8-K: FAT Brands Inc. Reports Mixed Q1 2024 Results with Revenue Growth Offset by Increased Losses

FAT Brands Inc. reported a 43.8% increase in total revenue for Q1 2024, driven by the Smokey Bones acquisition, but also experienced a significant net loss and a decline in same-store sales.

Summary

• FAT Brands Inc. announced its financial results for the first quarter of 2024, which ended on March 31, 2024.
• Total revenue increased by 43.8% to $152.0 million, compared to $105.7 million in the same period last year, primarily due to the acquisition of Smokey Bones.
• System-wide sales grew by 4.8% year-over-year, while same-store sales declined by 4.0%.
• The company opened 16 new stores during the quarter.
• Net loss for the quarter was $38.3 million, or $2.37 per diluted share, compared to a net loss of $32.1 million, or $2.05 per diluted share, in the first quarter of 2023.
• EBITDA was $9.4 million, up from $7.7 million in the prior year's first quarter, while adjusted EBITDA decreased to $18.2 million from $19.2 million.
• Adjusted net loss was $32.9 million, or $2.05 per diluted share, compared to an adjusted net loss of $23.5 million, or $1.53 per diluted share, in the first quarter of 2023.
• The company has a pipeline of over 1,200 locations and signed over 150 development deals in the first quarter.
• FAT Brands plans to open 15 to 20 new Twin Peaks lodges in 2024, aiming for approximately 125 lodges by year-end.

Sentiment

Score: 4

Explanation: The document presents mixed results with strong revenue growth offset by increased losses and declining same-store sales. While there are positive aspects like new store openings and development deals, the overall financial performance is concerning, leading to a negative sentiment.

Positives

• Total revenue saw a significant increase of 43.8% year-over-year, reaching $152.0 million.
• System-wide sales experienced a growth of 4.8% compared to the first quarter of 2023.
• The company's development pipeline has expanded to over 1,200 locations, with 150 new deals signed in Q1 2024.
• EBITDA increased to $9.4 million, up from $7.7 million in the same quarter of the previous year.
• The company is actively pursuing co-branding opportunities and has finalized a deal for 40 co-branded locations.
• The company is expanding the Twin Peaks brand with 15-20 new locations planned for 2024.

Negatives

• Same-store sales declined by 4.0% in the first quarter of 2024 compared to the prior year.
• The company reported a net loss of $38.3 million, which is higher than the $32.1 million loss in the first quarter of 2023.
• Adjusted EBITDA decreased to $18.2 million from $19.2 million in the same period last year.
• Adjusted net loss increased to $32.9 million, compared to $23.5 million in the first quarter of 2023.
• Costs and expenses increased by 45.6% to $153.3 million, primarily due to the Smokey Bones acquisition and increased activity from company-owned restaurants and the factory.

Risks

• The company faces challenges in managing costs and expenses, which increased significantly due to the Smokey Bones acquisition.
• The decline in same-store sales indicates potential issues with organic growth.
• The company's net loss and adjusted net loss have increased year-over-year, raising concerns about profitability.
• The company's debt has increased due to new debt offerings, leading to higher interest expenses.
• The company's forward-looking statements are subject to significant business, economic, and competitive risks.

Future Outlook

The company aims to create value through organic expansion, strategic acquisitions, and divestments to manage debt, with a focus on increasing long-term value for stakeholders. They plan to accelerate the build-out of their 1,100+ unit new store pipeline and grow factory production.

Management Comments

• Andy Wiederhorn, Chairman of FAT Brands, stated that the company has expanded its footprint 10-fold over the last three years.
• Ken Kuick, Co-Chief Executive Officer, noted that the company signed over 150 development deals in Q1 2024, increasing the pipeline to over 1,200 locations.
• Rob Rosen, Co-Chief Executive Officer, highlighted the abundant opportunities in 2024 and the company's long-term strategy.

Industry Context

The restaurant franchising industry is competitive, and FAT Brands is focused on expanding its portfolio through acquisitions and organic growth. The company's focus on co-branding and leveraging synergies within its brand offerings is a common strategy in the industry to maximize revenue and market presence. The decline in same-store sales is a concern, as it indicates a potential weakness in the company's existing locations.

Comparison to Industry Standards

• FAT Brands' revenue growth of 43.8% is significant, but it is largely driven by the acquisition of Smokey Bones, making it difficult to compare to organic growth rates of peers.
• The 4.0% decline in same-store sales is concerning, as many competitors in the restaurant industry are reporting positive same-store sales growth, such as McDonald's and Chipotle.
• The company's adjusted EBITDA of $18.2 million is lower than the previous year, which is not a positive trend compared to industry leaders who are showing consistent growth in profitability.
• FAT Brands' focus on expanding its Twin Peaks brand is similar to other restaurant chains that are focusing on specific brands for growth, such as Darden Restaurants with their Olive Garden and LongHorn Steakhouse brands.
• The company's strategy of co-branding is similar to other multi-brand restaurant groups that are looking to leverage synergies and cross-promote their brands.

Stakeholder Impact

• Shareholders may be concerned about the increased net loss and declining same-store sales.
• Employees may be impacted by the company's focus on cost management and efficiency.
• Franchise partners may be encouraged by the company's expansion plans and co-branding opportunities.
• Customers may benefit from new store openings and brand offerings.
• Creditors may be concerned about the company's increased debt and losses.

Next Steps

• The company plans to accelerate the build-out of its 1,100+ unit new store pipeline.
• They aim to drive adjusted EBITDA growth through new store openings and factory production.
• The company intends to maintain strong liquidity and continue to build net asset value for future debt reduction.
• FAT Brands plans to grow factory production to utilize excess capacity.
• They will continue to realize purchasing savings from their purchasing power.

Key Dates

Keywords

FAT Brands, Financial Results, Q1 2024, Restaurant Franchising, Revenue Growth, Same-Store Sales, EBITDA, Net Loss, Store Openings, Smokey Bones, Twin Peaks, Development Deals