Flanigan’s Enterprises, Inc. — FY2013 Form 10-K
Business context and period. The filing covers the 52 weeks ended September 28, 2013, compared with the 52 weeks ended September 29, 2012. Flanigan’s operates restaurants and package liquor stores primarily in South Florida, with some operations through controlled limited partnerships. At year-end, it operated 25 units, owned but did not operate one Atlanta club, and had five franchised units.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenue | $82.8 million | $77.3 million |
| Income from operations | $4.6 million | $3.6 million |
| Net income attributable to stockholders | $2.0 million | $1.4 million |
| Basic and diluted EPS | $1.06 | $0.76 |
| Cash from operating activities | $6.7 million | $6.2 million |
| Cash and cash equivalents at year-end | $7.1 million | $7.2 million |
| Total debt | $13.5 million | $13.4 million |
| Working capital | $2.4 million | $3.2 million |
Revenue increased 7.1%; excluding the new Miami limited-partnership restaurant, which opened in December 2012, management said revenue rose 3.7%. Restaurant food sales increased to $52.5 million and beverage sales to $15.0 million; package-goods sales were nearly flat at $13.2 million. Comparable weekly restaurant food and bar sales rose 3.8% and 7.5%, respectively. Same-store package-liquor sales were unchanged.
Operating costs and expenses were $78.2 million, or about 94.4% of sales versus 95.4% in FY2012. Restaurant food-and-beverage gross margin was 64.73%, up from 64.41%; package-store gross margin declined to 30.10% from 31.04%. Net income attributable to stockholders was 2.39% of revenue, versus 1.83%.
Investing activities used $3.3 million of cash and financing activities used $3.6 million; cash declined $163,000. The company reported $5.7 million of property and equipment acquisitions, including financed purchases, and $875,000 budgeted for FY2014 refurbishment. Current assets were $11.5 million against current liabilities of $9.1 million. The company said cash and expected operating cash flow should fund operations and planned capital spending for at least 12 months. It was in compliance with loan covenants.
Changes, outlook, and risks
- The new Miami partnership restaurant contributed $2.6 million of FY2013 revenue but reported a $208,000 loss, primarily due to pre-opening costs; it reported a $107,000 loss in FY2012.
- Flanigan’s bought two North Miami parcels for $2.9 million, including $1.95 million seller-financed at 7.5%. It intended to expand customer parking on one parcel and lease the building on the other.
- Management expected restaurant food and bar sales to increase in FY2014, but anticipated lower restaurant gross profit from higher food costs, partly offset by lower rib costs. It expected package-store sales and margins to remain stable, while insurance, health-insurance, food, and other expenses could pressure net income. Further menu-price increases might be needed.
- No new restaurant was under development at filing time. The company continued to seek locations and expected future restaurant expansion, if any, to use its limited-partnership model. It did not anticipate new franchise arrangements in the foreseeable future.
- On October 22, 2013, the company agreed to buy approximately $4.26 million of baby-back ribs during calendar 2014 at a fixed cost.
- Key risks include intense restaurant and liquor-retail competition, commodity and labor-cost inflation, economic and discretionary-spending weakness, reliance on South Florida locations and hurricane exposure, liquor-license regulation, and food-safety, reputation, and customer-data risks. Management noted that increased competition was expected to continue at its Weston restaurant.
- The company disclosed two dram-shop claims and said it was defending them. General-liability coverage was capped at $7 million per occurrence and in the aggregate, leaving exposure above that amount. A previously filed employee-uniform lawsuit was settled after year-end; class certification had been denied, and the settlement was not material.
The financial statements received an unqualified audit opinion. Management concluded that disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether FY2014 sales growth and restaurant margins held up against the filing’s food-cost and expense outlook.
- The new Miami restaurant’s progress toward profitability and the performance of the Weston location amid competition.
- Debt service, scheduled maturities and balloon payments, and the effect of the North Miami purchase and rib commitment on cash needs.
- Current status and potential exposure from the dram-shop claims, and the adequacy and cost of insurance coverage.
- Related-party and limited-partnership interests, distributions, and the distinction between consolidated partnership results and cash attributable to Flanigan’s stockholders.