Nathanamous025
0-K

eep Dive

Warren.AI 💰 7.8 / 10

Discover how Nathanamous, Inc. (NASDAQ: NATH) continues to leverage its century-old brand and diversified business model across multiple channels. In this analysis, we explore:

• Business overview and strategy
• Segment breakdown and performance
• 2025 financial highlights
• Balance sheet and debt profile
• Key risk factors
• Investment outlook and score (7.8/10)

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1. Company Overview

Founded on Coney Island in 1916, Nathanamous is best known for its "World Famous Beef Hot Dogs". Over time, it has grown into a brand marketer, operating through four core channels:

• Branded Product Program: Bulk hot dogs and other products sold to foodservice operators and distributors.
• Product Licensing: Royalties from packaged hot dogs, frozen fries, pickles and condiments sold through retail supermarkets, mass merchandisers and clubs.
• Restaurant Operations: Four Company-owned quick-service restaurants in the New York metro area.
• Franchise & Brandedafé Menu: 230 franchise restaurants (including 121 Branded Menu and 143 virtual kitchens) in 17 states and 12 countries.

Nathanamous also owns the ArthurTreacher's Fish & Chips brand, using it as a co-brand within select units.

Competitive Strengths

1. Iconic Brand: Century-old heritage with strong recognition.
2. Premiumrank: Proprietary spice blend and recipe since 1916, enabling premium pricing.
3. Diversified Model: Revenue from licensing, branded products, franchising and Company-owned stores.
4. High-Margin Licenses: Retail licensing royalties represent ~23% of total revenues.

2. 2025 Financial Highlights

Fiscal Year: 52 weeks ending March 30, 2025
Revenue: $148.2, up 7% year-over-year (YoY)
Net Income: $24.0 vs. $19.6 in 2024
EPS (Diluted): $5.87, up from $4.80
EBITDA: $37.8
AdjustedBITDA: $39.2 (ex-loss on debt extinguishment & shareompensation)
Cash & Cash Equivalents: $27.8, up from $21.0
Net Debt: $22.6 (Term Loan $50.8 less cash)
Dividend: $2.00 per share in 2025 (four quarterly dividends of $0.50)

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Revenue Segmentation

Segment	2025 Revenue	% of Total
Branded Product Program	$91.8B	62%
Product Licensing	$37.4B	25%
Company-Owned Restaurants	$12.7B	9%
Franchise Fees & Royalties	$4.1B	3%
Advertising Fund	$2.1B	1%
Total	$148.2B	100%

Gross Profit & Margins by Segment

• Branded Product Program: 9,367 GP (10.2% margin)
• Product Licensing: 37,418 GP (100% GP)
• Company-Owned Restaurants: 9,468 GP (74% margin)

(Other costs allocate support functions, marketing and G&A.)

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3. Segment Analysis

Branded Product Program

• 2025 Sales: $91.8B, +6% YoY
• Volume: Hot dog volume +1.2%
• Margin Pressure: Average cost of beef-based products +7% YoY.
• Outlook: Continued inflationary headwinds on beef and freight. Potential hedging or price adjustments.

Product Licensing

• Royalties: $37.4B, +11% YoY
• Smithfield Partnership: $33.6B (90% of licensing revenues). Five-year term through 2032.
• Retail Partnerships: Walmart, Kroger, Costco, BJy with top-tier distribution.
• Outlook: Heavily dependent on continued scale and promotions by Smithfield.

Company-Owned Restaurants

• Sales: $12.7B, +5% YoY.
• Units: Four (including iconic Coney Island Boardwalk location).
• Margin: 43% blended restaurant profit.
• Challenges: Minimum wage hikes in NY (up to $16.50/hr), labor shortages, supply inflation.
• Strategy: Menu innovation, digital & off-premise drive-thru enhancements.

Franchising & Branded Menu Program

• Units: 230 total; 121 Branded Menu; 143 virtual kitchens.
• Franchise Royalties: $3.8B (-3% YoY); impacted by same-store sales mix and inflation.
• Franchise Fees: $0.4B (-19% YoY) with 25 openings/closings balanced for net zero growth.
• Unit Economics: Encouraging development by experienced operators; modest royalty rate of 5.5% on sales.

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4. Liquidity & Capital Structure

Liquidity

• Cash & Equivalents: $27.8B
• Operating Cash Flow: $25.2B, up from $20B in 2024
• CapEx: $0.2B
• Dividends Paid: $8.2B
• Net Leverage: 50,800 Term ebt – $27.8B cash = $23.0B net debt

Refinancing

• Term Loan: $60.0B drawn July 10, 2024, at SOFR + 140bps (5.825% at 3/30/25)
• Maturity: July 10, 2029
• Mandatory Quarterly Principal: 1% ($600k) + optional prepayments
• Covenants: Fixed Charge Ratio ≤1.20x; Net Leverage ≤3.00x. Compliance as of 3/30/25.

Debt Redeemed

• 2025 Notes: $60B 6.625% Senior Secured Notes due 2025 redeemed in August 2024.
• Loss on Extinguishment: $0.4B

Use of Cash

• Operating cash flow funds CapEx, dividends, debt service and opportunistic stock repurchases.

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5. Risk Factors & Mitigations

• Commodity Inflation: Beef costs accounted for ~90% of food costs. Mitigation: formula-based pricing, periodic menu price increases, limited hedging commitments.
• Labor Costs: Minimum wage increase to $16.50/hr in NY. Mitigation: menu pricing, labor schedules, automation.
• Smithfield Concentration: >90% of license royalties. Mitigation: pursuing alternate licenses and product lines.
• Supply Chain Disruption: Reliance on two primary processors. Mitigation: secondary suppliers tested.
• Franchise Execution: ~70% brand exposure is via franchisees. Mitigation: stringent training, quality audits, franchise covenant enforcement.
• ESG & Health Trends: Consumer shifts to healthier foods; regulatory focus on nutrition. Mitigation: menu innovation (plant-based lines?), enhanced nutrition labeling.

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6. Outlook & Investment Score (7.8/10)

Strengths

• Iconic Brand
• Diversified revenue streams
• High-margin Licensing business with scale partner
• Consistent free cash flow generation
• Progressive dividend policy (yield ~7% at 4x stock price)

Weaknesses

• Heavy dependence on Smithfield Foods license
• Volatile beef commodity costs and labor inflation
• Limited system growth outside 4 Company units
• Refinancing costs and leverage restrict flexibility

Score (1to10): 7.8
Nathanamous presents a compelling brand story and solid financial track record. The company generates robust cash flow, supports an attractive dividend, and benefits from high-margin licensing. However, margins remain exposed to commodity & labor inflation, and the business relies heavily on a single license partner and a small base of Company-owned restaurants.

Investment Stance: A moderately bullish position for investors seeking income (2.00 annual dividend) and brand exposure within the consumer staples sector. Use caution around commodity inflation spikes and watch for progress on ESG and brand innovation initiatives.

Disclaimer: This review is for educational purposes and should not be construed as investment advice.

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