What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-15 compared with 2023-05-16 · 51 added, 58 removed, 159 unchanged (41% of the section changed)

17 unchanged sentences

Some of these measures may have an adverse impact on our business, including possible impairments of assets.

As of April 1, 2023, the Company owned and operated 17 restaurants and bars, 16 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods.

As of July 1, 2023, the Company owned and operated 17 restaurants and bars, 16 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods.

The Company believes it meets the criteria for aggregating its operating components into a single operating segment in accordance with applicable accounting guidance.

4 unchanged sentences

Under this method certain years will contain 53 weeks.

The periods ended April 1, 2023 and April 2, 2022 each included 13 and 26 weeks.

The periods ended July 1, 2023 and July 2, 2022 each included 13 and 39 weeks.

The Company has substantial fixed costs that do not decline proportionally with sales.

9 unchanged sentences

Results of Operations

The Company’s operating income for the 13 and 26 weeks ended April 1, 2023 decreased 89.9% and 26.2%, respectively, as compared to the comparable prior periods primarily as a result of increased labor costs in connection with record low unemployment, the temporary closure of Gallagher's Steakhouse in Las Vegas, NV for renovation, percentage rents paid on higher sales in the current period and the inflationary impact on commodity prices and other high-volume cost of sales items partially offset by increases in revenues form our event business in New York City and Washington, D.C.

The following table summarizes the significant components of the Company’s operating results for the 13- and 26-week periods ended April 1, 2023 and April 2, 2022:

The Company’s operating income for the 13 weeks ended July 1, 2023 decreased -32.9% as compared to the same period of the prior year primarily as a result of the decreases in same-store sales as discussed below and continued increases in labor costs in connection with record low unemployment, partially offset by some easing in commodity prices.

The Company’s operating income for the 39 weeks ended July 1, 2023 decreased -30.5% as compared to the same period of the prior year primarily as a result of increased labor costs in connection with record low unemployment and the temporary closure of Gallagher's Steakhouse in Las Vegas, NV for renovation, partially offset by increases in revenues from our event business in New York City and Washington, DC combined with some easing in commodity prices.

The following table summarizes the significant components of the Company’s operating results for the 13- and 39-week periods ended July 1, 2023 and July 2, 2022:

13 Weeks Ended Variance 39 Weeks Ended Variance

2023 April 2,

2022 $ % April 1,

2023 April 2,

2022 $ % July 1,

(in thousands) (in thousands)

11 unchanged sentences

OPERATING INCOME $ 3,637 $ 5,421 $ (1,784) -32.9 % $ 5,863 $ 8,440 $ (2,577) -30.5 %

During the 13- and 26-week periods ended April 1, 2023, revenues increased 5.8% and 6.9%, respectively, as compared to revenues in the 13- and 26-week periods ended April 2, 2022.

These increases resulted primarily from an increase in same-store sales discussed below.

As required by our lease, Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV was substantially closed for renovation for the period from February 5, 2023 through April 27, 2023.

Revenues for the period from closure through April 1, 2023 were $714,000 as compared to $2,326,000 for the comparable prior period.

During the 13 weeks ended July 1, 2023, revenues decreased -4.1% as compared to revenues for the 13 weeks ended July 2, 2022, primarily as a result of the changes in same-store sales discussed below.

During the 39 weeks ended July 1, 2023, revenues increased 2.6% as compared to revenues for the 39 weeks ended July 2, 2022.

This increase resulted primarily from the changes in same-store sales discussed below as well as the impact of the substantial closure of Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV for renovation for the period from February 5, 2023 through April 27, 2023 as required by our lease.

Revenues related to Gallagher's Steakhouse for the period of closure were $1,068,000 as compared to $3,056,000 for the comparable prior period, of which $354,000 as compared to $730,000 related to the 13-week periods ended July 1, 2023 and July 2, 2022, respectively.

