Nathan's Famous, Inc. Reports Second Quarter Results

Nathan's Famous, Inc. (NASDAQ:NATH) today reported results for the second quarter of its 2012 fiscal year that ended September 25, 2011.

For the fiscal quarter ended September 25, 2011:

• Net income was $2,269,000 or $0.44 per diluted share as compared to $151,000 or $0.03 per diluted share for the thirteen weeks ended September 26, 2010;
• Non-GAAP earnings after tax, which exclude the litigation expense items described below, increased by 8.7% to $2,343,000 as compared to $2,155,000 for the thirteen weeks ended September 26, 2010;
• Non-GAAP earnings per share, which exclude the litigation expense items described below, increased by 18.4% to $0.45 per diluted share as compared to $0.38 per diluted share for the thirteen weeks ended September 26, 2010; and
• Revenues increased by 17.4% to $19,118,000, as compared to revenues of $16,282,000 during the thirteen weeks ended September 26, 2010.

For the twenty-six weeks ended September 25, 2011:

• Net income was $3,865,000 or $0.75 per diluted share as compared to $1,811,000 or $0.32 per diluted share for the twenty-six weeks ended September 26, 2010;
• Non-GAAP earnings after tax, which exclude the litigation expense items described below, increased by 3.4% to $4,009,000 as compared to $3,879,000 for the twenty-six weeks ended September 26, 2010;
• Non-GAAP earnings per share, which exclude the litigation expense items described below, increased by 13.2% to $0.77 per diluted share as compared to $0.68 per diluted share for the twenty-six weeks ended September 26, 2010; and
• Revenues increased by 16.0% to $37,015,000, as compared to revenues of $31,908,000 during the twenty-six weeks ended September 26, 2010.

The Company also reported the following:

• Sales from the Branded Product Program, featuring the sale of Nathan’s hot dogs to the foodservice industry, increased by 36.4% to $20,706,000 during the twenty-six weeks ended September 25, 2011 as compared to sales of $15,184,000 during the twenty-six weeks ended September 26, 2010.
• Retail license royalties increased by 5.6% or $195,000 to $3,673,000 during the twenty-six weeks ended September 25, 2011 as compared to $3,478,000 during the twenty-six weeks ended September 26, 2010.
• Tropical Storm Irene forced the closure of our five Company-owned restaurants for two days and negatively affected sales at our franchised restaurants in the Northeast.
• Revenues from franchise operations increased by 6.4% or $172,000 to $2,855,000 during the twenty-six weeks ended September 25, 2011 as compared to $2,683,000 during the twenty-six weeks ended September 26, 2010. Thirty-five new franchised units were opened during the twenty-six weeks ended September 25, 2011, including our first restaurant in Canada, third and fourth restaurants in China, fourth restaurant in the Dominican Republic and fifteenth restaurant in Kuwait.
• We have opened our 100 ^th Branded Menu Program unit during the quarter ended September 25, 2011. Our Branded Menu Program was created to provide qualified operators of existing locations with the ability to become a Nathan’s franchisee, adding our signature products along with a limited-menu of other Nathan’s products to their current operations.
• Gross profit was 22.0% of sales as compared to 25.3% of sales during the twenty-six weeks ended September 26, 2010 due primarily to the impact of unusually high beef costs on our Branded Product Program.
• The effective tax rate of 38.9% is approximately 7.3% higher than for the twenty-six weeks ended September 26, 2010 when we earned higher tax-exempt interest income and resolved uncertain tax positions, reversing $79,000 of prior period accruals.
• During the twenty-six weeks ended September 26, 2010, we recorded a litigation accrual of $2,914,000, or $1,745,000, net of tax, as a result of the unfavorable SMG ruling, which at that time represented the minimum estimate of damages.
• During the twenty-six weeks ended September 25, 2011, we continued our stock repurchase program, acquiring 78,428 shares at a total cost of approximately $1,459,000.

As previously described with respect to our litigation with SMG, on April 7, 2011, the Court entered a stipulation and order which granted a stay of enforcement of the final judgment which is in the amount of approximately $4,910,000.

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