Q3 2024 Good Times Restaurants Inc Earnings Call
Speaker Change: [inaudible]
Keri August: Good afternoon, ladies and gentlemen, and welcome to the Good Times Restaurants, Inc. fiscal 2024 third quarter earnings call. I am Keri August , the company's senior vice president of finance and accounting.
Keri August: I am Keri August, the company's Senior Vice President of Finance and Accounting. As a reminder, a part of today's discussion will include forward-looking statements within the meaning of federal securities law. The nature of other investment opportunities presented to the company; the Uncertain Nature of Current Restaurant Development Plans and the Ability to Implement Those Plans and Integrate New Restaurants; increased competition; and the cost and availability of capital or credit facility borrowings to provide liquidity.
Speaker Change: By now, everyone should have access to the company's earnings release, which is available in the investor section of the company's website.
Speaker Change: As a reminder, a part of today's discussion will include forward-looking statements within the meaning of federal securities laws.
Speaker Change: These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them.
Speaker Change: These statements involve known and unknown risks, which may cause the company's actual results to differ materially from results expressed or implied by the forward-looking statements.
Speaker Change: Such risks and uncertainties include, among other things, the market price of the company's stock prevailing from time to time.
Speaker Change: The nature of other investment opportunities presented to the company.
Speaker Change: The disruption to our business from pandemics and other public health emergencies.
Speaker Change: The impact and duration of staffing constraints at our restaurants.
Speaker Change: The Impact of Supply Chain Constraints and Inflation.
Speaker Change: The Uncertain Nature of Current Restaurant Development Plans and the Ability to Implement Those Plans and Integrate New Restaurants.
Speaker Change: Delays in developing and opening new restaurants because of weather, local permitting, or other reasons, increased competition, cost increases, or shortages in raw food products.
Speaker Change: Other general economic and operating conditions.
Speaker Change: Risks associated with our share repurchase program.
Speaker Change: Risks associated with the acquisition of additional restaurants.
Speaker Change: The adequacy of cash flows and the cost and availability of capital or credit facility borrowings to provide liquidity.
Speaker Change: Changes in federal, state, or local laws and regulations affecting the operation of our restaurants, including minimum wage and tip credit regulations.
Keri August: During today's call, the company will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. However, the presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures available in our earnings release.
Speaker Change: During today's call, the company will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
Ryan Zink: Thank you, Keri, and thank you all for joining us today. Meanwhile, Bad Daddy's reported a same store sales increase this quarter, posting a 1.2% increase on a single quarter pound aggressively smashed patty. We expect the Classic Smash to continue into the fall, as our guests have demonstrated their excitement over this method of cooking a burger. We further expect both the Classic Smash and the Steakhouse Smash to ultimately become permanent items on the full menu.
Speaker Change: Thank you, Keri, and thank you all for joining us today.
Speaker Change: Our approach at both brands has centered around an intense focus on the guest and in particular at Bad Daddies, investing in greater front-of-house labor to provide better hospitality in our dining rooms and greater engagement and speed at the bar.
Speaker Change: As of the date of this call, Fame Store sales during the fourth quarter at Bad Daddy's continue to be growing in the low single-digit range, and our performance against the Black Box Casual Dining Index has continued to trend favorably.
Speaker Change: Our classic smash is a familiar build with shredded lettuce, our house-made kickback sauce, sliced onions, and American cheese.
Speaker Change: Our Steakhouse Smashed Burger features the same patty with house-made grilled onion aioli, shredded lettuce, A1 onion rings, and sharp cheddar cheese.
Speaker Change: Both burgers demonstrate our culinary prowess, but at a significant value to our guests with a price point starting at $8.50 for a single patty classic smash.
Speaker Change: We further expect both the Classic Smash and the Steakhouse Smash to ultimately become permanent items on the full menu.
Ryan Zink: The sales stabilization in the Atlanta market that I mentioned last quarter has continued, and although individual store performance has varied, I would now consider this a sales recovery in the market. In most markets, the number of applicants has increased, and the experience and skills of applicants for both team member and management roles have improved somewhat, despite the greater slack that's been reported to exist in the overall labor market.
Speaker Change: The sales stabilization in the Atlanta market that I mentioned last quarter has continued, and although individual store performance has varied, I would now consider this a sales recovery in the market.
