Good Times Restaurants Inc. — Form 10-Q Summary
Business context and reporting period. The company operates and franchises Bad Daddy’s Burger Bar (full-service) and Good Times Burgers & Frozen Custard (quick-service). This first-quarter fiscal 2022 report covers the 13 weeks ended December 28, 2021; the comparable quarter ended December 29, 2020. Amounts below are in U.S. dollars.
Financial performance
| Metric | Quarter ended Dec. 28, 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $32.916 million | $27.296 million | Up 20.5% |
| Income from operations | $1.276 million | $1.263 million | Up $13,000 |
| Consolidated net income | $1.250 million | $1.165 million | Up $85,000 |
| Net income attributable to common shareholders | $330,000; $0.03 per share | $802,000; $0.06 per share | Down $472,000 |
| Net cash from (used in) operating activities | $(219,000) | $847,000 | Decreased $1.066 million |
| Adjusted EBITDA (non-GAAP, as reported by the company) | $1.464 million | $1.793 million | Down $329,000 |
Bad Daddy’s revenue rose to $24.672 million from $18.816 million, while Good Times revenue declined to $8.244 million from $8.480 million. Same-store sales increased 24.0% at Bad Daddy’s and decreased 2.5% at Good Times. Segment operating income was $308,000 for Bad Daddy’s and $968,000 for Good Times.
Restaurant food and packaging costs were 31.3% of restaurant sales, versus 29.0% a year earlier; payroll and benefits were 34.1%, versus 32.8%. Reported operating income was nearly unchanged despite higher sales. The company cited inflation in food, paper, and labor costs, alongside higher wages to attract employees.
Balance sheet, liquidity, and debt
- Cash and cash equivalents were $7.640 million at quarter-end, down from $8.856 million at September 28, 2021. Working capital was a deficit of $43,000.
- Total assets were $93.394 million and shareholders’ equity was $31.589 million.
- The company reported no borrowings or letters of credit outstanding under its $8 million Cadence credit facility, which matures January 31, 2023. It was in compliance with the facility’s financial covenants, including a $2 million minimum-liquidity covenant.
- Operating lease liabilities totaled $53.835 million, including $5.051 million current. The company leases substantially all of its real estate.
- Management said it expected sufficient capital for working capital, recurring operating costs, and recurring capital expenditures through fiscal 2022.
Material changes, outlook, and risks
- Bad Daddy’s sales benefited from two restaurants opened in the fourth quarter of fiscal 2021, stronger traffic as COVID-related restrictions eased, and menu price increases. Good Times sales and same-store sales declined.
- A landlord exercised a lease termination option for a Good Times location. The company recognized a $607,000 gain and planned to vacate by March 31, 2022. This gain contributed to operating results and is not representative of recurring restaurant performance.
- Common-shareholder income was affected by $920,000 of income attributable to non-controlling interests, compared with $363,000 in the prior-year quarter. The current quarter included an approximately $516,000 special allocation to Bad Daddy’s partnership non-controlling partners related to a payroll-cost rebate.
- Management said it was filling a development pipeline and expected new Bad Daddy’s openings beginning in fiscal 2023. It expected general and administrative costs for the balance of the fiscal year to trend similarly in nominal terms to the current quarter.
- Menu prices increased during the quarter by approximately 2.0% at Good Times and 2.1% at Bad Daddy’s. Management expected a further approximately 2.5% Bad Daddy’s price increase in the second fiscal quarter and said food-cost inflation remained difficult to predict.
- After quarter-end, the company announced a share repurchase program of up to $5 million, effective February 7, 2022, and amended the credit facility to permit repurchases up to that amount through December 31, 2022.
- Key risks include COVID-19 and possible dining restrictions or changes in customer behavior, supply-chain disruption, food and labor inflation, staffing availability, competition and discounting, and the ability to pass cost increases on to customers. The company said it could not estimate the duration or full impact of pandemic-related effects.
Important facts for investors to verify
- Whether Bad Daddy’s sales and same-store growth can persist as pandemic comparisons normalize, and whether Good Times can reverse its same-store sales decline.
- Whether menu pricing can offset food, packaging, and wage inflation without reducing customer traffic or profitability.
- The cash-flow impact of working-capital movements, lease obligations, and planned capital spending; operating cash flow was negative despite reported consolidated net income.
- The nonrecurring nature and accounting treatment of the lease-termination gain and partnership payroll-rebate allocation; these affected comparability and reported earnings measures.
- The terms, funding implications, and actual execution of the post-quarter $5 million share repurchase authorization, given the company’s working-capital deficit and minimum-liquidity covenant.
- Adjusted EBITDA is a non-GAAP measure; the filing cautions that its calculation may not be comparable with similarly named measures at other companies.