Good Times Restaurants Inc (GTIM) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Good Times Restaurants, Incorporated fiscal 2015 third quarter earnings call. As a reminder, a part of today's discussion will include forward-looking statements within the meaning of federal securities laws. These statements are commonly identified by words such as anticipate, continue, plan, expect, intend, should, will, and other terms with similar meanings.

These statements include, but will not be limited to statements, that reflect the Company's current expectations with respect to the macroeconomic and competitive environment, the financial condition of the Company, results of operations, plans, objectives, future performance, including the Company's initiatives and strategy, sales growth, operating margins, costs, expenses, deployment of capital, restaurant development and/or remodels, new market development, franchise development, and other expectations within the course of the call.

Although the Company believes the assumptions upon which preliminary or initial results, financial information and forward-looking statements are based are reasonable as of today's date, these forward-looking statements are not guarantees of future performance and therefore investors should not place undue reliance on them. Also these statements are based on facts known and expected as of the date of this conference call and the Company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call.

Participants on the call today should refer to the Company's Form 10-K/A and other filings with the SEC for a more detailed discussion of risks, uncertainties, and other factors that could impact the Company's future operating results and financial conditions. The Company has posted its third quarter press release and supplemental financial information related to the quarter's results on its website at www.goodtimesburgers.com in the investors section.

And now I would like to turn the call over to Mr. Boyd Hoback, President and CEO of Good Times. Please go ahead, sir.

Thanks, Karen, and thanks, everyone, for joining us this morning. With me today are Sue Knutson, our Controller, and Jim Zielke, our CFO. As most of you know, we closed on the acquisition of Bad Daddy's International on May 7. And since then we've had several members of our operating team from Colorado down in North Carolina assisting with the transition, putting in our administrative and accounting systems and training several new employees. We are continuing to increase staffing levels in the North Carolina restaurants, which were running a bit lean in anticipation of the sale. So we are staffing up and deepening our employee level there. Other than that adjustment, the transition is going really as planned and we are enjoying working with the management teams there in North Carolina.

In addition to the store staffing levels, we are building management bench strength with new trainees in order to add more stores to the North Carolina market in 2016. That will increase our labor margin somewhat nominally in this quarter as we get a lot of training done. But that additional labor is being more than made up from sales being ahead of our plan, plus the limited incremental G&A expenses required to support the stores, which again are fairly nominal. So it looks like our expected cash flow from operations from the BDI acquisition will be right on target. We will continue to increase our G&A to position ourselves for some accelerated growth and anticipate promoting a district manager next month for the Charlotte market when the process of hiring a Director of HR to focus on the Bad Daddy's management recruiting by the end of this month, and then plan on layering in a Director of Real Estate later this fall.

The Good Times brand continues to perform exceptionally well. Same-store sales at Good Times increased 4.8% during the quarter on top of last year's increase of 12.5%. And they were impacted this year by record rains in May and early June. The 4.8% represents just shy of 35% three-year compound growth rate in same-store sales. And as we discussed last quarter, when we look back at our two-year stack in same-store sales growth, our sales comps got more difficult beginning in this last third fiscal quarter, which was our first comparison to two years of consecutive double-digit growth. So again, we certainly anticipate we'll continue to moderate to that low to mid-single-digit same-store sales growth. But are obviously thrilled with a 35% three-year compound comp sales stack. Sales in July did pick up a little bit more with same-store sales up 6% at Good Times in the month of July.

We've rolled out our new all-natural, housemade pickles with television support this quarter and we continue to see year-over-year growth of between 10% and 15% growth each month in the breakfast daypart. And we have a layered product merchandising strategy for each of our core menu categories, which include right now summer handspun shakes, smothered fries, Hatch Valley Green Chile burger, and chicken sandwiches and our rotating custard flavors of the month. And we speak to each of those individual projects at the store level, but really from a broadcast level we're continuing to push our brand position of fresh, all-natural, handcrafted products both in broadcast and social media.

We have a couple new Good Times sites in negotiation for 2016, and we are currently evaluating two new markets with a pretty deep dive for possible expansion outside of Colorado. Evaluating the cost and availability of real estate, the competitive environment, and the labor markets in those markets. That, again, is not a core part of our growth plan right now, but maybe an additional opportunity if we are confident we can export the Good Times brand from Colorado and still be over $1.2 million in sales on good real estate.

