Nathan's Q2 Revenues Up by 17.4%

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

For the fiscal quarter ended September 25, 2011:

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

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

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

The Company also reported the following:

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

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

On March 4, 2011, Nathan's filed a notice of appeal seeking to appeal the final judgment. Throughout the duration of the appeal, Nathan’s is required to deposit post-judgment interest on the damages awarded at 9% per annum into a security account. Nathan’s has made these deposits and recorded interest expense of $223,000 or $134,000, net of tax, during the twenty-six weeks ended September 25, 2011.

About Nathan’s Famous

Nathan’s products are currently distributed in 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, the Cayman Islands and six foreign countries through its restaurant system, foodservice sales programs and product licensing activities. The Nathan’s restaurant system currently consists of 287 units, comprised of 282 franchised units and five company-owned units (including one seasonal unit).

(a) Represents legal expense incurred in connection with the SMG matter during the respective periods.

(b) Represents accrued interest expense incurred in connection with Nathan’s appeal of the SMG damages award.

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