Good Times Restaurants Inc. (NASDAQ:GTIM) Q2 2025 Earnings Call Transcript

Good Times Restaurants Inc. (NASDAQ:GTIM) Q2 2025 Earnings Call Transcript May 8, 2025

Keri August: Good afternoon, ladies and gentlemen, and welcome to the Good Times Restaurants Inc. Fiscal 2025 Second Quarter Earnings Call. I am Keri 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 Investor 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. 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 to 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.

Other reports filed with the SEC. 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.

Ryan Zink: 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 have been aligning our menu and promotions to provide everyday value for our guests but 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.

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 Soto, 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. 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.

Q&A Session

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, 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. From a product perspective, we are making several changes to our products 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 new burger builds being complete in all restaurants by 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. 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 are 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, frozen custard. On the custard side, we continue to improve that product and have designed a new custard base that will launch 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 are 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. 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 am 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. 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 Margarita. And the return of the limited time Buria 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. Concurrent with the launch of this promotion, we have completely overhauled our beverage menu, headlined by the $8 all-day everyday price of that same badass margarita and supplemented by the introduction of zero-proof cocktails. I am 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 have 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 system. We believe there are some geographic specific factors affecting both brands in Colorado negatively. To that end, our marketing and advertising is shifting at Good Times, as we have concluded after a few months of testing changing lights of radio promotion that this medium has run its course with Good Times. Certainly, we will 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 are 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. 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 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. I will now turn the call over to Keri for a review of our performance during the quarter and some perspective on the company’s financial initiatives.

Keri August: Thank you, Ryan. I will now review this quarter’s results. We will start with Bad Daddy’s results. Total restaurant sales decreased $1.6 million to $24.8 million for the quarter. The sales decrease is primarily due to the fourth fiscal quarter 2024 closure of one Bad Daddy’s restaurant, reduced customer traffic, and a negative mix shift attributable to the success of our smashed patty burger, partially offset by menu price increases. Our average menu price during the quarter was 4.7% higher than Q2 of 2024. 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. Beef prices increased sequentially during the quarter and costs were significantly elevated over the prior year. Due to the continued tightening of beef supply, we anticipate ground beef costs will continue to increase throughout fiscal year 2025. Labor cost decreased by 40 basis points compared to the prior year quarter to 34.3%.

This decrease is primarily attributable to the decreased manager salaries 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 a percent of sales for the balance of fiscal 2025. Overall, restaurant level operating profit and non-GAAP measure for Bad Daddy’s was approximately $3.4 million for the quarter, or 13.6% of sales. Compared to $3.6 million or 13.6% last year. Due to solid cost controls throughout the quarter. Moving over to Good Times. Total restaurant sales for company-owned restaurants increased approximately $0.5 million to $9.3 million for the quarter, compared to the prior year second quarter. Same-store sales decreased 3.6% for the quarter ’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. 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. The benefit of any price increase. As is the case with Bad Daddy’s, based upon current commodity forecast, we expect ground beef cost to continue to increase throughout the remainder of fiscal year 2025.

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 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 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. 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 420 basis points versus last year to 8%. Due to elevated costs throughout the P and L. Combined general and administrative expenses were $2.6 million during the quarter or 7.5% of total revenues. Which increased 30 basis points from the prior year quarter. We expect to run between 6-7% general and administrative costs on a full year basis for fiscal 2025.

Our net loss to common shareholders for the quarter was $600,000 or loss of $0.06 per share, versus net income of $600,000 or $0.06 per share in the second quarter last year. There was income tax expense of approximately $100,000 reported during the quarter. Versus an income tax benefit of $100,000 in the prior year quarter. Adjusted EBITDA for the quarter was $1 million compared to $1.5 million for the second quarter of 2024. We finished the quarter with $2.7 million in cash, $2.6 million of long-term debt. 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.

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, well as our newly remodeled patio at our Norman, Oklahoma Bad Daddy’s restaurant. And now I will turn the call back to Ryan.

Ryan Zink: Thank you, Keri, for that commentary. Lisa, we can now open the call for any questions.

Operator: Thank you, sir. And, everyone, if you would like Once again, it is star one if you have a question, and we will pause for just a moment. At this time, no one has signaled. But, again, everyone, star one for questions. And, Ryan, there appear to be no questions today. I will hand the call back to you for any additional or closing remarks.

Ryan Zink: 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, Indeed, I have 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 discipline, 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.

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