Good Times Restaurants, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013. Results are unaudited; the comparable periods ended June 30, 2012. The company operated or franchised 39 Good Times restaurants, down from 42 a year earlier.
Financial performance and position
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $6.487 million, up 23.6% from $5.248 million | $16.358 million, up 11.6% from $14.664 million |
| Income (loss) from operations | $234,000, versus $84,000 | $(387,000), versus $(558,000) |
| Net income (loss) attributable to common shareholders | $111,000, versus $(13,000) | $(614,000), versus $(776,000) |
| Basic earnings (loss) per share | $0.04, versus $0.00 as reported | $(0.23), versus $(0.28) |
- Quarterly same-store restaurant sales rose 15.2%; for the nine-month period they rose 9.5%. Breakfast, introduced system-wide in November 2012, contributed about 7.2% to quarterly same-store sales growth.
- Restaurant operating costs declined to 87.2% of restaurant sales for the quarter from 90.1%; for nine months, they declined to 92.6% from 94.4%. Quarterly improvement reflected lower food, occupancy, and depreciation costs as a share of sales. Nine-month payroll costs increased as a share of sales.
- Nine-month operating cash flow was $173,000, versus cash used of $63,000. Investing activities provided $672,000, including $3.329 million of sale-leaseback proceeds; financing activities used $137,000.
- Cash was $1.324 million at June 30, compared with $616,000 at September 30, 2012. Working capital was positive by $118,000. Current and long-term debt and capital lease obligations totaled approximately $149,000, versus approximately $1.725 million at September 30, 2012.
- Total assets were $5.335 million and stockholders’ equity was $2.729 million at June 30. Preferred stock had a $1.5 million liquidation preference; dividends declared for the nine months were $90,000.
Material changes and developments
- Revenue growth reflected strong same-store sales and the acquisition of franchise restaurants; franchise royalties declined to $93,000 for the quarter and $266,000 for nine months, partly because the company purchased two franchised restaurants.
- The company reduced debt using proceeds from preferred-stock financing and property sale-leasebacks. It completed sale-leaseback transactions during the period and used proceeds in part to repay the PFGI II note and a short-term acquisition note.
- In April 2013, the company agreed to acquire development rights for Bad Daddy’s Burger Bar in Colorado, with additional rights in Arizona and Kansas, and acquired a 48% voting interest in Bad Daddy’s Franchise Development, LLC for $750,000. It paid $375,000 during the quarter; the remaining $375,000 was due by the six-month anniversary of the agreement. The company recorded a $23,000 share of affiliate losses.
- The company purchased a Castle Rock, Colorado restaurant from a franchisee for approximately $75,000 in May 2013. It reported 19 company-owned, 7 co-developed, and 13 franchise-operated restaurants at June 30.
Outlook, risks, and contingencies
- Management described its fiscal 2013 outlook as cautiously optimistic, citing positive sales trends, but noted the challenging macroeconomic environment. No specific revenue or earnings guidance was provided.
- Management expected food and packaging costs as a percentage of sales to remain consistent with fiscal 2012, while warning of commodity pressures, particularly beef, bacon, and dairy. It noted planned moderate menu-price increases might not offset higher costs.
- The company anticipated opening its first Bad Daddy’s restaurant in late 2013. Management said additional restaurant development would depend on sales, operating cash flow, and access to capital; it believed available capital would meet fiscal 2013 working-capital, debt, and recurring capital-expenditure needs.
- The company remained contingently liable on leases for restaurants previously sold to franchisees. It reported no known defaults, but a franchisee default could require the company to make lease payments and materially affect results.
- Management’s impairment analysis found no impaired restaurants, including under a sensitivity test using a 15% decline in projected cash flows. Results depend on estimates and could change; closure or exit from a location could require impairment.
- Other disclosed risks include restaurant competition and discounting, weaker same-store sales, food and labor cost increases, staffing constraints, and seasonality, with sales typically affected by winter weather. Management reported effective disclosure controls and no significant change in internal control over financial reporting.
Important facts for investors to verify
- Whether the $375,000 remaining Bad Daddy’s investment installment was paid when due, and the development costs and funding needs for the planned restaurant.
- The status of the conditional additional $500,000 preferred-stock purchase commitment from Small Island Investments Limited; the filing describes a June 30, 2013 deadline subject to specified board action and notice.
- Whether same-store sales momentum and breakfast contribution continued, and whether sales gains translated into sustainable operating profit and cash flow.
- The impact of commodity, wage, and other operating-cost inflation, and whether price increases were sufficient to offset it.
- The company’s liquidity and capital requirements for expansion, including the effects of sale-leasebacks and any contingent lease liabilities.