Our average weekly sales at our three Bad Daddy's in Colorado continue to do well. They averaged $55,000 during the quarter, with Cherry Creek same-store sales increasing 19% over prior year. We closed on the acquisition of BDI on May 7, so the quarter includes a little less than two months of operating results from those restaurants. However, our total restaurant level operating profit from Bad Daddy's still increased to $987,000 during the quarter or 19.4% of sales, from a loss of $53,000 last year. And that reflects both the relative outperformance of our last two Colorado stores as well as the acquisition of the BDI stores.

Our stated goal is to be able to replicate and scale a 40% unit level cash-on-cash return on investment in the store's second year of operation, and fortunately we've proven we can significantly outperform that in the right locations. Our two most recent stores opened in Colorado are each on pace to generate an annualized store level cash-on-cash return on investment of well over 50%, and that's factoring out any opening honeymoon sales period, so they are both performing extremely well. Same-store sales for the Bad Daddy's stores, for those that will be in the same-store sales pool moving forward, increased 9.5% during the quarter. And that ranged from a low of flat sales to a high of over 20%, which again we are thrilled with, but certainly not our expectation forward.

With our relatively small base of stores, there are many dynamics at play at each of the locations and with the kind of volumes we're generating from the small facilities, we will be very happy with low-single-digit growth in same-store sales traffic, which is what we've got modeled for fiscal 2016. Average weekly sales for all seven stores that we acquired were $52,400 during the quarter. We did eliminate weekend breakfast in two of the Charlotte restaurants, as we don't believe they were at a profitable level, and they were very disruptive to our core business on two of the busiest days of the week.

We are ramping up the level of culinary innovation with Tim Kast, our Executive Chef, and we certainly believe that the culinary heart and soul of the brand is the core differentiator for the Bad Daddy's concept. We plan to push the creativity of periodic chef specials, as well as further refinement of the core menu. And particularly we are working on the bookends of the menu in appetizers and desserts, where we feel there's an opportunity for the innovation and character of those categories to match up a little bit better with the core menu.

This month, for example, we are using Olathe sweet corn and Palisade peaches for several different specials across the menu categories. We're building a calendar to keep the menu fresh and innovative in a really targeted way and a way that our ops team can execute at a very high level. Our goal is to not only keep the innovation at a high-level but keep the Bad Daddy's concept positioned with as much non-chain character as possible, with each store having its own characteristics and ties to the community. Some of that is going to come through in the menu, in the bar menu and the beer menu, and some will come through in the way that we market each one of the stores.

We have three new Bad Daddy's under construction in Colorado and we are awaiting turnover of a fourth site to begin construction next month. In addition, we have two other leases, one of which is signed and the other is nearing execution in Colorado, one that is signed in Charlotte, and then three additional sites in later stage negotiation for 2016 development in Charlotte, Raleigh, in South Carolina. And we may choose to joint venture a couple of those stores in the Raleigh and South Carolina markets to take advantage of the existing operator partners we have in place in those markets.

We are planning on three and possibly four of the new locations to have a rooftop bar and patio, similar to our Northglenn store, which continues to be the highest volume store in the system, and it continues to generate $70,000 to $75,000 in average weekly sales, so exceptional performance. Now, we believe the rooftop bar and patio is a strong driver of incremental sales, obviously based on the Northglenn performance. And it adds to Bad Daddy's overall appeal, the energy and the personality of the concept. And again, based on our performance so far, it can provide an even more attractive unit level economic model in the right location. So, opportunistically we're going to be taking advantage of bar and rooftop opportunities.

We'll be making additional platform investments in training and technology early next year that are necessary for us to scale the Bad Daddy's growth, and we believe those tools will reduce our longer-term training, operating, and store opening costs. But most importantly, will help to continue to drive consistency store to store and the overall guest experience at Bad Daddy's as we grow very rapidly and exponentially off of a relatively small base of stores.

