Good Times Restaurants Inc. (NASDAQ:GTIM) Q1 2023 Earnings Call Transcript

Good Times Restaurants Inc. (NASDAQ:GTIM) Q1 2023 Earnings Call Transcript February 2, 2023

Operator: Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Fiscal 2023 First Quarter Earnings Call. By now, everyone should have access to the company's earnings release, which is available in 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 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 company's financial performance and its cash flows from operations and general economic conditions, which could adversely affect the company's results of operations and cash flows.

These risks also include such factors as the disruption to our business from the COVID-19 pandemic and the impact of the pandemic on our results of operations, financial condition and prospects, which may vary depending on the duration and extent of the pandemic and the impact of federal, state and local governmental actions and customer behavior in response to the pandemic, the impact and duration of staffing constraints and wage increases for employees at our restaurants, the impact of supply chain constraints and the current inflationary environment, 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 shortages in raw food products and other matters discussed under the Risk Factors section of Good Times Annual Report on Form 10-K for the fiscal year ended September 27, 2022 filed with the SEC and other filings with the SEC.

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 at this time, I'd like to turn the call over to Ryan. Please go ahead, sir.

Ryan Zink: Thank you, Bob and thank you all for joining us on the call today. As mentioned, everyone should now have access to our earnings release and our first quarter 10-Q filing. We are pleased to report another quarter with growth of same-store sales at both brands this quarter. We continue to believe that the long-term success of both of our brands rests in great hospitality, memorable experiences and the highest quality burgers in each of our industry segments as demonstrated by our all-natural platform at Good Times and the unparalleled customization by our customers at Bad Daddy's, including our many house-made ingredients and hand-cut French fries. While we have been able to manage cost of sales rather effectively at Bad Daddy's this quarter, the year-over-year increases we have taken on our all-natural beef, our buns and finished potato products, including our signature wild fries and jalapeno potato poppers were more than we were able to pass along to the customer at Good Times.

Photo by Jay Wennington on Unsplash

Further, both concepts continue to be challenged by increasing labor costs, particularly in the state of Colorado, where a combination of both market forces and minimum wage legislation have driven up wages also beyond the threshold that we are comfortable completely passing on to the customer. While we appreciate the margin compromise these decisions create, we believe the long-term success of the strategy will be manifest in continued sales growth and strong traffic trends that are favorable to indices tracking these metrics for each of our operating segments. Our restaurant level labor productivity has improved year-over-year, but not sufficiently so to offset increasing wages. We don't believe that decreases in wage rates are in the future.

That said, we have been expecting and are starting to see some rationalization in the labor market and though we are not expecting the market to return to anything resembling its pre-pandemic state. We expect recent layoffs by major tech companies to eventually cascade through the labor market and through a waterfall effect to improve the pool of employees ultimately in our industry and to open the doors for more committed, conscientious candidates and employees, the benefits will be borne by improvements in productivity and quality of life for our restaurant managers rather than through decreased labor wage rates. This is a tough industry as it has always been. Just like other concepts in our industry, our managers have dealt with more call-offs and no notice with than ever before.

At the same time, the strong culture created by our top-performing managers has driven long-term retention and lower turnover amongst some of our most highly skilled and customer-focused employees. We continue to be bullish on both of our businesses. To that end, we continue to demonstrate our commitment to reinvesting in both businesses, having completed our menu board and lane timer projects at Good Times during the first quarter. Installing our first new building in monument signs at one of our restaurants in the Denver, suburb of Aurora, and having projects underway at several other Good Times restaurants to replace signs that are, in some cases, 10 to 15 years old. We're nearing the launch of our loyalty project to complement the mobile apps that launched last year.

At Bad Daddy's €“ last week, we announced the acquisition of the interest in five Bad Daddy's restaurants that were previously owned by individuals associated with the original founder. With this acquisition, all of our traditional Bad Daddy's are now 100% owned by us, plus one licensed restaurant in the Charlotte Airport that's operated by an experienced concessionaire. In addition to the cash flow acquired, this purchase removes administrative complexity, is advantageous in terms of managing our credit and reduces non-controlling equity interest to a single partnership within the Good Times business. Further, we continue to make good progress on our new restaurant in the Greater Huntsville area, which we expect to open in late summer 2023.

During March, we also expect to begin and complete the remodel of the Greenville Bad Daddy's restaurant that we purchased from our franchisee last year. I am thrilled about the potential for both concepts, both for the remainder of 2023 and into the future. I'll now pass it over to Matthew to review this quarter's results.

