10-Q: Good Times Restaurants Inc. Reports Q1 2025 Results: Revenue Up 9.6% Driven by Acquisitions and Price Increases

Good Times Restaurants Inc. saw a 9.6% increase in revenue for the quarter ended December 31, 2024, driven by restaurant acquisitions and menu price increases.

Summary

• Good Times Restaurants Inc. reported a 9.6% increase in net revenues for the quarter ended December 31, 2024, reaching $36.333 million compared to $33.157 million in the same period last year.
• The increase is attributed to a 14-week fiscal quarter compared to a 13-week quarter in the previous year, acquisitions of Good Times restaurants from franchisees, and menu price increases.
• Bad Daddys concept revenues increased by $2.173 million, while Good Times concept revenues increased by $1.003 million.
• Same-store sales for Bad Daddys increased by 1.5%, while Good Times same-store sales were unchanged.
• The company acquired two Denver metro area Good Times restaurants from a franchisee during the quarter.
• Net income for the quarter was $174,000, a significant improvement from the net loss of $483,000 in the same quarter last year.
• Adjusted EBITDA increased to $1.209 million from $510,000 in the prior year.
• The company's Board of Directors authorized an additional $2.0 million for share repurchases, bringing the total authorization to $7.0 million.
• As of December 31, 2024, the company had $2,250,000 of borrowings against the Cadence Credit Facility and approximately $5,740,000 of committed funds available.

Sentiment

Score: 7

Explanation: The report shows improved financial performance with increased revenue and profitability. While challenges remain, the overall tone is positive due to the company's growth strategies and improved financial metrics.

Positives

• Net revenues increased by 9.6% year-over-year.
• Bad Daddys same-store sales showed a positive increase of 1.5%.
• The company achieved net income of $174,000, a significant turnaround from the previous year's loss.
• Adjusted EBITDA nearly doubled, indicating improved operational efficiency.
• The acquisition of franchisee-owned restaurants expands the company's footprint.
• The Board's authorization of additional share repurchases signals confidence in the company's future prospects.
• The company recognized $140,000 of other income related to the termination of an agreement in connection with management services and lease negotiations.

Negatives

• Good Times same-store sales remained unchanged.
• The company has a working capital deficit of $9,223,000.
• Payroll and other employee benefit costs increased as a percentage of sales for Good Times restaurants.
• Advertising costs decreased, which could impact future brand awareness and sales growth.
• The company is exposed to the risk of rising beef costs and wage inflation.

Risks

• The company faces competition from well-established competitors with greater financial resources.
• Declines in same-store sales could negatively impact the company's performance.
• The company may be unable to pass on increased costs to customers through menu price increases.
• Inflation in food, labor, and energy costs could adversely affect profitability.
• Labor organizing could increase labor costs and disrupt operations.
• Tariffs on commodities could increase costs and reduce supply.
• The company's revenues are subject to seasonal fluctuations.

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 with increased scrutiny surrounding real estate selection and a more conservative approach to leverage.

Management Comments

• We believe there are significant opportunities to grow customer traffic and increase awareness of our brands, leading to organic sales growth.
• We also believe there are unit growth opportunities for both of our concepts though we continue to execute unit growth with increased scrutiny surrounding real estate selection and a more conservative approach to leverage than we previously took, in light of the higher costs and volatile inflation present in the current operating environment.

Industry Context

The restaurant industry is highly competitive, with numerous well-established competitors. The company faces challenges related to changing consumer tastes, rising costs, and labor market pressures. The report highlights the company's efforts to manage these challenges through menu price increases, acquisitions, and operational efficiencies.

Comparison to Industry Standards

• Comparing Good Times Restaurants Inc. to industry peers like Wendy's, McDonald's, and Restaurant Brands International (QSR) reveals some key differences.
• While Wendy's and McDonald's boast significantly higher revenue and global presence, Good Times focuses on regional markets with its Bad Daddys and Good Times brands.
• QSR, with brands like Burger King and Tim Hortons, operates on a larger scale but shares the quick-service restaurant segment with Good Times.
• Good Times' same-store sales performance is a critical metric, and its 1.5% increase for Bad Daddys is a positive sign, though it lags behind some of the top performers in the industry during periods of high growth.
• The company's Adjusted EBITDA growth is noteworthy, but its working capital deficit needs to be addressed to ensure long-term financial stability.
• The share repurchase program is a common practice among larger restaurant chains to enhance shareholder value, and Good Times' initiative aligns with this trend.

Legal Proceedings

• The Company was the defendant in a lawsuit styled as White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc.
• On March 1, 2024, the court of appeals issued a ruling affirming the trial courts dismissal of the plaintiffs claims and reversed the trial courts previous dismissal of Good Times own claim for the plaintiffs breach of their covenant not to sue Good Times.
• The court of appeals ordered that Good Times counterclaim be remanded to the trial court for further consideration.
• On June 20, 2024, the court of appeals affirmed its previous reversal of the trial courts dismissal of Good Times counterclaim.
• The trial court will now consider the issue of White Winstons liability to Good Times.
• The amount of Good Times claimed damages (which consists substantially of its prior legal fees) exceeds $3 million.
• The trial court ordered the parties to submit briefing on the issue of Good Times damages claim.
• The briefing closed on December 10, 2024, and Good Times expects the trial court to render a decision sometime after.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and share repurchase program.
• Employees may see increased wages and benefits, but also face pressure to maintain productivity.
• Customers may experience menu price increases.
• Franchisees may be impacted by the company's acquisition strategy.
• Suppliers may face pressure to maintain competitive pricing.

Next Steps

• The trial court will render a decision on White Winstons liability to Good Times sometime after December 10, 2024.
• The company anticipates any commitments in fiscal 2025 will be funded out of existing cash or future borrowings against the Cadence Credit Facility.
• The company plans to continue to vigorously pursue its remaining claim against White Winston to conclusion.

Key Dates