Good Times Restaurants Inc (GTIM) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2022 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 are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore, investors should not place undue reliance on them, and the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call. 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, general economic conditions, which could adversely affect the company's results of operations and cash flows. These risks also include such factors 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 at our restaurants, 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 the Good Times' annual report on Form 10-K for the fiscal year ended September 28, 2021, filed with the SEC and other filings with the SEC.

Lastly, 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 I would like to turn the call over to Ryan. Please go ahead, sir.

Thank you, Selina, and thank you all for joining us on the call today. As Selina mentioned, you should have access to our earnings release and quarterly 10-Q filings.

I wanted to begin today by discussing our progress on hiring a leader for our Good Times concept to follow Scott Lefever, who has led the brand's operations nearly since its inception. An individual named Don Stack joined the company on January 3, and has been going through a tailored onboarding and orientation plan to expose him to all aspects of the Good Times brand and provide for a seamless leadership transition.

Don brings with him a combination of both limited-service and full-service leadership experience, which will bring a fresh perspective to the Good Times concept. Most recently, Don has been a regional manager of Firebirds International, where he supervised the market exceeding $30 million in revenue. And prior to his tenure with Firebirds, Don was vice president of operations for the parent company, overseeing a 93-restaurant portfolio of restaurants, including the Fox & Hound Sports Bar concept. Don and I have worked together at prior restaurant concepts, including Fox & Hound, and share a vision for delivering -- for developing our restaurant leaders into shrewd operators and businesspeople.

Don officially will take the reins on Monday as Senior Vice President of Operations for Good Times. Scott has generously offered to remain with us through March 31 to be a resource for me and for Don and to provide any assistance needed in creating a truly effective transition. Additionally, we continue to advance our search for a leader for the finance and accounting organization to add to our team.

Our results for this quarter demonstrate what others in the industry have discussed, mainly the impact of the high inflation environment facing the industry and, in fact, the overall economy. Nevertheless, the strong sales performance, particularly at Bad Daddy's, reinforces my belief that through reasonable menu pricing and consistent execution, we will drive long-term top line growth. Bad Daddy's sales have continued to show strength and exceeded our pre-pandemic 2020 sales despite the concept experiencing significant snowfall in both Colorado and North Carolina, our 2 most concentrated markets, during 2 weekends of the month of January.

We are developing a pipeline for unit growth at Bad Daddy's with our expectation that new unit development will be focused in the Carolinas, Tennessee and Alabama. We expect to fill in existing markets and also expand into adjacent markets within those same states prior to expanding outside of those states. Due to a combination of our disciplined and stringent site selection, our development time line has been pushed back to 2023. However, we have several properties we're actively negotiating, and our actual development for fiscal 2023 will be based upon a combination of pipeline development, operating cash flow generated in the meantime, and other investment decisions affecting the use of cash.

Our newest restaurant in Montgomery, Alabama, continues to perform well, with it continuing to be a top quartile restaurant and sales performance. Sales at our newest restaurant in the Atlanta market have not performed as well however, but the trends in that restaurant have followed the trend of the overall Atlanta market, which has not performed to our expectations over the past 6 months in sales and profitability. We are in the process of transitioning multiunit leadership in that market to drive a needed turnaround in operating and financial performance in that 5-restaurant market.

At the same time, we're also reinvesting in our Good Times brand with a new image for our drive-through locations with contemporary patio seating, a refreshed exterior image, and digital ordering at the walk-up. We expect this to be deployed at a restaurant at 120th in Colorado Boulevard in Thornton, Colorado, a northern suburb of Denver. This restaurant has not been remodeled or received any significant capital investment in nearly 30 years. We're also intending to refit existing drive-throughs with new signage and digital menu boards, important branding and merchandising assets that also have not received substantial capital investment in many years.

