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What changed in NATHANS FAMOUS, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NATHANS FAMOUS, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+340 added−347 removedSource: 10-K (2024-06-12) vs 10-K (2023-06-08)

Top changes in NATHANS FAMOUS, INC.'s 2024 10-K

340 paragraphs added · 347 removed · 268 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

87 edited+11 added−21 removed89 unchanged
Biggest changeLocation Summary The following table shows the number of our Company-owned restaurants and franchised locations in operation at March 26, 2023 and their geographical distribution: Domestic Locations Company Franchise (1) Total (1) Connecticut - 2 2 Florida - 21 21 Georgia - 5 5 Kentucky - 2 2 Maryland - 1 1 Massachusetts - 4 4 Missouri - 1 1 Nevada - 7 7 New Jersey - 23 23 New York 4 69 73 North Carolina - 4 4 Ohio - 2 2 Pennsylvania - 8 8 Rhode Island - 2 2 South Carolina - 3 3 Texas - 2 2 Virginia - 2 2 Domestic Subtotal 4 158 162 10 International Locations Company Franchise (1) Total (1) Brazil - 3 3 Dominican Republic - 6 6 Egypt - 1 1 France - 8 8 Kazakhstan - 3 3 Kingdom of Saudi Arabia - 10 10 Mexico - 1 1 Panama - 4 4 Philippines - 4 4 Spain - 1 1 Ukraine (2) - 27 27 United Arab Emirates - 3 3 United Kingdom - 3 3 International Subtotal - 74 74 Grand Total 4 232 236 (1) Amounts include 120 locations operated pursuant to our Nathan’s and Arthur Treacher’s Branded Menu Programs.
Biggest changeThe following table is a summary of our international operations for the fiscal years ended March 31, 2024 and March 26, 2023: See Item 1A-“Risk Factors.” March 31, March 26, 2024 2023 Total revenue $ 5,405,000 $ 5,898,000 Gross profit (a) $ 1,308,000 $ 1,387,000 (a) Gross profit represents the difference between revenue and cost of sales. 10 Location Summary The following table shows the number of our Company-owned and franchised restaurants in operation at March 31, 2024 and their geographical distribution: Domestic Locations Company Franchise (1) Total (1) Connecticut - 3 3 Florida - 21 21 Georgia - 4 4 Kentucky - 2 2 Maryland - 1 1 Massachusetts - 4 4 Missouri - 1 1 Nevada - 7 7 New Jersey - 22 22 New York 4 63 67 North Carolina - 4 4 Ohio - 2 2 Pennsylvania - 10 10 Rhode Island - 2 2 South Carolina - 3 3 Texas - 2 2 Virginia - 2 2 Domestic Subtotal 4 153 157 International Locations Company Franchise (1) Total (1) Brazil - 3 3 Dominican Republic - 6 6 Egypt - 3 3 France - 8 8 Kazakhstan - 3 3 Kingdom of Saudi Arabia - 10 10 Mexico - 2 2 Panama - 4 4 Philippines - 4 4 Spain - 1 1 Ukraine - 27 27 United Arab Emirates - 4 4 United Kingdom - 2 2 International Subtotal - 77 77 Grand Total 4 230 234 (1) Units operating pursuant to our Branded Product Program and our virtual kitchens are excluded.
We believe that the program has broad appeal to foodservice operators due to its flexibility to deliver our products to a wide variety of distribution channels. In conjunction with the program, operators are granted a limited use of the Nathan’s Famous trademark, as well as Nathan’s Famous point of purchase materials.
We believe that the program has broad appeal to foodservice operators due to its flexibility to deliver our products to a wide variety of distribution channels. In conjunction with the program, foodservice operators are granted a limited use of the Nathan’s Famous trademark, as well as Nathan’s Famous point of purchase materials.
We offer various management training courses for management personnel of Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program. We also offer additional operations and general management training courses for all restaurant managers and other managers with supervisory responsibilities.
We offer various training courses for management personnel of Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program. We also offer additional operations and general management training courses for all restaurant managers and other managers with supervisory responsibilities.
Instead, the Branded Menu Program operator is required to purchase products from Nathan’s approved distributors and we earn our royalties from such purchases. Arthur Treacher ’ s Arthur Treacher’s Fish-n-Chips, Inc. was originally founded in 1969.
Instead, the Branded Menu Program operator is required to purchase products from Nathan’s approved distributors and we earn our royalties from such purchases. Arthur Treacher ’ s Fish & Chips Arthur Treacher’s Fish-n-Chips, Inc. was originally founded in 1969.
We believe this arrangement allows for more flexibility in expanding into new markets throughout the United States, as well as proves to be cost efficient for our current franchisees. The strategic distribution partners under this agreement include: DiCarlo Distributors, Inc., Tapia Brothers Co., Cheney Brothers, Inc., Feesers, Inc., Lipari Foods, LLC, Hillcrest Foods, Sutherland’s Foodservice, and Chain Distribution Services LLC.
We believe this arrangement allows for more flexibility in expanding into new markets throughout the United States, as well as proves to be cost efficient for our current franchisees. The strategic distribution partners under this agreement include: DiCarlo Distributors, Inc., Tapia Brothers Co., Cheney Brothers, Inc., Feesers, Inc., Hillcrest Foods, Sutherland’s Foodservice, and Chain Distribution Services LLC.
Talent Development We offer various management training courses for management personnel of our Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program. Workplace Safety We are committed to providing safe work environments and providing our employees with the resources they need to promote their well-being.
Talent Development We offer various management training courses for management personnel of our Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program. 15 Workplace Safety We are committed to providing safe work environments and providing our employees with the resources they need to promote their well-being.
We believe that Nathan’s carts, kiosks, modular units and food court designs are particularly well-suited for placement in non-traditional sites, such as airports, travel plazas, stadiums, schools, convenience stores, entertainment facilities, military facilities, business and industry foodservice, within larger retail operations and other captive markets.
We believe that carts, kiosks, modular units and food court designs are particularly well-suited for placement in non-traditional sites, such as airports, travel plazas, stadiums, schools, convenience stores, entertainment facilities, military facilities, business and industry foodservice, within larger retail operations and other captive markets.
Franchisees are approved on the basis of their business background, evidence of restaurant management experience, net worth and capital available for investment in relation to the proposed scope of the development agreement. 8 We provide numerous support services to our Nathan’s Famous franchisees. We assist in and approve all site selections.
Franchisees are approved on the basis of their business background, evidence of restaurant management experience, net worth and capital available for investment in relation to the proposed scope of the development agreement. We provide numerous support services to our Nathan’s Famous franchisees. We assist in and approve all site selections.
In most cases, we compete against other nationally recognized brands that may have significantly greater resources than those at our disposal. Segment Reporting The Company is comprised of the following segments: (1) Branded Product Program, (2) Product licensing, and (3) Restaurant operations.
In most cases, we compete against other nationally recognized brands that may have significantly greater resources than those at our disposal. 18 Segment Reporting The Company is comprised of the following segments: (1) Branded Product Program, (2) Product licensing, and (3) Restaurant operations.
Recognition as an award-winning hot dog has strengthened our brand and created a devoted fan base. We believe that our high brand awareness allows us to sell hot dogs at a premium price to competing brands across all channels of distribution.
Recognition as an award-winning hot dog has strengthened our brand and created a devoted fan base. We believe that our high brand awareness allows us to sell hot dogs at a premium price compared to competing brands across all channels of distribution.
We continue to believe that as consumers look to brands and products with high standards, and integrity with the quality of the food that they purchase, there is great potential to increase our sales by converting existing sales of non-branded products to Nathan’s branded products throughout the foodservice industry.
We continue to believe that as consumers look to brands and products with high standards, and integrity with the superior quality of the food that they purchase, there is great potential to increase our sales by converting existing sales of non-branded products to Nathan’s branded products throughout the foodservice industry.
Refer to Footnote I, Segment Information , in the notes to our consolidated financial statements for more information. 18 Available Information We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and a proxy statement on Schedule 14A.
Refer to Footnote I, Segment Information , in the notes to our consolidated financial statements for more information. Available Information We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and a proxy statement on Schedule 14A.
We earn revenue through royalties on products sold by our licensees. ● Our Branded Product Program provides foodservice operators in a variety of venues the opportunity to capitalize on our Nathan’s Famous brand by marketing and selling certain Nathan’s Famous hot dog products.
We earn revenue through royalties on products sold by our licensees. ● Our Branded Product Program provides foodservice operators in a variety of venues the opportunity to capitalize on our Nathan’s Famous brand by marketing and selling certain Nathan’s Famous hot dog and specialty products.
These virtual kitchens have different rights and obligations than our traditional franchise agreements, including royalty rates and advertising contribution rates, and the sales levels at these locations differs from the sales levels at our traditional franchise restaurants. 5 Advertising and promotion – The Company continues to focus its efforts using a multiple pronged approach, with a particular emphasis on geo-targeted, social media advertising to drive customers directly to online restaurant menus for ease of ordering for delivery or pick-up.
These virtual kitchens have different rights and obligations than our traditional franchise agreements, including royalty rates and advertising contribution rates, and the sales levels at these locations differs from the sales levels at our traditional franchise restaurants. 6 Advertising and promotion – The Company continues to focus its efforts using a multiple pronged approach, with a particular emphasis on geo-targeted, social media advertising to drive customers directly to online restaurant menus for ease of ordering for delivery or pick-up.
Unlike our licensing and franchise programs, we do not generate revenue from royalties, but rather by selling our hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators. 3 ● Operating quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings, which operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant which opened in 1916. ● Our franchised restaurant operations are comprised predominately of our Nathan’s Famous concept, which features a menu consisting of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages as well as other items.
Unlike our licensing and franchise programs, we do not generate revenue from royalties, but rather by selling our hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice accounts. 4 ● Operating quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings, which operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant which opened in 1916. ● Our franchised restaurant operations are comprised predominately of our Nathan’s Famous concept, which features a menu consisting of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages as well as other items.
In fiscal 2023, Nathan’s marketing efforts were largely focused on the annual July 4 th Hot Dog Eating Contest and its sports sponsorships, as well as digital and social media to drive customers directly to the online menus of our franchisees. This included geo-targeted efforts and direct mail to generate awareness and sales through third party delivery platforms.
In fiscal 2024, Nathan’s marketing efforts were largely focused on the annual July 4 th Hot Dog Eating Contest and its sports sponsorships, as well as digital and social media to drive customers directly to the online menus of our franchisees. This included geo-targeted efforts and direct mail to generate awareness and sales through third party delivery platforms.
Our major channels of distribution are as follows: ● Our licensing program contracts with certain third parties to manufacture, distribute, market and sell a broad variety of Nathan’s Famous branded products including our hot dogs, sausages, frozen crinkle-cut French fries and additional products through retail grocery channels and club stores throughout the United States.
Our major channels of distribution are as follows: ● Our licensing program contracts with certain third parties to manufacture, distribute, market and sell a broad variety of Nathan’s Famous branded products including our hot dogs, sausages, frozen crinkle-cut French fries and additional products through supermarkets, grocery channels and club stores throughout the United States.
We believe that the overall exposure of the brand and opportunity for consumers to enjoy the Nathan’s World Famous Beef Hot Dog in their homes helps promote “Nathan’s Famous” restaurant patronage. Royalties earned under the retail agreement, including the foodservice program, were approximately 90% of our fiscal 2023 period license revenues.
We believe that the overall exposure of the brand and opportunity for consumers to enjoy the Nathan’s World Famous Beef Hot Dog in their homes helps promote “Nathan’s Famous” restaurant patronage. Royalties earned under the retail agreement, including the foodservice program, were approximately 90% of our fiscal 2024 period license revenues.
Marketing, Promotion and Advertising Nathan’s believes that an integral part of its brand marketing strategy is to continue to build brand awareness through its complimentary points of distribution strategy of selling its signature products through Company-owned and franchised restaurants (including virtual kitchens), the Branded Product Program, the Branded Menu Program, and through retail grocery channels including supermarkets and club stores.
Marketing, Promotion and Advertising Nathan’s believes that an integral part of its brand marketing strategy is to continue to build brand awareness through its complimentary points of distribution strategy of selling its signature products through Company-owned and franchised restaurants (including virtual kitchens), the Branded Product Program, the Branded Menu Program, and through retail grocery channels including supermarkets, mass merchandisers and club stores.
The difference, if any, between 2.0% and the contribution to the advertising fund are to be expended on local programs approved by us as to form, content and method of dissemination. Certain franchisees, including those operating pursuant to our Branded Menu Program were not obligated to contribute to the advertising fund during fiscal 2023.
The difference, if any, between 2.0% and the contribution to the advertising fund are to be expended on local programs approved by us as to form, content and method of dissemination. Certain franchisees, including those operating pursuant to our Branded Menu Program were not obligated to contribute to the advertising fund during fiscal 2024.
We intend to keep targeting sales to a broad line of food distributors, which we believe complements our continuing focus on sales to various foodservice retailers.
We intend to keep targeting sales to a broad line of foodservice distributors, which we believe complements our continuing focus on sales to various foodservice retailers.
Additionally, our products are offered in numerous other foodservice operations including cafeterias, snack bars and vending machines located in many different types of foodservice outlets and venues, including airports, highway travel plazas, colleges and universities, gas and convenience stores, military installations, and Veterans Administration hospitals throughout the United States.
Additionally, our products are offered in numerous other foodservice operations including business office cafeterias, snack bars and vending machines located in many different types of foodservice outlets and venues, including airports, highway travel plazas, colleges and universities, gas and convenience stores, military installations, and Veterans Administration hospitals throughout the United States.
