Q3 2021 Good Times Restaurants Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the good times restaurants, Inc. Fiscal 2021 third quarter earnings call by now everyone should have access to the company's earnings release, and 10-Q filings, which are available and the investors section of the company's website.
As a reminder, part of today's discussion will include forward looking statements within the meanings of the federal Securities laws.
These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them.
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 events or circumstances that may 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, which include the related are you, including for 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.
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 and our earnings release and now I would like to turn the call over to Ryan. Please go ahead Sir.
Thank you Paul and.
And thank you all for joining us on the call today, we are pleased with the Senate and the performance of both brands. This quarter. The solid financial performance, we reported doesn't fully do justice to the incredible efforts of our restaurant teams executing each of our concepts daily.
As restrictions on dining rooms have eased, we bet and been met with other challenges stemming from a tight labor market and the overall economy that have affected both of our concepts.
This tight labor market has resulted in elevated wage rates at both brands as we both strive to compete for talent and create an environment, where our restaurant level compensations rewarding and meaningful for our managers and our team members.
And our good times brand, we primarily focused on wages and method of attracting hourly team members with a 10% increase and the average wage compared to the prior year, whereas at bad Daddy's, we've implemented a multi pronged approach, including limited time retention bonuses and our employee holiday bonus program as well as <unk>.
Our increased wages to fairly reward employees and both tipped and non tipped roles.
Our back of house wage rate is up approximately 8% versus the prior year and we expect this tight labor market to continue for some time.
Despite the challenges and the external environment, we continue to focus on speed accuracy and consistent execution and our good times drive through restaurants.
We believe that this has helped us to retain near prior year volumes rolling over the closure of indoor dining and Colorado last year.
We believe firmly that speed is a competitive advantage for us that's created repeat customers and long term loyalty that we expect to stay with us.
Our ongoing strategy is to further improve upon speed consistently executing in a way that builds a solid reputation and strong association with the customer.
Between speed of service and good times.
We've managed operating hours and similar to prior year in spite of staffing challenges and we look to strategically increase those operating hours when theres greater capacity and labor markets are hours of operations continue to be reduced compared to 2019 levels at good times.
At Bad Daddy's, we're operating with a menu that we believe is appropriately sized for our concept. Our menu is modestly smaller than it was pre pandemic, however, compared to many competitors who significantly reduced their menus are menu rationalization has been targeted around our assessment of customer demand.
We don't expect to expand our menu from where it currently is and.
And in doing so we're looking to set a long term change and menu strategy compared to prior years.
Innovation and taste and flavor will continue to play a part and the ongoing evolution of our menu. However, our greater focus is on executing our current more compact menu exceptionally well.
We continue to also believe and a high level of hospitality and service at bad Daddy's and see that as a differentiator and as such focus throughout the quarter on elevating front of house staffing and we have seen that translate into sequentially improving comparable sales through the present.
As with good times, we continue to operate with reduced operating hours compared to 2019.
At both brands were and development of mobile applications to enable native device based mobile ordering and at our good times brand, we expect to be launching online ordering for the first time early in the first fiscal quarter of 2022.
We continue to monitor technologies and are experimenting with alternative service models at bad Daddy's in a way to provide greater flexibility and the guest experience based upon their preferences <unk>.
Improving the efficiency of serving our guests while at the same time not compromising the level of service and hospitality and we believe separates us from the sea of sameness and casual dining.
Separately today, we issued a press release announcing that we expect to launch a tender offer to purchase up to 1.413 million shares of our outstanding common stock at a price of $4.60 per share for an approximate total amount of $6.5 million.
This tender offer is expected to commence on August 13th 2021, or soon thereafter and remain open for 20 business days.
The company expects to fund share purchases from its existing cash and cash equivalents.
While we believe this tender offer are we we.
We believe this tender offer to be and effective means to return capital to our shareholders. While also allowing those shareholders, who did not participate and the tender offer to share and a higher portion of our future potential.
Let's review this quarter's results at.
And at Bad Daddy's restaurant sales during the quarter were $24.4 million compared with $14.9 million during last year's third quarter.
The increase in sales was attributable to increases in traffic as the combined on and off premise sales exceeded pre pandemic levels and as we rolled over and striction restrictions and dining capacity that were imposed during the third quarter of last year.
Same store sales increased 61% during the quarter compared to last year, and <unk>, 7% compared to 2019, with 37 and bad Daddy's and the comp base at the end of the quarter.
Cost of sales at bad Daddy's were 29, 7% for the quarter, a 120 basis point increase from last year's quarter. The result, and a lower mix of sales through our third party delivery services, which have a higher selling price.
Elevated commodity prices and increased packaging costs during.
During the quarter average menu prices were approximately 3% higher than prior year with most of those price increases concentrated and Colorado.
We recently took another 2% price increase this increase more concentrated and the balance of the system.
Bad Daddy's labor costs increased by approximately 220 basis points compared to the prior year quarter to 34, 3% for the quarter. This year over year increase is primarily due to increased for the house staffing levels accompanying fully open dining rooms, compared against dining room closures and limited capacity and the same quarter last.
At year.
