Business context and reporting period
Good Times Restaurants, Inc. filed this unaudited Form 10-Q for the fiscal third quarter and nine months ended June 30, 2015. The company operates and franchises Good Times Burgers & Frozen Custard and Bad Daddy’s Burger Bar restaurants. Results include Bad Daddy’s Burger Bar Development, LLC and its acquired operations from the May 7, 2015 acquisition of BDI.
Key financial results
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net revenue | $12.937 million, up 73% from $7.500 million | $29.507 million, up 51.3% from $19.501 million |
| Income (loss) from operations | $336,000, versus $316,000 | $(396,000), versus $(152,000) |
| Consolidated net income (loss) | $295,000, versus $272,000 | $(428,000), versus $(312,000) |
| Net income (loss) attributable to Good Times common shareholders | $107,000, or $0.01 per share, versus $162,000, or $0.02 | $(739,000), or $(0.07) per share, versus $(600,000), or $(0.11) |
- Revenue growth reflected Colorado Bad Daddy’s restaurants, new Good Times locations, and the acquired North Carolina restaurants. The acquired BDI and BDFD businesses contributed $3.002 million in revenue and $147,000 in net income from the acquisition date through June 30.
- Good Times same-store restaurant sales increased 4.8% in the quarter and 6.9% for the nine-month period. Bad Daddy’s same-store sales figures are not clearly provided.
- Good Times restaurant-level operating costs were 82.8% of restaurant sales in the quarter, up from 81.1%; for nine months they were 85.3%, up from 84.4%. Management cited higher food costs, wage increases, new-store costs and other operating expenses.
- Net cash provided by operating activities was $1.007 million for nine months, versus $458,000. Investing activities used $20.456 million, principally for the BDI acquisition and capital expenditures; financing activities provided $24.742 million.
- Cash was $15.187 million at June 30, 2015, versus $9.894 million at September 30, 2014. Working capital was $10.099 million. Balance-sheet long-term debt was $1.135 million, current maturities of debt and capital leases were $2.624 million, and long-term capital leases were $18,000.
Material changes and unusual items
- On May 7, 2015, Good Times acquired BDI for a stated purchase price of $21.407 million: $18.988 million cash and a $2.419 million secured note due in one year at 3.25% interest. The acquisition brought the company control of Bad Daddy’s intellectual property, additional company-operated and co-developed restaurants, and franchise interests. Preliminary purchase accounting included $14.974 million of goodwill and $3.9 million of trademarks.
- The company completed a public offering of 2,783,810 common shares at $8.15 per share, receiving approximately $20.6 million net. Proceeds were intended for the BDI acquisition, restaurant remodeling and development, working capital and other investment. Shares outstanding were 12,245,549 at June 30.
- Acquisition costs were $365,000 for the quarter and $562,000 for nine months. The filing reports no restaurant or goodwill impairment for the periods presented.
- Good Times opened company-owned restaurants in Highlands Ranch in November 2014 and Aurora in May 2015. The company reported 38 Good Times and 13 Bad Daddy’s locations at June 30.
Outlook, risks and contingencies
Management described the Good Times sales outlook for fiscal 2015 as optimistic, citing positive sales trends, and planned further Bad Daddy’s development, including three locations under construction and additional sites in negotiation. Management expected Good Times food and packaging costs to remain consistent as a percentage of sales in the fourth quarter, while warning that renewed pressure on beef, bacon and other commodities could raise costs. Fiscal 2015 menu price increases totaled 3.4%, following a 4.4% increase in fiscal 2014.
The company said it expected to have sufficient capital for fiscal 2015 working capital, debt service and recurring capital expenditures. Risks include successful integration of BDI, operating in unfamiliar geographic markets and the small-box casual-dining segment, competition and discounting, same-store sales declines, food and labor inflation, staffing availability, and seasonal weather effects. Good Times also remains contingently liable on certain leases assigned or subleased to franchisees; it reported no known defaults. Management stated that disclosure controls were effective and that there had been no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the BDI integration, restaurant growth and anticipated synergies progress as planned, and whether final purchase-price allocations differ from the preliminary estimates.
- Whether revenue and same-store sales momentum translates into improved operating profitability, given the nine-month operating loss and higher Good Times restaurant-level cost ratio.
- How acquisition financing, capital spending and the one-year $2.419 million seller note affect future cash, debt and liquidity.
- Whether commodity, wage and other operating-cost pressures remain manageable and whether planned menu pricing affects customer traffic.
- Whether any franchisee defaults trigger the company’s contingent lease obligations, and whether development plans or liquor-license transfers encounter delays.