What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-11-07 · 145 added, 137 removed, 209 unchanged (57% of the section changed)

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legislative and business conditions;

potential changes in U.S.

income tax or tariff policies;

the collectability of receivables;

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Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets, grocery stores and club stores, the sale of Nathan’s products directly to other foodservice operators, the manufacture of certain proprietary spices by third parties and the royalties, fees and other sums we can earn from franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual kitchens).

At September 29, 2024, our restaurant system, excluding virtual kitchens, consisted of 243 locations, including 128 Branded Menu Program locations, and four Company-owned restaurants (including one seasonal unit), located in 17 states, and 13 foreign countries.

At September 24, 2023, our restaurant system, excluding virtual kitchens, consisted of 235 locations, including 117 Branded Menu Program locations, and four Company-owned restaurants (including one seasonal unit), located in 17 states, and 13 foreign countries.

At December 29, 2024, our restaurant system, excluding virtual kitchens, consisted of 240 locations, including 128 Branded Menu Program locations, and four Company-owned restaurants (including one seasonal unit), located in 17 states, and 12 foreign countries.

At December 24, 2023, our restaurant system, excluding virtual kitchens, consisted of 238 locations, including 117 Branded Menu Program locations, and four Company-owned restaurants (including one seasonal unit), located in 17 states, and 13 foreign countries.

Our primary focus is to expand the market penetration of the Nathan’s Famous brand by increasing the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan’s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan’s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned restaurants and franchised locations, including virtual kitchens.

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Refinancing of Senior Secured Notes due 2025

On July 10, 2024, the Company entered into a five-year unsecured Credit Agreement with Citibank, N.A.

On July 10, 2024, the Company entered into a five-year unsecured Credit Agreement (the “Credit Agreement”) with Citibank, N.A.

and borrowed $60,000,000 in Term Loan borrowings to refinance and redeem the 6.625% Senior Secured Notes due 2025 (the “2025 Notes”).

See NOTE P – LONG TERM DEBT of the preceding consolidated financial statements and “Liquidity and Capital Resources” for additional information on the Credit Agreement and refinancing.

See NOTE P – LONG TERM DEBT of the preceding condensed consolidated financial statements and “Liquidity and Capital Resources” for additional information on the Credit Agreement and refinancing.

Our future results may be impacted by our debt service and repayment obligations under our Credit Agreement.

Inflationary Factors

Inflationary pressures impacted our results of operations during the first half of fiscal 2025, including higher commodity prices on beef and beef trimmings.

Inflationary pressures negatively impacted our earnings during the thirty-nine week period ended December 29, 2024, most notably within our Branded Product Program segment, due primarily to commodity prices on beef and beef trimmings.

This trend may continue throughout the remainder of fiscal year 2025.

In general, we have been able to offset cost increases resulting from inflation by increasing prices and adjusting product mix.

In general, we have been able to offset cost increases resulting from inflation by increasing prices and entering into sales agreements with our Branded Product Program customers that are correlated to our cost of beef and beef trimmings.

We continue to monitor these inflationary pressures and will continue to implement mitigation measures as needed.

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Delays in implementing price increases, competitive pressures, a decline in consumer spending levels and other factors may limit our ability to implement further price increases in the future.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March 31, 2024, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated financial statements.

Critical Accounting Estimates

As discussed in our Form 10-K for the fiscal year ended March 31, 2024, the discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those condensed consolidated financial statements.

These judgments can be subjective and complex, and consequently, actual results could differ from those estimates.

Our most critical accounting policies and estimates relate to impairment of intangible assets;

Our most critical accounting estimates relate to impairment of intangible assets;

impairment of long-lived assets;

current expected credit losses and income taxes (including uncertain tax positions).

There have been no changes to our critical accounting estimates or significant accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

During the thirty-nine week period ended December 29, 2024, there have been no changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

New Accounting Standards Not Yet Adopted

Please refer to Note B of the preceding consolidated financial statements for our discussion of the New Accounting Standards Not Yet Adopted.

Please refer to Note B of the preceding condensed consolidated financial statements for our discussion of New Accounting Standards Not Yet Adopted.

EBITDA and Adjusted EBITDA

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Thirteen weeks ended

Twenty-six weeks ended

September 29,

September 24,

September 29,

September 24,

Thirty-nine weeks ended

December 29, 2024

December 24, 2023

December 29, 2024

December 24, 2023

Interest expense

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Historically, sales from our Company-owned restaurants, principally at Coney Island, and franchised restaurants from which franchised royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth quarter representing the slowest period.

Additionally, revenues from our Branded Product Program, Branded Menu Program and retail licensing program generally follow similar season fluctuations, although not to the same degree.

Additionally, revenues from our Branded Product Program, Branded Menu Program and retail licensing program generally follow similar seasonal fluctuations, although not to the same degree.

We expect that this seasonality will continue.

Working capital requirements may vary throughout the year to support these seasonal patterns.

Due to the above seasonal factors, as well as inflationary pressures, our results of operations for the thirteen and twenty-six weeks ended September 29, 2024 are not necessarily indicative of those for a full fiscal year.

Due to the above seasonal factors, as well as inflationary pressures, our results of operations for the thirteen and thirty-nine weeks ended December 29, 2024 are not necessarily indicative of those for a full fiscal year.

Results of Operations

Thirteen weeks ended September 29, 2024 compared to thirteen weeks ended September 24, 2023

Total revenues increased by approximately 6% to $41,109,000 for the thirteen weeks ended September 29, 2024 (“second quarter fiscal 2025”) as compared to $38,744,000 for the thirteen weeks ended September 24, 2023 (“second quarter fiscal 2024”).

Foodservice sales from the Branded Product Program increased by approximately 5% to $24,536,000 for the second quarter fiscal 2025 as compared to $23,352,000 for the second quarter fiscal 2024.

During the second quarter fiscal 2025, the volume of hot dogs sold in the Branded Product Program increased by approximately 4% as compared to the second quarter fiscal 2024.

Our average selling prices increased by approximately 1.4% as compared to the second quarter fiscal 2024.

