Workflow
Nathan's(NATH) - 2021 Q3 - Quarterly Report
NATHNathan's(NATH)2021-02-05 11:07

Business Operations - As of December 27, 2020, the restaurant system consisted of 215 franchised units and 4 company-owned units, a decrease from 226 franchised units and 4 company-owned units as of December 29, 2019[112]. - The company has expanded into 75 ghost kitchens, including 37 domestically and 38 internationally, to enhance product distribution[115]. - Approximately 60% of franchised locations have reopened as of the date of the report, following temporary closures due to COVID-19[120]. - The company has taken actions to mitigate COVID-19 impacts, including reducing payroll costs and postponing non-essential capital spending[121]. - The company expects to continue investing in existing restaurants and support the growth of its Branded Product and Branded Menu Programs[183]. Financial Performance - 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[113]. - Total sales decreased by 26% to 11,322,000forthethirdquarterfiscal2021comparedto11,322,000 for the third quarter fiscal 2021 compared to 15,356,000 for the third quarter fiscal 2020[133]. - Foodservice sales from the Branded Product Program decreased by 27% to 10,003,000forthethirdquarterfiscal2021comparedto10,003,000 for the third quarter fiscal 2021 compared to 13,694,000 in the third quarter fiscal 2020[133]. - License royalties increased by 34% to 5,898,000inthethirdquarterfiscal2021comparedto5,898,000 in the third quarter fiscal 2021 compared to 4,412,000 in the third quarter fiscal 2020[135]. - Franchise restaurant sales declined to 6,178,000inthethirdquarterfiscal2021comparedto6,178,000 in the third quarter fiscal 2021 compared to 14,587,000 in the third quarter fiscal 2020[136]. - Total sales decreased by 47% or 27,002,000to27,002,000 to 30,697,000 for the thirty-nine weeks ended December 27, 2020 compared to 57,699,000forthethirty−nineweeksendedDecember29,2019[152].−FoodservicesalesfromtheBrandedProductProgramdecreasedby4757,699,000 for the thirty-nine weeks ended December 29, 2019[152]. - Foodservice sales from the Branded Product Program decreased by 47% to 24,450,000 for the fiscal 2021 period compared to 45,989,000forthefiscal2020period[152].−Licenseroyaltiesincreasedby3345,989,000 for the fiscal 2020 period[152]. - License royalties increased by 33% to 24,689,000 in the fiscal 2021 period compared to 18,559,000inthefiscal2020period[154].−Franchisefeesandroyaltieswere18,559,000 in the fiscal 2020 period[154]. - Franchise fees and royalties were 1,087,000 in the fiscal 2021 period compared to 3,610,000inthefiscal2020period[154].−Thecompany′scostofsalesdecreasedby453,610,000 in the fiscal 2020 period[154]. - The company's cost of sales decreased by 45% to 24,161,000 in fiscal 2021 compared to 43,973,000infiscal2020[158].−Grossprofitforfiscal2021was43,973,000 in fiscal 2020[158]. - Gross profit for fiscal 2021 was 6,536,000, representing 21% of sales, down from 13,726,000or2413,726,000 or 24% of sales in fiscal 2020[158]. - General and administrative expenses decreased by 2,407,000 or 22% to 8,709,000infiscal2021comparedto8,709,000 in fiscal 2021 compared to 11,116,000 in fiscal 2020[164]. - Cash provided by operations was 5,710,000infiscal2021,primarilyduetonetincomeof5,710,000 in fiscal 2021, primarily due to net income of 9,014,000[173]. - The company paid three quarterly dividends totaling 4,320,000duringfiscal2021[170].EconomicImpact−Thecompanyexpectscontinuednegativeimpactsonrevenueandnetincomefortheremainderoffiscal2021duetotheongoingeffectsoftheCOVID−19pandemic[122].−ThesalesandprofitsfromtheBrandedProductProgramhavebeenadverselyimpactedduetomanycustomersoperatinginclosedorreducedtrafficvenues[121].−Thecompany′sfutureresultscouldbemateriallyimpactedbysupplyconstraintsonbeefandincreasedcostscomparedtoearlierperiods[116].−TheCompanyexpectstoexperiencepricevolatilityforbeefproductsduringtheremainderoffiscal2021duetomarketconditions[205].−Continuedincreasesinlabor,food,andotheroperatingexpensescouldadverselyaffectNathan′soperationsandnecessitateareconsiderationofpricingstrategies[198].TaxandInterest−Theeffectivetaxrateforthethirdquarterfiscal2021was26.64,320,000 during fiscal 2021[170]. Economic Impact - The company expects continued negative impacts on revenue and net income for the remainder of fiscal 2021 due to the ongoing effects of the COVID-19 pandemic[122]. - The sales and profits from the Branded Product Program have been adversely impacted due to many customers operating in closed or reduced traffic venues[121]. - The company's future results could be materially impacted by supply constraints on beef and increased costs compared to earlier periods[116]. - The Company expects to experience price volatility for beef products during the remainder of fiscal 2021 due to market conditions[205]. - Continued increases in labor, food, and other operating expenses could adversely affect Nathan's operations and necessitate a reconsideration of pricing strategies[198]. Tax and Interest - The effective tax rate for the third quarter fiscal 2021 was 26.6% compared to 22.9% for the third quarter fiscal 2020[149]. - The effective tax rate for fiscal 2021 was 27.7%, compared to 26.1% for fiscal 2020[167]. - 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[117]. - The Company had 150,000,000of2025NotesoutstandingdueinNovember2025,withinterestexpenseontheseborrowingsincreasingordecreasingbyapproximately150,000,000 of 2025 Notes outstanding due in November 2025, with interest expense on these borrowings increasing or decreasing by approximately 375,000 per annum for each 0.25% change in interest rates[202]. Cost and Pricing - The average selling prices increased by approximately 2.9% during the fiscal 2021 period compared to the fiscal 2020 period[152]. - The average cost of hot dogs between October 2019 and March 2020 was approximately 11.2% higher than the average cost between October 2018 and March 2019[203]. - The average cost of hot dogs between April 2020 and December 2020 was approximately 2.7% higher than the average cost between April 2019 and December 2019[203]. - A short-term increase or decrease of 10.0% in the cost of food and paper products for the thirty-nine week period ended December 27, 2020 would have increased or decreased the cost of sales by approximately $2,124,000[206]. Internal Controls and Risk Management - The Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the reporting period[208]. - There were no changes in internal controls over financial reporting during the quarter ended December 27, 2020, that materially affected internal control[209]. - The company acknowledges that no control system can provide absolute assurance that all control issues and instances of fraud have been detected[210]. - The company advises stakeholders to consider risk factors that could materially affect its business and financial condition, as detailed in the Annual Report on Form 10-K[211].