Business Overview and History

Good Times Restaurants Inc. (NASDAQ:GTIM) is a regional quick-service restaurant (QSR) chain that operates two distinct brands – Bad Daddy’s Burger Bar and Good Times Burgers & Frozen Custard. With a focus on high-quality, chef-inspired burgers and a commitment to excellent customer service, the company has navigated a challenging industry landscape to position itself for long-term growth.

Good Times Restaurants Inc. was founded in 1984 in Colorado, initially operating only the Good Times Burgers & Frozen Custard brand. The company’s first restaurant opened in Golden, Colorado, and it experienced steady expansion throughout the state in the following decades. In 2013, Good Times made a strategic decision to diversify its portfolio by acquiring the Bad Daddy’s Burger Bar brand, a full-service, casual dining concept known for its innovative burger creations. At the time of acquisition, Bad Daddy’s had only three locations in Charlotte, North Carolina.

This acquisition marked a significant shift for Good Times, as it expanded into the full-service restaurant segment and began focusing on growing the Bad Daddy’s brand, particularly in the Southeast region of the United States. The company faced challenges in the early 2020s, including the impact of the COVID-19 pandemic, which disrupted operations and resulted in impairment charges. Despite these setbacks, Good Times was able to bounce back, reporting a significant net income of $11.67 million in fiscal year 2023, driven by initiatives to improve operations, enhance customer experience, and strategically grow the store footprint of both concepts.

As of the most recent quarter, the company operates a total of 66 restaurants across its two brands, with 40 Bad Daddy’s locations and 26 Good Times restaurants, primarily concentrated in Colorado, the Southeast, and the Mid-Atlantic regions.

Financial Performance and Ratios

Good Times’ financial performance has shown improvement in recent years, reflecting the company’s efforts to navigate industry challenges. For the fiscal year ended September 26, 2023, the company reported total revenues of $138.12 million, a slight decrease from $138.20 million in the prior year. However, the company’s net income improved significantly, from a loss of $2.64 million in fiscal 2022 to a profit of $11.09 million in fiscal 2023. Operating cash flow for fiscal 2023 was $7.96 million, with free cash flow of $3.19 million.

Key financial ratios provide further insight into the company’s financial health:

These ratios suggest that Good Times has a relatively strong balance sheet, with low leverage, though its liquidity metrics indicate potential challenges in meeting short-term obligations.

Quarterly Performance and Outlook

In the most recent third quarter of fiscal 2024, which ended on June 25, 2024, Good Times reported a 6.5% increase in total revenues to $37.94 million, compared to $35.63 million in the same period in the prior year. Same-store sales for the company’s Bad Daddy’s brand increased 1.2%, while the Good Times brand saw a 5.8% increase in same-store sales.

The company’s net income attributable to common shareholders for the quarter was $1.32 million, or $0.12 per diluted share, compared to $0.8 million, or $0.07 per diluted share, in the third quarter of fiscal 2023. Operating cash flow for the quarter was $3.22 million, with free cash flow of $2.00 million.

Breaking down the performance by segment:

Bad Daddy’s Burger Bar Segment: – Operated 40 company-owned and co-developed restaurants as of June 25, 2024 – Restaurant sales increased $1.24 million to $27.33 million – Same-store sales increased 1.2% – Food and packaging costs were 31.2% of restaurant sales – Payroll and other employee benefit costs were 33.8% of restaurant sales – Occupancy costs were 6.3% of restaurant sales – Other operating costs were 14.4% of restaurant sales – Restaurant-level operating profit was 14.3% of sales, up from 13.3% in the prior year quarter

Good Times Burgers & Frozen Custard Segment: – Operated 26 company-owned and co-developed restaurants, with 5 franchised locations – Restaurant sales increased $1.12 million to $10.41 million – Same-store sales increased 5.8% – Food and packaging costs were 30.5% of restaurant sales – Payroll and other employee benefit costs were 32.7% of restaurant sales – Occupancy costs were 8.2% of restaurant sales – Other operating costs were 12.0% of restaurant sales – Restaurant-level operating profit was 16.5% of sales, a 280 basis point decrease from the prior year quarter

Looking ahead, Good Times has indicated that same-store sales at Bad Daddy’s continued to grow in the low single-digit range in the fourth quarter. The company expects the classic smash burger to continue into the fall, with both the classic smash and steakhouse smash burgers potentially becoming permanent menu items. Management remains focused on expanding digital engagement initiatives, particularly with its loyalty program, and continuing to invest in restaurant remodels and new unit development at a measured pace.

The company is also near the end of rolling out a new point-of-sale system, Toast, at Good Times locations and is evaluating a similar rollout at Bad Daddy’s. Additionally, Good Times has been active in its share repurchase program, buying back 92,240 shares during the quarter and executing a private purchase of approximately 171,000 shares at an average price of $2.60 per share. The company expects to expand its share repurchase authorization before the current one is exhausted.

Risks and Challenges

Good Times, like many other restaurant operators, faces several key risks and challenges that could impact its future performance:

Labor Shortages and Wage Pressure: The restaurant industry has grappled with significant labor challenges in recent years, including difficulties in hiring and retaining qualified staff. This has led to increased wage pressure, which can squeeze profit margins.

Supply Chain Disruptions: Disruptions in the supply chain, such as those caused by the COVID-19 pandemic, can lead to higher food and commodity costs, which the company may not be able to fully pass on to customers.

Intense Competition: The QSR and casual dining segments are highly competitive, with Good Times facing rivalry from both national and regional players, as well as emerging fast-casual concepts.

Regulatory Changes: The restaurant industry is subject to various regulations, including those related to labor, food safety, and environmental compliance. Changes in these regulations can have a significant impact on the company’s operations and costs.

Financials

Good Times Restaurants Inc. has shown improvement in its financial performance, particularly with the significant increase in net income for fiscal year 2023. The company’s revenue has remained relatively stable, with a slight decrease from $138.20 million in fiscal 2022 to $138.12 million in fiscal 2023. The dramatic improvement in net income, from a loss of $2.64 million to a profit of $11.09 million, demonstrates the effectiveness of the company’s operational improvements and cost management strategies.

Liquidity

The company’s liquidity position, as indicated by its current ratio of 0.47 and quick ratio of 0.38, suggests that Good Times may face some challenges in meeting its short-term obligations. However, the low debt-to-equity ratio of 0.23 indicates that the company has a conservative capital structure with relatively low leverage. As of June 25, 2024, Good Times had a cash balance of $4.82 million and access to an $8.0 million credit facility with Cadence Bank, with $7.24 million in available borrowing capacity. This balance between short-term liquidity concerns and long-term financial stability presents both opportunities and challenges for Good Times as it continues to navigate the competitive restaurant industry landscape.

Conclusion

Good Times Restaurants Inc. is navigating a challenging industry environment, but the company’s two distinct brands, focus on quality and customer service, and commitment to strategic initiatives provide a solid foundation for long-term growth. The company’s performance in the recent quarter shows positive trends, particularly in same-store sales growth for both brands. While the company faces several risks, its relatively strong financial position, ongoing operational improvements, and continued efforts to optimize operations and expand its footprint suggest the potential for improved performance in the years ahead. The company’s active share repurchase program and plans for menu innovation also demonstrate management’s confidence in the business’s future prospects.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.