Update: Nathan's Famous Earnings Hits An Out Of The Park Grand Slam

Aug. 5.14 | About: Nathan's Famous, (NATH)

Summary

Nathan’s Famous earnings release showed more than doubled pretax adjusted earnings.

This was better than I originally expected in my previous Nathan's article.

These earnings reconfirm my confidence in a $100 per share target over the next year.

This morning, August 5, Nathan's Famous (NASDAQ:NATH) reported fiscal first quarter results for the period ending June 29. Net income jumped 21.4% to $4.1 million. The improvement came even though in the year-ago period Nathan's Famous had a one-time insurance settlement and a one-time charge that netted a one-time gain of $2.4 million. Adjusted pretax earnings exploded 119.5% to $6.9 million.

My previous article centered on Nathan's new distribution agreement for retail sales (to grocery outlets, etc.) commands a 10.8% royalty versus a 4.5% royalty with the previous distributor. I was looking for earnings to be as much as double over the next four quarters. With pretax adjusted earnings more than double, that target now seems to be on track. Nathan's reported $0.89 in earnings per share. For the new agreement, Nathan's earned $4.7 million in royalty fees which were 218% higher or more than triple the fees earned in the year-ago period. This was much better than I expected since the royalty fee rate is only 140% higher. This means the new distributors did much more volume than the previous distributors and at the much higher fee rates.

Royalty fees are the bulk of Nathan's earnings going forward. We're talking hotdogs in supermarkets. The revenue and by extension earnings should be sustainable and unaffected by any down cycles in the economy. In fact, as one of my friends put it, hotdog sales may even spike a little during tough times as people turn away from more expensive food. I expect the next three quarters will be more like this last one with a huge jump in royalty fees and a huge jump in earnings per share. This report somewhat hid how pronounced the success was due to the one-time gain from last year that wasn't emphasized much in the report. The stock is up a bit as I type this but I think with the next report the street will finally take serious notice. Meanwhile, I continue to accumulate Nathan's Famous.

Disclosure: The author is long NATH. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.