Nathan\'s Famous Inc. (NATH, Financial) filed Quarterly Report for the period ended 2009-06-28.
Nathan\'s Famous owns and operates and franchises some 200 fast-food outlets in 18 states and Puerto Rico. The company\'s Nathan\'s Famous restaurants feature all-beef frankfurters fresh crinkle-cut fried potatoes chargrilled hamburgers chicken sandwiches seafood fried chicken breakfast items salads snacks and beverages. Besides traditional restaurants Nathan\'s outlets include carts kiosks snack bars racetracks and convenience stores. Nathan\'s Famous Inc. has a market cap of $72.7 million; its shares were traded at around $12.94 with a P/E ratio of 16.4 and P/S ratio of 1.5. Nathan\'s Famous Inc. had an annual average earning growth of 8.4% over the past 10 years.
Franchise fees and royalties were $1,154,000 in the fiscal 2010 period as compared to $1,152,000 in the fiscal 2009 period. Total royalties were $1,037,000 in the fiscal 2010 period as compared to $1,035,000 in the fiscal 2009 period. During the fiscal 2010 period, we did not recognize revenue of $105,000 for royalties deemed to be uncollectible as compared to the fiscal 2009 period, when we did not recognize $27,000 of royalty income. Total royalties, excluding the adjustments for royalties deemed uncollectible as described above, were $1,142,000 in the fiscal 2010 period as compared to $1,062,000 in the fiscal 2009 period. During the fiscal 2010 period, Nathan s earned $30,000 of higher royalties from sales by our manufacturers and primary distributor under our Branded Menu Program primarily due to the increase in the number of Branded Menu locations. Franchise restaurant sales were $23,998,000 in the fiscal 2010 period as compared to $23,756,000 in the fiscal 2009 period. Comparable domestic franchise sales (consisting of 128 Nathan s outlets, excluding sales under the Branded Menu Program) were $16,887,000 in the fiscal 2010 period as compared to $18,303,000 in the fiscal 2009 period, a decrease of 7.7%. Franchise sales continued to be negatively affected by the economic recession, particularly at our travel, retail and entertainment venues, where sales are lower by approximately 10% compared to the fiscal 2009 period. At June 28, 2009, 289 domestic and international franchised or Branded Menu Program franchise outlets were determined to be operating as compared to 230 domestic and international franchised or Branded Menu Program franchise outlets at June 29, 2008. (Included in the number of Branded Menu units are 42 Miami Subs locations at June 28, 2009. Previously, Miami Subs locations were not included in the number of units operating.) Royalty income from 13 domestic franchised outlets was deemed unrealizable during the thirteen weeks ended March 29, 2009, as compared to 10 franchised outlets during the thirteen weeks ended June 29, 2008. Domestic franchise fee income was $68,000 in the fiscal 2010 period as compared to $47,000 in the fiscal 2009 period due to the opening of more conventional locations during the fiscal 2010 period. International franchise fee income was $49,000 in the fiscal 2010 period, as compared to $70,000 during the fiscal 2009 period primarily due to fewer openings of international franchised restaurants. During the fiscal 2010 period, seven new franchised outlets opened, including four Branded Menu Program outlets, one unit in Kuwait and one unit in the Dominican Republic. During the fiscal 2009 period, 14 new franchised outlets were opened, including nine Branded Menu Program outlets, two units in Kuwait and one unit in Dubai.
License royalties increased by $192,000 or 11.9% to $1,807,000 in the fiscal 2010 period as compared to $1,615,000 in the fiscal 2009 period. Total royalties earned on sales of hot dogs from our retail and foodservice license agreements of $1,516,000 increased 11.6% from $1,358,000 as a result of higher licensee sales during the fiscal 2010 period. Royalties earned from SFG, primarily from the retail sale of hot dogs, were $1,125,000 during the fiscal 2010 period as compared to $1,052,000 during the fiscal 2009 period. Royalties earned from another licensee, substantially from sales of hot dogs to Sam s Club, were $391,000 during the fiscal 2010 period as compared to $306,000 during the fiscal 2009 period. Beginning March 2008, Nathan s World Famous Beef Hot Dogs were introduced into over 500 of the foodservice cafes operating in Sam s Clubs throughout the United States. The Sam s Club introduction was substantially completed by June 2008. Accordingly, we anticipate earning similar royalties under this agreement during the balance of this fiscal year as compared to the last three fiscal quarters of last year. We earned higher revenues of $37,000 from our agreement for the manufacture of Nathan s proprietary ingredients. Interest income was $240,000 in the fiscal 2010 period as compared to $247,000 in the fiscal 2009 period, primarily due to lower interest income on our MSC Note (as defined) receivable, received in connection with the sale of Miami Subs on June 7, 2007.
