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NATHANS FAMOUS, INC. (NATH)

Business Summary

Nathan's Famous, Inc. operates in the foodservice industry and has pursued co-branding initiatives within other foodservice environments. The Company considers itself to be in the foodservice industry. Its products are currently marketed for sale in thousands of locations, including supermarkets, mass merchandisers and club stores, selected foodservice locations and its Company-owned and franchised restaurants throughout the United States and in twenty foreign countries.

The Company's primary competitors include major national chains with greater financial and other resources, as well as local restaurants and diners. Competitive strengths include an iconic brand with global recognition, the 'Frank of Choice' positioning using a proprietary spice mix and a recipe originally developed in 1916, a multi-channel business model providing diversified revenue streams, and high margin licensing revenue streams. The licensing agreements combined produced $37,417,000 and $37,418,000 of high margin revenue for fiscal 2026 and 2025, respectively.

The Company generates revenue through multiple channels: a licensing program earning royalties on products sold by licensees; a Branded Product Program selling hot dog products directly to foodservice operators or to distributors; Company-owned quick-service restaurants; franchised restaurant operations earning royalties on sales; and a Branded Menu Program earning royalties on product purchases from approved distributors. The Company also owns the Arthur Treacher's Fish & Chips brand and trademarks, used as a branded seafood menu-line extension.

The licensing program contracts with third parties to manufacture, distribute, market and sell Nathan's Famous branded products. Pursuant to an agreement expiring in March 2032, Smithfield Foods has the exclusive right to manufacture, distribute, market and sell Nathan's Famous branded hot dogs and sausages in refrigerated consumer packages through retail channels, earning royalties of approximately $31,893,000 in fiscal 2026 and $31,869,000 in fiscal 2025, representing approximately 20% and 22% of total revenues, respectively. Smithfield Foods also licensed the right to manufacture and sell branded hot dogs and sausages to select foodservice accounts, earning royalties of $1,696,000 and $1,720,000 during fiscal 2026 and 2025, respectively. Royalties earned under the retail agreement, including the foodservice program, were approximately 90% of fiscal 2026 license revenues. Other licensees include Solina (proprietary spices, royalties of $1,561,000 in fiscal 2026 and $1,559,000 in fiscal 2025), Lamb Weston, Inc. (frozen crinkle-cut French fries and onion rings, royalties of $1,598,000 in fiscal 2026 and $1,649,000 in fiscal 2025), Bran-Zan Holdings, LLC (miniature bagel dogs and other items, royalties of $339,000 in fiscal 2026 and $350,000 in fiscal 2025), Hermann Pickle Packers, Inc. (pickles, royalties of $255,000 in fiscal 2026 and $271,000 in fiscal 2025), and Lake Street Provisions, Inc. (meat sticks and jerky snacks, royalties of $75,000 in fiscal 2026).

The Branded Product Program contributed $105,768,000 and $91,828,000 in revenue in fiscal 2026 and fiscal 2025, respectively. The total volume of hot dogs sold in the Branded Product Program achieved its highest levels in fiscal 2026 topping the previous volume records established in fiscal 2025. The average cost of hot dogs during fiscal 2026 was approximately 19% higher than during fiscal 2025. Company-owned restaurants contributed $12,508,000 and $12,714,000 in revenue for fiscal 2026 and fiscal 2025, respectively. The average check at Company-owned restaurants during fiscal 2026 increased by approximately 1.3% over fiscal 2025. Franchise operations contributed $4,317,000 and $4,148,000 in revenue for fiscal 2026 and fiscal 2025, respectively. At March 29, 2026, the franchise system consisted of 221 locations operating in 19 states and 11 foreign countries, and 476 virtual kitchens located in 41 states and 3 foreign countries. During fiscal 2026, 23 franchised locations opened, including 2 Branded Menu Program locations, and 32 franchised locations closed, including 13 Branded Menu Program locations.

On January 20, 2026, the Company entered into an Agreement and Plan of Merger with Smithfield Foods, Inc. and Boardwalk Merger Sub, Inc. Pursuant to the Merger Agreement, Merger Sub shall merge with and into the Company, with the Company continuing as the surviving corporation and becoming a wholly owned subsidiary of Buyer. Completion of the transaction remains contingent upon several conditions, including securing approval from the holders of a majority of Nathan's outstanding stock and obtaining clearance from CFIUS. The Company now expects the transaction to close in the second half of 2026. The Company paid four quarterly cash dividends of $0.50 per share of common stock during fiscal 2025 and 2026, and a special cash dividend of $2.50 per share on December 5, 2025. Effective June 9, 2026, as permitted under the Merger Agreement, the Board declared a regular quarterly cash dividend of $0.50 per share for fiscal 2027 payable on June 30, 2026. After the payment of the June 2026 Regular Cash Dividend, the Company is no longer permitted to declare and pay any further dividends under the Merger Agreement. The Company did not repurchase any of its common stock during the quarter ended March 29, 2026.

Total revenues increased by approximately 9% to $162,063,000 for fiscal 2026 compared to $148,182,000 for fiscal 2025. Net income was $20,020,000 for fiscal 2026 compared to $24,026,000 for fiscal 2025. EBITDA was $31,972,000 for fiscal 2026 compared to $37,824,000 for fiscal 2025. Adjusted EBITDA was $36,314,000 for fiscal 2026 compared to $39,206,000 for fiscal 2025.

Business Outlook & Financial Sufficiency

The Company expects that its retail licensing program may continue to grow, centered around the licensing program with Smithfield Foods. The Company expects Nathan's Famous products to continue penetrating the grocery, mass merchandising and club channels by expanding points of distribution in targeted, underpenetrated regions and through the development of new products. The Company expects to continue the growth of its Branded Product Program through the addition of new accounts and venues, targeting sales to a broad line of foodservice distributors and various foodservice retailers. The Company expects to continue to market its franchise program and Branded Menu Program to large, experienced operators and individual owner-operators, and may continue developing master franchise programs in foreign countries. The Company may selectively consider opening new Company-owned restaurants on an opportunistic basis and may consider new opportunities in both traditional and captive market settings.

The Company continues to focus on managing expenses in the operation of Company-owned restaurants, with emphasis on cost of goods sold including food costs, paper costs and labor costs while not sacrificing quality and service. The Company continues to implement menu innovation along with pricing strategies to help mitigate inflationary pressures on operations. The Company's average cost of hot dogs during fiscal 2026 was approximately 19% higher than during fiscal 2025, and the Company expects to experience price volatility for its beef products during fiscal 2027. The Company is unable to predict the future cost of its hot dogs.

The Company utilizes a cooperative distribution system pursuant to an agreement with National Distribution Alliance, a UniPro Solutions Company, which was amended and extended through June 30, 2027 . The Company's branded products are delivered to ultimate customers by numerous distributors. The Company may seek to further expand its internal marketing resources along with its network of foodservice brokers and distributors during fiscal 2027. The Company may attempt to emphasize specific venues as it expands its broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs.

The Company expects to make cash interest payments of approximately $2,305,000 on the Term Loan borrowings during the fiscal year ended March 28, 2027, based on the interest rate effective at March 29, 2026. The Company may from time to time seek to make voluntary principal prepayments of Term Loan borrowings under its Credit Agreement. The Company expects to fund investments in existing restaurants, support growth of the Branded Product and Branded Menu Programs, service principal and interest obligations under the Credit Agreement, and pay the June 2026 Regular Cash Dividend from operating cash flow.

The Company's ability to pay future dividends is limited by the terms of the Merger Agreement. After the payment of the June 2026 Regular Cash Dividend of $0.50 per share, the Company is no longer permitted to declare and pay any further dividends under the Merger Agreement. The terms of the Merger Agreement also prohibit the Company from repurchasing any of its common stock. As of March 29, 2026, there were 98,116 shares remaining to be repurchased pursuant to the sixth stock repurchase plan, which does not have a set expiration date.

The Company faces inflationary pressures on commodity prices, including beef and beef trimmings, which are expected to continue during fiscal 2027. The Company is unable to predict the future cost of its hot dogs and expects to experience price volatility for its beef products. On January 1, 2026, the minimum hourly wage in New York City, Long Island and Westchester increased from $16.50 to $17.00 , impacting all Company-owned restaurants. Beginning in 2027, the minimum wage across New York State will increase annually according to the Consumer Price Index. The Company's ability to complete the Merger is subject to certain closing conditions, including regulatory approval from CFIUS, and the Company now expects the transaction to close in the second half of 2026.

The Company's international operations are subject to factors including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, and the availability of appropriate franchisees. The Company's geographic concentration in the Northeast can cause economic conditions in this area to have a disproportionate impact on overall results of operations. The Company's Coney Island flagship location has been open for over 100 years, and the leases at Company-owned restaurants located at Coney Island and at the Coney Island Boardwalk expire in December 2027 and November 2027 , respectively.

