Good Times Restaurants Inc (GTIM) 2018 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2018 First Quarter Earnings Call.

By now, everyone should have access to the company's first quarter earnings release. If not, it can be found at www.goodtimesburgers.com in the Investors section.

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.

The company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

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 the GAAP and reconciliation to comparable GAAP measures available in our earnings release. And now, I would like to turn the call over to Boyd Hoback. Please go ahead, sir.

Thank you, Will, and thanks again, everybody, for joining us this afternoon. I've got with me here today Ryan Zink, our Chief Financial Officer. And I'll cover a summary of our first quarter and some current developments, and then Ryan will dig into the details of our financial results for the quarter as well as updates on our guidance for the year.

We're again generally very pleased with the results for the first quarter, particularly, with the continued outpacing of the industry in our top line same-store sales trends at both brands with Good Times up 5.9% and Bad Daddy's up 1.3%, factoring out the Cherry Creek store.

We had a very high volume opening of our fifth store in the Charlotte market. And as a result, we saw some sales cannibalization of the other stores in that market, which impacted our overall same-store sales. But we expect that to be relatively short-lived, as the new store is in a distinct trade area from the other stores.

Additionally, our 8 new Bad Daddy's stores that opened in fiscal 2017 and the early -- in early 2018 are performing above our average system sales by about 12.3% at around $54,000 per week, again, with the first 2 2018 stores having opened very strong.

On the cost of sales front, we saw some abatement in commodity cost from our fourth quarter, particularly in beef and bacon cost. However, our overall basket of goods was still up approximately 6.5% from the prior year. We also ran the $3 kid's meal promotion at Good Times during the quarter, which together, impacted Good Times cost of sales by about 1.5%. But growth dropped -- strong top line sales gains for the quarter.

On January 1, we took the pricing of the kid's meal to its regular price point of $3.99, plus we implemented a 2.7% overall menu increase in Good Times. So we anticipate we'll see sequential improvement in our second quarter cost of sales by somewhere between 1% and 1.25% on the cost of sales line.

So far in the second quarter, we have not been negatively impacted at all by the ramping up of value messages by our competitors, but we'll be monitoring that closely as we go to see if we need to respond. Our same-store sales trends at Good Times have remained really strong so far in the second quarter, and then we plan to return to television with our new all-natural spicy chicken fillet beginning in March.

As we've talked about before, due to the disproportionate increase in the labor costs in Colorado, we anticipate our pricing here will, during fiscal '18 and beyond, will be a little more aggressive than elsewhere for Bad Daddy's, with our primary goal of maintaining our guest traffic. As such, on January 1, we took price increases of approximately 3% in Colorado and 2% elsewhere at Bad Daddy's. And during the first quarter, we're still able to limit the Good Times labor impact to 40 basis points, and at Bad Daddy's we actually showed a decrease in total labor of about 50 basis points with the addition of the new stores outside of Colorado.

We anticipate we'll be able to maintain Good Times' and Bad Daddy's Colorado restaurant-level operating profitability with about a 3% to 3.5% price increase each year as we absorb the final 2 years of statutory wage increases, while our overall operating margin at Bad Daddy's should continue to improve as we open additional stores in the Southeast. It's really only the front of the house tipped employees at Bad Daddy's that are impacted by the statutory increases in Colorado, as we're paying similar back-of-the-house wages here as we are in other markets across the country simply due to supply and demand in the labor market. Good Times, just because of supply and demand, also is above the minimum wage so the statutory wages are not that impactful other than, again, on the front of the house, where they're very impactful on Bad Daddy's.

Our total revenues increased 37% to just under $23 million during the quarter, with the comp sales at Good Times marking the sixth consecutive quarter of sequential comp sales improvement, and we exceeded our guidance of just about 3% for the quarter.

Sales for Bad Daddy's for the quarter increased 58% versus last year to just under $15 million, and our restaurant-level operating profit increased to $2,355,000 or 15.7% as a percentage of sales as compared to the first quarter of last year when restaurant-level operating profit was 14.9% of sales.

