Good Times Restaurants Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 27, 2022 (13 weeks), compared with the 13 weeks ended December 28, 2021. Amounts are in U.S. dollars; financial statement amounts are generally in thousands unless noted. The company operates Bad Daddy’s Burger Bar (full service) and Good Times Burgers & Frozen Custard (quick service).
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total revenue | $33.394 million | $32.916 million |
| Income from operations | $107,000 | $1.276 million |
| Consolidated net income | $95,000 | $1.250 million |
| Net income (loss) attributable to common shareholders | $(127,000) | $330,000 |
| Adjusted EBITDA (non-GAAP) | $674,000 | $1.464 million |
| Net cash used in operating activities | $(154,000) | $(219,000) |
| Cash and cash equivalents at quarter-end | $6.914 million | $7.640 million |
Revenue rose 1.5%. Bad Daddy’s revenue was $25.226 million, up from $24.672 million; Good Times revenue was $8.168 million, down from $8.244 million. Same-store sales increased 2.4% at Bad Daddy’s and 3.0% at Good Times, with menu pricing contributing to growth. Reported operating income fell substantially, in part because the prior-year quarter included a $614,000 gain on restaurant asset sales and lease termination.
Operating costs pressured margins: food and packaging costs were 32.0% of restaurant sales versus 31.3%; payroll and benefits were 34.8% versus 34.2%; occupancy was 7.4% versus 7.1%; and other restaurant operating costs were 13.5% versus 12.7%. Income from operations was approximately 0.3% of revenue, compared with approximately 3.9% in the prior-year quarter. Bad Daddy’s reported a $7,000 operating loss, while Good Times reported $114,000 of operating income.
Balance sheet, liquidity and capital
- Current assets were $11.389 million and current liabilities were $13.431 million, resulting in a $2.042 million working capital deficit.
- The company reported no borrowings under its $8 million Cadence credit facility as of the filing; it was compliant with facility covenants at quarter-end. The facility was secured by a first-priority lien on substantially all company assets.
- Operating lease liabilities totaled $49.240 million, including $5.394 million current; these are significant contractual obligations distinct from funded debt.
- Cash declined by $1.992 million during the quarter. Investing activities used $719,000, principally for property and equipment. Financing activities used $1.119 million, including $873,000 to repurchase shares.
- The company stated it believed it had sufficient capital for working capital, recurring operating costs and recurring capital expenditures through fiscal 2023. This assessment should be considered alongside the working capital deficit, facility maturity and subsequent acquisition.
Changes, outlook and notable matters
- Food, labor, energy, freight and other input costs increased amid inflation, supply constraints and labor shortages. Management cautioned that menu price increases may not fully offset cost inflation without hurting customer demand. COVID-related operating effects were more modest than a year earlier but continued to affect staffing and, in limited cases, operating hours.
- Management anticipated one new restaurant in the greater Huntsville, Alabama market in late fiscal 2023. It expected general and administrative costs to remain similar in nominal terms to the quarter; Good Times advertising costs were expected to remain around 3.5% of segment revenue annually. No quantified full-year revenue or earnings guidance was provided.
- On January 24, 2023, Cadence extended the credit facility’s maturity to April 30, 2023, and consented to the company’s acquisition of certain Bad Daddy’s partnership interests. Management said it expected to amend the facility or obtain a new agreement before that maturity.
- On January 25, 2023, the company acquired the remaining interests in five Bad Daddy’s joint ventures for approximately $4.394 million in cash. The company thereby eliminated those non-controlling interests; the remaining non-controlling interests relate to five Good Times restaurants.
- A court entered judgment on January 25, 2023 dismissing all claims in the White Winston litigation. The company retained its $332,000 accrual because plaintiffs could still seek a new trial or appeal; any additional liability beyond the accrual could materially affect results or liquidity.
- The company repurchased 371,395 shares for $873,000 during the quarter. Approximately $3.165 million remained under its $5 million repurchase authorization at December 27, 2022.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether the company extended or replaced the Cadence facility before its April 30, 2023 maturity, and the facility’s terms and covenant headroom.
- The cash and liquidity impact of the $4.394 million Bad Daddy’s partnership acquisition, including the effect on future earnings attributable to common shareholders.
- Whether plaintiffs pursued a new trial or appeal in the White Winston matter and whether the $332,000 accrual remained adequate.
- Whether sales growth and menu pricing can offset continued food, labor, occupancy and other cost inflation without weakening traffic or demand.
- Progress and capital requirements for the anticipated Huntsville opening and any further share repurchases.