Good Times Restaurants Inc. — Form 10-Q Summary
Business context and reporting period
Good Times Restaurants operates and franchises Bad Daddy’s Burger Bar (full-service casual dining) and Good Times Burgers & Frozen Custard (drive-through). This filing covers the 13 weeks ended June 30, 2020, and year-to-date 40 weeks ended that date; comparative periods were 13 and 39 weeks, respectively. Unless stated otherwise, amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Quarter ended June 30, 2020 | Prior-year quarter | Year-to-date 2020 | Prior-year YTD |
|---|---|---|---|---|
| Total revenue | $24.36 | $29.45 | $81.35 | $81.98 |
| Operating income (loss) | $0.84 | $1.08 | ($14.06) | $0.51 |
| Net income (loss) | $0.64 | $0.87 | ($14.70) | ($0.05) |
| Net income (loss) attributable to common shareholders | $0.29 | $0.54 | ($15.44) | ($0.96) |
| Basic and diluted EPS attributable to common shareholders | $0.02 | $0.04 | ($1.23) | ($0.08) |
- Quarter revenue fell 17.3%. Bad Daddy’s revenue declined $6.25 million, partly offset by a $1.16 million increase at Good Times. Bad Daddy’s same-store sales fell 36.7%; Good Times same-store sales rose 11.9%.
- Year-to-date revenue was down 0.8%. Bad Daddy’s same-store sales decreased 19.6%, while Good Times increased 7.2%. The extra fiscal week in 2020 contributed an estimated $2.02 million in Bad Daddy’s sales and $0.46 million in Good Times sales.
- Quarter restaurant operating costs were $20.38 million. Food and packaging costs were 27.8% of restaurant sales and payroll and benefits were 30.5%; management attributed lower cost ratios partly to menu mix, pricing, and staffing changes.
- Year-to-date results included $10.0 million of goodwill impairment and $5.29 million of long-lived asset impairment. Excluding those charges, reported operating results would have been materially different; the filing does not present that figure as a GAAP measure.
- Year-to-date operating cash flow was $4.39 million, investing cash outflow $2.31 million, and financing cash inflow $7.84 million. Cash increased by $9.92 million to $12.67 million.
- At June 30, cash was $12.67 million and working capital was in deficit by $1.74 million. Debt was $21.55 million: $9.90 million under the Cadence facility and $11.65 million in PPP loans. Operating lease liabilities were $60.09 million.
Material changes and unusual items
- COVID-19 restrictions closed Bad Daddy’s dining rooms for much of March through late May. All were reopened by early June, but capacity and social-distancing restrictions remained. Delivery and carry-out became more important; Bad Daddy’s incurred higher third-party delivery commissions.
- Goodwill impairment reduced the balance from $15.15 million to $5.15 million. Long-lived asset charges related to six Bad Daddy’s restaurants year-to-date, including one impaired in the June quarter.
- The company adopted lease accounting standard ASC 842 in fiscal 2020, recognizing right-of-use assets and lease liabilities. Management said adoption materially affected the balance sheet but had an immaterial effect on operations, cash flows, and overall liquidity.
- Cadence granted forbearance after potential covenant defaults were identified for the March quarter and deferred a scheduled principal payment. The forbearance expired June 30; the company reported compliance with its covenants at quarter-end.
Outlook, commentary, and risks
- Management provided no quantified earnings or sales guidance. It said unit-growth plans were under evaluation given pandemic uncertainty, while planned remaining fiscal 2020 capital spending was primarily recurring maintenance.
- Management reported sufficient capital for working capital, debt obligations, and recurring capital expenditures through fiscal 2020 and 2021, but warned further restaurant or dining-room closures could require additional liquidity.
- The $11.65 million PPP loans bear 1% interest and were recorded as debt. Forgiveness was uncertain pending SBA review and applicable requirements. If not forgiven, repayment was scheduled to begin after a deferral period ending November 2, 2020, with full repayment due by April 29, 2022.
- Key risks include renewed closures or capacity limits, reduced customer dining, workforce illness or quarantine, food-supply disruption and volatile beef and bacon prices, limited credit availability, and potential impairment of assets. The company also remains contingently liable on certain leases assigned to franchisees.
- Management expected general and administrative costs to decline slightly year over year and Good Times advertising expense to remain around 3.9% of segment revenue. Food-cost inflation outlook was uncertain.
Important facts for investors to verify
- Track Bad Daddy’s and Good Times same-store sales, dining-room capacity, and customer demand as pandemic conditions change.
- Verify the status and amount of PPP loan forgiveness, any resulting debt repayment, and related SBA determinations.
- Monitor covenant compliance, Cadence facility availability, upcoming debt maturities, and liquidity relative to the reported working-capital deficit.
- Assess whether impairment assumptions and future restaurant cash-flow estimates remain appropriate, especially for Bad Daddy’s.
- Review the filing’s cash-flow and debt details alongside its $60.09 million operating lease liability and remaining construction commitments.