Q1 2021 Good Times Restaurants Inc Earnings Call

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Good afternoon, ladies and gentlemen, and welcome to the good times restaurants, Inc. Fiscal 2021 first quarter earnings call Bye.

By now everyone should have access to the company's earnings release, which is available and the investors 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 them.

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.

Chances 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 the risks related to the COVID-19 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 Zink. Please go ahead Sir.

Yeah.

Thank you, Chris and thank you all for joining us on the call today.

And good company and wish and goodbye to calendar 2020.

That said, despite the ex essential fear that gripped us about 10 months ago, and both proud and humbled by our team's ability to overcome the adversity of the calendar year 2020 to learn and adapt and operate our business as profitably under the demands of our new reality.

During our first fiscal quarter, we continued our trend of growing sales significantly at good times and preserving sales at bad Daddy's at greater rates than our competitors as measured by Knapp track as well as laying the groundwork for the future of both of our brands.

We experienced the closure of our Colorado dining rooms, beginning in mid November at Bad Daddy's and those dining rooms remain closed through the end of the quarter and into early January.

We are prepared for that in September and October by investing and wind breaks and additional heaters for our outdoor patios and in some cases separate tenants with dedicated heating and lighting to expand our ability to serve our customers, making the bet that indoor dining would be severely capacity restricted or even entirely closed off.

That preparedness enabled us to preserve nearly 90% of prior year same store sales for the concept despite dining room closures and almost a third of our bad Daddy's.

We also saw the closure of dining rooms, and bolster traffic at good times as customers shifted some casual dining options to fast casual and <unk> and in particular with a preference for drive through which is our niche and good times.

We continue to recognize that we need to react to changes caused by the COVID-19 pandemic, but we're also preparing ourselves for a post pandemic post vaccine business environment.

While we believe many guests who have so far avoided restaurant dining are anxious to enjoying a full service restaurant experience. We also recognize that we must continue to stay flexible to meet our guests' needs as we move into the post pandemic world.

We've watched as consumers have become more comfortable with QR code menus delivery and carryout and more than anything.

Digital interactions with brands the value of the convenience associated with digital ordering self payment and the ability to interact with restaurants and multiple different channels and formats.

To support that convenience factor, we're developing mobile apps for both of our brands.

Through which we expect to offer order and payment capabilities as well as direct integration into our restaurant systems.

This should reduce the friction of ordering associated with placing orders.

And provide a new order and it means a good times for our current digital ordering is limited to delivery service Aggregators.

And that we hope will significantly improve on the currently sub optimized user experience that we have with our mobile web interface at bad Daddy's.

During our December earnings call, we discussed our new virtual brand bad modest chicken and I am pleased to share that we have rolled that out to 24 of our bad Daddy's restaurants.

While not yet a major part of our business. It did contribute approximately 2% of incremental sales in December to those restaurants, where we had rolled it out and it was particularly well timed and Colorado, where we experienced dining room closures.

Bad Mom is also provides us the platform to experiment with product pricing and promotion and the concept of lines with bad Daddy's.

Bad Daddy's brands culinary focus using fresh chicken wings, and tenders and with our heart of house employees, Handbreadth, those tenders and making sources from scratch.

We recognize that labor pressures will continue to be a challenge for the industry with a heavy presence in Colorado, which is a high wage market. We have gained experience and operating with higher wage rates are.

Our expectation is that longer term the federal minimum wage will increase and were working on initiatives to prepare for that change should it come to pass.

And at Bad Daddy's, we've been shifting our pricing approach, having rolled out all occurred side pricing and Colorado and the smaller five ounce Patty option system wide.

Of which expand upon our concepts unique ability to allow each guest to customize their meal exactly to their needs.

We expect to soon begin experimenting and a limited number of restaurants with technology assistant table service using a technology partner to enable customers to place orders and pay from their own mobile device.

Our vision for this model should prove successful is to retain a high touch full service experience, but eliminate time consuming elements of the process.

Again, we're looking at this not just through a lens of improving front of house productivity, but also putting more control of the experience directly in the hands of our guest.

Also as discussed during last quarter's call and we continue to expect to open two restaurants. This fiscal year, one during our third quarter and one during our fourth quarter.

Let's review this quarter's results.

As we review keep in mind that during fiscal 2020, the fiscal calendar had an extra week and the quarter that occurs approximately once every five years.

At Bad Daddy's restaurant sales during the quarter were $18 7 million compared to $22 8 million during last year's first quarter.