Food and Beverage Same-Store Sales

On a Company-wide basis, same-store sales increased 5.0% during the 13 weeks ended April 1, 2023 as compared to the same period of last year as follows:

On a Company-wide basis, same-store sales decreased -4.8% during the 13 weeks ended July 1, 2023 as compared to the same period of last year as follows:

13 Weeks Ended Variance

2023 April 2,

(in thousands)

8 unchanged sentences

Food and beverage sales $ 49,807 $ 52,069

Same-store sales in Las Vegas increased 1.5% primarily as a result of increased customer traffic and targeted menu price increases partially offset by the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

Same store sales increases in New York and Washington, D.C.

of 40.2% and 25.2%, respectively, as compared to the prior period were driven primarily by strong revenues from our event business, increased customer traffic and targeted menu price increases.

Same-store sales in Las Vegas decreased -6.5% primarily as a result of the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

Same-store sales in New York increased 3.8% driven primarily by strong revenues from our event business.

Same-store sales in Washington, DC decreased -6.2% as a result of lower headcounts partially offset by targeted menu price increases.

Same-store sales in Atlantic City decreased -16.6% as a result of lower customer traffic at the property where we are located.

Same-store sales in Alabama increased 6.3% primarily as a result of increased customer traffic and targeted menu price increases.

Same-store sales in Florida increased 0.2% primarily as a result of increased customer traffic and targeted menu price increases offset by lower headcounts at the Rustic Inn in the current period.

On a Company-wide basis, same-store sales increased 5.7% during the 26 weeks ended April 1, 2023 as compared to the same period of last year as follows:

Same-store sales in Alabama decreased -0.9% primarily as a result of slightly lower customer headcounts.

Same-store sales in Florida decreased -9.9% primarily as a result of lower headcounts as compared to the comparable prior period which benefited from outsized volumes as a result of the population increase in Southeast Florida.

On a Company-wide basis, same-store sales increased 1.7% during the 39 weeks ended July 1, 2023 as compared to the same period of last year as follows:

39 Weeks Ended Variance

2023 April 2,

(in thousands)

9 unchanged sentences

Same-store sales in Las Vegas increased 1.4% primarily as a result of increased customer traffic and targeted menu price increases partially offset by the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

Same store sales increases in New York and Washington, D.C.

of 30.1% and 22.5%, respectively, as compared to the prior period were driven primarily by strong revenues from our event business, increased customer traffic and targeted menu price increases.

Same-store sales in New York increased 17.1% driven primarily by strong revenues from our event business and increased customer traffic.

Same-store sales in Washington, DC increased 7.2% driven primarily by strong revenues from our event business and targeted menu price increases in the first two quarters, partially offset by lower headcounts in the third quarter.

Same-store sales in Atlantic City decreased -15.2% as a result of lower customer traffic at the property where we are located.

Same-store sales in Alabama increased 4.0% primarily as a result of increased customer traffic and targeted menu price increases.

Same-store sales in Florida decreased 4.0% primarily as a result of lower traffic in the first quarter as compared to the comparable prior period which benefited from outsized volumes as a result of the population increase in Southeast Florida as a result of the migration of people during the pandemic combined with lower

headcounts at the Rustic Inn in the second quarter partially offset by increased customer traffic and targeted menu price increases targeted menu price increases at our other Florida properties in the second quarter.

Same-store sales in Alabama increased 1.8% primarily as a result of increased customer traffic and targeted menu price increases in the first two quarters, partially offset by lower headcounts in the third quarter.

Same-store sales in Florida decreased -5.9% primarily as a result of lower headcounts as compared to the comparable prior period which

benefited from outsized volumes as a result of the population increase in Southeast Florida as a result of the migration of people during the pandemic partially offset by targeted menu price increases.

Other food and beverage sales consist of sales related to new restaurants opened or acquired during the applicable period, sales related to properties that were closed and other adjustments and fees.