As we've stated in our prior calls, on a current average volume of about $2.7 million our North Carolina stores have a restaurant-level operating profit of approximately 20%, and our new store stabilized sales target is an average volume of $2.5 million, with about a 17% restaurant operating profit. So the improvements we're seeing currently in operating margins in our first quarter, and we expect to see going forward, will continue to be favorably impacted by new stores being in states with a similar wage structure. That store-level model of $2.5 million continues to deliver about a 40% cash-on-cash return based on about a $1 million net investment in each store excluding the pre-open cost. We have seen some increase in our construction costs, but we've been able to keep our average net investment to just under that $1 million mark, yes, in each of the markets.

The strong restaurant sales at Good Times reflects the benefit of increased prices to $3.49 and $5.49 of our West Coast burger and combo as well as the strong traffic driven by the introduction of the expanded kid's menu at $3. We've more than doubled the incidence of kid's meals with the strong average check and overbuy associated with those transactions and those have remained elevated even after moving the product back to its regular non-promotional price of $3.99 on January 1.

We were benefited with unseasonably warm weather throughout the first quarter and a particularly mild December, when we were up double-digit, also contributed to the increased traffic. We're also again happy with our continued increases in Bad Daddy's same-store sales during the quarter of about 1.3%, excluding the negative impact of the Cherry Creek store. And as we've mentioned previously, we've got a number of menu and daypart initiatives in test at Bad Daddy's that we plan to roll out over the balance of the year, including a lower-priced lunch menu, expanded happy hour offerings, the Bad Ass Tuesday bar promotion, online ordering and a delivery test as well as ongoing menu refinement improvements to impact both the flavor profiles for the guest as well as back-of-the-house prep efficiencies.

We really intend to stay pretty focused on our menu at Bad Daddy's with unique taste profiles and appetizers, burgers, sandwiches and salads with our ongoing monthly chef's specials. I mentioned our class of 2017 Bad Daddy's stores opened so far and they continue to generate above-average sales, including a few with extraordinarily high initial sales during their honeymoon periods. But most of those are now settling into their stabilized sales trends, so we project them to maintain a slightly above-average volume throughout the fiscal 2018 year.

In addition to the 2 stores opened in North Carolina in early October, we opened our first Atlanta store on January 8, and we're maintaining our plan to open 6 additional stores in fiscal 2018, funded out of cash flow from operations and some additional senior debt, which Ryan will talk more about.

Our next store openings will be in Chattanooga, Greensboro, North Carolina, our sixth store in the Charlotte DMA, plus our second store in Greenville, South Carolina, and then our third and fourth stores in the Atlanta market. We've shifted around some of those opening schedules based on landlord delivery dates, but we're maintaining our guidance for sales and adjusted EBITDA that Ryan will review.

In addition to building North Carolina and Georgia markets out in 2019, we anticipate we'll have development in Nashville and additional stores in Oklahoma and South Carolina as well, allowing us to maintain the distribution and supervision efficiencies without any other new markets other than those.

Depending on our pace of growth beyond this year, we expect our total G&A expenses to continue to decline as a percentage of sales by about 1% this year and each year thereafter until we reach full our efficiencies. We also believe that we can achieve, as we've said before, about a 40% annual rate of growth in our adjusted EBITDA, not only as provided in our guidance for this fiscal 2018, but in the coming few years through our 3-pronged approach: number one, we believe we can sustain Good Times profitability with reasonable price increases, flat traffic and the disposition of a few underperforming stores; number 2, we also think we can maintain Bad Daddy's Colorado restaurant profitability with again about a 3% to 3.5% price increase and some further operating efficiencies that we're working on; and lastly, then obviously, by growing Bad Daddy's brand in Southwestern and Midwestern wage-friendly states.

