Good Times Restaurants, Inc. — Q1 FY2013 Form 10-Q
Reporting period: Three months ended December 31, 2012; unaudited. Comparisons are with the three months ended December 31, 2011. The company operated or franchised 39 Good Times restaurants at quarter-end.
Financial results and liquidity
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Total net revenue | $4.817 million | $4.846 million |
| Operating loss | $297,000 | $292,000 |
| Net loss | $330,000 | $350,000 |
| Net loss attributable to common shareholders | $370,000 | $367,000 |
| Loss per common share, basic and diluted | $0.14 | $0.13 |
| Net cash used in operating activities | $26,000 | $128,000 |
Revenue decreased 0.6%; same-store restaurant sales increased 5.1%. Restaurant operating costs were 95.5% of restaurant sales, versus 96.6% a year earlier. Food and packaging costs improved to 33.9% of restaurant sales from 35.0%, while payroll and benefits increased to 36.8% from 35.5%.
At December 31, cash was $963,000 and working capital was positive by $486,000. Total assets were $6.427 million and stockholders’ equity was $2.921 million. Current maturities of debt and capital leases were $1.183 million; long-term debt was $33,000 and long-term capital leases were $94,000. Operating cash use improved year over year. Investing activities used $104,000, while financing activities provided $477,000, including $1.5 million from preferred stock issuance and $1.02 million of principal repayments.
Material changes and unusual items
- The company sold the Firestone property in a sale-leaseback for net proceeds of $1.377 million, using $765,000 to reduce the PFGI II loan and the remainder to increase working capital.
- On December 31, the company acquired a franchise restaurant for $1.256 million, paying $656,000 in cash and issuing a $600,000 short-term note. It also purchased restaurant real estate for $760,000; subsequent sale-leaseback arrangements were expected to generate proceeds.
- Two Taco John’s co-branded test restaurants ended their Good Times franchise agreements in December, leaving three co-branded franchised restaurants.
- Preferred dividends of $30,000 were recorded in the quarter. The Series C preferred shares carry an 8% annual dividend, are convertible into common shares at two common shares per preferred share, and are subject to anti-dilution provisions. The investor, SII, held a 60.9% beneficial ownership interest after the investment.
Outlook, commentary and risks
Management described its FY2013 outlook as cautiously optimistic, citing recent positive sales trends but a challenging environment for smaller restaurant chains. A limited breakfast menu launched system-wide in mid-November; management reported December same-store sales growth of approximately 8.9% and anticipated further sales and profit contribution. Management also said additional capital would be needed to develop new company-owned restaurants and that it might sell, sublease, or close selected underperforming locations.
Management expected food and packaging costs as a percentage of sales to remain broadly consistent with fiscal 2012, but cited potential pressure in beef, bacon, and dairy and said planned price increases might not fully offset cost inflation. Impairment testing found no restaurant assets impaired at quarter-end, based on projected cash flows; management cautioned that changed performance or a decision to exit locations could lead to impairment charges.
Risks include competitive discounting, sales declines, food and labor cost increases, staffing availability, weather-related seasonality, and access to capital. The company also remains contingently liable on leases assigned or subleased to franchisees; it reported no known defaults. A January 2013 sale-leaseback generated $870,000 net proceeds and paid off the remaining PFGI II balance. A further Thornton sale-leaseback was expected to generate approximately $1.085 million by March 31, 2013, with proceeds intended to repay the short-term seller note and support working capital.
Important facts for investors to verify
- Whether the expected Thornton sale-leaseback closed by March 31, 2013, and its final net proceeds and use.
- Whether breakfast sales gains persisted beyond the initial launch period and supported profitable same-store growth.
- How the preferred stock’s dividends, conversion, and voting provisions affect future cash needs, ownership, and potential dilution.
- Whether commodity inflation, payroll growth, or restaurant closures changed margins, liquidity, or impairment assumptions.
- Whether franchisee lease defaults, additional restaurant exits, or the need for new development capital materially affected results.