Q3 2020 Good Times Restaurants Inc Earnings Call

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Good afternoon, ladies and gentleman welcome to the good times restaurants, just called 2023rd quarter earnings call.

I know everyone should have access to the company's earnings release, which is available in the investor section of the company's website.

As a reminder, a part of today's discussion will include forward looking statements within the meaning of federal Securities laws. These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and therefore investors should not place undue reliance on them and the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise. After this call.

The company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions, including risks related to the cup and Notching pandemic.

Lastly, during today's call the company will discuss non-GAAP measures, which they believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliation to comparable.

GAAP measures available in our earnings release.

And now I would like to turn the call over to Ryan. Please go ahead Sir.

Thank you grant I'd like to thank all of you for joining us on the call today.

Past few months have been interesting to say, the least and I'd like to start by offering my thanks to the entire team here at good times, including our hourly and management team members that both are good time, and bad Daddys restaurants, as well as a restaurant support team.

So thankful to work with the team with such capability and grit.

No one unprecedented challenge to the business. This pandemic has served as a catalyst to help find the team and align us towards a common goal.

Developing relevant restaurant concepts and operating those restaurants profitably.

At the outset of the Pandemics you're in the U.S., we took immediate actions as we discussed on our last call.

Throughout the quarter as our sales increased and conditions improved and upon the receipt of PPP funds, we restored pay to employees rehired individuals to handle our increased sales, but also use the opportunity to make permanent changes in our business that would benefit us in the long run.

One. Good example of this this was our menu at bad Daddys.

Upon resuming dining room service. We initially retained a very condensed menu that served us well in a carry out and delivery only model.

Recently, though we've added back a few items to our menu such as our signature Devon bags, our house meat House made black Bean Burger and our baking CAISO based upon customer demand.

Additionally, added salmon beyond meet patties to round out our protein options and Mac and cheese. This aside item, which had been tested successfully pre pandemic and was originally scheduled to launch in April.

At the same time, we've made the decision to forego returning items to the menu such as our house made slaw shoestring fries, and tuna, patties, which were all labor intensive and very low indexing in sales.

And while we're being very conscientious about adding labor intensive items to our menu at bad Daddys are focused on aircraft and our house made ingredients remains.

We still hand cut our traditional fries hand, bread or fried chicken and make our house made American cheese, all inside the four walls.

Hey, Good times, we've seen strong sales as a result of customer preference for the safety and speed of to drive thru and those sales increases have translated into stronger leveraging of labor and rents.

We work to simplify our many at good times with the goal of improving our drive through speed performance and though we had made some strides there more work remains to be done.

Despite record levels of unemployment, we found hiring to staffing parts still to be challenging, which although translating into stronger margins caused us to fall short of our drive to speed performance goals during the quarter.

We continue to believe that speed, coupled with a high quality product is essential to good times long term sales and traffic growth.

Rather than expanding our menu significantly we believe that having a focused core menu of differentiated items that we can execute lights out is the right long term strategy.

We continued with our media mix weighted towards radio, though are increasingly testing digital advertising approaches, including more targeted social advertising.

Throughout the quarter, we were able to keep our beef supply in check and though we are committed to serving fresh beef. We deal did build frozen food safety stock of our custom grind for each concept as insurance in case of processing plant shutdowns or ordering shortfalls.

Spring escalated significantly through the quarter and no moderating somewhat remains elevated compared to long term price levels.

Weve redesigned our staffing models, so both concepts will be more efficient than they were previously.

Our June quarter includes a significant portion of time when our dining rooms were closed completely at bad Daddys, and therefore with significantly reduced service staff and with reduced staffing at good times that accompanied the hiring challenges.

Rehiring that staff as our dining rooms opened and increasing staff at good times as their sales increased to better achieve our speed targets have moderately increased our labor costs from the third quarter.

If we were to temporarily revert to a delivery and carry out model again under government regulations, we would likely retain a greater number of staff that we did in the June quarter to eliminate the operational challenges that accompanied rehiring positions.

Let's review this quarter's results at bad Daddys restaurant sales during the quarter were 14.9 billion compared to 21.1 million during last year's third quarter.

We had approximately 52 more store weeks this quarter versus the same quarter last year offset by reduced traffic accompanying closed and reduced capacity dining rooms associated with the coded 19 pandemic.

31, bad Daddys, where in the comp base at the ended the quarter and same store sales decreased 36.7% for the quarter.

Cost of sales at bad Daddys were 26.4% for the quarter in 240 basis point decrease from last year's quarter and the result of higher average menu pricing associated with a greater share sales through our third party delivery services and lower year over year beef pricing in April and May.

Offset by higher year over year beef pricing during the month of June.

Bad Daddys labor cost decreased by approximately 510 basis points compared to the prior year quarter to 32.1% for the quarter.

Its year over year decrease is primarily due to reduced hourly staffing levels accompanying the closure of dining rooms, and the reduction of management staffing levels in our bad Daddys restaurants.

Overall restaurant level operating profit and non-GAAP measure for bad Daddys was $2.3 million for the quarter or 15.4% of sales compared with $3.4 million or 16.0% last year.