The operator provides Nathan’s with a fee and is required to sign a 10-year agreement. We may offer alternatives to the term of the typical Branded Menu Program agreement. Nathan’s does not collect a royalty based on the operator’s sales and the operator is not required to report sales to Nathan’s as required by the standard franchise arrangements.
The operator provides Nathan’s with a fee and is required to sign a five-year agreement. We may offer alternatives to the term of the typical Branded Menu Program agreement. Nathan’s does not collect a royalty based on the operator’s sales and the operator is not required to report sales to Nathan’s as required by the standard franchise arrangements.
During fiscal 2024, we may seek to further expand our internal marketing resources along with our network of foodservice brokers and distributors. We may attempt to emphasize specific venues as we expand our broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs.
During fiscal 2025, we may seek to further expand our internal marketing resources along with our network of foodservice brokers and distributors. We may attempt to emphasize specific venues as we expand our broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs.
Through licensing programs with such companies as Smithfield Foods, Inc., and Lamb Weston, Inc., over twenty Nathan’s Famous branded SKUs are sold through grocery retail channels.
Through licensing programs with such companies as Smithfield Foods, Inc., and Lamb Weston, Inc., over fifteen Nathan’s Famous branded SKUs are sold through grocery retail channels.
We license the manufacture of the proprietary spices which are used to produce Nathan’s World Famous Beef Hot Dogs to Saratoga Specialties, Inc., a wholly-owned subsidiary of Solina. During fiscal 2023 and 2022, we earned royalties of $1,298,000 and $1,216,000, respectively, from this license. Through this agreement, we control the manufacture of all “Nathan’s Famous” branded hot dogs.
We license the manufacture of the proprietary spices which are used to produce Nathan’s World Famous Beef Hot Dogs to Saratoga Specialties, Inc., a wholly-owned subsidiary of Solina. During fiscal 2024 and 2023, we earned royalties of $1,371,000 and $1,298,000, respectively, from this license. Through this agreement, we control the manufacture of all “Nathan’s Famous” branded hot dogs.
Trademarks We hold trademark and/or service mark registrations for NATHAN’S, NATHAN’S FAMOUS, NATHAN’S FAMOUS and design, NATHAN’S and Coney Island design, SINCE 1916 NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS, INC. and design, THE ORIGINAL SINCE 1916 NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS THIS IS THE ORIGINAL, THE ORIGINAL NATHAN’S FAMOUS, THE ORIGINAL NATHAN’S FAMOUS 100TH ANNIVERSARY and design in color, SINCE 1916 NATHAN’S FAMOUS and hot dog design in color, SINCE 1916 NATHAN’S FAMOUS and hot dog, fries and drink design in color, and NATHAN’S FAMOUS EXPRESS within the United States, with some of these marks holding corresponding foreign trademark and service mark registrations in over 80 international jurisdictions, including Canada and China.
Trademarks We hold trademark and/or service mark registrations for NATHAN’S, NATHAN’S FAMOUS, NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS, INC. and design, THE ORIGINAL SINCE 1916 NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS THIS IS THE ORIGINAL, THE ORIGINAL NATHAN’S FAMOUS, SINCE 1916 NATHAN’S FAMOUS and hot dog design in color, SINCE 1916 NATHAN’S FAMOUS and hot dog, fries and drink design in color, and NATHAN’S FAMOUS EXPRESS within the United States, with some of these marks holding corresponding foreign trademark and service mark registrations in over 80 international jurisdictions, including Canada and China.
Our franchise system includes among its franchisees such well-known companies as Applegreen USA Welcome Centres, LLC, HMS Host, Areas USA, National Amusements, Inc., Hershey Entertainment & Resorts Company, Bruster’s Real Ice Cream, and Frisch’s Big Boy.
Our franchise system includes among its franchisees such well-known companies as Applegreen USA Welcome Centres, LLC, HMS Host, Areas USA, National Amusements, Inc., Hershey Entertainment & Resorts Company, and Bruster’s Real Ice Cream.
As of March 26, 2023, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
As of March 31, 2024, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
As of March 26, 2023, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
As of March 31, 2024, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
In addition, references to the “ Notes ” , “ 2025 Notes ” or the “ 2025 Senior Secured Notes ” refer to the $80,000,000 6.625% Senior Secured Notes due 2025 and references to the “ 2020 Notes ” or the “ 2020 Senior Secured Notes ” refer to the $135,000,000 10.000% Senior Secured Notes which were redeemed on November 16, 2017.
In addition, references to the “ Notes ” , “ 2025 Notes ” or the “ 2025 Senior Secured Notes ” refer to our $60,000,000 6.625% Senior Secured Notes due 2025 and references to the “ 2020 Notes ” or the “ 2020 Senior Secured Notes ” refer to the $135,000,000 10.000% Senior Secured Notes which were redeemed on November 16, 2017.
We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024. As of March 26, 2023, the Branded Product Program distributed product in all 50 states, the District of Columbia, Puerto Rico, Canada, the U.S. Virgin Islands, Guam and Mexico.
We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2025. 11 As of March 31, 2024, the Branded Product Program distributed product in all 50 states, the District of Columbia, Puerto Rico, Canada, the U.S. Virgin Islands, Guam and Mexico.
There is a possibility that government initiatives, as well as the actual or perceived risks of climate change, could have an impact on our business, which we cannot predict at this time. We are also subject to federal and state environmental regulations, which have not had a material effect on our operations.
There is a possibility that government initiatives, as well as the actual or perceived risks of climate change, could have an impact on our business, which we cannot predict at this time (see Item 1A – “Risk Factors”). 16 We are also subject to federal and state environmental regulations, which have not had a material effect on our operations.
Pursuant to the Branded Product Program, Nathan’s World Famous Beef Hot Dogs are being offered in national restaurant chains such as Auntie Anne’s, Hot Dog On A Stick and Johnny Rockets; national movie theater chains such as Regal Entertainment, National Amusements and Cinemex in Mexico; amusement parks such as Universal Studios; casino hotels such as Foxwoods Casino in Connecticut; and convenience store chains such as RaceTrac and Holiday Station stores.
Pursuant to the Branded Product Program, Nathan’s World Famous Beef Hot Dogs are being offered in national restaurant chains such as Auntie Anne’s, Hot Dog On A Stick, Johnny Rockets and Lazy Dog; national movie theater chains such as Regal Entertainment, National Amusements and Cinemex in Mexico; amusement parks such as Universal Studios; casino hotels such as Foxwoods Casino in Connecticut; convenience store chains such as RaceTrac; and golf courses and country clubs.
Nathan’s expects to continue to seek out and evaluate a variety of alternative environments designed to maximize and grow our Branded Product Program. 11 Licensing Program Pursuant to an agreement expiring in March 2032, Smithfield Foods, Inc., has been granted, among other things, (i) the exclusive right and obligation to manufacture, distribute, market and sell “Nathan’s Famous” branded hot dogs, and sausages in refrigerated consumer packages to be resold through retail channels (e.g., supermarkets, groceries, mass merchandisers and club stores) within the United States, (ii) a right of first offer to license any other “Nathan’s Famous” branded refrigerated meat products in consumer packages to be resold through retail channels within the United States, on terms to be negotiated in good faith, (iii) the right and obligation to manufacture “Nathan’s Famous” branded hot dog and sausage products in bulk for use in the food service industry within the United States, and (iv) the non-exclusive right and obligation to supply “Nathan’s Famous” natural casing and skinless hot dogs in bulk for use in the “Nathan’s Famous” restaurant system within the United States.
Licensing Program Pursuant to an agreement expiring in March 2032, Smithfield Foods, Inc., has been granted, among other things, (i) the exclusive right and obligation to manufacture, distribute, market and sell “Nathan’s Famous” branded hot dogs, and sausages in refrigerated consumer packages to be resold through retail channels (e.g., supermarkets, groceries, mass merchandisers and club stores) within the United States, (ii) a right of first offer to license any other “Nathan’s Famous” branded refrigerated meat products in consumer packages to be resold through retail channels within the United States, on terms to be negotiated in good faith, (iii) the right and obligation to manufacture “Nathan’s Famous” branded hot dog and sausage products in bulk for use in the food service industry within the United States, and (iv) the non-exclusive right and obligation to supply “Nathan’s Famous” natural casing and skinless hot dogs in bulk for use in the “Nathan’s Famous” restaurant system within the United States.
Our seasonal location on the Coney Island Boardwalk was open from April 1, 2022 to October 30, 2022. It reopened for the summer season on March 26, 2023. 6 Three of our Company-owned restaurants range in size from approximately 3,500 square feet to 10,000 square feet and have seating to accommodate between 60 and 125 customers.
Our seasonal location on the Coney Island Boardwalk was open from March 26, 2023 to October 29, 2023. It reopened for the summer season on March 21, 2024. Three of our Company-owned restaurants range in size from approximately 3,500 square feet to 10,000 square feet and have seating to accommodate between 60 and 125 customers.
Individual Nathan’s restaurants supplement their core menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices including: the Nathan’s Famous NY Cheesesteak by Pat LaFreida, our fresh angus hamburgers and our hand-dipped chicken.
Individual Nathan’s restaurants supplement their core menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices including: our fresh angus hamburgers and our hand-dipped chicken.
In addition to our traditional franchised restaurants and virtual kitchens, we enable approved foodservice operators to offer a Nathan’s Famous menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings and a limited menu of other Nathan’s products through our Branded Menu Program (“BMP”). We earn royalties on Nathan’s products purchased by our BMP franchise operators.
In addition to our traditional franchised restaurants and virtual kitchens, we enable approved foodservice operators to offer a Nathan’s Famous menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings and a limited menu of other Nathan’s products through our Branded Menu Program (“BMP”).
All of our licensing agreements combined produced $33,455,000 and $31,824,000 of high margin revenue for fiscal 2023 and 2022, respectively. 4 Growth Strategies We continue to pursue the following strategies: Leverage Nathan ’ s Famous brand and iconic products to grow sales – We believe that our brand is widely recognized by virtue of our long history and broad geographic footprint, which allows us to enjoy high consumer awareness in the United States and abroad and allows us the opportunity to grow in markets and channels where the brand is known but has not yet achieved optimal market penetration.
All of our licensing agreements combined produced $33,581,000 and $33,455,000 of high margin revenue for fiscal 2024 and 2023, respectively. 5 Business Strategies Our primary strategies include the following: Leverage Nathan ’ s Famous brand and iconic products to grow sales – We believe that our brand is widely recognized by virtue of our long history and broad geographic footprint, which allows us to enjoy high consumer awareness in the United States and abroad and allows us the opportunity to grow in markets and channels where the brand is known but has not yet achieved optimal market penetration.
Lamb Weston, Inc. exercised its fourth option to extend the license agreement through July 2024, pursuant to which the minimum royalties will increase 4% annually. During fiscal 2023, our licensee, Bran-Zan Holdings, LLC continued to produce and distribute miniature bagel dogs, franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres through club stores, supermarkets, and other retail food stores.
Lamb Weston, Inc. exercised its fourth option to extend the license agreement through July 2028, pursuant to which the minimum royalties will increase 5% annually. 12 During fiscal 2024, our licensee, Bran-Zan Holdings, LLC continued to produce and distribute miniature bagel dogs, franks-in-a-blanket, mozzarella sticks, corn dog nuggets, other hors d’oeuvres and bottled mustard through club stores, supermarkets, and other retail food stores.
Branded Products – We expect to continue the growth of our Branded Products Program through the addition of new accounts and venues. We believe that the flexible design of the Branded Products Program makes it well-suited for sales to all segments of the broad foodservice industry.
Branded Products – We expect to continue the growth of our Branded Products Program through the addition of new accounts and venues. We believe that the flexible design of the Branded Products Program makes it well positioned for sales to all business channels in the broad foodservice industry.
We believe that these trademarks and service marks provide significant value to us and are an important factor in the marketing of our products and services. We believe that we do not infringe on the trademarks or other intellectual property rights of any third parties.
Our trademark and service mark registrations were granted and expire on various dates. We believe that these trademarks and service marks provide significant value to us and are an important factor in the marketing of our products and services. We believe that we do not infringe on the trademarks or other intellectual property rights of any third parties.
We do not believe that the Russia-Ukraine conflict has had or will have a serious impact on our operations. We are not aware of any pending franchise legislation in the United States that we believe is likely to significantly affect our operations.
We do not believe that current geopolitical events (including the Russia-Ukraine conflict and the Israel-Hamas war) have had or will have a serious impact on our operations. We are not aware of any pending franchise legislation in the United States that we believe is likely to significantly affect our operations.
Improve Company-owned restaurant profitability – We continue to focus on managing our expenses in the operation of our Company-owned restaurants, with a particular emphasis on cost of goods sold, including food costs, paper costs and labor costs while not sacrificing on overall quality and service that our customers expect.
We continue to focus on managing our expenses in the operation of our Company-owned restaurants, with a particular emphasis on cost of goods sold, including food costs, paper costs and labor costs while not sacrificing on overall quality and service that our customers expect. We continue to explore opportunities and strategies to help mitigate the impact on our operations.
In many venues, Nathan’s World Famous Beef Hot Dogs and crinkle-cut French fries are sold at Nathan’s concession stands and as menu items that are served in suites and throughout premium seating areas.
