What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2024-02-13 · 73 added, 36 removed, 123 unchanged (47% of the section changed)

9 unchanged sentences

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.

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.

Our operating results have been and continue to be impacted by geopolitical and macroeconomic events, causing increased commodity prices, 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.

1 unchanged sentence

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

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.

As of March 30, 2024, 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 December 30, 2023 and December 31, 2022 each included 13 weeks.

The periods ended March 30, 2024 and April 1, 2023 each included 13 and 26 weeks.

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

8 unchanged sentences

Results of Operations

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)

The Company’s operating income (loss) for the 13 and 26 weeks ended March 30, 2024 decreased 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 the negative impact on the prior period of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

The following table summarizes the significant components of the Company’s operating results for the 13- and 26-week periods ended March 30, 2024 and April 1, 2023:

13 Weeks Ended Variance 26 Weeks Ended Variance

2024 April 1,

2023 $ % March 30,

2024 April 1,

(in thousands) (in thousands)

Food and beverage sales $ 41,188 $ 40,913 $ 275 0.7 % $ 87,818 $ 87,452 $ 366 0.4 %

5 unchanged sentences

Occupancy expenses 5,775 5,255 520 9.9 % 12,107 11,438 669 5.8 %

Other operating costs and expenses 6,092 5,932 160 2.7 %

General and administrative expenses 3,320 3,137 183 5.8 %

Other operating costs and

expenses 5,836 5,352 484 9.0 % 11,928 11,283 645 5.7 %

General and administrative

expenses 3,141 3,023 118 3.9 % 6,461 6,159 302 4.9 %

Depreciation and amortization 1,057 1,138 (81) -7.1 % 2,149 2,171 (22) -1.0 %

Total costs and expenses 43,459 41,874 1,585 3.8 % 89,342 87,115 2,227 2.6 %

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

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

OPERATING INCOME (LOSS) $ (1,202) $ 23 $ (1,225) NM $ 401 $ 2,227 $ (1,826) -82.0 %

_________________________________

NM - Not meaningful.

During the 13- and 26-week periods ended March 30, 2024, revenues increased marginally as compared to revenues for the 13- and 26-week periods ended April 1, 2023.

The net increases resulted primarily from decreases in same-store sales discussed below, offset by an increase in sales at Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV which was substantially closed for renovation in the prior 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 $2,114,000 for the comparable period in the current fiscal quarter.

Food and Beverage Same-Store Sales

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:

On a Company-wide basis, same-store sales increased 0.4% during the 13 weeks ended March 30, 2024 as compared to the same period of last year as follows:

13 Weeks Ended Variance

2023 December 31,

2024 April 1,

(in thousands)

7 unchanged sentences

Same-store sales 41,006 40,861 $ 145 0.4 %

Food and beverage sales $ 41,188 $ 40,913

Same-store sales in Las Vegas increased 6.9% primarily as a result of the negative impact on the prior period 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 5.1% driven primarily by strong revenues from our event business.

Same-store sales in Washington, D.C.

decreased 4.8% as a result of lower headcounts and the closure of the property after Sunday after close through lunch on Thursdays for the winter.

Same-store sales in Atlantic City increased 1.5% as a result of better than expected customer traffic at the property where we are located.

Same-store sales in Alabama increased 0.6% primarily as a result of menu price increase partially offset by slightly lower headcounts.

Same-store sales in Florida decreased 5.5% 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 during the 26 weeks ended March 30, 2024 were consistent as compared to the same period of last year as follows:

26 Weeks Ended Variance

2024 April 1,

(in thousands)

Las Vegas $ 28,643 $ 28,205 $ 438 1.6 %

New York 17,080 15,493 1,587 10.2 %

Washington, D.C.

3,901 4,328 (427) -9.9 %

Atlantic City, NJ 1,318 1,344 (26) -1.9 %

Alabama 6,644 6,673 (29) -0.4 %

Florida 28,518 30,045 (1,527) -5.1 %

Same-store sales 86,104 86,088 $ 16 — %

Other 1,714 1,364

Food and beverage sales $ 87,818 $ 87,452

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

Same-store sales in Las Vegas increased 1.6% primarily as a result of the negative impact on the prior period of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023), partially offset by lower headcounts in the current period.

Same-store sales in New York increased 10.2% driven primarily by strong revenues from our event business.

