10-Q: Good Times Restaurants Reports Mixed Q3 Results

Good Times Restaurants Inc. reports a mixed fiscal third quarter with increased net income and EPS, but declining same-store sales and a significant legal judgment win.

Summary

• Net revenues for the fiscal quarter ended July 1, 2025, decreased 2.4% to $37.025 million from $37.950 million in the prior year quarter.
• Bad Daddys concept revenues decreased by $0.795 million, primarily due to a restaurant closure, reduced customer traffic, and a negative mix shift, partially offset by a 3.8% menu price increase.
• Good Times concept revenues decreased by $0.130 million, mainly due to reduced customer traffic and a restaurant closure, partially offset by acquisitions of two Good Times restaurants.
• Same-store sales for Bad Daddys decreased 1.4% for the quarter, while Good Times same-store sales decreased 9.0%, both primarily due to reduced customer traffic.
• Net income for the quarter increased to $1.545 million from $1.398 million in the prior year quarter.
• Net income attributable to common shareholders was $1.487 million, up from $1.321 million in the prior year quarter, resulting in basic and diluted EPS of $0.14.
• For the year-to-date period ended July 1, 2025 (40 weeks), net revenues increased 1.0% to $107.637 million from $106.554 million in the prior year (39 weeks).
• Year-to-date net income decreased to $1.092 million from $1.595 million in the prior year period, with basic and diluted EPS of $0.10.
• The company was awarded $3.826 million plus $0.814 million in pre-judgment interest in a legal proceeding, with post-judgment interest at 9.5% per annum compounded annually.

Sentiment

Score: 4

Explanation: The sentiment is mixed to slightly negative. While the company achieved a significant legal victory and showed quarterly net income growth, core operational metrics like revenue and same-store sales are declining, and year-to-date net income is down. The working capital deficit and reduced operating cash flow are concerns, despite available credit. The ongoing challenges with inflation and labor costs present headwinds for future profitability.

Positives

• Net income for the fiscal quarter ended July 1, 2025, increased to $1.545 million from $1.398 million in the prior year quarter.
• Basic and diluted earnings per share increased to $0.14 for the quarter ended July 1, 2025, from $0.12 in the prior year quarter.
• General and administrative costs decreased by $0.514 million for the quarter and $0.484 million year-to-date, primarily due to reduced accounting fees, legal reserves, and multi-unit supervisory roles.
• The company secured a favorable legal judgment, being awarded $3.826 million in damages plus $0.814 million in pre-judgment interest and ongoing post-judgment interest.
• Adjusted EBITDA for the year-to-date period increased to $4.402 million from $4.088 million in the prior year period.
• Food and packaging costs as a percentage of restaurant sales decreased for Bad Daddys (30.6% vs 31.2%) in the quarter due to lower purchase prices for chicken wings and potatoes, and menu price increases.
• The company has $5.990 million of committed funds available under its Cadence Credit Facility, providing liquidity.

Negatives

• Net revenues for the fiscal quarter ended July 1, 2025, decreased 2.4% to $37.025 million compared to the prior year quarter.
• Bad Daddys same-store sales decreased 1.4% and Good Times same-store sales decreased 9.0% for the quarter, both primarily due to reduced customer traffic.
• Year-to-date net income decreased to $1.092 million from $1.595 million in the prior year period.
• Year-to-date basic and diluted earnings per share decreased to $0.10 from $0.12 in the prior year period.
• Cash and cash equivalents decreased to $3.138 million as of July 1, 2025, from $3.853 million at September 24, 2024.
• Net cash provided by operating activities decreased significantly by $3.275 million year-to-date, primarily due to additional prepaid rent and reductions in accounts payable and accrued liabilities.
• The company has a working capital deficit of $8.457 million as of July 1, 2025.
• Payroll and other employee benefit costs increased as a percentage of restaurant sales for both Bad Daddys (34.3% vs 33.8%) and Good Times (34.2% vs 32.7%) in the quarter, driven by decreased labor productivity and higher average wage rates.
• Impairment costs for long-lived assets increased to $0.494 million year-to-date, primarily related to lease right-of-use assets for underperforming restaurants.