Today, we separately announced that our Board of Directors has authorized the share repurchase program for the company to buy back up to an aggregate $5 million of its common stock on the open market. The timing and actual number of shares repurchased will be based upon price, business, market conditions and other factors affecting our purchasing decisions. Our confidence in our brands has not been swayed by the current inflationary environment we are experiencing, and we see this as an important opportunity for us to deploy operating cash flow in a multifaceted way, including unit growth and development, reinvesting in existing restaurants and the acquisition of company stock at a multiple that is attractive. This share repurchase program is a demonstration of our belief in the long-term value creation potential of both of our restaurant concepts.

Let's review this quarter's results. At Bad Daddy's, restaurant sales during the quarter were $24.6 million compared to $18.7 million during last year's first quarter. We had approximately 26 more store weeks this quarter versus the same quarter last year, the result of the 2 new Bad Daddy's opened during fiscal 2021. As previously reported, same-store sales were 24.0% for the quarter. 37 Bad Daddy's were in the comp base at the end of the quarter. Cost of sales at Bad Daddy's were 31.8% for the quarter, a 310 basis point increase from last year's quarter, the result of higher average input costs across all our commodities, partially offset by an average 2.4% price increase during the quarter.

Bad Daddy's labor costs increased by approximately 70 basis points compared to the prior year quarter to 34.2% for the quarter. This year-over-year increase is primarily due to significantly higher wage rates than the prior year, mostly offset by productivity improvements and leveraging of higher average unit volumes.

Overall, restaurant-level operating profit, a non-GAAP measure, for Bad Daddy's was $3.4 million for the quarter or 13.9% of sales compared to $3.0 million or 15.9% of sales last year. This decrease as a percent of sales is due primarily to the impact of higher cost of sales and labor, partially offset by the fixed cost leverage created by higher sales.

Restaurant sales at Good Times decreased approximately $0.3 million to $8.1 million, driven by the reduced store weeks from one restaurant closure that occurred during the first quarter of the prior year and a 5.9% decline in 1-year same-store sales resulting from the rollover of dining room closures, which have been favorable for our primarily drive-through model.

Food and packaging costs for Good Times were 29.9% for the quarter, a decrease of 260 basis points compared to last year's quarter. Good Times had elevated commodity costs, partially offset by higher menu pricing during the quarter compared to the prior year. Total labor costs for Good Times increased to 34.1% from 31.2% for the quarter last year. This was the result of higher average wage rates, partially offset by menu price increases.

Good Times restaurant-level operating profit decreased by $0.3 million to $1.4 million for the quarter. As a percent of sales, restaurant-level operating profit decreased by 350 basis points versus last year to 17.1% due primarily to higher cost of sales and labor and partially offset by lower occupancy and other restaurant operating costs.

General and administrative expenses were $2.7 million during the quarter or 8.2% as a percent of total revenues. This represents an increase of approximately $0.5 million versus the prior year quarter. This quarter's G&A expenses increased due to an increase in professional fees, higher travel and incentive compensation for multiunit managers, costs associated with our annual general managers' conference, which had in-person events this year, increased technology costs, and partially offset by lower senior leadership and support team incentive compensation costs.

Our net income attributable to common shareholders for the quarter was $0.3 million versus income of $0.8 million in the first quarter last year. Increased restaurant-level operating profit was offset by higher G&A costs for the quarter. We had a gain on lease termination of approximately $0.6 million associated with the exercise by a landlord of a termination option related to one Good Times restaurant, an income that was attributable to noncontrolling interests of $0.9 million, which included a onetime special allocation in connection with the payroll rebate to those partnerships.

We have not provided explicit guidance for fiscal 2022 given uncertain inflation indicators at this time. We continue to see wage pressure at Good Times though we're seeing some improvement in the staffing market for Bad Daddy's. Our sales during the first quarter outpaced our expectations. However, there is some divergence going into the new calendar year with some top line softness at Good Times as the Denver Metro has been impacted by several large snowfall events during January while Bad Daddy's continues to show resilience even in spite of weather events in both of its concentrated markets, the Denver Metro and the State of North Carolina.

