As Nathan's Famous (NATH) readies for the hoopla surrounding its 2016 Hot Dog Eating Contest in Coney Island, New York, on July 4th, it is faced with what it described in a recent Securities & Exchange Commission filing as a "substantial" amount of debt along with a declining stock price.
According to the Jericho, New York-based company's latest 10-K, it owes $135 million to holders of notes that it sold last year that are due in 2020. That's a considerable sum of money for a company with a stock market valuation of about $183 million, and the cost of the debt is eating into Nathan's profits. In the thirteen weeks ended March 27, Nathan's incurred interest expenses of $3.5 million, up from $816,000 in the year-earlier period. Meanwhile, overall revenue fell 6 percent on a year-over-basis, to $19.1 million from $20.3 million.
"To service our indebtedness, we will require a significant amount of cash," the company dryly notes in the "Risk Factors" section of its SEC filing. "Our ability to generate cash depends on many factors beyond our control. As such, we may not be able to generate sufficient cash to service the Notes or our other indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful."
Shares of Nathan's Famous are down about 12 percent this year as Wall Street has worried about a slowdown in the restaurant business. Whether those fears apply to Nathan's Famous, however, isn't clear, since Wall Street analysts don't regularly follow the stock. Yahoo Finance shows that the last time an analyst rated the stock was 1999. A call to Nathan's Famous' corporate office wasn't returned
"Not much growth, plenty of brand recognition, strong retail product," noted Darren Tristano, president of restaurant market research firm Technomic. "Hot dogs are more of an option [on a broader menu in many markets] versus a strategy, except in some cities like Chicago."
Nathan's Famous -- which is celebrating its centennial this year -- generated $100.8 million in revenue during the 2016 fiscal year ended March 27, compared with $99.21 million in fiscal 2015 and $79.7 million in 2014. Nathan's reported $6.1 million in net income for the 2016 fiscal year, down nearly 50% from the $11.7 million produced in fiscal 2014.
The company has both a restaurant business and a packaged foods business, with the latter seemingly doing better than than the former. As of March 27, there were a total of 259 franchise restaurants and 5 company-owned locations, including its flagship Coney Island restaurant, in 21 states and 11 countries. That's down from 296 in the year-earlier period. Nathan's also owns the Arthur Treacher's Fish & Chips and Kenny Rogers Roasters restaurant brands.
Smithfield Foods' John Morrell & Co. unit manufactures, distributes and markets Nathan's Famous-branded hot dog, sausage and corned beef products through retail channels under an 18-year agreement entered in 2014. The deal generated $16.9 million in revenue for Nathan's in fiscal 2016, up from $14.4 million the year earlier.
Whether Wall Street will ever find Nathan's Famous' stock as appetizing as the company's hot dogs that competitive eaters have gorged themselves on for fame and fortune for 100 years remains to be seen.