Restaurant operating expenses decreased by $89,000 to $823,000 in the fiscal 2010 period as compared to $912,000 in the fiscal 2009 period. The decrease during the fiscal 2010 period when compared to the fiscal 2009 period results from operating one less restaurant during the fiscal 2010 period of $61,000 and from lower utility costs of $14,000, lower occupancy costs of $20,000 and reductions in various other costs of $34,000, which were partly offset by higher marketing costs of $33,000 in connection with three monthly Free Standing Insert campaigns. During the fiscal 2010 period our utility costs were approximately 8.3% lower than the fiscal 2009 period which was due to lower commodity costs and lower consumption. We continue to be concerned about the uncertain market conditions for oil and natural gas.
General and administrative expenses increased by $183,000 or 7.5% to $2,628,000 in the fiscal 2010 period as compared to $2,445,000 in the fiscal 2009 period. The difference in general and administrative expenses was due primarily to an increase in bad debts of $121,000 and un-reimbursed property costs of $48,000. We also incurred higher tax and audit fees of approximately $83,000, which were partly offset by lower occupancy costs of $32,000, stock compensation of $18,000 and other reduced costs.
Cash provided by operations of $15,000 in the fiscal 2010 period is primarily attributable to net income of $1,563,000, and other non-cash items of $455,000, net. Changes in Nathan s operating assets and liabilities decreased cash by $2,003,000, resulting primarily from increased accounts and other receivables of $2,193,000, and increased inventories of $328,000, which were partly offset by decreases in prepaid expenses of $626,000. The increase in accounts and other receivables relates primarily to normal seasonal fluctuations from licensees of $1,064,000, increased sales under the Branded Product Program and to our television retailer of $516,000, advances to Nathan s advertising fund of $356,000 and higher franchise royalties of $206,000. Inventories increased in anticipation of higher sales to our television retailer and in our Company-operated restaurants. The decrease in prepaid expenses is due primarily to the reduction of prepaid corporate income taxes of $282,000 which have been applied against the fiscal 2010 period income, usage of prepaid expenses for insurance and rent of $151,000 and various other reductions.
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Nathan\'s Famous owns and operates and franchises some 200 fast-food outlets in 18 states and Puerto Rico. The company\'s Nathan\'s Famous restaurants feature all-beef frankfurters fresh crinkle-cut fried potatoes chargrilled hamburgers chicken sandwiches seafood fried chicken breakfast items salads snacks and beverages. Besides traditional restaurants Nathan\'s outlets include carts kiosks snack bars racetracks and convenience stores. Nathan\'s Famous Inc. has a market cap of $72.7 million; its shares were traded at around $12.94 with a P/E ratio of 16.4 and P/S ratio of 1.5. Nathan\'s Famous Inc. had an annual average earning growth of 8.4% over the past 10 years.
Highlight of Business Operations:
Total sales were $11,015,000 for the thirteen weeks ended June 28, 2009 (“fiscal 2010 period”) as compared to $11,016,000 for the thirteen weeks ended June 29, 2008 (“fiscal 2009 period”). Foodservice sales from the Branded Product and Branded Menu Programs increased by 3.4% to $6,843,000 for the fiscal 2010 period as compared to sales of $6,618,000 in the fiscal 2009 period. This increase was primarily attributable to price increases of 11.7%, which was partly offset by lower sales volume of approximately 8.4%. Total Company-owned restaurant sales (representing four comparable Nathan s restaurants and one seasonal restaurant during both periods and one restaurant that was transferred to a franchisee on January 26, 2009) were $3,496,000 for the fiscal 2010 period as compared to $3,859,000 during the fiscal 2009 period. Sales at the four comparable Company-owned restaurants (excluding one seasonal restaurant and the restaurant that was transferred to a franchisee in January 2009) were $3,282,000 during the fiscal 2010 period, as compared to $3,387,000 during the fiscal 2009 period. The sales decline at our four comparable Company-owned restaurants occurred during June 2009, which we believe was primarily attributable to weather conditions. The rain during June 2009 severely reduced the number of people that went to the beach and consequently our Coney Island restaurant. Sales during April and May 2009 had increased by approximately 5.1% over the same period last year. During the fiscal 2010 period, sales to our television retailer were approximately $137,000 higher than the fiscal 2009 period. Nathan s products were on air 38 times during the fiscal 2010 period as compared to 18 times during the fiscal 2009 period. This year s airings included 10 “Try Me” special promotions, seven “Today s Special Value” promotions and two, half-hour food shows.Franchise fees and royalties were $1,154,000 in the fiscal 2010 period as compared to $1,152,000 in the fiscal 2009 period. Total royalties were $1,037,000 in the fiscal 2010 period as compared to $1,035,000 in the fiscal 2009 period. During the fiscal 2010 period, we did not recognize revenue of $105,000 for royalties deemed to be uncollectible as compared to the fiscal 2009 period, when we did not recognize $27,000 of royalty income. Total royalties, excluding the adjustments for royalties deemed uncollectible as described above, were $1,142,000 in the fiscal 2010 period as compared to $1,062,000 in the fiscal 2009 period. During the fiscal 2010 period, Nathan s earned $30,000 of higher royalties from sales by our manufacturers and primary distributor under our Branded Menu Program primarily due to the increase in the number of Branded Menu