Good Times Restaurants Inc.
Q1 2021 Earnings Call Transcript

Published: 5 Feb 2021

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Good Times Restaurants Inc. Fiscal 2021 First Quarter Earnings Call. 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. 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, including the risks related to the COVID-19 pandemic.

[Ryan Zink:]

Thank you, Chris and thank you all for joining us on the call today. I think I am in good company in wishing goodbye to calendar 2020. That said, despite the existential fear that gripped us about 10 months ago, I am both proud and humbled by our team’s ability to overcome the adversity of the calendar year 2020 to learn, adapt and operate our businesses profitably under the demands of our new reality. During our first fiscal quarter, we continued our trend of growing sales significantly at Good Times and preserving sales at Bad Daddy’s at greater rates than our competitors as measured by Knapp-Track, as well as laying the groundwork for the future of both of our brands. We experienced the closure of our Colorado dining rooms beginning in mid-November at Bad Daddy’s, and those dining rooms remained closed through the end of the quarter and into early January. We have prepared for that in September and October by investing in wind breaks and additional heaters for our outdoor patios and in some cases, separate tents with dedicated heating and lighting to expand our ability to serve our customers, making the bet that indoor dining would be severely capacity-restricted or even entirely closed off. That preparedness enabled us to preserve nearly 90% of prior year same-store sales for the concept despite dining room closures in almost a third of our Bad Daddy’s. We also saw the closure of dining rooms bolster traffic at Good Times as customers shifted from casual dining options to fast casual and QSR, and in particular, with a preference for drive-through, which is our niche at Good Times. We continue to recognize that we need to react to changes caused by the COVID-19 pandemic, but we are also preparing ourselves for a post-pandemic post-vaccine business environment. While we believe many guests who have so far avoided restaurant dining are anxious to enjoy a full-service restaurant experience, we also recognize that we must continue to stay flexible to meet our guests’ needs as we move into the post-pandemic world. We have watched as consumers have become more comfortable with QR code menus, delivery and carry out, and more than anything, digital interactions with brands. They value the convenience associated with digital ordering, self-payment and the ability to interact with restaurants in multiple different channels and formats. To support that convenience factor, we are developing mobile apps for both of our brands, through which we expect to offer order and payment capabilities as well as direct integration into our restaurant systems. This should reduce the friction of ordering associated with placing orders and provide a new ordering means at Good Times where our current digital ordering is limited to delivery service aggregators. And that we hope will significantly improve on the currently optimized user experience that we have with our mobile web interface at Bad Daddy’s.

[Operator:]

Our first question comes from Roger Lipton with Lipton Financial. Please go ahead, sir.

[Roger Lipton:]

Yes. Hi, good afternoon. Nice to talk to you guys. Good, impressive, impressive management of the problem, especially the lower payroll cost and cost of goods at Bad Daddy’s. Could you talk a little bit about the – at Bad Daddy’s off-premise versus in-store, maybe reflecting back on what it used to be and what it’s been running lately in off-premise and sort of including delivery, the delivery component?

[Ryan Zink:]

Yes, certainly. So I’ll probably speak – it’s best spoken of in terms of mix. And I would say, before the pandemic our total off-premise was roughly in the 12% to 15% of total sales. Now – and certainly, back in March, April and May, when most of our dining rooms were closed, that number went to 100%. And I would say more recently though what we have seen with all of the dining rooms open is that we’re still running approximately 35% to 40% total off-premise as a percent of total sales. And of that, roughly, just shy of, I’d say, 40% of that number then is delivery.

[Roger Lipton:]

Okay. And you – how do you do delivery, third-party?

[Ryan Zink:]

Yes. So we have a couple of ways for our customers to access delivery. One is we do use the aggregators. So we have partnerships with DoorDash, Grubhub, Postmates and soon to be Uber Eats. And that is one mechanism for our customers to access it. We also allow delivery through our website, and we then – but we don’t service that internally. It’s a little more economical for us than the customer if they do it through our website. And then through our partnership with Olo and their Rails product, we’re able to source delivery drivers through those same providers.

[Roger Lipton:]

Alright. And I think you made reference to the margins being affected by the third-party guys. Your net margins are lower on that.

[Ryan Zink:]

Yes, certainly. I mean, if you look at other restaurant operating costs as a percent of sales, those are both higher than the prior year. And a good chunk of that increase as a percent of sales is directly attributable to the delivery service fees.

[Roger Lipton:]

And lastly on this subject, is that extra cost decreasing as these guys compete with each other to get your business or was it…

[Ryan Zink:]

So what we are – I would say we spent – even before the pandemic, we spent a lot of time working with them to negotiate commission rates that could work with our economic model. I would say that competition hasn’t really driven improvements in the rates as much as regulation has. And we have seen in a couple of jurisdictions where we do business where rates have been capped at a ceiling of 15%. That, I would say, is less than 20% of our stores. But I somewhat envision that that will – we will see more of that throughout our markets and potentially throughout the rest of the country.

[Roger Lipton:]

Yes. I think so too. Alright, I will drop off for a sec. I will come back if – I’ll give somebody else a chance here. Thank you.

[Ryan Zink:]

Alright. Thanks, Roger.

[Roger Lipton:]

Okay.

[Operator:]

At this time we are showing no further questions in the queue. And I would like to turn the call over to Ryan again for any closing remarks.

[Ryan Zink:]

Thanks again, Chris. We’ve started this quarter with strength, even despite continued challenges in the operating environment. Our team continues to put forth great effort to anticipate changes, proactively adapt the business to demands from our customers as well as regulators. And each and every day I continue to be more impressed by what our team is able to accomplish. And I want to take this time to thank them all for their tireless efforts to improve our business. It’s very much appreciated. And with that, we will conclude today’s call. I thank you all for joining us today.

[Operator:]

Conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect.