Press release·03/01/2025 07:22:34

Overview of Nathan’s Financial Performance

Nathan’s Famous, Inc. is a company that generates revenue primarily from selling products under its branded product program, operating company-owned restaurants, licensing agreements, and franchising the Nathan’s restaurant concept. As of December 2024, Nathan’s had a restaurant system of 240 locations, including 128 Branded Menu Program locations and 4 company-owned restaurants.

The company’s focus is to expand the Nathan’s Famous brand by increasing distribution points across its business platforms, with the Licensing and Branded Product Programs being the largest contributors to revenues and profits. While Nathan’s does not expect to significantly increase the number of company-owned restaurants, it may strategically invest in a small number of new units as showcase locations for prospective franchisees.

Revenue and Profit Trends

For the thirteen weeks ended December 29, 2024, Nathan’s total revenues increased by approximately 9% to $31.5 million compared to the same period in the prior year. This was driven by:

• A 7% increase in foodservice sales from the Branded Product Program, primarily due to a 6% increase in average selling prices.
• A 9% increase in total company-owned restaurant sales, mainly due to higher sales at the Coney Island locations.
• A 17% increase in license royalties, with a 16% increase in royalties earned on sales of hot dogs from the license agreement with Smithfield Foods, Inc.
• A 4% increase in franchise fees and royalties, with a 3% increase in traditional franchise royalties.

For the thirty-nine weeks ended December 29, 2024, Nathan’s total revenues increased by approximately 7% to $117.4 million compared to the same period in the prior year. This was driven by:

• A 5% increase in foodservice sales from the Branded Product Program, with a 1.5% increase in volume and a 3.5% increase in average selling prices.
• An 8% increase in total company-owned restaurant sales, primarily due to higher sales at the Coney Island locations.
• A 13% increase in license royalties, with a 13% increase in royalties earned on sales of hot dogs from the Smithfield Foods, Inc. agreement.
• A slight decrease of 2.5% in franchise fees and royalties, with a 2% decrease in traditional franchise royalties.

Nathan’s gross profit margin was 15% during the thirteen and thirty-nine week periods ended December 29, 2024, compared to 16% and 15% in the respective prior-year periods. This was primarily due to higher commodity costs, particularly for beef and beef trimmings, which increased the cost of sales in the Branded Product Program.

Strengths and Weaknesses

Strengths:

• Strong brand recognition and market penetration of the Nathan’s Famous brand
• Diversified revenue streams from Branded Product Program, licensing agreements, and franchising
• Consistent growth in revenues and profitability, with the Licensing and Branded Product Programs being the largest contributors
• Ability to offset cost increases through price increases and sales agreements correlated to commodity costs

Weaknesses:

• Dependence on Smithfield Foods, Inc. as the principal supplier and the impact on licensing revenue and profitability
• Exposure to volatility in commodity prices, particularly beef and beef trimmings, which can negatively impact margins
• Potential limitations in passing on cost increases to customers due to competitive pressures and changes in consumer spending levels

Outlook and Future Considerations

Nathan’s future results could be materially impacted by several factors, including:

• Continued dependence on Smithfield Foods, Inc. as the principal supplier and the impact on licensing revenue and profitability
• Supply constraints and increased costs of beef or other commodities due to inflationary pressures
• Ability to manage inflationary pressures and pass on cost increases through price increases or other mitigation measures
• Debt service and repayment obligations under the new Credit Agreement, which was used to refinance the 2025 Notes
• Potential impact of seasonality and weather on sales, particularly at the company-owned Coney Island restaurants

Nathan’s management believes that available cash and cash equivalents, as well as cash generated from operations, should provide sufficient capital to finance operations, satisfy debt service requirements, fund dividend distributions, and potentially repurchase stock for at least the next 12 months. However, the company’s ability to pay future dividends and repurchase stock is limited by the terms of the Credit Agreement.

Overall, Nathan’s financial performance has been relatively strong, with consistent revenue growth and profitability. The company’s focus on expanding the Nathan’s Famous brand through its Licensing and Branded Product Programs has been the primary driver of this success. However, the company faces challenges in managing inflationary pressures, particularly on commodity costs, and the potential impact of its dependence on Smithfield Foods, Inc. as the principal supplier. Navigating these factors will be crucial for Nathan’s to maintain its financial stability and growth trajectory in the future.