8-K: FAT Brands Inc. Reports Disappointing Fiscal Fourth Quarter and Full Year 2024 Results Amid Strategic Shift

FAT Brands Inc. reported a decrease in revenue and a significant net loss for both the fourth quarter and full fiscal year 2024, despite an increase in new store openings and strategic moves like the Twin Peaks spin-off.

Summary

• FAT Brands Inc. reported its fiscal fourth quarter and full fiscal year 2024 financial results.
• The company opened 92 restaurants and signed over 250 new franchise agreements, increasing the development pipeline to 1,000 locations.
• For 2025, the company expects to add more than 100 additional restaurants.
• FAT Brands spun out Twin Hospitality Group Inc. into a separate publicly traded company.
• The company plans to refranchise its 57 company-owned Fazolis locations, aiming to become nearly 100% franchised with only 33 Hot Dog on a Stick company-owned locations remaining.
• Total revenue for the fourth quarter decreased 8.4% to $145.3 million compared to $158.6 million in the prior year.
• System-wide sales declined 7.4% in the fourth quarter.
• System-wide same-store sales declined 1.6% in the fourth quarter.
• The company reported a loss from operations of $39.3 million for the fourth quarter, compared to a $3.1 million loss in the prior year.
• Net loss for the fourth quarter was $67.4 million, or $4.06 per diluted share, compared to a $26.2 million loss, or $1.68 per diluted share, in the prior year.
• Adjusted EBITDA for the fourth quarter was $14.4 million compared to $27.0 million in the prior year.
• Total revenue for the full fiscal year increased 23.4% to $592.7 million compared to $480.5 million in the prior year.
• System-wide sales grew by 3.1% for the full fiscal year.
• System-wide same-store sales declined 2.5% for the full fiscal year.
• The company reported a loss from operations of $52.2 million for the full fiscal year, compared to an income from operations of $22.3 million in the prior year.
• Net loss for the full fiscal year was $189.8 million, or $11.60 per diluted share, compared to a $90.1 million loss, or $5.85 per diluted share, in the prior year.
• Adjusted EBITDA for the full fiscal year was $62.4 million compared to $91.2 million in the prior year.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the significant net losses and declines in key financial metrics, despite some positive strategic moves and expansion efforts.

Positives

• FAT Brands successfully expanded its footprint by opening 92 restaurants in 2024.
• The company signed over 250 new franchise agreements, increasing its development pipeline to 1,000 locations.
• The spin-out of Twin Hospitality Group Inc. provides valuable capital resources for growth.
• The planned refranchising of Fazolis locations will return the company to being nearly 100% franchised.

Negatives

• Total revenue decreased 8.4% to $145.3 million in the fourth quarter.
• System-wide sales declined 7.4% in the fourth quarter.
• System-wide same-store sales declined 1.6% in the fourth quarter.
• Loss from operations was $39.3 million for the fourth quarter.
• Net loss was $67.4 million, or $4.06 per diluted share, for the fourth quarter.
• Adjusted EBITDA was $14.4 million for the fourth quarter.
• Loss from operations was $52.2 million for the full fiscal year.
• Net loss was $189.8 million, or $11.60 per diluted share, for the full fiscal year.
• Adjusted EBITDA was $62.4 million for the full fiscal year.

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.

Future Outlook

The company expects to add more than 100 additional restaurants in 2025 and is focused on synergies and cost reductions through refranchising efforts.

Management Comments

• Andy Wiederhorn, Chairman of FAT Brands, stated that the company successfully expanded its footprint and increased its development pipeline.
• Ken Kuick, Co-Chief Executive Officer of FAT Brands, highlighted the spin-out of Twin Hospitality Group Inc. and its potential for growth.
• Rob Rosen, Co-Chief Executive Officer of FAT Brands, emphasized the focus on synergies and cost reductions through refranchising.

Industry Context

FAT Brands is operating in a competitive restaurant franchising industry where strategic acquisitions, brand development, and cost management are crucial for success. The spin-off of Twin Peaks and the focus on refranchising indicate a move towards a more asset-light, franchise-focused model, which is a common strategy in the industry.

Comparison to Industry Standards

• Comparing FAT Brands' same-store sales decline of 1.6% in Q4 to competitors like Domino's (which often reports positive SSS growth) indicates underperformance.
• The adjusted EBITDA margin of FAT Brands is lower than industry leaders like McDonald's, suggesting operational inefficiencies.
• The company's strategy to refranchise Fazolis is similar to Restaurant Brands International's approach with Burger King, aiming for a higher percentage of franchised locations.

Stakeholder Impact

• Shareholders are negatively impacted by the net losses and declining financial performance.
• Franchisees may benefit from the company's expansion and refranchising efforts.
• Employees may be affected by cost reduction measures and refranchising plans.

Next Steps

• Accelerate build-out of 1,000+ unit new store pipeline.
• Drive Adjusted EBITDA growth from new stores and factory production.
• Maintain strong liquidity.
• Continue to build net asset value for future liquidity events.
• Grow factory production to utilize excess capacity.
• Re-franchise Fazolis 57 company-owned restaurants.

Key Dates