Flanigan’s Enterprises, Inc. — Q1 FY2016 Form 10-Q
Business context and period: The unaudited quarter covered 13 weeks ended January 2, 2016; comparisons are with the 13 weeks ended December 27, 2014. Flanigan’s operates restaurants and package liquor stores, including units held through controlled limited partnerships, and also franchises locations. At quarter-end it reported 25 operating units under ownership or operational control, one owned but non-operated club, and five franchised units.
Key financial results
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q1 FY2016 | Comparable 2014 quarter |
|---|---|---|
| Total revenue | $25.278 | $23.320 |
| Income from operations | $1.351 | $1.322 |
| Income before taxes | $1.231 | $1.176 |
| Net income | $0.951 | $0.859 |
| Net income attributable to company stockholders | $0.624 | $0.707 |
| Basic and diluted EPS | $0.34 | $0.38 |
| Operating cash flow | $2.118 | $2.167 |
- Revenue increased 8.4%. Restaurant food sales were $15.379 million, bar sales $4.903 million, and package-store sales $4.360 million.
- Operating costs and expenses rose 8.8% to $23.927 million. They were 94.66% of total revenue versus 94.33% a year earlier. Restaurant food-and-bar gross margin improved to 64.89% from 64.27%; package-store gross margin declined to 28.64% from 29.00%.
- Net income rose 10.7%, while income attributable to company stockholders fell 11.7%, principally because net income allocated to noncontrolling interests increased to $327,000 from $152,000. Net income was 3.76% of sales versus 3.68%; stockholder-attributable income was 2.47% versus 3.03%.
- Cash and cash equivalents were $8.574 million, down $0.693 million from October 3, 2015. Current assets were $14.434 million and current liabilities $12.146 million, leaving working capital of $2.288 million, down from $3.068 million at fiscal year-end.
- Cash flow: operating activities provided $2.118 million; investing activities used $1.690 million; financing activities used $1.121 million. Cash capital spending included $1.632 million of property and equipment purchases and $68,000 of deposits. Management separately reported $1.779 million of capital expenditures, including deposits transferred to property and equipment.
- Total debt was $11.679 million, comprising $1.748 million current and $9.931 million long-term, versus $11.380 million at October 3, 2015. The company reported compliance with loan covenants. It had no off-balance-sheet arrangements.
Material changes and management commentary
- Comparable weekly restaurant food sales increased 7.25% and comparable bar sales increased 10.56%. Same-store weekly package-store sales increased 9.12%; management attributed part of the reported package-store sales increase to New Year’s Eve and New Year’s Day falling in this quarter rather than the following quarter.
- Payroll, occupancy, and selling, general and administrative costs all increased. Management cited higher food costs and sales-related staffing needs, and expected operating costs and SG&A to continue increasing through FY2016.
- Menu prices were raised after quarter-end: bar prices effective February 7, 2016, intended to increase bar revenue by approximately 3.0%, and food prices effective February 15, intended to increase food revenue by approximately 3.7%. Management expected these changes and stronger restaurant sales to support gross profit and net income, despite higher food costs.
- Management expected package-store sales and margins to remain stable and occupancy costs to remain stable for the rest of FY2016. It planned continued advertising and continued to seek restaurant locations, but had no restaurant in development at quarter-end. It expected cash on hand and operating cash flow to fund operations and planned capital expenditures for at least 12 months.
- The company bought two adjacent Oakland Park, Florida properties for a total of $922,500, planning to use one building for warehouse and covered parking and the other property as a storage yard. Management identified this purchase as the primary reason cash declined.
- A fixed-price agreement commits the company to purchase approximately $5.076 million of baby back ribs during calendar 2016. Management said alternative suppliers were available if needed.
- Insurance-premium financing totaled $914,000 outstanding at January 2, 2016, at 2.95% interest. The quarter included a $25,000 loss on abandonment of property and equipment. No cash dividend was declared or paid, compared with a 15-cent-per-share dividend declared in the comparable 2014 quarter.
Risks, contingencies, and outlook
- Management cited customer demand and competitive conditions as factors that could affect results. Food, beverage, labor, and potentially fuel costs are key inflation exposures; minimum-wage increases may raise labor costs.
- The company described ordinary-course litigation, including premises, accessibility, employment, and food-quality claims; it reported that such matters had not materially affected the business to date, with some claims covered by insurance.
- Four variable-rate debt instruments are subject to interest-rate risk; the company uses swaps to convert variable-rate obligations to fixed rates. Management noted that future rate changes could adversely affect operations.
- No specific full-year earnings or revenue guidance was provided. Management’s outlook statements are expectations, not guarantees; interim results may not indicate full-year performance.
Important facts for investors to verify
- Whether the post-quarter menu-price increases offset higher food and labor costs without weakening customer demand or comparable sales.
- How much of package-store growth reflects underlying demand versus the calendar timing of New Year’s Eve and New Year’s Day.
- The drivers of the increased noncontrolling-interest allocation and its effect on income attributable to company stockholders.
- Cash generation, working-capital trends, capital spending, and debt service following the property purchase and insurance financing.
- Performance under the 2016 rib-supply commitment, including whether fixed pricing adequately limits food-cost exposure.