10-K: BAB, Inc. Reports Modest Revenue Growth and Increased Net Income in Fiscal Year 2023

BAB, Inc. saw a slight increase in revenue and net income for the fiscal year ended November 30, 2023, compared to the previous year.

Summary

• BAB, Inc. reported a net income of $467,000 for the fiscal year ended November 30, 2023, compared to $432,000 in 2022.
• The company's total revenue increased by 6.8% to $3,510,000 in 2023 from $3,287,000 in 2022.
• Royalty revenue increased by 5.8% to $1,945,000, while franchise fee revenue decreased by 49.1% to $27,000.
• Marketing fund revenues rose by 15.1% to $1,244,000.
• Total operating expenses increased by 8.1% to $2,895,000.
• The company had 63 franchise units and 4 licensed units in operation at the end of 2023, with 5 units under development.
• System-wide revenues were $40.5 million in 2023 and $38.2 million in 2022.
• The company declared a total of $0.05 per share in cash distributions/dividends in 2023.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company shows growth in key areas like revenue and net income, there are also some concerning trends such as the decrease in franchise fee revenue and increase in operating expenses. The company is profitable and has a history of paying dividends, but faces significant competition and risks.

Positives

• The company experienced an increase in net income and total revenue.
• Royalty revenue saw a healthy increase, indicating strong performance from existing franchise locations.
• Marketing fund revenues grew significantly, suggesting increased marketing activity and franchisee contributions.
• The company maintains a strong cash position with $1,889,000 in unrestricted cash.
• The company has a history of paying cash distributions/dividends to shareholders and intends to continue this practice.

Negatives

• Franchise fee revenue decreased significantly by 49.1%, indicating a slowdown in new franchise openings or transfers.
• Licensing fees and other income decreased by 6.4%.
• Total operating expenses increased by 8.1%, outpacing revenue growth.
• The number of franchise units decreased from 68 in 2022 to 63 in 2023.

Risks

• The company faces competition in the quick-service restaurant industry.
• Changes in consumer tastes, economic conditions, and demographic trends could affect the business.
• The company is subject to risks related to food quality, supply chain interruptions, and increased costs.
• The company's trademarks could be subject to challenge.
• The company is subject to various government regulations, and failure to comply could have adverse effects.

Future Outlook

The company intends to continue paying cash distributions/dividends on a quarterly basis if warranted, based on profitability expectations and financing needs.

Management Comments

• Management believes that the company's stores compete favorably in terms of food quality, taste, convenience, customer service and value.
• Management considers its relations with its employees to be good.
• Management does not believe that the outcome of any legal proceedings or claims will have a material effect on the company's financial position.

Industry Context

The company operates in the competitive quick-service restaurant industry, which is affected by changes in consumer tastes, economic conditions, and competition. The company competes with national, regional, and local chains, as well as independent operators.

Comparison to Industry Standards

• The company's primary direct competitors in the bagel segment are Panera Bread Company, Bruegger's Bagel Bakery, and Einstein Bros. Bagels.
• There is no major national competitor in the muffin business, but there are several regional and local operators.
• The company also competes with national, regional, and local coffee competitors.
• The company's startup costs are competitive with other retail food establishments offering similar products.
• The company believes it competes favorably in terms of food quality, taste, convenience, customer service, and value.

Stakeholder Impact

• Shareholders will benefit from the increased net income and continued cash distributions/dividends.
• Franchisees may be impacted by changes in marketing strategies and royalty rates.
• Employees will continue to receive competitive pay and benefits.
• Customers will continue to have access to the company's products and services.

Next Steps

• The company intends to continue to realize efficiencies in servicing the combined base of BAB and MFM franchisees.
• The company intends to declare and pay cash distributions/dividends on a quarterly basis if warranted.
• The company will adopt ASU 2016-13 in the first quarter of fiscal 2024.
• The company will adopt ASU 2023-09 for fiscal year ending November 30, 2026.

Key Dates

Keywords

franchise, bagels, muffins, royalties, revenue, net income, marketing, food service, restaurants, licensing