Total Company-owned restaurant sales increased by approximately 3% to $5,348,000 during the second quarter fiscal 2025 as compared to $5,193,000 during the second quarter fiscal 2024.

Restaurant sales were impacted by higher sales at our Coney Island locations due to an increase in our average check, offset by lower sales at our locations in Oceanside and Yonkers, New York.

License royalties increased by approximately 14% to $9,491,000 in the second quarter fiscal 2025 as compared to $8,339,000 in the second quarter fiscal 2024.

Thirteen weeks ended December 29, 2024 compared to thirteen weeks ended December 24, 2023

Total revenues increased by approximately 9% to $31,519,000 for the thirteen weeks ended December 29, 2024 (“third quarter fiscal 2025”) as compared to $28,890,000 for the thirteen weeks ended December 24, 2023 (“third quarter fiscal 2024”).

Foodservice sales from the Branded Product Program increased by approximately 7% to $21,099,000 for the third quarter fiscal 2025 as compared to $19,688,000 for the third quarter fiscal 2024.

During the third quarter fiscal 2025, the volume of hot dogs sold in the Branded Product Program was comparable to the third quarter fiscal 2024.

Our average selling prices increased by approximately 6% as compared to the third quarter fiscal 2024.

Total Company-owned restaurant sales increased by approximately 9% to $1,804,000 during the third quarter fiscal 2025 as compared to $1,661,000 during the third quarter fiscal 2024.

Restaurant sales were primarily impacted by higher sales at our Coney Island locations due to an increase in our average check.

License royalties increased by approximately 17% to $7,105,000 in the third quarter fiscal 2025 as compared to $6,078,000 in the third quarter fiscal 2024.

Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc.

at retail and foodservice, increased 14% to $8,595,000 for the second quarter fiscal 2025 as compared to $7,507,000 in the second quarter fiscal 2024.

The increase is due to an 18% increase in retail volume which was offset, in part, by a 4% decrease in net selling price .

The foodservice business earned higher royalties of $39,000 as compared to the second quarter fiscal 2024.

Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $64,000 during the second quarter fiscal 2025 as compared to the second quarter fiscal 2024 primarily due to higher royalties earned on sales of proprietary spices, franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres.

Franchise fees and royalties decreased by approximately 9% to $1,174,000 in the second quarter fiscal 2025 as compared to $1,291,000 in the second quarter fiscal 2024.

Total royalties were $1,066,000 in the second quarter fiscal 2025 as compared to $1,148,000 in the second quarter fiscal 2024.

Royalties earned under the Branded Menu Program were $248,000 in the second quarter fiscal 2025 as compared to $272,000 in the second quarter fiscal 2024.

at retail and foodservice increased 16% to $6,146,000 for the third quarter fiscal 2025 as compared to $5,279,000 in the third quarter fiscal 2024.

The increase is due to a 19% increase in retail volume which was offset, in part, by a 2% decrease in net selling price.

The foodservice business royalties were $15,000 lower as compared to the third quarter fiscal 2024.

Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $160,000 during the third quarter fiscal 2025 as compared to the third quarter fiscal 2024 primarily due to higher royalties earned on sales of French fries, onion rings, proprietary spices, franks-in-a-blanket, mozzarella sticks and bottled mustard.

Franchise fees and royalties were $991,000 in the third quarter fiscal 2025 as compared to $955,000 in the third quarter fiscal 2024.

Total royalties were $897,000 in the third quarter fiscal 2025 as compared to $868,000 in the third quarter fiscal 2024.

Royalties earned under the Branded Menu Program were $182,000 in the third quarter fiscal 2025 as compared to $150,000 in the third quarter fiscal 2024.

Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases.

Virtual kitchen royalties were $11,000 in the second quarter fiscal 2025 as compared to $18,000 in the second quarter fiscal 2024.

Traditional franchise royalties were $807,000 in the second quarter fiscal 2025 as compared to $858,000 in the second quarter fiscal 2024.

Franchise restaurant sales decreased to $18,681,000 in the second quarter fiscal 2025 as compared to $19,171,000 in the second quarter fiscal 2024 primarily due to lower traffic at international locations and other seasonal entertainment venues.

Comparable domestic franchise sales (consisting of 59 Nathan’s outlets, excluding sales under the Branded Menu Program) were $14,961,000 in the second quarter fiscal 2025 as compared to $15,286,000 in the second quarter fiscal 2024.

At September 29, 2024, 243 franchised locations, including domestic, international and Branded Menu Program units were operating as compared to 235 franchised locations, including domestic, international and Branded Menu Program units at September 24, 2023.

Total franchise fee income was $108,000 in the second quarter fiscal 2025 as compared to $143,000 in the second quarter fiscal 2024.

Domestic franchise fee income was $35,000 in the second quarter fiscal 2025 as compared to $28,000 in the second quarter fiscal 2024.

International franchise fee income was $59,000 in the second quarter fiscal 2025 as compared to $60,000 in the second quarter fiscal 2024.

We recognized $14,000 and $55,000 in forfeited fees in the second quarter fiscal 2025 and the second quarter fiscal 2024, respectively.

During the second quarter fiscal 2025, eighteen franchise locations opened and six franchise locations closed.

During the second quarter fiscal 2024, seven franchise locations opened and seven franchise locations closed.

Advertising fund revenue, after eliminating Company contributions, was $560,000 during the second quarter fiscal 2025 as compared to $569,000 during the second quarter fiscal 2024.

Virtual kitchen royalties were $16,000 in the third quarter fiscal 2025 as compared to $14,000 in the third quarter fiscal 2024.

Traditional franchise royalties were $699,000 in the third quarter fiscal 2025 as compared to $704,000 in the third quarter fiscal 2024.

Franchise restaurant sales increased to $16,066,000 in the third quarter fiscal 2025 as compared to $15,635,000 in the third quarter fiscal 2024 primarily due to higher sales at airport locations, travel plazas and casino locations primarily in Las Vegas, Nevada.

Comparable domestic franchise sales (consisting of 59 Nathan’s outlets, excluding sales under the Branded Menu Program) were $12,805,000 in the third quarter fiscal 2025 as compared to $12,377,000 in the third quarter fiscal 2024.