In addition to the branded signage opportunity, Nathan’s sells its Nathan’s World Famous Beef Hot Dogs and crinkle-cut French fries. In many venues, Nathan’s World Famous Beef Hot Dogs and crinkle-cut French fries are sold at Nathan’s concession stands and as menu items that are served in suites and throughout premium seating areas.
Arthur Treacher’s main product is its “Original Fish-n-Chips,” consisting of fish fillets coated with a special batter prepared under a proprietary formula, deep-fried golden brown, and served with English-style chips and corn meal “hush puppies.” As of March 26, 2023, Arthur Treacher’s, as a co-brand, was included within twenty-two Nathan’s Famous restaurants.
Arthur Treacher’s main product is its “Original Fish-n-Chips,” consisting of fish fillets coated with a special batter prepared under a proprietary formula, deep-fried golden brown, and served with English-style chips and corn meal “hush puppies.” As of March 31, 2024, Arthur Treacher’s, as a co-brand, was included within 23 Nathan’s Famous restaurants. Additionally, there are eight Arthur Treacher’s BMP locations.
The fiscal years ended March 26, 2023 and March 27, 2022 were each on the basis of a 52 week reporting period. Restaurant Operations Company-owned restaurants As of March 26, 2023, we operated four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area.
The fiscal year ended March 31, 2024 was on the basis of a 53 week reporting period and the fiscal year ended March 26, 2023 was on the basis of a 52 week reporting period. Restaurant Operations Company-owned restaurants As of March 31, 2024, we operated four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area.
As of March 26, 2023, approximately 47% of our employees were female and approximately 69% of our employee population were comprised of racial and ethnic minorities. We generally employ approximately 270-300 seasonal employees during the spring and summer months.
As of March 31, 2024, approximately 49% of our employees were female and approximately 80% of our employee population were comprised of racial and ethnic minorities. We generally employ approximately 270-300 seasonal employees during the spring and summer months.
In fiscal 2021, we opened our first virtual kitchens (existing kitchens with no Nathan’s Famous branded storefront presence, used to fill online orders). We earn royalties on sales at these franchise locations and virtual kitchens.
We earn royalties on sales at these franchise locations and virtual kitchens (existing kitchens with no Nathan’s Famous branded storefront presence, used to fill online orders for delivery).
We continue to pursue international expansion opportunities. During fiscal 2023, we opened franchised locations in the following international markets: Egypt and Mexico. We may seek to continue granting exclusive territorial rights for franchising and for the manufacturing and distribution rights in foreign countries, and we expect to require that an exclusivity fee be conveyed for these rights.
During fiscal 2024, we opened franchised locations in Egypt, Mexico and the United Arab Emirates. We may seek to continue granting exclusive territorial rights for franchising and for the manufacturing and distribution rights in foreign countries, and we expect to require that an exclusivity fee be conveyed for these rights.
References to the fiscal 2023 period mean the fiscal year ended March 26, 2023 and references to the fiscal 2022 period mean the fiscal year ended March 27, 2022.
References to the fiscal 2024 period mean the fiscal year ended March 31, 2024 and references to the fiscal 2023 period mean the fiscal year ended March 26, 2023.
During fiscal 2023 and 2022, we earned royalties of $340,000 and $333,000, respectively, under this agreement. During fiscal 2023, our licensee, Hermann Pickle Packers, Inc. continued to produce and distribute Nathan’s Famous sauerkraut and pickles pursuant to a license agreement.
During fiscal 2024 and 2023, we earned royalties of $296,000 and $340,000, respectively, under this agreement. During fiscal 2024, our licensee, Hermann Pickle Packers, Inc. continued to produce and distribute Nathan’s Famous pickles. During fiscal 2024 and 2023, we earned royalties of $319,000 and $318,000, respectively, under this agreement.
Beginning in fiscal 2022 and continuing in fiscal 2023, we have experienced inflationary pressures on commodity prices, including beef and beef trimmings. Our average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022. Our average cost of hot dogs during fiscal 2022 was approximately 19% higher than fiscal 2021.
In fiscal 2024, we continued to experience inflationary pressures on commodity prices, including beef and beef trimmings. Our average cost of hot dogs during fiscal 2024 was approximately 10% higher than during fiscal 2023. Our average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than fiscal 2022.
We also hold service mark registrations for ARTHUR TREACHER’S FISH & CHIPS in Canada, ARTHUR TREACHER’S FISH & CHIPS and design in Canada and Mexico, and ARTHUR TREACHER’S FISH & CHIPS and design in Colombia, Costa Rica, Kuwait, Malaysia, Singapore and the United Arab Emirates. 17 Our trademark and service mark registrations were granted and expire on various dates.
We hold service mark registrations for ARTHUR TREACHER’S in China and Japan. We also hold service mark registrations for ARTHUR TREACHER’S FISH & CHIPS in Canada, ARTHUR TREACHER’S FISH & CHIPS and design in Canada and Mexico, and ARTHUR TREACHER’S FISH & CHIPS and design in Colombia, Costa Rica, Kuwait, Malaysia, Singapore and the United Arab Emirates.
Pursuant to this agreement, Nathan’s earned royalties of approximately $28,688,000 in fiscal 2023 and $27,907,000 in fiscal 2022 representing 21.9% and 24.3% of total revenues, respectively.
Pursuant to this agreement, Nathan’s earned royalties of approximately $28,456,000 in fiscal 2024 and $28,688,000 in fiscal 2023 representing approximately 21% and 22% of total revenues, respectively.
During fiscal 2023 and 2022, we earned royalties of $1,501,000 and $954,000, respectively, under this agreement. For the contract year ended in July 2022 we earned royalties of $581,000 in excess of the annual minimum. Lamb Weston, Inc. continues to seek to further expand its market penetration throughout the United States.
For the contract year ended in July 2023 we earned royalties of $995,000 in excess of the annual minimum. Lamb Weston, Inc. continues to seek to further expand its market penetration throughout the United States.
We believe our future operating results will continue to be substantially impacted by the terms and conditions of the agreement with Smithfield Foods, Inc., but there can be no assurance thereof (See Item 1A - “Risk Factors”).
We believe our future operating results will continue to be substantially impacted by the terms and conditions of the agreement with Smithfield Foods, Inc., but there can be no assurance thereof (See Item 1A - “Risk Factors”). Smithfield Foods, Inc. has also licensed from us the right to manufacture and sell branded hot dogs and sausages to select foodservice accounts.
Seasonality Our routine business pattern is affected by seasonal fluctuations, including the effects of weather and economic conditions. Historically, sales from our Company-owned restaurants, principally at Coney Island, and franchised restaurants from which franchise royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth fiscal quarter typically representing the slowest period.
Historically, sales from our Company-owned restaurants, principally at Coney Island, and franchised restaurants and virtual kitchens from which franchise royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth fiscal quarter typically representing the slowest period.
Government Regulation We are subject to a Federal Trade Commission (“FTC”) regulation and several states’ laws that regulate the offer and sale of franchises.
Government Regulation We are subject to a Federal Trade Commission (“FTC”) regulation and several state laws that regulate the offer and sale of franchises. We are also subject to a number of state laws which regulate substantive aspects of the franchisor-franchisee relationship.
The non-core menu items at the Company-owned restaurants, tend to have lower margins than the core menu. Our Company-owned restaurants contributed $12,161,000 in revenue in fiscal 2023, representing a 12% increase over fiscal 2022. Customer traffic at our Company-owned restaurants, in particular at Coney Island, during the fiscal 2023 period increased by approximately 12% over the fiscal 2022 period.
The non-core menu items at the Company-owned restaurants, tend to have lower margins than the core menu. Our Company-owned restaurants contributed $12,103,000 and $12,161,000 in revenue for fiscal 2024 and fiscal 2023, respectively. Customer traffic at our Company-owned restaurants during the fiscal 2024 period decreased by approximately 2% over the fiscal 2023 period.
During fiscal 2023, Nathan’s marketing efforts for the Branded Product Program concentrated primarily on participation in national industry trade shows, and regional, local distributor trade events, some of which were held virtually due to the COVID-19 pandemic. We have also advertised our products in distributor and trade periodicals.
During fiscal 2024, Nathan’s marketing efforts for the Branded Product Program concentrated primarily on participation in national industry trade shows, as well as regional and local distributor trade events. We have also advertised our products in distributor and trade periodicals.
We are also subject to a number of state laws which regulate substantive aspects of the franchisor-franchisee relationship. 15 The FTC’s “Trade Regulation Rule Concerning Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “FTC Franchise Rule”) requires us to disclose certain information to prospective franchisees. Fifteen states, including New York, also require similar disclosure.
The FTC’s “Trade Regulation Rule Concerning Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “FTC Franchise Rule”) requires us to disclose certain information to prospective franchisees. Fifteen states, including New York, also require similar disclosure.
We also own the Arthur Treacher’s brand and trademarks. We use the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants, as well as virtual kitchens.
We have historically used the Arthur Treacher’s Fish & Chips brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants.
With respect to our international development, we generally grant exclusive territorial rights in foreign countries for the development of Nathan’s locations based upon compliance with a predetermined development schedule. Additionally, we may further grant exclusive manufacturing and distribution rights in foreign countries, and we may require an exclusivity fee to be conveyed for such exclusive rights.
With respect to our international development, we generally grant exclusive territorial rights in foreign countries for the development of Nathan’s locations based upon compliance with a predetermined development schedule.
Food service employees at two Company-owned restaurants are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2023. We expect to renew this agreement prior to its expiration.
Food service employees at two Company-owned restaurants are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2026. Employees at a third Company-owned restaurant are represented by the same union pursuant to a different agreement that expires on November 30, 2025.
We also hold various package design registrations and other related marks, FRANKSTERS, FROM A HOT DOG TO AN INTERNATIONAL HABIT, and MORE THAN JUST THE BEST HOT DOG! and design, for restaurant services and some food items.
We also hold various package design registrations and other related marks, FROM A HOT DOG TO AN INTERNATIONAL HABIT, and MORE THAN JUST THE BEST HOT DOG! and design, for restaurant services and some food items. 17 We hold trademark and/or service mark registrations for the marks ARTHUR TREACHER’S (stylized), ARTHUR TREACHER’S FISH & CHIPS (stylized), KRUNCH PUP and ORIGINAL within the United States.
Our frozen crinkle-cut French fries have been produced primarily by Lamb Weston, Inc. Most other Company provisions are purchased from multiple sources to prevent disruption in supply and to obtain competitive prices. We approve all products and product specifications.
Most other Company provisions are purchased from multiple sources to prevent disruption in supply and to obtain competitive prices. We approve all products and product specifications.
Our Coney Island flagship location has been open for over 100 years and is the home of the annual Nathan’s Hot Dog Eating Contest, which has been broadcast on ESPN each 4 th of July since 2004 and achieved more than one million viewers in fiscal 2023.
Our Coney Island flagship location has been open for over 100 years and is the home of the annual Nathan’s Hot Dog Eating Contest, which has been broadcast on ESPN each 4 th of July since 2004 and achieved more than one million viewers in fiscal 2024. 7 We continue to focus on digital and social media initiatives, as well as direct mail, to enhance the customer experience; to increase customer traffic; and to promote off-premise capabilities.
During fiscal 2023, our licensee, Lamb Weston, Inc., continued to produce and distribute Nathan’s Famous frozen crinkle-cut French fries and onion rings for retail sale pursuant to a license agreement. These products were distributed within thirty-nine states, primarily on the East Coast, Southwest and West Coast during fiscal 2023.
During fiscal 2024, our licensee, Lamb Weston Holdings, Inc., continued to produce and distribute Nathan’s Famous frozen crinkle-cut French fries and onion rings. These products were distributed within 40 states, primarily on the East Coast, Southwest and West Coast during fiscal 2024. During fiscal 2024 and 2023, we earned royalties of $1,528,000 and $1,501,000, respectively, under this agreement.
Corporate History We were incorporated in Delaware on July 10, 1992 under the name “Nathan’s Famous Holding Corporation” to act as the parent of a Delaware corporation then-known as Nathan’s Famous, Inc. On December 15, 1992, we changed our name to Nathan’s Famous, Inc., and our Delaware subsidiary changed its name to Nathan’s Famous Operating Corp.
New products can increase revenue by expanding our customer base and continuing to build brand awareness. Corporate History We were incorporated in Delaware on July 10, 1992 under the name “Nathan’s Famous Holding Corporation” to act as the parent of a Delaware corporation then-known as Nathan’s Famous, Inc.
Nathan ’ s Branded Menu Program Our Nathan’s Famous Branded Menu Program enables qualified foodservice operators to offer a Nathan’s Famous menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings, and a limited menu of other Nathan’s products.
Additionally, we may further grant exclusive manufacturing and distribution rights in foreign countries, and we may require an exclusivity fee to be conveyed for such exclusive rights. 9 Nathan ’ s Branded Menu Program Our Nathan’s Famous Branded Menu Program enables qualified foodservice operators to offer a Nathan’s Famous menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings, and a limited menu of other Nathan’s products.
Other units generally provide seating for 45 to 125 customers. Carts, kiosks and modular units generally carry only the core menu. Our food trucks may carry the full Nathan’s Famous menu.
Our smaller units may not have customer seating areas, although they may often share seating areas with other fast food or quick service outlets in food court settings. Other units generally provide seating for 45 to 125 customers. Carts, kiosks and modular units generally carry only the core menu. Our food trucks may carry the full Nathan’s Famous menu.
