Good Times Restaurants Inc. — Q1 FY2017 Form 10-Q
Reporting period: Fiscal quarter ended December 27, 2016 (13 weeks), compared with the quarter ended December 31, 2015. The current quarter had one fewer operating day. The company operates Good Times quick-service restaurants and Bad Daddy’s Burger Bar full-service restaurants.
Financial results
| Metric | Q1 FY2017 | Prior-year quarter |
|---|---|---|
| Total revenue | $16.555 million | $13.838 million |
| Loss from operations | $473,000 | $930,000 |
| Consolidated net loss | $493,000 | $961,000 |
| Net loss attributable to common shareholders | $633,000; $0.05 per share | $1.124 million; $0.09 per share |
| Cash used in operating activities | $352,000 | $596,000 |
| Capital expenditures | $2.425 million | $3.955 million |
| Adjusted EBITDA (non-GAAP) | $472,000 | $245,000 |
Revenue increased 19.6%, principally from Bad Daddy’s, whose revenue rose $2.802 million with six newer restaurants contributing to the increase. Good Times revenue declined $85,000. Same-store sales were down 0.5% at company-operated Good Times restaurants and 3.9% at Good Times franchise restaurants; Bad Daddy’s same-store sales increased 2.0%.
Food and packaging costs were 31.5% of restaurant sales versus 33.0% a year earlier. Payroll and benefits rose to 36.6% from 34.9%, with management citing approximately 6% higher average wages at Good Times amid a competitive Colorado labor market. Occupancy costs were 7.9% versus 7.8%; other restaurant operating costs were 9.3% versus 9.2%. The operating loss was approximately 2.9% of revenue, compared with 6.7% in the prior-year quarter.
Cash and equivalents were $3.517 million at quarter-end, down from $6.330 million at September 27, 2016. Working capital was negative $902,000. Long-term debt and capital lease obligations totaled approximately $75,000, including current maturities; the company had not drawn on its $9 million Cadence Bank facility. Total assets were $47.860 million and stockholders’ equity was $37.472 million.
Changes, outlook, and risks
- Operating and net losses narrowed year over year, while revenue grew primarily through Bad Daddy’s unit expansion. Adjusted EBITDA also improved, though it is a non-GAAP measure and excludes items including preopening costs and stock compensation.
- Investing cash outflow was $2.422 million, mainly for restaurant development and equipment. The company had $1.692 million of outstanding construction commitments and said it expected to fund working capital, debt obligations, and recurring capital needs in FY2017 and beyond using available cash or potential facility borrowings.
- Management’s stated strategy is disciplined Bad Daddy’s growth, Good Times remodeling and expansion, and improving same-store sales. It expected Good Times advertising to remain approximately 4.5% of restaurant sales for the balance of FY2017 and food costs to remain consistent as a percentage of sales, subject to commodity pressures. No specific revenue or earnings guidance was provided.
- A Bad Daddy’s joint-venture restaurant opened in Fayetteville, North Carolina on January 16, 2017. A new Good Times location was anticipated to open in March 2017; related assets were classified as held for sale, with a sale-leaseback planned after construction.
- Risks include competitive discounting, weaker same-store sales, food and labor cost inflation, staffing availability, weather-related seasonality, and contingent lease obligations if franchisees default. The company reported covenant compliance and no known franchisee lease defaults at quarter-end.
Important facts for investors to verify
- Reconcile the filing’s different loss measures: consolidated net loss was $493,000, while loss attributable to common shareholders was $633,000 after the reported non-controlling-interest amount.
- Track cash usage, construction commitments, and any future borrowings under the secured Cadence facility, including covenant compliance.
- Monitor Bad Daddy’s new-unit performance and Good Times same-store sales, wage costs, and commodity exposure.
- Assess the planned Greeley sale-leaseback and potential exposure from contingent leases on restaurants sold to franchisees.