Nathan's(US:NATH)2024-02-01 11:03Financial Performance - Total revenues increased by approximately 10% to $28,890,000 for the thirteen weeks ended December 24, 2023, compared to $26,154,000 for the same period in 2022[112]. - EBITDA for the thirteen weeks ended December 24, 2023, was $5,395,000, compared to $6,733,000 for the same period in 2022[109]. - Adjusted EBITDA for the thirty-nine weeks ended December 24, 2023, was $27,561,000, compared to $29,287,000 for the same period in 2022[109]. - Total revenues increased by 6% to $109,619,000 for the thirty-nine weeks ended December 24, 2023, compared to $103,371,000 for the same period in fiscal 2023[132]. - Total sales increased by approximately 16% to $21,349,000 for Q3 fiscal 2024 compared to $18,340,000 for Q3 fiscal 2023, with foodservice sales from the Branded Product Program rising by 18% to $19,688,000[113]. Cost and Expenses - Overall cost of sales increased by approximately 20% to $17,872,000 in Q3 fiscal 2024, resulting in a gross profit of $3,477,000 or 16% of sales[118]. - General and administrative expenses increased by $1,048,000 or 33% to $4,209,000 in Q3 fiscal 2024, primarily due to a cash bonus payment and higher professional fees[122]. - Cost of sales in the Branded Product Program increased by 14% to $60,698,000 in fiscal 2024 from $53,056,000 in fiscal 2023, driven by a 2% increase in hot dog sales volume and a 12% rise in average cost per pound[139]. - General and administrative expenses rose by 14% to $11,496,000 in fiscal 2024, up from $10,122,000 in fiscal 2023, primarily due to a $500,000 cash bonus and increased share-based compensation[142]. Interest and Tax - The Company expects to incur annual interest expense of $3,975,000 and annual amortization costs of approximately $276,000 due to the outstanding principal amount of $60,000,000 of the 2025 Notes[100]. - Interest expense decreased by $552,000 to $1,392,000 in Q3 fiscal 2024, due to the reduction in the outstanding principal amount of the Company's 2025 Notes[125]. - The effective income tax rate for Q3 fiscal 2024 was 30.2%, compared to 27.3% in Q3 fiscal 2023, reflecting an income tax expense of $1,128,000 on $3,735,000 of pre-tax income[129]. - The effective income tax rate for fiscal 2024 was 27.7%, compared to 27.1% in fiscal 2023, reflecting income tax expense of $6,025,000 on pre-tax income of $21,731,000[149]. Sales and Growth Drivers - The primary drivers of growth have been the Licensing and Branded Product Programs, which are the largest contributors to revenues and profits[95]. - Franchise restaurant sales increased to $15,635,000 in Q3 fiscal 2024, up from $14,761,000 in Q3 fiscal 2023, primarily due to higher sales at airport locations and shopping malls[115]. - License royalties decreased by approximately 4% to $6,078,000 in Q3 fiscal 2024, attributed to a 12% decrease in retail volume, partially offset by a 6% increase in average net selling price[114]. Cash and Debt Management - Cash at December 24, 2023, was $16,732,000, a decrease of $13,129,000 from $29,861,000 at March 26, 2023, primarily due to the redemption of the 2025 Notes[153]. - The Company redeemed $20,000,000 of its 2025 Notes on December 19, 2023, with $60,000,000 principal amount outstanding as of December 24, 2023[99]. - The Company expects to make interest payments of $5,477,000 during the fiscal year ending March 31, 2024, all of which have been made as of December 19, 2023[164]. - The company has $60,000,000 principal amount of 6.625% 2025 Notes outstanding, with interest expense changing by approximately $150,000 per annum for each 0.25% change in interest rates[177]. Market and Economic Conditions - Inflationary pressures negatively impacted earnings during the first nine months of fiscal 2024, including rising labor costs and higher commodity prices[101]. - Inflationary pressures on labor and rising commodity prices have directly impacted consolidated results, particularly in the Branded Product Program segment[178]. - The company anticipates continued volatility in beef prices and distribution costs due to oil and gas price fluctuations[179]. - Delays in implementing price increases and competitive pressures may limit the company's ability to offset rising costs[173]. - Changes in employment laws and minimum wage increases could negatively impact franchisee margins and lead to potential franchisee losses[172]. Operational Insights - The restaurant system consisted of 238 locations as of December 24, 2023, including 117 Branded Menu Program locations and four Company-owned restaurants[93]. - The Company does not expect to significantly increase the number of Company-owned restaurants but may invest in a small number of new units as showcase locations[96]. - The volume of hot dogs sold increased by approximately 8% in Q3 fiscal 2024, while average selling prices rose by approximately 9% compared to Q3 fiscal 2023[113]. - Restaurant operating expenses were $3,279,000 in fiscal 2024, up from $3,217,000 in fiscal 2023, with higher occupancy and bank fees offset by lower utilities[140]. - The company does not hedge against fluctuations in commodity prices, leading to exposure to market changes in commodity costs[180]. - Foreign franchisees conduct business in U.S. dollars, reducing risks from foreign currency fluctuations[181].