Costs and Expenses

Costs and expenses for the 13 and 26 weeks ended April 1, 2023 and April 2, 2022 were as follows (in thousands):

Costs and expenses for the 13 and 39 weeks ended July 1, 2023 and July 2, 2022 were as follows (in thousands):

13 Weeks Ended

11 unchanged sentences

Total costs and expenses $ 47,414 $ 47,797 $ (383) $ 134,530 $ 128,349 $ 6,181

Food and beverage costs as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 as compared with the same period of last year decreased as a result of targeted increases in menu pricing, changes in menu mix and a very strong event business in Washington, D.C.

and New York City in the current period, partially offset by increases in commodity prices and other high-volume items caused by inflation.

Payroll expenses as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 increased as compared with the same period of last year primarily as a result of record low unemployment and ongoing COVID-related labor challenges combined with merit increases.

Occupancy expenses as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 increased as compared with the same period of last year primarily as a result of increases in base rents, percentage rents paid on higher sales in the current period and increases in property and liability insurance premiums.

Other operating costs and expenses as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 as compared to the same period of last year increased primarily as a result of inflation.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 weeks ended April 1, 2023 were comparable with the same period of last year.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 26 weeks ended April 1, 2023 increased slightly as compared with the same period of last year primarily as a result of annual merit increases.

Depreciation and amortization expense for the 13 and 26 weeks ended April 1, 2023 decreased slightly as compared to the same period of last year primarily as a result of the timing of additions in the prior period.

Food and beverage costs as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 as compared with the same periods of last year decreased as a result of a very strong event business in New York City and Washington, DC, which has higher margins, combined with some easing in commodity prices.

Payroll expenses as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 increased as compared with the same periods of last year primarily as a result of record low unemployment and ongoing COVID-related labor challenges combined with merit increases and increasing minimum wages in the states where we operate.

Occupancy expenses as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 increased as compared with the same periods of last year primarily as a result of increases in base rents, percentage rents paid on higher sales in the current period and increases in property and liability insurance premiums.

Other operating costs and expenses as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 as compared to the same period of last year increased primarily as a result of inflation.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 and 39 weeks ended July 1, 2023 decreased as compared to the same periods of last year as a result of severance accruals in the prior period partially offset by annual merit increases.

Depreciation and amortization expense for the 13 weeks ended July 1, 2023 increased slightly as compared to the same period of last year primarily as a result of the Gallagher's Steakhouse renovation costs being placed into service on April 28, 2023.

Depreciation and amortization expense for the 39 weeks ended July 1, 2023 decreased slightly as compared to the same period of last year primarily as a result of the timing of additions in the prior period.

Liquidity and Capital Resources

4 unchanged sentences

We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner.

As of April 1, 2023, we had a cash and cash equivalents balance of $17,890,000.

The Company had a working capital deficit of ($5,842,000) at April 1, 2023 as compared with working capital of $4,210,000 at October 1, 2022.

This decrease is the result of the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023 and the prepayment of three promissory notes in the aggregate amount of $6,046,000 on April 4, 2023 (see Note 14 - Subsequent Events).

As of July 1, 2023, we had a cash and cash equivalents balance of $13,986,000.

The Company had a working capital deficit of ($4,081,000) at July 1, 2023 as compared with working capital of $4,210,000 at October 1, 2022.

This decrease is primarily the result of the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023 and the prepayment of three promissory notes in the aggregate amount of $6,046,000 on April 4, 2023.

The country is currently experiencing multi-decade high inflation.

7 unchanged sentences

There can be no assurance that all of our future cost increases can be offset by higher menu prices or that higher menu prices will be accepted by our restaurant customers without any resulting changes in their visit frequencies or purchasing patterns.

Cash Flows for 26 Weeks Ended April 1, 2023 and April 2, 2022

Net cash provided by operating activities for the 26 weeks ended April 1, 2023 decreased to $2,111,000 as compared to $4,963,000 in the same period of last year.

