.44% to $311,000 for the 13-week period but increased 17.76% to $1,167,000 for the 39-week period. The 39-week increase included non-recurring interest income of $124,000 and other income of $26,000 from insurance liquidation claims, plus a $140,000 deferred tax asset adjustment.
• Cost Pressures: Operating costs increased due to the new restaurant, higher food costs, and a Florida minimum wage increase effective January 1, 2009. Gross profit margins for restaurants decreased slightly due to promotional discounts and higher food costs.

Outlook, Risks, and Management Commentary

• Guidance: Management expects aggregate restaurant sales and same-store food/bar sales to decrease over the next 12 months due to the economic downturn. They anticipate higher food costs and overall expenses will adversely affect net income.
• Strategy: The Company plans to limit menu price increases to maintain quality but may raise prices if necessary. Advertising will shift toward direct mailings, reducing newspaper and radio ads. No new package store locations are being actively sought.
• Liquidity: The Company holds $4.9 million in cash and has a $2.5 million line of credit with $914,000 remaining availability. Management believes cash flow and credit facilities are sufficient for operations and capital expenditures for the next 12 months.
• Risks and Contingencies:
  • Litigation: The Company is involved in a lawsuit regarding parking rights at its corporate office, where a seller is seeking reimbursement of attorney fees. A hearing was held, but no order has been issued. Additionally, a landlord dispute regarding structural repairs at a Pinecrest, Florida location is scheduled for trial in Q4 2009.
  • Debt Maturity: The $2.5 million line of credit matures on October 7, 2009. Working capital may be impacted if the line is not renewed.
  • Guarantees: The Company guarantees leases for franchisees and limited partnerships totaling approximately $1.97 million in remaining commitments.

Investor Verification Checklist

• Verify the renewal status of the $2.5 million line of credit maturing October 7, 2009.
• Monitor the outcome of the litigation regarding attorney fee reimbursement from the corporate office seller.
• Track same-store sales trends to confirm the anticipated decline in restaurant food sales due to economic conditions.
• Review the impact of the $140,000 deferred tax asset adjustment and $150,000 in insurance claim income on the 39-week net income to assess core operational profitability.
• Assess the Company's ability to manage rising food and labor costs without significantly eroding gross margins.