Good Times Restaurants, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2014 (first quarter of fiscal 2015). Comparisons are with the three months ended December 31, 2013 unless otherwise noted. Financial statements are unaudited.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2014 | Prior-year quarter | Change / context |
|---|---|---|---|
| Net revenues | $7.855 million | $5.911 million | Up 32.9%; restaurant sales were $7.766 million and franchise royalties $89,000. |
| Operating loss | $(363,000) | $(86,000) | Loss widened. |
| Net loss | $(361,000) | $(159,000) | Loss widened; loss attributable to Good Times was $(410,000), versus $(223,000). |
| Loss per common share | $(0.04) | $(0.05) | Per-share loss narrowed as weighted-average shares increased to 9.18 million from 4.93 million. |
| Cash from operating activities | $(213,000) | $295,000 | Changed to cash use. |
| Cash from investing activities | $(1.750) million | $(1.139) million | Primarily capital expenditures. |
| Cash from financing activities | $3.566 million | $(93,000) | Included $3.233 million net proceeds from warrant exercises and $401,000 of borrowings. |
| Cash and cash equivalents | $11.497 million at Dec. 31, 2014 | $9.894 million at Sept. 30, 2014 | Quarter-end cash increased $1.603 million. |
| Working capital | $9.442 million | Not provided | Company reported a working capital excess. |
At December 31, 2014, current liabilities were $2.534 million. Current maturities of long-term debt and capital lease obligations were $147,000; long-term debt was $530,000 and capital lease obligations due after one year were $35,000. The filing reports approximately $597,000 borrowed under a development loan facility, which provides for up to $2.1 million in loans.
Margins, segments, and material changes
- Good Times same-store restaurant sales rose 8% for the quarter; same-store franchise restaurant sales increased 5.2%. Total Good Times restaurant count was 37, unchanged year over year, including 19 company-owned, 7 co-developed, and 11 franchise-operated restaurants at quarter-end.
- Good Times segment revenue was $6.604 million, up from $5.911 million. Its operating result moved from $110,000 income to a $96,000 loss. Restaurant-level costs, including preopening costs, rose to 88.8% of restaurant sales from 87.3%.
- Bad Daddy’s, with two restaurants open during the quarter, generated $1.251 million in revenue and a $267,000 operating loss, compared with no revenue and a $196,000 loss in the prior-year quarter. A third Colorado location opened in early January 2015.
- Food and packaging costs were 35.4% of restaurant sales, versus 33.3% in the prior-year quarter. Payroll and benefits were 34.2%, versus 34.0%; occupancy and other operating costs were 17.2%, versus 17.6%.
- Capital expenditures were $1.752 million, compared with $768,000. Spending included development of Good Times and Bad Daddy’s locations and land for a Good Times restaurant planned in Aurora, Colorado.
Outlook, risks, and unusual items
- Management described the fiscal 2015 Good Times outlook as “cautiously optimistic,” citing recent positive sales trends. The Aurora restaurant was expected to open in April 2015; additional Bad Daddy’s locations were under negotiation for 2015 and 2016. The filing cautions that quarterly results are not necessarily indicative of full-year results.
- Management cited sharp prior-year increases in beef and bacon costs and expected continued pressure on key commodities. It expected food and packaging costs as a percentage of sales to be higher in fiscal 2015 than fiscal 2014, although it anticipated a decline in the second fiscal quarter from the first-quarter level after menu pricing and some commodity-cost moderation.
- Menu prices increased 4.4% during fiscal 2014, with further increases of 1% in October 2014 and 1.6% after quarter-end. Risks also include competition and discounting, possible same-store sales declines, food and labor inflation, staffing, consumer preferences, weather-related seasonality, and access to capital.
- The company said it believed it had sufficient capital for working capital, debt obligations, and recurring capital expenditures in fiscal 2015 and beyond. This assessment depends in part on operating performance and planned development spending.
- Warrant exercises generated $9.797 million in net proceeds in total, including $3.233 million in the quarter; no warrants remained outstanding at December 31, 2014. Common shares outstanding increased from 8.257 million at September 30 to 9.443 million at December 31, 2014.
- After quarter-end, the company filed a shelf registration statement that, if effective, could permit offerings of up to $75 million in securities. The filing does not specify whether or when offerings will occur. Good Times also remains contingently liable on certain restaurant leases transferred to franchisees; it reported no known defaults.
- The company reported no restaurant or goodwill impairment at December 31, 2014, and said routine legal proceedings were not expected to have a material impact. It also disclosed related-party payments of $10,000 to Heathcote Capital LLC, whose principal is a company director.
Important facts for investors to verify
- Whether Good Times’ same-store sales momentum continues and whether higher menu prices offset food-cost inflation without weakening traffic.
- Whether Good Times restaurant-level costs improve from 88.8% of sales and whether the Bad Daddy’s segment can increase sales and reduce operating losses as it expands.
- Actual spending, financing, and opening dates for planned restaurants, including the Aurora location, and the resulting cash needs and debt levels.
- Whether the shelf registration becomes effective and whether any securities are issued, including potential dilution and the use of proceeds.
- Whether any franchisee defaults trigger the company’s contingent lease obligations, and whether it continues to meet loan covenants and liquidity needs.