Costs related to the hourly and play holiday pay and incentive compensation programs that are aimed at improving retention as well as higher average wages paid to hourly employees.
Our back of house wage at Bad Daddy's.
Up approximately 8% versus last year.
As a reminder, the cost of restaurant managers and training for existing restaurants is now included as a part of restaurant labor costs and last year's.
Last year's amounts have been reclassified to the current year presentation.
Overall restaurant level operating profit, which is a non-GAAP measure for bad Daddy's was approximately $4.3 million for the quarter or 17, 8% of sales compared to $2.3 million or 15, 4% last year.
This is due to the leveraging of fixed costs on higher sales, Inc. As well as reduced delivery fees as a percent of total restaurant sales.
Partially offset by increased cost of sales and labor.
Restaurant sales at good times were $9.3 million approximately the same as prior year driven by 2.9% same store sales increased during the quarter offset by a reduced number of operating weeks, resulting from the previously reported closure of 1 good times that occurred and the first quarter of the year.
Same store sales at good times compared to 2019 or 14, 3%.
Food and packaging costs for good times were 29, 4% for the quarter, a decrease of 70 basis points compared to last year's quarter.
Modest increase in input costs during the quarter were offset by higher menu pricing average.
Average menu price during the quarter was up approximately 4.5% versus 2020.
Total labor costs for good times increased to 31.0% from 28, 1% for the quarter last year.
This increase is due to wage increases compared to the prior year the.
And the result of comparing against salaries and wages that had been reduced during the pandemic as well as general increases and market wages due to labor shortages.
Good times restaurant level operating profit decreased by zero point $3 million for the quarter to $2.2 million as a percentage of sales restaurant operating profit decreased to 23, 6% due primarily to higher wage costs and rolling over some rent forgiveness that certain landlords had granted to.
And the prior year.
General and administrative expenses were $2.5 million during the quarter for 7.4% as a percentage of total revenues. This represents an increase of <unk> $8 million versus the prior year quarter.
G&A expenses increased versus the prior year due to increased legal and professional fees increased costs associated with multi unit and senior management incentive compensation and higher manager training costs and elevated systems and technology costs.
Our net income to common shareholders for the quarter was $13.6 million or $1.4 per cent per fully diluted share versus net income to common shareholders of zero point $2 million last year or <unk> <unk> per share.
And the third quarter last year, which include the current year amount includes an approximate $11.8 million gain from the forgiveness of PPP loans.
For the year to date period, our net income to common shareholders was $16.8 million or $1.21 per fully diluted share versus a loss of $15.4 million or a dollar and 23 per share for the prior year to date period.
Adjusted EBITDA for the quarter was $3.1 million compared to $2.4 million for the third quarter of 2020.
For the year to date period, our adjusted EBITDA was $7.2 million versus $4.7 million for the same period and fiscal 2020 note that adjusted EBITDA is a non-GAAP measure also note that the same period in fiscal 2021.
Our and fiscal 2020 was 40 operating weeks versus 39 operating weeks in the current year period.
We finished the quarter with $10.3 million and cash and no long term debt.
At the current time, we expect to primarily finance future development with cash flow generated by the business and we believe that even as we expect to open 1 more bad Daddy's restaurant this year.
And we will continue to have a solid balance sheet.
We opened our bad Daddy's and Marietta, Georgia in early June which is currently posting average weekly sales of approximately $45000 per week and our next restaurant and Montgomery, Alabama is scheduled to open during September.
We expect to open approximately 2 new bad Daddy's restaurants in fiscal 2022 with those likely to occur during the late second half of the year.
We provided guidance of net income for the full fiscal 2021 year of between $16.5 million and $17.0 million and adjusted EBITDA of between $9.5 million and 10 points here of $1 million for.
For fiscal 2022 in light of the pandemic, we've not provided a complete financial support.
Well, we commented that we believe our current annualized run rate net income attributable to common shareholders is approximately 4.0 to $4.5 million.
Again, we're very pleased with this quarter's results, which sets us up well for the final quarter of the year.
With that coal will open the call for questions.
Thank you and we will now begin the question and answer session.
To ask a question you May Press Star then 1 on your Touchtone phone.
And you're using a speakerphone please pick up your handset before pressing the keys.
If you would like to withdraw your question. Please press Star then 2.
And at this time, we will pause momentarily to assemble the roster.
And our first question today will come for Roger Lipton with Lyft and financial services. Please go ahead.
Hi, Ryan.
Good.
Just interested in the comparisons and Youre after some operating numbers.
2019 in terms of and if you have them.
And your fingertips, if not we can do.
And another time, but ambition and the cost of goods and labor.
And this most recent quarter versus the same quarter in 2019, just to get an idea of how the business has changed a couple of years.
Yes.
Don't have those numbers at my fingertips in terms of the margin numbers. However, what I would say is I believe on both concepts.
We've exceeded at least a couple of hundred basis points of margin improvement.
And quarter to quarter basis on a 2 year look back.
I think what's more important kind of from a from a go forward basis is that kind of these these metrics are more in line with what we expect for the future.
Although certainly there are.
And cost pressures that other restaurant companies are experiencing as as our as are we.