Jim will speak in a minute to our revenue and adjusted EBITDA expectations for fiscal 2015 and 2016, but needless to say we are building the foundation for a powerful growth engine in Bad Daddy's that we believe will meet both our 40% annual unit growth over the next several years as well as our 40% unit level cash-on-cash return model target that we've got. We continue to believe that the highest quality growth story and optimum shareholder value will come from a much larger platform of Company operated restaurants and not in franchising the concept prematurely, but we will look at that opportunistically.

With 10 Company operated Bad Daddy's open we believe we can leverage our existing operating platforms now in Colorado, Charlotte, Raleigh Winston-Salem, and South Carolina, to add an additional 8 to 10 stores over the next 12 to 15 months. And while that development schedule is important, we are certainly focused on the longer term. And the few stores that are ahead or behind schedule based on these developers' time tables we think are relatively insignificant to our longer-term growth in shareholder value based on the projected pace of our development. We will try and be careful to set as clear expectations as we can and we'll begin to forecast our expectations on total restaurant weeks for each quarter as the individual development schedules become clarified and inevitably move around a little bit.

As of the end of this quarter, we had approximately $15.2 million in cash on our balance sheet, and that was after the BDI acquisition, which we believe is sufficient when combined with significantly accelerating cash flow from operations. The addition of a conservative level of senior debt to allow us to continue to accelerate our growth and meet all of our CapEx needs through fiscal 2016 and into fiscal 2017. So we certainly don't have the need here as we look into next fiscal year for additional capital. Our job right now is solidly on execution in both our brands while making the appropriate infrastructure investments for sustainable growth and accelerated growth and recruiting talented management to run the stores.

I'd like to know turn it over to Jim Zielke to review more of our Good Times and Bad Daddy's financial results in the third quarter. Jim?

Thanks, Boyd. It was another solid quarter for us on the Good Times side. As Boyd mentioned, we are lapping two years of double-digit same-store sales growth now, and so we are meeting our expectations for low to mid single-digit growth. Our 4.8% growth in the third quarter was comprised of about 1.5% traffic and 3.3% price. And our sales were negatively affected by the record rain in Colorado in May and June. Cost of sales at Good Times declined to 32.9% during the quarter from 33.7% last year. Beef costs remained high but stable. However, dairy, chicken, and bacon have come down. Egg prices have spiked considerably due to the avian flu crisis, which has affected our breakfast and frozen custard cost. But we are beginning to see some normalizing of the supply chain.

Our beef costs in early August are actually down about $0.45 a pound from a year ago. We did take a 1% price increase on May 1 to cover the cost of introducing all-natural, nitrate-free bacon, which does complete our platform with all of our meat proteins at 100% all-natural with no steroids or antibiotics, and all from humanely raised animals. We anticipate another small price increase at the beginning of fiscal 2016, which this year is probably driven more by labor cost pressures than commodity costs. Labor costs at Good Times did increase to 30.6% from 30.1% last year. All of which is comprised by the increase in our average wage.

As mentioned last quarter, in addition to Colorado's CPI index minimum wage, we are seeing the labor market tighten up and are selectively increasing wages to remain competitive on a trade area by trade area basis. However, we have far lower ACA insurance costs than originally contemplated. That is helping to offset some of that wage increase. Value remains a very important driver for our customer, so even as we drive our fresh, handcrafted, all-natural brand story deeper, we are still being very cautious of any aggressive price increases.

Restaurant level operating profit at Good Times, as disclosed in the supplemental information in our third quarter release, increased to $1,566,000 from $1,474,000, or 6.2%. The restaurant level operating margin was 20.4% compared to 21% last year, with that decrease related to the increased labor costs and occupancy costs. We continue to make progress with the reimaging of our older drive-through-only stores and have begun the more extensive remodeling of a few stores, including one that was closed for approximately 10 weeks and reopened just on August 5. We expect to complete one additional drive-through-only store reimage in the fourth quarter, two major remodels in the first quarter of fiscal 2016, and six more reimages and remodels in 2016.