At December 29, 2024, 236 franchised locations, including domestic, international and Branded Menu Program units were operating as compared to 238 franchised locations, including domestic, international and Branded Menu Program units at December 24, 2023.

Total franchise fee income was $94,000 in the third quarter fiscal 2025 as compared to $87,000 in the third quarter fiscal 2024.

Domestic franchise fee income was $25,000 in the third quarter fiscal 2025 as compared to $26,000 in the third quarter fiscal 2024.

International franchise fee income was $59,000 in the third quarter fiscal 2025 as compared to $61,000 in the third quarter fiscal 2024.

We recognized $10,000 in forfeited fees in the third quarter fiscal 2025.

We did not recognize any forfeited fees in the third quarter fiscal 2024.

During the third quarter fiscal 2025, three franchise locations opened and ten franchise locations closed.

During the third quarter fiscal 2024, three franchised locations opened.

Advertising fund revenue, after eliminating Company contributions, was $520,000 during the third quarter fiscal 2025 as compared to $508,000 during the third quarter fiscal 2024 period.

Costs and Expenses

Overall, our cost of sales increased by approximately 8% to $26,029,000 in the second quarter fiscal 2025 as compared to $24,187,000 in the second quarter fiscal 2024.

Our gross profit (calculated as total Branded Products sales plus total Company-owned restaurant sales less cost of sales) was $3,855,000 or 13% during the second quarter fiscal 2025 as compared to $4,358,000 or 15% during the second quarter fiscal 2024.

Cost of sales in the Branded Product Program increased by 9% to $23,318,000 in the second quarter fiscal 2025 as compared to $21,442,000 in the second quarter fiscal 2024, primarily due to a 4% increase in the volume of hot dogs sold, as well as a 5% increase in the average cost per pound of our hot dogs.

Overall, our cost of sales increased by approximately 10% to $19,571,000 in the third quarter fiscal 2025 as compared to $17,872,000 in the third quarter fiscal 2024.

Our gross profit (calculated as total Branded Products sales plus total Company-owned restaurant sales less cost of sales) was $3,332,000 or 15% of sales during the third quarter fiscal 2025 as compared to $3,477,000 or 16% of sales during the third quarter fiscal 2024.

Cost of sales in the Branded Product Program increased by 10% to $18,336,000 in the third quarter fiscal 2025 as compared to $16,688,000 in the third quarter fiscal 2024, primarily due to an 8.5% increase in the average cost per pound of our hot dogs.

A shrinking supply of cattle, combined with industry demand and inflationary pressures have resulted in higher commodity prices, including beef and beef trimmings, contributing to the increase in the average cost per pound of our hot dogs.

We did not make any purchase commitments of beef during the second quarter fiscal 2025 or the second quarter fiscal 2024.

We did not make any purchase commitments of beef during the third quarter fiscal 2025 or the third quarter fiscal 2024.

If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

With respect to Company-owned restaurants, our cost of sales during the second quarter fiscal 2025 was $2,711,000 or 51% of restaurant sales as compared to $2,745,000 or 53% of restaurant sales during the second quarter fiscal 2024.

With respect to Company-owned restaurants, our cost of sales during the third quarter fiscal 2025 was $1,235,000 or 68% of restaurant sales as compared to $1,184,000 or 71% of restaurant sales in the third quarter fiscal 2024.

Food and paper costs as a percentage of Company-owned restaurant sales were 26%, down from 29% in the comparable period of the prior year driven, in part, by price increases across most menu offerings.

Labor and related expenses as a percentage of Company-owned restaurant sales were 26.5%, up from 25.3% in the comparable period of the prior year due to higher salaries expense attributable to minimum wage increases as well as higher incentive compensation expense.

Restaurant operating expenses were $1,389,000 in the second quarter fiscal 2025 as compared to $1,340,000 in the second quarter fiscal 2024.

The increase is due primarily to higher occupancy expenses of $103,000 and higher insurance costs of $26,000 which were offset, in part, by lower marketing expenses of $23,000 and lower delivery charges of $23,000.

As a percentage of Company-owned restaurant sales, restaurant operating expenses were 26% in the second quarter fiscal 2025 as compared to 25.8% in the second quarter fiscal 2024.

Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, and the amortization of a definite-lived intangible asset, was $247,000 in the second quarter fiscal 2025 as compared to $315,000 in the second quarter fiscal 2024.

General and administrative expenses increased by $23,000 or 1% to $3,252,000 in the second quarter fiscal 2025 as compared to $3,229,000 in the second quarter fiscal 2024.

The increase in general and administrative expenses was primarily attributable to higher stock compensation expense of $47,000 and higher incentive compensation expense of $44,000 which were offset, in part, by lower professional fees of $39,000.

Advertising fund expense, after eliminating Company contributions, was $560,000 during the second quarter fiscal 2025 as compared to $569,000 in the second quarter fiscal 2024.

Interest expense of $1,441,000 in the second quarter fiscal 2025 represented interest expense of $458,000 and $930,000 on the 2025 Notes and the Secured Overnight Financing Rate (“SOFR”) Term Loan borrowings, respectively, and amortization of debt issuance costs of $35,000 and $18,000 on the 2025 Notes and the SOFR Term Loan borrowings, respectively.

Interest expense of $1,413,000 in the second quarter fiscal 2024 represented interest expense of $1,321,000 on the 2025 Notes and amortization of debt issuance costs of $92,000.

On July 10, 2024, the Company refinanced and redeemed its outstanding 2025 Notes.

In connection with this transaction, the Company recorded a loss on extinguishment of debt of $334,000 that reflected the write-off of the remainder of previously recorded debt issuance costs.

Interest and dividend income of $219,000 in the second quarter fiscal 2025 represented amounts earned by the Company on its interest bearing bank and money market accounts and mutual funds as compared to $150,000 in the fiscal 2024 period.

Other income, net was $23,000 in the second quarter fiscal 2025 and the second quarter fiscal 2024 which primarily relates to sublease income from a franchised restaurant.

