10-Q: Good Times Restaurants Inc. Reports Mixed Results in First Quarter of Fiscal 2024

Good Times Restaurants Inc. experienced a slight decrease in revenue and a net loss in the first quarter of fiscal 2024, with varying performance across its Bad Daddys and Good Times brands.

Summary

• Good Times Restaurants Inc. reported a net loss of $556,000 for the quarter ended December 26, 2023, compared to a net loss of $127,000 in the same period last year.
• Total revenue decreased slightly by 0.8% to $33.132 million, with Bad Daddys revenue declining and Good Times revenue increasing.
• Bad Daddys same-store sales decreased by 6.2%, while Good Times same-store sales increased by 4.1%.
• The company's food and packaging costs decreased to 31.3% of restaurant sales, while payroll and other employee benefit costs increased to 35.3% of restaurant sales.
• The company had a working capital deficit of $8.5 million as of December 26, 2023.
• The company has a credit facility with Cadence Bank with $1.25 million outstanding and $6.74 million available.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like the Good Times performance and cost management, but the overall net loss, decline in Bad Daddys sales, and working capital deficit create a negative sentiment.

Positives

• Good Times same-store sales increased by 4.1%, indicating positive performance in that segment.
• Food and packaging costs decreased to 31.3% of restaurant sales, showing improved cost management in this area.
• The company has $6.74 million available under its credit facility with Cadence Bank.
• The company is actively repurchasing shares under its share repurchase program.

Negatives

• The company reported a net loss of $556,000 for the quarter.
• Bad Daddys same-store sales decreased by 6.2%, indicating a decline in performance for that brand.
• Total revenue decreased slightly by 0.8% compared to the same quarter last year.
• The company has a working capital deficit of $8.5 million.
• Payroll and other employee benefit costs increased to 35.3% of restaurant sales.

Risks

• The company faces competition from numerous well-established competitors.
• The company may be negatively impacted by same-store sales declines.
• The company may be unable to pass on increased costs to customers through menu price increases.
• The company is subject to fluctuations in commodity prices, particularly for key proteins.
• The company is subject to seasonal fluctuations in revenue, particularly in Colorado.
• The company is involved in ongoing litigation which could have a material impact on the company's results of operations, liquidity or financial condition.

Future Outlook

The company anticipates that any commitments in fiscal 2024 will be funded out of existing cash or future borrowings against the Cadence Credit Facility and expects general and administrative costs to be approximately 7.0% 8.0% of total revenues for the balance of the fiscal year.

Management Comments

• The company is focused on targeted unit growth of the Bad Daddys concept while at the same time growing same store sales and improving the profitability of both the Bad Daddys and the Good Times concepts.
• The company believes there are significant opportunities to grow customer traffic and increase awareness of its brands.
• The company continues to evaluate unit growth opportunities in line with the inflationary impact currently experienced by the restaurant industry.

Industry Context

The restaurant industry is currently facing challenges such as increased competition, inflation, and labor shortages. Good Times Restaurants Inc.'s results reflect these broader industry trends, with the company experiencing both positive and negative impacts from these factors. The decrease in Bad Daddys same-store sales aligns with general weakness in the casual dining segment, while the increase in Good Times same-store sales indicates a stronger performance in the quick-service segment.

Comparison to Industry Standards

• The company's same-store sales performance is mixed, with Bad Daddys underperforming and Good Times outperforming industry averages.
• Black Box Intelligence data indicates a general weakness in the casual dining segment, which aligns with Bad Daddys' performance.
• The company's food and packaging costs as a percentage of sales are within industry norms, but payroll costs are higher than some competitors.
• The company's reliance on a credit facility for funding is common in the restaurant industry, but the company's working capital deficit is a concern.
• Companies like McDonald's and Wendy's in the quick-service segment and Chili's and Applebee's in the casual dining segment are key competitors, and their performance can be used as benchmarks.

Legal Proceedings

• The company is the defendant in a lawsuit arising from failed negotiations for the sale of the Good Times Drive Thru subsidiary.
• The court of appeals may render a decision at any time regarding the appeal of the court's previous dismissal of the plaintiffs claims.
• The company has maintained an accrual for contingent litigation expense of $332,000.

Stakeholder Impact

• Shareholders are impacted by the net loss and the decrease in Bad Daddys same-store sales.
• Employees may be impacted by the company's efforts to manage labor costs.
• Customers may be impacted by menu price increases.
• Franchisees are impacted by the company's performance and any changes in strategy.

Next Steps

• The company will continue to evaluate unit growth opportunities in line with the inflationary impact currently experienced by the restaurant industry.
• The company will continue to monitor and manage its operating costs.
• The company will continue to pursue a full defense of the ongoing litigation.

Key Dates

Keywords

restaurant, same-store sales, revenue, net loss, Bad Daddys, Good Times, credit facility, share repurchase, operating costs, inflation