Our Bad Daddy's restaurants generated $983,000 of restaurant level operating profit, or 19.3% restaurant level operating margin, with the restaurants acquired from BDI generating about $560,000 net total in less than two months, and the three Colorado Bad Daddy's restaurants generating approximately $423,000 of the total, as our newest store in the Southland Shopping Center has matured and operating costs have normalized. In addition, we have $45,000 of royalties from the Charlotte airport license during the period. So, prior to any G&A allocation or acquisition costs, the BDI acquisition provided over $600,000 of cash flow in just less than two months.

We do continue to run 100 to 250 basis points lower on our cost of sales on a store-by-store basis in Colorado than in North Carolina, and we anticipate we'll be able to begin to move the North Carolina restaurants closer as we put in place further purchasing economies and operating systems. However, North Carolina restaurants will always run a slightly higher bar cost just due to the liquor laws there. Total cost of sales for all Bad Daddy's was 31.7% during the quarter. Our Colorado stores have an approximate 300 basis point labor disadvantage when applied to all front of the house hours due to our state-mandated higher tip credit minimum wage.

But we have made a lot of that margin up just with a slightly different and more efficient labor and management model that will be incorporated into North Carolina restaurants over time. It does involve cross training the management team and a slightly different scheduling and compensation system for front of the house employees, which to date has not been the model in the North Carolina restaurants. We won't capture all of that margin difference in the North Carolina stores and it will take all of next year to evolve the management structure in each of those stores.

Our current Colorado labor expense continues to include slightly elevated management expenses at the stores as we do carry fully-trained management for future restaurants. Total labor expenses for all Bad Daddy's restaurants were 34.5% of sales during the quarter and we expect those to increase slightly during the next two quarters as we increase our staffing levels in North Carolina, and until we have the next four restaurants open in Colorado, which will reduce the amount of excess management carry.

Total restaurant level operating profit -- again, a non-GAAP measure as defined in our third quarter earnings release -- increased to $2,549,000 from $1,421,000 last year, reflecting the acquisition of BDI, the new Colorado restaurants, and continued improvement in Colorado Bad Daddy's restaurants' operating margins. General and administrative expenses increased to $1.1 million during the quarter from $647,000 last year but remained 8.6% of revenue. The G&A increase consisted of higher salaries, cash, and stock-based compensation expenses, investor relations expense, directors' expenses, and legal and accounting expenses as we gear up for the company -- or as we get the Company up for accelerated growth. We anticipate that G&A expenses will begin to decline as a percent of revenues in the latter part of fiscal 2016 and beyond as we expand our base of restaurants, even as we increase the G&A spend in key areas.

Our net income for the quarter was $107,000, which did include $156,000 in pre-open costs, $365,000 in one-time acquisition costs, and $165,000 in stock-based compensation expense. As a result, our adjusted EBITDA, as disclosed of the supplemental information in our quarter release, more than doubled to $1.2 million compared to $500,000 last year. We do expect approximately $14 million of sales and $900,000 to $1 million of adjusted EBITDA in our fourth fiscal quarter, with approximately $375,000 of preopening expense in the quarter.

In addition to low single-digit same-store sales increases at both brands, we do expect to open two additional Good Times restaurants in fiscal 2016 and 8 to 10 additional Bad Daddy's restaurants, generating total revenues of $68 million to $73 million and total adjusted EBITDA of $4.8 million to $5.5 million for the fiscal year, including approximately $2.5 million of preopening expense. The non-GAAP adjusted EBITDA calculation is also described in the supplemental information in our release.

As Boyd mentioned, we have over $15 million of cash. So conservatively, with our cash flow from operations, cash on hand, and the addition of a relatively conservative level of senior debt, we anticipate we can support our growth in new Good Times, the continued remodeling of Good Times, additional information technology investments, and our planned new Bad Daddy's development well into fiscal 2017 absent any acceleration of that growth. The biggest variables in our expectations are the timing of new stores coming online and the sales volumes at these new stores, off a relatively small base of stores.

We are confident in our ability to generate our targeted unit level margins once a store has been opened 90 to 120 days, with a very defined line item operating expense matrix for annual sales volumes ranging from $2 million to over $3.5 million. As we move into fiscal 2016, we'll tighten up on our quarterly expectations and guidance as the new store schedules become clear and our pipeline horizon is extended into 2017.

Now I'd like to turn the call back over to Boyd.

