Good Times Restaurants Inc. — Q2 FY2024 Form 10-Q
Reporting period: 13-week quarter ended March 26, 2024; year-to-date covers 26 weeks. Comparisons are with the quarter and year-to-date periods ended March 28, 2023. Amounts are in U.S. dollars; financial statement amounts are generally in thousands.
Business context
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 41 Bad Daddy’s and 31 Good Times restaurants. The quarter included 40 company-owned/co-developed Bad Daddy’s and 25 company-owned/co-developed Good Times locations.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | 26 weeks FY2024 | 26 weeks FY2023 |
|---|---|---|---|---|
| Total revenue | $35.438m | $34.785m | $68.570m | $68.179m |
| Income from operations | $0.644m | $0.817m | $0.270m | $0.924m |
| Net income | $0.680m | $10.743m | $0.197m | $10.838m |
| Net income attributable to common shareholders | $0.618m | $10.621m | $0.062m | $10.494m |
| Adjusted EBITDA (non-GAAP) | $1.295m | $1.531m | $1.642m | $2.206m |
| Net cash from operating activities | — | $1.515m | $4.158m |
Quarterly revenue increased 1.9%; year-to-date revenue increased 0.6%. Operating income as a share of revenue was approximately 1.8% for the quarter versus 2.3% a year earlier, and 0.4% year-to-date versus 1.4%. The much higher prior-year net income principally reflected a $9.952m income-tax benefit from releasing a valuation allowance; the current-period earnings comparison is therefore not directly comparable.
Quarterly same-store sales declined 3.2% at Bad Daddy’s and increased 0.9% at Good Times. Year-to-date same-store sales declined 4.7% and increased 2.5%, respectively. Menu price increases helped sales and food-cost percentages: quarterly average increases were about 4.7% at Bad Daddy’s and 3.9% at Good Times. Food and packaging costs were 30.1% of restaurant sales for the quarter, down from 30.8%; payroll and employee benefits rose to 34.8% from 34.7%. Occupancy and other restaurant operating costs also increased as a share of sales.
Liquidity, debt and capital
- Cash was $4.000m at March 26, 2024, versus $4.182m at September 26, 2023. Year-to-date cash decreased $0.182m.
- Operating cash flow was $1.515m; capital expenditures were $1.063m. Financing cash use was $0.634m, including $1.084m for treasury-stock purchases.
- Long-term debt outstanding was $1.250m under an $8m Cadence facility; approximately $6.740m remained available. The weighted-average borrowing rate was 8.42%; the facility matures April 20, 2028 and is secured by substantially all company and subsidiary assets. The company reported compliance with its covenants.
- Working capital deficit was $8.515m. Management said it expects sufficient capital for working capital and recurring fiscal 2024 capital expenditures, funded from cash or future facility borrowings. Operating lease liabilities had a present value of $45.953m.
- The company repurchased 233,082 shares under its public program during the quarter and separately purchased 19,414 shares from an employee. Approximately $0.752m remained under the $5m program at quarter-end.
Changes, outlook and risks
Quarterly Bad Daddy’s revenue was broadly flat, while Good Times revenue grew, primarily reflecting the addition of two company-owned restaurants acquired from franchisees and menu pricing. Year-to-date Bad Daddy’s revenue fell 1.8%, while Good Times revenue rose; the company cited weaker Bad Daddy’s traffic and the prior-year closure of Cherry Creek. Consolidated operating income and adjusted EBITDA declined year-to-date.
Management expects general and administrative costs to be approximately 7.0%–8.0% of revenue for the balance of the fiscal year. It sees opportunities for organic and unit growth, but says it is applying greater scrutiny to site selection and a more conservative approach to leverage. No specific revenue or earnings guidance was provided.
Management reported continued inflation in food, packaging, supplies, energy, wages and property taxes. It expects ground-beef costs, and potentially other protein and food commodity costs, to rise in the second half of FY2024. Its ability to offset cost pressure through pricing may be constrained by competition and consumer demand. Other cited risks include traffic declines, discounting by competitors, staffing and wage pressures, seasonality and adverse weather.
In litigation concerning failed sale negotiations, an appeals court affirmed dismissal of plaintiffs’ claims and revived the company’s counterclaim for further consideration. The company reversed its prior $332,000 reserve, while recognizing $235,000 for routine-course claims; rehearing on the counterclaim ruling was pending. The company says its claimed damages exceed $3m but notes recovery is uncertain. Management reported no material subsequent events and said disclosure controls were effective.
Key facts for investors to verify
- Whether same-store sales and traffic trends improve, particularly at Bad Daddy’s, and how much reported sales growth depends on pricing and acquired locations.
- Whether labor, food, occupancy and other operating costs continue to pressure margins, and whether planned pricing can offset them without hurting demand.
- Cash generation and liquidity against the working capital deficit, lease obligations, capital spending and share repurchases; confirm ongoing covenant compliance and facility availability.
- The status and potential financial outcome of the revived litigation counterclaim and other routine claims.
- The sustainability of earnings excluding the prior-year tax valuation-allowance release, and the company’s ability to realize deferred tax assets given the disclosed Section 382 ownership-change risk.