I think it's really important to point out that excluding the Cherry Creek store, which is in its last year of its base lease term, we have a couple of longer option periods, but we have the option to get out of that store by the end of this year. We expect to generate over $3.3 million of restaurant-level cash flow from our Bad Daddy's Colorado assets this year. That represents over a 28% cash-on-cash store-level return on investment. And that includes a couple of the lower volume stores as well.

However, some of those stores are growing their top line sales by double digits. While that's not as robust as our store-level ROI in our Southeastern Bad Daddy's and our targeted 40% cash-on-cash return in the federal minimum wage states, it is still above average for our industry segment, and we believe, it's accretive to shareholder value. So we believe we can push the 40% rate of growth in adjusted EBITDA over the coming years, importantly, while maintaining a pretty conservative balance sheet with total debt kept under 2:1 net debt-to-EBITDA ratio.

Lastly, while there are always a number of smaller opportunities for improvement in our operating efficiencies that we're actively pursuing and our ops teams are focused on, and certainly, the front-of-the-house labor is a pressure point in Colorado, we believe, we're operating Bad Daddy's at a pretty high level of efficiency, most importantly, without compromising our core brands strengths and the value proposition for the guest. We define those as artfully created food, a bad ass bar and radical hospitality. Those are the 3 pillars that our ops teams are working around. While certain of the larger casual theme competitors are pushing hard on overall financial reengineering, and almost an opposing strategy of reducing labor hours, and ultimately, we believe the level of guest service and hospitality, we are committed to delivering on our promise of a truly differentiated full-service experience.

I think pricing power, over time, positioned as a more premium concept, will only come from executing that guest experience on our food, our hospitality and our guest engagement. And while the casual theme bar and grill segment moves towards value pricing, lower levels of service and what I believe to be further commoditization, we think Bad Daddy's opportunity really lies in providing that more unique, fully-customizable menu and a more personalized high-energy experience. And that's why, I think, we're growing our same-store sales consistently.

I think there's significant danger and risk in losing those very brand attributes that differentiate Bad Daddy's, if labor is squeezed too tightly, which is certainly the tendency with it being a pressure point. Relatively small decline in our same-store sales trend at either one of our brands can quickly wipe out any labor gains, and it's a much harder task to regain that top line momentum. So long-winded, that's where we're working diligently on optimizing efficiencies, but knowing that we'll naturally run a little higher labor cost in Colorado to execute Bad Daddy's the way it needs to be executed.

Strategically, in the near term, we plan to use the cash flow generated by the Good Times concept to complete a little bit more remodeling to support Bad Daddy's growth. We're working on improving Good Times' cash flow through the disposition of a few underperforming stores and then related overhead costs. As we open more Bad Daddy's through this year and next year, our G&A efficiencies that we currently have with Good Times become less impactful, and that'll allow us to evaluate alternatives to continue to either harvest its cash flow, monetize those assets or even grow the brand through franchising without a -- out of Colorado development.

Our total G&A is projected to be under 8% of sales this year while we grow the Bad Daddy's store base by approximately 30%. Longer term, we estimate we can sustain a 20% to 25% store growth rate with internally generated cash from operations once we have approximately 45 Bad Daddy's open.

So that's the overview of the first quarter. The initiatives we've got for this year. Ryan will provide a little bit more detail on our guidance and the financials for the first quarter.

Thanks, Boyd. At our Good Times brand, restaurant sales increased 10.7% from $6.875 million last year in the first quarter to just over $7.6 million in the current year, driven by 5.9% comps, which was better than our guidance, as Boyd mentioned. Fourth quarter traffic, as measured by check counts, increased by 3.7% at our comparable units. We have a year-over-year menu price increase of approximately 4.0%, with approximately 1.8% intended unfavorable mix shift into the West Coast Burger, which at this point last year had not been released yet and the promotionally priced kid's meal during the first quarter of this year.

Food and packaging costs at Good Times were 33.8% for the quarter, an increase of 1.6% versus last year's first quarter. At our Good Times concept, we did not see a substantial benefit from reductions in the beef market due to our all-natural product selection.

