8-K: FAT Brands Inc. Reports Disappointing First Quarter 2025 Financial Results Amid Strategic Shifts

FAT Brands Inc. reported a decline in revenue, system-wide sales, and profitability for the first quarter of 2025, despite an increase in new store openings and strategic initiatives.

Summary

• FAT Brands Inc. announced its financial results for the first quarter ended March 30, 2025.
• Total revenue decreased by 6.5% to $142.0 million compared to $152.0 million in the same quarter of the previous year.
• System-wide sales declined by 1.8%.
• Same-store sales decreased by 3.4%.
• The company opened 23 new stores during the quarter, a 37% increase year-over-year.
• Net loss was $46.0 million, or $2.73 per diluted share, compared to a net loss of $38.3 million, or $2.37 per diluted share, in the first quarter of 2024.
• EBITDA was $2.1 million, down from $9.4 million in the prior year's quarter.
• Adjusted EBITDA decreased to $11.1 million from $18.2 million in the first quarter of 2024.
• Adjusted net loss was $38.7 million, or $2.32 per diluted share, compared to an adjusted net loss of $32.9 million, or $2.05 per diluted share, in the first quarter of 2024.
• The company is focusing on strengthening its balance sheet and driving operational efficiencies.
• FAT Brands is advancing its strategy to return to a nearly 100% franchised model by refranchising 57 company-operated Fazolis restaurants.

Sentiment

Score: 4

Explanation: The sentiment is negative due to declining revenue, sales, and profitability, despite positive developments like new store openings and strategic initiatives. The increased net loss and decreased EBITDA weigh heavily on the overall outlook.

Positives

• The company opened 23 new locations in the first quarter, a 37% increase over last year's quarter.
• FAT Brands remains on track to achieve its target of over 100 new restaurant openings this year, supported by a robust development pipeline of approximately 1,000 signed agreements.
• The spin-off of Twin Hospitality Group Inc. delivered a $50 million dividend to shareholders.
• The company is expanding internationally, having secured new agreements to open 40 locations across France.

Negatives

• Total revenue declined 6.5% to $142.0 million.
• System-wide sales declined 1.8%.
• System-wide same-store sales declined 3.4%.
• Net loss increased to $46.0 million, or $2.73 per diluted share.
• EBITDA decreased to $2.1 million.
• Adjusted EBITDA decreased to $11.1 million.
• Adjusted net loss increased to $38.7 million, or $2.32 per diluted share.
• General and administrative expense increased $3.0 million, or 10.1%, primarily due to increased professional fees related to pending litigation.

Risks

• Forward-looking statements are subject to significant business, economic, and competitive risks, uncertainties, and contingencies.
• The company's actual results could differ materially from the results expressed or implied in forward-looking statements.
• Increased professional fees related to pending litigation impacted general and administrative expenses.

Future Outlook

The company aims to accelerate the build-out of its 1,000+ unit new store pipeline, drive adjusted EBITDA growth, maintain strong liquidity, build net asset value for future liquidity events, grow factory production, and re-franchise Fazolis restaurants.

Management Comments

• Andy Wiederhorn, Chairman of FAT Brands, said they started 2025 with strong momentum, opening 23 new locations in the first quarter.
• Andy Wiederhorn stated that they remain on track to achieve their target of over 100 new restaurant openings this year.
• Ken Kuick, Co-Chief Executive Officer and Chief Financial Officer of FAT Brands, said the spin-off of Twin Hospitality Group Inc. marks a significant strategic milestone.
• Ken Kuick stated that they remain focused on strengthening their balance sheet while driving operational efficiencies across their portfolio.
• Taylor Wiederhorn, Co-Chief Executive Officer of FAT Brands, said their strategy to return to a nearly 100% franchised model is advancing.

Industry Context

The restaurant industry is facing challenges such as rising labor costs, food inflation, and changing consumer preferences, which may be impacting FAT Brands' performance.

Comparison to Industry Standards

• Comparing FAT Brands' same-store sales decline of 3.4% to competitors like McDonald's, which often reports positive same-store sales growth, indicates underperformance.
• Companies like Domino's Pizza, known for their strong franchising model, can be used as a benchmark for FAT Brands' refranchising efforts.
• Yum! Brands, with its diverse portfolio of restaurant chains, provides a comparison point for FAT Brands' multi-brand strategy.

Legal Proceedings

• General and administrative expense increased due to the increased professional fees related to pending litigation.

Stakeholder Impact

• Shareholders experienced a $50 million dividend through the distribution of Twin Hospitality Groups Class A Common Stock.
• The company's performance may impact employee morale and job security.
• Franchisees may be affected by changes in system-wide sales and marketing strategies.

Next Steps

• Accelerate build-out of 1,000+ unit new store pipeline.
• Drive Adj. EBITDA Growth from new stores and factory.
• Maintain strong liquidity.
• Continue to build net asset value for future liquidity (Debt Reduction) event.
• Grow factory production to utilize ~60% excess capacity via expanded organic channels & 3rd Party Dough & Mix Manufacturing.
• Re-franchise Fazolis 57 Company-Owned Restaurants.

Key Dates

Keywords

FAT Brands, financial results, first quarter 2025, revenue, EBITDA, net loss, same-store sales, franchising, restaurant industry