Good Times Restaurants Inc. — Q2 FY2021 Form 10-Q
Reporting period: 13-week quarter ended March 30, 2021; year-to-date (“YTD”) period was 26 weeks. The comparable prior-year YTD period was 27 weeks, affecting comparisons. The company operates Bad Daddy’s Burger Bar and Good Times Burgers & Frozen Custard.
Financial performance and liquidity
- Quarter revenue: $29.192 million, up 11.5% from $26.182 million. Restaurant sales were $28.995 million; franchise revenue was $0.197 million.
- Quarter earnings: Operating income was $1.603 million, versus an operating loss of $14.533 million a year earlier. Net income attributable to common shareholders was $1.097 million ($0.09 per diluted share), versus a $14.916 million loss ($1.19 per basic share). The prior-year loss included $14.359 million of goodwill and long-lived asset impairment charges. Current-quarter operating and common-shareholder net margins were approximately 5.5% and 3.8%, respectively.
- YTD results: Revenue was $56.488 million, down 0.9% from $56.996 million despite the prior year having an extra week. Operating income was $2.866 million versus a $14.905 million loss; net income attributable to common shareholders was $1.899 million versus a $15.727 million loss. Adjusted EBITDA, a non-GAAP measure, was $2.288 million for the quarter and $4.101 million YTD, compared with $0.836 million and $2.340 million, respectively.
- Sales and operating costs: Quarterly same-store sales increased 9.1% at Bad Daddy’s and 22.9% at Good Times, with prior-year pandemic closures weighing on comparisons. Food and packaging costs declined to 28.3% of restaurant sales from 30.4%; payroll and employee benefit costs declined to 33.3% from 38.2%; occupancy costs declined to 7.4% from 8.5%. Other restaurant operating costs increased to 12.6% from 11.4%, primarily reflecting delivery commissions.
- Cash flow: YTD operating cash flow was $3.232 million, versus cash used of $0.204 million. Investing activities used $1.171 million, including $1.184 million in property and equipment purchases; financing activities used $2.311 million. Cash declined $0.250 million to $11.204 million.
- Balance sheet and debt: At March 30, cash was $11.204 million and current assets were $13.552 million. Total debt was approximately $15.145 million: $8.148 million current and $6.997 million long-term. This includes $11.645 million of PPP loans and $3.500 million drawn under the Cadence facility. Operating lease liabilities were $56.709 million. Working capital was negative $7.169 million, including the scheduled current PPP maturities.
- Credit facility: Cadence’s facility maturity was extended to January 31, 2023; quarterly principal installments were eliminated. The commitment was $11 million at quarter-end, with reductions to $10 million effective March 31 and $8 million effective July 1, 2021. The company reported covenant compliance and a 3.75% weighted-average facility interest rate.
Changes, outlook and risks
- Quarter revenue growth reflected recovery from prior-year dining-room closures, increased dining capacity, and higher sales at both brands. Bad Daddy’s delivery-vendor sales were $4.466 million; Good Times benefited from drive-through demand. YTD Bad Daddy’s same-store sales fell 1.8%, while Good Times rose 22.5%.
- Management expected to open two Bad Daddy’s restaurants in fiscal 2021, with preopening activity underway. It expects general and administrative costs to remain above fiscal 2020 levels because of insurance and health costs, investments in management systems, and comparison with prior-year salary reductions.
- The company applied for full forgiveness of its PPP loans on April 30, 2021, but had not received an SBA decision. If not forgiven, repayment obligations could materially affect cash commitments; the filing reports approximately $8.1 million of current PPP maturities.
- COVID-19 restrictions, customer dining behavior, food-supply disruption and commodity-price volatility could affect sales, costs, cash flow and asset valuations. Management said it could not predict the pandemic’s duration or the effect of inflation on food costs.
- Other risks include restaurant labor availability and costs, competition and discounting, sales declines, and contingent lease obligations for restaurants previously sold to franchisees. Management considered ordinary-course legal contingencies immaterial; no material risk-factor changes were reported.
Key facts for investors to verify
- Whether and when the SBA forgave the PPP loans, and the resulting debt classification and cash requirements.
- Availability under the Cadence facility after the scheduled commitment reductions, and continued compliance with its covenants and minimum-liquidity requirement.
- Whether same-store sales and restaurant margins persist as pandemic comparisons normalize, including the cost and mix of third-party delivery.
- Timing, opening costs and expected returns for the two planned Bad Daddy’s locations, alongside lease commitments and negative working capital.
- Exposure to food-price increases, supply interruptions, staffing pressures and possible dining restrictions.