Additionally, there are seven Arthur Treacher’s BMP locations and 56 Arthur Treacher’s virtual kitchens. 9 International Development As of March 26, 2023, Nathan’s Famous franchisees operated 74 locations in thirteen foreign countries. Through separate licensed manufacturing agreements, Nathan’s World Famous Beef Hot Dogs are currently manufactured in Brazil, Germany and the United Arab Emirates.
International Development As of March 31, 2024, Nathan’s Famous franchisees operated 77 locations in 13 foreign countries. Through separate licensed manufacturing agreements, Nathan’s World Famous Beef Hot Dogs are currently manufactured in Brazil, Germany and the United Arab Emirates. We continue to pursue international expansion opportunities.
The total volume of hot dogs sold in the Branded Product Program increased by approximately 15% over fiscal 2022, rebounding and exceeding pre-pandemic levels. Our Branded Product Program contributed $78,884,000 in revenue in fiscal 2023, representing a 19% increase over fiscal 2022.
Branded Product Program Our Branded Product Program contributed $86,489,000 and $78,884,000 in revenue in fiscal 2024 and fiscal 2023, respectively. The total volume of hot dogs sold in the Branded Product Program achieved its highest historic levels in fiscal 2024 and increased by approximately 2% over fiscal 2023.
Nathan’s believes that it has reliable sources of supply; however, in the event of any significant disruption in supply, management believes that alternative sources of supply are available. (See Item 1A- “Risk Factors”). Saratoga Specialties, Inc. produces Nathan’s proprietary spice formulations, and we have, in the past, engaged Newly Weds Foods, Inc. as an alternative source of supply.
All hot dogs are manufactured in accordance with Nathan’s recipes, quality standards and proprietary spice formulations. Nathan’s believes that it has reliable sources of supply; however, in the event of any significant disruption in supply, management believes that alternative sources of supply are available. (See Item 1A- “Risk Factors”).
Fifteen Bruster’s Real Ice Cream shops were selling Nathan’s products under our Branded Menu Program. During the fiscal 2023 period, 11 franchised locations opened, including 3 Branded Menu Program locations. Additionally, 18 franchised locations closed, including 5 Branded Menu Program locations.
Additionally, 23 mobile carts were registered to operate in New York, NY. Twelve Bruster’s Real Ice Cream shops were selling Nathan’s products under our Branded Menu Program. During the fiscal 2024 period, 17 franchised locations opened, including seven Branded Menu Program locations. Additionally, 19 franchised locations closed, including 11 Branded Menu Program locations.
Since 2002, Smithfield Foods, Inc. has licensed from us the right to manufacture and sell branded hot dogs and sausages to select foodservice accounts. Pursuant to this arrangement, we earned royalties of $1,310,000 and $1,063,000 during the fiscal 2023 and 2022 periods, respectively. The majority of these royalties were earned from one company.
Pursuant to this arrangement, we earned royalties of $1,611,000 and $1,310,000 during the fiscal 2024 and 2023 periods, respectively. The majority of these royalties were earned from one company.
During fiscal 2023 and 2022, we earned royalties of $318,000 and $291,000, respectively, under this agreement. 12 Provisions and Supplies Nathan’s World Famous Beef Hot Dogs are primarily manufactured by Smithfield Foods, Inc. for sale by our Branded Product Program, our restaurant system, and at retail.
Provisions and Supplies Nathan’s World Famous Beef Hot Dogs are primarily manufactured by Smithfield Foods, Inc. for sale by our Branded Product Program, our restaurant system, and at retail. Smithfield Foods, Inc. and another hot dog manufacturer supply the hot dogs for our Company-owned and franchised restaurants.
Our current professional sports sponsorships include: ● Baseball: Yankee Stadium – New York Yankees; Citi Field – New York Mets; Loan Depot Park – Miami Marlins; Tropicana Field – Tampa Bay Rays; and ● Basketball: The Barclays Center – Brooklyn Nets; and ● Football: AT&T Stadium – Dallas Cowboys; Lambeau Field – Green Bay Packers. 13 We believe that the Company’s overall sales and exposure have also been complemented by the sales of Nathan’s World Famous Beef Hot Dogs and other Nathan’s products through the publicity generated by our Hot Dog Eating Contests and our affiliation with a number of high profile sports arenas.
We believe that the Company’s overall sales and exposure have been complemented by the sales of Nathan’s World Famous Beef Hot Dogs and other Nathan’s products through the publicity generated by our Hot Dog Eating Contests and our affiliation with a number of high profile sports arenas.
The online effort is focused on platforms including Facebook, Instagram and Twitter. Our marketing strategy focuses on our premium food offerings and limited time offerings to help drive sales and customer traffic. Recent Developments The impact of the global pandemic, COVID-19, in fiscal 2023 was more modest than in fiscal 2022.
The online effort is focused on platforms including Facebook, Instagram and X (formerly known as Twitter). Our marketing strategy focuses on our premium food offerings and limited time offerings to help drive sales and customer traffic. Product development – The Company collaborates with its licensees on potential new product offerings.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and, if we fail to meet the expectations of investors, our share price may decline. Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control.
Biggest changeFor example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases. 26 Our annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and, if we fail to meet the expectations of investors, our share price may decline.
Any disruption in our computer systems, point of sales system or information technology may adversely affect our ability to run our business. We are significantly dependent upon our computer systems, point of sales system and information technology to properly conduct our business.
Any disruption in our computer systems, our point-of-sales system or information technology may adversely affect our ability to run our business. We are significantly dependent upon our computer systems, our point-of-sales system and information technology to properly conduct our business.
Any operational shortcoming of a franchised restaurant is likely to be attributed by consumers to an entire brand or our system, thus damaging our corporate or brand reputation, potentially adversely affecting our business, results of operations and financial condition. Growth in our restaurant revenue and earnings is significantly dependent on new restaurant openings.
Any operational shortcoming of a franchised restaurant is likely to be attributed by consumers to an entire brand or our system, thus damaging our corporate or brand reputation, potentially adversely affecting our business, results of operations and financial condition. 25 Growth in our restaurant revenue and earnings is significantly dependent on new restaurant openings.
It is possible that adverse economic conditions in states or regions that contain a high concentration of Nathan’s restaurants could have a material adverse impact on our business, results of operations and financial condition. We rely extensively on computer systems, point of sales system and information technology to manage our business.
It is possible that adverse economic conditions in states or regions that contain a high concentration of Nathan’s restaurants could have a material adverse impact on our business, results of operations and financial condition. 27 We rely extensively on computer systems, our point-of-sales system and information technology to manage our business.
Such factors may have a material adverse effect on our business, results of operations and financial condition. 30 We are subject to many federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business.
Such factors may have a material adverse effect on our business, results of operations and financial condition. We are subject to many federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business.
Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected. 22 The quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.
Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected. The quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.
To the extent that we do maintain insurance with respect to some of these risks, our receipt of the proceeds of such policies may be delayed or the proceeds may be insufficient to offset our losses fully. Our international operations are subject to various factors of uncertainty.
To the extent that we do maintain insurance with respect to some of these risks, our receipt of the proceeds of such policies may be delayed or the proceeds may be insufficient to fully offset our losses. 28 Our international operations are subject to various factors of uncertainty.
If the economy experiences a downturn or there are other uncertainties regarding economic prosperity, or other negative global and local macroeconomic conditions, consumer spending may be negatively impacted which may adversely affect our sales and operating profit.
If the economy experiences a downturn or there are other uncertainties regarding economic prosperity, or other negative global and local macroeconomic conditions, consumer discretionary spending may be negatively impacted which may adversely affect our sales and operating profit.
These events could negatively impact consumer spending, thereby reducing demand for our products, or the ability to receive products from suppliers. We do not have insurance policies that insure against certain of these risks.
These events could negatively impact consumer discretionary spending, thereby reducing demand for our products, or the ability to receive products from suppliers. We do not have insurance policies that insure against certain of these risks.
Although we make efforts to monitor the use of our trademarks and service marks by our franchisees and other licensees, we cannot assure you that these efforts will be sufficient to ensure that our franchisees and other licensees abide by the terms of the trademark licenses.
Although we make efforts to monitor the use of our trademarks and service marks by our franchisees and licensees, we cannot assure you that these efforts will be sufficient to ensure that our franchisees and licensees abide by the terms of the trademark licenses.
Unforeseen events, or the prospect of such events, including war, terrorism and other international conflicts, including the Russia-Ukraine conflict, public health issues such as epidemics or pandemics (including, without limitation, as a result of the COVID-19 pandemic), labor unrest and natural disasters such as earthquakes, hurricanes or other extreme adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of franchisees, suppliers or customers, or result in political or economic instability.
Unforeseen events, or the prospect of such events, including war, terrorism and other international conflicts, including the Russia-Ukraine conflict, the Israel-Hamas war, public health issues such as epidemics or pandemics (including, without limitation, as a result of the COVID-19 pandemic), labor unrest and natural disasters such as earthquakes, hurricanes or other extreme adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of franchisees, suppliers or customers, or result in political or economic instability.
The opening and success of franchised restaurants depends on various factors, including the demand for our franchises and the selection of appropriate franchisee candidates, the availability of suitable restaurant sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and area developers.
The opening and success of franchised restaurants depends on various factors, including the demand for our franchises and the selection of appropriate franchisee candidates, the availability of suitable restaurant sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to secure restaurant equipment, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and area developers.
There has been a marked increase in the use of social media platforms and other forms of internet-based communications, including video sharing and instant messaging platforms that allow individuals to access a broad audience of consumers and other interested persons. The availability of information on these social media platforms and internet-based communications is virtually immediate, as is its impact.
There has been an increase in the use of social media platforms and other forms of internet-based communications, including video sharing and instant messaging platforms, that allow individuals to access a broad audience of consumers and other interested persons. The availability of information on these social media platforms and internet-based communications is virtually immediate, as is its impact.
We may also face increased pressure from stakeholders to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, which could expose us to additional market, operational, execution and reputational costs and risks. Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense.
We may also face increased pressure to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, which could expose us to additional market, operational, execution and reputational costs and risks. Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense.
The success of our business depends on the continued ability to use existing trademarks, service marks and other components of each of our brands in order to increase brand awareness and further develop branded products.
The success of our business depends on the continued ability to use existing trademarks, domain names, service marks and other components of each of our brands in order to increase brand awareness and further develop branded products.
Investors should carefully consider all of the information set forth in this Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities. The following risk factors are not exhaustive. Additional risks and uncertainties not presently known to the Company may also adversely impact its business.
Investors should carefully consider all of the information set forth in this Annual Report on Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities. The following risk factors are not exhaustive. Additional risks and uncertainties not presently known to the Company may also adversely impact its business.
As a result of our agreement with Smithfield Foods, Inc. which expires in 2032, we expect that most of our license revenues will be earned from Smithfield Foods, Inc. for the foreseeable future.
As a result of our agreement with Smithfield Foods, Inc. which expires in 2032, we expect that most of our license royalties will be earned from Smithfield Foods, Inc. for the foreseeable future.
There is also the possibility of administrative action from other agencies, state governments, and in private lawsuits that may allege that a franchisor and its franchisee “jointly employ” the franchisee’s staff, that the franchisor is responsible for the franchisees’ staff (under theories of apparent agency, ostensible agency, or actual agency), or otherwise.
There is also the possibility of administrative action from other agencies, state governments, and in private lawsuits that may allege that a franchisor and its franchisee “jointly employ” the franchisee’s staff, that the franchisor is responsible for the franchisees’ staff (under theories of apparent agency, ostensible agency, or actual agency), or otherwise. If the U.S.
If the United States Department of Labor and agencies such as the Occupational Safety and Health Administration and the NLRB take a more aggressive position on defining and enforcing joint employer status, or if Congress passes the proposed “PRO Act,” and it is signed into law, that might change the status quo and expose Nathan’s to the possibility of being deemed a “joint employer” of our franchisees’ staff together with our franchisees and possibly to some franchisees being reclassified as “employees.” Among other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees’ staff may make it easier to organize our franchisees’ staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan’s franchised restaurant.
Department of Labor and agencies such as the Occupational Safety and Health Administration and NLRB take a more aggressive position on defining and enforcing joint employer status, or if Congress passes the proposed “PRO Act” and it is signed into law, that might change the status quo and expose Nathan’s to the possibility of being deemed a “joint employer” of our franchisees’ staff (together with our franchisees) and also to the possibility that some franchisees might be reclassified as Nathan's “employees.” Among other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees’ staff may make it easier to organize our franchisees’ staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan’s franchised restaurant.
Any of the foregoing occurrences may cause disruptions in the supply of our hot dog or French fry products, as the case may be, and may damage our franchisees and our Branded Product Program customers, which could result in a material adverse effect on our business, results of operations or financial condition.
Any of the foregoing occurrences may cause disruptions in the supply of our hot dog or French fry products and may damage our franchisees and our Branded Product Program customers, which could result in a material adverse effect on our business, results of operations or financial condition.
Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business and financial condition. 33
Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business and financial condition. 34
In addition, we and our franchisees compete within the foodservice market and the quick-service restaurant business not only for customers but also for management and hourly employees and qualified franchisees.
We and our franchisees compete within the foodservice market and the quick-service restaurant business not only for customers but also for management and hourly employees and qualified franchisees.
Additionally, our Company-owned restaurants at Coney Island are heavily dependent on favorable weather conditions during the summer season. Rain during the weekends and/or unseasonably cold temperatures will negatively impact the number of patrons going to the Coney Island beach locations.
Additionally, our Company-owned restaurants at Coney Island are heavily dependent on favorable weather conditions during the summer season. Rain during the weekends and/or unseasonably cold temperatures will negatively impact the number of patrons visiting the Coney Island beach locations.
