Good Times Restaurants Q2 2025 Earnings Call Transcript

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May 8, 2025

There are 3 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Good Times Restaurants Inc. Fiscal twenty twenty five Second Quarter Earnings Call. I am Kerry August, the company's Senior Vice President of Finance and Accounting. 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.

Operator

These forward looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements involve known and unknown risks, which may cause the company's actual results to differ materially from results expressed or implied by the forward looking statements. 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 disruption to our business from pandemics and other public health emergencies, the impact of staffing constraints at our restaurants, the impact of supply chain constraints and inflation, 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 ingredient shortages general economic and operating conditions, risks associated with our share repurchase program, risks associated with the acquisition of additional restaurants, adequacy of cash flows and the cost and availability of capital or credit facility borrowings provide liquidity, changes in federal, state or local laws and regulations affecting our restaurants, including wage and tip credit regulations, and other matters discussed under the risk factors section of Good Times annual report on Form 10 k for the fiscal year ended 09/24/2024, and other reports filed with the SEC.

Operator

During today's call, we will discuss non GAAP measures, which we 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 our Chief Executive Officer, Ryan Zink.

Speaker 1

Thank you, Carrie, and thank you all for joining us today. Results during our second fiscal quarter were certainly disappointing for both brands with same store sales down slightly more than 3.5 points at each brand. Our results are indicative of the challenging operating environment as has been reported on by other concepts operating in our segments. We are seeing a much more value oriented customer, which is not surprising, and we've been aligning our menu and promotions to provide everyday value for our guests that we have not resorted to the types of deep discounting that we have seen, most specifically with our QSR competitors. With that as the backdrop for the quarter, I want to focus on our strategy for driving sales and long term profitability at both of our brands.

Speaker 1

At Good Times, we previously reported the departure of Mr. Stack, our Senior Vice President of Operations for this brand. Mr. Stack's tenure will end at the end of this month, though Craig So to, a longtime Regional Manager, has already been promoted to the newly created role of Director of Operations, and the transition of leadership is substantially complete. Craig brings to the role a long term history with the brand, including knowledge of what has worked and not worked previously, but with a drive for change and a true passion for the Good Times brand.

Speaker 1

While we have been remodeling our restaurants, our operations have not seen the same transformation. Craig's mission is to deliver upon his vision for improved kitchen execution, greater consistency and higher quality products, all underscored by the top grading of talent throughout the organization. Profitability at Good Times declined at a greater rate than did sales and this is due in part to the leveraging impact of the reduced sales, but further reduced by costs associated with implementing certain initiatives that I will discuss shortly. Labor costs in particular were higher than the year ago quarter and we expect labor costs to be higher into the third fiscal quarter as we continue to expect higher new and existing employee training costs. Labor productivity is not where it needs to be, but addressing labor productivity is a second tier priority compared to improving the quality of restaurant operations.

Speaker 1

From a product perspective, we are making several changes to our products as I have discussed on prior calls. During the quarter, we have tested and are now in the process of rolling out new burger builds across all of our restaurants, with these new burger builds being complete in all restaurants by the May. This new build has a change in lettuce procedure at its core with the move from full leaf lettuce to shredded lettuce. We executed the leaf lettuce procedure extremely poorly, and it led to a poor eating experience. But rather than buying pre shredded lettuce, we continue to bring in fresh whole produce and shred the lettuce by shift in restaurant.

Speaker 1

Further, we now have in test at one restaurant with a second one starting next week, a new burger process, where instead of cooking preformed patties, we're smashing patties with newer versions of our existing automated clamshell grills. This process will bring us closer to true cook to order, but with our differentiating factor being that we are able to maintain our current lane times, an important factor in a segment that prioritizes convenience and speed. Concurrent with this new patty test is the introduction of a new bun that is softer and more flavorful than our current hamburger bun. The purpose of these changes is not specifically to latch on to the smashed burger trend, but rather to improve the value perception of the product by increasing bun coverage and visibility of the beef, which has historically been underwhelming compared to our more premium competitors. We are also condensing our menu, eliminating several underperforming items with a focus of getting back to our core of burgers, fries and frozen custard.

Speaker 1

On the custard side, we continue to improve that product and have designed a new custard base that will launch this summer with greater vanilla flavor. We have already moved to much smaller batches of custard produced more frequently to deliver a smoother, creamier product. Most importantly, in June, we're launching an all new product on a limited time basis with the introduction of fried ice cream. This is a scoop of our frozen custard coated in a sugar and cinnamon seasoned crumble topped with whipped topping and a cherry. The team's intense study of our custard product over the past several months has revealed many changes made over the past fifteen years that have resulted in the deterioration of the quality of that product, including substitution of syrups for real fruit toppings, the elimination of certain toppings because of the difficulty of their operations and other choices made purely to reduce costs but at significant expense to the guest experience.

Speaker 1

Our vision is to undo many of these changes to deliver an exceptional sweet treat occasion opportunity for our guests. I will discuss our marketing program shortly. But first, with respect to Bad Daddy's operations, I'm pleased with our controls during the quarter, with profitability of Bad Daddy's much less affected by the reduced sales. In part, this has been delivered by menu engineering and the success of our Classic Smash and Steakhouse Smash menu items. In April, we launched our latest addition to this lineup called the Smash and Stack, which is a bacon double cheeseburger made with our aggressively smashed quarter pound patties.

Speaker 1

This menu item immediately rocketed to the fourth position in our product mix, exceeded only by our CYO burger, our Beatty's American Staple Cheeseburger and our Signature Bacon Cheeseburger on steroids. While we are only a couple of weeks into this new item, mix shift has been exactly as we modeled with it delivering better margin and cost percent compared to the items from where trade out is occurring. Additionally, on May 5, we ran a single day promotion with a deeply discounted $4 price point on our Badass Margherita and the return of the limited time Birria Burger. Cinco de Mayo is typically a soft day for our concept as certain of our guests choose to dine at Mexican themed restaurants. Our sales for Cinco this year were exceptionally strong, which we believe is due primarily to these promotions and the significant unpaid media exposure our PR team was able to generate for them.

Speaker 1

Concurrent with the launch of this promotion, we've completely overhauled our beverage menu, headlined by the $8 all day everyday price of that same Badass Margherita and supplemented by the introduction of Zero Proof cocktails. I'm excited about the traction we have gained here and looking forward to the results these changes will generate. Sales improved sequentially throughout the quarter at both brands, though April has also been softer for both brands. This seems to be heavily influenced by Colorado specific trends as we've seen marked differences in trends between the Colorado and non Colorado Bad Daddy's, with the Colorado Bad Daddy's sales performance more aligned with Good Times performance than the rest of the Bad Daddy's system. We believe there's some geographic specific factors affecting both brands in Colorado negatively.

Speaker 1

To that end, our marketing and advertising is shifting at Good Times as we have concluded after a few months of testing, changing weights of radio promotion that this medium has run its course with Good Times. Certainly, we'll be shifting spend into social and digital media, but we have also seen promising results with Connected TV and video streaming, which we have tested on a limited time basis at both brands and see its potential for driving traffic. Those tests began late in the second quarter and continue on into the third quarter. We expect to expand testing during this quarter. Further, we're exploring certain outdoor advertising opportunities in the Denver market with potential for both brands and are increasing our weight of spending on digital display and search advertising at both brands with certain customer data being used to target these buys with great precision.

Speaker 1

I expect to be able to report more information on these changes next quarter. Finally, in addition to the leadership change at the Good Times brand, our supply chain leader will be retiring at the end of the quarter, who will be replaced internally by a former Regional Director at Bad Daddy's. This benefits us by providing tightened leadership through fewer multiunit leaders of that brand, accompanied by the cost reduction associated with that. However, Dave Wallman, our new purchasing and supply chain leader, brings with him an extreme attention to detail with an impressive balance between bulldog negotiating skills and a partnership orientation that make him the perfect fit to succeed Nick Beagle in this role. I want to express my thanks to Nick for his multiple decades of service to our brands, and I wish him a truly fulfilling retirement.

Speaker 1

I'll now turn the call over to Cary for a review of our performance during the quarter and some perspective on the company's financial initiatives.

Operator

Thank you, Ryan. I'll now review this quarter's results. We'll start with Bad Daddy's results. Total restaurant sales decreased $1,600,000 to $24,800,000 for the quarter. The sales decrease is primarily due to the fourth fiscal quarter twenty twenty four closure of one Bad Daddy's restaurant, reduced customer traffic and a negative mix shift attributable to the success of our smashed patty burgers, partially offset by menu price increases.

Operator

Our average menu price during the quarter was 4.7% higher than Q2 of twenty twenty four. Although these menu price increases were targeted towards items with less price sensitivity and as just described offset by the introduction of the lower priced Classic Smash and Steakhouse Smash new menu items. Same store sales decreased 3.7% for the quarter with 39 Bad Daddy's in the comp base at quarter end. Food and beverage costs were 30.7% for the quarter, an increase of 30 basis points from last year's quarter. The increase is primarily attributable to higher purchase prices mainly in ground beef, although throughout the commodity basket compared to the prior year quarter, partially offset by the impact of a 4.7% increase in menu pricing.

Operator

Beef prices increased sequentially during the quarter and costs were significantly elevated over the prior year. Due to the continued tightening supply, we anticipate ground beef costs will continue to increase throughout fiscal year twenty twenty five. Labor costs decreased by 40 basis points compared to the prior year quarter to 34.3%. This decrease is primarily attributable to the decreased manager salaries and restaurant level incentive compensation, as well as the impact of a 4.7% increase in menu pricing. We expect to run similar labor costs to prior year as a percent of sales for the balance of fiscal twenty twenty five.

Operator

Overall restaurant level operating profit and non GAAP measure for Bad Daddy's was approximately $3,400,000 for the quarter or 13.6% of sales compared to $3,600,000 or 13.6% last year due to solid cost controls throughout the quarter. Moving over to Good Times. Total restaurant sales per company owned restaurants increased approximately $500,000 to $9,300,000 for the quarter compared to the prior year second quarter. Same store sales decreased 3.6% for the quarter with 27 Good Times restaurants in the comp base at quarter end. The average menu price for the quarter was the same as the prior year quarter.

Operator

Discounting activity continues in the QSR business and in particular the burger QSR segment. But recent pricing surveys have indicated that our most direct competitors in Colorado have begun to increase prices on non discounted items, potentially providing some flexibility for limited price increases during the last half of the fiscal year. Food and packaging costs were 30.7% for the quarter, an increase of 160 basis points compared to last year's quarter. The increase is primarily attributable to higher purchase prices on food and paper goods, primarily in ground beef costs compared to the prior year quarter, without the benefit of any price increase. As is the case with Bad Daddy's, based upon current commodity forecast, we expect ground beef costs to continue to increase throughout the remainder of fiscal year twenty twenty five.

Operator

After an extreme spike in the mid month of the quarter, the cost of eggs, which are a component of each of our breakfast entrees, has begun to decline, but prices are still well above prior year. Macroeconomic and political forces continue to cloud visibility into the magnitude and direction of commodities further into the future. Total labor cost increased to 35.6%, a 50 basis point increase from the 35.1% we ran during last year's quarter, mostly due to higher average wage rates resulting from market forces and the CPI index minimum wage in Denver in the state of Colorado, as well as decreased productivity resulting from the deleveraging impact of lower sales. This was partially offset by reduced restaurant level incentive compensation. Occupancy costs were 10.1%, an increase of 20 basis points from the prior year quarter, driven by the deleveraging impact of the sales decline on fixed costs.

Operator

Other operating costs were 15.7% for the quarter, an increase of 200 basis points, primarily due to increased repair and maintenance, utilities and technology related fees. Good Times restaurant level operating profit decreased by $300,000 for the quarter to $700,000 As a percent of sales, restaurant level operating profit decreased by four twenty basis points versus last year to 8% due to elevated costs throughout the P and L. Combined general and administrative expenses were $2,600,000 during the quarter or 7.5% of total revenues, which increased 30 basis points from the prior year quarter. We expect to run between 67% general and administrative costs on a full year basis for fiscal twenty twenty five. Our net loss to common shareholders for the quarter was $600,000 or a loss of $06 per share versus net income of $600,000 0 6 dollars per share in the second quarter last year.

Operator

There was income tax expense of approximately $100,000 recorded during the current quarter versus an income tax benefit of $100,000 in the prior year quarter. Adjusted EBITDA for the quarter was $1,000,000 compared to $1,500,000 for the second quarter of twenty twenty four. We finished the quarter with $2,700,000 in cash and $2,600,000 of long term debt. We repurchased 54,835 shares during the quarter under our share repurchase program. We have temporarily paused our share repurchases and will redirect cash flow toward cash accumulation and debt repayment as well as the Good Times restaurant remodels and signage for the remainder of the third quarter.

Operator

We continue to budget approximately 1% of sales for ongoing maintenance CapEx and we incurred 300,000 of CapEx during the second fiscal quarter related to our Good Times remodel and signage projects as well as our newly remodeled patio at our Norman, Oklahoma Bad Daddy's restaurant. And now I will turn the call back to Ryan.

Speaker 1

Thank you, Carrie, for that commentary. Lisa, we can now open the call for any questions.

Speaker 2

Thank you, sir. And Ryan, there appear to be no questions today. I'll hand the call back to you for any additional or closing remarks.

Speaker 1

Thank you, Lisa. I have to acknowledge that this was a tough quarter, and I expect that the operating environment in the third fiscal quarter will be equally challenging. Our team is focused on the right initiatives to drive long term sales, traffic and profitability gains. Improved execution and value perception, not just by price, but by quality and service at both brands reflects our focus on a guest first mindset and creating truly memorable guest experiences. We have extremely passionate leaders throughout our organization.

Speaker 1

Indeed, I've never seen a group of people so committed to their brands and to their team members. I sincerely thank all of these leaders and their team members for their disciplined work ethic and commitment to change for the benefit of our brands and for our guests. I also thank you all for joining us today.

Speaker 2

And once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

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Earnings Conference Call
Good Times Restaurants Q2 2025
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