Good Times Restaurants, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2012. The financial statements are unaudited. Comparisons are with the periods ended March 31, 2011, except balance-sheet comparisons, which are with September 30, 2011.
Financial performance
| Metric | Three months ended March 31, 2012 | Six months ended March 31, 2012 |
|---|---|---|
| Total revenue | $4.570 million, down 2.8% | $9.416 million, down 3.8% |
| Operating loss | $350,000, versus $368,000 | $643,000, versus $656,000 |
| Net loss | $396,000, versus $388,000 | $747,000, versus $777,000 |
| Net loss attributable to Good Times | $395,000, versus $399,000 | $763,000, versus $804,000 |
| Net loss per share attributable to Good Times | $0.14, versus $0.15 | $0.28, versus $0.37 |
Same-store restaurant sales increased 7.3% for the quarter and 5.3% for the six-month period. Total revenue nevertheless declined, primarily because of company-owned restaurant sales and closures. Restaurant operating costs improved to 97.1% of restaurant sales for the quarter from 100.0%, and to 96.8% for six months from 98.2%. Food and packaging costs were 34.7% of restaurant sales for the quarter and 34.9% for six months. The filing attributes improved cost ratios to pricing, sales mix and recipe changes, while noting increased advertising costs.
For the six months, net cash used in operating activities was $176,000, compared with $594,000. Investing activities provided $170,000, mainly from asset-sale proceeds, while financing activities used $255,000, including $231,000 of debt principal payments. Cash declined by $261,000, from $847,000 at September 30, 2011 to $586,000 at March 31, 2012.
At March 31, total assets were $6.142 million, total liabilities were $4.362 million, and total stockholders’ equity was $1.780 million. Reported current assets were $910,000 and current liabilities $1.812 million. The balance sheet therefore implies a $902,000 working-capital deficit; MD&A reports a deficit of $909,000, a difference to verify. Long-term debt, including current maturities, was approximately $2.044 million. The Wells Fargo note balance was $320,000, and the PFGI II note balance was $1.634 million.
Changes, outlook and key risks
- Despite positive comparable-store sales, revenue fell as company-owned restaurants were sold. The Littleton restaurant sale closed in December 2011 for net proceeds of $308,000 and a $9,000 gain. Management continued to consider selling, subleasing or closing selected lower-performing locations.
- Management described the sales outlook for fiscal 2012 as optimistic based on recent positive trends, but provided no formal earnings or revenue guidance. It expected food-cost percentages to improve through pricing and operating initiatives, while warning of commodity pressure, including beef, bacon and dairy. The filing also identifies competition, labor and other input costs, customer preferences, weather-related seasonality and access to capital as risks.
- Wells Fargo had previously asserted covenant defaults; amendments waived those defaults and revised loan terms. The company must meet minimum tangible-net-worth and progressively stricter EBITDA-coverage covenants. The $2.5 million tangible-net-worth requirement exceeds the company’s reported current equity, and management cautioned that covenant compliance is not assured. Acceleration of the loan could adversely affect operations.
- A Firestone sale-leaseback was under negotiation and was expected to produce approximately $1.4 million; a separate company-owned restaurant sale was contracted for $630,000, subject to buyer contingencies. Management expected proceeds to repay the $1.634 million PFGI II loan and provide about $400,000 of additional working capital if both transactions closed as contemplated. These were prospective, not completed, transactions at the filing date.
- The company remained contingently liable for certain leases of restaurants sold to franchisees; no defaults were known. It reported no material expected impact from routine legal proceedings, but disclosed unresolved SEC staff comments relating to its 2011 Form 10-K. Heathcote Capital, whose principal was a company director, was engaged for exclusive financial advisory services concerning a possible strategic transaction; the filing identifies this as a related-party transaction.
Most important facts to verify
- Whether the Firestone sale-leaseback and the $630,000 restaurant sale closed, and whether proceeds were applied as planned to debt and working capital.
- Progress toward Wells Fargo’s net-worth and EBITDA-coverage covenants, including the effect of any additional financing or equity issuance.
- The working-capital deficit: MD&A reports $909,000, while the balance-sheet figures imply $902,000.
- Restaurant count: the filing describes 42 restaurants in one location discussion but gives 43 in a March 31, 2012 comparison table.
- Whether positive comparable-store sales and restaurant-level cost improvements continued, and whether commodity, labor and competitive pressures offset those gains.