I think we feel confident that we'll be able to manage cost of sales reasonably well with menu price and we think that our menu price is competitive and actually we're in the bad Daddy's system. I think we feel like we've got a little bit of room for additional price we've been potential we've been purposefully.
And I wouldn't say slow, but controlled and menu price adjustments.
Thank the labor is the challenge and that is kind of a function of rate driven by the the.
And the lack of supply of talent and the market.
But kind of to your point I think what you've seen is meaningful improvement.
Versus our financials prior to the pandemic and we have learned.
A lot about how to manage our business more.
More effectively more efficiently compared compared to 2019 and before.
Okay.
And that would be the hope so it sounds that way.
And last question, what's the off premise percentage at bad Daddy's now and it has.
And how has that changed over the last couple of years.
So during obviously when we were completely.
Our dining rooms are completely shut down during the <unk>.
Third quarter last year, we went to 100% mix.
As as on premise has returned.
Our sales of off premise have remained strong and we still have in terms of all methods of off premise, which currently include customer pickup.
And delivery through the Aggregators and then we also offer delivery through our website, which is managed through third parties.
All of those combined.
We're running high 20% almost 30% mix in off premise.
And how much roughly.
And what might that had been running a couple of years ago.
We were running 12% to 14% off premise in 2019.
Okay. That's interesting thanks very much thanks.
Thanks Roger.
And our next question will come from William James with met her Investor investment. Please go ahead.
Hey, Ryan just going forward with regard to the bad Daddy's.
The capex involved and opening up a.
Our new bad Daddy's divided by the run rate EBITDA at the restaurant level EBITDA.
Is the payback there going to be running 3 to 3.5 times do you think.
Yeah, I mean, I think the way the way we look at that is a R. R.
Our model.
Calls for for.
Investment net of landlord contribution.
Approximately.
Approximately $1.3 million currently we've seen some increase in construction.
Construction costs.
Due to.
Due to tightness and the market just just like everything else.
And.
And operating profits of of high teens, 16, and 17% on our target we can generate restaurant level cash flow of approximately $400000. So just shy of kind of.
3 times.
3 times for 3 year payback, just shy of that.
Great do you think the idea going forward would be to keep the balance sheet, just just clean and to just take all the excess cash flow and put them in these times paybacks of bad Bad Daddy's, Yes.
Yes, I think our approach from a growth perspective.
And is primarily focused on bad Daddy's.
As I mentioned I think our intent is to finance bad Daddy's development, primarily through cash flow not to incur.
A meaningful amount of debt and to enter as you say keep a rather clean balance sheet. That's that's our aim as it as it pertains to development.
Okay.
And you guys have really block a refreshing pragmatic.
<unk>.
Management to this company is just outstanding policies and yeah.
EBITDA finally, materialized and the restaurant margins and.
At the operating level materialized, just so terrific job.
Thank you I appreciate that.
And.
And once again, if you'd like to ask a question. Please press Star then 1 our next question will come from Amar Sheth with <unk> partners.
Please go ahead.
Hi, how are you.
Thanks for taking my question I.
I guess I had 2 questions 1 was.
Do you project and your restaurant level margins are going to kind of maintain the current run rate will be increase in costs, but offset by the normalization of demand.
So I think the best way to answer that I think is long term. We do believe we'll be able to manage that I think there may be some short term volatility in light of some of the extreme pressure that everybody is seeing and the market right now debt.
We expect to continue at least through the end of our fiscal year and I think theres the potential for it to continue through the end of the calendar year.
But I do believe that long term.
We believe that we'll be able to achieve these margins.
But again I think short term there'll be some volatility.
Okay. Thank you and then my other question was.
Obviously, the normalization of the occurred more recently and.
And these things can take some time to develop.
And your restaurant, but how do you foresee kind of longer term, maybe 3 to 5 years out.
The ability to GDP growth.
Yes, I mean, I think the best way to explain that because we haven't we're not really providing firm guidance either for next year on a 3 to 5 year basis, but I would say that I think our expectation is that.
The lion's share of the growth would come from the bad Daddy's side of the portfolio.
And and Theres, a good chance that that development primarily comes from our company owned.
However, I think there is also the possibility that we could explore a combination of company and franchise owned model and the future.
Okay. Thank you.
And this will conclude our question and answer session and I'd like to turn the conference back over to Robin for any closing remarks.
Thanks, Paul.
As we've entered the homestretch for our fiscal year, we continue to develop a culture of both of our concepts.
That we believe will enable us to effectively compete in the labor market for high quality talented individuals' that share our values.
And the staffing market in our industry is currently as challenging as it has ever been and I could not be more proud of the restaurant general managers and their full management teams at both of our brands as we continue to execute those brands continue to build an organization that creates loyal guests at good times through the convenience.
And better fast food platform, including all natural beef and chicken and at our bad Daddy's brand through genuine hospitality delicious scratch made burgers and salad and an all inclusive environment.
I could not be more proud to be a team member with the more than 200 restaurant and capability leaders, we have and the more than 2000 total employees that each day come to work to create great experiences for our customers.
With that we will conclude today's call I. Thank you all for joining us today.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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