Good Times Restaurants Inc. — Q2 FY2023 Form 10-Q
Reporting period: 13-week quarter ended March 28, 2023; year-to-date (YTD) covers 26 weeks. The company operates Bad Daddy’s Burger Bar and Good Times Burgers & Frozen Custard. Dollar amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q2 FY2023 | Q2 FY2022 | YTD FY2023 | YTD FY2022 |
|---|---|---|---|---|
| Total revenue | $34.785 | $33.597 | $68.179 | $66.513 |
| Operating income (loss) | $0.817 | ($1.909) | $0.924 | ($0.633) |
| Net income (loss) attributable to common shareholders | $10.621 | ($2.150) | $10.494 | ($1.820) |
| Adjusted EBITDA, non-GAAP | $1.531 | $0.830 | $2.206 | $2.296 |
| Operating cash flow | Not provided separately for the quarter | $4.158 | $1.312 |
- Quarter revenue increased 3.5%. Operating margin was approximately 2.3%, compared with approximately negative 5.7% a year earlier.
- Reported net income includes a $9.952 million income tax benefit from releasing the valuation allowance on deferred tax assets. The benefit—not operating performance—was the main reason net income rose sharply. Deferred tax assets were $10.847 million at March 28, 2023.
- Restaurant operating costs were $30.839 million for the quarter. Food and packaging costs were 30.8% of restaurant sales; payroll and benefits were 34.7%. YTD adjusted EBITDA declined from $2.296 million to $2.206 million.
- Cash was $5.367 million at quarter-end, down from $8.906 million at September 27, 2022. Working capital was negative $6.334 million. Operating cash flow was offset by $5.817 million of investing outflows and $1.880 million of financing outflows; cash decreased $3.539 million YTD.
- The company reported no borrowings under its prior $8 million Cadence facility at quarter-end. Operating lease liabilities totaled $48.569 million and are distinct from borrowings. On April 20, 2023, it entered a new $8 million revolving facility, available through April 20, 2028, subject to covenants.
Changes and significant transactions
- Same-store sales rose 4.6% at Bad Daddy’s and 7.6% at Good Times in the quarter. Management attributed Bad Daddy’s growth to off-premise sales and pricing; Good Times growth was principally pricing, partly offset by lower traffic.
- Quarterly menu prices averaged approximately 3.4% higher at Bad Daddy’s and 10.5% higher at Good Times year over year. YTD, food costs as a percentage of restaurant sales rose slightly overall; labor costs also increased as a percentage of sales.
- Operating results improved from the prior-year quarter, which included $1.753 million of asset impairment and $0.332 million of litigation expense. Current-period impairment was $0.076 million.
- The company paid $4.394 million to acquire non-controlling interests in five Bad Daddy’s restaurants. It also repurchased 166,890 shares during the quarter for approximately $0.467 million; YTD treasury-stock purchases totaled $1.340 million.
Outlook, risks and contingencies
- Management said it expects sufficient capital for working capital, recurring operating costs and recurring capital expenditures through FY2023. It plans one Bad Daddy’s opening in the greater Huntsville, Alabama market in late FY2023; construction was expected to begin in Q3 and opening in Q4.
- Management cited inflation in food, labor, energy and supplies, a shortage of qualified workers, and uncertainty about passing further cost increases to customers without affecting demand. It also noted competitive discounting, supply-chain exposure, seasonal weakness in Colorado in winter months, and uninsured bank deposits.
- In the White Winston lawsuit, the court dismissed plaintiffs’ claims at trial in January 2023; plaintiffs appealed, and the company also appealed dismissal of its counterclaim. The company maintained its $0.332 million accrual while the appeal was pending. The filing notes that any additional liability above the accrual could materially affect results, liquidity or financial condition.
- No quantified full-year financial guidance was provided. Management cautioned that interim results are not necessarily indicative of FY2023 results.
Key investor verification points
- Separate the $9.952 million tax benefit and related deferred tax asset from recurring earnings; confirm future realizability of the tax benefits.
- Assess cash usage, the working-capital deficit, lease commitments and the new revolving facility’s availability and covenant requirements.
- Track same-store sales and whether pricing can offset inflation without weakening traffic, especially at Good Times.
- Monitor the litigation appeal and adequacy of the retained accrual.
- Verify execution and funding of the planned Alabama restaurant opening and the company’s ongoing share repurchases.