Good Times Restaurants Inc. is a regional quick-service restaurant chain that operates under two distinct brands - Bad Daddy's Burger Bar and Good Times Burgers & Frozen Custard. The company has navigated a challenging operating environment in recent years, marked by macroeconomic headwinds, intense competition, and the disruptive impact of the COVID-19 pandemic. Despite these obstacles, Good Times Restaurants has demonstrated resilience, implementing strategic initiatives to strengthen its brands, improve financial performance, and position the company for long-term growth.

Company Overview

Founded in 1984 and headquartered in Golden, Colorado, Good Times Restaurants Inc. has grown from a single restaurant to operating and licensing full-service restaurants under the Bad Daddy's Burger Bar brand, primarily located in Colorado and the Southeast region of the United States. The company also operates and franchises drive-thru fast-food hamburger restaurants under the Good Times Burgers & Frozen Custard brand, all of which are located in Colorado and Wyoming. As of December 31, 2024, the company operated, franchised, or licensed a total of 66 restaurants across its two brands.

Legal Challenges

In 2019, the company faced a significant legal challenge when it became the defendant in a lawsuit filed by White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. The lawsuit was related to failed negotiations between the plaintiffs and the company for the sale of the Good Times Drive Thru subsidiary. After a prolonged legal battle, the court of appeals affirmed the trial court's dismissal of the plaintiffs' claims in 2024. Following this decision, Good Times had its own counterclaim against the plaintiffs remanded to the trial court for further consideration, seeking to recover over $3 million in legal fees.

Equity Incentive Program

In 2022, the company took steps to enhance its equity incentive program. Shareholders approved a proposal to increase the number of shares available for issuance under the 2018 Omnibus Equity Incentive Plan from 900,000 to 1.05 million. This plan allows the company to issue equity-based awards as part of its incentive compensation program, potentially helping to attract and retain talented employees.

Financials

The company's financial performance in recent years has been mixed, reflecting the broader challenges facing the restaurant industry. In fiscal year 2024, Good Times Restaurants reported total revenues of $142.3 million, a 3.0% increase from the prior year. The company's net income for the year was $1.6 million, or $0.14 per share. While these results represent an improvement over the previous year, the company has faced headwinds such as rising labor and commodity costs, which have put pressure on profitability.

For the most recent quarter ended December 31, 2024, Good Times Restaurants reported total net revenues of $36.33 million, up 9.6% from $33.16 million in the same prior-year quarter. The company's net income for the quarter was $164,000. Operating cash flow for the quarter was negative $518,000, which was also the same as free cash flow.

The Bad Daddy's Burger Bar segment saw restaurant sales increase by $1.96 million to $26.08 million, driven by an additional week in the fiscal quarter, menu price increases of approximately 4.5%, and the impact of sales from the company's restaurants. However, these increases were partially offset by the prior-year closure of one Bad Daddy's restaurant, negative mix shift attributable to the success of the company's smashed patty burgers, and slightly reduced traffic. Bad Daddy's same-store sales increased 1.5% during the quarter.

The Good Times Burgers & Frozen Custard segment experienced an increase in restaurant sales of $1.06 million to $9.89 million. This growth was attributed to the acquisition of two Good Times restaurants from a franchisee during the current quarter, the acquisition of one Good Times restaurant from a franchisee in the third quarter of fiscal 2024, an additional week in the fiscal quarter, and menu price increases of approximately 3.9%. These increases were partially offset by the prior-quarter closure of one Good Times restaurant and the current-quarter temporary closure of one Good Times restaurant for remodel. Good Times same-store sales were flat compared to the prior-year quarter.

Strategic Initiatives

To address these challenges, Good Times Restaurants has implemented a multi-pronged strategy focused on operational excellence, product innovation, and strategic growth. At the Bad Daddy's brand, the company has seen success with the introduction of its "smash patty" burgers, which have become a top-selling menu item and contributed positively to sales and margins. The company has also been actively remodeling and acquiring franchise locations to ensure operational consistency and enhance the overall customer experience.

On the Good Times Burgers & Frozen Custard side, the company has worked to improve product quality and streamline operations, recognizing the need to balance speed of service with a focus on delivering high-quality offerings. The company has also been experimenting with various marketing and advertising strategies, including a shift towards more targeted digital and audio-based campaigns, in an effort to drive traffic and brand awareness.

Liquidity

In terms of the company's financial position, Good Times Restaurants maintains a relatively strong balance sheet, with $3.0 million in cash and $2.6 million in long-term debt as of the end of the first quarter of fiscal 2025. The company has also been active in its share repurchase program, deploying capital to opportunistically buy back its stock.

The company's debt-to-equity ratio stands at 1.367, indicating a moderate level of leverage. Good Times Restaurants has access to a $5.74 million credit line under the Cadence Credit Facility, of which $2.25 million has been drawn, with an additional $10,000 in outstanding letters of credit. The company's current ratio is 0.416, and its quick ratio is 0.329, suggesting potential short-term liquidity challenges.

Future Outlook

Looking ahead, Good Times Restaurants is cautiously optimistic about the future, with management acknowledging the ongoing challenges posed by macroeconomic factors, such as inflation and supply chain disruptions. The company has provided limited guidance for the remainder of fiscal 2025, noting the unpredictable nature of weather patterns and their impact on sales, particularly in the company's Colorado-based operations.

For the second fiscal quarter, the company stated that same-store sales at Bad Daddy's were down approximately 5.5% during the first four weeks, and down more than 7% at Good Times. However, management noted that trends have improved since then, although weather remains an unpredictable element, particularly in Colorado, for the rest of the quarter.

Despite these uncertainties, Good Times Restaurants remains committed to its long-term growth strategy, focused on enhancing the customer experience, driving operational efficiencies, and pursuing selective expansion opportunities. The company's strong brand recognition, dedicated employee base, and disciplined approach to capital allocation provide a solid foundation for the business to navigate the current environment and position itself for future success.