Speaker Change: Attracting the employees who demonstrate the right skills, the right focus on the guests, and the strong work ethic that's required at a Bad Daddy's has required higher starting wages or salaries than ever before.
Speaker Change: As we continue to evaluate the underlying real estate and each restaurant's historical sales performance, including pre-pandemic sales peaks.
Speaker Change: We may choose to make the difficult decision to close certain restaurants that have not participated in the sales recovery that our overall system has experienced.
Ryan Zink: Our Madison, Alabama, restaurant continues to perform well, and I'm excited about the continuity of the highly capable management team that we have in that restaurant. It continues to be a top quartile store in terms of overall sales performance. And as we approach the one-year anniversary of that restaurant's opening, the honeymoon impact we've seen has been the tamest of any Bad Daddy's opening since the original three in Charlotte over a decade ago.
Speaker Change: Our Madison, Alabama restaurant continues to perform well, and I'm excited about the continuity of the highly capable management team that we have in that restaurant.
Speaker Change: It continues to be a top quartile store in terms of overall sales performance.
Ryan Zink: I remain optimistic that when the restaurant enters the comp base following its 18 months of operations next spring, that it will do so growing sales on an already strong sales base. At Good Times, our sales growth has been significantly weighted to dinner and late night sales. Early into the fourth quarter, our competitors increased their promotional activity with the prevalence of five dollar value meals. But after 20 years of operations, some TLC was needed. We immediately replaced the awnings, painted the building, completely refurbished the parking lot, and performed a landscape overhaul. We've added digital menu boards and have our new sign package in flight. This more extensive remodel required a six-week closure and more substantial CapEx than we've typically been spending on a remodel.
Speaker Change: Additionally, our sales growth has been supported by strong sales trends at the two restaurants we purchased late in fiscal 2023, as well as by restaurants that have been remodeled.
Speaker Change: Early into the fourth quarter, our competitors have increased their promotional activity with the prevalence of $5 value meals.
Speaker Change: This is cut into our same store sales performance a bit and while we've traditionally shied away from deep discounts
Speaker Change: We closed on the purchase of the Good Times in Parker, Colorado, during the quarter. This restaurant has a dining room and is a larger footprint than most of our Good Times, which are typically double drive-through formats.
Speaker Change: This restaurant was reasonably well maintained with new equipment and an interior that was already clean and in good condition.
Speaker Change: But, after 20 years of operations, some TLC was due. We immediately replaced the awnings, painted the building, completely refurbished the parking lot, and performed a landscape overhaul.
Speaker Change: We've added digital menu boards and have our new sign package in flight. We're excited about the sales potential at this restaurant in a suburb of Denver that is experiencing strong population growth.
Speaker Change: We also completed the remodel of a Good Times in Lakewood, Colorado, and have experienced a significant turnaround in sales at this restaurant.
Speaker Change: Three remodel sales were positive or were trending double-digit negative and are now generally trending double-digit positive on a year-over-year basis.
Speaker Change: This more extensive remodel required a six-week closure and more substantial CapEx than we've typically been spending on our remodels.
Speaker Change: This is the fourth remodel of our traditional double drive-through unit.
Ryan Zink: Digital engagement remains a focus for us, and as we discussed last quarter, the challenges involved in guest adoption of a new loyalty program in a primarily drive-through concept are manifesting slower than desired growth in member activity. That said, growth in member activity has again accelerated after a lull near the end of Q2, and we've created some team member and management incentives to ensure the right focus at the restaurant level on growing GT rewards.
Speaker Change: Digital engagement remains a focus for us and as we discussed last quarter the challenges involved in guest adoption of a new loyalty program in a primarily drive-thru concept are manifesting slower than desired growth in member activity.
Speaker Change: That said, growth in member activity has again accelerated after a lull near the end of Q2, and we've created some team member and management incentives to ensure the right focus at the restaurant level on growing GT rewards.
Ryan Zink: We are near the end of our rollout of our next generation point of sale system, Toast, which is the leading, most feature-rich, cloud-centric point of sale. We've seen significant improvement in order taking and payment processing with this new system, which has provided greater time for order takers and cashiers to focus on value-added interactions with our guests, including highlighting GT rewards. We're conducting a similar evaluation of Bad Daddies, and it is likely that a test and possible rollout of the TOAST system will be forthcoming during our next fiscal year.
Speaker Change: We are near the end of our rollout of our next-generation point-of-sale system, Toast, which is the leading, most feature-rich, cloud-centric point-of-sale system.
Speaker Change: We've seen significant improvement in order-taking and payment processing with this new system, which has provided greater time for order-takers and cashiers to focus on value-added interactions with our guests, including highlighting GT rewards.
Speaker Change: We're conducting a similar evaluation of Bad Daddies, and it is likely that a test and possible rollout of the TOAST system will be forthcoming during our next fiscal year.
Ryan Zink: We repurchased 92,240 shares during the quarter under our share repurchase program. Additionally, we executed a privately negotiated purchase of approximately 171,000 shares at an average price of $2.60 per share. We continue to believe that the market is not adequately valuing our business and that the share repurchase program generates a strong return for shareholders who choose to hold their shares.
Speaker Change: We repurchased 92,240 shares during the quarter under our share repurchase program. Additionally, we executed a privately negotiated purchase of approximately 171,000 shares at an average price of $2.60 per share.
Speaker Change: We continue to believe that the market is not adequately valuing our business and that the share repurchase program generates a strong return for shareholders who choose to hold their shares.
Speaker Change: At the end of the quarter, we had approximately $1.5 million remaining on the repurchase authorization.
Speaker Change: At the present rate of repurchases and current market price, we still have a few months left on the existing authorization. And assuming market factors remain similar, we expect the authorization to be expanded sometime prior to the exhaustion of the current authorization.
Speaker Change: With that, I will now turn the call back over to Keri to review our performance for the quarter.
Ryan Zink: Thank you, Ryan. Now, let's review this quarter's results. Total restaurant sales for Bad Daddy's restaurants increased $1.2 million to $27.3 million for the quarter. The Prior Year Remodel Temporary Closure of the Greenville, South Carolina, Restaurant Same store sales increased 1.2% for the quarter, with 39 bad daddies in the comp base at quarter end. The increase is primarily attributable to higher purchase prices in our commodity basket compared to the prior year quarter, partially offset by the impact of a 4.4% average increase in menu prices. During the current quarter, we began to experience elevated costs across the various proteins in our basket. In particular, wholesale ground beef prices increased, and following the end of the quarter, they increased to an all-time record.
Keri August: Thank you, Ryan. Let's review this quarter's results.
Ryan Zink: Bad Daddy's other operating costs were flat compared to the prior year quarter at 14.4% for the quarter. Overall, restaurant-level operating profit, a non-GAAP measure for Bad Daddies, was approximately $3.9 million for the quarter, or 14.3% of sales, partially offset by the impact of a 3.9% average increase in menu pricing. As in the case with Bad Daddies, we expect continued pressure on beef and other food prices in the last quarter of the fiscal year.
Keri August: Total restaurant sales for Bad Daddy's restaurants increased $1.2 million to $27.3 million for the quarter.
Keri August: Same store sales increased 1.2% for the quarter, with 39 bad daddies in the comp base at quarter end.
Speaker Change: Cost of sales at Bad Daddy's were 31.2% for the quarter, a 10 basis point increase from last year's quarter.
Speaker Change: The increase is primarily attributable to higher purchase prices in our commodity basket compared to the prior year quarter, partially offset by the impact of a 4.4% average increase in menu pricing.
Keri August: During the current quarter, we began to experience elevated costs across the various proteins in our basket.
Keri August: Bad Daddy's labor costs decreased by 90 basis points compared to the prior year quarter to 33.8% for the quarter. This decrease as a percentage of sales is attributable to greater labor productivity.
Keri August: Occupancy costs at Bad Daddy's decreased 20 basis points to 6.3 percent.
Keri August: Bad Daddy's other operating costs were flat compared to the prior year quarter at 14.4% for the quarter.
Keri August: Overall, restaurant-level operating profit, a non-GAAP measure for Bad Daddies, was approximately $3.9 million for the quarter, or 14.3% of sales, compared to $3.5 million, or 13.3% last year.
Speaker Change: Total restaurant sales for company-owned Good Times restaurants increased approximately $1.1 million to $10.4 million for the quarter, compared to the prior year third quarter.
Keri August: The average menu price increase for the quarter was approximately 3.9% over the same prior year quarter.
Keri August: Same store sales increased 5.8% for the quarter, with 26 Good Times restaurants in the comp base at quarter end.
Keri August: Food and packaging costs for good times were 30.5% for the quarter, an increase of 20 basis points compared to last year's quarter.
Keri August: The increase is primarily attributable to higher purchase prices on food and paper goods.
Keri August: partially offset by the impact of 3.9% average increase in menu pricing.
Keri August: As in the case with Bad Daddies, we expect continued pressure on beef and other food prices in the last quarter of the fiscal year.
Ryan Zink: Total labor costs for Good Times increased to 32.7%, a 160 basis point increase from the 31.1% we ran during last year's quarter. Good Times other operating costs were 12% for the quarter, an increase of 60 basis points, primarily due to costs associated with three additional company-owned restaurants, as well as increased repair and maintenance, credit card fees, and customer delivery fees. Restaurant Level Operating Profit decreased by $0.1 million for the quarter to $1.7 million. There was approximately $0.2 million of income tax benefit recorded during the current quarter versus $0.6 million in the prior year quarter.
Keri August: Total labor costs for Good Times increased to 32.7%, a 160 basis point increase from the 31.1% we ran during last year's quarter.
Keri August: Due to labor associated with three additional company-owned restaurants, an increase in operating hours caused by later closing times in nearly every restaurant,
Keri August: and higher average wage rates resulting from market forces and the CPI index minimum wage in Denver and the state of Colorado.
Keri August: The increase is primarily due to costs incurred for three additional company-owned restaurants, as well as real property tax increases resulting from higher property values.
Keri August: Goodtimes other operating costs were 12% for the quarter, an increase of 60 basis points, primarily due to costs associated with three additional company-owned restaurants, as well as increased repair and maintenance, credit card fees, and customer delivery fees.
Keri August: As a percent of sales, restaurant-level operating profit decreased by 280 basis points versus last year to 16.5%.
Keri August: Combined general and administrative expenses were $2.7 million during the quarter, or 7.1% of total revenues, an increase of 40 basis points from the prior year quarter.
Keri August: Our net income to common shareholders for the quarter was $1.3 million, or income of $0.12 per share, versus net income of $0.8 million, $0.07 per share, in the third quarter last year.
Keri August: There was approximately $0.2 million of income tax benefit recorded during the current quarter versus $0.6 million in the prior year quarter.
Keri August: Adjusted EBITDA for the quarter was $2.1 million compared to $2.1 million for the third quarter of 2023.
Keri August: We finish the quarter with $4.8 million in cash and $1.1 million of long-term debt.
Keri August: And now I will turn the call back to Ryan.
Unknown Attendee: Our operator's name is also Keri, and so at this time, we will turn our call back over to our operator, Keri, for questions at this time.
Ryan: Thank you, Keri.
Ryan: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star then the number 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Ryan: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Keri August: Again, for any questions or comments, please press star 1 now.
Keri August: Your first question will come from Roger Lipton.
Roger Lipton: Yes, good afternoon guys. Question with the rising beef prices, maybe you made a quick comment on it, so I missed it. Do you expect to have to raise menu prices?
Ryan Zink: to offset the high beef prices, both concepts.
Speaker Change: Yeah, Roger. Thanks for dialing in. Thanks for the question.
Speaker Change: You know, we evaluate prices in various lenses, and one of those is certainly what the competitor environment is doing, and there's certainly a customer demand for value right now.
Roger Lipton: And so we, you know, we certainly have to manage to certain costs and to address our costs.
Roger Lipton: But I think just because we have beef prices at the moment that are high, I would not necessarily say, oh, that's going to be a Q4 price increase.
Ryan Zink: especially as the year rolls over, the calendar year rolls over.
Ryan Zink: the labor costs will likely increase again. And so right now, at the moment, I'd say for both concepts, we're really targeting the end of fiscal quarter one for our next price increase. Although,
Ryan Zink: The environment's dynamic, and so we'll remain dynamic and adjust as we see. I will also say, Roger, that based on the commodity reports that we get, the long-term prognosis for beef of all sorts, not just ground beef, is somewhat negative from a cost standpoint. In other words, continued elevation of costs in the long term. And so, that's probably an issue that the entire segment is going to have to deal with for a little bit of time. Right, a good choice.
Ryan Zink: I will also say, Roger, that based on the commodity reports that we get,
Roger: Right. Did you mention your advertising expense in the quarter?
Roger: I probably did and I missed it.
Unknown Attendee: Okay, advertising expense was 749,000. Okay.
Unknown Attendee: $749,000
Unknown Attendee: Okay. And lastly, your best guess in terms of store-level margins in this current quarter. How do you think they'll look? Or what's your best guess as to how they might look compared to the quarter just ended? 13th, 14th, and 16th.
Unknown Attendee: Yeah, certainly seasonally, this q3 tends to be, from a sales standpoint, the highest volume quarter of the fiscal year. And so I think just in terms of some sales D leverage, that's a result of seasonality, we'll see a little bit of compression. I expect, generally speaking, that margins will that the margin trend year over year will be similar to what
Unknown Attendee: The margin trend being, how do you, could you, well, so let me, I think it's just a little quick.
Speaker Change: Sure. I think from a cost of sales standpoint, we'll see a little bit of elevation in cost of sales. I think labor will be a little bit elevated, but the other costs will be rather similar.
Roger: Thanks again, Roger.
Unknown Attendee: There are no further questions at this time, but you do have a question from Mark Shuler.
Speaker Change: There are no further questions at this time. Oh, you do have a question from Mark Shuler.
Mark Shuler: in the Greater Charlotte DMA.
Ryan Zink: Late Fiscal Q2 of 2025, possibly Early Fiscal Q3, so I'd say in the late March-April timeline of next year, and then we have some other LOIs and markets that we're looking at. I would say our current cadence is generally one every 12 months, approximately, maybe a second one. That said, we have enough capex allocated towards our remodels at Good Times that we think it is really important to reinvest in our existing restaurants, and our general approach around conservatism with respect to debt that we think one over the next 12 months will be sufficient.
Ryan Zink: And then we have some other LOIs and markets that we're looking at. I would say our current cadence is generally one every 12 months approximately, maybe a second one.
Ryan Zink: That said, we have enough CapEx allocated towards our remodels at good times that we think is really important to reinvest in our existing restaurants.
Ryan Zink: and our general approach around conservatism with respect to debt that we think one over the next 12 months will be sufficient.
Unknown Attendee: Okay, thank you. And then, just kind of a follow-up on your mentioning the possibility of some closures. I mean, are we talking about a couple, or are we talking, you know, more than that kind of thing that you're potentially
Speaker Change: Okay, thank you. And then just kind of a follow-up on your mentioning the possibility of some closures. I mean, are we talking a couple or are we talking, you know, more than that kind of thing that you're potentially looking at?
Speaker Change: I think we're talking very, very low single digits. And I think, you know, there's not really anything there in terms of like, oh, this is that we're going to close massive amounts of stores, but rather just to kind of.
Speaker Change: alert, you know, our investors, hey, we may be closing one or two. And that's not an indication of anything bad. It's just an indication of smart and timely real estate management.
Unknown Attendee: Okay, I appreciate it. Great quarter.
Speaker Change: Okay. Appreciate it. Great quarter.
Unknown Attendee: Unknown Attendee, Keri August, Good Times Unknown Attendee, Keri August, Good Times
Unknown Attendee: Thank you again.
Unknown Attendee: Your final question will come from David Short.
Keri August: Yes, thanks for taking my question. So, on the last, following up on the last question on your comments earlier, are some of the lowest performing stores currently unprofitable on a four wall basis? Meaning, have they been actually detracting from profitability?
Speaker Change: So, yes, um, the, this, the,
Unknown Attendee: Store to that we are considering closing our negative
Speaker Change: in the investment community is restaurant-level operating profit. So for those individual stores, they're negative contributors. And ultimately, while a couple of them may have a little bit of life left on the leaf,
Unknown Attendee: the goal would be that ultimately closing those become income accretive.
Unknown Attendee: Okay, thanks again, and thanks for all the information on today's call.
Unknown Attendee: Okay, thanks again and thanks for all the information on today's call.
Unknown Attendee: There are no further questions at this time; I'll go ahead, and I'm going to call back over to Ryan.
Ryan Zink: Thanks, David. Thanks, Gabe.
Ryan Zink: I am very optimistic about the future for both brands. We have exciting initiatives that will translate into both guest and employee engagement at both concepts. Their strong operating momentum is promising. These improvements are driven by our team members and managers.
Ryan Zink: I am very optimistic about the future for both brands. We have exciting initiatives that will translate into both guest and employee engagement at both concepts, and our strong operating momentum is promising.