Cash Flows for 39 Weeks Ended July 1, 2023 and July 2, 2022

Net cash provided by operating activities for the 39 weeks ended July 1, 2023 decreased to $6,872,000 as compared to $15,836,000 in the same period of last year.

This decrease was primarily attributable to a decrease in consolidated net income and changes in net working capital primarily related to accounts receivable, inventory, accounts payable and accrued expenses.

Net cash provided by (used in) investing activities for the 26 weeks ended April 1, 2023 and April 2, 2022 was $2,998,000 and $(1,090,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants and in the current period the proceeds from the maturity of a certificate of deposit.

Net cash used in financing activities for the 26 weeks ended April 1, 2023 of $(10,658,000) resulted primarily from principal payments on notes payable of $8,640,000 (including the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023), the resumption of payment of dividends in the amount of $900,000 and the payment of distributions to non-controlling interests in the amount of $587,000.

Net cash used in financing activities for the 26 weeks ended April 2, 2022 of $(4,052,000) resulted primarily from principal payments on notes payable of $2,468,000 and the payment of distributions to non-controlling interests in the amount of $1,069,000.

Net cash provided by (used in) investing activities for the 39 weeks ended July 1, 2023 and July 2, 2022 was $2,008,000 and $(1,774,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants and, in the current period, the proceeds from the maturity of a certificate of deposit.

Net cash used in financing activities for the 39 weeks ended July 1, 2023 of $(18,333,000) resulted primarily from principal payments on notes payable of $15,835,000 (including the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023 and the prepayment of three promissory notes in the aggregate amount of $6,046,000 on April 4, 2023), the payment of dividends in the amount of $1,576,000 and the payment of distributions to non-controlling interests in the amount of $961,000.

Net cash used in financing activities for the 39 weeks ended July 2, 2022 of $(6,631,000) resulted primarily from principal payments on notes payable of $5,275,000, the resumption of the payment of dividends in the amount of $444,000 and the payment of distributions to non-controlling interests in the amount of $1,543,000.

Recent Restaurant Expansions and Other Developments

On April 8, 2022, the Company extended its lease for Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2032.

In connection with the extension, the Company has agreed to spend a minimum of $1,500,000 (all of which has been expended to date) to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues), subject to various extensions as set out in the agreement.

In connection with the extension, the Company agreed to spend a minimum of $1,500,000 (all of which has been expended to date) to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues), subject to various extensions as set out in the agreement.

Accordingly, the property was substantially closed for renovation on February 5, 2023 and reopened on April 28, 2023.

5 unchanged sentences

As part of this extension, the Broadway Burger Bar and Grill and Gonzalez y Gonzalez , were carved out of the Village Eateries footprint and the extended date for those two locations is December 31, 2033.

In connection with the extension, the Company has agreed to spend a minimum of $3,500,000 to materially refresh all three of these premises by June 30, 2023 (of which approximately $50,000 has been spent to date), subject to various extensions as set out in the agreement, which the Company expects will be agreed to.

In connection with the extension, the Company has agreed to spend a minimum of $3,500,000 to materially refresh all three of these premises by December 31, 2023 (as extended from June 30, 2023).

To date approximately $50,000 has been spent on this refresh.

Each of the above refresh obligations are to be consistent with designs approved by the landlord which shall not be unreasonably withheld.

14 unchanged sentences

Under the terms of the Credit Agreement:

(i) a promissory note under the Prior Credit Agreement in the amount of $6,666,000 was repaid, (ii) BHBM established a new revolving credit facility in the amount of $10,000,000, with a commitment termination date of May 31, 2025, (ii) the Company may use the revolving commitments of BHBM to obtain letters of credit up to a sublimit thereunder of $1,000,000, and (iv) the LIBOR rate option for all borrowings was replaced with the secured overnight financing rate for U.S.

