What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-13 compared with 2023-08-15 · 41 added, 92 removed, 118 unchanged (53% of the section changed)

6 unchanged sentences

All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended October 1, 2022 and the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q.

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended September 30, 2023 and the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q.

All information presented herein is based on our fiscal calendar.

Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years.

COVID-19 Pandemic and Inflation

Recent global events, including the COVID-19 pandemic ("COVID-19"), have adversely affected global economies, disrupted global supply chains and labor force participation and created significant volatility and disruption of financial markets.

As a result, we experienced significant and variable disruptions to our business as federal, state and local restrictions were mandated, among other remedial measures, to mitigate the spread of the COVID-19 virus.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, during fiscal 2022 all of our restaurants operated with no restrictions, other than in New York City where customers were required to show proof of vaccination through November 1, 2022.

In addition to the associated impacts of COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events, could lead to further government mandates, including but not limited to capacity restrictions, shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation and disruptions in our supply chain.

Our operating results have been and continue to be impacted by geopolitical and macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation and other increased costs.

The ongoing impact of these events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delays in opening or acquiring new restaurants.

If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending dividends, increasing borrowings or modifying our operating strategies.

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

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.

As of December 30, 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.

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Under this method certain years will contain 53 weeks.

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

The periods ended December 30, 2023 and December 31, 2022 each included 13 weeks.

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

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(our largest restaurants) and our outdoor cafes.

However, even during summer months these facilities can be adversely

affected by unusually cool or rainy weather conditions.

However, even during summer months these facilities can be adversely affected by unusually cool or rainy weather conditions.

Our facilities in Las Vegas are indoor and generally operate on a more consistent basis throughout the year.

Results of Operations

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

2022 $ % July 1,

(in thousands) (in thousands)

The Company’s operating income for the 13 weeks ended December 30, 2023 decreased 27.2% as compared to the same period of the prior year primarily as a result of continued increases in labor costs in connection with record low unemployment, inflation related to non-commodity related expenses partially offset by some easing in commodity prices.

The following table summarizes the significant components of the Company’s operating results for the 13-week periods ended December 30, 2023 and December 31, 2022:

13 Weeks Ended Variance

2023 December 31,

(in thousands)

Food and beverage sales $ 46,630 $ 46,539 $ 91 0.2 %

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OPERATING INCOME $ 1,603 $ 2,203 $ (600) -27.2 %

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.

During the 13 weeks ended December 30, 2023, revenues increased 0.1% as compared to revenues for the 13 weeks ended December 31, 2022.

Food and Beverage Same-Store Sales

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:

On a Company-wide basis, same-store sales decreased 0.3% during the 13 weeks ended December 30, 2023 as compared to the same period of last year as follows:

13 Weeks Ended Variance

2023 December 31,

(in thousands)

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New York 12,089 10,744 1,345 12.5 %

Washington, DC 3,773 4,021 (248) -6.2 %

Washington, D.C.

2,463 2,818 (355) -12.6 %

Atlantic City, NJ 555 592 (37) -6.3 %

4 unchanged sentences

Food and beverage sales $ 46,630 $ 46,539

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 Las Vegas decreased 3.0% primarily as a result of lower headcounts in the current period.

Same-store sales in New York increased 12.5% 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 Washington, D.C.

decreased 12.6% as a result of lower headcounts.

Same-store sales in Atlantic City decreased 6.3% as a result of lower customer traffic at the property where we are located.

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Same-store sales in Florida decreased 4.6% 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

(in thousands)

Las Vegas $ 41,407 $ 40,838 $ 569 1.4 %

New York 27,610 23,581 4,029 17.1 %

Washington, DC 8,101 7,555 546 7.2 %

Atlantic City, NJ 2,142 2,525 (383) -15.2 %

Alabama 11,857 11,646 211 1.8 %

Florida 43,788 46,549 (2,761) -5.9 %

Same-store sales 134,905 132,694 $ 2,211 1.7 %

Other 2,354 1,433

Food and beverage sales $ 137,259 $ 134,127

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 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 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 39 weeks ended July 1, 2023 and July 2, 2022 were as follows (in thousands):

Costs and expenses for the 13 weeks ended December 30, 2023 and December 31, 2022 were as follows (in thousands):

13 Weeks Ended

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Revenues Increase

(Decrease) 39 Weeks Ended

Revenues 39 Weeks Ended

Revenues Increase

Food and beverage cost of sales $ 12,071 25.4 % $ 12,435 26.2 % (364) -2.9 %

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Total costs and expenses $ 45,884 $ 45,242 $ 642

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.

