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Nathan's(NATH) - 2021 Q2 - Quarterly Report
NATHNathan's(NATH)2020-11-06 11:08

Business Performance - As of September 27, 2020, the restaurant system consisted of 214 franchised units, a decrease from 241 units in the previous year, with 93 Branded Menu units[106]. - The primary drivers of recent growth have been the Licensing and Branded Product Programs, which are now the largest contributors to the Company's revenues and profits[107]. - Approximately 60% of franchised locations have reopened as of the date of the report, with many closures impacting franchise fees and royalties[113]. - The COVID-19 pandemic has negatively impacted revenue and net income, with expectations of continued adverse effects for the remainder of fiscal 2021[115]. - Total sales decreased by 43% to 12,692,000forthethirteenweeksendedSeptember27,2020,comparedto12,692,000 for the thirteen weeks ended September 27, 2020, compared to 22,106,000 for the same period in 2019[126]. - Foodservice sales from the Branded Product Program decreased by 40% to 9,698,000forthesecondquarterfiscal2021,impactedbytheCOVID−19pandemic[126].−TotalCompany−ownedrestaurantsalesdecreasedby499,698,000 for the second quarter fiscal 2021, impacted by the COVID-19 pandemic[126]. - Total Company-owned restaurant sales decreased by 49% to 2,994,000 during the second quarter fiscal 2021 compared to 5,924,000inthesameperiodof2020[127].−Franchiserestaurantsalesdeclinedto5,924,000 in the same period of 2020[127]. - Franchise restaurant sales declined to 6,969,000 in the second quarter fiscal 2021, down from 18,323,000inthesecondquarterfiscal2020[130].−Comparabledomesticfranchisesaleswere18,323,000 in the second quarter fiscal 2020[130]. - Comparable domestic franchise sales were 5,638,000 in the second quarter fiscal 2021, down from 10,112,000inthesecondquarterfiscal2020[130].FinancialPerformance−TheCompanyincurredannualinterestexpenseof10,112,000 in the second quarter fiscal 2020[130]. Financial Performance - The Company incurred annual interest expense of 9,937,500 from the issuance of 150,000,000of6.625150,000,000 of 6.625% Senior Secured Notes due 2025, reducing cash interest expense by 3,562,500 compared to previous notes[110]. - General and administrative expenses decreased by 947,000or27947,000 or 27% to 2,612,000 in the second quarter fiscal 2021 compared to 3,559,000inthesameperiodof2020[138].−Overallcostofsalesdecreasedby393,559,000 in the same period of 2020[138]. - Overall cost of sales decreased by 39% to 9,927,000 in the second quarter fiscal 2021 compared to 16,289,000inthesecondquarterfiscal2020[133].−AdjustedEBITDAforthesecondquarterfiscal2021was16,289,000 in the second quarter fiscal 2020[133]. - Adjusted EBITDA for the second quarter fiscal 2021 was 8,040,000, compared to 8,123,000forthesameperiodin2019[125].−Costofsalesdecreasedby528,123,000 for the same period in 2019[125]. - Cost of sales decreased by 52% to 15,224,000 in fiscal 2021 compared to 31,711,000infiscal2020,withgrossprofitat31,711,000 in fiscal 2020, with gross profit at 4,151,000 or 21.4% of sales[152]. - General and administrative expenses decreased by 2,040,000or272,040,000 or 27% to 5,456,000 in fiscal 2021 from 7,496,000infiscal2020[158].−Cashandcashequivalentsincreasedto7,496,000 in fiscal 2020[158]. - Cash and cash equivalents increased to 81,519,000 at September 27, 2020, up by 4,402,000from4,402,000 from 77,117,000 at March 29, 2020[164]. - Cash provided by operations was 9,107,000infiscal2021,primarilyfromnetincomeof9,107,000 in fiscal 2021, primarily from net income of 7,655,000[167]. - Cash used in investing activities was 318,000infiscal2021forcapitalexpendituresrelatedtotheBrandedProductProgram[168].−Cashusedinfinancingactivitiestotaled318,000 in fiscal 2021 for capital expenditures related to the Branded Product Program[168]. - Cash used in financing activities totaled 4,387,000 in fiscal 2021, including 2,880,000forquarterlydividends[169].CostManagement−TheCompanyhasimplementedcost−savingmeasures,includingreducedpayrollcostsandpostponednon−essentialcapitalspending[122].−ThesalesandprofitsfromtheBrandedProductProgramhavebeenadverselyaffectedduetomanycustomersoperatinginclosedvenues[114].