We had approximately 27 fewer store weeks this quarter versus the same quarter last year, reflecting one fewer week and the fiscal court calendar, partially offset by a greater number of restaurants opened for the full quarter.

The decline in sales was also affected by reduced traffic accompanying closed and reduce capacity dining rooms associated with the COVID-19, pandemic as well as changes and consumers general holiday shopping behavior.

Same store sales declined 11, 8% during the quarter with 33, bad Daddy's and the comp base at the end of the quarter.

Cost of sales at bad Daddy's were 28, 7% for the quarter and.

And 150 basis point decrease from last year's quarter. The result of higher average menu pricing associated with a greater share of sales through our third party delivery services, partially offset by increased packaging cost.

And reduce waste associated with menu optimization and generally favorable commodity pricing.

Note that prior year cost of sales for bad Daddy's have had the cost of packaging reclassified from other operating expenses, which conforms with the current year presentation.

We made this classification adjustment at bad Daddy's, reflecting our belief that the increased carryout and delivery sales, we've seen as a structural change and these sales no longer are merely incidental to our business.

Bad Daddy's labor costs decreased by approximately 600 basis points compared to the prior year quarter to 33 33, 5%.

This year over year decrease is primarily due to reduced front of house staffing levels accompanying limited occupancy of dining rooms.

Groove back of house productivity and the reduction of management staffing from an average of five managers per restaurant to four managers per restaurant as well as a reduced number of managers and training.

And prior years, the cost of restaurant managers and training for existing restaurants was treated as a general and administrative expense where it is now treated as a part of restaurant costs.

We made this change as these costs are directly attributable to restaurant staffing.

Higher year amounts have also been reclassified to conform to this year's presentation.

Overall restaurant level operating profit and non-GAAP measure for bad Daddy's was approximately $3 $1 million for the quarter or 15, 8% of sales compared also to three zero million.

And were 13, 1% sales last year.

This was due to improvements and cost of sales and labor, partially offset by sales deleverage of fixed costs, including rent.

Well as increased delivery commissions accompanying a higher mix of delivery sales.

Restaurant sales and good times were $8 $4 million and increase of <unk> 6 million driven by the strong 22, 1% positive same store sales during the quarter offset by the reduced number of operating weeks during the quarter and the closure of one good times near the beginning of December.

Food and packaging costs for good times were 29, 6% for the quarter, a decrease of 140 basis points compared to last year.

Good times had relatively similar blended commodity cost to the prior year offset by higher menu pricing and improvements and product waste.

Total labor costs for good times decreased to 31, 2% from 38, 3% 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.

Good times restaurant level operating profit increased by $1 7 million for the quarter.

As a percent of sales the restaurant level operating and profit increased by 930 basis points versus last year to 26% again, due primarily to higher sales and the leveraging of fixed costs accompanied by lower cost of sales lower cost of labor, partially offset by higher costs associated.

With delivery commissions.

General and administrative expenses were $2 $1 million during the quarter or 8.0% as a percentage of total revenues.

This represents an increase of zero point $1 million versus the prior year quarter, and a 130 basis point decrease.

Rather increase as a percentage of sales.

G&A expenses increased versus the prior year due to a onetime executive bonus and the addition of finance and technology leaders to the senior leadership team increased professional fees and excess medical claims costs associated with the company's partially self funded health care plan.

These costs than were partially offset by lower multiunit supervision costs due to greater spans of control of bad Daddy's.

And reduced costs associated with the Companys annual GM conference.

Our net income to common shareholders for the quarter was <unk> 8 million versus a loss to common shareholders of <unk> $8 million and first quarter last year.

Despite significantly lower sales at bad Daddy's incremental sales at good times improve.

Improvements and operating efficiencies at both brands and minimal Preopening expenses during the current year quarter allowed us to deliver significantly better bottom line results.

Adjusted EBITDA for the quarter, a non-GAAP measure was $1 8 million compared to $1 5 million for the first quarter of two.

2020.

We finished the quarter with $10 million and cash and approximately $4 million outstanding on our credit facility with cadence bank and $11 7 million and outstanding Paycheck protection program loans.

Note that during the quarter, we began paying our broad line food suppliers on discounted payment terms of approximately three days versus approximately 21 days previously which.

Which we estimate reduces our outstanding accounts payable balance on an ongoing basis.

And between one three and $1 $5 million.

Subsequent to the end of the year of rather the end of the quarter, we amended our cadence to credit facility, which provides a new maturity date of January 31, 2023 and on.

