Good Times Restaurants Inc. — Q3 FY2022 Form 10-Q
Reporting period: Quarter ended June 28, 2022 (13 weeks); year-to-date covers 39 weeks. Comparative periods ended June 29, 2021. Financial statement amounts below are in millions of dollars unless otherwise noted; statements are unaudited.
Business context and period
The company operates Bad Daddy’s Burger Bar, a full-service restaurant brand, and Good Times Burgers & Frozen Custard, a drive-through brand. At quarter-end it operated, franchised, or licensed 42 Bad Daddy’s and 31 Good Times locations. Management’s stated priorities are targeted Bad Daddy’s growth, stronger same-store sales, and improved profitability across both concepts.
Financial performance and liquidity
| Metric | Q3 FY2022 | Q3 FY2021 | 39 weeks FY2022 | 39 weeks FY2021 |
|---|---|---|---|---|
| Total revenue | $36.50 | $33.95 | $103.01 | $90.43 |
| Operating income | $0.82 | $2.45 | $0.19 | $5.31 |
| Net income (loss) attributable to common shareholders | $0.47 | $13.63 | $(1.35) | $15.53 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $4.42 | $7.39 |
| Adjusted EBITDA | $1.68 | $3.08 | $3.98 | $7.18 |
Quarterly revenue rose 7.5%, while operating income fell; operating margin was approximately 2.2%, versus 7.2% in the prior-year quarter. Year-to-date operating margin was approximately 0.2%, versus 5.9%. The filing reports consolidated net income of $0.81 million for Q3 and $0.14 million year-to-date before income attributable to non-controlling interests; common-shareholder results are shown above.
At June 28, cash was $9.70 million and current assets were $13.14 million against current liabilities of $13.57 million, a $0.43 million working-capital deficit. The company reported $4.42 million of operating cash flow for the 39 weeks, down from $7.39 million. It had no borrowings or letters of credit under its $8 million Cadence facility, which matures January 31, 2023; the company was in covenant compliance. Operating lease liabilities totaled $52.21 million. Management said it expected sufficient capital for working capital, recurring operating costs, and recurring capital expenditures through fiscal 2023.
Material changes versus prior comparable periods
- Bad Daddy’s revenue growth drove consolidated sales higher: quarterly concept revenue increased $2.75 million, while Good Times revenue declined $0.20 million. Year-to-date, Bad Daddy’s revenue increased $13.16 million and Good Times declined $0.59 million.
- Same-store sales increased 5.3% at Bad Daddy’s and 1.6% at Good Times in Q3. For the 39 weeks, Bad Daddy’s increased 14.0%, while Good Times declined 0.6%.
- Inflation and labor costs pressured restaurant economics. Quarterly food and packaging costs rose to 32.4% of restaurant sales from 29.6%; payroll and benefits rose to 33.9% from 33.4%; other restaurant costs rose to 13.1% from 11.1%.
- Year-to-date included $2.06 million of long-lived asset impairments, versus none in the prior-year period, and a $0.33 million litigation accrual. A $0.64 million lease-termination gain contributed to the $0.67 million total gain on restaurant asset sales and lease termination.
- Prior-year earnings included an $11.78 million gain from forgiveness of PPP loans; there was no comparable gain in FY2022. This substantially inflates the prior-year net-income comparison.
Outlook, commentary, risks, and unusual items
- Management was building a development pipeline and expected new Bad Daddy’s openings in fiscal 2023; it disclosed no specific opening count or earnings guidance.
- Management expected to raise menu prices at least once during the next six months, potentially more often, but could not predict the size or timing. It said Good Times advertising costs were expected to remain approximately 4% of segment revenue and general and administrative costs to trend near the current quarter’s nominal level for the remainder of the fiscal year.
- Risks include food, packaging, and wage inflation; competitive labor availability; supply-chain disruption related to COVID-19 and the war in Ukraine; changes in customer traffic and dining behavior; and the possibility that pricing cannot offset cost increases. The company reported no current COVID-related government restrictions or mask mandates.
- A lawsuit over failed negotiations concerning a subsidiary sale had one remaining claim relating to good-faith negotiations. The court limited potential recovery to reliance damages; the company accrued $332,000 and said additional liability above the accrual could materially affect results, liquidity, or financial condition. Trial was scheduled for August 22, 2022.
- The board authorized a $5 million share-repurchase program. By June 28, 169,648 shares had been repurchased, with approximately $4.40 million remaining; fiscal year-to-date cash used for treasury-stock purchases was $0.61 million.
- The company recorded impairment charges for four restaurants year-to-date. No goodwill impairment was reported. Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether fiscal 2023 Bad Daddy’s openings proceed, and their funding and expected returns.
- Whether menu-price increases can offset food, packaging, wage, and other operating-cost inflation without weakening traffic.
- The Cadence facility’s January 2023 maturity, any renewal or refinancing, and continued compliance with its liquidity and other covenants.
- The outcome and final damages, if any, in the remaining lawsuit claim compared with the $332,000 accrual.
- Restaurant-level performance and impairment indicators, particularly for the four locations impaired during the year-to-date period.
- The company’s cash needs and capital-allocation plans, including further repurchases while reporting a working-capital deficit and substantial lease obligations.