Labor and related expenses as a percentage of Company-owned restaurant sales were 42% which was comparable to the third quarter fiscal 2024.

Restaurant operating expenses were $991,000 in the third quarter fiscal 2025 as compared to $896,000 in the third quarter fiscal 2024 .

The increase is due primarily to higher occupancy expenses of $50,000, higher repairs and maintenance expenses of $16,000, and higher utilities expenses of $11,000.

As a percentage of Company-owned restaurant sales, restaurant operating expenses were 55% in the third quarter fiscal 2025 as compared to 54% in the third quarter fiscal 2024.

Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, and the amortization of a definite-lived intangible asset, was $235,000 in the third quarter fiscal 2025 as compared to $268,000 in the third quarter fiscal 2024.

General and administrative expenses decreased by $759,000 or 18% to $3,450,000 in the third quarter fiscal 2025 as compared to $4,209,000 in the third quarter fiscal 2024.

The decrease in general and administrative expenses was primarily attributable to lower professional fees of $149,000, lower consulting fees of $60,000 and a cash bonus payment of $500,000 to the Company’s Executive Chairman of the Board in the third quarter fiscal 2024.

Advertising fund expense, after eliminating Company contributions, was $520,000 during the third quarter fiscal 2025 as compared to $508,000 in the third quarter fiscal 2024.

Interest expense of $842,000 in the third quarter fiscal 2025 represented interest expense of $825,000 on the Secured Overnight Financing Rate (“SOFR”) Term Loan borrowings and amortization of debt issuance costs of $17,000.

Interest expense of $1,392,000 in the third quarter fiscal 2024 represented interest expense of $1,300,000 on the 2025 Notes and amortization of debt issuance costs of $92,000.

On October 10, 2024, the Company made a voluntary prepayment of $8,000,000 of its Term Loan borrowings under the Credit Agreement and recorded a loss on debt extinguishment of $55,000 related to the write-off of a portion of previously recorded debt issuance costs on the Term Loan borrowings.

On December 19, 2023, the Company completed the partial redemption, in the principal amount of $20,000,000 of the 2025 Notes.

In connection with this transaction, the Company recorded a loss on extinguishment of debt of $169,000 that reflected the write-off of a portion of previously recorded debt issuance costs.

Interest and dividend income of $183,000 in the third quarter fiscal 2025 represented amounts earned by the Company on its interest bearing bank and money market accounts and mutual funds as compared to $138,000 in the third quarter fiscal 2024.

The increase is due to a larger balance of cash and cash equivalents earning interest at higher rates in the third quarter fiscal 2025 as compared to the third quarter of fiscal 2024.

Other income, net was $21,000 in the third quarter fiscal 2025 and the third quarter fiscal 2024, which primarily relates to sublease income from a franchised restaurant.

Provision for Income Taxes

The effective income tax rate for the second quarter fiscal 2025 was 25.5% compared to 27.4% in the second quarter fiscal 2024.

The effective income tax rate for the second quarter fiscal 2025 reflected income tax expense of $2,069,000 recorded on $8,099,000 of pre-tax income.

The effective income tax rate for the second quarter fiscal 2024 reflected income tax expense of $2,153,000 recorded on $7,864,000 of pre-tax income.

The effective income tax rate for the third quarter fiscal 2025 was 26.0% as compared to 30.2% in the third quarter fiscal 2024.

The effective income tax rate for the third quarter fiscal 2025 reflected income tax expense of $1,575,000 recorded on $6,059,000 of pre-tax income.

The effective income tax rate for the third quarter fiscal 2024 reflected income tax expense of $1,128,000 recorded on $3,735,000 of pre-tax income.

The effective tax rates are higher than the U.S.

Federal statutory rates primarily due to state and local taxes as well as non-deductible compensation under the Internal Revenue Code Section 162(m).

The effective tax rate for the second quarter fiscal 2024 included a discrete adjustment of 0.8%.

The amount of unrecognized tax benefits at September 29, 2024 was $494,000 all of which would impact the Company’s effective tax rate, if recognized.

As of September 29, 2024, the Company had approximately $379,000 accrued for the payment of interest and penalties in conjunction with unrecognized tax benefits.

Federal statutory rates primarily due to state and local taxes, as well as non-deductible executive compensation under the Internal Revenue Code Section 162(m).

The amount of unrecognized tax benefits at December 29, 2024 was $506,000 all of which would impact the Company’s effective tax rate, if recognized.

As of December 29, 2024, the Company had approximately $392,000 accrued for the payment of interest and penalties in connection with unrecognized tax benefits.

Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $46,000 during the fiscal year ending March 30, 2025 due primarily to the lapse of statutes of limitations which would favorably impact the Company’s effective tax rate, although no assurances can be given in this regard.

Results of Operations

Twenty-six weeks ended September 29, 2024 compared to twenty-six weeks ended September 24, 2023

Total revenues increased by approximately 6% to $85,876,000 for the twenty-six weeks ended September 29, 2024 (“fiscal 2025 period”) as compared to $80,729,000 for the twenty-six weeks ended September 24, 2023 (“fiscal 2024 period”).

Thirty-nine weeks ended December 29, 2024 compared to thirty-nine weeks ended December 24, 2023

Total revenues increased by approximately 7% to $117,395,000 for the thirty-nine weeks ended December 29, 2024 (“fiscal 2025 period”) as compared to $109,619,000 for the thirty-nine weeks ended December 24, 2023 (“fiscal 2024 period”).

Foodservice sales from the Branded Product Program increased by approximately 5% to $71,781,000 for the fiscal 2025 period as compared to $68,210,000 for the fiscal 2024 period.

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Total Company-owned restaurant sales increased by approximately 8% to $11,351,000 during the fiscal 2025 period as compared to $10,512,000 during the fiscal 2024 period.

Restaurant sales were impacted by higher sales at our Coney Island locations due to an increase in our average check, offset by lower sales at our location in Oceanside, New York.

Restaurant sales were primarily impacted by higher sales at our Coney Island locations due to an increase in our average check.

License royalties increased by approximately 13% to $29,517,000 in the fiscal 2025 period as compared to $26,075,000 in the fiscal 2024 period.

