Nathan's(NATH) - 2021 Q1 - Quarterly Report

Financial Performance - For the thirteen weeks ended June 28, 2020, net income was $4,000,000, a decrease from $5,369,000 for the same period in 2019[126] - EBITDA for the same period was $8,521,000, down from $10,145,000 in the prior year[126] - Adjusted EBITDA was $8,550,000 compared to $10,173,000 in the previous year, reflecting a decline in performance[126] - Total sales decreased by 67% to $6,683,000 for the thirteen weeks ended June 28, 2020, compared to $20,237,000 for the same period in 2019[127] - Foodservice sales from the Branded Product Program decreased by 70.5% to $4,749,000 during the fiscal 2021 period[127] - Total Company-owned restaurant sales decreased by 53.1% to $1,934,000 during the fiscal 2021 period[129] - Franchise restaurant sales declined to $2,218,000 in the fiscal 2021 period compared to $17,516,000 in the fiscal 2020 period[131] - The cost of sales decreased by 65.7% to $5,297,000 in the fiscal 2021 period compared to $15,422,000 in the fiscal 2020 period[134] COVID-19 Impact - Approximately 52% of franchised locations have reopened as of the report date, following temporary closures due to COVID-19[114] - The company has taken actions to mitigate COVID-19 impacts, including reduced payroll costs and the launch of curbside delivery[118] - The company expects continued negative impacts on revenue and net income for the remainder of fiscal 2021 due to the pandemic[116] - The company anticipates continued volatility in beef prices, which could impact operational results, as the cost of hot dogs has increased significantly due to the COVID-19 pandemic[165] Cash and Debt Management - Cash and cash equivalents at June 28, 2020, aggregated $76,941,000, a decrease of $176,000 compared to March 29, 2020[147] - Cash provided by operations was $3,002,000 in the fiscal 2021 period, primarily attributable to net income of $4,000,000[150] - The company incurred annual interest expense of $9,937,500 due to the issuance of $150,000,000 of Senior Secured Notes[111] - Nathan's plans to continue stock repurchase programs and invest in existing restaurants, funded from operating cash flow[160] - Nathan's total cash contractual obligations as of June 28, 2020, amounted to $167,667,000, with net cash contractual obligations of $166,392,000[162] Cost and Pricing Trends - The average cost of hot dogs between April 2020 and June 2020 was approximately 9.1% higher than the same period in 2019, reflecting significant cost volatility[164] - The average cost of hot dogs increased by approximately 11.2% between October 2019 and March 2020 compared to the same period in the previous year, and by approximately 9.1% between April 2020 and June 2020 compared to the same period in the previous year[179][181] - A short-term increase or decrease of 10.0% in the cost of food and paper products for the thirteen-week period ended June 28, 2020 would have resulted in a cost of sales change of approximately $439,000[182] Franchise and Business Strategy - The strategic emphasis has been on increasing distribution points through Licensing and Branded Product Programs, which are key profit contributors[107] - The company plans to strategically invest in a small number of new units to showcase to prospective franchisees[108] - There were no changes in internal controls over financial reporting during the quarter ended June 28, 2020 that materially affected internal control effectiveness[185] Tax and Regulatory Matters - The effective tax rate for the thirteen-week period ended June 28, 2020, was 28.1% compared to 25.3% for the same period in 2019[144] - Nathan's has unrecognized tax benefits of $321,000, with a reasonable possibility of a decrease by $16,000 within the next year[162] - The company incurred approximately $1,000 of additional costs due to the Fair Work Week Legislation during the fiscal 2021 period[173] Dividend and Shareholder Returns - Nathan's Board of Directors authorized a regular dividend of $1.00 per share per annum, with the first quarter fiscal 2021 dividend paid amounting to $1,440,000[158] - The company expects to incur interest payments of $9,937,500 during the fiscal year ending March 28, 2021, of which $4,968,750 has already been paid[161] Foreign Operations - Foreign franchisees conduct business in U.S. dollars, minimizing risks from foreign currency fluctuations, which are not expected to materially impact financial results[183]