Good Times Restaurants Inc. Q4 FY2021 Earnings Call

Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2021 Fourth Quarter Earnings Call. By now, everyone should have access to the Company's earnings release and 10-Q filing, which are 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 risks related to the COVID-19 pandemic. Lastly, during today's call, the Company will discuss non-GAAP measures, which they 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 Ryan. Please go ahead, sir.

Thank you, Tamia, and thank you all for being here today. As mentioned, you should have access to our earnings release and our annual 10-K filing, as well as a press release announcing the upcoming retirement of Mr. Scott LeFever, our Vice President of Operations and leader of the Good Times brand. Scott has been with the Company since its inception and also played a significant role at a predecessor company called Round the Corner. He has been essential to the growth and development of Good Times and was instrumental in developing systems and processes with our former CEO. Since I took on this role two years ago, Scott has been an invaluable advisor. I wish him the best as he embarks on a new chapter in his life. We have a candidate identified to succeed Scott, expected to join the Company in early 2022, and we will share more information about this individual in the coming weeks. As we near the two-year mark of operating under the COVID-19 pandemic, we recognize that the restaurant industry has had to adapt to a new normal. Our leaders have done a remarkable job keeping their teams motivated despite staffing and product shortages impacting the entire industry. The strong same-store sales we reported at Bad Daddies reflect the effectiveness of our operators in achieving results despite these challenges. While we faced product shortages, our supply chain team effectively managed these to limit the impacts primarily to non-essential products, maintaining the quality of our key offerings of burgers and chicken sandwiches. At Good Times, two-thirds of our locations have kept regular operating hours, with the remainder making only small adjustments, such as closing an hour or two early or suspending breakfast service. At Bad Daddies, we’ve had few instances this quarter where we altered operating hours, and our teams have been extremely productive. I commend our general managers for their dedication to maximizing restaurant performance. We've historically succeeded in promoting from within at Good Times and continue to see that trend. We’ve increased direct hiring of restaurant management staff to address our staffing needs, and this has proven effective. At Bad Daddies, our strategy of focusing on internal development of existing non-management team members has led to our success this year. Two years ago, we shifted our approach from solely hiring restaurant managers to developing current employees who align with our values and passion for the business, and we're on track to fill over half of our management needs from within. We’ve also welcomed back former managers who left the industry. In November, we launched new online ordering platforms for both brands. Bad Daddies previously used a white label online ordering service, but we've customized the user experience. Good Times, which previously lacked online ordering, has adopted the development work from Bad Daddies, and we are using the same backend for both brands. Alongside these enhancements, we’ve introduced iOS and Android mobile apps for both brands, beginning our strategy to enhance digital experiences. As consumer preferences shift towards digital interactions, restaurant margins have been discussed throughout the industry, and we are not immune to these pressures. Beef prices stabilized somewhat in late 2021, but they remain substantially higher than last year and even a few months ago. Wage rates have risen significantly, with double-digit increases in percentage terms as we raised wages to attract and retain staff to operate at near normal hours. We've implemented pricing adjustments and productivity improvements to counteract some of the labor cost inflation. Particularly at Bad Daddies, where we've been cautious about raising prices, food and beverage costs as a percentage of sales have risen. We opened our 39th Company-owned traditional Bad Daddies in September in Montgomery, Alabama, achieving opening week sales of about $90,000, which placed it in the top quartile as the initial honeymoon period waned. We are actively expanding our pipeline of new restaurants while maintaining discipline in site selection. We currently have one lease in active negotiations for a first-half fiscal 2023 opening, along with several sites in various stages of negotiation. Now, let's review the quarter's results at Bad Daddies. Restaurant sales reached $24.5 million this quarter, compared to $19.3 million in the same quarter last year, boosted by approximately 15 additional store weeks due to two new openings. Same-store sales grew by 22.8% for the quarter, with 37 Bad Daddies included in the comp base. Cost of sales for Bad Daddies was 31.1% for the quarter, up 230 basis points from last year due to higher input costs, although this was mitigated by a lower delivery mix and a 2.4% average price increase during the quarter. Bad Daddies' labor costs slightly increased to 34.3%, primarily due to higher wage rates, though offset by productivity improvements and higher average unit volumes. The overall restaurant-level operating profit for Bad Daddies was $3.7 million or 15.0% of sales, compared to $3.2 million or 17% last year, reflecting the impact of increased input costs on sales. Restaurant sales at Good Times decreased slightly to $8.8 million, primarily due to fewer store weeks resulting from one restaurant closure earlier this year. Food and packaging costs were 28.5%, down 260 basis points from last year, with slightly elevated commodity costs but offset by higher menu prices and an 8% price increase. Total labor costs at Good Times decreased to 32.5% from 31.8% last year, mainly due to higher wage rates offset by menu price increases. Restaurant-level operating profit at Good Times rose by $0.1 million for the quarter, with the operating profit percentage increasing to 21.4%. General and Administrative expenses were $2.3 million for the quarter, representing 7.0% of total revenues and up by approximately $0.9 million from the prior year due to increased incentives for multi-unit managers and higher claims costs. Our net income attributable to common shareholders for the quarter was $1.3 million, down from $1.5 million in last year's fourth quarter due to increased general and administrative expenses. For the year, our net income to common shareholders was $16.8 million, with adjusted EBITDA of $9.6 million compared to $7.6 million in fiscal 2020. We ended the year with around $8.9 million in cash and no long-term debt. We have not provided specific guidance for fiscal 2022 due to uncertain inflation indicators. Wage rates continued to increase in October and November as we raised pay to retain and attract staff. However, we've seen some improvement in the labor market in December, and our sales have exceeded initial expectations, with Bad Daddies maintaining high single-digit comparisons against 2019 sales. Compared to 2020 at Good Times, our performance has been flat to slightly negative, with greater declines in December as we face comparatives from last year’s dining room closures. We anticipate margin compression year-over-year due to rising input costs, and at Bad Daddies, we've been careful with price increases. Current pricing is 4.6% higher than last year, with another approximate 2% increase planned for January. Pricing at Good Times is about 6% higher than last year, with additional nominal increases expected in January. While we diligently pursue development opportunities, new openings will likely occur in fiscal 2023 as we are careful with site selection. We have thrived in our business and the industry over the past two years amid constant change, and our team at Good Times has demonstrated its ability to adapt to the evolving landscape. We'll now open the call for questions.

Ryan Zink: Thank you again, Tamia. We're pleased with the results for fiscal 2021. And it goes without saying that these results have been driven by the hard work by our restaurant teams. If they've tackled the challenges that have accompanied this long tail of the pandemic, you again, to all of our employees, but especially to our restaurant management teams who each and every day execute our two brands. With that, we will conclude today's call. Thank you all for joining us today. That concludes the conference.