BT Brands, Inc. (BTBD) - 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024, and the 26-week period ended on the same date. BT Brands, Inc. operates a portfolio of restaurants including eight Burger Time locations, Keegan's Seafood Grille, Pie In The Sky, Village Bier Garten, and the newly acquired Schnitzel Haus. The Company also holds an approximate 40% equity interest in Bagger Dave's Burger Tavern, Inc. As of June 30, 2024, there were 6,195,682 shares of common stock outstanding.
Key Financial Metrics
| Metric | 13 Weeks Ended June 30, 2024 | 26 Weeks Ended June 30, 2024 |
|---|---|---|
| Sales | $4,110,639 | $7,300,786 |
| Net Loss | $(69,952) | $(515,652) |
| Loss Per Share (Basic/Diluted) | $(0.01) | $(0.08) |
| Operating Loss | $(188,543) | $(819,372) |
| Restaurant-Level EBITDA | $437,613 (10.6% margin) | $421,941 (5.8% margin) |
| Cash and Cash Equivalents | $3,735,309 (as of June 30, 2024) | |
| Marketable Securities | $1,495,639 (as of June 30, 2024) | |
| Total Debt (Current + Long-Term) | $2,365,305 (as of June 30, 2024) | |
| Net Working Capital | $4,418,698 (as of June 30, 2024) |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 2.8% for the quarter and 3.2% for the 26-week period compared to the prior year. Growth was driven by improved performance at Burger Time locations (average check up ~10%) and the addition of Schnitzel Haus operations starting May 13, 2024.
- Operating Expenses: Restaurant operating costs as a percentage of sales increased to 89.4% in Q2 2024 from 84.2% in Q2 2023. This was primarily due to higher labor costs (37.7% of sales vs. 35.3% prior year) and increased occupancy costs (8.4% vs. 3.7% prior year) related to the new acquisition and maintenance expenses.
- Profitability: The operating loss widened to $188,543 in Q2 2024 from $79,548 in Q2 2023. However, the net loss narrowed significantly to $69,952 from $233,734 in the prior year quarter, largely due to a $118,184 unrealized gain on marketable securities and a $29,562 realized gain, offsetting the operational losses.
- Acquisition: The Company acquired Schnitzel Haus for $943,000 in cash, adding a German-themed restaurant to its portfolio.
Guidance, Outlook, and Risks
Management Commentary: Management notes that while sales are improving, margin expansion is challenged by inflationary pressures on labor and food costs. The Company expects moderation in inflationary pressure for the remainder of 2024. The acquisition of Schnitzel Haus is intended to diversify operations and reduce dependency on the Burger Time brand.
Risks and Contingencies:
- Labor Market: Continued tightness in the labor market is driving up wage costs and making staffing difficult.
- Internal Controls: The Company disclosed a material weakness in internal control over financial reporting as of June 30, 2024, related to the accounting for acquisitions. A consultant has been engaged to assist management.
- Capital Requirements: The Company relies on operating cash flows and existing cash reserves to fund growth and acquisitions. It currently has no significant debt covenants restricting operations but must service existing mortgage debt.
Investor Verification Checklist
- Internal Control Weakness: Verify the progress of remediation efforts regarding the material weakness in internal controls over financial reporting.
- Acquisition Integration: Monitor the financial performance and integration of the newly acquired Schnitzel Haus location to ensure it meets projected returns.
- Labor Cost Trends: Track labor cost percentages in upcoming quarters to determine if wage inflation is stabilizing or continuing to compress margins.
- Equity Investment Performance: Review the financial health of the 40% owned affiliate, Bagger Dave's, which contributed a net loss of $81,000 to the Company's Q2 results.
- Cash Burn Rate: Assess the sustainability of the current cash position ($3.7M) given the negative operating cash flow of $326,369 for the first half of the year.