Nathan's Famous, Inc. 2020 Annual Report
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REPORT ANNUAL ANNUAL NATHAN’S FAMOUS, INC. 2021 ANNUAL REPORT CORPORATE PROFILE Over one hundred years ago, Nathan’s began as a nickel hot dog stand on Coney Island in 1916 and, over the past century, has become a much-loved “New York institution” that has evolved into a highly recognized brand throughout the United States and the world. Through our innovative points-of-distribution strategies, Nathan’s products are marketed 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, crinkle-cut French fries and other famous favorites to retail and food-service locations nationwide and within sixteen foreign territories and countries. In total, Nathan’s products are marketed for sale in approximately 79,000 locations, including supermarkets, mass merchandisers and club stores throughout the United States. 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. 2021 FINANCIAL HIGHLIGHTS Fiscal Year(1) (In thousands, except share and per share amounts) 2021 2020 2019 2018 2017 Selected Consolidated Financial Data: As reported Total revenues $75,839 $103,325 $101,849 $ 104,201 $96,256 Income from operations(2) $25,515 $ 27,172 $ 27,976 $ 27,100 $26,280 Net income $11,075 $ 13,435 $ 21,493 $ 2,630 $ 7,485 Income per share Basic $ 2.69 $ 3.19 $ 5.13 $ 0.63 $ 1.79 Diluted $ 2.69 $ 3.19 $ 5.09 $ 0.62 $ 1.78 Weighted average shares used in computing income per share Basic 4,116 4,216 4,187 4,181 4,172 Diluted 4,116 4,216 4,220 4,221 4,206 Supplemental Non-GAAP information(3) EBITDA(4) $27,109 $ 29,848 $ 41,414 $ 19,055 $27,766 Adjusted EBITDA(5) $27,225 $ 29,964 $ 30,399 $ 29,115 $28,348 (1) Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year. The fiscal years ended March 28, 2021 and March 29, 2020 were each on the basis of a 52-week reporting period. The fiscal year ended March 31, 2019 was on the basis of a 53-week reporting period. The fiscal years ended March 25, 2018 and March 26, 2017 were each on the basis of a 52-week reporting period. (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) EBITDA and Adjusted EBITDA are non-GAAP financial measures. The Company has provided EBITDA and Adjusted EBITDA that the Company believes will impact the comparabil- ity 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 defini- tions 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 con- junction with, data presented in accordance with US GAAP. Please see a reconciliation of EBITDA and Adjusted EBITDA to net income in the Annual Report on Form 10-K for the fiscal year ended March 28, 2021, included herein. (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 in fiscal 2019; (ii) loss on debt extinguishment in fiscal 2018; (iii) impair- ment charge on long-lived assets in fiscal 2018; and (iv) share-based compensation. Total Revenues Income From Operations(2) Adjusted EBITDA(5) ($ in millions) ($ in millions) ($ in millions) 120 120 30120 30 $28.0 3035 $28.0 35$28.0 35 $27.1 $27.2 $27.1 $27.2 $27.1 $27.2 $104.2 $104.2 $26.3 $104.2 $26.3 $26.3 $30.4 $30.4 $30.4 $101.8 $103.3 $101.8 $103.3 $101.8 $103.3$25.5 $25.5 $29.1 $30.0 $25.5 $29.1 $30.0 $29.1 $30.0 $96.3 $96.3 $96.3 $28.3 $28.3 $28.3 100 100 25100 25 2530 30 $27.2 30 $27.2 $27.2 25 25 25 80 80 $75.8 20 80 $75.8 20 $75.8 20 20 20 20 60 60 15 60 15 15 15 15 15 40 40 10 40 10 10 10 10 10 20 20 5 20 5 5 5 5 5 0 0 0 0 0 0 0 0 0 ’17 ’18 ’19 ’20 ’21 ’17 ’18 ’17’19 ’18’20 ’19’21 ’20 ’21 ’17 ’17’18’17 ’18’19’18 ’19’20’19 ’20 ’20’21 ’21 ’21 ’17 ’17 ’18 ’18 ’19’17 ’19 ’18’20 ’20 ’19’21 ’21’20 ’21 ’17 ’18’17’17 ’19’18’18 ’20’19’19 ’21’20’20 ’21’21 ’17’17 ’18’18 ’19’19’17 ’20’18’20 ’21’19’21 ’20 ’21 ’17 ’18’17 ’19’18 ’20’19 ’21’20 ’21 ’17 ’18 ’19 ’20 ’21 SHAREHOLDER’S LETTER Fiscal 2021 was another successful year for Nathan’s Famous, despite the