−Thecompanyisdevelopingstrategiestominimizethefinancialimpactofincreasedlaborcostsandhasrecentlyraisedcertainsellingpricestooffsetcostincreases[185].−Futureresultscouldbemateriallyimpactedbysupplyconstraintsonbeefandincreasedcostscomparedtoearlierperiods[109].−TheaveragecostofhotdogsbetweenOctober2019andMarch2020wasapproximately11.22,880,000 for quarterly dividends[169]. Cost Management - The Company has implemented cost-saving measures, including reduced payroll costs and postponed non-essential capital spending[122]. - The sales and profits from the Branded Product Program have been adversely affected due to many customers operating in closed venues[114]. - The company is developing strategies to minimize the financial impact of increased labor costs and has recently raised certain selling prices to offset cost increases[185]. - Future results could be materially impacted by supply constraints on beef and increased costs compared to earlier periods[109]. - The average cost of hot dogs between October 2019 and March 2020 was approximately 11.2% higher than the same period in the previous year, and 9.4% higher between October 2019 and September 2020 compared to the prior year[180]. - A short-term increase or decrease of 10.0% in the cost of food and paper products for the twenty-six week period ended September 27, 2020 would have impacted the cost of sales by approximately 1,310,000[199]. - The company expects to experience price volatility for beef products during fiscal 2021 due to market conditions and the impact of the COVID-19 pandemic on the meat processing industry[182]. Operational Strategies - The Company has launched curbside delivery at three of its four Company-owned restaurants and introduced "ghost kitchens" for product marketing[122]. - The Company aims to improve the performance of the existing restaurant system and grow through franchising efforts, focusing on core items and higher quality menu offerings[108]. - The company expects to make investments in existing restaurants and support the growth of Branded Product and Menu Programs[175]. Risk Management - The company highlights the importance of considering risk factors that could materially affect its business and financial condition, as detailed in the Annual Report on Form 10-K[203]. - The minimum hourly wage for fast food workers in New York State is set to increase to 14.50onDecember31,2020,and14.50 on December 31, 2020, and 15.00 on July 1, 2021, which could significantly affect the company's operations[184]. - The company has not attempted to hedge against fluctuations in commodity prices, which may expose it to market volatility in future purchases[198]. - The company has not purchased future contracts or options to hedge against foreign currency fluctuations, as payments are generally made in United States dollars[200]. - There were no changes in internal controls over financial reporting during the quarter ended September 27, 2020, that materially affected internal control[201]. - The Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective at a reasonable assurance level[202]. - The company acknowledges that no control system can provide absolute assurance against fraud or control issues[202]. - There are no legal proceedings currently affecting the company[203]. Tax and Liabilities - As of September 27, 2020, the company had unrecognized tax benefits of 333,000,withapotentialdecreaseof333,000, with a potential decrease of 16,000 expected within the next year[179]. - The company recorded a liability of 110,000relatedtotheBrooklynGuaranty,whichdoesnotincludepotentialadditionalcoststhatarenotreasonablydeterminable[179].−Thecompanyhad110,000 related to the Brooklyn Guaranty, which does not include potential additional costs that are not reasonably determinable[179]. - The company had 150,000,000 of 2025 Notes outstanding, with interest expense expected to change by approximately 375,000perannumforeach0.25375,000 per annum for each 0.25% change in interest rates[194]. - Cash and cash equivalents totaled 81,519,000 as of September 27, 2020, with earnings on this cash expected to change by approximately $204,000 per annum for each 0.25% change in interest rates[193].