We continue to expect margin compression on a year-over-year basis as input costs have increased. And at Bad Daddy's, we've been intentionally disciplined with respect to taking price increases. At Bad Daddy's, our current menu pricing as of January is 6.2% higher than it was at the same time last year. At Good Times, our menu pricing is approximately 8.2% higher than it was a year ago. We do not currently have any future price increases decided at either concept and feel comfortable with our pricing position relative to our competition. As discussed last quarter and earlier in the call, although we're still working diligently to pursue development opportunities, it's likely that new openings will occur in fiscal 2023, as we continue to be disciplined in site selection.

With that, Selina, we'll open the call for questions.

(Operator Instructions) The first question comes from Amar Sheth with Bellwood Partners.

I hope you're well. Thanks for the good management in this tough inflationary environment. I guess my question was really more of a medium-term question in terms of how you guys are thinking about unit growth and the balance between maintaining kind of your strong capital position to be able to grow Bad Daddy's units.

Sure. Thanks for the compliment. I think as I've discussed on prior calls, part of our position relative to managing the capital of the enterprises, we're not interested in taking on large loads of debt for development, and we're primarily interested in developing new restaurants out of operating cash flow. Certainly, the current inflationary environment has posed some challenges there, but we're still generating significant cash flow. And I think what that means for future growth is still moderate growth. I think we had originally anticipated a couple of restaurants this year with potential acceleration next year. I do think there's the opportunity for us to open more than 2 restaurants in fiscal 2023, although we're not providing official guidance on that. A lot will depend upon the operating environment between now and then, pipeline development as well as just general market conditions. But I think the cash flow would -- that we would generate would enable us to grow at mid-single digits without compromising our capital position.

Okay. And then I did have a follow-up, I guess, just on the Good Times brand. There was some reporting in the past about a potential M&A pathway with the Good Times brand. Are you guys considering that again in the near future?

We, at this time, are -- yes. We, at this time, are happy with the performance of both of our brands and are in a position where our desire is to continue to operate and manage both of them.

(Operator Instructions) The next question comes from [Brian London].

Just a quick compliment. I appreciate that you guys are kind of keeping a conservative capital structure. I'd like to see the -- staying away from debt and a strong balance sheet. I visited some restaurants out of Colorado, a Good Times one. I just had a general question. It reminded me a little bit of Dairy Queen. And I was wondering if you guys had any thoughts on maybe kind of different platforms, like expanding it in a smaller-footprint-type way, just general kind of curiosity. That's it.

Yes. So I think our product line, I'd say I can understand where you'd see some similarities there between those 2 concepts. I think our brand position really revolves around, I'd say, more of a premium product than Dairy Queen. We use all-natural beef, all-natural chicken, and we take a lot of pride in that. Now that being said, I think our facilities -- and I'm not -- we have a couple of different footprints, and I'm not sure which restaurant you may have visited. Some of them have -- approximately 8 of them have dining rooms, and the rest are a version of a double drive-through or potentially single drive-through format that are very small, anywhere from 850 to, call it, maybe 1,100 square feet. And so the actual box that the Good Times concept goes in can be very, very flexible. The constraints around the drive-through concepts are more around kind of permitting, land acquisition and the ability to stack the right number of cars in that footprint.

That said, I think our facilities, as I mentioned in my prepared remarks, tend to have some deferred maintenance particularly around signage and kind of exterior maintenance. And we're working to remedy that and reinvest in some capital in those to better align the physical plant with the premium nature of the actual product we serve. And we think that by doing that, we're going to -- again, that's part of our plan to not just generate long-term sales and value through unit growth but through reinvesting in the existing assets and driving organic sales growth in our existing store base.

Thank you, [Mr. London]. There are no additional questions waiting at this time. So I'll pass the conference back to Ryan Zink for closing remarks.

Thank you again, Selina. Although not as strong as last year's operating results, we're pleased with the results of this first quarter of fiscal 2022 in spite of the very challenging cost environment that we currently face. I want to give a shout-out to our operations teams as they continue to provide exceptional hospitality and service and, in general, run great restaurants. Also, thank you again to our entire team that executes both of our brands, including the restaurant operations teams, our support for our staff and the great leaders that we have throughout our organization.

With that, we will conclude today's call. I thank you all for joining us today.