Food and beverage costs as a percentage of total revenues for the 13 weeks ended December 30, 2023 as compared with the same period of last year decreased as a result of a very strong event business in New York City, which has higher margins, combined with some easing in commodity prices.

Payroll expenses as a percentage of total revenues for the 13 weeks ended December 30, 2023 increased as compared with the same period of last year primarily as a result of record low unemployment 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 weeks ended December 30, 2023 increased as compared with the same periods of last year primarily as a result of increases in base rents and increases in property and liability insurance premiums.

Other operating costs and expenses as a percentage of total revenues for the 13 weeks ended December 30, 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 December 30, 2023 increased as compared to the same periods of last year as a result of annual merit increases.

Depreciation and amortization expense for the 13 weeks ended December 30, 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.

Liquidity and Capital Resources

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

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.

As of December 30, 2023, we had a cash and cash equivalents balance of $12,122,000.

The Company had a working capital deficit of $(5,079,000) at December 30, 2023 as compared with a working capital deficit of $(5,932,000) at September 30, 2023.

This decrease in the deficit is primarily the result of lower accrued expenses from the collection of catering deposits partially offset by an increase in distributions to non-controlling interests.

The country is currently experiencing multi-decade high inflation.

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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 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 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.

Cash Flows for 13 Weeks Ended December 30, 2023 and December 31, 2022

Net cash provided by operating activities for the 13 weeks ended December 30, 2023 was $558,000 as compared to cash used in operating activities of $(903,000) in the same period of last year.

This increase was primarily due to a favorable change in working capital (primarily accrued expenses), partially offset by a decrease in operating income.

Net cash used in investing activities for the 13 weeks ended December 30, 2023 and December 31, 2022 was $(254,000) and $(751,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants.

Net cash used in financing activities for the 13 weeks ended December 30, 2023 and December 31, 2022 was $(1,597,000) and $(2,358,000), respectively, and resulted primarily from principal payments on notes payable, the payment of dividends and the payment of distributions to non-controlling interests and in the prior year principal payments on PPP Loans.

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 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.

The total cost of the refresh was approximately $1,900,000.

On June 24, 2022, the Company extended its lease for America at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2033.

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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 December 31, 2023 (as extended from June 30, 2023).

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, 2024, as extended.

To date approximately $100,000 has been spent on this refresh.

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Recent Restaurant Dispositions and Other Developments

On July 5, 2022, the Company terminated its lease for Lucky 7 at the Foxwoods Resort Casino.

The closure did not result in a material change to the Company's operations.

During the 26 weeks ended April 1, 2023, the Company dissolved the entity which owned Clyde Frazier's Wine and Dine, which was closed in September of 2021.

During the 13 weeks ended December 30, 2023, the Company dissolved the entity which owned Lucky 7 at the Foxwoods Resort and Casino, which was closed in July of 2022.

In connection with the dissolution, the Company reclassified the remaining non-controlling interest balance to additional paid-in capital.

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

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.

As of December 30, 2023, no advances were outstanding under the Credit Agreement.

As of December 30, 2023, the weighted average interest on the outstanding BHBM notes payable was approximately 9.0%.

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.

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The Credit Agreement contains customary representations, warranties and affirmative covenants as well as customary negative covenants, subject to negotiated exceptions on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership.

Paycheck Protection Program Loans

During the year ended October 3, 2020, subsidiaries and consolidated VIEs (the “Borrowers”) of the Company received loan proceeds from several banks (the “Lenders”) in the aggregate amount of $14,995,000 (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) of the CARES Act, which was enacted March 27, 2020.

In addition, during the 13 weeks ended April 3, 2021, one of our consolidated VIEs received a second draw PPP Loan in the amount of $111,000.

The PPP Loans were evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bore interest at the rate of 1.00% per annum.

Funds from the PPP Loans were to be used only for payroll and related costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred by a Borrower prior to February 15, 2020 (the “Qualifying Expenses”).

Under the terms of the PPP Loans, some or all of

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 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.

Such loan was repaid as we await the appeal decision.

Cash Flow Outlook

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Recent Events

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.

On February 6, 2024, the Board of Directors declared a quarterly cash dividend of $0.1875 per share to be paid on March 13, 2024 to shareholders of record of the Company's common stock at the close of business on February 29, 2024.

Critical Accounting Estimates

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Although management does not believe that any change in those assumptions in the near term would have a material effect on the Company’s consolidated condensed financial position or the results of operations, differences in actual results could be material to the consolidated condensed financial statements.

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 third fiscal quarter 2023.

The Company’s critical accounting estimates are described in the Company’s MD&A included in Form 10-K for the year ended September 30, 2023.

There have been no significant changes to such critical accounting estimates during the first fiscal quarter 2024.

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