Good Times Restaurants Inc.
Q4 2019 Earnings Call Transcript

Published: 12 Dec 2019

[Operator:]

Good afternoon ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2019 Fourth Quarter Earnings Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. By now, everyone should have access to the company's fourth quarter earnings release. If not, it can be found at www.goodtimesburgers.com in the Investors section. 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.

[Ryan Zink:]

Thank you, Ben and thanks everyone for joining us on the call today. I will begin with a high-level summary of the business and then review the financial performance for the quarter. We opened two new Bad Daddy's Burger Bars during the fourth fiscal quarter one in a suburb of Nashville, Tennessee and one in Huntsville, Alabama, our first bad Daddy's in each of those DMAs. In October, we opened our first Bad Daddy's in Greater Charleston, South Carolina. And just this past Monday, we opened our first in Columbia, South Carolina, bringing our total restaurants in South Carolina to four including our one franchisee owned bad Daddy's Burger Bar. All four opened and are currently performing at sales volumes at or above our seasonally adjusted targets for $2.5 million restaurant. Comparable sales for Bad Daddy's decreased 1.3% for the quarter and 0.2% for the year. Our Good Times Drive-Thru posted 7.2% comparable sales growth for the quarter, bringing the net decline of same-store sales for the year to 0.4%. We rolled out DoorDash in our final four Bad Daddy's at the end of the fourth quarter and with such have rolled out DoorDash delivery in all of our restaurants. We have seen moderation in growth in delivery sales, but generally continue to see strong -- see growth in both delivery and total off-premise sales. Shortly after the end of the year, we rolled out three new products at Bad Daddy's, our California Chicken, which is an elevated grilled chicken sandwich with jalapeno, bacon, avocado, and house-made mango salsa; the Bistro Burger made with Applewood smoked bacon, smoked -- grilled onion, arugula, and house-made chipotle avocado crema; and finally, our Pastrami Burger with both our Angus beef patty and Boar's Head thinly sliced Pastrami, Swiss cheese, pickled jalapenos, arugula, and our house-made Bad Daddy's sauce.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Will Slabaugh with Stephens. Please go ahead.

[Sean Cuskley:]

Hey guys. It's actually Sean on for Will. Thanks for taking the questions. First could you give us some more color on Bad Daddy's and Good Times' sales trends throughout the quarter? Any color on the quarter-to-date update would be great for October, November?

[Ryan Zink:]

Sure. So for the quarter that just ended, I mean the trends I would say were fairly consistent throughout the quarter, if anything, they grew slightly stronger towards the end of the quarter at Good Times. At Bad Daddy's in the quarter-to-date, I would say we're the same to slightly worse at the holiday -- the impact of the shift of the holiday Thanksgiving reducing the number of weekends between Thanksgiving and Christmas will have -- will definitely have a downward impact on this first quarter for us.

[Sean Cuskley:]

Awesome. Thank you. And then you did mention the back of the house improvements at Bad Daddy’s and I guess at Good Times some drive-thru improvements. Can you give us any more detail on those? And what impact they might actually be having on mitigating rising labor costs?

[Ryan Zink:]

Yes. So, I think most of these would be as I characterize these, we'd be implementing these probably beginning Q2. But what I'd say on the Good Times side is our drive-thru throughput initiative is really focused on improving the speed of service for our drive-thru customers. And we're doing that through a combination of very carefully looking at menu items that are low-performing and may take very long to prepare as well as looking at some process changes within the unit that will enable us to service our customers much more quickly. And on the Bad Daddy's side, I think there's a couple of things related to labor that we highlight. I think the most important one is we did reach what I'd say is kind of full management staffing based on our prior management staffing models. And I think we've taken a look at our staffing models and compare that against other staffing models for similar concepts in the industry. And we think that maybe the allocation between the staffing level for managers and the staffing level for hourly employed needs tweaked a bit. And so I think I would say that that's one of the biggest ways that we're looking at combating labor costs. I think in terms of labor, I would say our data shows that we've done a pretty good job in terms of rate management, but our opportunities lie more in the allocation of labor between management and hourly workers as well as just looking at overall productivity.

[Sean Cuskley:]

Awesome. Thank you.

[Operator:]

Our next question comes from Stephen Anderson with Maxim Group. Please go ahead.

[Stephen Anderson:]

Yes, good afternoon. First of all, I wanted to tackle the new unit development question. A couple of quarters ago, the last time you had a conference call, you mentioned the potential for franchise development for Bad Daddy's in markets that are -- say they're adjacent to some of your existing company-owned markets. I just wanted to ask about the progress about that. And I have a follow-up.

[Ryan Zink:]

Sure, Stephen. It's an excellent question. And we did comment that we prepared our franchise disclosure document. We do have all intent to keep that current. I would tell you that in terms of marketing the concept right now, we want to really focus on the initiatives that we have around kind of tightening up the operations at the restaurant level before we go out to actively market that. But long term, I would say, our vision still likely hold franchise development as an opportunity for us.

[Stephen Anderson:]

Okay. Now, have you looked at also any kind of value realization from separating the Good Times from the Bad Daddy's operations?

[Ryan Zink:]

I think, we have commented on that before. And I think my comments related to that would basically be the same as what we've said before and that is, as it relates to that concept, we are always looking at the way we can best create value from that concept, whether that be by holding it and operating it, or whether that might be by looking at divesting that in some form. We have no active process to look at that. However, I guess, again, long term we continue to look at that as having multiple different options in which we could unlock the value from it.

[Stephen Anderson:]

Okay. I also wanted to -- you mentioned also on food costs as well, are you looking at mostly flat inflation, is that going to be for both concepts? And I just wanted you maybe drill down a little bit more what you're looking at in terms of that?

[Ryan Zink:]

Yes. I think, from -- on the Good Times side, I think, from where we're at in Q4, we would expect to be able to maintain rather flat cost of sales for Good Times. And I actually think for Bad Daddy's, we'd be able to maintain rather flat based on where we're at as well. I think the model has some inflationary creep in there for commodities. However, I think, we will be able to temper that through our expected menu pricing. But also on the Bad Daddy's side, we think there's some opportunities through menu engineering and just menu mix management that we'll be able to maintain that rather flat.

[Stephen Anderson:]

Okay. Now, with regard to the comp at Good Times, you did realize some menu price increases. But can we get a sense of what traffic was for them?

[Ryan Zink:]

For Good Times specifically?

[Stephen Anderson:]

For Good Times, but also for Bad Daddy's as well.

[Ryan Zink:]

We were sitting on, for the quarter, roughly 4.5% price. And so, I didn't break out mix entirely separately for either concept. But between traffic and mix, I would say, at Good Times, we were up 1.5%, maybe a little bit better than that in terms of combined traffic and mix. And then, at Bad Daddy's, we were sitting on approximately -- for the quarter, sitting on approximately 1.6%. And so, that would imply about a 3% decline in traffic. I would not expect there have been much mix shift at Bad Daddy's.

[Stephen Anderson:]

Okay. And with regards -- an overall past quarters, we've -- you've actually done a good job of pointing out some of the discrepancies or any changes to look at with regard to the Cherry Creek couple of years ago having traffic issues there. And I think in the prior quarter having a high-volume unit closed. But is there any other issues we should be aware of at any of the Bad Daddy's locations?

[Ryan Zink:]

I mean, Cherry Creek continues to -- it is through the quarter, it performed well relative to sales. Cherry Creek has also been one of the locations where we've seen some of the strongest labor inflation. And so from a unit profitability standpoint that location has continued to be a challenge. Generally in the release and in the comments we spoke about three different restaurants that we recorded impairment charges for. What I would say relative to those as we -- all of them at least contribute to rent. Most of them with I'd say Cherry Creek being the only exception are breakeven or slightly negative cash flow. And so our immediate plans are really to look at are there ways we can improve the business to generate cash flow out of those? And, kind of, being rather new in this particular role, I am assessing and doing my own assessment of each individual site and making some judgments on what the right future path might be for each of those.

[Stephen Anderson:]

That’s fair enough response. Thank you and good luck on your new role.

[Ryan Zink:]

Thanks, Stephen.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Ryan zinc for any closing remarks.

[Ryan Zink:]

Thanks, Ben. With no further questions that will conclude today's call. I'd like to thank all of you for joining us today.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.