Good Times Restaurants Inc. — Q2 FY2022 Form 10-Q
Reporting period: 13-week quarter ended March 29, 2022; year-to-date period covers 26 weeks. Comparative periods ended March 30, 2021. Amounts below are in millions of dollars unless noted.
Business context
The company operates and franchises Bad Daddy’s Burger Bar, a full-service concept, and Good Times Burgers & Frozen Custard, a Colorado- and Wyoming-focused drive-through concept. At quarter-end, it reported 42 Bad Daddy’s and 31 Good Times restaurants across company-owned, joint-venture, franchise, license, and non-traditional formats.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | 26 weeks FY2022 | 26 weeks FY2021 |
|---|---|---|---|---|
| Total revenue | $33.597 | $29.192 | $66.513 | $56.488 |
| Operating income (loss) | ($1.909) | $1.603 | ($0.633) | $2.866 |
| Net income (loss) | ($1.920) | $1.523 | ($0.670) | $2.688 |
| Net income (loss) attributable to common shareholders | ($2.150) | $1.097 | ($1.820) | $1.899 |
| Basic EPS attributable to common shareholders | ($0.17) | $0.09 | ($0.15) | $0.15 |
| Adjusted EBITDA (non-GAAP) | $0.832 | $2.288 | $2.296 | $4.101 |
Quarter revenue increased 15.1%; Bad Daddy’s revenue rose $4.495 million while Good Times revenue declined $0.090 million. Bad Daddy’s same-store sales increased 15.5%, while Good Times same-store sales fell 0.9%. Management attributed Bad Daddy’s growth partly to higher traffic as prior-year COVID restrictions eased and to pricing; Good Times weakness reflected a shift in customer preference toward indoor dining.
Quarter restaurant costs included food and packaging of 31.3% of restaurant sales, payroll and benefits of 34.6%, occupancy of 7.1%, and other restaurant operating costs of 14.0%. Food, labor, and other operating costs rose as a share of sales in several areas, reflecting inflation, higher wages, and operating expenses. The filing does not provide a single consolidated restaurant-level margin measure.
Year-to-date operating cash flow was $1.312 million, versus $3.232 million in the prior-year period. Investing cash outflow was $1.905 million, including $1.177 million of property and equipment purchases and $0.728 million for a restaurant acquisition. Financing cash outflow was $1.197 million. Cash declined to $7.066 million from $8.856 million at September 28, 2021.
At March 29, 2022, working capital was a deficit of $0.708 million. The company reported no borrowings or letters of credit under its $8 million Cadence credit facility, which matures January 31, 2023, and was in compliance with its financial covenants. The facility is secured by a first-priority lien on substantially all company assets. Operating lease liabilities totaled $53.494 million; these are lease obligations, not reported borrowings under the credit facility.
Material changes and unusual items
- Despite higher revenue, quarterly results swung from profit to loss. Year-to-date results also moved from profit to loss.
- The company recorded $1.753 million of long-lived asset impairments for three restaurants: two Good Times locations and one Bad Daddy’s location. No comparable impairment was recorded in the prior-year period.
- A $0.332 million litigation contingency was accrued in Q2. Year-to-date lease-termination and restaurant asset-sale gains totaled $0.657 million, primarily related to a Good Times lease termination.
- Year-to-date Bad Daddy’s results included a $0.516 million one-time special allocation to non-controlling partners related to a payroll-cost rebate.
- The company purchased a previously franchised Bad Daddy’s restaurant in Greenville, South Carolina, and recorded $0.563 million of goodwill in connection with the purchase.
- The company repurchased 75,900 shares for approximately $0.331 million under a newly authorized $5 million program; $4.670 million remained available at quarter-end.
Outlook, commentary, and risks
- Management expects new Bad Daddy’s restaurant openings beginning in fiscal 2023 and said it is filling a development pipeline. It reported no construction-contract commitments for restaurants under development at quarter-end.
- Management expected to increase menu prices at least once in the following six months but could not predict the amount. It said food, packaging, and labor inflation were significant and that pricing decisions would consider customer response and competitors’ prices.
- The company said it believed available capital would cover working capital, recurring operating costs, and recurring capital expenditures through fiscal 2023. This is management’s assessment, not a guarantee.
- COVID-related government restrictions had ended at the company’s restaurants, but management cited lingering supply-chain, labor-market, and customer-behavior effects. Further disruption, product shortages, reduced dining traffic, or renewed restrictions could hurt revenue and cash flow.
- In the White Winston/GT Acquisition Group litigation, the court dismissed all claims except a claim involving an alleged obligation to negotiate in good faith. Plaintiffs had sought $18 million; the company accrued $0.332 million as its estimate of likely damages if liability and damages are established. Trial was scheduled for August 22, 2022. The filing states that additional liability above the accrual could materially affect results, liquidity, or financial condition.
- Management reported disclosure controls were effective as of March 29, 2022 and no significant changes in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Investor verification priorities
- Track whether Bad Daddy’s traffic and same-store sales remain strong, and whether Good Times sales recover; separate traffic trends from menu-price effects.
- Monitor food, packaging, labor, and other cost inflation against pricing actions and restaurant profitability.
- Review cash generation, the working-capital deficit, share repurchases, and liquidity against the Cadence facility’s covenants and January 2023 maturity.
- Follow the litigation’s outcome and any change to the $0.332 million accrual or the plaintiffs’ potential recovery.
- Assess impairment assumptions, the performance of impaired locations, and the planned fiscal 2023 Bad Daddy’s openings.