This is due to a combination of sales deleverage and a higher mix of delivery sales driving increased delivered commissions, partially offset by improvements in cost of sales and labor.

Restaurant sales at good times increased to $9.3 million driven by the strong positive comparable sales during the month of May and June partially offset by initial sales declines during the month of April.

Overall same store sales increased 11.9% for the quarter.

Food and packaging cost for good times were 30.1% for the quarter, a decrease of 30 basis points compared to last year's quarter.

As we discussed last quarter. Good times has continued to benefit from higher menu pricing and improvements in product waste.

Similar to our comments on bad Daddys deep pricing increase throughout the quarter and remains elevated during our fourth fiscal quarter.

Total labor cost for good times decreased to 28.1% from 34.9% for the quarter last year. This is the result of leveraging increased sales our focus on staffing for volume and our speed of execution focus which has improved labor productivity as well as the benefit of a slight level of under.

Staffing relative to our staffing model.

Good times restaurant level operating profit increased nearly $1.1 million for the quarter.

As a percent of sales the restaurant level operating profit increased by 950 basis points versus last year to 27.2% as a percent of sales due primarily to higher sales accompanied by lower cost of sales lower cost of labor, partially offset by higher costs associated with delivery commissions.

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General and administrative expenses were $1.7 million during the quarter were 6.9% as a percent of total revenues.

This represents a decrease of approximately zero point $4 million versus the prior year quarter, and 20 basis point decrease on a percentage of sales basis.

This quarter's DNA expenses decreased due to larger spans of control that bad Daddys lower manager training costs as well as reduced restaurant support center staffing compared to the prior year.

As a percent of sales. These nominal decreases were partially offset by the deleveraging impact of lower overall sales.

We recorded the impairment of long lived assets of approximately zero point $9 million related to one bad Daddys restaurant, where it restaurant sales did not recover to our expected level after reopening dining rooms.

Our net income for the quarter was zero point $2 million versus net income of zero point $5 million in the second quarter in the third quarter last year.

Despite significantly lower sales the improvements in operating efficiencies allowed us to deliver only slightly lower income than the prior year quarter and adjusted for the impairment charge. During this year's quarter elevated income compared to the prior year.

We finished the quarter with $12.7 million in cash and $9.9 million drawn against our credit facility with cadence bank as well as $11.6 million in Paycheck protection program loans.

Our net debt of $8.9 million represents a decrease of $3.8 million compared to the end of the prior quarter.

We had approximately zero point $6 million of rent either associated with short term deferrals or unpaid pending negotiations with landlords at the ended the quarter.

This pandemic has likely changed our industry permanently and restaurant concepts and operators will need to continue to adapt quickly.

The safety of our customers and of our employees is paramount to US we have rapidly adapted our operations as knowledge of the virus changes in his new recommendations are made.

Further we continue to evaluate customer feedback and assess customer behavior to adjust our operations in both of our concepts to ensure that we're meeting or exceeding their expectations during the ongoing pandemic and in a post pandemic world.

With that we'll open the call for questions.

We will now begin the question answer session ask your question you might press Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the kids withdraw your question. Please press Star then too.

At this time, we'll pause momentarily to assemble our roster.

Again, if you'd like to ask your question is Star then one Star then one Taskers question.

It looks like we have a question here from James Benjamin is a private investor.

Please go ahead.

Great Hey, guys. Thanks for taking my call I just had a couple of quick questions.

Regarding the PTP loans added any idea as to how long the process as to whether or not you'll be able to give a portion or and possibly all that balance.

And I'd say the easy answer that would be no. The rules continue to evolve and I think although.

SP and treasuries getting closer to be able to accept.

Applications for that a lot depends on the individual banks in there there are process with that so unfortunately, I don't have a much more to say on that.

I understand so one more I say I guess dung far and I can appreciate injection changing on maybe even a a weekly or daily basis.

You know how do you feel about whether or not you can actually operate.

At least cash flow breakeven or cash flow positive maybe on a unit or on an overall level going forward.

Well I think under the conditions that exist right now the results for the quarter. We certainly work were cash flow positive and I think we would expect to be able to continue that pace.

To the extent.

Dining rooms are allowed to remain open I think thats. The big question and you know I'd be more challenging if dining rooms were closed but I think we would you know we would do our best to.

Be able to preserve cash and have a minimum cash burn if dining rooms were closed again.

Okay.

Hey for what it's worth had been a shareholder now for about four years shall I loved seeing the 8-K. This afternoon I think you did a healthy job given the being economy sale Oh. Thank you for the trial that you guys you're doing that I think you're holding up very very well.

Thank you appreciate comments.

Again, if you like to ask your question that Star then one.

Our than one task the question.

Well I'm showing no further questions at this time. So this will conclude our question and answer session I would like to turn the conference back over to run say for any closing remarks.

Thank you once again I'd like to thank our team members and the leadership within our company for their amazing attitudes their dedication and their stellar performance as we've continued to provide amazing food and genuine hospitality to our guests at both concepts during these unique times.

With that will conclude today's call. Thank you all for joining US today, please stay safe and healthy.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.