Accordingly, in the event that (i) Smithfield Foods, Inc. experiences financial difficulties, (ii) there is a disruption or termination of the Smithfield Foods, Inc. agreement or (iii) there is a significant decrease in our revenue from Smithfield Foods, Inc., it would have a material adverse effect on our business, results of operations and financial condition.
Accordingly, in the event that (i) Smithfield Foods, Inc. experiences financial or operational difficulties, (ii) there is a disruption or termination of the Smithfield Foods, Inc. agreement or (iii) there is a significant decrease in our license royalties from Smithfield Foods, Inc., it would have a material adverse effect on our business, results of operations and financial condition.
The Company cannot predict if new variants of COVID-19 will be discovered, what additional restrictions may be enacted by local, state and the federal government, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels at our Company-owned restaurants, or if individuals will be comfortable congregating in our dining rooms or venues such as professional sports arenas, amusement parks, shopping malls or movie theaters or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the Company as a whole.
The Company cannot predict if new variants of COVID-19 will be discovered, what restrictions may be enacted by local, state and the federal government, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels at our Company-owned restaurants, or if individuals will be comfortable congregating in our dining rooms or public venues such as professional sports arenas, amusement parks, shopping malls or movie theaters, and what long-lasting effects COVID-19 may have on the Company as a whole.
As of March 26, 2023, we and our franchisees (including locations operated pursuant to our Branded Menu Program) operated Nathan’s restaurants in 17 states and 13 foreign countries. As of March 26, 2023, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey.
As of March 31, 2024, we and our franchisees (including locations operated pursuant to our Branded Menu Program) operated Nathan’s restaurants in 17 states and 13 foreign countries. As of March 31, 2024, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey.
If new debt is added to our existing debt levels, the related risks that we face would intensify and we may not be able to meet all our debt obligations, including the repayment of the Notes. 32 Specifically, our high level of indebtedness could have important potential consequences, including, but not limited to: ● increasing our vulnerability to, and reducing our flexibility to plan for and respond to, adverse economic and industry conditions and changes in our business and the competitive environment; ● make it more difficult for us to satisfy our other financial obligations, including our obligations relating to the Notes; ● requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases or other corporate purposes; ● make it more difficult for us to satisfy our obligations to the holders of the Notes, resulting in possible defaults on and acceleration of such indebtedness; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● place us at a competitive disadvantage compared to our competitors that have less debt; ● increasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity, value and trading of the Notes and access to capital markets; ● restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; ● limit our ability to borrow additional funds or increase our cost of borrowing; ● placing us at a disadvantage compared to other less leveraged competitors or competitors with comparable debt at more favorable interest rates; ● increasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest; ● making it more difficult for us to repay, refinance or satisfy our obligations relating to the Notes; ● limiting our ability to borrow additional funds in the future and increasing the cost of any such borrowing; ● imposing restrictive covenants on our operations as the result of the terms of our indebtedness, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of our debts, including the Notes.
Specifically, our high level of indebtedness could have important potential consequences, including, but not limited to: ● increasing our vulnerability to, and reducing our flexibility to plan for and respond to, adverse economic and industry conditions and changes in our business and the competitive environment; ● make it more difficult for us to satisfy our other financial obligations, including our obligations relating to the Notes; ● requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases or other corporate purposes; 33 ● make it more difficult for us to satisfy our obligations to the holders of the Notes, resulting in possible defaults on and acceleration of such indebtedness; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● place us at a competitive disadvantage compared to our competitors that have less debt; ● increasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity, value and trading of the Notes and access to capital markets; ● restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; ● limit our ability to borrow additional funds or increase our cost of borrowing; ● placing us at a disadvantage compared to other less leveraged competitors or competitors with comparable debt at more favorable interest rates; ● increasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest; ● making it more difficult for us to repay, refinance or satisfy our obligations relating to the Notes; ● limiting our ability to borrow additional funds in the future and increasing the cost of any such borrowing; ● imposing restrictive covenants on our operations as the result of the terms of our indebtedness, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of our debts, including the Notes.
This geographic concentration in the Northeast can cause economic conditions in particular areas of the country to have a disproportionate impact on our overall results of operations.
This geographic concentration in the Northeast can cause economic conditions in this area of the country to have a disproportionate impact on our overall results of operations.
If we are unable to pass on these higher costs through price increases, our margins and profitability as well as the profitability and margins of our franchisees will be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition.
As a result, we anticipate that our labor costs will continue to increase. If we are unable to pass on these higher costs through price increases, our margins and profitability as well as the profitability and margins of our franchisees will be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition.
Despite our considerable efforts to secure our computer systems and these third-party systems, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information.
Despite our considerable efforts to secure our computer systems and these third-party systems, security breaches, such as unauthorized access and computer viruses, phishing attacks, introduction of malware or ransomware may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information.
These events and factors include: ● continued recovery from the COVID-19 pandemic; ● changes in customer demand; ● sales promotions by Nathan’s and its competitors; ● variations in the timing and volume of Nathan’s sales and franchisees’ sales; ● changes in the terms of our existing license/supply agreements and/or the replacement of existing licenses or suppliers; 26 ● changes in average same-store sales and customer visits; ● variations in the price, availability and shipping costs of supplies; ● tax expense, asset impairment charges and other non-operating costs; ● seasonal effects on demand for Nathan’s products; ● unexpected slowdowns in new store development efforts; ● changes in competitive and macroeconomic conditions in the United States and in other regions of the world, including the Russia-Ukraine conflict; ● changes in the cost or availability of ingredients or labor and our inability to offset these higher costs with price increases; ● weather and acts of God; and ● changes in the number of franchises sold and franchise agreement renewals.
These events and factors include: ● changes in customer demand; ● sales promotions by Nathan’s and its competitors; ● variations in the timing and volume of Nathan’s sales and franchisees’ sales; ● changes in the terms of our existing license/supply agreements and/or the replacement of existing licenses or suppliers; ● changes in average same-store sales and customer visits; ● variations in the price, availability and shipping costs of supplies; ● tax expense, asset impairment charges and other non-operating costs; ● seasonal effects on demand for Nathan’s products; ● unexpected slowdowns in new store development efforts; ● changes in competitive and macroeconomic conditions in the United States and in other regions of the world, including the Russia-Ukraine conflict and the Israel-Hamas war; ● changes in the cost or availability of commodities, including beef and beef trimmings or labor and our inability to offset these higher costs with price increases; ● weather and acts of God; and ● changes in the number of franchises sold and franchise agreement renewals.
Although we have taken measures to protect our technology systems and infrastructure, including working to upgrade our existing information technology systems and provide employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches.
Although we have taken measures to protect our technology systems and infrastructure, including investing in our existing information technology systems and providing employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches.
The COVID-19 pandemic has heightened many of the other risks described in this Item 1A, “Risk Factors.” Increases in the cost of food and paper products could harm our profitability and operating results. General economic conditions, including economic downturns related to the COVID-19 pandemic, have adversely affected our results of operations and may continue to do so.
COVID-19 has heightened many of the other risks described in this Item 1A, “Risk Factors.” Increases in the cost of food and paper products could harm our profitability and operating results. General economic conditions, including increases in inflation, have adversely affected our food, commodity and paper costs and may continue to do so.
Although we have not experienced significant resistance to our past price increases, future price increases may deter customers from visiting our Company-owned restaurants and franchised restaurants and may adversely affect our restaurant operations.
Although we have not experienced significant resistance to our past price increases, future price increases may deter customers from visiting our Company-owned and franchised restaurants, may decrease demand for our products at our Company-owned and franchised restaurants and may adversely affect our restaurant operations.
We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, beginning in the latter part of fiscal 2022 and continuing during fiscal 2023 costs for certain supplies and ingredients, such as packaging, beef and beef trimmings, and freight, increased materially and rapidly, which combined with inflationary pressures could continue.
We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, during fiscal 2023 and fiscal 2024 costs for certain supplies and ingredients, such as packaging, beef and beef trimmings, and freight, increased materially and rapidly, which combined with inflationary pressures could continue.
In addition, any gap in supply to retail customers would result in lost license royalty income to us, which could have a significant adverse financial impact on our results of operations.
In addition, any gap in supply to retail customers may result in lost license royalties to us, which could have a significant adverse financial impact on our results of operations.
We enter into franchise agreements with our franchisees and license agreements with other licensees which govern the use of our trademarks and service marks.
We also license third party franchisees and other licensees to use our trademarks and service marks. We enter into franchise agreements with our franchisees and license agreements with our licensees which govern the use of our trademarks and service marks.
Our franchisees are independent contractors, and their employees are not our employees. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control.
We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control.
Additionally, state and local laws such as the recently passed Fast Food Accountability and Standards (FAST) Recovery Act (AB257) in California may require wage increases and working hour and working condition standards that may increase our costs without corresponding benefits.
Additionally, state and local laws such as the recently passed California Fast Food Accountability and Standards Recovery Act (the “FAST Act”) may require wage increases and working hours and working condition standards that may increase our costs without corresponding benefits.
Sales to our five largest Branded Product Program customers were 76% and 78% of our Branded Product Program revenues in fiscal 2023 and fiscal 2022, respectively.
Sales to our five largest Branded Product Program customers were 77% and 76% of our Branded Product Program revenues in fiscal 2024 and fiscal 2023, respectively.
If any of our critical information technology systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption that could have a material adverse effect on our business, results of operations and financial condition. 27 Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information.
If any of our critical information technology systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption that could have a material adverse effect on our business, results of operations and financial condition.
The market for qualified employees in the retail food industry is very competitive. We are experiencing and may continue to experience a shortage of labor for positions in our Company-owned restaurants and franchised restaurants, due to the current competitive labor market.
We are experiencing and may continue to experience a shortage of labor for positions in our Company-owned and franchised restaurants, due to the current competitive labor market.
Risks Related to Regulatory Matters Changes to minimum wage rates have increased our labor costs. We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages. Increases in the minimum wage and labor regulations have increased our labor costs.
We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages. Increases in the minimum wage and labor regulations have increased our labor costs.
Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control. A portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees.
Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control. A portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees. These earnings are dependent upon the operational and financial success of our franchise operators.
If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.
If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share. All such competition may adversely affect our business, results of operations and financial condition.
Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs. 25 As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness.
Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.
As of March 26, 2023, we had total outstanding indebtedness of $80,000,000 which is due in 2025. Subject to the terms of any future agreements, we and our subsidiaries may be able to incur additional indebtedness in the future, which would increase the risks related to our high level of indebtedness.
As of March 31, 2024, we had total outstanding indebtedness of $60,000,000 of Notes which are due November 1, 2025. Subject to the terms of any future agreements, we and our subsidiaries may be able to incur additional indebtedness in the future, which would increase the risks related to our high level of indebtedness.
Consequently, these strategies could have the effect of drawing customers away from companies which do not engage in discount pricing and could also negatively impact the operating margins of competitors which attempt to match their competitors’ price reductions. Extensive price discounting in the quick-service restaurant business could have an adverse effect on our financial results.
Consequently, these strategies could have the effect of drawing customers away from companies which do not engage in discount pricing and could also negatively impact the operating margins of competitors which attempt to match their competitors’ price reductions.
We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, results of operations and financial condition could be harmed.
We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, results of operations and financial condition could be harmed. 29 Risks Related to Regulatory Matters Changes to minimum wage rates have increased our labor costs.
We earned license royalties from Smithfield Foods, Inc. of approximately $29,998,000 in fiscal 2023 and approximately $28,970,000 in fiscal 2022 representing 23% and 25% of total revenues, respectively.
We earned license royalties from Smithfield Foods, Inc. of approximately $30,067,000 in fiscal 2024 and approximately $29,998,000 in fiscal 2023 representing 22% and 23% of total revenues, respectively.
A recurrence of COVID-19 or new variants of COVID-19 could substantially impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers and royalties earned from our licensing activities.
In May 2023, the World Health Organization declared an end to the global health emergency. However, a recurrence of COVID-19 or new variants of COVID-19 could substantially impact customer traffic at our Company-owned and franchised restaurants, as well as sales to our Branded Product Program customers and royalties earned from our licensing activities.
Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness.
As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness. Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses.
Other states, including Connecticut, Colorado, Illinois, New York, Utah and Virginia have since adopted laws that apply to data and other biometric technology which may be broadly interpreted. It remains uncertain whether the CCPA and the laws adopted in other states will have a material impact on our operations or that of our franchisees.
In total, 14 states have adopted laws that apply (or that will apply as of the effective date) to data and other biometric technology, which may be broadly interpreted. It remains uncertain whether the CCPA and the data privacy laws adopted in other states will have a material impact on our operations or that of our franchisees.
Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, results of operations, and financial condition.
Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, results of operations, and financial condition.
Our business is subject to an increasing focus on Environmental, Social, and Governance (ESG) matters. In recent years, there has been an increasing focus by stakeholders – including employees, franchisees, customers, suppliers, governmental and non-governmental organizations, and investors – on ESG matters.
In recent years, there has been an increasing focus by investors, activists, the media, governmental and non-governmental organizations and stakeholders – including employees, franchisees, customers and suppliers on ESG matters.
The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors beyond our control.
We purchase large quantities of beef and beef trimmings and our beef costs represent approximately 80% to 90% of our cost of sales. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors beyond our control.
We cannot assure that our Company-owned restaurants or our franchised restaurants will be able to purchase its food, commodity or paper products at reasonable prices, or that the cost of such food, commodity or paper products will remain stable in the future. 20 We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.