Risks

• Disruption to business from pandemics or other public health emergencies could adversely affect results of operations, financial condition, and prospects.
• Intense competition from numerous well-established competitors with greater financial resources and longer operating histories, including discounting practices, may negatively impact revenues and profitability.
• Inability to pass on increased costs (food, labor, energy) through menu price increases due to inflation and consumer preferences, particularly with elevated ground beef costs and wage pressures in Colorado.
• Potential for negative impact from same-store sales declines if advertising and promotions are not successful in increasing customer traffic.
• Risk of inadequate number of hourly paid employees and continued increases in wages and salaries.
• Decreases in the availability of affordable capital resources.
• Seasonal fluctuations in revenues, particularly in Colorado during winter months (December-March) and for Bad Daddys restaurants (November-January) due to consumer spending patterns.

Future Outlook

The company believes there are significant opportunities to grow customer traffic and increase brand awareness for organic sales growth. It also sees unit growth opportunities for both concepts but will execute with increased scrutiny on real estate selection and a more conservative approach to leverage due to higher costs and volatile inflation. The company anticipates having sufficient capital to meet working capital and recurring capital expenditure needs in fiscal year 2025, funded by existing cash or future borrowings from the Cadence Credit Facility. The recently enacted One Big Beautiful Bill Act (OBBBA) is not expected to have a material impact on the company's consolidated financial statements.

Management Comments

• Management believes that any reasonably possible losses associated with various claims, litigation, and other contingencies have been adequately accrued or would be immaterial to the financial statements.
• Management's opinion is that the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows.
• Management believes that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to financial condition and operating results.

Industry Context

The restaurant industry continues to face challenges from inflation, particularly elevated ground beef costs and significant wage pressures, especially in markets like Colorado with CPI-indexed minimum wages. The company notes that consumer preferences and competitor pricing may limit its ability to fully offset cost increases through menu price adjustments. The industry also faces intense competition from well-established players, which can lead to discounting and impact profitability. The company's strategy of acquiring franchised restaurants and focusing on unit growth with increased scrutiny reflects a cautious approach in a volatile operating environment.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks for direct assessment.

Management Changes

Legal Proceedings

• The company was awarded $3,826,715.07 plus $813,845.34 in pre-judgment interest and 9.5% post-judgment interest in a lawsuit (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.
• The trial court entered an amended final judgment on July 30, 2025, in favor of Good Times, following an appeals court ruling that reversed the dismissal of Good Times' counterclaim.
• The plaintiffs have until August 29, 2025, to file a notice of appeal of this judgment.

Related Party Transactions

• On May 5, 2025, the company purchased 11,331 shares of its common stock at $2.00 per share in a private transaction negotiated with its Senior Vice President of Operations, who retired on May 30, 2025.

Stakeholder Impact

• Shareholders: Benefit from the share repurchase program and the significant legal judgment award, but face risks from declining same-store sales and operational headwinds.
• Employees: Affected by wage increases due to market forces and statutory minimum wage adjustments, and potential impacts from restaurant closures.
• Customers: Experience menu price increases, which may affect traffic, and changes in restaurant availability due to closures or acquisitions.
• Franchisees: Impacted by the company's acquisition of previously franchised restaurants, leading to reduced royalties for former franchisees.
• Creditors: The company's working capital deficit and reliance on its credit facility for liquidity may be a point of monitoring, though it reports compliance with covenants.

Next Steps

• Vigorously pursue the remaining claim from the legal judgment to conclusion, despite no assurance of success or full recovery.
• Plaintiffs have until August 29, 2025, to file a notice of appeal regarding the legal judgment.
• Assess the effects of the recently enacted One Big Beautiful Bill Act (OBBBA) on income tax provision calculations.
• Continue to execute unit growth with increased scrutiny surrounding real estate selection and a more conservative approach to leverage.
• Continue to manage profitability through menu price increases in response to inflation, while monitoring consumer demand and competitor pricing.

Key Dates

Recommendation

While the company secured a substantial legal judgment that will significantly boost its cash position, the core operational performance shows concerning trends with declining same-store sales and reduced customer traffic for both brands. Year-to-date net income is down, and the working capital deficit persists. The company faces ongoing inflationary pressures on food and labor costs, which it struggles to fully offset with menu price increases. The share repurchase program offers some support, but the fundamental business challenges suggest a 'hold' recommendation. Investors should monitor whether the company can reverse the negative sales trends and manage cost pressures effectively, as the legal win is a one-time benefit that does not address underlying operational headwinds.

Keywords

Restaurant, Fast Food, Casual Dining, SEC Filing, Quarterly Report, Financial Results, Same-Store Sales, Earnings, Revenue, Profitability, Restaurant Industry, Good Times Burgers, Bad Daddys Burger Bar, Share Repurchase, Liquidity, Inflation, Labor Costs