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The foodservice business earned higher royalties of $91,000 as compared to the fiscal 2024 period.

Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $113,000 during the fiscal 2025 period as compared to the fiscal 2024 period primarily due to higher royalties earned on sales of French fries, onion rings, and proprietary spices, offset by lower royalties earned on sales of pickles, franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres.

Franchise fees and royalties decreased by approximately 5% to $2,247,000 in the fiscal 2025 period as compared to $2,366,000 in the fiscal 2024 period.

Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $273,000 during the fiscal 2025 period as compared to the fiscal 2024 period primarily due to higher royalties earned on sales of French fries, onion rings, proprietary spices, franks-in-a-blanket, mozzarella sticks and bottled mustard.

Franchise fees and royalties were $3,238,000 in the fiscal 2025 period as compared to $3,321,000 in the fiscal 2024 period.

Total royalties were $2,944,000 in the fiscal 2025 period as compared to $2,996,000 in the fiscal 2024 period.

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Traditional franchise royalties were $2,298,000 in the fiscal 2025 period as compared to $2,329,000 in the fiscal 2024 period.

Franchise restaurant sales decreased to $36,334,000 in the fiscal 2025 period as compared to $36,433,000 in the fiscal 2024 period primarily due to lower traffic at international locations, seasonal entertainment venues, and travel plazas which were offset, in part, by higher traffic at casino locations primarily in Las Vegas, Nevada.

Comparable domestic franchise sales (consisting of 58 Nathan’s outlets, excluding sales under the Branded Menu Program) were $29,037,000 in the fiscal 2025 period as compared to $29,388,000 in the fiscal 2024 period.

Franchise restaurant sales increased to $52,400,000 in the fiscal 2025 period as compared to $52,068,000 in the fiscal 2024 period primarily due to higher traffic at casino locations primarily in Las Vegas, Nevada, which were offset, in part, by lower traffic at international locations and seasonal entertainment venues.

Comparable domestic franchise sales (consisting of 58 Nathan’s units, excluding sales under the Branded Menu Program) were $42,305,000 in the fiscal 2025 period as compared to $41,666,000 in the fiscal 2024 period.

Total franchise fee income was $294,000 in the fiscal 2025 period as compared to $325,000 in the fiscal 2024 period.

Domestic franchise fee income was $83,000 in the fiscal 2025 period as compared to $81,000 in the fiscal 2024 period.

International franchise fee income was $119,000 in the fiscal 2025 period as compared to $120,000 in the fiscal 2024 period.

International franchise fee income was $178,000 in the fiscal 2025 period as compared to $181,000 during the fiscal 2024 period.

We recognized $33,000 and $63,000 in forfeited fees in the fiscal 2025 period and fiscal 2024 period, respectively.

During the fiscal 2025 period, twenty-one franchise locations opened and eight franchise locations closed.

During the fiscal 2024 period, fourteen franchise locations opened and eleven franchise locations closed.

Advertising fund revenue, after eliminating Company contributions, was $988,000 during the fiscal 2025 period as compared to $993,000 during the fiscal 2024 period.

During the fiscal 2025 period, twenty-four franchise locations opened and eighteen franchise locations closed.

During the fiscal 2024 period, seventeen franchise locations opened and eleven franchise locations closed.

Advertising fund revenue, after eliminating Company contributions, was $1,508,000 in the fiscal 2025 period, as compared to $1,501,000 during the fiscal 2024 period.

Costs and Expenses

Overall, our cost of sales increased by approximately 6% to $70,841,000 in the fiscal 2025 period as compared to $66,743,000 in the fiscal 2024 period.

Our gross profit (calculated as total Branded Products sales plus total Company-owned restaurant sales less cost of sales) was $8,959,000 or 15% during the fiscal 2025 period as compared to $8,502,000 or 15% during the fiscal 2024 period.

Our gross profit (calculated as total Branded Products sales plus total Company-owned restaurant sales less cost of sales) was $12,291,000 or 15% of sales during the fiscal 2025 period as compared to $11,979,000 or 15% of sales during the fiscal 2024 period.

Cost of sales in the Branded Product Program increased by 6% to $64,626,000 during the fiscal 2025 period as compared to $60,698,000 during the fiscal 2024 period, primarily due to a 1.5% increase in the volume of hot dogs sold, as well as a 4% increase in the average cost per pound of our hot dogs.

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Food and paper costs as a percentage of Company-owned restaurant sales were 25%, down from 28% in the comparable period of the prior year driven, in part, by price increases across most menu offerings.

Labor and related expenses as a percentage of Company-owned restaurant sales were 27.4%, up from 27.1% in the comparable period of the prior year due to higher salaries expense attributable to minimum wage increases as well as higher incentive compensation expense.

Labor and related expenses as a percentage of Company-owned restaurant sales were 29% which was comparable to the fiscal 2024 period .

Restaurant operating expenses were $3,509,000 in the fiscal 2025 period as compared to $3,279,000 in the fiscal 2024 period.

The increase is due primarily to higher occupancy expenses of $147,000 and higher insurance costs of $54,000 which were offset, in part, by lower marketing expenses of $16,000 and lower delivery charges of $37,000.

As a percentage of Company-owned restaurant sales, restaurant operating expenses were 26.4% in the fiscal 2025 period as compared to 26.9% in the fiscal 2024 period.

The increase is due primarily to higher occupancy expenses of $196,000, higher repairs and maintenance expenses of $26,000, and higher insurance costs of $51,000 which were offset, in part, by lower delivery charges of $48,000.

As a percentage of Company-owned restaurant sales, restaurant operating expenses were 31% in the fiscal 2025 period which was comparable to the fiscal 2024 period.

Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, and the amortization of a definite-lived intangible asset, was $731,000 in the fiscal 2025 period as compared to $896,000 in the fiscal 2024 period.

General and administrative expenses decreased by approximately $60,000 or 1% to $7,227,000 in the fiscal 2025 period as compared to $7,287,000 in the fiscal 2024 period.