Matthew Karnes: Thank you, Ryan. Total revenues increased 1.5% to $33.4 million for the quarter. Total restaurant sales increased $0.5 million to $33.2 million for the quarter. Total restaurant sales for Bad Daddy's restaurants increased $0.6 million to $25.2 million for the quarter. This increase is due to average menu price increases of approximately 5.3% over the same prior year quarter, plus the continued strength of off-premise sales. Same-store sales increased 2.4% during the quarter with 39 Bad Daddy's in the comp base at the end of the quarter. Cost of sales at Bad Daddy's, were 31.7% for the quarter. That's a 10 basis point decrease from last year's quarter, still showing significantly high food and packaging costs as seen through inflationary and supply chain pressures, but hopefully, we will see continued improvement throughout the year.

Bad Daddy's labor costs increased by 60 basis points compared to the prior year quarter, and that's 34.8% for the quarter. This increase as a percentage of sales reflects higher wage rates to attract qualified employees. Occupancy cost at Bad Daddy's increased 20 basis points to 6.9% due primarily to increased property tax assessments. Bad Daddy's other operating costs increased by 60 basis points compared to the prior year quarter to 14% for the quarter. This increase was primarily due to higher increased spending on repair and maintenance expenses, restaurant technology costs, utilities and increases in payroll service fees. Overall, restaurant-level operating profit a non-GAAP measure for Bad Daddy's was approximately $3.2 million for the quarter or 12.7% of sales compared to $3.4 million or 13.9% last year.

The decline is primarily due to the increased cost of labor and other restaurant operating costs. Restaurant sales at Good Times were $8 million, a decrease of $0.1 million. The average menu price increase for the quarter was approximately 8.8% over the same prior year quarter, and same-store sales increased 3% for the quarter. Food and packaging costs at Good Times were 32.9% for the quarter, an increase of 300 basis points compared to last year's quarter. Again, the result of significant inflationary pressures on food and packaging materials, offset slightly from higher average menu prices. Total labor costs for Good Times increased to 34.9% from 34.1% for the quarter last year due primarily to higher wage rates across the Denver metro area to attract experienced and talented employees.

Occupancy costs at Good Times were 9.1%, an increase of 70 basis points from the prior year quarter. That's due primarily to increased property and liability insurance costs. Good Times' other operating costs were 12.1% for the quarter, and that's an increase of 160 basis points due primarily to additional delivery service charges, accompanying a higher mix of delivery sales and general price inflation and supply cost. Good Times restaurant-level operating profit decreased by $0.5 million for the quarter to $0.9 million. As a percent of sales, restaurant-level operating profit decreased by 600 basis points versus last year to 11.1% due primarily to higher costs previously discussed. Combined general and administrative expenses were $2.4 million during the quarter or 7.1% as a percent of total revenue.

This represents a decrease of $0.3 million versus the prior year quarter. G&A expenses decreased versus the prior year due mainly to decreased legal fees, stock-based compensation, insurance, regional and home office payroll and benefit costs, and it was partially offset by increased recruiting and multi-unit supervisory expenses. Our net loss to common shareholders for the quarter was $0.1 million or a loss of $0.01 per share versus income to common shareholders of $0.3 million or $0.03 per share in the first quarter last year. Adjusted EBITDA for the quarter was $0.7 million compared to $1.5 million for the first quarter of 2022, and we finished the quarter with $6.9 million in cash and no long-term debt. And I will hand it back to Ryan.

Ryan Zink: Thank you, Matthew. With that, Bob, we can open the call for questions.

Operator:

Ryan Zink: Alright, well, thank you. I will close the call then and doing so I do want to reiterate my appreciation for our restaurant management teams. They are in the front line, showcasing our brands to our customers. I am more optimistic about the opportunity to hire employees, his enthusiasm and commitment match the brand. The specifics of executing each of our brands differ from each other, but it is the passion of each of our managers and all of our team members that will result in our ultimate success in delighting our customers and creating loyal guests. With that, we will conclude today's call. And thank you all for joining us today.

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Operator: Thank you, Mr. Zink. Again, ladies and gentlemen, that will conclude today's Good Times Restaurants' fiscal 2023 first quarter earnings call. Again, I would like to thank you all so much for joining us and wish you all a great remainder of your day. Goodbye.