Nathan's Famous, Inc. (NATH Quick QuoteNATH - Free Report) reported earnings per share (EPS) of $2.27 in the first quarter of fiscal 2025, which increased 25.4% from the year-ago EPS of $1.81.

Revenues in Detail

Nathan's Famous registered revenues of $44.8 million in the fiscal first quarter, up 6.6% year over year.

Lower revenues from the majority of its segments drove the topline.

Segment Details

Nathan's Famous derives revenues from five segments — Branded Products, Company-owned restaurants, License royalties, Franchise fees and royalties and Advertising fund revenue.

For the quarter under review, Branded Products revenues were $26.1 million, up 3.9% from the year-ago quarter. During the fiscal first quarter, the total volume of hot dogs sold in the Branded Product Program was comparable to the fiscal 2024 period. Nathan's Famous’ average selling price increased 3.5% year over year.

Revenues from Company-owned restaurants totaled $4.2 million, up 14.8% year over year. Restaurant sales were aided by an increase in the company’s average check and higher traffic at two company-owned restaurants in Coney Island.

Revenues from License royalties totaled $12.9 million, up 10.8% year over year. Total royalties earned on sales of hot dogs from Nathan's Famous’ license agreement with Smithfield Foods, Inc. at retail and foodservice increased 11.2% to $12 million in the fiscal first quarter from the year-ago quarter. The increase resulted from an 11% increase in retail volume, partially offset by a 0.5% decrease in net selling price.

The foodservice business earned higher royalties of $67,000 in the reported quarter compared with the year-ago period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan's Famous’ products increased $49,000 during the quarter year over year, primarily on the back of higher royalties earned on sales of French fries, onion rings, and proprietary spices, partially offset by lower royalties earned on sales of franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres.

Franchise fees and royalties generated revenues of $1.1 million in the fiscal first quarter, down 0.2% year over year. Total royalties were $981,000 in the fiscal first quarter, up 0.1% year over year. Royalties earned under the Branded Menu Program were $175,000 in the reported quarter, down 3.3% year over year.

Virtual kitchen royalties were $14,000 in first-quarter fiscal 2025, down 56.3% year over year. Traditional franchise royalties were $792,000 in the quarter, up 3.3% from the year-ago period. Franchise restaurant sales increased 2.3% year over year to $17.7 million in the reported quarter, primarily driven by higher sales at airport locations, shopping malls and casino locations, primarily in Las Vegas, NV.

Comparable domestic franchise sales (consisting of 57 Nathan’s Famous’ franchised restaurants, excluding sales under the Branded Menu Program) were $14.1 million in the fiscal first quarter, up 0.4% year over year.

At the end of Jun 30, 2024, 231 franchised locations, including domestic, international and Branded Menu Program units, were operating compared with 235 franchised locations at the end of Jun 25, 2023. Total franchise fee income was $92,000 in the fiscal first quarter, down 3.2% year over year. Domestic franchise fee income was $23,000 in the reported quarter, down 14.8% year over year. International franchise fee income was $60,000 in the quarter, flat year over year. Nathan’s Famous also recognized $9,000 in forfeited fees in the reported quarter. During the first quarter of fiscal 2025, three franchise locations opened, and two franchise locations closed.

Advertising fund revenues were $0.4 million, up 0.9% from the year-ago quarter.

Geographic Segment

Nathan’s Famous’ derives revenues from two geographic regions — United States and International.

Revenues from the United States were $43.3 million, up 8.6% year over year. International revenues were $1.5 million, down 30.1% year over year.

Nathan’s Famous Gross Margin

In the quarter under review, Nathan’s Famous’ gross profit increased 23.2% to $5.1 million. The gross margin expanded 153 basis points to 11.4%.

Adjusted Operating Expenses Analysis

Restaurant operating expenses increased 8.2% to $1.1 million, while general and administrative expenses declined 2% to $3.9 million.

Profitability

Operating profit totaled $13.7 million, which increased 19.9% from the prior-year quarter.

In the first quarter of fiscal 2025, Nathan’s Famous’ net income was $9.3 million, up 25.6% from the year-ago quarter.

Adjusted EBITDA during the reported quarter was $14.3 million, up 18.7% from the year-ago quarter.

Liquidity & Debt Management

Nathan’s Famous exited first-quarter fiscal 2025 with cash and cash equivalents of $25.9 million compared with $21 million at the fiscal 2024-end. Total long-term debt (net of unamortized debt issuance costs) at the end of first-quarter fiscal 2025 was $59.63 million compared with $59.56 million at the fiscal 2024-end.

Net cash provided by operating activities at the end of first-quarter fiscal 2025 was $4.9 million compared with $2.1 million a year ago.

Our Take

Nathan’s Famous exited the first quarter of fiscal 2025 with solid top-line and bottom-line results. Strength in the majority of the segments and robust revenues from the United States were also encouraging. The uptick in Franchise restaurant sales and Comparable domestic franchise sales were promising. During the reported quarter, the gross margin expanded, which bodes well.

However, a decline in Franchise fees and royalties during the reported quarter was disappointing. Royalties earned under the Branded Menu Program and Virtual kitchen royalties also declined during the reported quarter. Domestic franchise fee and International franchise fee incomes also decreased during the quarter, further raising our concerns.