The decrease in general and administrative expenses was primarily attributable to lower professional fees of $142,000, which were offset, in part, by higher incentive compensation expense of $57,000 and higher share-based compensation expense of $58,000.

Advertising fund expense, after eliminating Company contributions, was $988,000 during the fiscal 2025 period as compared to $993,000 in the fiscal 2024 period.

General and administrative expenses decreased by $819,000 or 7% to $10,677,000 in the fiscal 2025 period as compared to $11,496,000 in the fiscal 2024 period.

The decrease in general and administrative expenses was primarily attributable to lower professional fees of $291,000, lower consulting fees of $133,000 and a cash bonus payout of $500,000 to the Company’s Executive Chairman of the Board in the fiscal 2024 period which were offset, in part, by higher share-based compensation expense of $158,000.

Advertising fund expense, after eliminating Company contributions, was $1,508,000 in the fiscal 2025 period, as compared to $1,501,000 in the fiscal 2024 period.

Interest expense of $3,343,000 in the fiscal 2025 period represented interest expense of $1,449,000 and $1,755,000 on the 2025 Notes and the SOFR Term Loan borrowings, respectively, and amortization of debt issuance costs of $104,000 and $35,000 on the 2025 Notes and the SOFR Term Loan borrowings, respectively.

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On July 10, 2024, the Company refinanced and redeemed its outstanding 2025 Notes.

In connection with this transaction, the Company recorded a loss on extinguishment of debt of $334,000 that reflected the write-off of the remainder of previously recorded debt issuance costs.

Interest and dividend income of $297,000 in the fiscal 2025 period represented amounts earned by the Company on its interest bearing bank and money market accounts and mutual funds, as compared to $212,000 in the fiscal 2024 period.

Other income, net was $44,000 in the fiscal 2025 and fiscal 2024 periods which primarily relates to sublease income from a franchised restaurant.

In connection with this transaction, the Company recorded a loss on extinguishment of debt of $334,000 that reflected the write-off of the remainder of previously recorded debt issuance costs on the 2025 Notes.

Subsequently, on October 10, 2024, the Company made a voluntary prepayment of $8,000,000 of its Term Loan borrowings under the Credit Agreement and recorded a loss on debt extinguishment of $55,000 related to the write-off of a portion of previously recorded debt issuance costs on the Term Loan borrowings.

On December 19, 2023, the Company completed the partial redemption, in the principal amount of $20,000,000 of the 2025 Notes.

In connection with this transaction, the Company recorded a loss on extinguishment of debt of $169,000 that reflected the write-off of a portion of previously recorded debt issuance costs.

Interest and dividend income of $480,000 in the fiscal 2025 period represented amounts earned by the Company on its interest bearing bank and money market accounts and mutual fund as compared to $350,000 in the fiscal 2024 period.

The increase is due to a larger balance of cash and cash equivalents earning interest at higher rates in the fiscal 2025 period as compared to the fiscal 2024 period.

Other income, net was $65,000 in the fiscal 2025 period and the fiscal 2024 period which primarily relates to sublease income from a franchised restaurant.

Provision for Income Taxes

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The effective income tax rate for the fiscal 2024 period reflected income tax expense of $6,025,000 recorded on $21,731,000 of pre-tax income.

The effective tax rates are higher than the statutory rates primarily due to state and local taxes as well as non-deductible compensation under the Internal Revenue Code Section 162(m).

The amount of unrecognized tax benefits at September 29, 2024 was $494,000 all of which would impact the Company’s effective tax rate, if recognized.

As of September 29, 2024, the Company had approximately $379,000 accrued for the payment of interest and penalties in connection with unrecognized tax benefits.

The effective tax rates are higher than the statutory rates primarily due to state and local taxes, as well as non-deductible executive compensation under the Internal Revenue Code Section 162(m).

The amount of unrecognized tax benefits at December 29, 2024 was $506,000 all of which would impact the Company’s effective tax rate, if recognized.

As of December 29, 2024, the Company had approximately $392,000 accrued for the payment of interest and penalties in connection with unrecognized tax benefits.

Off-Balance Sheet Arrangements

At September 29, 2024 and September 24, 2023, Nathan’s did not have any open purchase commitments for hot dogs.

At December 29, 2024 and December 24, 2023, Nathan’s did not have any open purchase commitments for hot dogs.

Nathan’s may enter into purchase commitments in the future as favorable market conditions become available.

Liquidity and Capital Resources

Sources and uses of cash

Cash and cash equivalents at September 29, 2024 aggregated $31,207,000, a $10,180,000 increase during the fiscal 2025 period as compared to cash of $21,027,000 at March 31, 2024.

Net working capital increased to $32,618,000 at September 29, 2024 as compared to $23,203,000 at March 31, 2024.

Cash and cash equivalents at December 29, 2024 aggregated $23,711,000, a $2,684,000 increase during the fiscal 2025 period as compared to cash of $21,027,000 at March 31, 2024.

Net working capital increased to $26,504,000 at December 29, 2024 as compared to $23,203,000 at March 31, 2024.

Our primary sources of liquidity are cash flows from operations.

Our primary cash requirements are to fund our quarterly dividends, to satisfy the debt service under our debt instrument, capital expenditures, working capital and general corporate needs.

Our primary cash requirements are to fund our quarterly dividends, to satisfy the debt service under our credit facility, capital expenditures, working capital and general corporate needs.

On May 1, 2024, we paid our first semi-annual interest payment on the 2025 Notes of $1,987,500 for the fiscal 2025 period.

On August 13, 2024, in connection with the redemption of all of the outstanding $60,000,000 principal amount of its 2025 Notes, the Company paid its required interest payment of $1,137,000 on the redeemed 2025 Notes.

Subsequent to the quarter ending September 29, 2024, we paid our mandatory debt principal repayment of $600,000 on our Term Loan borrowings under the Credit Agreement.

Additionally, on October 10, 2024, we paid interest of $1,042,000 on our Term Loan borrowings and made a voluntary principal prepayment of $8,000,000 on our outstanding Term Loan borrowings.

On July 2, 2024 and September 6, 2024, we paid our first and second quarterly cash dividends of fiscal 2025 aggregating $4,085,000.