And ultimately reduce the commitment to $8 million by July one.

Providing us with financial flexibility, but while better aligning with our new point of view around appropriate leverage.

At the current time, we expect to finance future development, primarily from cash flow generated by the business and we began and believe that even as we expect to open two new bad Daddy's restaurants. This year, we can continue to strengthen our balance sheet by further reducing leverage.

Due to the continued uncertainty associated with the COVID-19 pandemic as well as some indications that regulatory wage changes may take place even during our fiscal year, we did not provide guidance for the balance of the year and.

And our press release, we reported same store sales increase of $24.

24% for good times and.

And same store sales decline of 8% for bad Daddy's during the month of January.

We expect as restrictions ease and same store sales will sequentially improve at bad Daddy's and will moderate a good times and.

We also expect some margin compression as additional front of house staffer added back and Colorado as dining rooms open and as capacity restrictions across the country are relaxed.

As we upgrade our off premises packaging at bad Daddy's and as we anticipate some commodity pressures later in the year.

In summary, we're pleased with this quarter's result.

It has set us up well for the balance of the year.

With that Chris we will open the call for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone. If you were if you are using a speakerphone. Please pick up your handset before pressing the keys.

If you need assistance. Please signal for a conference specialist by pressing the Starkey followed by zero.

If you would like to withdraw your question. Please press Star then two.

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

Okay.

Our first question comes from Roger Lipton with Lyft and financial Please go ahead Sir.

Yeah good afternoon.

Nice to talk to you guys.

Good and impressive impressive.

Management of the problem, especially the lower payroll cost and.

And late and cost of goods at bad Daddy's could you talk a little bit about the at bad Daddy's.

Off premise versus in store you.

You know, maybe reflecting back on what it used to be and and what its been running lately.

And you know.

Off premise and and sort of including delivery the delivery component.

Yeah, certainly so.

And I'll, probably speak it's best spoken up in terms of mix and I would say before the pandemic.

Our total off premise was roughly in the in the 12% to 15% of total sales now and certainly back in March April and May when most of our dining rooms were closed that number went to 100%.

And I would say more more recently, though what we have seen.

With with all of the dining rooms open.

Is that were still running approximately 35% to 40%.

Total off premise off premise as a percentage of total sales.

And of that roughly just just shy of I'd say, 40% of that number then is delivery.

Mhm.

Okay and.

And.

How do you do delivery third party.

Yes, so we have a couple of ways for our customers to two.

To access delivery one is we do use the aggregators. So we have partnerships with door dash grubhub posts mates and soon to be <unk> and.

And.

That is one mechanism for our customers to access it we also allow delivery through our website.

And we then but we don't service that internally.

It's low more economical for us and the customer if they do it through our website and then through through our partnership with all low.

And the rails product, we're able to source delivery drivers through those same providers.

Right and.

And and I and I think you made reference to the margins being.

Affected by the third party guys. Your net margins are lower on that yes.

And certainly I mean, if you look at other restaurant operating costs as a percentage of sales those are both higher than the prior year and a good chunk of that increase as a percentage of sales is directly attributable to the delivery service fees.

And lastly on this subject is that is that it.

Extra cost.

And decreasing.

Yeah, Yeah. These guys compete with each other to get you get your business.

And so what I would say.

And we spent even before the pandemic.

We spent a lot of time working with them to <unk>.

Negotiate.

Commission rates that could work with our economic model.

I would say the competition Hasnt really driven.

Improvements and the rates as much as regulation has and we've seen on a couple of jurisdictions, where we do business where rates have been capped at a ceiling of 15% that I wouldn't say it is.

Less than 20% of our stores.

But I somewhat envision that that will we will see more of that throughout throughout our markets and potentially throughout the rest of the country.

Yeah, Yeah, I think so too alright, I'll drop off for a second and I'll come back.

And give somebody else a chance here and thank you alright. Thanks Roger.

Okay.

Again, if you do have a question. Please press Star then one on your Touchtone phone.

At this time, we're showing no further questions and the queue and I would like to turn the call over to Ryan again for any closing remarks.

Thanks again, Chris.

We've started this quarter with strength, even despite continued challenges and the operating environment. Our team continues to put forth great effort to anticipate changes proactively adapt the business to demands from our customers as well as regulators.

And each and every day I continue to be more impressed by what our team is able to accomplish and I and I want to take this time to thank them all for their tireless efforts to improve our business.

It's very much appreciated.

And with that we will conclude today's call and thank you all for joining us today.

Conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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