enormous challenges presented by the global COVID-19 pandemic. Our business model is aimed at increasing the number Our most significant licensing agreement is with of distribution points for our signature products in three Smithfield Foods, and covers the sale of our portfolio of distinct business channels. As of March 28, 2021: (1) our consumer packaged and certain bulk packaged Nathan’s consumer-packaged goods were sold through more Famous hot dog products to retailers throughout the than 65,000 locations in supermarket/grocery channels United States. In fiscal 2021, royalties earned under this in the United States; (2) our bulk foodservice-packaged agreement increased by 24.5% to $27.8 Million. goods were sold through 14,000 locations in foodservice Other licenses in our licensing program include licenses channels in North America; and (3) the Company had 4 to sell at retail Nathan’s Famous Crinkle Cut French Fries, company-owned restaurants in the United States and 213 Nathan’s Famous Beer Batter Onion Rings, mustards, franchised restaurants and 130 “ghost” kitchens through- pickles, franks ’n blankets, mini bagel dogs and mozza- out the world. The diversity of these business lines rella sticks. drove the Company’s performance in fiscal 2021, as our increases in grocery channels offset a significant amount Clearly, this part of our business benefited during the of the unavoidable and expected declines caused by the pandemic as people were forced and/or chose to eat pandemic in our foodservice and restaurant businesses. more at home. OPERATIONAL AND FINANCIAL RESULTS The Branded Products Program On an overall basis, results for fiscal 2021 compared to The Branded Products Program is our foodservice fiscal 2020 were as follows: (1) controllable operating sales program which features the bulk sale of Nathan’s income was $25.88 Million, a decrease of only 1.3%; Famous hot dogs to the food service industry. Our prod- (2) EBITDA1, a non-GAAP financial measure, was $27.1 ucts are sold through the Branded Products Program Million, a decrease of 9.2%; (3) pre-tax income was $15.3 at over 14,000 points of distribution, to include several Million, a decrease of 14.9%; (4) net income was $11.08 large national and regional restaurant, movie theater and Million, a decrease of 17.5%; and (5) diluted earnings per convenience store chains, as well as thousands of other share were $2.69, a decrease of 15.7%. locations including ballparks, arenas, amusement parks, college campuses, hospitals, casinos, resorts and school Product Licensing systems. Through the Branded Products Program, we do Our licensing program, which consists primarily of the business with all of the major foodservice distributors sale of Nathan’s Famous branded consumer packaged in the United States, including SYSCO, US Foodservice, goods through supermarkets, club stores and mass PFG and McLane, as well as many regional distributors. merchandisers, is the largest part of our business today, both from the perspective of profit contribution and Fiscal 2021 was a challenging year for the Branded points of distribution. Overall, license royalties during Products Program, as a significant component of this fiscal 2021 increased 21.3% to $31.37 Million. part of our business is focused on venues where people 1Please see definition of EBITDA and the reconciliation of EBITDA to net income in the Annual Report on Form 10-K for the fiscal year ended March 28, 2021, included herein. 1 NATHAN’S FAMOUS, INC. congregate, such as malls, sports stadiums, amusement In fiscal 2015, our capital return strategy shifted to divi- parks and airports. Due to the various shut-down orders dends. At that time, and again in fiscal 2018, we paid one- across the country during the pandemic, the unit volume of time special dividends to all of our shareholders.