10-Q: Good Times Restaurants Q1 Net Income Rises Amid Revenue Dip

Good Times Restaurants Inc. reported a 10.4% increase in net income attributable to common shareholders for the first fiscal quarter, despite a 10.0% decline in total net revenues, largely due to fewer operating weeks.

Summary

• Net income attributable to common shareholders increased by 10.4% to $181,000 for the quarter ended December 30, 2025, compared to $164,000 in the prior year.
• Total net revenues decreased by 10.0% to $32.7 million, primarily due to the current quarter having 13 weeks versus 14 weeks in the prior year.
• Income from operations significantly increased by 290% to $300,000 from $77,000 in the prior year.
• Bad Daddys same-store sales decreased by 1.2%, while Good Times same-store sales decreased by 3.1%.
• The company settled the White Winston lawsuit for an amount significantly less than the $3.826 million judgment.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a moderately positive report. While revenue declined, largely due to fewer operating weeks, the significant increase in net income and operating income, coupled with improved cost management and the favorable settlement of a major lawsuit, indicates effective operational execution in a challenging environment.

Positives

• Net income attributable to common shareholders increased by 10.4% to $181,000 for the quarter ended December 30, 2025.
• Income from operations saw a substantial increase of 290% to $300,000.
• Food and packaging costs decreased as a percentage of restaurant sales to 30.4% from 31.6% in the prior year.
• Payroll and other employee benefit costs decreased as a percentage of restaurant sales to 34.6% from 35.5% in the prior year.
• General and administrative costs decreased by $533,000 to $2,055,000.
• The White Winston lawsuit was settled for an amount significantly less than the $3.826 million judgment, concluding the litigation.
• Cash and cash equivalents increased to $3.316 million as of December 30, 2025, from $2.605 million as of September 30, 2025.

Negatives

• Total net revenues decreased by 10.0% to $32.7 million, largely due to one less operating week compared to the prior year.
• Bad Daddys same-store sales decreased by 1.2%, driven by discounts, decreased demand for alcoholic beverages, and reduced customer traffic.
• Good Times same-store sales decreased by 3.1%, primarily due to reduced customer traffic and increased competitive restaurant openings.
• Two Bad Daddys restaurants were closed (one in Q4 2025, one in current quarter), contributing to revenue decline.
• Advertising costs increased by $146,000 to $1,275,000, with Good Times seeing a significant rise due to increased campaigns.
• The company continues to face a working capital deficit of $8.247 million as of December 30, 2025.

Risks

• The business may be disrupted by pandemics or other public health emergencies, impacting results of operations, financial condition, and prospects.
• The company competes with numerous well-established competitors who have substantially greater financial resources and longer operating histories.
• Continued discounting by competitors may adversely affect revenues and profitability of company restaurants.
• Same store sales declines could negatively impact the company, with success dependent on advertising and promotion of menu items.
• Inability to pass on increased costs from inflation (food, labor) to customers through menu price increases without negatively impacting consumer demand.
• Prevalence of price inflation throughout the economy has resulted in increases in commodity, labor, and energy costs, as well as increased product substitutions, elevated freight costs, and variability in product quality.
• Tariffs threatened or implemented, or uncertainty about tariffs, could result in higher costs for products sourced from outside the United States.
• Changes in consumer tastes away from red meat and fried foods could negatively impact the business.
• Increases in the cost of food, paper, labor, health care, workers' compensation, or energy, and decreases in the availability of affordable capital resources are ongoing risks.
• Revenues are subject to seasonal fluctuations based on weather conditions, particularly affecting Colorado restaurants during December, January, February, and March, and increasingly impacting restaurants outside Colorado.

Future Outlook

The company believes there are significant opportunities to grow customer traffic and increase brand awareness, leading to organic sales growth. Unit growth opportunities exist for both concepts, but the company is executing with increased scrutiny on real estate selection and a more conservative approach to leverage due to higher costs and volatile inflation. Management expects elevated ground beef costs throughout most of fiscal year 2026 and anticipates continued upward pressure on wages due to worker shortages and statutory increases, which cannot be fully offset by menu price increases without impacting consumer demand.

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, considering the higher costs and volatile inflation present in the current operating environment."
• "While we are hopeful that wage rate inflation moderates as overall inflation, as evidenced by the Consumer Price Index (CPI-U), has moderated the persistent shortage of qualified workers, and in Colorado inflation-indexed statutory wage rate increases continue to place upward pressure on wages."
• "We have historically used menu price increases to manage profitability in times of inflation, however the current unusually high rate of wage inflation, exceeds what we believe we can reasonably pass through to our customers without negatively affecting frequency and trial by our customers."

Industry Context

StockSavvy.ai notes that the restaurant industry continues to grapple with significant inflationary pressures, particularly in commodity costs like beef and labor wages, as highlighted by Good Times Restaurants. The company's struggle to fully offset wage inflation with menu price increases without impacting customer demand is a common challenge across the sector. The decline in same-store sales for both Bad Daddys and Good Times, coupled with increased competition and shifts in consumer preferences (e.g., away from alcoholic beverages at Bad Daddys), reflects broader headwinds faced by many restaurant chains in the current economic climate.

Legal Proceedings

• The lawsuit styled as White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc., arising from failed negotiations for the sale of the Good Times Drive Thru subsidiary, has been settled.
• The company received a final judgment in its favor for $3,826,715.07 in damages and $813,845.34 in pre-judgment interest, plus post-judgment interest at a rate of 9.5% per annum, which was subsequently settled for an amount "significantly less" than the judgment.

Related Party Transactions

• The company consolidates a partnership in which it owns a 50% interest and is the sole general partner, receiving a management fee from the partnership.

Stakeholder Impact

• Shareholders: Positive impact from increased net income and favorable lawsuit settlement, but negative impact from declining same-store sales and revenue. The ongoing share repurchase program may provide some support.
• Employees: Facing continued pressure from wage inflation, but also benefiting from efforts to increase labor productivity and revised in-store management structures.
• Customers: Experiencing menu price increases, but also benefiting from discounts and promotions (Bad Daddys). Potential impact on frequency and trial if price increases are too high.
• Franchisees: Required to contribute to advertising funds, and reduced royalties were noted for Good Times due to acquisitions.

Next Steps

• Continue to grow customer traffic and increase brand awareness for both concepts.
• Execute unit growth with increased scrutiny on real estate selection and a conservative approach to leverage.
• Manage profitability amidst elevated beef prices and persistent wage inflation, balancing menu price increases with consumer demand.
• Implement ASU 2023-09 prospectively in fiscal year 2026.
• Assess timing and method of implementation for ASU 2024-03.

Key Dates

Recommendation

While Good Times Restaurants demonstrated improved profitability and effective cost management, leading to a notable increase in net income and operating income despite a revenue decline, the persistent negative same-store sales trends across both brands and ongoing inflationary pressures on labor and commodities present significant headwinds. The favorable lawsuit settlement is a one-time positive, but the core operational challenges suggest a 'hold' recommendation until there's clearer evidence of sustained revenue growth and improved traffic.

Keywords

Good Times Restaurants, GTIM, Bad Daddys Burger Bar, Good Times Burgers & Frozen Custard, Restaurant Industry, Quarterly Earnings, Same Store Sales, Net Income, EBITDA, Inflation, Labor Costs, SEC Filing, Fast Casual, Full Service Restaurant