We cannot assure that our Company-owned restaurants or our franchised restaurants will be able to purchase its food, commodity or paper products at reasonable prices, or that the cost of such food, commodity or paper products will remain stable in the future.
Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging.
Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging.
Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities.
Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations.
If the price of beef or other food products that we use in our operations significantly increases, particularly in the Branded Product Program, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition.
If the price of beef, beef trimmings or other food products that we use in our operations significantly increases, particularly in the Branded Product Program, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition. 20 From time to time, we have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product.
The harm may be immediate without affording us an opportunity for redress or correction. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets. The dissemination of information online, regardless of its accuracy, could harm our business, results of operations and financial condition.
Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets.
The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business.
The opportunity for dissemination of information, including inaccurate information, organizing collective actions such as boycotts and other brand-damaging behaviors is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time.
Some states require that certain materials be filed for a franchisor to be registered and approved, before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.
The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our business could be further 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 existing franchised restaurants. 29 Changes in franchise regulations and laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects.
Our business could be further 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 existing franchised restaurants.
The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. 28 Additionally, our Company-owned restaurants and franchised restaurants are highly service-oriented, and our success depends in part upon the ability to attract, retain and motivate a sufficient number of qualified employees, including franchisee management, restaurant managers and other crew members.
The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.
In addition, we do not have the ability to effectively hedge our beef purchases using futures or forward contracts without incurring undue financial cost and risk. Price increases may impact customer visits. The Company and our franchisees have increased prices on selected menu items in order to offset rising food and commodity costs.
However, we may be unable to enter into similar purchase commitments in the future. In addition, we do not have the ability to effectively hedge our beef purchases using futures or forward contracts without incurring undue financial cost and risk. Price increases may impact customer visits.
Many of these systems are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security, availability and integrity of their systems.
A failure or interruption of computer systems, our point-of-sales system or information technology could result in the loss of data, business interruptions or delays in business operations. Many of these systems are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security, availability and integrity of their systems.
As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. As a result, we anticipate that our labor costs will continue to increase.
Additionally, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage.
In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue.
In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue. 30 Failure by third-party manufacturers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business.
The use of social media has become a larger element of our advertising and promotional efforts. These marketing initiatives may not be successful, resulting in expenses incurred without a corresponding increase in sales, increased customer awareness or engagement or brand awareness. Changing health or dietary preferences may cause consumers to avoid products offered by us in favor of alternative foods.
The dissemination of information online, regardless of its accuracy, could harm our business, results of operations and financial condition. The use of social media has become a larger element of our advertising and promotional efforts. These marketing initiatives may not be successful, resulting in expenses incurred without a corresponding increase in sales, increased customer awareness or engagement or brand awareness.
Risks Related to Our Business and Operations The COVID-19 pandemic and local, state and federal government responses to the COVID-19 pandemic have previously significantly impacted our business and could continue to adversely affect our business, financial condition, and results of operations in the future .
Risks Related to Our Business and Operations The COVID-19 pandemic previously impacted our business and could continue to adversely affect our business, financial condition, and results of operations in the future . COVID-19 had a substantial impact on our operations in fiscal 2021 and to a lesser extent in fiscal 2022 and fiscal 2023.
A security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, damages, claims or fines. Catastrophic events may disrupt our business.
Such events could result in additional costs related to operational inefficiencies, damages, claims or fines and may adversely affect our business, results of operations and financial condition. Catastrophic events may disrupt our business.
Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations.
We rely on third-party manufacturers to produce our products and on other suppliers to supply raw materials. Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations.
We have experienced and may continue to experience certain supply chain disruptions resulting from, among other things, capacity, transportation, fuel costs, staffing, and other COVID-19 related challenges, which have and may continue to increase the cost of food, commodity and paper products and, in turn, may adversely affect our business, results of operations and financial condition.
We may continue to experience increases in the cost of food, commodity and paper products which, in turn, may adversely affect our business, results of operations and financial condition.
Consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.
Consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us.
We are subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise.
Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise.
To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations.
We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2025. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations.
The foodservice industry is affected by consumer preferences and perceptions, including calories, sodium, carbohydrates or fat.
Changing health or dietary preferences may cause consumers to avoid products offered by us in favor of alternative foods. The foodservice industry is affected by consumer preferences and perceptions, including calories, sodium, carbohydrates or fat.
Further, we cannot assure you that competitors will not infringe upon our marks, or that we will have adequate resources to enforce our trademarks or service marks. We also license third party franchisees and other licensees to use our trademarks and service marks.
Further, we cannot assure you that competitors will not infringe upon our marks, or that we will have adequate resources to enforce our trademarks or service marks. We cannot ensure that all of the steps that we have taken to protect our intellectual property in the United States and foreign countries will be adequate.
Although implementation and enforcement of the FAST Act is stayed pending a referendum in 2024, it is possible that it will pass, and that other jurisdictions may pass similar laws. California also adopted a new law to address data privacy.
Although the FAST Act is stayed pending a referendum in November 2024, it is possible that it will pass, and that other jurisdictions may pass similar laws. 31 Our business is subject to an increasing focus on Environmental, Social, and Governance (ESG) matters.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAt March 26, 2023, other Company-owned restaurants that were operating were located in leased space with terms expiring as shown in the following table: Nathan’s Restaurants Location Current Lease Expiration Date Approximate Square Footage Coney Island Brooklyn, NY December 2027 10,000 Coney Island Boardwalk (a) Brooklyn, NY November 2028 3,800 Long Beach Road Oceanside, NY April 2030 4,100 Central Park Avenue (b) Yonkers, NY December 2023 3,500 (a) Seasonal satellite location.
Biggest changeAt March 31, 2024, other Company-owned restaurants that were operating were located in leased space with terms expiring as shown in the following table: Nathan’s Restaurants Location Current Lease Expiration Date Approximate Square Footage Coney Island Brooklyn, NY December 2027 10,000 Coney Island Boardwalk (a) Brooklyn, NY November 2028 3,800 Long Beach Road Oceanside, NY April 2030 4,100 Central Park Avenue Yonkers, NY December 2028 3,500 (a) Seasonal satellite location.
Item 2. Properties. We currently lease approximately 9,300 square feet of space for our executive offices in Jericho, New York for approximately $397,000 per year, under a lease agreement which expires on March 31, 2029.
Item 2. Properties. We currently lease approximately 9,300 square feet of space for our executive offices in Jericho, New York for approximately $396,000 per year, under a lease agreement which expires on March 31, 2029.
At March 26, 2023, in addition to the leases listed above, we were the sub-lessor of one property to a franchisee located within the metropolitan New York area. Aggregate rental expense, net of sublease income, under all current leases amounted to $1,615,000 in fiscal 2023.
At March 31, 2024, in addition to the leases listed above, we were the sub-lessor of one property to a franchisee located within the metropolitan New York area. Aggregate rental expense, net of sublease income, under all current leases amounted to $1,686,000 in fiscal 2024.
Removed
(b) Effective May 3, 2023, we notified the landlord that the Company would exercise its first option to extend the term of its lease for an additional five (5) years to expire in December 2028.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeShareholders As of June 2, 2023 we had approximately 323 shareholders of record, excluding shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers. Issuer Purchases of Equity Securities The Company did not repurchase any of its common stock during the quarter ended March 26, 2023.
Biggest changeMarket Information and Dividend Policy Our common stock is quoted on the NASDAQ Global Market (“Nasdaq”) under the symbol “NATH.” As of June 6, 2024 we had approximately 311 shareholders of record, excluding shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers.
Effective June 8, 2023, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal year 2024 which is payable on June 28, 2023 to stockholders of record as of the close of business on June 20, 2023.
Effective June 12, 2024, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal year 2025 which is payable on July 2, 2024 to stockholders of record as of the close of business on June 24, 2024.
In addition to the terms of the Indenture, the payment of any cash dividends in the future will be dependent upon our earnings and financial requirements and there can be no assurance that we will declare and pay any dividends subsequent to the June 28, 2023 dividend.
In addition to the terms of the Indenture, the payment of any cash dividends in the future will be dependent upon our earnings and financial requirements and the terms of any other indebtedness that we may incur in the future and there can be no assurance that we will declare and pay any dividends subsequent to the July 2, 2024 dividend.
Common Stock Prices Our common stock is quoted on the NASDAQ Global Market (“Nasdaq”) under the symbol “NATH.” Dividend Policy During fiscal 2023, the Company declared and paid three quarterly dividends of $0.45 per share and one quarterly dividend of $0.50 per share.
During fiscal 2023, the Company declared and paid three quarterly dividends of $0.45 per share and one quarterly dividend of $0.50 per share. During fiscal 2024, the Company declared and paid four quarterly dividends of $0.50 per share.
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It has been the Board’s policy to return capital to our shareholders primarily through the purchase of stock pursuant to our stock buyback programs.
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Issuer Purchases of Equity Securities The Company did not repurchase any of its common stock during the quarter ended March 31, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe increase in general and administrative expenses was primarily attributable to higher incentive compensation expenses of $161,000, higher share-based compensation expense of $184,000, higher bad debt expense of $271,000 and higher marketing and trade show related expenses of $284,000. 42 Advertising fund expense, after eliminating Company contributions, was $1,988,000 in the fiscal 2023 period, as compared to $1,997,000 in the fiscal 2022 period.
Biggest changeAdvertising fund expense, after eliminating Company contributions, was $1,998,000 in the fiscal 2024 period as compared to $1,988,000 in the fiscal 2023 period. Other Items Interest expense of $5,355,000 in the fiscal 2024 period represented interest expense of $5,010,000 on the 2025 Notes and amortization of debt issuance costs of $345,000.
We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan. 45 We may from time to time seek to redeem additional portions of our 2025 Notes, through open market purchases, privately negotiated transactions or otherwise.
We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan. We may from time to time seek to redeem additional portions of our 2025 Notes, through open market purchases, privately negotiated transactions or otherwise.
We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and business climate. 37 As described in Item 1A.
We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and business climate. As described in Item 1A.
Additionally, there has been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities.
There has also been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities.
Critical Accounting Policies and Estimates Our consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management’s discussion and analysis.
Critical Accounting Estimates Our consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management’s discussion and analysis.
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”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K. 47
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”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K. 49
Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairment charges in future periods and such impairments could be material. No long-lived assets were deemed impaired during the fiscal years ended March 26, 2023 and March 27, 2022.
No long-lived assets were deemed impaired during the fiscal years ended March 31, 2024 and March 26, 2023. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairment charges in future periods and such impairments could be material.
Management believes that available cash and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months. At March 26, 2023, we sublet one property to a franchisee that we lease from a third party.
Management believes that available cash and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months. At March 31, 2024, we sublet one property to a franchisee that we lease from a third party.
Royalties earned under the Branded Menu Program were $630,000 in the fiscal 2023 period as compared to $580,000 in the fiscal 2022 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases.
Royalties earned under the Branded Menu Program were $744,000 in the fiscal 2024 period as compared to $630,000 in the fiscal 2023 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases.
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 and club stores, the sale of Nathan’s products directly to other foodservice operators, the manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual kitchens).
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).
If the Company pays regular quarterly cash dividends for the remainder of fiscal 2024 at the same rate as declared in the first quarter of fiscal 2024, the Company’s total cash requirement for dividends for all of fiscal 2024 would be approximately $8,159,000 based on the number of shares of common stock outstanding at June 2, 2023.
If the Company pays regular quarterly cash dividends for the remainder of fiscal 2025 at the same rate as declared in the first 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 June 6, 2024.
The following summary reflects the openings and closings of the Nathan’s franchise system (including the Branded Menu Program) for the fiscal years ended March 26, 2023 and March 27, 2022.
The following summary reflects the openings and closings of the Nathan’s franchise system (including the Branded Menu Program) for the fiscal years ended March 31, 2024 and March 26, 2023.
Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.
Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made. We believe that the judgments and estimates made are reasonable.
Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased 4% to $29,998,000 for the fiscal 2023 period as compared to $28,970,000 for the fiscal 2022 period.
Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased to $30,068,000 for the fiscal 2024 period as compared to $29,998,000 for the fiscal 2023 period.
The increase is due to a 7% increase in average net selling price as compared to the fiscal 2022 period which was offset, in part, by a 4% decrease in retail volume. The foodservice business earned higher royalties of $247,000 as compared to the fiscal 2022 period.
The increase is due to a 3% increase in average net selling price which was offset, in part, by a 3% decrease in retail volume. The foodservice business earned higher royalties of $301,000 as compared to the fiscal 2023 period.
"Risk Factors" and other sections in this Annual Report on Form 10-K for the year ended March 26, 2023, our future results could be impacted by many developments including the impact of the COVID-19 pandemic and inflationary pressures on our business, as well as our dependence on Smithfield Foods, Inc. as our principal supplier, and the dependence of our licensing revenue and overall profitability on our agreement with Smithfield Foods, Inc.
“Risk Factors” and other sections in this Annual Report on Form 10-K for the year ended March 31, 2024, our future results could be impacted by many developments including the impact of the inflationary pressures on our business, as well as our dependence on Smithfield Foods, Inc. as our principal supplier, and the dependence of our licensing revenue and overall profitability on our agreement with Smithfield Foods, Inc.
We attempt to manage inflationary pressures and rising commodity costs, at least in part, through raising prices. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.
Delays in implementing price increases, competitive pressures, a decline in consumer discretionary spending levels and other factors may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.
