Flanigan’s Enterprises, Inc. — Q2 FY2013 Form 10-Q
Business context and reporting period. The unaudited quarter ended March 30, 2013 (13 weeks); the six-month period was 26 weeks. Flanigan’s operates restaurants and package liquor stores, including restaurants held through controlled limited partnerships, and franchises five units. Financial amounts below are in thousands of dollars unless stated otherwise.
Financial performance
| Metric | 13 weeks ended Mar. 30, 2013 | 13 weeks ended Mar. 31, 2012 | 26 weeks ended Mar. 30, 2013 | 26 weeks ended Mar. 31, 2012 |
|---|---|---|---|---|
| Total revenue | $22,255 | $20,618 | $41,868 | $39,570 |
| Operating income | $1,405 | $1,113 | $2,041 | $1,773 |
| Income before taxes | $1,333 | $905 | $1,769 | $1,408 |
| Net income attributable to stockholders | $750 | $509 | $1,096 | $845 |
| Basic and diluted EPS | $0.40 | $0.27 | $0.59 | $0.45 |
- Quarterly revenue rose 7.9%; six-month revenue rose 5.8%. Management attributed growth primarily to the new Miami limited-partnership restaurant and menu price increases. Excluding that restaurant, revenue growth was 3.4% for both periods.
- Quarterly operating margin was approximately 6.3%, versus 5.4% a year earlier. Restaurant food-and-bar gross margin was 64.81% for the quarter and 64.54% for the six months; package-store gross margin was 29.22% and 29.36%, respectively.
- Quarterly earnings attributable to stockholders increased 47.3%; six-month earnings increased 29.7%. The new restaurant generated a net loss of $276 for the six months, versus $30 in the prior-year period.
- Six-month operating cash flow was $3,582, compared with $3,807. Investing cash outflow was $2,483 and financing cash outflow was $1,875; cash declined $776 to $6,445 from September 29, 2012.
Balance sheet, debt and liquidity
- At March 30, 2013, current assets were $10,965 and current liabilities $9,189, giving working capital of $1,776. Cash was $6,445.
- Total debt was $14,565, including $1,849 current and $12,716 long-term, compared with $13,418 at September 29, 2012. The company reported compliance with all loan covenants.
- Property and equipment, net, was $35,018, up from $31,595 at September 29, 2012. Six-month capital expenditures were reported as $4,668, including $1,280 for new-restaurant renovations; $1,950 of property purchases was seller-financed.
- Management said cash on hand and expected operating cash flow would be sufficient for operations and capital expenditures for at least 12 months. No cash dividends were paid.
Changes, outlook and risks
- The new Miami restaurant opened December 27, 2012. Comparable weekly sales for the quarter increased 2.6% for restaurant food and 6.3% for bar sales. Same-store package-store sales increased 4.0% for the quarter, but declined 1.4% for the six-month period.
- During Q2, the company refinanced debt associated with Store #31, borrowing $1,405 under a mortgage and $1,595 under a term loan, with interest-rate swaps fixing rates at 4.35% and 4.00%, respectively. It also prepaid a prior $325 term loan. A $500 credit line was unused and terminated after quarter-end.
- In the first quarter, the company bought two North Miami parcels for $2,900, financing $1,950 with a seller mortgage at 7.5%. It plans to use one parcel for customer parking and offer the other building for lease.
- Management expected restaurant food and bar sales to increase, but restaurant gross profit to face pressure from higher food costs, including poultry. It expected package-store sales and margins to remain stable, while higher food and overall expenses could weigh on net income. Further menu price increases might be needed despite competitive constraints.
- The company committed to purchase approximately $3,800 of baby back ribs during calendar 2013 at a fixed cost. Risks cited include customer demand, competition, food and labor inflation, and interest-rate changes; swaps hedge several borrowings. Ordinary-course litigation had not materially affected the company. No subsequent event requiring disclosure was reported.
Important facts for investors to verify
- Whether the new restaurant can reduce its six-month operating loss and sustain the sales contribution that drove reported growth.
- Debt balances, repayment schedules, collateral and covenant compliance following the refinancing and property acquisitions.
- Whether food-cost inflation and the rib-supply agreement affect restaurant margins and earnings as management anticipated.
- Cash generation and planned capital spending, including the expected $850 of fiscal-year refurbishments and the company’s stated 12-month liquidity outlook.
- Comparable restaurant and package-store sales trends, particularly the divergence between quarterly and six-month package-store performance.