Good Times Restaurants Inc. — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2013. This is an annual report; it does not provide standalone fourth-quarter results. Good Times operates and franchises Good Times Burgers & Frozen Custard, primarily in Colorado, and is beginning expansion into the Bad Daddy’s Burger Bar concept.
Financial results and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net revenue | $22.892 million | $19.706 million |
| Operating loss | $392,000 | $474,000 |
| Consolidated net loss | $544,000 | $668,000 |
| Net loss attributable to common shareholders, including preferred dividends | $807,000 | $777,000 |
| Basic and diluted loss per share | $0.27 | $0.29 |
| Cash from operating activities | $703,000 | Cash used: $22,000 |
- Revenue rose 16.2%; same-store sales increased 11.9%. Restaurant sales were $22.523 million, while franchise fees and royalties totaled $369,000.
- Restaurant operating costs were 91.1% of restaurant sales, down from 93.5% in FY2012. Food and packaging costs were 34.0% of restaurant sales; payroll and benefits were 34.7%; occupancy and other operating costs were 19.3%. The filing attributes improvement mainly to lower occupancy and depreciation ratios.
- Cash and cash equivalents were $6.143 million at year-end, versus $616,000 a year earlier. Working capital was positive $4.836 million, compared with $848,000.
- The company reported no bank or term debt remaining after repayments, but still had $138,000 of debt and capital lease obligations, including $44,000 current and $94,000 long-term.
- Investing cash flow was positive $453,000, including $3.329 million of sale-leaseback proceeds, $2.506 million of property and equipment purchases, and a $375,000 investment in BDFD. Financing cash flow was positive $4.371 million, including $6.158 million of public-offering proceeds and $1.593 million of debt principal payments.
Material changes versus FY2012
- Higher same-store sales, breakfast sales, and purchases of three franchised restaurants contributed to revenue growth. Breakfast generated approximately $1.7 million of FY2013 sales. Two company-owned restaurants sold in FY2012 reduced the comparison-year base.
- Customer traffic increased by more than 12%, while average transaction value decreased slightly, partly reflecting the lower average spend at breakfast.
- Operating loss improved by $82,000, and consolidated net loss improved by $124,000. However, the loss attributable to common shareholders increased by $30,000, primarily because $120,000 of preferred-stock dividends were recorded in FY2013.
- The company completed an offering of 2.2 million common shares and warrants, raising approximately $4.659 million net. Outstanding common shares increased from 2,726,214 to 4,926,214.
- It acquired a 48% voting interest in Bad Daddy’s franchisor BDFD for $750,000, accounted for under the equity method; the company recorded a $102,000 share of affiliate losses in FY2013.
Outlook, management commentary, and risks
- Management described its FY2014 outlook as cautiously optimistic, citing recent sales trends while noting the challenging environment for smaller restaurant chains. It expected modest improvement in food costs as a percentage of sales and payroll leverage from higher sales; commodity pressures were anticipated for beef, bacon, and dairy.
- The company planned to open its first company-operated Bad Daddy’s in Colorado in January 2014 and develop several Bad Daddy’s locations during FY2014 and FY2015. It also planned to complete Good Times restaurant reimaging and remodeling in 2014. These plans and management’s estimated Bad Daddy’s unit economics are forward-looking, not reported results.
- Good Times had 13 consecutive quarters of same-store sales growth. Management cited breakfast, all-natural hand-breaded chicken, television advertising, menu innovation, and a new distribution agreement as growth initiatives.
- Key risks include the company’s history of recurring losses and accumulated deficit of $19.264 million; dependence on continued sales growth; competition, food and labor cost inflation, consumer spending, and site availability; and execution risk in the relatively new Bad Daddy’s concept.
- Good Times holds 48% of BDFD and does not control its board. BDFD may call for additional capital contributions; the company’s potential share is up to $480,000. Its Colorado development rights depend on meeting a schedule of at least two restaurants annually, and management services are subject to a limited-term agreement.
- Preferred stock carries an 8% annual dividend rate, increasing to 15% after March 28, 2014 if not converted or redeemed. The filing states annual dividends would then be $225,000. The August 2013 offering also issued warrants that could result in further dilution if exercised.
- The company is contingently liable on certain leases assigned or subleased to franchisees. Future minimum operating lease commitments, net of sublease rentals, were $13.459 million; management reported no known defaults. The company also relies on one distributor for all Good Times food and paper purchases, though it believes alternatives are available.
Investor verification points
- Confirm the distinction between the $544,000 consolidated net loss, $687,000 loss attributable to Good Times, and $807,000 loss attributable to common shareholders after preferred dividends.
- Review the cash-flow statement and sale-leaseback disclosures to assess how much year-end liquidity reflects equity financing and property transactions versus recurring operating cash generation.
- Track Bad Daddy’s openings, actual unit costs and returns, franchise sales, capital calls, and compliance with development milestones.
- Check the preferred-stock conversion, dividend escalation, and redemption terms, as well as outstanding warrant exercise and dilution effects.
- Assess same-store sales sustainability, commodity and labor cost trends, lease guarantees, and the company’s progress toward sustained profitability.