We expect to pay our third quarterly dividend on December 6, 2024.

Cash flow for the fiscal year 2025 will be impacted by various factors, including, as discussed further below in this “Liquidity and Capital Resources” section, (i) debt issuance costs incurred in connection with our new Credit Agreement, (ii) mandatory debt repayments on our Term Loan borrowings under our new Credit Agreement, (iii) interest payments on our 2025 Notes and our Term Loan borrowings under our new Credit Agreement, (iv) voluntary debt repayments on our Term Loan borrowings and (v) expected dividend payments.

On August 13, 2024, in connection with the redemption of all of the outstanding $60,000,000 principal amount of its 2025 Notes, the Company paid its final required interest payment of $1,137,000 on the redeemed 2025 Notes.

Unsecured Credit Agreement

On September 30, 2024 and December 31, 2024, we paid our mandatory debt principal repayments of $600,000 each, or $1,200,000 in the aggregate, on our Term Loan borrowings under the Credit Agreement.

On October 10, 2024, we made a voluntary principal prepayment of $8,000,000 on our outstanding Term Loan borrowings under the Credit Agreement.

The prepayment was primarily funded by operating cash flows.

As of December 29, 2024, the Company has made cash interest payments of approximately $1,602,000 on the Term Loan borrowings under the Credit Agreement.

Cash flow for the fiscal year 2025 will be impacted by various factors, including, as discussed further below in this “Liquidity and Capital Resources” section, (i) debt issuance costs incurred in connection with our Credit Agreement, (ii) mandatory debt repayments on our Term Loan borrowings under our Credit Agreement, (iii) interest payments on our 2025 Notes and our Term Loan borrowings under our Credit Agreement, (iv) voluntary debt repayments on our Term Loan borrowings and (v) expected dividend payments.

Summary of Cash Flows

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(In thousands)

Twenty-six weeks ended

September 29,

September 24,

Thirty-nine weeks ended

Net cash provided by operating activities

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Net cash used in financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating activities

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Non-cash operating expenses consist principally of depreciation and amortization of $731,000, amortization of debt issuance costs of $139,000, share-based compensation expense of $705,000, a loss on debt extinguishment of $389,000 and a provision for credit losses of $53,000.

In the fiscal 2025 period, accounts and other receivables increased by $994,000 due primarily to higher Branded Product Program receivables of $696,000, and higher receivables due to the Advertising Fund of $933,000 which were offset, in part, by lower franchise and license royalties receivable of $556,000.

Prepaid expenses and other current assets decreased by $1,370,000 due principally to a decrease in prepaid income taxes of $858,000, a decrease in prepaid insurance of $174,000 and a decrease in prepaid marketing and other expenses of $324,000.

In the fiscal 2025 period, accounts and other receivables increased by $66,000 due primarily to higher receivables due to the Advertising Fund of $378,000 which were offset, in part, by lower franchise and license royalties receivable of $334,000.

Prepaid expenses and other current assets decreased by $1,064,000 due principally to a decrease in prepaid income taxes of $858,000 and a decrease in prepaid marketing and other expenses of $298,000.

Accounts payable, accrued expenses and other current liabilities decreased by $4,335,000 due to a decline in accrued payroll and other benefits of $1,091,000 resulting primarily from the payment of year-end fiscal 2024 incentive compensation;

earned deferred revenue of $1,125,000;

and a decline in accrued interest expense of $746,000 resulting primarily from our May 2024 semi-annual interest payment on our 2025 Notes.

Offsetting these decreases was an increase in accounts payable due to the timing of seasonal product purchases for our Branded Product Program and Company-owned restaurants.

a decline in accrued interest expenses of $1,523,000 resulting primarily from the timing of our debt service payments under our Credit Agreement and a decrease in accounts payable due to the timing of seasonal product purchases for our Branded Product Program and Company-owned restaurants.

Investing activities

Cash used in investing activities of $130,000 is primarily comprised of capital expenditures incurred for our Branded Product Program and our Coney Island restaurants.

Cash used in investing activities was $171,000 in the fiscal 2025 period primarily in connection with capital expenditures incurred for our Branded Product Program and our Coney Island restaurants.

Financing activities

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We incurred $431,000 of debt issuance costs in connection with this refinancing.

Additionally, the Company paid its first and second quarter cash dividends of $0.50 per share totaling $4,085,000.

We made a $600,000 mandatory principal repayment as well as an $8,000,000 voluntary principal repayment on our Term Loan borrowings under the Credit Agreement.

Further, the Company paid its first, second and third quarterly cash dividends of $0.50 per share totaling $6,127,000.

The Company also paid $437,000 for withholding taxes on the net share vesting of 10,000 restricted stock units.

Credit Facility

On July 10, 2024 (the “Effective Date”), the Company entered into a five-year unsecured Credit Agreement (the “Credit Agreement”) among the Company, as borrower, direct and indirect subsidiaries of the Company, as guarantors, the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent, swing line lender, L/C issuer and a Lender.

On July 10, 2024 (the “Effective Date”), the Company entered into a five-year unsecured Credit Agreement among the Company, as borrower, direct and indirect subsidiaries of the Company, as guarantors, the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent, swing line lender, L/C issuer and a Lender.

The Credit Agreement provides for a term loan facility (“Term Loan”) of $60,000,000 and a revolving credit facility (“Revolving Loan”) of up to $10,000,000.

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The Credit Agreement matures on July 10, 2029.

The Company borrowed $60,000,000 in Term Loan borrowings on the Effective Date to refinance and redeem its 2025 Notes.

The Company borrowed $60,000,000 in Term Loan borrowings under the Credit Agreement on the Effective Date to refinance and redeem its 2025 Notes.

The Company will use any Revolving Loan borrowings under the Credit Agreement for working capital and general corporate purposes.

See NOTE P – LONG TERM DEBT in the accompanying consolidated financial statements for additional information on the Credit Agreement.

As of December 29, 2024, there were no outstanding borrowings under the Revolving Loan.

See NOTE P – LONG TERM DEBT in the accompanying condensed consolidated financial statements for additional information on the Credit Agreement.