Thank you, Jim. As I mentioned in our call last quarter, our story really now is a pure growth story and we are focused on disciplined site selection, hiring good people, not over growing our operating capabilities, and most importantly, maintaining our unit level economic models. We are exploring taking Good Times out of the Colorado market, but I do want to be realistic about the risk/reward profile of developing a freestanding QSR concept in a new market, versus Bad Daddy's full-service concept that's been proven in multiple metropolitan markets now, as the strategic implications for growing the concepts are very, very different, but we are exploring the expansion of Good Times alongside Bad Daddy's very aggressive growth plan.

We now have really good, strong operating platforms for Bad Daddy's, again in Denver, Charlotte, Raleigh, Winston-Salem, South Carolina from which to grow. And I'm anticipating that all of our growth in 2016 will be in and around those markets as we begin to look at our new site pipeline for 2017, which we are working on right now, that will include some new metropolitan markets. While we are exceeding our expectations and target for the Bad Daddy's concept, I also want to reiterate that our model is to be able to generate $2.5 million average sales out of about 3,600 to 3,800 square feet, with a restaurant operating level margin in the mid to high teens.

If we keep our net investment after landlord contributions to under $1 million, which I think we can, that model produces our targeted 40% unit level cash-on-cash ROI, or better than that. We've got a big push coming up in the next eight months with our anticipated six new Bad Daddy's opening in Colorado, but the good news is we have some really good, strong operators in place that are getting good seasoning time in our existing stores. Jim has been a great addition to our management team as CFO and we are continuing to recruit talented people for key positions to support that growth. And our operations team has really done an admirable job in both North Carolina and Colorado, and we are intent on really developing a high-performance, people-oriented culture over the coming years. Appreciate your time with us today.

With that, operator, we'll open the call to questions.

(Operator Instructions) Alex Fuhrman, Craig-Hallum.

I had a quick question for Boyd on the strategic expansion, and then just a couple follow-ups on the guidance as well just for clarity. Boyd, I think you mentioned you are looking at two specific new markets for Good Times. I'm not sure if you said which markets those are. Are they adjacent to Colorado? And then, would that be I imagine incremental to the two stores you talked about opening next year? Could we actually see those open next year? Or are we talking more of a two or three year opportunity on new markets?

It's a good question, Alex. They are adjacent to Colorado. We started with five. We've narrowed it to two, and that would be incremental to the two planned openings in Colorado next year. And again, it's more I think strategically evaluating what that risk profile is. Good Times has developed a really strong niche in Colorado, which is one of one of the most competitive markets in the country. The other side of that is we have over 20 years of brand equity that we've built for Good Times. And again, freestanding QSR burger business is very competitive.

But we think that if we can prove it out of market and do so mitigating our risk that it could be a larger franchise platform for us on Good Times. So we anticipate that we could have a couple of stores open in those new markets in 2016, should we choose to go ahead and move down that path. That's why I wanted to clarify that and qualify that by that's really not part of our core growth plan right now. So I don't want to set unrealistic expectations, but with Good Times' performance the way it is, it's unit economics, we think there may be some more opportunity there.

Okay, that's very helpful. Thanks. And then just looking at the guidance for next year, $68 million to $73 million in revenues. That's a fairly wide range. You say the delta between the high-end on the low-end, is that mostly the productivity of the new Bad Daddy's units you are going to have coming on? Or whatever you could share that would be helpful. And then baked into that assumption, what are you assuming for Good Times comps for next year?

We are assuming low-single-digit comps for Good Times, in the 3% range. And yes, most of that delta between $68 million and $73 million is all driven by the timing of the new Bad Daddy's stores. And again, wanting to be somewhat conservative in our approach, both in terms of the total number of stores and the timing of those stores. We've assumed that we can continue to open $2.5 million Bad Daddy's, and so that's in our core assumption. But the variability between the low and the high is really based on the timing of those openings.

We have the next six pretty well locked and loaded here in Colorado and we've got the balance of stores for 2016 well along their way from a negotiating standpoint, and either signed or in negotiations to have signed leases. But not sure, particularly since almost all of these developments are new developments, and so we don't control when they get turned over to us. So we wanted to provide a range based on when we think those developments will actually happen.

