Flanigan’s Enterprises, Inc. — Form 10-Q Summary
Reporting period: 13 and 26 weeks ended April 1, 2017; comparisons are to the periods ended April 2, 2016. Financial amounts below are in millions unless noted. The statements are unaudited.
Business context
The company operates restaurant and package-liquor-store businesses, including units owned through limited partnerships that it controls. At April 1, 2017, it reported 25 operating units excluding one adult entertainment club it owns but does not operate, plus five franchised units. It reports restaurants and package stores as its principal segments.
Financial performance
| Metric | 13 weeks ended Apr. 1, 2017 | 13 weeks ended Apr. 2, 2016 | 26 weeks ended Apr. 1, 2017 | 26 weeks ended Apr. 2, 2016 |
|---|---|---|---|---|
| Total revenue | $27.433 | $26.974 | $54.027 | $52.252 |
| Operating income | $2.095 | $1.978 | $3.568 | $3.329 |
| Net income | $1.509 | $1.419 | $2.611 | $2.370 |
| Net income attributable to stockholders | $1.047 | $0.874 | $1.712 | $1.498 |
| Basic and diluted EPS | $0.56 | $0.47 | $0.92 | $0.81 |
- Quarterly revenue rose 1.7%; six-month revenue rose 3.4%. Management attributed growth mainly to prior menu-price increases and higher restaurant traffic. Package-store sales benefited from increased traffic.
- Quarterly restaurant food sales increased to $17.281 million, while bar sales declined to $5.302 million. Comparable weekly food sales rose 2.39%; comparable weekly bar sales fell 3.32%, which management linked partly to discounted beer promotions. Six-month comparable weekly food sales increased 3.95%; bar sales declined 0.25%.
- Quarterly operating costs and expenses increased 1.4%, slower than revenue growth, and were 92.36% of revenue versus 92.67%. Restaurant food-and-bar gross margin declined to 64.54% from 65.03%; package-store gross margin was 28.58% versus 28.97%. Management cited higher food costs.
- For the six months, operating costs and expenses increased 3.1%; operating margin was approximately 6.6% versus 6.4%. Net margin was 4.83% versus 4.54%, while stockholder-attributable net income was 3.17% of revenue versus 2.87%.
Cash flow, liquidity and debt
- Cash was $10.621 million at April 1, 2017, versus $10.174 million at October 1, 2016. Working capital was $4.406 million, up from $3.875 million at fiscal year-end; current assets were $16.049 million and current liabilities $11.643 million.
- The cash-flow statement reports six-month operating cash flow of $4.553 million, investing cash outflow of $4.570 million, financing cash inflow of $0.464 million, and a $0.447 million increase in cash. However, the MD&A cash-flow summary gives operating cash flow as $4.452 million; the filing does not reconcile this difference.
- Six-month capital expenditures were reported as $5.025 million, including $2.475 million for adjacent property, $0.969 million for redevelopment of a package store, and $0.478 million for a catering kitchen. The cash-flow statement separately reports $4.326 million of property/equipment purchases and $0.254 million of deposits.
- Total debt, including current maturities, was $13.237 million at April 1, 2017, versus $10.092 million at October 1, 2016. The company borrowed $2.0 million under a secured $5.5 million revolving credit line to buy the adjacent property; $3.5 million remained available as of May 16, 2017. The line was floating-rate at 3.227% as of April 1 and is scheduled to convert to a five-year term loan at 4.65% on December 28, 2017. Management said the company was in compliance with loan covenants.
- Management believed cash, operating cash flow and available loan funds would cover operations and planned capital expenditures for at least the next 12 months, while noting this depends on results and unanticipated expenses. A $0.20-per-share dividend was paid in the period, versus $0.18 in the prior-year period.
Material developments, outlook and risks
- The company acquired vacant property contiguous to its North Miami restaurant and package store for approximately $2.47 million cash at closing, partly funded by the credit line, to expand customer parking. It also refinanced its corporate-office mortgage and borrowed $0.823 million secured by office and warehouse properties; both loans bear fixed interest of 4.65% and mature in 2031. It terminated an older interest-rate swap and paid an $8,500 penalty.
- Management expected restaurant food-and-bar gross margins to decline through the rest of fiscal 2017 due to higher food costs; it expected package-store sales and margins to remain stable. It also anticipated continued increases in operating costs and SG&A, and higher interest expense following the credit-line borrowing. No quantified earnings or revenue guidance was provided.
- The company committed to purchase approximately $5.779 million of baby back ribs during calendar 2017 at a fixed cost. It expected about $0.9 million of refurbishment spending in fiscal 2017, of which $0.125 million had been spent through April 1.
- Management cited customer demand, competition, food and labor costs, and interest-rate movements as risks. The filing describes ordinary-course litigation, including injury, accessibility, employment and food-quality claims, and states none had materially affected the company. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the $4.553 million operating cash-flow figure in the financial statements with the $4.452 million in MD&A.
- Assess whether food-cost inflation and promotional discounting continue to pressure restaurant margins and bar sales, and whether package-store growth persists.
- Review the credit-line conversion, borrowing availability, debt covenants, interest-rate swap coverage and planned capital spending.
- Evaluate the economics and execution of the North Miami property and package-store redevelopment, catering-kitchen project, and the rib-supply commitment.
- Confirm future dividend decisions and monitor litigation and other contingencies; the filing provides no quantified estimate of potential litigation exposure.