10-Q: BT Brands Reports First Quarter 2024 Results, Revenue Up Slightly Amidst Rising Labor Costs

BT Brands saw a slight increase in revenue for the first quarter of 2024, but faced challenges with rising labor costs and a net loss.

Summary

• BT Brands reported a net loss of $445,700 for the first quarter of 2024, compared to a net loss of $141,786 for the same period in 2023.
• The company's revenue increased to $3,190,147 from $3,070,798 in the first quarter of 2023.
• Restaurant operating costs increased to 100.5% of sales, up from 99.2% in the prior year, primarily due to higher labor costs.
• Labor costs rose to 43.5% of sales, compared to 39.2% in the first quarter of 2023, due to a tighter labor market and higher wages.
• The cost of sales for food and paper decreased to 40.1% of sales from 42.0% in the same period last year.
• The company's restaurant-level EBITDA was a loss of $15,672, compared to a profit of $24,946 in the first quarter of 2023.
• As of March 31, 2024, BT Brands had $6.1 million in cash and marketable securities and net working capital of $5.3 million.
• The company operates 11 restaurants, including seven Burger Time locations, and has a 40% stake in Bagger Daves, which operates six restaurants.

Sentiment

Score: 4

Explanation: The document presents mixed results with a slight revenue increase offset by a significant net loss and rising labor costs. The company is facing challenges, but is also taking steps to diversify and grow. The overall sentiment is cautiously negative.

Positives

• The company experienced a slight increase in revenue compared to the same period last year.
• The average sales per Burger Time unit increased by approximately $29,000 compared to the first quarter of 2023.
• The cost of sales for food and paper decreased as a percentage of sales.
• The company has a strong cash position with $6.1 million in cash and marketable securities.
• BT Brands completed the cash purchase of the operating assets of a restaurant near Stuart, Florida on May 13, 2024.

Negatives

• The company reported a net loss of $445,700 for the first quarter of 2024.
• Restaurant operating costs increased to 100.5% of sales, up from 99.2% in the prior year.
• Labor costs increased significantly to 43.5% of sales, impacting profitability.
• Restaurant-level EBITDA was negative for the quarter.
• The company's net working capital decreased by $.4 million from December 31, 2023.

Risks

• The company faces challenges in attracting and retaining food service workers.
• Rapid inflation in the cost of input items could impact profitability.
• The company is vulnerable to increased food, commodity, and energy costs.
• Competition from other restaurant chains with greater resources is a significant risk.
• Changes in economic conditions and consumer tastes could negatively impact sales.
• The company's growth strategy, including acquisitions, carries inherent risks.
• The company has identified a material weakness in its internal control over financial reporting.

Future Outlook

The company expects some moderating inflationary pressure during the remainder of 2024, but anticipates challenges in raising menu prices to fully cover cost increases. They plan to redevelop the Dairy Queen property into a Burger Time location in June 2024 and continue to consider new acquisition opportunities.

Management Comments

• The average customer transaction at our Burger Time restaurants increased by approximately 8% in 2023.
• Our recent acquisitions have allowed us to diversify our operations into new restaurant segments and new geographic regions, reducing our dependency on the financial performance of our Burger Time restaurants.
• We continue to consider new acquisition opportunities.

Industry Context

The restaurant industry is facing challenges such as difficulties attracting food service workers, rapid inflation in input costs, and the need to adopt new technologies. BT Brands is navigating these trends while also expanding its operations through acquisitions and diversification.

Comparison to Industry Standards

• The company's increase in labor costs is consistent with industry trends, as many restaurants are facing challenges in attracting and retaining employees.
• The company's focus on drive-thru and take-out service aligns with the industry's shift towards convenience and off-premise dining.
• The company's restaurant-level EBITDA is below industry averages, indicating potential challenges in operational efficiency and cost management.
• The company's acquisition strategy is similar to other restaurant chains seeking growth and diversification.

Related Party Transactions

• BT Brands' CEO and CFO also serve as Chairman and CFO, respectively, of NGI Corporation (NGI).
• BT Brands owns 330,418 common shares and holds warrants to purchase 358,000 common shares at $1.00, expiring March 31, 2028, and 34,697 warrants to purchase additional shares of NGI at $1.65 of NGI.

Stakeholder Impact

• Shareholders may be concerned about the increased net loss and negative restaurant-level EBITDA.
• Employees may be affected by the company's efforts to manage labor costs.
• Customers may experience changes in menu prices due to inflationary pressures.
• Suppliers may be impacted by the company's efforts to manage food costs.

Next Steps

• The company plans to redevelop the Dairy Queen property into a Burger Time location in June 2024.
• BT Brands will continue to consider new acquisition opportunities.
• The company will focus on operational enhancements, equipment advances, and increased volumes to offset food cost increases.

Key Dates

Keywords

restaurants, food service, fast food, Burger Time, Bagger Daves, acquisitions, labor costs, operating expenses, EBITDA, financial results