Okay, great. That's very helpful. Thank you very much.

Will Slabaugh, Stephens.

I wanted to ask about Bad Daddy's and the comp strength that you saw in the quarter. It was quite a bit stronger than what we were anticipating, so I'm wondering if you can talk about what's driving that, and if you are seeing that more in the Colorado markets or North Carolina markets, or if it's across the board?

It's really across the board, Will, but understand, it's a very small base of stores. And so, even those stores that have been open more than a year is a pretty small number of stores. But as I mentioned, it ranged from -- and we are generating some really high volumes, so it ranged from a store being flat to a store being up over 20%, and none of that was Colorado. That was all North Carolina. So, a very wide range and the dynamics are very different that's feeling some of that same-store sales growth. So, while I know it's a very important metric and we certainly want to maintain that positive off of this very small base, it's going to probably continue to be a pretty wide range and that may fluctuate. And again as I said, I think our expectation is in the low single digits on same-store sales given the volume we are doing out in the stores.

Got it. And then just kind of a broader question on Bad Daddy's. Now that you've had a little more time to digest what you've seen in North Carolina in its original market, is there anything that you can point out that you have learned or maybe that's different than you would've thought? Or any sort of confidence gained or lost in terms of the potential of the concept over time?

Since we've been under the covers for the last couple of years, I don't think there's been any surprises. And I think as I mentioned last quarter, the good news is that I think we see it as a little broader consumer base than what we originally thought, both on how our Northglenn store is performing -- which is not a terribly high income area, but it's solidly upper middle income. I think it's anchored and cemented our belief that we've got a big, long runway for Bad Daddy's, and our sweet spot is suburban upscale real estate and really not urban at all. I think if anything it's probably confirmed that.

We are in six different major metropolitan markets right now, and when we look at the highest volume stores and where they are performing the best I think we've been able to kind of narrow down to that upper middle income suburban real estate. Where Bad Daddy's I think has some stronger points of difference than in some of the urban markets, where quite honestly there's just a lot of very cool concepts. When we go out into all of the areas that we are going into and believe that we are just taking significant share from the existing casual theme market, Bad Daddy's is really resonating; is very highly differentiated both in terms of its food, the atmosphere, the service model that we've got. And the consumer is willing to pay $2 to $3 more per person than the experience that they are getting at the traditional casual theme.

Got it. And one quick follow-up, if I could, on Bad Daddy's there. As far as pricing, just to wrap back up what you said earlier, the inflation on the commodity front looks to be a little bit better than what you may have thought. Labor inflation obviously is there as well. Can you talk about what year-over-year pricing is on the menu right now? And then considering that inflation outlook both on labor and food what the pricing may look like going forward?

Yes, historically, we've taken nominal if any price increase, so all that same-store sales growth was really in traffic and average check through some other menu engineering that we've done. But in terms of just absolute price increases I can't quantify it because we don't know in North Carolina. But we've taken one very small -- I think it was a 1% weighted price increase in Colorado over the last year.

We are seeing some really nice help on the commodity side right now, particularly with beef stabilizing and coming down. And I think prospectively probably more ease coming on the beef side, and really not a lot of other pressure points on the commodity side at all. So, we are anticipating we are probably going to be having low-single-digit price increases as we move forward. They are probably going to be more impactful on overall menu engineering than absolute pricing increases, as we really take a look at lunch mix, dinner mix, and our ability to move some things around. As an example, we sell very, very few desserts at Bad Daddy's. We think there is an opportunity there to boost check a little bit without touching pricing.

Great. Thanks and congrats, guys.

Greg McKinley, Dougherty.

Just getting back to Bad Daddy's growth plans for a moment, you said you have six stores. Are they currently under construction in Colorado or the leases are signed?

Three are under construction, one will start construction next month, and then the other two leases are signed but we haven't started -- or one is signed and one is 99% of the way there, but it's not signed. And neither of those are under construction yet.

Okay. And so the -- if you're going to develop 8 to 10 stores in 2016, would 2 to 4 of those be in the Carolina markets then? Or would those also (multiple speakers) -- okay.

