8-K: Good Times Restaurants Reports Disappointing Fiscal 2025 Second Quarter Results

Good Times Restaurants Inc. reports a decrease in total revenues and same-store sales for the fiscal 2025 second quarter, with a net loss attributable to common shareholders.

Summary

• Good Times Restaurants Inc. reported its financial results for the second quarter of fiscal year 2025.
• Total revenues decreased by 3.3% to $34.3 million compared to the same quarter in fiscal year 2024.
• Same-store sales decreased by 3.7% for Bad Daddys and 3.6% for Good Times restaurants.
• The net loss attributable to common shareholders was $0.6 million for the quarter.
• Adjusted EBITDA was $1.0 million for the quarter.
• The company ended the quarter with $2.7 million in cash and $2.6 million in long-term debt.
• Good Times Restaurants repurchased 54,835 shares of its common stock during the quarter.
• The company is experimenting with a side-included pricing model and streaming video advertising.
• Two-thirds of the restaurant system has been remodeled, with the remainder expected to be completed during fiscal 2026.

Sentiment

Score: 4

Explanation: The report highlights disappointing financial results, including decreased revenues and same-store sales, and a net loss. While there are some positive aspects, the overall tone is negative due to the financial underperformance.

Positives

• Restaurant Level Operating Profit margin at Bad Daddys matched the prior year at 13.6% despite lower average unit volumes.
• The company is experimenting with a side-included pricing model with strong initial results.
• The company is expanding advertising during the remainder of the June quarter as it continues to evaluate the effectiveness of streaming video and connected TV media for the Bad Daddys brand.
• The company is making great progress in its remodel program, with two-thirds of the system remodeled.
• The company has filled the purchasing leader role internally with a product and operations expert.
• The company is redirecting cash flow into cash accumulation and repayment of debt to maintain balance sheet strength through greater liquidity.

Negatives

• Total revenues for the quarter decreased 3.3% to $34.3 million compared to the fiscal 2024 second quarter.
• Same-store sales for company-owned Bad Daddys restaurants decreased 3.7% and Good Times restaurants decreased 3.6%.
• Net loss attributable to common shareholders was $0.6 million for the quarter.
• Good Times performance during the quarter experienced both sales declines and margin compression, most notably due to the continued discounting by competitors.
• Radio advertising has proven less effective than it has in the past.

Risks

• The company faces risks related to the market price of its stock, investment opportunities, pandemics, staffing constraints, supply chain constraints, and the inflationary environment.
• Uncertainties exist regarding restaurant development plans, delays in opening new restaurants, increased competition, and cost increases in raw food products.
• The company's performance is subject to changes in federal, state, or local laws and regulations, including minimum wage and tip credit regulations.

Future Outlook

The company is re-evaluating its media mix, experimenting with streaming video and connected TV media, and continuing to remodel restaurants. They expect to roll out a side-included pricing model to all stores prior to the end of the June quarter and expect the remaining remodels to be completed during fiscal 2026.

Management Comments

• The second fiscal quarter was disappointing, though sales improved sequentially throughout the quarter.
• I am impressed with our ability to control costs at our Bad Daddys brand as our 13.6% Restaurant Level Operating Profit margin matched the prior year despite the deleveraging pressure of lower average unit volumes.
• Good Times performance during the quarter experienced both sales declines and margin compression, most notably due to the continued discounting by our competitors.
• We are making great progress in our remodel program, with two-thirds of the system remodeled.
• From a capital deployment perspective, we have temporarily paused repurchases under our share repurchase program and are redirecting cash flow into cash accumulation and repayment of debt to maintain balance sheet strength through greater liquidity.

Industry Context

The restaurant industry is facing challenges such as increased competition, cost increases in raw food products, and changing consumer preferences. Good Times Restaurants is adapting by re-evaluating its media mix, experimenting with new advertising channels, and remodeling its restaurants.

Comparison to Industry Standards

• The company's same-store sales decline is worse than the industry average, which has seen modest growth in some segments.
• Comparable companies like Wendy's and McDonald's have invested heavily in technology and digital ordering, which Good Times is only beginning to explore.
• Restaurant-level operating profit margins are lower than industry leaders such as Chipotle, which boasts margins above 20%.

Management Changes

Stakeholder Impact

• Shareholders may be concerned about the decreased revenues, same-store sales, and net loss.
• Employees may be affected by changes in operations and leadership.
• Customers may experience changes in menu and pricing.
• Suppliers may be impacted by changes in purchasing leadership and menu review.
• Creditors may be affected by the company's focus on debt repayment.

Next Steps

• The company will continue to remodel its restaurants during the balance of this year and expects those to be remodeled during fiscal 2026.
• The company will continue to evaluate the effectiveness of streaming video and connected TV media for the Bad Daddys brand.
• The company will roll out a side-included pricing model to all stores prior to the end of the June quarter.
• The company will improve restaurant-level execution, delivering a higher quality and more consistent product and guest experience; and improving restaurant-level profitability.
• The company will review its entire menu, examining modern relevance, operations effectiveness, and profitability of each menu category and menu item.

Key Dates

Keywords

Good Times Restaurants, Bad Daddys Burger Bar, Good Times Burgers & Frozen Custard, Financial Results, Same Store Sales, EBITDA, Restaurant Industry