Company Overview

Flanigan's Enterprises, Inc. (BDL) is a leading operator and franchisor of combination restaurant and package liquor stores, as well as standalone restaurants and package liquor stores, primarily in South Florida. The company's diverse portfolio of 32 company-owned and 5 franchised units has weathered various economic storms, showcasing its adaptability and resilience in the dynamic hospitality landscape.

Historical Background

Founded in 1959, Flanigan's has a rich history spanning over six decades. The company started as a single restaurant, Flanigan's Seafood Bar and Grill, in South Florida, which quickly gained popularity in the local community. Over the next several decades, Flanigan's expanded its operations, opening additional corporate-owned restaurants as well as franchising the concept. In the 1970s, Flanigan's diversified its business by entering the retail package liquor store market, opening its first Big Daddy's Liquors store. This addition to the company's offerings allowed Flanigan's to provide a one-stop shopping experience for customers seeking both dining and retail options. The package liquor stores proved to be a successful complement to the restaurant business.

Throughout the 1980s, 1990s, and 2000s, Flanigan's continued its steady growth, opening new corporate-owned and franchised restaurant and package liquor store locations. The company also formed limited partnerships to build and operate some of its restaurant units, allowing for shared ownership and investment opportunities. This model helped facilitate the expansion of the Flanigan's footprint in South Florida. Flanigan's has consistently demonstrated its ability to navigate industry challenges, including the recent COVID-19 pandemic, which significantly impacted the restaurant and hospitality sectors.

Financials

In the latest fiscal year ended September 30, 2023, Flanigan's reported annual revenue of $173.28 million and net income of $4.00 million. The company's operating cash flow stood at $8.49 million, while its free cash flow was negative $10.18 million, primarily due to increased capital expenditures for renovations and new store openings. Flanigan's maintained a healthy balance sheet, with a current ratio of 1.58 and a debt-to-equity ratio of 0.40, indicating a relatively strong liquidity position.

During the thirteen-week period ended June 29, 2024, Flanigan's reported total revenue of $49.10 million, an 8.22% increase compared to the same period in the prior year. This growth was driven by a 15.67% increase in restaurant bar sales and a 21.29% increase in package store sales, partially offset by a slight decline in restaurant food sales. The company's net income for the quarter was $1.80 million, a 25.26% decrease year-over-year, primarily due to higher food costs and increased operating expenses, including consultant fees to improve the accounting process.

For the thirty-nine weeks ended June 29, 2024, Flanigan's total revenue reached $142.31 million, an increase of $11.28 million or 8.60% compared to the same period in the previous year. This growth was driven by strong performance in both the package stores and restaurants segments. Package store sales totaled $31.03 million, a 15.57% increase, while restaurant food sales reached $86.18 million, a 7.72% increase. Restaurant bar sales also grew by 3.73% to $22.78 million.

The company's operating cash flow for the most recent quarter increased by 16.23% to $3.09 million, while free cash flow improved from $1.83 million to $2.17 million. As of June 29, 2024, Flanigan's had $22.12 million in cash and a current ratio of 1.57, indicating a stable liquidity position.

Strategic Growth and Expansion

Flanigan's has demonstrated a commitment to strategic growth, opening new company-owned and franchised locations to expand its footprint. In the third quarter of fiscal year 2023, the company opened a new limited partnership-owned restaurant in Miramar, Florida, and a new company-owned package liquor store in Hollywood, Florida. Additionally, the company recently completed the reconstruction of its restaurant in Hollywood, Florida, which had been closed since 2018 due to fire damage. This setback challenged Flanigan's operations temporarily, but the company was able to navigate the situation and restore the location to serve its customers once again.

Revenue Diversification

The company's diversified revenue streams, with a balanced mix of restaurant food and bar sales, as well as package liquor store sales, have contributed to its resilience. Flanigan's has also leveraged its franchise model, with five franchised units complementing its company-owned operations, providing additional revenue streams and brand exposure.

Operational Focus

Despite the challenges faced by the hospitality industry, Flanigan's has continued to invest in its operations, focusing on enhancing the customer experience, optimizing its menu, and streamlining its operations. The company's strong brand recognition, loyal customer base, and operational expertise have been key factors in its ability to navigate the volatile market conditions.

Liquidity

Flanigan's has maintained a healthy liquidity position, as evidenced by its current ratio of 1.57 and quick ratio of 1.21 as of June 29, 2024. This indicates that the company has sufficient short-term assets to cover its short-term liabilities. The debt-to-equity ratio of 0.40 suggests a conservative approach to leverage, providing financial flexibility for future growth initiatives. Flanigan's has six institutional loans with an unrelated third party lender, totaling $22.22 million in long-term debt as of June 29, 2024. In February 2023, the company received a waiver from the lender for non-compliance with a debt covenant, and as of June 29, 2024, Flanigan's is in compliance with all loan covenants.

Segment Performance

Flanigan's operates in two reportable segments: package stores and restaurants.

Package Stores Segment: This segment focuses on the retail sale of liquor and related items. For the thirty-nine weeks ended June 29, 2024, package store sales totaled $31.03 million, representing a 15.57% increase compared to the same period in the previous year. This growth was primarily driven by increased package liquor store traffic and sales generated from new store openings in Hollywood and Miramar, Florida. The weekly average of same-store package liquor store sales increased by 6.13% to $693,000. However, the gross profit margin for package store sales slightly decreased to 25.65% from 26.66% in the previous year.

Restaurants Segment: This segment comprises food and bar sales at the company's restaurant locations. For the thirty-nine weeks ended June 29, 2024, restaurant food sales reached $86.18 million, a 7.72% increase compared to the previous year. This growth was attributed to recent menu price increases and sales from newly opened restaurants in Hollywood and Miramar, Florida. Comparable weekly restaurant food sales for established locations increased by 0.96% year-over-year. Restaurant bar sales totaled $22.78 million, representing a 3.73% increase, despite a 2.36% decrease in comparable weekly restaurant bar sales. The gross profit margin for restaurant food and bar sales decreased slightly to 65.91% from 66.90% in the previous year, primarily due to higher food costs.

Future Outlook

Looking ahead, Flanigan's management expects both package liquor store sales and restaurant food and bar sales to continue increasing for the remainder of fiscal year 2024. This optimistic outlook is based on increased package liquor store traffic and the full operation of newly opened restaurant locations. However, the company faces challenges in maintaining profitability due to rising food costs and overall operating expenses.

Conclusion

In conclusion, Flanigan's Enterprises, Inc. (BDL) has demonstrated its ability to adapt and thrive in the dynamic hospitality industry. With its diversified revenue streams, strategic growth initiatives, and proven operational expertise, the company is well-positioned to capitalize on the ongoing recovery in the restaurant and entertainment sectors. Despite facing challenges such as increased costs and competitive pressures, Flanigan's continues to show resilience and growth potential. As the company navigates the evolving market conditions, investors may find its strong market position in South Florida and consistent expansion efforts worthy of further consideration.