Management Sentiments & Priorities

Management's message emphasizes the Company's iconic brand with global recognition, its multi-channel business model providing diversified revenue streams, and its high margin licensing revenue streams. Key strategic priorities include leveraging the Nathan's Famous brand and iconic products to grow sales, continuing the growth of the retail licensing program centered around Smithfield Foods, expanding the Branded Product Program through new accounts and venues, marketing the franchise program and Branded Menu Program, and improving Company-owned restaurant profitability through expense management and menu innovation. Management notes that the pending Merger with Smithfield Foods is expected to close in the second half of 2026, subject to conditions including stockholder approval and CFIUS clearance.

Financial Details

Total revenues were $162,063,000 for fiscal 2026 compared to $148,182,000 for fiscal 2025. Net income was $20,020,000 for fiscal 2026 compared to $24,026,000 for fiscal 2025. Diluted earnings per share were $4.89 for fiscal 2026 compared to $5.87 for fiscal 2025. Operating income was $30,020,000 for fiscal 2026 compared to $38,835,000 for fiscal 2025. EBITDA was $31,972,000 for fiscal 2026 compared to $37,824,000 for fiscal 2025. Adjusted EBITDA was $36,314,000 for fiscal 2026 compared to $39,206,000 for fiscal 2025. Cash and cash equivalents were $24,404,000 at March 29, 2026 compared to $27,802,000 at March 30, 2025. Total outstanding indebtedness was $48,400,000 at March 29, 2026. The effective income tax rate was 28.9% for fiscal 2026 compared to 26.7% for fiscal 2025. General and administrative expenses increased by $3,373,000 to $17,903,000 in fiscal 2026 compared to $14,530,000 in fiscal 2025, primarily due to higher professional fees of $3,365,000 principally related to the pending Merger. Interest expense was $2,857,000 in fiscal 2026 compared to $4,106,000 in fiscal 2025. The Company recorded a loss on extinguishment of debt of $334,000 in fiscal 2025 related to the refinancing of the 2025 Notes, and a loss on debt extinguishment of $55,000 related to a voluntary principal prepayment of $8,000,000 of Term Loan borrowings. For the Branded Product Program segment, revenue was $105,768,000 in fiscal 2026 compared to $91,828,000 in fiscal 2025. For the Product Licensing segment, revenue was $37,417,000 in fiscal 2026 compared to $37,418,000 in fiscal 2025. For the Restaurant Operations segment, revenue was $16,825,000 in fiscal 2026 compared to $16,862,000 in fiscal 2025.

Risk Factors

The Company's licensing revenue and overall profitability is substantially dependent on its agreement with Smithfield Foods, which earned license royalties of approximately $33,589,000 in fiscal 2026 representing 21% of total revenues; the loss or significant reduction of this revenue would have a material adverse effect. A small number of Branded Product Program customers account for a significant portion of revenues, with sales to the five largest customers being approximately 80% of Branded Product Program revenues in fiscal 2026. The Company's beef costs represent approximately 80% to 90% of its cost of sales, and the market for beef is particularly volatile; the average cost of hot dogs during fiscal 2026 was approximately 19% higher than during fiscal 2025. The Company has significant indebtedness of $48,400,000 as of March 29, 2026, which makes it more sensitive to adverse economic conditions and requires substantial cash to service debt payment obligations. Failure to complete the Merger could negatively impact the price of common stock and the Company may be required to pay a termination fee of $10,581,814 under certain circumstances.