Additionally, high incidence of our kid's meal purchases was a primary contributor to the 0.4% increase on a sequential basis from the fourth quarter of fiscal '17. Meat costs for our all-natural product have started to ease during the second quarter.

Total labor cost at Good Times increased from 35.3% to -- rather increased to 35.3% from 34.9% for the quarter last year. This quarter index is higher in labor cost due to seasonally lower sales. The year-over-year increase was primarily driven by an increase in the average wage rate of approximately 8% to 9% for the quarter versus last year. This was due, again, to the extremely competitive labor market we continue to experience here in Colorado, and also as a byproduct of the statutory minimum wage increase in January of '17.

Restaurant-level operating profit, a non-GAAP measure at Good Times increased by $10,000 from the same quarter last year to just over $1 million. As a percent of sales, the restaurant-level operating margin declined 1.2% versus last year as a result of the higher cost of sales and labor, partially offset by lower occupancy and other restaurant operating costs.

As Boyd mentioned, we expect sequential improvement of between 1% and 1.2% in Good Times cost of sales from the price increase and normalized pricing of the kid's meal.

At Bad Daddy's, sales increased 58% versus last year from $9.5 million to just under $15 million for the quarter. This was due to the 8 new units opened since the end of last year's fiscal first quarter, resulting in nearly 100 more store weeks this quarter versus the same quarter last year.

We achieved positive 0.7% comps for the quarter, again, 1.3% excluding the impact from Cherry Creek. That was slightly lower than our guidance from the quarter -- from our guidance from last quarter of 1% to 2% comps, and a factor in that was Denver had its first snow since early October in the final week, and really, just before the weekend, the final weekend of the Christmas shopping season, which is a high indexing sales time for us. We estimate that, that reduced our comparable sales by about 0.3%. Additionally, as Boyd mentioned, we've seen some cannibalization, in particular, at 2 Charlotte restaurants since the opening of our Concord, North Carolina location in October. 14 Bad Daddy's restaurants were included in the comp base for the entire quarter, with our Colorado Springs store entering the comp base during the quarter.

Cost of sales at Bad Daddy's were 30.9% for the quarter, a decrease of 0.1% versus last year's first quarter, and a decrease sequentially over the previous quarter by 1.2%. During the quarter, we saw significant declines, particularly in beef, bacon and avocado, partially offset by elevated pricing on tomatoes.

Bad Daddy's labor costs decreased to 37.3% from 37.8% last year for the quarter. This decrease is due to a combination of leveraging increasing sales in our Colorado stores, and a mix of stores that is starting to shift away from Colorado, which is beginning to overtake the impact of the tight labor market and unfavorable statutory minimum wage in the Colorado locations. We additionally have been implementing measures to increase our operators' focus on managing hourly labor costs.

Overall restaurant-level profit, again, a non-GAAP measure, for Bad Daddy's was $2.355 million for the quarter or 15.7% as a percent of sales compared to $1.42 million or 14.9% last year, a net increase of $934,000 over last year, the result of improved margins throughout the restaurant level P&L.

The G&A expenses increased to $1.9 million during the quarter from $1.6 million in the same quarter last year, but declined as a percent of total revenues from 10.0% in quarter 1 of last year to 8.4% in this year's first quarter. Although we currently expect G&A spending to increase in dollar terms, we do anticipate that G&A expenses will continue to decline as a percentage of revenues throughout the rest of fiscal 2018 and beyond as we expand our base of restaurants.

Our net loss for the quarter was $583,000 versus a net loss of $633,000 last year in the first quarter. This $50,000 decrease was primarily due to increased restaurant-level operating profit from restaurants added since the first quarter of 2017, then partially offset by increased preopening, G&A, advertising and interest expense. Preopening expenses for the quarter were $577,000 compared with $351,000 in the same quarter of last year.

Our adjusted EBITDA for the first quarter of fiscal '18 increased 86% to $877,000 from $472,000 in the same quarter last year.

Subsequent to the end of the quarter, we did close one Good Times restaurant in Aurora, Colorado. This is a store that we recorded an impairment charge for at the end of fiscal 2018, and as such, we don't expect any significant write-offs of fixed assets. We may record a noncash charge in our fiscal second quarter to recognize the difference in our expected future sublease income from this property versus the expected future lease payments as is required by U.S. GAAP. At this time, we haven't completed the market analysis to be able to quantify whether that charge will be needed, or if so, whether it will be material. Take these comments in context with the note that we have not yet adopted the new lease accounting standard and still account for leases under the prior standard, which is ASC 840.

Still discussing this restaurant in Aurora, this restaurant's cash flow did not meaningfully contribute to the rent of the underlying property. And so while our guidance factors and reduced sales from this restaurant's closure, we do not expect the closure to have a negative impact on the company's cash flows; rather, we expect any material sublease income would improve the cash flow from this property versus that generated previously.

In the earnings release, we reiterated our guidance for fiscal 2018, with revenues of $100 million to $102 million and a revenue run rate at the end of fiscal 2018 of $109 million to $111 million. The revenue estimate includes same-store sales assumptions of 3.5% for Good Times in each of the remaining quarters of the year, and for Bad Daddy's, we are projecting comparable sales of 1.5%, 0.3% and 2% for -- in the second, third and fourth fiscal quarters respectively, with that third fiscal quarter including a 3-week closure of the original Bad Daddy's in Charlotte, North Carolina for remodel work. We've opened 3 Bad Daddy's restaurants so far this year and expect to open 6 additional restaurants during fiscal 2018, with one of those being a joint venture unit in which we own a controlling interest of just over 50%. We expect to open 2 units in the third fiscal quarter and 4 units in the final quarter of the year.

We also confirm our prior guidance of adjusted EBITDA in the range of $5.0 million to $5.5 million, and we project a fiscal year-end annualized EBITDA run rate of approximately $7 million. We expect approximately $7.7 million to $7.9 million in G&A expenses or about 7.8% of sales, including approximately $600,000 in noncash equity compensation expense. We also expect preopening expenses of approximately $2.5 million to $2.7 million and capital expenditures of between $9.5 million and $10 million. We continue to expect our year-end balance on our senior credit facility to be between $10.5 million and $11 million.

We finished the quarter with $3.3 million in cash and $4.8 million drawn against our $12 million credit line with Cadence Bank. Our internal target is to maintain a balance of between $3 million and $3.5 million of book cash, which provides a small layer of operating cushion above our $2.5 million minimum liquidity covenant with Cadence.

We believe our cash flow from existing units, coupled with our excess cash balance and our credit facility, will support our total CapEx needs related to new stores, minor remodels and recurring CapEx through the end of fiscal 2018. Now I'd like to turn the call back over to Boyd.

Thanks, Ryan. I'd like to, again, take the opportunity to thank our management and team members for all their hard work and commitment at both Good Times and Bad Daddy's, delivering on our brand promises, particularly given the daily challenges driven by the hyper-competitive labor market. We appreciate your time with us today. With that, operator, we will open the call for questions.

(Operator Instructions) Okay, and our first questioner today will be Jeremy Hamblin with Dougherty & Company.

This is actually David Burdick on for Jeremy. Congrats on the nice quarter, guys. On the Good Times side, so it seems like it's becoming a little more competitive on the promotional front. Can you just talk about maybe what you're seeing in that environment, and kind of, yes, what you're seeing out there? And if you have any additional promotional offerings in store for 2018?

No, it's a good question. And I made reference to the fact that so far, not only in first quarter, but even in -- so far in the second quarter after McDonald's launched their $1 $2 $3 value menu and everybody else is coming out with their new value propositions, we haven't seen any slowdown in traffic or our same-store sales. In fact, we're on about the same trend we were in first quarter. So -- and that's without us doing any discounting.

We've come off 2 sequential quarters of doing the West Coast Burger at $3 and $5 combo and then the $3 kid's meal. And right now, we have neither of those going. So we're going to watch things and see how it goes. If we started softening up material -- materially, we may go ahead and come back with the West Coast Combo. Particularly, that grows traffic nicely during the summer months and was very well received. It was a high, high-hit item on the menu and it remains as a good high-hit item. But if we don't have to we won't do that. So far, so good.

Okay, good deal. And just to verify. So on the guidance, the 6 additional units, is that excluding the new Atlanta January 8 unit?

Yes, that's correct. So the first -- the 2 that we opened in the first 2 weeks of October were kind of our last 2 for fiscal '17, but they lopped over into the first 2 weeks. And then our guidance had been 7 more for this year. So we've opened one of those 7, so we have 6 more to go.

Okay. And then are we still thinking 3 in Q3 and 3 in Q4? Did that shift at all?

Ryan mentioned we moved it, 2 in Q3 and 4 in Q4. We may be able to squeeze it 3 and 3, but right now, that's -- and again, that's just based on landlord delivery dates, but that's what we're estimating now. The leases are done, their -- the landlords are finishing their shell work and so -- and we're either fully permitted or finalizing our permitting. So as soon as they turn, we're ready to go, and it's taking us about 105 to 110 days to get a store built and open.

Okay. And then I'm not sure...

And again, David, I would -- the way I would kind of model those, the 2 that we have slated during the third quarter, we have kind of one near the beginning, one near the end. So I think if you use the midpoint of the quarter for those, you can kind of work towards that. And the same thing with the 4 that we have in the back quarter, I would say that they're generally in the second and third months of that quarter is kind of how they are laid out and how they're scheduled within the quarters themselves.

Okay, great. And then I'm not sure I caught it, but on the Cherry Creek location, I think you've spoke about construction being done in March? Could you just provide a little update for us, please?

Yes, the hotel is -- they're saying they are going to be done in March. We'll see whether that happens or not, and we still have the road in front of our store closed off one way. And if it's March or April, hopefully, that Milwaukee Street will reopen. We've got -- and we're obviously going to watch that very carefully. If we can tick up and get back to where we were preconstruction, the store was cash flowing nicely, and we'll exercise our option to extend that lease. If for some reason it doesn't, we do have an out on that and we can redeploy our FF&E assets out of that store into a new location and be out of that lease come January, about a year from now.

(Operator Instructions) And our next questioner will be Stephen Anderson with Maxim Group.

I wanted to follow-up on your comments on some of the commodity costs. You mentioned, beef, bacon and avocado prices coming down, but can you, at this time, provide any color as to your outlook for the rest of the year? And I have a follow-up question.

Sure. We've seen -- we saw some, particularly towards the middle of our first quarter, particularly on bacon, bacon had skyrocketed in the fourth -- third and fourth quarter. It came back and kind of normalized, same thing with beef. They have both been steady since then. The other big difference that we saw this first quarter was we had some spiking in produce costs, particularly avocados. Those were normalized by the middle of the first quarter. We anticipate a pretty steady market on beef and bacon and chicken for the balance of the year, our primary proteins. We don't anticipate any further huge declines, but we don't anticipate any big increases either. I think if we do get some declines, based on what's happening in the supply market and the grains market, that would be great, but we certainly don't have that baked in.

Stephen, when -- as you're thinking about that, for the Bad Daddy's concept, I think we have seen the declines that we're going to see. And so I think the first quarter gross margin at -- after a cost of sales level, is probably where we're going to be at for the balance of the year. I think there -- as we referenced, there's about a point, maybe 1.2% on the Good Times side at cost of sales level that we would expect to get in the remaining 3 quarters.

Now I have another question about the Cherry Creek location. I think we've spoken privately about there's some -- there's some other restaurants that had reopened a competitor's space, and I just wanted to see how much of an impact that's having at your Cherry Creek location.

Yes, it's hard to separate the construction stuff from the reopening of that store. Yes, there was kind of an iconic restaurant that has been there for decades, that a year ago, had a fire and was closed for a couple of months. They reopened, and so we're lapping that closed period. I don't know, quantifying it, it's probably maybe 5%, 5% to 10%, something like that. Again, as we come into the springtime and the hotel construction is done, we certainly expect to start exceeding prior year sales numbers.

Yes, and as I look at that, our average weekly sales really for the past -- really almost for the entire quarter and quarter to date has really moderated. We're not seeing weekly declines on a sequential basis on our average weekly sales at that restaurant. And so, kind of the comparable numbers is based upon what's happened last year. And as Boyd mentioned, I think, once the construction's finally over, hopefully, here in a month, month and a half, based on what we're being told, we'll be able to get a good read on that store's future prospects and what we might do there.

And our next questioner today will be Will Slabaugh with Stephens Inc.

I wanted to ask first about the new unit openings, that to your point, looks a little bit stronger than some of those in the recent past. Can you talk about what may be some of the differences that are leading to the improvement or anything else that you may be able to share about either site selection or other variables that could be making an impact?

Will, the 8 stores that we opened in all of '17 and early '18 are averaging above our system average. Some of those did have some big honeymoon periods but they've settled in and are still running higher. And the last store we opened in Colorado has been doing extraordinarily well, annualizing at 20%, 30% above our average and our target. So we've had a couple very high volume. The last store that we opened in the Charlotte market is also doing quite well.

I guess, there's nothing in particular that we've done differently other than we've kind of hit it from a site standpoint. The first store in Atlanta has opened very strong, not quite as high a level as those other 2. But really, it's just, I guess consistently, we've been having good openings on each one of the stores. We really haven't changed anything in terms of site selection or how we're opening the stores. I think we're just starting to see, some of that maybe in Colorado, maybe some brand building that is going on.

Same thing in North Carolina. Bad Daddy's obviously has a big reputation, so opening a fifth store in the Charlotte market, it opened with high awareness and high brand awareness. The last few we've opened in Colorado, same thing. Our brand awareness continues to build, and I think that's helping. I think our first store in Atlanta is a good location. We have been trying to be pretty active in the social media standpoint, and we're excited about the next 3 that we've got slated for Atlanta, because I think we'll see the same thing. As we build some brand awareness in these markets, each of the store openings continue to get better.

Great. And you mentioned discounting as obviously being a theme, been recurring and then, obviously, intensifying here to start the year. Good Times sounds like it's fighting it off pretty well, and I wanted to ask though about Bad Daddy's, given the discounting we've also seen in casual dining and then bar and grill in particular. Can you talk about how that brand has approached value, or if you felt like you've even had to really approach value that aggressively, and if looking forward, you feel like there's any additional need to do so?

To date, we have not, Will. I think our average check of about $18 a person is a step-up from the casual theme bar and grill segment. And one of the reasons we're doing the lunch menu test is to offer a lower price point at lunch particularly, but along with that, it's not just price point, it's portion size. We sell big food, with a full-size side coming with every big burger, and we're finding that some people want a little bit smaller portion at lunch, which enables us to offer some smaller price points as well. That's not really a value approach. We certainly do not want to get into the game of unlimited apps and 2 for $20s and $6.99 burgers and all the other things that are going on. So far, I think we've felt a little bit of that on the Bad Daddy's side competitively, but it's not been negatively impacting us very significantly.

Got you. And I wanted to follow up on a comment you made about the balance sheet. You touched on this and I'm wondering if you can go into more detail on your debt levels, and in particular, in terms of where your gross debt level may end up peaking out. Any sort of timing around that, when you'd hit a self-funding period for Bad Daddy's?

Yes, I think the comment that we had is that we're confident we can grow our EBITDA by about 40% a year, keeping our debt-to-equity under 2:1. We'll be at about that level at the end of this fiscal year, moving into our first quarter of 2019. And again, depending on our pace of growth and the gross number of stores for 2019, we anticipate we'll be able to keep it at that level or lower, but still growing our adjusted EBITDA by 40%-plus. So our covenants with our bank are on a fully-adjusted, lease-adjusted basis, but in -- just in terms of simple math, we think we can keep it under 2:1 and in the next couple of fiscal years, grow our EBITDA by 40%.

My comment on self-funding is that I think when we get to about 45 Bad Daddy's, we can continue to grow our store base at 20% to 25% without additional debt, meaning, just from internally generated cash. So if you took a look at it, growing our EBITDA to $10 million-plus and we're opening 8 to 10 stores a year, that would translate into very little debt added to the balance sheet.

I think in terms of, at what point in time our nominal debt level starts to peak, I think if you model what Boyd just said, that ends up being around the second -- somewhere near the end of the second quarter of fiscal 2020.

Got it. Thanks for that. And last thing I had was around alcohol mix and new Bad Daddy's that are opening up in new markets, what that looks like versus alcohol mix in some of your core markets. And then if it is different, what that might mean for cost of goods?

It's a good question. So we've opened our store in Oklahoma and our store in Atlanta. Outside of Colorado and North Carolina, North Carolina continues to run around 13% total bar mix. We're just shy of 20% in Colorado, and the new markets are hitting somewhere in between that, in the mid- to upper teens. So it's not terribly influential on total cost of goods. Our -- the Southeastern markets particularly tend to have a little higher alcohol cost just because of the tax environment, and 3-tier distribution versus 2-tier distribution states and such. They also have some more limitations on how much discounting we can do with happy hours and daily specials. They are more restrictive than what we see in Colorado. So that's going to naturally lend itself to a little bit lower mix, but not appreciably so.

I think as we continue to grow, we're going to continue to push. As I mentioned, we've got a new happy hour menu that's in test in Colorado right now. We've got a Bad Ass Tuesday bar promotion that we are going to be pretty aggressive on to get in nonpeak times to try and fill our restaurants. And so those should be positive impacts on our overall bar sales. But I anticipate the new markets, at least what we've seen so far in Atlanta and Oklahoma, will be in that mid- to upper teens.

(Operator Instructions) And our next questioner will be Brooks O'Neill with Lake Street Capital partners.

I think it was during Q1 that 2 of your directors resigned, at least one of whom is your largest shareholder. Could you amplify in any way what those guys were proposing and what your objections to their proposals were that led to their resignations?

Sure, Brooks. I can't speak to it very definitively without filing solicitation materials. They filed with their amended 13D their change in strategic direction for the company. We have not filed any solicitation materials and are hopeful that we can continue to work cooperatively towards resolution, which we're still cautiously optimistic that we can do. Again, I think you can read what they've proposed in terms of trying to improve near-term profitability and more of a franchising approach versus company-owned approach, is what they filed in their filing. We, unfortunately, can't speak to that without filing our own solicitation response. If we don't reach resolution soon, we certainly would anticipate doing so. But we are still working on resolution with them.

Sure. So obviously, the stock has had a bit of a poor performance over the last couple of years. Is it your belief that delivering the -- since the store growth that you're currently projecting is the answer to achieving better returns for investors?

I think there's 2 parts to that. There's our performance and, again, this year growing EBITDA 40%, and if we can continue to do so, we strongly believe that, that will, just on a fundamental basis, create tremendous value. I think the other half of that equation is making sure that there is visibility, and visibility for both existing and new investors, in terms of what that plan is. But we certainly believe that if you look at on any comparative valuation, on any peer multiples based on our growth and valuing us on our cash flow, we think that there -- in answer to your question, we think that, yes, that will build significant value.

And there look to be no further questions. So this will conclude our question-and-answer session. I would like to turn the conference back over to Boyd Hoback for any closing remarks.

Thanks, Will. Thanks again, everybody, for joining us today. Appreciate your questions and appreciate your support. Have a good day.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.