Nathan’s Famous, Inc. :NATH-US: Earnings Analysis: Q2, 2018 By the Numbers : November 27, 2017

Nathan’s Famous, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Nathan’s Famous, Inc. – Domino’s Pizza, Inc., Cheesecake Factory Incorporated, Potbelly Corp., Regal Entertainment Group Class A, Conagra Brands, Inc., Inventure Foods, Inc., Cinemark Holdings, Inc. and Six Flags Entertainment Corporation (DPZ-US, CAKE-US, PBPB-US, RGC-US, CAG-US, SNAK-US, CNK-US and SIX-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 31.61 million, Net Earnings of USD 3.12 million.
  • Gross margins narrowed from 39.61% to 38.26% compared to the same period last year, operating (EBITDA) margins now 28.80% from 29.91%.
  • Year-on-year change in operating cash flow of -61.28% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 31.61 30.92 19.29 19.94 28.01
Revenue Growth (%YOY) 12.83 5.11 1.22 -3.05 -8.51
Earnings (mil) 3.12 2.92 0.73 0.7 2.51
Earnings Growth (%YOY) 24.45 -17.69 43.79 61.81 -11.94
Net Margin (%) 9.87 9.45 3.78 3.51 8.95
EPS 0.74 0.69 0.17 0.17 0.6
Return on Equity (%) N/A N/A N/A N/A N/A
Return on Assets (%) 14.59 14.19 3.73 3.63 13.08

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Market Share Versus Profits

Revenues History
Earnings History

NATH-US’s change in revenue this period compared to the same period last year of 12.83% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that NATH-US is holding onto its market share. Also, for comparison purposes, revenues changed by 2.23% and earnings by 6.78% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 38.26% to 39.61% for the same period last year, while operating margins (EBITDA margins) went from 28.80% to 29.91% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

NATH-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 178.26 days, compared to last year’s level of 173.54 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

NATH-US’s change in operating cash flow of -61.28% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s operating (EBIT) margins contracted from 28.67% to 27.63%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 15.80% to 16.22%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Nathan’s Famous, Inc.

Company Profile

Nathan’s Famous, Inc. engages in the operation of franchised fast food units. It involves in the licensing, wholesale, and retail of products marketed under the Nathan’s Famous brand. The firm operates through the following business segments: Branded Product Program; Product Licensing; Restaurant Operations; and Corporate. The Branded Product Program segment markets and sells Nathan’s Famous hot dog products. The Product Licensing segment contracts with certain third parties to manufacture, distribute, market, and sell a broad variety of Nathan’s Famous branded products. The Restaurant Operations comprises of co-branded restaurants, Arthur Treacher’s and Kenny Rogers Roasters. The Corporate segment covers administrative expenses including executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation, and compliance costs. The company was founded by Nathan Handwerker in 1916 and is headquartered in Jericho, NY.

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