Nathan’s Famous, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Thirteen weeks ended June 25, 2023; comparable period ended June 26, 2022. The company markets branded food products through foodservice, licensing, and restaurant/franchise channels. Results are seasonal and this quarter is not necessarily indicative of the full year.
Financial results
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $41.985 million | $39.720 million | +6% |
| Operating income | $11.463 million | $11.780 million | -3% |
| Net income | $7.388 million | $7.137 million | +4% |
| Diluted EPS | $1.81 | $1.74 | +4% |
| Operating cash flow | $2.148 million | $0.771 million | Higher |
| Adjusted EBITDA (non-GAAP) | $12.036 million | $12.065 million | Approximately flat |
- Sales rose 7% to $28.828 million, led by Branded Product Program sales, up 9% to $25.170 million. Hot-dog volume in that program increased about 2%, while average selling prices rose about 5%.
- License royalties increased 3% to $11.658 million. Company-owned restaurant sales declined 2% to $3.658 million, which management attributed mainly to unfavorable June weather at Coney Island.
- Cost of sales increased 9% to $24.684 million. Gross profit on sales declined to $4.144 million, or 14% of sales, from $4.227 million, or 16%. Branded Product Program hot-dog costs rose about 8% per pound.
- General and administrative expense increased 13% to $4.058 million, principally from higher incentive compensation, share-based compensation, and professional fees. Interest expense fell to $1.414 million from $1.944 million following the March 2023 debt redemption.
Liquidity, debt, and capital allocation
- At June 25, cash was $31.936 million, up $2.075 million from fiscal year-end; current assets were $55.026 million and current liabilities $18.869 million. Net working capital was $36.157 million.
- Operating cash flow was $2.148 million; receivables absorbed $6.232 million as balances increased with higher branded-product sales and royalties. Capital expenditures were $73,000. No financing cash flows were reported for the quarter.
- Gross debt was $80 million in 6.625% senior secured notes due November 2025; the balance sheet reports $79.140 million net of issuance costs. No scheduled principal amortization is due before maturity. Management expects $5.3 million of annual interest expense and says cash and operating cash flows should fund operations and obligations for at least 12 months.
- The company declared a $0.50-per-share quarterly dividend; $2.040 million was accrued at quarter-end and paid June 28. A further $0.50 dividend was declared August 3, payable September 1. Future dividends are subject to the note indenture, earnings, financial requirements, and Board approval.
- Stockholders’ deficit was $39.224 million. The company reported no repurchases during the quarter; 98,116 shares remained authorized for repurchase under its existing plan.
Outlook, risks, and other notable items
- Management expects labor and commodity inflation, particularly beef and beef trimmings, to continue through the rest of FY2024. It has generally offset cost increases through pricing and product mix, but warns that competition, consumer spending, and timing may limit further price increases. A 10% short-term change in food and paper costs would change cost of sales by approximately $2.306 million.
- The company had no open hot-dog purchase commitments at quarter-end and does not hedge most commodity exposure. It identifies Smithfield Foods as its principal supplier and says licensing revenue and overall profitability depend substantially on its agreement with Smithfield.
- Other cited risks include minimum-wage and labor pressures, supply and commodity volatility, weather-sensitive restaurant sales, franchisee viability, receivable collection, and the November 2025 debt maturity. The filing provides no quantified full-year earnings or revenue guidance.
- The company adopted the expected-credit-loss standard on March 27, 2023, recording a $252,000 increase to the credit-loss allowance and a $187,000 after-tax adjustment to retained earnings. Management reported no indicator of material impairment in long-lived or intangible assets during the quarter.
- Management said ordinary-course litigation is not expected to have a material adverse effect, though unfavorable rulings remain possible. No legal proceedings were listed in Part II. Disclosure controls were reported effective, with no material changes in internal control over financial reporting.
Key facts for investors to verify
- Whether beef, labor, and other cost inflation can be offset without weakening demand or margins.
- Ongoing performance and terms of the Smithfield supply and licensing relationship.
- Receivables growth, collections, and the effect of the newly adopted credit-loss methodology.
- Cash generation and the company’s capacity to fund dividends while meeting debt obligations and addressing the 2025 note maturity.
- Seasonal and weather impacts on company-owned restaurants and the sustainability of franchise and virtual-kitchen growth.