5 unchanged sentences

Costs and Expenses

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

Costs and expenses for the 13 and 26 weeks ended March 30, 2024 and April 1, 2023 were as follows (in thousands):

13 Weeks Ended

Revenues 13 Weeks Ended

April 1, 2023 %

Revenues Increase

(Decrease) 26 Weeks Ended

Revenues 26 Weeks Ended

April 1, 2023 %

Revenues Increase

Food and beverage cost of sales $ 12,138 28.7 % $ 11,795 28.2 % 343 2.9 % $ 24,209 27.0 % $ 24,231 27.1 % (22) -0.1 %

5 unchanged sentences

Total costs and expenses $ 43,459 $ 41,874 $ 1,585 $ 89,342 $ 87,115 $ 2,227

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.

Food and beverage costs as a percentage of total revenues for the 13 weeks ended March 30, 2024 as compared with the same period of last year increased as a result of increases in commodity prices, which had been easing for several quarters.

Food and beverage costs as a percentage of total revenues for the 26 weeks ended March 30, 2024 as compared with the same period of last year decreased marginally as a result of a strong event business in New York City, which has higher margins, partially offset by higher commodity prices in the current quarter.

Payroll expenses as a percentage of total revenues for the 13 and 26 weeks ended March 30, 2024 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 and 26 weeks ended March 30, 2024 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 and 26 weeks ended March 30, 2024 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 26 weeks ended March 30, 2024 increased as compared to the same periods of last year as a result of annual merit increases.

Depreciation and amortization expense for the 13 and 26 weeks ended March 30, 2024 decreased slightly as compared to the same period of last year primarily as a result of certain assets becoming fully depreciated.

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 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.

As of March 30, 2024, we had a cash and cash equivalents balance of $10,412,000.

The Company had a working capital deficit of $(7,028,000) at March 30, 2024 as compared with a working capital deficit of $(5,932,000) at September 30, 2023.

This increase in the deficit is primarily the result of higher accrued expenses from the collection of catering deposits.

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 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.

Cash Flows for 26 Weeks Ended March 30, 2024 and April 1, 2023

Net cash provided by operating activities for the 26 weeks ended March 30, 2024 and April 1, 2023 was $766,000 and $2,111,000, respectively, and resulted primarily due to changes in working capital (primarily accrued expenses), partially offset by a decrease in operating income.

Net cash used in investing activities for the 26 weeks ended March 30, 2024 was $596,000 as compared to cash provided by investing activities of $2,998,000 in the same period as last year.

This resulted primarily from proceeds from the maturity of certificates of deposit in the prior period partially offset by lower purchases of fixed assets at existing restaurants in the current period.

Net cash used in financing activities for the 26 weeks ended March 30, 2024 and April 1, 2023 was $(3,173,000) and $(10,658,000), 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

9 unchanged sentences

Note that our substantial completion of work set forth in plans approved by the landlord shall constitute our compliance with the requirements of the completion deadlines, regardless of whether or not the amount actually expended in connection therewith is less than the minimum.

On September 19, 2023, the Company extended the lease for its corporate office through December 31, 2038.

The amended lease provides for rents, beginning on January 1, 2024.

The lease also provides for, among other things, the ability for the Company to vacate the premises upon 12 months' notice.

Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry.

7 unchanged sentences

On March 30, 2023, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), with its lender, Bank Hapoalim B.M.

This facility, which matures on June 1, 2025, replaced our revolving credit facility which was entered into in June 1, 2018.

This facility, which matures on June 1, 2025, replaced our revolving credit facility which was entered into in June 1, 2018 (the "Prior Credit Agreement").

Under the terms of the Credit Agreement:

3 unchanged sentences

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

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%.

As of March 30, 2024, no advances were outstanding under the Credit Agreement.

As of March 30, 2024, the weighted average interest on the outstanding BHBM indebtedness 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.

The Credit Facility also requires, among other things, that the Company meet minimum quarterly tangible net worth amounts, maintain a minimum fixed charge coverage ratio and meet minimum annual net income amounts.

The Credit Agreement also requires, among other things, that the Company meet minimum quarterly tangible net worth amounts, maintain a minimum fixed charge coverage ratio and meet minimum annual net income amounts.

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.

3 unchanged sentences

Recent Events

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.

On May 7, 2024, the Board of Directors declared a quarterly cash dividend of $0.1875 per share to be paid on June 12, 2024 to shareholders of record of the Company's common stock at the close of business on May 31, 2024.

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 September 30, 2023.

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

There have been no significant changes to such critical accounting estimates during the second 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