Share Repurchases

In 2016, the Board authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company.

As of September 29, 2024, Nathan’s has repurchased 1,101,884 shares at a cost of $39,000,000 under the sixth stock repurchase plan.

At September 29, 2024, there were 98,116 shares remaining to be repurchased pursuant to the sixth stock repurchase plan.

As of December 29, 2024, Nathan’s has repurchased 1,101,884 shares at a cost of $39,000,000 under the sixth stock repurchase plan.

At December 29, 2024, there were 98,116 shares remaining to be repurchased pursuant to the sixth stock repurchase plan.

The plan does not have a set expiration date.

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Common Stock Dividends

As discussed above, we had cash and cash equivalents at September 29, 2024 aggregating $31,207,000.

As discussed above, we had cash and cash equivalents at December 29, 2024 aggregating $23,711,000.

Our Board routinely monitors and assesses its cash position and our current and potential capital requirements.

The Company paid its first and second quarterly cash dividends of fiscal 2025 on July 2, 2024 and September 6, 2024 aggregating $4,085,000.

Effective November 7, 2024, the Company declared its third quarter fiscal 2025 dividend of $0.50 per common share to stockholders of record as of the close of business on November 25, 2024, which is payable on December 6, 2024.

If the Company pays regular quarterly cash dividends for the remainder of fiscal 2025 at the same rate as declared in the first and second quarter of fiscal 2025, the Company’s total cash requirement for dividends for all of fiscal 2025 would be approximately $8,169,000 based on the number of shares of common stock outstanding at November 7, 2024.

The Company paid its first, second and third quarterly cash dividends of fiscal 2025 on July 2, 2024, September 6, 2024, and December 6, 2024 aggregating $6,127,000.

Effective February 6, 2025, the Company declared its fourth quarter dividend of $0.50 per common share to stockholders of record as of the close of business on February 18, 2025, which is payable on February 28, 2025.

If the Company pays regular quarterly cash dividends for the remainder of fiscal 2025 at the same rate as declared in the first, second and third quarter of fiscal 2025, the Company’s total cash requirement for dividends for all of fiscal 2025 would be approximately $8,172,000 based on the number of shares of common stock outstanding at January 31, 2025.

The Company intends to declare and pay quarterly cash dividends;

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During the fiscal year ending March 30, 2025, we made cash interest payments of $3,124,500 on the 2025 Notes.

While our Credit Agreement bears interest at a fluctuating interest rate based on SOFR plus a spread adjustment, if the Company makes its remaining fiscal year 2025 cash interest payments on its outstanding Term Loan borrowings at the interest rate effective at November 7, 2024, then during the fiscal year ended March 30, 2025, we expect to make cash interest payments of approximately $2,400,000 on the Term Loan borrowings.

While our Credit Agreement bears interest at a fluctuating interest rate based on SOFR plus a spread adjustment, if the Company makes its remaining fiscal year 2025 cash interest payments on its outstanding Term Loan borrowings at the interest rate effective at February 6, 2025, then during the fiscal year ended March 30, 2025, we expect to make cash interest payments of approximately $2,331,000 on the Term Loan borrowings.

We may from time to time seek to make voluntary prepayments of our Credit Agreement.

Subsequent to the quarter ending September 29, 2024, on October 10, 2024, we made a voluntary principal prepayment of $8,000,000 of Term Loan borrowings under our Credit Agreement.

On October 10, 2024, we made a voluntary principal prepayment of $8,000,000 of Term Loan borrowings under our Credit Agreement.

Such voluntary prepayments, if any, will depend on market conditions, our liquidity requirements, satisfactory compliance of covenants and conditions pursuant to our Credit Agreement and other factors.

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Contractual Obligations

At September 29, 2024, we sublet one property to a franchisee that we lease from a third party.

At December 29, 2024, we sublet one property to a franchisee that we lease from a third party.

We remain contingently liable for all costs associated with this property including rent, property taxes and insurance.

We may incur future cash payments with respect to such property, consisting primarily of future lease payments, including costs and expenses associated with terminating such lease.

At September 29, 2024, our contractual obligations primarily consist of the Term Loan borrowings under our Credit Agreement and the mandatory debt principal repayments and the related interest payments, operating leases, and employment agreements with certain executive officers.

At December 29, 2024, our contractual obligations primarily consist of the Term Loan borrowings under our Credit Agreement and the mandatory debt principal repayments and the related interest payments, operating leases, and employment agreements with certain executive officers.

These contractual obligations impact our short-term and long-term liquidity and capital resource needs.

See NOTE P – LONG TERM DEBT and NOTE Q – LEASES in the accompanying consolidated financial statements included in Part I, Item 1.

for additional information.

Inflationary Impact

See NOTE P – LONG TERM DEBT and NOTE Q – LEASES in the accompanying condensed consolidated financial statements included in Part I, Item 1.

for additional information and as disclosed in our Form 10-K for the fiscal year ended March 31, 2024 as filed with the SEC on June 12, 2024.

Inflationary Pressures

Inflationary pressures on commodity prices, most notably for beef and beef trimmings, have impacted our consolidated results of operations during the fiscal 2025 period, and this trend may continue through the remainder of fiscal year 2025.

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We have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers where our Company-owned restaurants are located.

On January 1, 2024, the minimum wage increased to $16.00 in New York City, Long Island and Westchester which will be followed by $0.50 annual increases in 2025 and 2026.

On January 1, 2025, the minimum wage increased to $16.50 in New York City, Long Island and Westchester which will be followed by an additional $0.50 increase in 2026.

Further, beginning in 2027, the minimum wage across New York State will increase annually according to the Consumer Price Index.

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Our business could be negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of franchised restaurants.

We expect to continue experiencing volatility in oil and gas prices on our distribution costs for food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.

Continued increases in labor costs, commodity prices and other operating expenses, including health care, could adversely affect our operations.

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The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements” and “Notes to Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in our Form 10-K for our fiscal year ended March 31, 2024.

For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements” and “Notes to Condensed Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in our Form 10-K for our fiscal year ended March 31, 2024.

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