Nathan's Famous, Inc. (NATH) and its subsidiaries own and franchise Nathan's Famous restaurants and distribute items bearing Nathan's Famous trademarks through various distribution channels.
Its restaurant system consists of four company-owned locations in the New York City metropolitan region as of March 27, 2022, and 239 franchised shops in 18 states and 12 other countries.
The company’s shares have gained 9.6% over the past three months and 6.4% over the past month to close its last trading session at $54.80.
In the latest earnings release, NATH’s sales from company-operated restaurants totaled $10.9 million in fiscal 2022, up from $7.7 million in fiscal 2021. The increase was primarily due to an increase in average check and customer traffic, particularly at its two Coney Island locations, due to the relaxation of certain government-mandated restrictions attributed to public health measures.
In addition, the company announced a 29% increase to $0.45 per share in its regular quarterly cash dividend. The company believes its strong liquidity will sustain this rise while also allowing it to invest in the business.
Here's what could shape NATH's performance in the near term:
Debt Repayment
In conjunction with the redemption of $40,000,000 in aggregate principal amount of our 6.625% Senior Secured Notes due 2025, the company recognized a loss on debt extinguishment of $1,354,000, or $993,000 net of tax, or $0.24 per diluted share. As a result of this redemption, the company anticipates that its future cash interest expense will be reduced by $2,650,000 per year.
Robust Financials
During the fourth quarter ended March 27, 2022, NATH's total revenue increased 35.5% year-over-year to $24.77 million. Its operating income increased 12.4% year-over-year to $6.11 million. The company's net income grew 4.7% from the year-ago value to $2.16 million, while its EPS grew 4% from the prior-year quarter to $0.52.
Strong Profitability
NATH's trailing-12-months net income margin of 11.8% is 80.4% higher than the industry average of 6.6%. Also, its ROC, EBITDA margin, and ROA are 235.8%, 123.8%, and 207.6% higher than the respective industry averages. Furthermore, its gross profit margin of 38.4% is 3.9% higher than the industry average of 36.9%.
POWR Ratings Reflect Solid Prospects
NATH has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. NATH has an A grade for Quality is justified given its robust profitability.
Of the 44 stocks in the B-rated Restaurants industry, NATH is ranked #2.
Beyond what I stated above, we have graded NATH for Sentiment, Growth, Value, Stability, and Momentum. Get all NATH ratings here.
Bottom Line
NATH has exhibited robust financial performance in the latest earnings report and is on track to deliver solid growth in the coming months. In addition, given the company's solid profitability, the stock should soar in the near term. So, we think the stock could be a great buy now.
How Does Nathan’s Famous Inc. (NATH) Stack Up Against its Peers?
NATH has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Good Time Restaurants Inc. (GTIM) and Arcos Dorados Holdings Inc. (ARCO).
NATH shares were unchanged in premarket trading Tuesday. Year-to-date, NATH has declined -4.60%, versus a -18.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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