locations. Franchise restaurant sales were $23,998,000 in the fiscal 2010 period as compared to $23,756,000 in the fiscal 2009 period. Comparable domestic franchise sales (consisting of 128 Nathan s outlets, excluding sales under the Branded Menu Program) were $16,887,000 in the fiscal 2010 period as compared to $18,303,000 in the fiscal 2009 period, a decrease of 7.7%. Franchise sales continued to be negatively affected by the economic recession, particularly at our travel, retail and entertainment venues, where sales are lower by approximately 10% compared to the fiscal 2009 period. At June 28, 2009, 289 domestic and international franchised or Branded Menu Program franchise outlets were determined to be operating as compared to 230 domestic and international franchised or Branded Menu Program franchise outlets at June 29, 2008. (Included in the number of Branded Menu units are 42 Miami Subs locations at June 28, 2009. Previously, Miami Subs locations were not included in the number of units operating.) Royalty income from 13 domestic franchised outlets was deemed unrealizable during the thirteen weeks ended March 29, 2009, as compared to 10 franchised outlets during the thirteen weeks ended June 29, 2008. Domestic franchise fee income was $68,000 in the fiscal 2010 period as compared to $47,000 in the fiscal 2009 period due to the opening of more conventional locations during the fiscal 2010 period. International franchise fee income was $49,000 in the fiscal 2010 period, as compared to $70,000 during the fiscal 2009 period primarily due to fewer openings of international franchised restaurants. During the fiscal 2010 period, seven new franchised outlets opened, including four Branded Menu Program outlets, one unit in Kuwait and one unit in the Dominican Republic. During the fiscal 2009 period, 14 new franchised outlets were opened, including nine Branded Menu Program outlets, two units in Kuwait and one unit in Dubai.
License royalties increased by $192,000 or 11.9% to $1,807,000 in the fiscal 2010 period as compared to $1,615,000 in the fiscal 2009 period. Total royalties earned on sales of hot dogs from our retail and foodservice license agreements of $1,516,000 increased 11.6% from $1,358,000 as a result of higher licensee sales during the fiscal 2010 period. Royalties earned from SFG, primarily from the retail sale of hot dogs, were $1,125,000 during the fiscal 2010 period as compared to $1,052,000 during the fiscal 2009 period. Royalties earned from another licensee, substantially from sales of hot dogs to Sam s Club, were $391,000 during the fiscal 2010 period as compared to $306,000 during the fiscal 2009 period. Beginning March 2008, Nathan s World Famous Beef Hot Dogs were introduced into over 500 of the foodservice cafes operating in Sam s Clubs throughout the United States. The Sam s Club introduction was substantially completed by June 2008. Accordingly, we anticipate earning similar royalties under this agreement during the balance of this fiscal year as compared to the last three fiscal quarters of last year. We earned higher revenues of $37,000 from our agreement for the manufacture of Nathan s proprietary ingredients. Interest income was $240,000 in the fiscal 2010 period as compared to $247,000 in the fiscal 2009 period, primarily due to lower interest income on our MSC Note (as defined) receivable, received in connection with the sale of Miami Subs on June 7, 2007.
Restaurant operating expenses decreased by $89,000 to $823,000 in the fiscal 2010 period as compared to $912,000 in the fiscal 2009 period. The decrease during the fiscal 2010 period when compared to the fiscal 2009 period results from operating one less restaurant during the fiscal 2010 period of $61,000 and from lower utility costs of $14,000, lower occupancy costs of $20,000 and reductions in various other costs of $34,000, which were partly offset by higher marketing costs of $33,000 in connection with three monthly Free Standing Insert campaigns. During the fiscal 2010 period our utility costs were approximately 8.3% lower than the fiscal 2009 period which was due to lower commodity costs and lower consumption. We continue to be concerned about the uncertain market conditions for oil and natural gas.
General and administrative expenses increased by $183,000 or 7.5% to $2,628,000 in the fiscal 2010 period as compared to $2,445,000 in the fiscal 2009 period. The difference in general and administrative expenses was due primarily to an increase in bad debts of $121,000 and un-reimbursed property costs of $48,000. We also incurred higher tax and audit fees of approximately $83,000, which were partly offset by lower occupancy costs of $32,000, stock compensation of $18,000 and other reduced costs.
Cash provided by operations of $15,000 in the fiscal 2010 period is primarily attributable to net income of $1,563,000, and other non-cash items of $455,000, net. Changes in Nathan s operating assets and liabilities decreased cash by $2,003,000, resulting primarily from increased accounts and other receivables of $2,193,000, and increased inventories of $328,000, which were partly offset by decreases in prepaid expenses of $626,000. The increase in accounts and other receivables relates primarily to normal seasonal fluctuations from licensees of $1,064,000, increased sales under the Branded Product Program and to our television retailer of $516,000, advances to Nathan s advertising fund of $356,000 and higher franchise royalties of $206,000. Inventories increased in anticipation of higher sales to our television retailer and in our Company-operated restaurants. The decrease in prepaid expenses is due primarily to the reduction of prepaid corporate income taxes of $282,000 which have been applied against the fiscal 2010 period income, usage of prepaid expenses for insurance and rent of $151,000 and various other reductions.
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