In addition, the payment of any cash dividends in the future, are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.
In addition, the payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements and the terms of any other indebtedness that we may incur in the future.
Income Taxes The Company’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes.
A change in these factors could have a material impact on the allowance for credit losses. 41 Income Taxes The Company’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes.
Interest expense of $7,742,000 in fiscal 2023 represented interest expense of $7,234,000 on the 2025 Notes and amortization of debt issuance costs of $508,000. Interest expense of $10,135,000 in fiscal 2022 represented interest expense of $9,475,000 on the 2025 Notes and amortization of debt issuance costs of $660,000.
Interest expense of $7,742,000 in the fiscal 2023 period represented interest expense of $7,234,000 on the 2025 Notes and amortization of debt issuance costs of $508,000.
We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt, fund our dividend program and may continue our stock repurchase programs, funding those investments from our operating cash flow.
Such repurchases, if any, will depend on market conditions, our liquidity requirements, and other factors. 47 We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt, fund our dividend program and may continue our stock repurchase programs, funding those investments from our operating cash flow.
If the projected undiscounted future cash flows are less than the carrying value of the assets, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the assets. The Company generally measures fair value by considering discounted estimated future cash flows from such assets.
The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets. If the projected undiscounted future cash flows are less than the carrying value of the assets, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the assets.
Franchise fees and royalties increased by 11% to $4,292,000 in the fiscal 2023 period as compared to $3,859,000 in the fiscal 2022 period. Total royalties were $3,636,000 in the fiscal 2023 period as compared to $3,304,000 in the fiscal 2022 period.
Franchise fees and royalties increased by $64,000 to $4,356,000 in the fiscal 2024 period as compared to $4,292,000 in the fiscal 2023 period. Total royalties were $3,886,000 in the fiscal 2024 period as compared to $3,636,000 in the fiscal 2023 period.
Virtual kitchen royalties were $149,000 in the fiscal 2023 period as compared to $318,000 in the fiscal 2022 period. Traditional franchise royalties were $2,857,000 in the fiscal 2023 period as compared to $2,406,000 in the fiscal 2022 period.
Virtual kitchen royalties were $81,000 in the fiscal 2024 period as compared to $149,000 in the fiscal 2023 period. Traditional franchise royalties were $3,061,000 in the fiscal 2024 period as compared to $2,857,000 in the fiscal 2023 period.
On March 21, 2023, the Company completed the redemption by paying cash of $30,773,000, inclusive of accrued interest, and recognized a loss on early extinguishment of approximately $357,000 that primarily reflected the write-off of a portion of previously recorded debt issuance costs.
The Company completed the partial redemption by paying cash of $20,177,000, inclusive of accrued interest of $177,000, and recognized a loss on early extinguishment of $169,000 that reflected the write-off of a portion of previously recorded debt issuance costs.
Other income, net was $18,000 in the fiscal 2023 period which primarily related to sublease income from a franchised restaurant, offset by a net loss on disposal of assets for capitalized software no longer in use of $87,000.
Other income, net was $18,000 in the fiscal 2023 period, which primarily relates to sublease income from a franchised restaurant, offset by a net loss on disposal of assets for capitalized software no longer in use of $87,000. 44 Provision for Income Taxes The effective income tax rate for the fiscal 2024 period was 28.5% compared to 26.8% for the fiscal 2023 period.
During the fiscal 2023 period, the Company made its required semi-annual interest payments on the 2025 Notes of $3,643,750 on May 1, 2022 and November 1, 2022, as well as its required interest payment of $773,000 on March 21, 2023 in connection with the partial redemption of its 2025 Notes.
During the fiscal 2024 period, the Company made its required semi-annual interest payments on the 2025 Notes of $2,650,000 on May 1, 2023 and November 1, 2023, as well as its required interest payment of $177,000 on December 18, 2023 in connection with the partial redemption of its 2025 Notes.
The Company determined its intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is six years concluding in fiscal 2028 and the intangible asset is subject to annual amortization.
Based upon the review of its Arthur Treacher’s Fish & Chips co-branding agreements, the Company determined that the remaining useful lives of these agreements is four years concluding in fiscal 2028 and the intangible asset is subject to annual amortization.
We believe the increases in the minimum wage and other changes in employment laws have had a significant financial impact on our financial results and the results of our franchisees that operate in New York State.
We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain. We believe that these increases in the minimum wage and other changes in employment laws have had a significant financial impact on our financial results and the results of our franchisees that operate in New York State.
During the fiscal 2023 period, the total volume of hot dogs sold in the Branded Product Program increased by approximately 15% as compared to the fiscal 2022 period. Our average selling prices, which are partially correlated to the beef markets, increased by approximately 4% as compared to the fiscal 2022 period.
During the fiscal 2024 period, the total volume of hot dogs sold in the Branded Product Program increased by approximately 2% as compared to the fiscal 2023 period. Our average selling prices increased by approximately 7% as compared to the fiscal 2023 period.
Non-cash operating expenses consist principally of a loss on debt extinguishment of $357,000, depreciation and amortization of $1,135,000, amortization of debt issuance costs of $508,000, share-based compensation expense of $258,000, bad debts of $457,000 and a loss on disposal of assets of $87,000.
Non-cash operating expenses consist principally of a loss on debt extinguishment of $169,000, depreciation and amortization of $1,135,000, amortization of debt issuance costs of $345,000, share-based compensation expense of $733,000 and bad debt expense of $157,000.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. These estimates and assumptions are inherently uncertain and require additional management judgment. Results can materially differ when varying assumptions are applied.
To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future.
In the past, we entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future.
The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding (i) the loss on disposal of property and equipment; (ii) loss on debt extinguishment; and (iii) share-based compensation that the Company believes will impact the comparability of its results of operations. 43 The Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.
The Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.
The Company used the net proceeds of the 2025 Notes offering to redeem the 2020 Notes, paid a portion of a special $5.00 cash dividend and used the remaining proceeds for general corporate purposes, including working capital. The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1 st and November 1 st of each year.
The Company used the net proceeds of the 2025 Notes offering to redeem the 2020 Notes, paid a portion of a special $5.00 cash dividend and used the remaining proceeds for general corporate purposes, including working capital.
Provision for Income Taxes The effective income tax rate for the fiscal 2023 period was 26.8% compared to 26.7% in the fiscal 2022 period. The effective income tax rate for the fiscal 2023 period reflected income tax expense of $7,181,000 recorded on $26,804,000 of pre-tax income.
The effective income tax rate for the fiscal 2024 period reflected income tax expense of $7,835,000 recorded on $27,451,000 of pre-tax income. The effective income tax rate for the fiscal 2023 period reflected income tax expense of $7,181,000 recorded on $26,804,000 of pre-tax income.
Fiscal Year (In thousands) 2023 2022 Net income $ 19,623 $ 13,596 Interest expense 7,742 10,135 Income taxes 7,181 4,940 Depreciation & amortization 1,135 1,054 EBITDA 35,681 29,725 Loss on disposal of property and equipment 87 - Loss on debt extinguishment 357 1,354 Share-based compensation 258 74 ADJUSTED EBITDA $ 36,383 $ 31,153 Liquidity and Capital Resources Cash at March 26, 2023 aggregated $29,861,000, a $20,202,000 decrease during the fiscal 2023 period as compared to cash of $50,063,000 at March 27, 2022.
Fiscal Year (In thousands) 2024 2023 Net income $ 19,616 $ 19,623 Interest expense 5,355 7,742 Provision for income taxes 7,835 7,181 Depreciation and amortization 1,135 1,135 EBITDA 33,941 35,681 Loss on disposal of property and equipment - 87 Loss on debt extinguishment 169 357 Share-based compensation 733 258 ADJUSTED EBITDA $ 34,843 $ 36,383 45 Liquidity and Capital Resources Sources and uses of cash Cash at March 31, 2024 aggregated $21,027,000, a $8,834,000 decrease during the fiscal 2024 period as compared to cash of $29,861,000 at March 26, 2023.
Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $603,000 during the fiscal 2023 period as compared to the fiscal 2022 period primarily due to additional royalties earned on sales of French fries, cocktail franks, mozzarella sticks, pickles and seasonings.
Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $56,000 during the fiscal 2024 period as compared to the fiscal 2023 period primarily due to higher royalties earned on sales of French fries, onion rings, and proprietary spices offset, in part, by lower royalties on the sales of franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres.
Effective June 8, 2023, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal 2024 which is payable on June 28, 2023 to stockholders of record as of the close of business on June 20, 2023.
During the fiscal 2024 period, the Company declared and paid four quarterly dividends of $0.50 per share aggregating $8,161,000. Effective June 12, 2024, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal 2025 which is payable on July 2, 2024 to stockholders of record as of the close of business on June 24, 2024.
Results of Operations Fiscal year ended March 26, 2023 compared to fiscal year ended March 27, 2022 Revenues Total revenues increased by 14% to $130,785,000 for the fifty-two weeks ended March 26, 2023 ("fiscal 2023") as compared to $114,882,000 for the fifty-two weeks ended March 27, 2022 ("fiscal 2022").
Results of Operations Fiscal year ended March 31, 2024 compared to fiscal year ended March 26, 2023 Revenues Total revenues increased by approximately 6% to $138,610,000 for the fifty-three weeks ended March 31, 2024 (“fiscal 2024”) as compared to $130,785,000 for the fifty-two weeks ended March 26, 2023 (“fiscal 2023”).
On May 1, 2023, we made the first semi-annual interest payment of $2,650,000 for fiscal 2024. On February 14, 2023, the Company announced its intent to complete the partial redemption, in the principal amount of $30,000,000, of the 2025 Notes.
On May 1, 2024, we made the first semi-annual interest payment of $1,987,500 for fiscal 2025. On December 19, 2023, the Company completed the partial redemption, in the principal amount of $20,000,000 of the 2025 Notes.
Our strategic emphasis is focused on 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 units, including virtual kitchens.
We also operate four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area. 39 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 and franchised restaurants, including virtual kitchens.
We have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers which increased to $15.00 in New York state during fiscal 2022 where our Company-owned restaurants are located.
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.
The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets.
The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
Interest income of $440,000 for the fiscal 2023 period represented amounts earned by the Company on its interest bearing bank and money market accounts, as compared to $110,000 in the fiscal 2022 period.
Interest income of $383,000 for the fiscal 2024 period represented amounts earned by the Company on its certificates of deposit, as well as interest bearing bank and money market accounts, as compared to $440,000 in the fiscal 2023 period. Other income, net was $86,000 in the fiscal 2024 period, which primarily relates to sublease income from a franchised restaurant.
Other Items On March 21, 2023, the Company completed the partial redemption, in the principal amount of $30,000,000, of the 2025 Notes. In connection with the partial redemption, the Company recorded a loss on early extinguishment of debt of $357,000 that reflected the write-off of a portion of previously recorded debt issuance costs.
In connection with the partial redemptions, the Company recorded a loss on early extinguishment of debt of $169,000 and $357,000 in the fiscal 2024 period and the fiscal 2023 period, respectively, that reflected the write-off of a portion of previously recorded debt issuance costs.
Cost of sales in the Branded Product Program increased by 17% to $67,646,000 during the fiscal 2023 period as compared to $57,942,000 in the fiscal 2022 period, primarily due to the 15% increase in the volume of hot dogs sold as discussed above, as well as a 1.4% increase in the average cost per pound of our hot dogs.
Our gross profit (calculated as total Branded Product sales plus total Company-owned restaurants sales less cost of sales) was $15,410,000 during the fiscal 2024 period as compared to $15,873,000 during the fiscal 2023 period. 43 Cost of sales in the Branded Product Program increased by approximately 12% to $75,966,000 during the fiscal 2024 period as compared to $67,646,000 in the fiscal 2023 period, primarily due to the 2% increase in the volume of hot dogs sold as discussed above, as well as a 10% increase in the average cost per pound of our hot dogs.
Prepaid expenses and other current assets increased by $454,000 due primarily to an increase in prepaid income taxes of $146,000; an increase in prepaid marketing and other expenses of $239,000 and an increase in prepaid insurance expenses of $62,000.
Prepaid expenses and other current assets increased by $281,000 due primarily to an increase in prepaid income taxes of $712,000 which were offset, in part, by a reduction in prepaid marketing and other expenses of $325,000.
We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. In the fiscal year ending March 26, 2023, we were required to make interest payments of $8,061,000, all of which have been made as of March 21, 2023.
We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. During the fiscal year ending March 30, 2025, we expect to make interest payments of $3,975,000. On May 1, 2024, we made the first semi-annual interest payment of $1,987,500 for fiscal 2025.
Nathan’s product licensing program sells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. Our Branded Product Program enables foodservice retailers and others to sell some of Nathan’s proprietary products outside of the realm of a traditional franchise relationship.
Our Branded Product Program enables foodservice retailers and others to sell some of Nathan’s proprietary products outside of the realm of a traditional franchise relationship.
The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 26, 2023 and March 27, 2022.
Assumptions used to determine projected undiscounted cash flows include future trends and projected sales. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 31, 2024 and March 26, 2023. Cash flow and sales projections require significant estimates and assumptions by management.
During the fiscal year ended March 26, 2023, the Company made its required semi-annual interest payments on May 1, 2022 and November 1, 2022. On January 26, 2022, the Company redeemed $40,000,000 in aggregate principal amount of its 2025 Notes.
During the fiscal year ended March 31, 2024, the Company made its required semi-annual interest payments on May 1, 2023 and November 1, 2023. On May 1, 2024, the Company paid its first semi-annual interest payment of fiscal 2025. The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.
