Nathan’s Famous, Inc. :NATH-US: Earnings Analysis: Q4, 2017 By the Numbers : June 12, 2017

Nathan’s Famous, Inc. reports financial results for the quarter ended March 31, 2017.

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

Highlights

  • Summary numbers: Revenues of USD 19.29 million, Net Earnings of USD 0.73 million.
  • Gross margins narrowed from 41.76% to 41.59% compared to the same period last year, operating (EBITDA) margins now 25.73% from 25.01%.
  • Year-on-year change in operating cash flow of 179.08% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 19.29 19.94 28.01 29.42 19.05
Revenue Growth (%YOY) 1.22 -3.05 -8.51 -4.04 -6.43
Earnings (mil) 0.73 0.7 2.51 3.55 0.51
Earnings Growth (%YOY) 43.79 61.81 -11.94 53.68 -67.01
Net Margin (%) 3.78 3.51 8.95 12.07 2.66
EPS 0.17 0.17 0.6 0.85 0.12
Return on Equity (%) N/A N/A N/A N/A N/A
Return on Assets (%) 3.73 3.63 13.08 18.83 2.63

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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 1.22% 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 -3.27% and earnings by 4.29% 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 gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 25.01% to 25.73%. For comparison, gross margins were 40.87% and EBITDA margins were 25.39% in the last period.

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 265.26 days, compared to last year’s level of 255.89 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 179.08% 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 earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 23.54% to 24.22% and (2) one-time items. The company’s pretax margins are now 5.51% compared to 4.77% for the same period last year.

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 including beef hot dogs. It also offers other sausages. The company was founded by Nathan Handwerker in 1916 and is headquartered in Jericho, NY.

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