(i) a promissory note under the Prior Credit Agreement in the amount of $6,666,000 was repaid, (ii) BHBM established a new revolving credit facility in the amount of $10,000,000, with a commitment termination date of May 31, 2025, (iii) the Company may use the revolving commitments of BHBM to obtain letters of credit up to a sublimit thereunder of $1,000,000, and (iv) the LIBOR rate option for all borrowings was replaced with the secured overnight financing rate for U.S.

Government Securities (“SOFR”).

1 unchanged sentence

In addition, there is a 0.30% per annum fee for any unused portion of the $10,000,000 revolving facility.

As of April 1, 2023, no advances were outstanding under the Credit Agreement.

As of April 1, 2023, the weighted average interest on the outstanding BHBM notes payable was approximately 8.2%.

We do not expect the replacement of LIBOR with SOFR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense.

As of July 1, 2023, no advances were outstanding under the Credit Agreement.

As of July 1, 2023, the weighted average interest on the outstanding BHBM notes payable was approximately 8.8%.

The replacement of LIBOR with SOFR as a reference rate in our debt agreements did not have a material adverse effect on our financial position or materially affect our interest expense.

Borrowings and all other obligations under Credit Agreement, which include the promissory notes as discussed in Note 8 of the consolidated condensed financial statements, are secured by all tangible and intangible personal property (including accounts receivable, inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property, intellectual property and deposit accounts) and fixtures of the Company.

8 unchanged sentences

the amounts thereunder, including accrued interest, were to be forgiven if they were used for Qualifying Expenses as described in and in compliance with the CARES Act.

During the 26 weeks ended April 1, 2023 and April 2, 2022, $272,000 and $1,122,000 of PPP Loans, respectively (including $6,000 and $20,000 of accrued interest, respectively) were forgiven.

During the 13 weeks ended April 1, 2023 and April 2, 2022, $0 and $1,122,000 of PPP Loans, respectively (including $0 and $20,000 of accrued interest, respectively) were forgiven.

During the 26 weeks ended April 1, 2023 and April 2, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $976,000, respectively.

As of April 1, 2023, no PPP Loans were outstanding;

During the 13 weeks ended July 1, 2023 and July 2, 2022, $0 and $1,298,000 of PPP Loans, respectively (including $0 and $46,000 of accrued interest, respectively) were forgiven.

During the 39 weeks ended July 1, 2023 and July 2, 2022, $272,000 and $2,420,000 of PPP Loans, respectively, (including $6,000 and $66,000 of accrued interest, respectively) were forgiven.

During the 39 weeks ended July 1, 2023 and July 2, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $1,571,000, respectively.

As of July 1, 2023, no PPP Loans were outstanding;

however, the Company is appealing a forgiveness denial in the amount of $280,000.

4 unchanged sentences

Recent Events

On April 4, 2023, the Company repaid the Shuckers and Oyster House promissory notes in the amounts of $3,485,000 and $2,564.000, respectively.

such amounts are included in the current portion of notes payable in the accompanying Consolidated Condensed Balance Sheet as of April 1, 2023.

On April 20, 2023, the Company extended the due date of the $1,500,000 promissory note due from Meadowlands Newmark, LLC from January 31, 2024 to June 30, 2029.

On May 9, 2023, the Board of Directors declared a quarterly cash dividend of $0.1875 per share to be paid on June 13, 2023 to shareholders of record of each share of the Company's common stock at the close of business on May 31, 2023.

Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will depend upon operating performance and other factors.

On August 8, 2023, the Board of Directors declared a quarterly cash dividend of $0.1875 per share to be paid on September 12, 2023 to shareholders of record of each share of the Company's common stock at the close of business on August 31, 2023.

Critical Accounting Estimates

5 unchanged sentences

The Company’s critical accounting estimates are described in the Company’s MD&A included in Form 10-K for the year ended October 1, 2022.

There have been no significant changes to such critical accounting estimates during the second fiscal quarter 2023.

There have been no significant changes to such critical accounting estimates during the third fiscal quarter 2023.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis