Good Times Restaurants Inc. (NASDAQ:GTIM) Q4 2024 Earnings Call Transcript

Good Times Restaurants Inc. (NASDAQ:GTIM) Q4 2024 Earnings Call Transcript December 12, 2024

Keri August: Good afternoon, ladies and gentlemen, and welcome to the Good Times Restaurants Inc. Fiscal 2024 fourth quarter and year-end earnings call. I am Keri August, the company’s Senior Vice President of Finance and Accounting. By now, 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 them. 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.

Such risks and uncertainties include, among other things, the market price of the company’s stock prevailing from time to time, the nature of other investment opportunities presented to the company, the disruption to our business from pandemics and other public health emergencies, the impact of staffing constraints at our restaurants, the impact of supply chain constraints and inflation, the uncertain nature of current restaurant development plans, and the ability to implement those plans and integrate new restaurants. Delays in developing and opening new restaurants because of weather, local permitting, or other reasons, increased competition, cost increases, or ingredient shortages, general economic and operating conditions, risks associated with our share repurchase program, risks associated with the acquisition of additional restaurants, adequacy of cash flows, and the cost and availability of capital or credit facility borrowings to provide liquidity, changes in federal, state, or local laws and regulations affecting our restaurants, including wage and tip credit regulations, and other matters discussed under the Risk Factors section of Good Times annual report on Form 10-Ks, for the fiscal year ended September 24, 2024, and other reports filed with the SEC.

During today’s call, we will discuss non-GAAP measures, which we 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 is available in our earnings release. And now, I would like to turn the call over to our Chief Executive Officer, Ryan Zink.

Ryan Zink: Thank you, Keri. Thank you all for joining us today. The fourth quarter of fiscal 2024 was an encouraging brand for Bad Daddy’s as we posted a strong increase in same-store sales and improving margins. While our Good Times brand experienced some challenges, as a combination of escalating beef prices and intense discounting by our competition resulted in a bit weaker margins, our first negative same-store sales quarter, albeit only a tenth of a percent, since the second quarter of fiscal 2022. Nevertheless, my confidence is not wavered in the Good Times brand. Throughout this call, I will share the positive momentum we are building. A year ago, we took a back-to-basics approach for the Bad Daddy’s brand and implemented or redesigned some processes to improve restaurant-level accountability for four-wall execution.

This has included redesigned standards reviews completed by the above-store restaurant leaders, which beginning in fiscal 2025 we have now incorporated into the performance metrics used to determine each restaurant management team’s monthly performance-based compensation. I believe these operational changes are part of the story as to our improved same-store sales in an environment where only the exceptional operators have been able to report meaningfully positive sales. Our internal mantra has been to indulge in excellence, reflecting the indulgent and guilty pleasure element of our brand architecture with our team’s laser focus on operations excellence. As we discussed on last quarter’s call, Bad Daddy’s released our version of smashed patty burgers as a limited-time summer seasonal special.

Q&A Session

The classic smash immediately became a top-five menu item as it was something completely different from the pub-style, thick and juicy burgers that Bad Daddy’s is otherwise known for. After the seasonal period ended in late August, the item left merchandising but existed as a hidden item available in our restaurants until November 13th when it and the Steakhouse Smash were added to the permanent menu. We also added the smash patty to our create-your-own section of the menu and handwritten CYO pads from which our guests can choose to order from, including doubles, triples, or even quads. After an initial pop to number two in the mix, from the pent-up demand, classic smash is again claimed its rightful place on our menu in the number four spot.

The CYO smash hits the trifecta: price, cost, and margin. It is a low entry price of $9 in Colorado and $8 everywhere else. It gives our guests value without us discounting and it provides strong penny profit due to the cost of sales percentage that is lower than our average burger. Add to that the demonstrated guest demand for this profile of burger as evidenced by its continued high ranking in the sales mix. Our culinary innovation at Bad Daddy’s has been centered around indulgent menu items. Somewhat intimidating burger builds that are visually impressive on the plate and demand a hearty appetite to eat in one setting. Items feature distinct bold flavors that can give guests items they really cannot get anywhere else in casual dining. Our Smash Patty platform lives up to that.

As the resulting fear from the aggressive smash in our cook supply gives the burger a flavor like no other. Further, our fall and holiday promotions have given our guests truly unique burgers. Our fall featured burger was Bad Daddy’s spin on a bratwurst burger, that started with our house-made patty that’s a combination of bratwurst, turkey, and our 1855 Angus ground beef. Along with diced peppers and onions, and then topped with our own apple sauerkraut slaw, house-made dijonaisse, and Oktoberfest beer cheese sauce. We intentionally released a build that we knew would be polarizing but were impressed by the sales which exceeded our expectations throughout the window that ended November 4th. Our current seasonal promotion leads with our roast beef burger, that starts with our classic Angus beef patty resting on a bed of arugula topped with an in-house created herb-infused cream cheese, red wine braised short rib, and hand-cut shoestring potatoes.

This umami-forward burger also debuted to strong sales and along with a handmade bacon and brie popper starter will continue through January 2nd. We have now built a stable of strong performing LTO items and expect our future seasonal specials will include a combination of new items and the return of proven winners. I am excited about our seasonal feature windows coming up for winter and spring, which will take us through most of the next two fiscal quarters. On our last quarter’s call, there were about development for Bad Daddy’s. And I mentioned we hope to have one restaurant open during fiscal 2025. Further analysis and repeated site visits led us to reconsider that location. And in the interest of only moving forward with sites in which we have great confidence decided to pass on that specific site.

We continue to look actively for new Bad Daddy’s locations but again remain committed only to those that pass a high bar of expected performance. At Good Times, we were understandably disappointed in the report of negative same-store sales of 0.1% and restaurant sales continue to run in the negative low single digits in the first quarter of 2025. This trend really took hold in September when large franchise competitors responded to traffic declines by going back to the well of deep discounting. These competitors are heavily franchised and profit based directly upon system sales not restaurant operations. They benefit by increasing sales even if that means less profitability for their franchisees. Though we have a small number of franchisees, we are primarily operator the appropriate response to these competing brands.

It is not by copying them. But rather is informed by short and long-term profitability considerations in charting our own course. Our approach to value has been centered around our Bambinos. Our classic Bambinos, which are sliders with American cheese, and our special Bambino sauce, are a great value for our guests, and we have been shifting focus on social and digital media towards them. Additionally, we have introduced on a limited-time basis Bambino Supremos, which are a different spin on the classic Good patient. Fried American cheese, and traditional mayo. Both the classic Bambino and the Bambino Supremo provide three hearty sliders on soft pillowy buns at a compelling price point considering the portion size. We also launched our take on the dirty soda trend, with three different variations available to our guests, these have not been as popular as we had hoped and although it will continue to run throughout the window, we will test whether the sweet spot with our guest may really be custard floats as we expect to refeature those in January.

As they were strong performers for us in the summer. We will also continue to monitor the dirty soda trend as they have been popping up at other QSR restaurants after our launch. We are directing our focus towards product improvement and innovation rather than deep discounting. As evidenced by our approach with the Bambino Supremo. Coming up for the new calendar year is an iteration of our West Coast burger, which we are calling the West Slope Double, paying homage to the western side of the Rockies and tying into our brand’s Colorado origin story. This burger will feature the same Bambino sauce common to our classic Bambinos and current West Coast burger and will replace the existing lettuce tomato onion build with two full cross-section slices of sweet yellow onion, on the double.

And a single full slice in the single patty version. The goal is to create a distinct look and flavor from our traditional Good Times deluxe. As the current West Coast and Deluxe builds are, with the exception of the sauces, otherwise identical. We have been busy during the first quarter of 2025 as we remodeled one Good Times and purchased two others owned by a single franchisee. We are not opposed to the franchise business model per se, but have a shared goal with Bad Daddy’s of operations excellence. The acquisitions we have made have been from operators who are subsequently retiring, not going into other restaurant brands or businesses. And the acquisition is now a majority of our previously franchised restaurants has not been motivated by a desire to move away from franchising altogether.

But rather to ensure the continuity of Good Times presence in these locations and operations by committed operators have continued passion for the brand. Both of the acquired units and the remodeled unit were in northern suburbs of Denver. The remodeled location is adjacent to the major intersection of 120th and Colorado in Thornton and very similar to the Lakewood remodel we completed during fiscal 2024. Both were closed for the majority of six weeks and received significant structural improvements. The other two restaurants in Northglenn and Broomfield were closed for a short period of retraining after the acquisition from the franchisee. The Broomfield location only needs a light remodel as the franchisee had made significant repairs similar to our six-week remodel in 2022.

Although these repairs were mainly structural in nature, did not include signage or any customer-facing improvements. The location in Northglenn will require a significant remodel which will likely not occur until fiscal 2026. With this acquisition, our Good Times franchise system now includes a single Denver area restaurant in the eastern suburb of Aurora, and two locations in Gillette, and Sheridan, Wyoming, they are co-branded with Taco John’s. And operated by a sizable Taco John’s franchisee with extensive operating experience. With our franchisee consolidation essentially complete, future investments will continue to focus on remodels, signage, and opportunistic limited new unit development. Finally, at Good Times, we have traditionally relied on audio-based advertising.

With a combination of terrestrial radio, audio streaming, and podcasts making up nearly two-thirds of our annual advertising budget, we have been experimenting with the removal of or substantial reduction of advertising through audio media. And in October and November, removed all audio-based advertising with the exception of one sports-based radio station, with features during Denver Bronco games and one full-year campaign with a single station, in a demographic that we believe continues to be a radio user. On December 9th, went live again with our traditional radio vibe, and are measuring the impact of history and statement. We are shifting marketing spend to heavy up on digital and we are testing a partnership with two college hockey players in Denver.

The extent of this partnership remains to be defined but we are beginning with an in-store visit and social posts made by both players. With our brand’s image modernization and the remodel initiatives underway, our vision is to now more aggressively engage with a new generation of customers through increased digital and social initiatives. GT rewards continue to be a heavy part of that. We are getting traction in growing that program, both as measured through new member activations and through percent of sales and number of transactions occurring through the program. I will now turn the call over to Keri for a review of our performance during the quarter and some perspective on the company’s financial initiatives.

Keri August: Thank you, Ryan. Let’s review this quarter’s results. Total revenues increased approximately 4.3% for the increase approximately 3% compared to fiscal 2023 to $142.3 million. Our 2024 total revenues are a new all-time record for the company. Let’s discuss Bad Daddy’s first. Total restaurant sales increased $1 million to $25.6 million for the quarter, and increased $1.3 million to $103.8 million for the full year. The sales increase was primarily driven by additional sales from the Madison, Alabama restaurant that opened in late fiscal 2023. Our average menu price during the quarter was 5.3% higher than Q4 of 2023. We closed the Longmont restaurant during the quarter, which impacted sales. But had been a perennial underperformer and with about fifteen months left on the lease as of the end of the fiscal year, made the decision to close early with continued regulatory-driven wage pressures.

Same-store sales increased 3.2% for the quarter with thirty-eight Bad Daddy’s in the comp base at quarter end. Same-store sales remained strong into the first quarter of the New Year, though due to holiday shift, we have seen and we continue to expect some unfavorable comparisons. Thanksgiving fell on the latest possible date this year, resulting in one fewer holiday shopping week this year compared to last year. And Christmas is on a Wednesday this year versus Monday last year, which was an ideal day for our restaurants to be closed. We took a blended approximate 2.5% price increase in the middle of November. But this will be offset by negative mix shift resulting from the high level of popularity of our Smash patty burgers. Except for certain targeted adjustments due to menu engineering, we do not expect further price increases for the foreseeable future.

And as of January 1st, when we rolled over last year’s Colorado price increase, will be sitting on approximately 4.7% aggregate year-over-year price. Food and beverage costs were 31.2% for the quarter, a sixty basis point decrease from last year’s quarter. The decrease is primarily attributable to the impact of a 5.3% average increase in menu pricing. Partially offset by higher protein prices. During the current quarter, we continue to experience elevated costs across the various proteins in our basket, and especially ground beef, which hit an all-time high. Although wholesale ground beef prices began to decrease in the latter part of the quarter, they remained substantially higher than the prior year quarter. And our pricing mechanisms for ground beef caused our purchase price to lag the market by approximately two months.

Because we expect input costs to continue to remain above prior year levels, and because of the impact of the large number of free burgers we give away on Veterans Day, despite the aforementioned price increase, we expect food and beverage costs as a percent of sales to rise sequentially and be similar to, if not slightly above, last year’s first quarter. Labor costs decreased by two hundred basis points compared to the prior year quarter to 34.3% for the quarter. This decrease as a percentage of sales is primarily attributable to higher team member productivity resulting from sales leverage and decreased rest level incentive compensation costs. Although we expect continued solid labor control on a full-year basis, our first-quarter labor costs will not have the same year-over-year improvement as the fourth quarter of 2024.

In January, Colorado’s minimum wage increases to $14.81, a 2.7% increase. And the tipped minimum wage increases to $11.79, a 3.3% increase. Overall, restaurant-level operating profit, a non-GAAP measure for Bad Daddy’s, was approximately $3.5 million for the quarter, or 13.6% of sales compared to $2.6 million or 10.6% last year. Primarily due to improvements in food and beverage costs and the cost of labor. Moving over to Good Times. Total restaurant sales for company-owned restaurants increased approximately $0.5 million to $10 million for the quarter. Compared to the prior year fourth quarter. And increased $3 million to $38 million for the year compared to the 2023 fiscal year. Same-store sales decreased 0.1% for the quarter with twenty-five Good Times restaurants in the comp base at quarter end.

The average menu price increase for the quarter was. We have not taken any menu prices in the first quarter and currently do not have any planned menu price increase. As we have assessed our relative pricing position in the market. The last time we increased menu prices at the start of calendar 2024. And so as we roll over into the new calendar year, we will be sitting on no price increase. We expect to monitor competitor pricing in January and if warranted respond rapidly based on their actions. Food and packaging costs were 30.9% for the quarter, an increase of forty basis points compared to last year’s quarter. The increase is primarily attributable to higher purchase prices on food and paper goods, partially offset by the impact of a 3.9% average increase in menu pricing.

As is the case with Bad Daddy’s, we expect ground beef costs to continue to decrease through the first fiscal quarter of 2025. They will remain substantially elevated over prior year levels, but based upon insights into the commodity market, we are hopeful that continued declines will occur as we move into subsequent quarters. That said, macroeconomic and political forces cloud visibility into the direction of commodities further into the future. Total labor cost increased to 33.9% an eighty basis point increase from the 33.1% we ran during last year’s quarter. Due to higher average wage rates resulting from market forces, and the CPI index minimum wage in Denver and the state of Colorado. Occupancy costs were 9%, an increase of eighty basis points from the prior year quarter.

The increase is primarily due to real property tax increases resulting from higher property values. Other operating costs were 13.9% for the quarter, an increase of one hundred and ninety basis points. Primarily due to increased repair and maintenance and utility expenses. Good Times restaurant-level operating profit decreased by $0.3 million for the quarter to $1.2 million. As a percent of sales, restaurant-level operating profit decreased by four hundred basis points versus last year to 12.2%. Due to elevated costs throughout the P&L. Combined general and administrative expenses were $2.7 million during the quarter or 7.6% of total revenues. An increase of one hundred and fifty basis points from the prior year quarter. Primarily related to home office payroll and benefit costs, associated with additional HR and training roles, and additional staffing related to the insourcing of accounting.

As well as legal costs associated with routine and certain one-time activities. We expect to run approximately 7% general and administrative costs in 2025 as some of those costs normalize and we no longer have redundant costs associated with both internal staffing for accounting and direct outsourcing costs. Our net income to common shareholders for the quarter was $0.2 million or income of $0.02 per share. Versus a net loss of $0.3 million $0.02 per share in the fourth quarter last year. There was approximately $0.4 million of income tax benefit recorded during the current quarter. Versus $0.3 million in the prior year quarter. Adjusted EBITDA for the quarter was $1.3 million compared to $1.4 million for the fourth quarter of 2023. We finished the quarter with $3.9 million in cash and $0.8 million of long-term debt.

We repurchased 57,436 shares during the quarter under our share repurchase program. We understand that our financial performance over the prior year has resulted in a rather stagnant share price and continue to believe that the market is not fully appreciating the value of the investments we have made in our remodels and acquisitions at Good Times, or the operational improvements at Bad Daddy’s. And that repurchasing shares in the open market at current prices generates a strong return for shareholders who choose to hold their shares. Today, we announced an expansion of the program providing an additional $2 million of authorized share repurchases on top of the $0.2 million we had remaining under the initial $5 million authorization. This expansion does not commit us to completing that full purchase, but provides us with the flexibility to continue to purchase shares if that remains a compelling use of capital.

Share repurchases will be balanced with other capital needs. In addition to the approximate 1% of sales budget, for ongoing maintenance CapEx, we have budgeted for special CapEx in the current year exceeding $1 million related to Good Times remodels. Including the extensive remodel completed earlier in this first fiscal quarter of 2025. And now I will turn the call back to Ryan.

Ryan Zink: Thank you, Keri. We can open the call for questions at this time, Christa.

Keri August: Thank you. And we will now begin the question and answer session. In Ryan, we have no questions at this time.

Ryan Zink: Okay. The future is bright for both the Bad Daddy’s and the Good Times concepts. Our product and promotional roadmap at both concepts is more complete than it has been at any time since the pandemic. The experiments we are conducting with advertising and promotion activity at Good Times will provide learning that we can leverage across both concepts. Further, we have expanded much of our back-to-basics approach that we implemented last year at Bad Daddy’s into Good Times this year. Which should continue to drive operating improvements translating into great guest experiences. The leaders and team members in our restaurants and our support center do the hard work that creates value for our guests, and ultimately our shareholders. I extend my sincere thanks to them for their passion, commitment to operations excellence to our brands, and to exceptional guest experiences. Finally, thank you all for joining us today.

Operator: This does conclude today’s conference call. Thank you for your participation and you may now disconnect.