Good Times Restaurants Inc. — FY2023 Form 10-K
Business context and reporting period. The filing covers the 52-week fiscal year ended September 26, 2023, compared with the 52 weeks ended September 27, 2022. The company operates Bad Daddy’s Burger Bar, a full-service concept, and Good Times Burgers & Frozen Custard, a drive-through quick-service concept. The filing provides full-year results, not standalone fiscal fourth-quarter financials.
Financial performance
- Revenue: $138.1 million, down $78,000 (0.1%). Bad Daddy’s revenue was $102.5 million, down about 1.0%; Good Times revenue was $35.6 million, up about 2.6%.
- Comparable sales: Bad Daddy’s increased 0.1%; Good Times increased 3.7%. Growth was primarily price-driven, with weaker traffic partly offsetting increases.
- Operating costs and margins: Restaurant operating costs were $123.2 million, or approximately 89.2% of revenue. Operating income was $963,000 (approximately 0.7% of revenue), versus an operating loss of $878,000 in FY2022. Food and packaging costs improved to 31.3% of restaurant sales from 32.0%; payroll and benefits rose to 34.6% from 33.9%.
- Profit: Consolidated net income was $11.7 million, including a $10.8 million income tax benefit largely resulting from releasing the deferred-tax valuation allowance. Net income attributable to common shareholders was $11.1 million, or $0.94 per diluted share, compared with a $2.6 million common-shareholder loss, or $0.21 per share, in FY2022.
- Cash flow and liquidity: Operating cash flow was $8.0 million, up from $5.3 million. Investing cash use was $10.4 million, including $4.8 million of property and equipment purchases, $4.4 million to acquire non-controlling interests, and $1.3 million for franchisee restaurant acquisitions. Cash declined to $4.2 million from $8.9 million. Working capital was negative $8.3 million; management cited cash sales and vendor payment terms as mitigating factors.
- Debt and leases: The company had $750,000 drawn on its $8.0 million Cadence facility, with approximately $7.24 million available and a stated borrowing rate of 8.42% at year-end. The facility matures in April 2028, is secured by substantially all company and subsidiary assets, and was reported in covenant compliance. Operating lease liabilities totaled $48.1 million.
- Other: Adjusted EBITDA, a non-GAAP measure, was $5.5 million versus $4.8 million. The company repurchased approximately 1.13 million shares for $3.22 million cumulatively under its $5.0 million authorization; $1.78 million remained available at year-end.
Changes versus FY2022
- Revenue was essentially flat, with Good Times growth offset by lower Bad Daddy’s revenue.
- Operating results improved by $1.8 million, reflecting lower general and administrative costs and impairment charges, partly offset by higher restaurant costs. FY2022 included $3.4 million of impairment charges and a $332,000 litigation accrual; FY2023 impairment charges were $1.6 million.
- Net income turned positive primarily because of the deferred-tax benefit. The valuation-allowance release is a significant non-cash, judgment-dependent item, rather than a comparable increase in operating earnings.
- Cash declined by $4.7 million, chiefly as investment spending and share repurchases exceeded operating cash generation.
Outlook, risks and contingencies
- Management anticipated one Bad Daddy’s opening in FY2024 and expects disciplined growth to focus primarily on Bad Daddy’s. It reported moderately rising commodity costs early in FY2024 and could not reasonably predict menu price increases because of cost volatility.
- Management expects general and administrative costs to increase slightly in FY2024, including from insurance, health costs, and planned human-resources and financial-management systems. It expects advertising costs as a share of revenue to remain broadly stable.
- Management said unusually high food, supply, energy, and wage inflation exceeds what it believes can be fully passed to customers without risking traffic. Labor availability and wage increases, commodity and supply-chain volatility, competition, and customer sensitivity to pricing could pressure margins and sales.
- The company maintains deposits above FDIC-insured limits and warns that a bank failure could cause losses. It also remains contingently liable on certain restaurant leases assigned to franchisees if those franchisees default.
- The White Winston litigation remains on appeal. The company retained a $332,000 accrual despite prevailing at trial; the filing says additional liability beyond the accrual could materially affect results, liquidity, or financial condition.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements; its report did not express an opinion on internal-control effectiveness.
Investor verification priorities
- Confirm the standalone FY2023 fourth-quarter results separately; this filing’s highlighted comparisons are full-year figures.
- Assess the quality and sustainability of earnings excluding the $10.8 million tax benefit, including the assumptions supporting realization of deferred tax assets.
- Track cash conversion, working-capital needs, capital spending, remaining credit availability, borrowing costs, and compliance with facility covenants.
- Monitor brand-level traffic and sales versus menu pricing, especially as inflation and labor costs continue to pressure margins.
- Review the status and potential exposure of the White Winston appeal and contingent lease obligations.