Total franchise fee income was $656,000 in the fiscal 2023 period as compared to $555,000 in the fiscal 2022 period. Domestic franchise fee income was $110,000 in the fiscal 2023 period as compared to $133,000 in the fiscal 2022 period. International franchise fee income was $280,000 in the fiscal 2023 period as compared to $241,000 in the fiscal 2022 period.
Domestic franchise fee income was $106,000 in the fiscal 2024 period as compared to $110,000 in the fiscal 2023 period. International franchise fee income was $241,000 in the fiscal 2024 period as compared to $280,000 in the fiscal 2023 period. We recognized $123,000 and $266,000 of forfeited fees in the fiscal 2024 and fiscal 2023 periods, respectively.
Labor and related expenses as a percentage of Company-owned restaurant sales were 33%, down from 36% in the comparable period in the prior year due to labor wage increases as a result of competitive pressures, offset by higher sales.
Labor and related expenses as a percentage of Company-owned restaurant sales were 32%, down from 33% in the comparable period in the prior year due to tighter management and staffing stabilization. Restaurant operating expenses increased by $193,000 to $4,177,000 in the fiscal 2024 period as compared to $3,984,000 in the fiscal 2023 period.
Nathan’s may enter into additional purchase commitments in the future as favorable market conditions become available. In 2016, the Board authorized increases to the sixth stock repurchase plan for the repurchase of up to 1,200,000 shares of its common stock on behalf of the Company.
In 2016, the Board authorized increases to the sixth stock repurchase plan for the repurchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of March 31, 2024, Nathan’s has repurchased 1,101,884 shares at a cost of approximately $39,000,000 under the sixth stock repurchase plan.
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.
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. 48 We expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.
Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases. As discussed above, we had cash at March 26, 2023 aggregating $29,861,000.
At March 31, 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. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management.
Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $19,000 during the fiscal year ending March 31, 2024.
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.
Comparable domestic franchise sales (consisting of 63 Nathan’s locations, excluding sales under the Branded Menu Program) were $51,926,000 during the fiscal 2023 period as compared to $40,112,000 during the fiscal 2022 period. 41 At March 26, 2023, 232 franchised locations, including domestic, international and Branded Menu Program outlets were operating as compared to 239 franchised locations, including domestic, international and Branded Menu Program outlets at March 27, 2022.
Comparable domestic franchise sales (consisting of 59 Nathan’s locations, excluding sales under the Branded Menu Program and excluding the impact of the additional week of operations) were $54,031,000 during the fiscal 2024 period as compared to $51,607,000 during the fiscal 2023 period.
With respect to Company-owned restaurants, our cost of sales during the fiscal 2023 period was $7,526,000 or 62% of restaurant sales, as compared to $7,222,000 or 66% of restaurant sales in the fiscal 2022 period. The increase in cost of sales during the fiscal 2023 period was primarily due to the 12% increase in sales discussed above.
With respect to Company-owned restaurants, our cost of sales during the fiscal 2024 period was $7,216,000 or 60% of restaurant sales, as compared to $7,526,000 or 62% of restaurant sales in the fiscal 2023 period. Food and paper costs as a percentage of Company-owned restaurant sales were 28%, down from 29% in the comparable period of the prior year.
As a result of the 2025 Notes and the subsequent partial redemption which occurred on March 21, 2023, the Company expects to incur annual interest expense of $5,300,000 per annum and annual amortization of debt issuance costs of approximately $369,000.
Our future results may be impacted by our interest obligations under the 2025 Notes. As a result of the 2025 Notes, the Company expects to incur annual interest expense of $3,975,000 per annum and annual amortization of debt issuance costs of approximately $277,000.
Franchise restaurant sales increased to $63,739,000 in the fiscal 2023 period as compared to $52,319,000 in the fiscal 2022 primarily due to higher sales at airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada.
Franchise restaurant sales increased to $68,417,000 in the fiscal 2024 period as compared to $63,739,000 in the fiscal 2023 period primarily due to higher sales at airport locations, movie theaters and shopping malls. We estimate that the additional week of operations during fiscal 2024 resulted in $1,215,000 of additional franchise restaurant sales or royalties of approximately $60,000.
Cash flow projections require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material. 39 Impairment of Long-Lived Assets Long-lived assets include property, equipment and right-of-use assets for operating leases with finite useful lives.
Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material.
Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings. Our Company-owned restaurants and franchised units operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant opened in 1916.
Business Overview We are engaged primarily in the marketing of the “Nathan’s Famous” brand and the sale of products bearing the “Nathan’s Famous” trademarks through several different channels of distribution. Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings.
In general, we have been able to offset cost increases resulting from inflation by increasing prices and adjusting product mix. We continue to monitor these inflationary pressures and will continue to implement mitigation plans as needed. Inherent volatility in commodity markets, including beef and beef trimmings, could have a significant impact on our results of operations.
In general, we are already paying a higher wage rate than the statutory minimum wage rate. We attempt to offset cost increases resulting from inflation by increasing prices and adjusting product mix. We continue to monitor these inflationary pressures and will continue to implement mitigation measures as needed.
In the fiscal 2023 period, accounts and other receivables increased by $2,149,000 due primarily to higher Branded Product Program receivables of $1,788,000.
In the fiscal 2024 period, accounts and other receivables decreased by $74,000 due primarily to lower Branded Product and other receivables of $734,000 which were offset, in part, by higher Franchise and license royalty receivables of $322,000.
The Company has recorded amortization expense of $174,000 and $113,000 during each of the fiscal years ending March 26, 2023 and March 27, 2022. The Company’s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired.
The Company’s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements.
Net working capital decreased to $30,652,000 from $48,988,000 at March 27, 2022 due primarily to the redemption of $30,000,000 of the Company’s 2025 Notes. Through March 26, 2023, the Company also declared and paid quarterly cash dividends aggregating $7,563,000.
Net working capital decreased to $23,203,000 from $30,652,000 at March 26, 2023 due primarily to the partial redemption of $20,000,000 of the Company’s 2025 Notes. Our primary sources of liquidity are cash flows from operations.
The amount of unrecognized tax benefits at March 26, 2023 was $432,000 all of which would impact Nathan’s effective tax rate, if recognized. As of March 26, 2023, Nathan’s had $305,000 of accrued interest and penalties in connection with unrecognized tax benefits.
As of March 31, 2024, Nathan’s had $345,000 of accrued interest and penalties in connection with unrecognized tax benefits.
There have been no material changes in our contractual obligations since March 27, 2022 except for the partial redemption of the 2025 Notes on March 21, 2023 discussed above. Inflationary Impact Inflationary pressures on labor and rising commodity prices have impacted our consolidated results of operations during fiscal 2023, and we expect this trend will continue into fiscal 2024.
There have been no material changes in our contractual obligations since March 26, 2023 except for the partial redemption of the 2025 Notes on December 19, 2023 as discussed above.
Total sales increased by 18% to $91,045,000 for the fiscal 2023 period as compared to $77,227,000 for the fiscal 2022 period. Foodservice sales from the Branded Product Program were $78,884,000 for the fiscal 2023 period as compared to sales of $66,322,000 for the fiscal 2022 period.
Foodservice sales from the Branded Product Program were $86,489,000 for the fiscal 2024 period as compared to $78,884,000 for the fiscal 2023 period. We estimate that the additional week of operations during fiscal 2024 represented approximately $1,202,000 of additional Branded Product Program sales.
Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, were $1,135,000 in the fiscal 2023 period as compared to $1,054,000 in the fiscal 2022 period. General and administrative expenses increased $916,000 or 7% to $14,061,000 in the fiscal 2023 period as compared to $13,145,000 in the fiscal 2022 period.
The increase is due primarily to higher occupancy expenses of $85,000, higher insurance costs of $35,000, and higher credit card bank fees of $73,000. Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, was $1,135,000 in the fiscal 2024 period and the fiscal 2023 period.
Cash used in financing activities of $39,455,000 in the fiscal 2023 period relates primarily to the payment of $30,000,000 in connection with the partial redemption of the 2025 Notes and the payments of the Company’s quarterly $0.45 per share cash dividends on June 24, 2022, September 2, 2022, December 2, 2022 and the Company’s quarterly $0.50 per share cash dividend on March 3, 2023 totaling $7,563,000.
Financing activities Cash used in financing activities of $28,523,000 relates to the payment of $20,000,000 in connection with the partial redemption of our 2025 Notes and the payments of the Company’s quarterly $0.50 per share dividends totaling $8,161,000. The Company also paid $362,000 for withholding taxes on the net share vesting of 10,000 restricted stock units.
We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain. We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.
We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during the remainder of fiscal 2025. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations.
Offsetting these increases was a reduction in accrued interest expense of $825,000 due to the partial redemption of our 2025 Notes. Cash used in investing activities was $584,000 in the fiscal 2023 period primarily in connection with capital expenditures incurred for our Branded Product Program, our Coney Island restaurants and our general ledger and accounting system upgrade.
Offsetting these decreases was an increase in accrued payroll and other benefits of $112,000 due primarily to higher incentive compensation accruals. 46 Investing activities Cash used in investing activities of $313,000 is primarily comprised of capital expenditures incurred for our Branded Product Program and our Coney Island restaurants.
Please refer to Note J – Long-Term Debt in the accompanying consolidated financial statements for a further discussion regarding the Company’s indebtedness. 44 Cash provided by operations of $19,837,000 in the fiscal 2023 period is primarily attributable to net income of $19,623,000 in addition to other non-cash operating items of $2,856,000, offset by changes in other operating assets and liabilities of $2,642,000.
Please refer to Note J – Long Term Debt in the accompanying consolidated financial statements for a further discussion regarding the Company’s indebtedness.
Additionally, 28 franchise locations closed, including 9 Branded Menu Program outlets. Advertising fund revenue, after eliminating Company contributions, was $1,993,000 in the fiscal 2023 period and $1,972,000 during the fiscal 2022 period. Costs and Expenses Overall, our cost of sales increased by 15% to $75,172,000 in the fiscal 2023 period as compared to $65,164,000 in the fiscal 2022 period.
Costs and Expenses Overall, our cost of sales increased by approximately 11% to $83,182,000 in the fiscal 2024 period as compared to $75,172,000 in the fiscal 2023 period.
We believe the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset and liability amounts. The following discussion should be read in conjunction with the consolidated financial statements included in Part IV, Item 15 of this Form 10-K.
We consider the following estimates to be the most critical in understanding the assumptions used by management in preparing the consolidated financial statements due to the subjectivity and sensitivity of the methods used in determining the related estimates.
Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to implement further price increases in the future. 36 Business Overview We are engaged primarily in the marketing of the “Nathan’s Famous” brand and the sale of products bearing the “Nathan’s Famous” trademarks through several different channels of distribution.
Inherent volatility in commodity markets, including beef and beef trimmings, could have a significant impact on our results of operations. 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.
Total Company-owned restaurant sales increased by 12% to $12,161,000 during the fiscal 2023 period as compared to $10,905,000 during the fiscal 2022 period. The increase was primarily due to an increase in traffic at our Coney Island locations. License royalties increased by 5% to $33,455,000 in the fiscal 2023 period as compared to $31,824,000 in the fiscal 2022 period.
Restaurant sales were impacted by reduced traffic due primarily to unfavorable summer weather conditions. 42 License royalties increased by approximately $126,000 to $33,581,000 in the fiscal 2024 period as compared to $33,455,000 in the fiscal 2023 period.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−1 removed5 unchanged
Biggest changeOur average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022. We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.
Biggest changeWe are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2025. Factors that affect beef prices are outside of our control and include foreign and domestic supply and demand, inflation, weather and seasonality.
As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results. 48
As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results. 50
Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 26, 2023, Nathan’s cash balance aggregated $29,861,000.
Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 31, 2024, Nathan’s cash balance aggregated $21,027,000.
A short-term increase or decrease of 10% in the cost of our food and paper products for the year ended March 26, 2023 would have increased or decreased our cost of sales by approximately $6,934,000.
A short-term increase or decrease of 10% in the cost of our food and paper products for the year ended March 31, 2024 would have increased or decreased our cost of sales by approximately $7,734,000.
Earnings on this cash would increase or decrease by approximately $75,000 per annum for each 0.25% change in interest rates. Borrowings At March 26, 2023, we had $80,000,000 of 6.625% 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $200,000 per annum for each 0.25% change in interest rates.
Earnings on this cash would increase or decrease by approximately $53,000 per annum for each 0.25% change in interest rates. Borrowings At March 31, 2024, we had $60,000,000 principal amount of 6.625% 2025 Notes outstanding which are due in November 2025.
In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future.
To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future.
We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings. Commodity Costs Inflationary pressures on labor and rising commodity prices have directly impacted our consolidated results of operation during fiscal 2023, most notably within our restaurant operations and Branded Product Program segments. We expect this trend to continue into fiscal 2024.
Commodity Costs Inflationary pressures on labor and rising commodity prices have directly impacted our consolidated results of operation during fiscal 2024, most notably within our restaurant operations and Branded Product Program segments. We expect this trend to continue into fiscal 2025. Our average cost of hot dogs during fiscal 2024 was approximately 10% higher than during fiscal 2023.
Removed
Factors that affect beef prices are outside of our control and include foreign and domestic supply and demand, inflation, weather and seasonality. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations.
Added
Interest expense on these borrowings would increase or decrease by approximately $150,000 per annum for each 0.25% change in interest rates. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.

Other NATH 10-K year-over-year comparisons