Nathan's(NATH) - 2023 Q4 - Annual Report

Revenue Growth - Company-owned restaurants generated $12,161,000 in revenue for fiscal 2023, a 12% increase from fiscal 2022, with customer traffic up approximately 12%[42] - Franchise operations contributed $4,292,000 in revenue for fiscal 2023, representing an 11% increase over fiscal 2022, driven by increased customer traffic in various locations[47] - Total revenue from international operations reached $5,898,000 in fiscal 2023, compared to $3,223,000 in fiscal 2022, indicating significant growth[70] - The Branded Product Program generated $78,884,000 in revenue for fiscal 2023, marking a 19% increase compared to fiscal 2022[73] - Royalties earned from the licensing agreement with Smithfield Foods, Inc. amounted to approximately $28,688,000 in fiscal 2023, representing 21.9% of total revenues[78] Franchise Operations - As of March 26, 2023, the franchise system included 232 locations across 17 states and 13 foreign countries, along with 267 virtual kitchens[46] - During fiscal 2023, 11 franchised locations opened while 18 closed, including 5 from the Branded Menu Program[52] - Franchisees are required to pay a one-time $30,000 franchise fee and a monthly royalty of 5.5% of restaurant sales[59] - The company plans to expand its presence in the Midwest through an agreement with Frisch's Big Boy restaurants to carry its signature hot dogs[49] - The company continues to pursue international expansion, opening franchised locations in Egypt and Mexico during fiscal 2023[68] Operational Highlights - The company operated four Company-owned restaurants as of March 26, 2023, including one seasonal unit on Coney Island[37] - As of March 26, 2023, the company operated a total of 236 locations, including 74 international locations[72] - The Coney Island flagship location achieved over one million viewers for the annual Hot Dog Eating Contest in fiscal 2023[43] Marketing and Promotions - Nathan's marketing efforts in fiscal 2023 focused on the July 4th Hot Dog Eating Contest and sports sponsorships, alongside digital and social media initiatives[90] - The Company anticipates expanding its internal marketing resources and broker network in fiscal 2024[94] Employee and Corporate Governance - The company employed 138 people as of March 26, 2023, with approximately 47% being female and 69% comprising racial and ethnic minorities[95] - The Company has a commitment to high standards of ethical business conduct, supported by a Code of Conduct and annual training on sexual harassment[100] - The Company maintains an anonymous hotline for employees to report theft or fraudulent behavior[100] - The Company offers performance-based cash incentive bonuses to management employees based on the attainment of certain financial metrics[101] Financial Management - As of March 26, 2023, Nathan's cash balance totaled $29,861,000, with earnings on this cash potentially increasing or decreasing by approximately $75,000 per annum for each 0.25% change in interest rates[324] - The Company has historically matched contributions to its 401(k) savings plan at a rate of $0.25 per dollar contributed by the employee, up to a maximum of 3% of the employee's annual salary[102] - The Company has historically invested cash in money market funds or short-term, fixed rate instruments, which are generally reinvested upon maturity[324] - As of March 26, 2023, the company has $80,000,000 of 6.625% 2025 Notes outstanding, due in November 2025, with interest expense fluctuating by approximately $200,000 per annum for each 0.25% change in interest rates[325] Cost and Pricing - The average cost of hot dogs in fiscal 2023 was approximately 1.4% higher than in fiscal 2022, following a 19% increase from fiscal 2021 to fiscal 2022[74] - The average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than in fiscal 2022, with expectations of continued inflationary pressures into fiscal 2024[326] - The company expects to continue experiencing price volatility for beef products during fiscal 2024[74] - The company anticipates price volatility for beef products in fiscal 2024, influenced by factors such as supply and demand, inflation, and weather[327] - A short-term increase or decrease of 10% in the cost of food and paper products for the year ended March 26, 2023, would have impacted the cost of sales by approximately $6,934,000[328] Regulatory Environment - The Company is subject to various federal and state regulations, including the FTC Franchise Rule, which requires disclosure of certain information to prospective franchisees[107] - Foreign franchisees primarily conduct business in United States dollars, mitigating risks from foreign currency fluctuations, which are not expected to materially impact financial results[329] Business Environment - The Company’s restaurant system competes with numerous restaurants and drive-in units, including major national chains with greater financial resources[125] - The Company’s routine business pattern is affected by seasonal fluctuations, with the first two fiscal quarters typically representing the highest sales periods[123] - The Company operates in three segments: Branded Product Program, Product licensing, and Restaurant operations[130]