Yes, that's exactly right. Two to four will be in both North Carolina and South Carolina. And again, hopefully we'll be up to exceed that pace of development but right now that's our expectation with -- in addition to the six that we have in development in Colorado, we'll probably do 1 to 2 more with the balance being in the Carolinas.

Okay. Boyd, in your prepared remarks you talked about patios as a component of the stores' underdevelopment. Can you remind us what you said there? And when we look at those 8 to 10 stores, how many of them will have a patio feature?

Right now, we have two that are actually signed and underway that have rooftop patios, and we have one to two more in negotiation that could have rooftop patios on them. Obviously our experience is limited to Northglenn right now, but based on its performance and just the consumer feedback we think it's a great amenity for the brand and more than makes up for the incremental investment that it takes to do a rooftop patio. We've been able to get the landlords to contribute largely towards that incremental investment, give them a small percentage rent participation, so it ends up being a win for both sides. A huge win for us but also a better return for them on the same square footage.

Okay. And then you also talked about maybe exploring joint venture operations in the Carolinas as opposed to straight ownership. I just wanted to make sure I understood that comment and the reasoning behind looking at it that way.

The sole reason for doing that, Greg, would be to leverage our existing joint venture operating partners that we already have in North Carolina. And then we're also looking at our South Carolina operator, who we have two franchise stores with, but he's a very good operator. There may be an opportunity for us to accelerate our Company-owned operations by using those operators under a joint venture. Those operators and investors, meaning in Raleigh, for example, where we have a good solid operating team in existing joint venture partners, they would like to do some more stores as joint venture partners. From our standpoint we would have a little better return than we would have under a fully-company-owned store. And it doesn't preclude us from our own investment in Company-owned stores in any way, if that explains it.

Yes. And so those might be a component of -- a couple of those might be a component of the 8 to 10 you described for next year?

Correct.

Okay. And those would still be at investment levels for you that would result in being consolidated?

Yes. We would still have majority control, over 50%, fully consolidate them but have some minority interest associated with them. So from a pure financing standpoint, again, it doesn't dilute anything that we would be doing and actually a slightly better return on our capital in the same story if we did 100% Company-owned.

Okay, good. And then, Jim, in your comments you talked about G&A dollars climbing here as you fill out some needed positions. I wonder if you can just remind us of the areas that you see a particular need to invest in. And then, I wanted to make sure I heard correctly, are you expecting G&A certainly to climb in dollars but also as a percentage of sales in 2016?

Well, I'll answer I guess in order here. So, generally, we are looking at the HR position, possibly some help on the real estate side, which would be a new position for us. Certainly just from a multiunit manager standpoint, as we grow stores we're going to need to add those guys especially ahead of the growth. So those are key personnel positions that we will be making some changes in. We do need to spend some money in the investment -- or in the information technology area, as we probably are due to move to a new ERP system in the next year. So that's another area of increased spending, as well as just the basic support staff here in the corporate office to support the current units as well as the growth in units.

In terms of the absolute dollar amount for G&A, we do see that continuing to increase. I think my comment was that, as a percent of revenue, that would start decreasing in the latter part of fiscal 2016. So it would be relatively flat for the next couple of quarters as a percent of revenue. And then, as we add more stores and be able to leverage that G&A, as a percent of sales we start to see it decrease then the latter part of 2016 and beyond.

Okay. Good, that's helpful. Thank you. And then just last question, when you're looking at your Q4 guidance for this year, can you tell us what the puts and takes are in terms of same-store sales expectations or timing of store openings? Anything that we should be aware of in terms of how you add up to that $14 million?

Yes, one of the things I think is certainly not clear from the guidance, but in one of the areas we're still trying to understand, being in these two separate markets, is just the seasonality of the Bad Daddy's sales. And right now it appears we've got about a 7% -- I'll just put a nice round number -- about 7% premium in the quarter that just ended versus what we would expect in the fourth quarter, just based on the normal seasonality. And so, that's certainly one area where, if you are trying to extrapolate from this quarter's sales to next quarter, you do need to build a decrease in just for the normal seasonality on the Bad Daddy's side.

