10-Q: FAT Brands Inc. Reports Q1 2025 Results: Revenue Declines Amidst Ongoing Legal Challenges

FAT Brands Inc. experienced a decrease in revenue during the first quarter of 2025, alongside increased general and administrative expenses due to pending litigation.

Summary

• FAT Brands Inc. reported a net loss attributable to FAT Brands Inc. of $45.97 million for the thirteen weeks ended March 30, 2025, compared to a net loss of $38.32 million for the same period in 2024.
• Total revenue decreased by 6.5% to $142.02 million in Q1 2025 from $151.97 million in Q1 2024, primarily due to a decrease in restaurant sales.
• The company's loss from operations widened to $8.57 million in Q1 2025 from $1.38 million in Q1 2024.
• General and administrative expenses increased by 10.1% to $33.04 million, driven by increased professional fees related to pending litigation.
• As of March 30, 2025, FAT Brands had approximately 2,300 locations open and under construction, with approximately 92% being franchised.
• The company's cash and restricted cash balance was $59.34 million as of March 30, 2025, compared to $67.39 million as of December 29, 2024.
• The company repurchased certain of its securitized notes to be held for resale to third party investors and sold certain of its securitized notes previously repurchased or issued and not sold.
• As of March 30, 2025, the Company held $149.2 million of Retained Notes, which have been eliminated in consolidation.

Sentiment

Score: 4

Explanation: The sentiment is negative due to decreased revenue, increased net loss, ongoing legal challenges, and a significant accumulated deficit. However, the company is taking steps to manage its liquidity and expand its franchise locations.

Positives

• The company continues to expand its franchise locations globally.
• FAT Brands maintains a scalable management platform, allowing for the addition of new stores and restaurant concepts.
• The company is in compliance with the covenants of its Securitization Notes as of March 30, 2025.
• The company sold and issued 391,599 shares of 8.25% Series B Cumulative Preferred Stock, at a weighted average share price of $9.94, paid the Sales Agent commissions of $0.1 million for such sales and received net proceeds of $3.8 million (net of fees and commissions) for such sales.

Negatives

• The company experienced a decrease in revenue and an increase in net loss compared to the same period last year.
• General and administrative expenses increased due to ongoing legal challenges.
• The company has a history of net losses and a significant accumulated deficit.
• The company has liabilities of $91.8 million relating to put options exercised by others on our Series B Cumulative Preferred Stock.

Risks

• The company faces risks related to government investigations and litigation, which could have an adverse effect on its financial condition.
• The company's ability to expand franchise locations may be delayed if suitable real estate cannot be located or if sufficient capital cannot be obtained.
• The company's ability to acquire additional restaurant concepts may be negatively impacted if acceptable financing cannot be secured.
• The company's future dividend payments are subject to the discretion of the Board of Directors and are not guaranteed.

Future Outlook

The company plans to use a combination of cash flows from operations, cash on hand, and proceeds from the sale of secured notes to cover working capital requirements for the next twelve months; however, additional financing may be required if the company does not achieve its operating plan.

Management Comments

• Management believes that it has sufficient liquidity to meet its liquidity needs and capital resource requirements for at least the next twelve months.
• Management states that the decrease in restaurant revenue was a result of certain planned restaurant closures for restaurant conversions.

Industry Context

The restaurant industry is highly competitive, and FAT Brands faces competition from other multi-brand restaurant companies, as well as individual restaurant concepts. The company's performance is affected by factors such as consumer spending, food costs, and labor costs. The spin-off of Twin Peaks and Smokey Bones into Twin Hospitality Group Inc. reflects a trend of companies focusing on core brands and streamlining operations.

Comparison to Industry Standards

• Comparing FAT Brands to similar multi-brand restaurant companies like Dine Brands Global (DIN) or Restaurant Brands International (RBI) reveals differences in revenue scale and profitability.
• Dine Brands Global, which franchises brands like Applebee's and IHOP, reported total revenues of $960.4 million in 2023.
• Restaurant Brands International, which owns Burger King, Tim Hortons, and Popeyes, reported total revenues of $6.99 billion in 2023.
• FAT Brands' revenue of $142.02 million for Q1 2025 is significantly lower, indicating a smaller scale of operations.
• FAT Brands' net loss contrasts with the profitability of some of its larger peers, highlighting the challenges it faces in achieving sustainable profitability.

Legal Proceedings

• The company is involved in government investigations and litigation related to transactions with Fog Cutter Capital Group Inc. and former CEO Andrew Wiederhorn.
• The company is defending itself against derivative litigation and a putative class action lawsuit.
• The company is involved in other claims and legal proceedings from time-to-time that arise in the ordinary course of business, including those involving the Company's franchisees.

Stakeholder Impact

• Shareholders are impacted by the decrease in revenue and increase in net loss, as well as the ongoing legal challenges.
• Franchisees are impacted by the company's ability to expand franchise locations and provide support.
• Employees are impacted by the company's financial performance and the potential for restructuring or layoffs.
• Creditors are impacted by the company's ability to repay its debt obligations.

Next Steps

• The company will continue to manage its liquidity and capital resources.
• The company will continue to defend itself against government investigations and litigation.
• The company will continue to expand its franchise locations globally.
• The company will continue to monitor the performance of its Twin Hospitality Group Inc. spin-off.

Key Dates

Keywords

FAT Brands, financial results, franchising, restaurants, revenue, net loss, litigation, debt, acquisitions, expansion