Nathan's Famous, Inc. 2019 Annual Report
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2019ANNUALREPORT FINANCIAL HIGHLIGHTS Fiscal Year(1) (In thousands, except share and per share amounts) 2019 2018 2017 2016 2015 Selected Consolidated Financial Data: As reported Total revenues $101,849 $104,201 $96,256 $ 100,449 $ 98,649 Income from operations(2) $ 27,976 $ 27,100 $26,280 $ 24,963 $ 19,958 Net income $ 21,493 $ 2,630 $ 7,485 $ 6,096 $ 11,703 Income per share Basic $ 5.13 $ 0.63 $ 1.79 $ 1.38 $ 2.61 Diluted $ 5.09 $ 0.62 $ 1.78 $ 1.37 $ 2.55 Weighted average shares used in computing income per share Basic 4,187 4,181 4,172 4,430 4,486 Diluted 4,220 4,221 4,206 4,463 4,588 Supplemental Non-GAAP information(3) EBITDA(4) $ 41,414 $ 19,055 $27,766 $ 26,269 $ 21,474 Adjusted EBITDA(5) $ 30,399 $ 29,115 $28,348 $ 27,155 $ 22,497 (1) Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year. The fiscal year ended March 31, 2019 consisted of 53 weeks. The fiscal years ended March 25, 2018, March 26, 2017, March 27, 2016 and March 29, 2015 consisted of 52 weeks. (2) Represents total revenues less (i) cost of sales; (ii) restaurant operating expenses; (iii) general and administrative expenses; (iv) depreciation and amortization and (v) Advertising fund expense. (3) The Company has provided EBITDA and Adjusted EBITDA that the Company believes will impact the comparability of its results of operations. The Company believes that EBITDA and Adjusted EBITDA are useful to investors to assist in assessing and understanding the Company’s operating performance and underlying trends in the Company’s business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure. EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our definitions of EBITDA and Adjusted EBITDA may differ from other companies. Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in conjunction with, data presented in accor- 120000120000dance120000 with US GAAP. 3000030000 30000 3500035000 35000 (4) EBITDA represents net income adjusted for the reversal of (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. (5) Adjusted EBITDA represents EBITDA adjusted for the reversal of (i) gain on sale of property and equipment; (ii) loss on debt extinguishment in fiscal 2018; (iii) impairment charge on 100000100000long-lived100000 assets in fiscal 2018; (iv) share-based25000 compensation;25000 25000 (v) impairment charges on long-term30000 investment30000 in30000 fiscal 2016; and (vi) amortization of bond premium on available-for- sale securities in fiscal 2016 and 2015. 2500025000 25000 8000080000 80000 2000020000 20000 2000020000 20000 6000060000Corporate60000 Profile 1500015000 15000 Over one hundred years ago, Nathan’s began as a nickel hot dog stand on15000 Coney15000 Island15000 in 1916 and, over the past century, has become a 4000040000much-loved40000 “New York institution” 10000that 10000has evolved10000 into a highly recognized brand throughout the United States and the world. Through our innovative points-of-distribution strategies, Nathan’s products10000 are10000 marketed10000 within our restaurant system and throughout a broad spectrum of other food-service and retail environments. Our programs provide for the sale of Nathan’s World Famous Beef Hot Dogs, 2000020000 20000 5000 5000 5000 5000 5000 5000 crinkle-cut French fries and other famous favorites to retail and food-service locations nationwide and within sixteen foreign territories and 0 countries.0 In0 total, Nathan’s products are0 marketed0 0for sale in approximately 78,0000 0 locations,0 including supermarkets, mass merchandisers and’15 club’15’16 stores’16’15 ’17throughout’17’16’18 ’18 the’17’19 United’19’18 States.’19’15 Last’15’16 year,’16 ’15over’17 ’17700’16’18 million’18’17’19 Nathan’s’19’18 Famous’19’15 ’15 ’16hot dogs’16’15’17 were’17’16’18 sold.’18’17’19 ’19’18 ’19 Successful market penetration of our highly-recognized valued brand and products, through a wide variety of distribution channels, continues to provide new and exciting growth opportunities. TOTAL REVENUES INCOME FROM OPERATIONS(2) ADJUSTED EBITDA(5) ($ IN MILLIONS) ($ IN MILLIONS) ($ IN MILLIONS) $28.0 $28.0 $27.1 $27.1 $27.1 $28.0 $104.2$104.2$101.8$101.8$104.2 $101.8 $26.3 $26.3 $26.3 $30.4 $30.4 $30.4 $98.6 $98.6$100.4$100.4$98.6 $100.4 $25.0 $25.0 $25.0 $28.3 $28.3$29.1 $29.1$28.3 $29.1 $96.3 $96.3 $96.3 $27.2 $27.2 $27.2 $20.0 $20.0 $20.0 $22.5 $22.5 $22.5 ’15 ’15’16 ’16’15’17 ’17’16’18 ’18’17’19 ’19’18 ’19 ’15 ’15’16 ’16’15’17 ’17’16’18 ’18’17’19 ’19’18 ’19 ’15 ’15’16 ’16’15’17 ’17’16’18 ’18’17’19 ’19’18 ’19 SHAREHOLDER’S LETTER Fiscal 2019 represented another successful year for Nathan’s Famous, with the Company achieving record earnings and operating profit through the continued expansion of its business model aimed at increasing the number and types of distribution points for its signature products. Through our brand-marketing and product-distribution Fiscal Year strategy, which has been the driving force behind the (In thousands) 2019 2018 Company’s success over the last 15 years, we have trans- formed a regional quick-service restaurant concept into As reported an internationally-recognized brand with a wide vari- Income from operations $ 27,976 $ 27,100 ety of quality products sold through varied channels of Less: Impairment charge long-lived assets(2) $ (790) distribution. $ 0 Adjusted income from Today, in addition to a restaurant system comprised of operations $ 27,976 $ 26,310 259 company-owned and franchised units, our prod- ucts are offered for sale at over 70,000 different retail and foodservice locations throughout all 50 States, the Product Licensing Our licensing program, which consists primarily of the District of Columbia, Puerto Rico, Guam, the U.S. Virgin sale of Nathan’s Famous branded consumer packaged Island and 16 foreign countries. In the aggregate, more goods through supermarkets, club stores and mass mer- than 700 million Nathan’s Famous hot dogs were sold chandisers, is the largest part of our business today, both through all channels of distribution last year. The restau- from the perspective of profit contribution and points of rant company I came to work for in 2003, which had an distribution. Overall, license royalties during fiscal 2019 EBITDA of approximately $3.2 Million and an operating increased 2.6% to $23.62 Million. loss of approximately $1.5 Million, now has a normalized run-rate EBITDA, a non-GAAP financial measure, in Our most significant licensing agreement is with excess of $30 Million,(1) over 90% of which is generated Smithfield Foods/John Morrell & Co., and covers the through product distribution activities that were not sale of our portfolio of consumer packaged and certain part of the primary business plan 16 years ago. bulk packaged Nathan’s Famous hot dog products to retailers throughout the United States. In fiscal 2019, roy- Operational and Financial Results alties earned under this agreement increased by 2.1% to We achieved very strong operational and financial $21.27 Million on a 3.4% increase in unit volume. results during fiscal 2019. Other licenses in our licensing program include licenses On an overall basis, results for fiscal 2019 compared to sell at retail Nathan’s Famous Crinkle Cut French to fiscal 2018 were as follows: (1) EBITDA, a non-GAAP Fries, Nathan’s Famous Beer Batter Onion Rings, mus- financial measure, was $41.4 Million, an increase of tards, pickles, franks ’n blankets, mini bagel dogs and $22.36 Million or 117%(1); (2) pre-tax income was $29.4 mozzarella sticks. Million, an increase of $25.3 Million or 615%; (3) net income was $21.5 Million, an increase of $18.86 Million The Branded Products Program The Branded Products Program is our foodservice sales or 717%; and (4) diluted earnings per share were $5.09, program which features the bulk sale of Nathan’s Famous an increase of $4.47 or 721%. hot dogs to the food service industry. Today, our prod- Adjusted EBITDA, a non-GAAP financial measure, was ucts are sold through the Branded Products Program $30.4 Million in fiscal 2019, an increase of $1.28 Million, or at over 14,000 points of distribution, to include several 4.4% from fiscal 2018. Income from operations of $27.98 large national and regional restaurant, movie theater and Million in fiscal 2019 increased by $1.67 Million or 6.3% convenience store chains, as well as thousands of other over Adjusted income from operations in fiscal 2018 as locations including ballparks, arenas, amusement parks, presented in the following schedule. college campuses, hospitals, casinos, resorts and school 1 systems. Through the Branded Products Program, we do sponsorship arrangements. We are proud to have our business with all of the major foodservice distributors in brand and certain signature products featured at all the United States, including SYSCO, US Foodservice, home games of the New York Yankees, New York Mets, PFG and McLane, as well as many regional distributors.