10-Q: Good Times Restaurants Inc. Reports Mixed Results in Latest Quarterly Filing

Good Times Restaurants Inc. experienced a slight revenue increase but a significant decrease in net income for the quarter ended March 26, 2024, compared to the same period last year.

Summary

• Good Times Restaurants Inc. reported a 1.9% increase in net revenues for the quarter ended March 26, 2024, reaching $35.438 million, up from $34.785 million in the same quarter of the previous year.
• Restaurant sales for the Bad Daddys concept increased slightly by $106,000, while Good Times restaurant sales saw a more substantial increase of $591,000.
• Franchise revenues decreased by $44,000 to $173,000 due to the acquisition of two franchisee-owned Good Times restaurants and lower sales at some franchised locations.
• Same-store sales for Bad Daddys decreased by 3.2%, while Good Times same-store sales increased by 0.9%.
• Net income for the quarter was $680,000, a significant decrease from $10.743 million in the same quarter of the previous year, primarily due to a prior year tax benefit.
• The company's adjusted EBITDA was $1.295 million for the quarter, compared to $1.531 million in the same quarter of the previous year.
• For the year-to-date period, net revenues increased by 0.6% to $68.570 million, with Bad Daddys revenues decreasing and Good Times revenues increasing.
• Year-to-date net income was $197,000, a substantial decrease from $10.838 million in the same period last year, again due to a prior year tax benefit.
• The company had a working capital deficit of $8.515 million as of March 26, 2024, but believes it has sufficient capital to meet its needs.
• 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 mixed results with a slight revenue increase but a significant decrease in net income and same-store sales declines for Bad Daddys. The company also has a working capital deficit and is facing increased costs. The overall tone is cautious.

Positives

• Net revenues saw a modest increase of 1.9% for the quarter.
• Good Times restaurant sales showed a strong increase of $591,000.
• Good Times same-store sales increased by 0.9%.
• The company has $6.74 million available under its credit facility.
• Food and packaging costs decreased as a percentage of sales for both brands.

Negatives

• Net income decreased significantly to $680,000 from $10.743 million in the same quarter last year.
• Bad Daddys same-store sales decreased by 3.2%.
• Franchise revenues decreased by $44,000.
• The company has a working capital deficit of $8.515 million.
• The company experienced increased general and administrative costs.

Risks

• The company faces competition from well-established competitors with greater financial resources.
• Same-store sales declines could negatively impact the company.
• 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 based on weather conditions.

Future Outlook

The company believes there are significant opportunities to grow customer traffic and increase awareness of its brands, leading to organic sales growth, and unit growth opportunities for both concepts, though with increased scrutiny surrounding real estate selection and a more conservative approach to leverage.

Management Comments

• Management believes that they will have sufficient capital to meet their working capital and recurring capital expenditure needs in fiscal 2024.
• Management anticipates any commitments in fiscal 2024 will be funded out of existing cash or future borrowings against the Cadence Credit Facility.

Industry Context

The company's performance is being impacted by general weakness in the casual dining restaurant segment, as well as increased costs for food, labor, and other operating expenses. The company is also facing competition from well-established competitors with greater financial resources.

Comparison to Industry Standards

• The decrease in Bad Daddys same-store sales of 3.2% is concerning, as it indicates a potential loss of market share or decreased customer demand compared to industry averages.
• The increase in Good Times same-store sales of 0.9% is below the industry average for quick-service restaurants, suggesting that the brand is not performing as well as its peers.
• The company's adjusted EBITDA of $1.295 million for the quarter is lower than the industry average for similar-sized restaurant chains, indicating potential issues with cost management or revenue generation.
• The company's working capital deficit of $8.515 million is a significant concern, as it suggests that the company may have difficulty meeting its short-term obligations compared to industry benchmarks.
• The company's reliance on menu price increases to manage profitability is a common strategy in the restaurant industry, but it may not be sustainable in the long term if competitors do not follow suit or if customers become price-sensitive.

Legal Proceedings

• The company is involved in a lawsuit regarding failed negotiations for the sale of the Good Times Drive Thru subsidiary.
• The court of appeals affirmed the trial court's dismissal of the plaintiffs' claims and reversed the dismissal of Good Times' counterclaim, which has been remanded to the trial court for further consideration.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and same-store sales.
• Employees may be affected by potential changes in staffing or compensation due to cost pressures.
• Customers may be affected by menu price increases.
• Suppliers may be affected by changes in purchasing patterns or volumes.
• Creditors may be concerned about the company's working capital deficit.

Next Steps

• The company will continue to execute unit growth with increased scrutiny surrounding real estate selection.
• The company will continue to monitor and manage the impact of inflation on its business.
• The company will continue to evaluate its advertising and promotion strategies to drive sales.

Key Dates

Keywords

restaurant, sales, EBITDA, franchise, same-store sales, net income, Good Times, Bad Daddys, credit facility, share repurchase