References

  1. [1] Item 1, Business — Licensing Program
  2. [2] Item 1, Business — Licensing Program
  3. [3] Item 1, Business — Licensing Program
  4. [4] Item 1, Business — Licensing Program
  5. [5] Item 1, Business — Licensing Program
  6. [6] Item 1, Business — Licensing Program
  7. [7] Item 1, Business — Licensing Program
  8. [8] Item 1, Business — Licensing Program
  9. [9] Item 1, Business — Licensing Program
  10. [10] Item 1, Business — Licensing Program
  11. [11] Item 1, Business — Licensing Program
  12. [12] Item 1, Business — Licensing Program
  13. [13] Item 1, Business — Licensing Program
  14. [14] Item 1, Business — Licensing Program
  15. [15] Item 1, Business — Licensing Program
  16. [16] Item 1, Business — Licensing Program
  17. [17] Item 1, Business — Licensing Program
  18. [18] Item 1, Business — Licensing Program
  19. [19] Item 1, Business — Branded Product Program
  20. [20] Item 1, Business — Branded Product Program
  21. [21] Item 1, Business — Branded Product Program
  22. [22] Item 1, Business — Company-owned restaurants
  23. [23] Item 1, Business — Company-owned restaurants
  24. [24] Item 1, Business — Company-owned restaurants
  25. [25] Item 1, Business — Franchise Operations
  26. [26] Item 1, Business — Franchise Operations
  27. [27] Item 1, Business — Franchise Operations
  28. [28] Item 1, Business — Franchise Operations
  29. [29] Item 1, Business — Franchise Operations
  30. [30] Item 1, Business — Franchise Operations
  31. [31] Item 1, Business — Franchise Operations
  32. [32] Item 1, Business — Franchise Operations
  33. [33] Item 5, Market for Registrant's Common Equity — Dividend Policy
  34. [34] Item 5, Market for Registrant's Common Equity — Dividend Policy
  35. [35] Item 5, Market for Registrant's Common Equity — Dividend Policy
  36. [36] Item 7, MD&A — Results of Operations
  37. [37] Item 7, MD&A — Results of Operations
  38. [38] Item 7, MD&A — Results of Operations
  39. [39] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  40. [40] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  41. [41] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  42. [42] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  43. [43] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  44. [44] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  45. [45] Item 1, Business — Branded Product Program
  46. [46] Item 1, Business — Provisions and Supplies
  47. [47] Item 7, MD&A — Cash Flow Outlook
  48. [48] Item 5, Market for Registrant's Common Equity — Dividend Policy
  49. [49] Item 7, MD&A — Share Repurchases
  50. [50] Item 1, Business — Improve Company-owned restaurant profitability
  51. [51] Item 1, Business — Improve Company-owned restaurant profitability
  52. [52] Item 2, Properties
  53. [53] Item 2, Properties
  54. [54] Item 1A, Risk Factors — Risks Related to Our Business and Operations
  55. [55] Item 1A, Risk Factors — Risks Related to Our Business and Operations
  56. [56] Item 1A, Risk Factors — Risks Related to Our Business and Operations
  57. [57] Item 1A, Risk Factors — Risks Related to Our Business and Operations
  58. [58] Item 1, Business — Branded Product Program
  59. [59] Item 1A, Risk Factors — Risks Related to our Indebtedness
  60. [60] Item 1A, Risk Factors — Risks Related to the Merger with Smithfield Foods
  61. [61] Item 7, MD&A — Results of Operations
  62. [62] Item 7, MD&A — Results of Operations
  63. [63] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  64. [64] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  65. [65] Item 8, Financial Statements — Consolidated Statements of Operations
  66. [66] Item 8, Financial Statements — Consolidated Statements of Operations
  67. [67] Item 8, Financial Statements — Consolidated Statements of Operations
  68. [68] Item 8, Financial Statements — Consolidated Statements of Operations
  69. [69] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  70. [70] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  71. [71] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  72. [72] Item 7, MD&A — Reconciliation of GAAP and Non-GAAP Measures
  73. [73] Item 7, MD&A — Sources and uses of cash
  74. [74] Item 7, MD&A — Sources and uses of cash
  75. [75] Item 1A, Risk Factors — Risks Related to our Indebtedness
  76. [76] Item 7, MD&A — Provision for Income Taxes
  77. [77] Item 7, MD&A — Provision for Income Taxes
  78. [78] Item 7, MD&A — Costs and Expenses
  79. [79] Item 7, MD&A — Costs and Expenses
  80. [80] Item 7, MD&A — Costs and Expenses
  81. [81] Item 7, MD&A — Costs and Expenses
  82. [82] Item 7, MD&A — Other Items
  83. [83] Item 7, MD&A — Other Items
  84. [84] Item 7, MD&A — Other Items
  85. [85] Item 7, MD&A — Other Items
  86. [86] Item 7, MD&A — Other Items
  87. [87] Item 7, MD&A — Results of Operations
  88. [88] Item 7, MD&A — Results of Operations
  89. [89] Item 7, MD&A — Results of Operations
  90. [90] Item 7, MD&A — Results of Operations
  91. [91] Item 8, Financial Statements — Segment Information
  92. [92] Item 8, Financial Statements — Segment Information

Analysis on 6/9/2026