Good Times Restaurants Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended June 27, 2023 (13 weeks), with year-to-date results covering 39 weeks. Comparisons are with the quarter and year-to-date periods ended June 28, 2022. The company operates Bad Daddy’s Burger Bar and Good Times Burgers & Frozen Custard.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 39 weeks 2023 | 39 weeks 2022 |
|---|---|---|---|---|
| Revenue | $35.620m | $36.497m | $103.799m | $103.010m |
| Operating income | $0.444m | $0.821m | $1.368m | $0.188m |
| Net income | $0.977m | $0.808m | $11.815m | $0.138m |
| Net income attributable to common shareholders | $0.842m | $0.469m | $11.336m | $(1.351)m |
| Adjusted EBITDA (non-GAAP) | $2.148m | $1.684m | $4.353m | $3.980m |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $4.707m | $4.418m |
Margins and operating trends: Q3 operating margin was approximately 1.2%, versus 2.3% a year earlier. Restaurant food and packaging costs were 30.9% of restaurant sales (32.4% prior year); payroll and benefits were 33.8% (33.9%); occupancy was 6.9% (6.6%); and other restaurant costs were 13.6% (13.1%). Same-store sales declined 1.4% at Bad Daddy’s and increased 2.1% at Good Times in Q3. Year to date, same-store sales rose 1.8% and 4.1%, respectively.
Liquidity and obligations: Cash was $3.684m at June 27, down from $8.906m at fiscal year-end. Working capital was a deficit of $6.421m. Year-to-date operating cash flow of $4.707m was more than offset by $7.572m used in investing and $2.357m used in financing, for a $5.222m net cash decrease. Operating lease liabilities totaled $49.356m. The company has an $8m secured revolving credit facility maturing April 2028; the filing does not clearly state the amount, if any, drawn at period-end. The applicable rate on borrowings would have been 8.07%.
Changes and notable items
- Quarterly revenue fell 2.4%, mainly as Bad Daddy’s revenue declined; Good Times revenue increased. Bad Daddy’s reported weaker traffic, particularly in Atlanta, alongside restaurant closures/remodeling; menu price increases partly offset the decline.
- Year-to-date revenue increased 0.8%. Operating income improved from $0.188m to $1.368m, while adjusted EBITDA rose from $3.980m to $4.353m.
- Year-to-date net income included a $10.503m income tax benefit, principally from releasing the deferred-tax-asset valuation allowance after acquiring non-controlling interests in several joint ventures and assessing cumulative earnings and future tax-benefit realizability. This benefit substantially drives reported year-to-date earnings.
- The company recorded $1.041m of year-to-date long-lived asset impairments, primarily for one Bad Daddy’s restaurant in the Atlanta market. Q3 impairment expense was $0.965m.
- In January 2023, the company acquired all non-controlling interests in five Bad Daddy’s restaurants for $4.394m. It also repurchased 123,623 shares in Q3 for $0.380m; year-to-date treasury-stock purchases totaled $1.720m.
Outlook, risks, and contingencies
- Management said it expected sufficient capital for working capital, recurring operating costs, and recurring capital spending through fiscal 2023. One new restaurant in the greater Huntsville, Alabama market was expected to open in August 2023; management was developing a growth pipeline for 2024 and beyond.
- Management cited inflation in food, labor, energy, and other inputs, and said it may not be able to pass through cost increases without reducing customer demand. Labor availability and wage pressure, competition and discounting, traffic trends, and supply-chain disruption are additional risks.
- The company reported a $332,000 accrual related to the White Winston litigation. The court dismissed plaintiffs’ claims after trial, but plaintiffs appealed and the company also appealed dismissal of its counterclaim. The company retained the accrual; any additional liability could materially affect results, liquidity, or financial condition.
- The company maintains bank deposits above FDIC-insured limits and warns that a bank failure could cause losses. It also identified lease renewals and the ability to negotiate reasonable terms as a risk to future profitability.
Important facts for investors to verify
- Whether the released valuation allowance and related tax benefits are sustainable and realizable; separate operating performance from the large tax benefit.
- Current revolver borrowings, covenant headroom, and liquidity needs given the working-capital deficit, lower cash balance, planned capital spending, and share repurchases.
- Progress in reversing Bad Daddy’s traffic weakness, especially in Atlanta, and whether menu pricing can offset costs without further traffic pressure.
- Potential impairment exposure and the outcome of the appealed White Winston litigation relative to the $332,000 accrual.
- Execution, costs, and timing for the Huntsville opening and planned development pipeline.