There really is a little bit of seasonality on the Good Times side going from Q3 to Q4, but it's only about 1 point. And so, there's again no new stores opening in Q4 on either Bad Daddy's or Good Times. We did have, of the seven BDI stores, they were in place for 55 out of the 91 days of the quarter. And so we'll have them for a full quarter in Q4, but I think that seasonality piece is probably the biggest difference as you are trying to extrapolate Q3 to Q4.

Thank you. And then why -- what do you think the driver of the seasonality is? And what might we think of same-store sales implied in your Q4 guide?

So, low-single-digit comp store sales is the assumption. And in terms of the cause of the seasonality, well I could tell you for the Northglenn, certainly the rooftop patio probably lessens in attraction in September here in Colorado. It is some of the normal back to school seasonality that we see in both brands in September that makes that one a lighter month than the rest of the summer. But it is fairly -- again, just looking at Carolinas, which has a little bit longer history on those stores, and we are seeing a decrease of 6% from Q3 to Q4 just historically in the Carolina units as well. So it's not just Colorado but it's across the brand.

Very good, thank you.

(Operator Instructions). Mark Smith, Feltl and Company.

First off, just following up on the last question, can you give us more insight on current trends in comps? Boyd, did you say that you were currently seeing about 6% comp growth at Good Times in July?

Yes, July finished up 6% in Good Times and we are seeing that or a little better in August so far. And slightly less than what we had in Q3 on Bad Daddy's. Not 9.5%. But again, very positive on the Bad Daddy's side. And as Jim mentioned, we've assumed in our modeling for this quarter low single digits on both brands.

Okay. And then can -- you guys have talked a lot about the opening schedule a little bit, but just can you confirm the cadence for us? No Bad Daddy's this quarter? And is it two to three in Q1, and then the rest build out through the year? Or anymore insight on cadence of openings?

Yes. It should, based on -- now that we are finally under construction and have been turned over the sites -- there should be about one a month beginning in October, November, and December. And then the balance over fiscal -- the balance of 2016.

Okay. And then lastly, just looking at Bad Daddy's, can you talk about restaurant operating profit and the delta between the best Bad Daddy's and that with the lowest margin? And how these restaurants are performing as they move out of honeymoon period?

Yes. It's a bit all over the board, and we'll obviously as we get more experience we'll be able to model that a little bit better. The last two stores we've had in Colorado, our second store had an enormous honeymoon. Opened at just huge volume and settled in at very good volume and has matured there. Our third store also opened up at pretty high volume but didn't have an extraordinary honeymoon. It just opened up and stayed there, which is great. Whereas when we look at a couple of the North Carolina stores, they've had more of a one-year maturation cycle to them. The first Raleigh store, for example, first year it opened up I think it did around $2.1 million. This year it's on pace to do $2.9 million.

And it saw a big bump as it lapped its first year, and it's one of the stores that's up very, very significantly. So, we're not sure quite what to expect. I anticipate these stores in Colorado will be probably more of the honeymoon variety, where it will open up big and then settle in after the first 60 to 90 days or so. Typically, after about 90 to 120 days we see where a store is at least settling in on its initial volume.

And outside of volume, just on restaurant operating profit at those stores, are they opening -- even with the high-volume restaurants, are they still fairly inefficient on food waste and labor? Or are you able to come out of the gate with pretty strong margins when they are opening with a good honeymoon?

Well, assuming that they are coming out at $50,000 a week or better, we are able to come out at pretty strong operating margins. We take our excess labor for the first 60 days or so and put the truly excess labor into pre-open. So our store level operating margin is somewhat normalized pretty quickly. And so, we have a -- both for front of the house and back of the house, we have a weekly countdown on expected labor inefficiencies that weans itself off over that 60 to 90 days, with some but not all of that going into pre-open.

So there's a little bit of inefficiency. There's not much on the food cost side. We pretty quickly get to our targeted food cost other than the first few weeks. So, again, it's all volume-based. If they are doing the volume we see the operating margins kick in really within the second month.

That's helpful. Thank you.

Thank you, and that concludes our question-and-answer session for today. I would like to turn the conference back over to Boyd Hoback for any closing comments.

Thank you, Karen. Thank you all for joining us again. Appreciate your time. We are really excited obviously about the progress we're making on Bad Daddy's and continued progress on Good Times, and look forward to talking to you next quarter. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.