Restaurant stocks are always popular with investors as there are many opportunities. A great player in this industry is Good Times Restaurants Inc. (GTIM, Financial). It posted mixed quarterly results, including a 19.58% increase in total revenues. During the quarter, the company opened one new Bad Daddy’s restaurant and one additional restaurant after the quarter ended.
Good Times Restaurants' reportable operating segments are:
- Good Times Burgers & Frozen Custard restaurants
- Bad Daddy's Burger Bar restaurants
Good Times Burgers & Frozen Custard is a regional quick-service restaurant chain located primarily in Colorado. It is focused on fresh, high-quality and all-natural products. The company sells burgers, sandwiches, french fries and soft drinks.
Bad Daddy's Burger Bar is a 20-unit full-service, upscale, chef-inspired restaurant concept. It serves signature burgers, salads, sandwiches, milkshakes and appetizers.
Mixed first-quarter results
On Feb. 9, the Golden, Colorado-based company reported its financial results for the first quarter ended Dec. 27, 2016. Total revenue increased 19.58% to $16.55 million from $13.84 million in the comparable prior-year period. Total restaurant sales increased 19.98% to $16.39 million from $13.66 million in the year-ago quarter.
Sales from Good Times Burgers & Frozen Custard restaurants decreased 1.15% to $6.87 million from $6.95 million in the comparable prior-year period. Further, sales from Bad Daddy's increased 41.73% to $9.51 million from $6.71 million in the same period the year before.
Good Times’ restaurant-level operating profit was $2.41 million, a 16.42% increase from $2.07 million in the year-ago quarter. Operating profit as a percentage of total restaurant sales decreased to 14.70% from 15.15% in the same period last year. Loss from operations and net loss for the reported quarter were $0.47 million and $0.49 million, compared to $0.93 million and $0.96 million in the year-ago quarter. The company’s basic and diluted loss per share for the reported quarter was five cents.
Good Times’ EBITDA was $0.11 million, compared to $0.67 million for the comparable prior-year period. Adjusted EBITDA increased 92.65% to $0.47 million from $0.24 million in the same period last year. Adjusted EBITDA as a percentage of total restaurant sales increased 2.87% from 1.76% in the same period last year.
General and administrative expenses for the reported quarter increased 1.86% to $1.64 million. On the other hand, net interest expense decreased 33.33% to $0.02 million.
Good Times’ ended the quarter with cash and cash equivalents of $3.52 million, a decrease of 44.39% from $6.33 million in the year-ago quarter. Long-term debt and net property and equipment for the reported quarter increased 18.75% to $6.08 million and 18.38% to $23.31 million from $5.12 million and $19.69 million in the comparable prior-year period.
Projections
For fiscal 2017, Good Times expects total revenue of approximately $78 million to $80 million and restaurant pre-opening expenses of approximately $3 million. General and administrative expenses and total adjusted EBITDA are expected in the range of $7 million to $7.2 million and $4 million to $4.5 million. Projected capital expenditures are approximately $12 million and include approximately $2 million related to fiscal 2018 development. Good Times expects fiscal year-end long-term debt of approximately $6 million. Additionally, Good Times plans to open eight or nine new Bad Daddy’s restaurants (including two joint venture units) and one new Good Times restaurant.
Strategy
To drive successful growth for Bad Daddy's, Good Times is concentrating on inner and outer-ring suburbs with lunch and dinner traffic. Further, the company plans to take market share through superior quality and service and to generate traffic through social media engagement. For 2017, Good Times plans to open nine to 11 new units and targets cash-on-cash returns of approximately 46%.
To attract more customers, the company is improving the guest experience by upgrading kitchen equipment and capacity. The company is enhancing its menu by providing a core burger lineup and all-day Green Chile Burritos. Further, the company plans to remodel its stores and has completed 15 out of 22 stores in fiscal 2016. It expects to remodel the remaining stores by fiscal 2018.
On a concluding note
Overall, Good Times is a rock-solid company with excellent cash-on-cash return models, two differentiated and complementary concepts, remarkable white space opportunities, flexible real estate models and an experienced management team.
From 2013 to 2016, Good Times’ total net revenue and adjusted EBITDA grew at a compound annual growth rate of 41.2% and 61.48%. With the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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