Good Times Burgers investment thesis

Good Times Restaurants 1Q23 results

Introduction to Good Times Restaurants

Just before reporting its 1Q23 results, we published an investment thesis about Good Times Restaurants. $GTIM is a microcap in the US restaurant industry which owns two concepts of restaurants. The original Good Times Drive-Thru and Bad Daddy’s Burger Bar (fully acquired in 2015).

As explained in the thesis, we believe this is an interesting idea as they have changed the CEO, have zero debt, are buying back shares and producing positive cash flows. Also, this type of investment is clear proof of our investment philosophy in Moram, investing in sectors which have been very damaged by macro but we believe they are going to recover.

Good Times Restaurants 1Q23 Results

Good Times Restaurants (GTIM) released its financial results for 1Q23. The company reported a 1.5% increase in total revenues to $33.4 million compared to the same quarter in the previous year. Total restaurant sales for Bad Daddy’s restaurants were $25.2 million, while total restaurant sales for Good Times restaurants were $8.0 million. Same store sales for company-owned Bad Daddy’s restaurants increased 2.4% for the quarter, and same store sales for company-owned Good Times restaurants increased 3.0% for the quarter.

However, the company continued to face challenges with inflationary pressure, particularly at the Good Times brand, where the cost of sales increased significantly. This was primarily due to increases in beef costs, as well as increased costs for other products such as buns and burger toppings. To offset these increases, the company increased prices by 3.4% at the start of calendar 2023, which should partially offset the increases in the cost of sales and mitigate the impact of the eight percent minimum wage increase in Colorado.

Despite these challenges, GTIM reported an adjusted EBITDA of $0.7 million and ended the quarter with $6.9 million in cash and no long-term debt. The company also remains committed to investing in its Good Times brand and is on target with its signage replacement program, which is expected to replace all signage throughout the system by the end of fiscal 2024.

Subsequent to the end of the quarter, GTIM acquired all of the membership interests in five Bad Daddy’s that were previously jointly owned with individuals associated with the founder of the concept. This acquisition is expected to add $850k EBITDA per year in current conditions. Additionally, the company’s upcoming Huntsville location is nearing completion, and GTIM is targeting a late summer opening for the new Bad Daddy’s location.

Overall, while Good Times Restaurants faced challenges due to inflationary pressure, the company reported solid financial results for the first quarter of fiscal 2023. The acquisition of the Bad Daddy’s restaurants and the upcoming opening of a new location demonstrate the company’s commitment to investing in its brands and expanding its reach.

Our meeting with $GTIM CEO Ryan Zink

After 1Q23 results, we had the opportunity to speak with the CEO of Good Times Restaurants. He provided some insights into the company’s plans and priorities. One of the main topics discussed was the company’s ongoing share buyback program. The CEO mentioned that as they believe the share is heavily undervalued, buybacks are the best option now and they are using free cash flows to buy back shares. However, we asked about a potential extension of the current program and we believe that they will focus on unit growth if the share price recovers.

When asked about different options to put money to work, the CEO stated that they are not considering mergers and acquisitions at the moment. Instead, they prefer buybacks, and if the share prices climb enough, they will focus 100% on unit growth. He did mention that we can expect one new Bad Daddy’s restaurant this summer and two to three more in 2024.

Increasing same-store sales is a priority for Good Times Restaurants, and the company is planning to invest in the Good Burger Frozen Custard part of the business as they feel that Bad Daddy’s locations are in a better condition. Mr Zink also mentioned regarding the state of the labour market that while they are not witnessing wage reductions, the profile of candidates is improving, so he expects this to improve productivity.

Mr Zink also touched on the evolution of inflationary pressures on raw materials. He stated that while prices for some products, such as chicken, have gone down, others are still high. Distributors are still passing some of these higher prices on to the company, and he expects these prices to remain elevated until summer.

Our thoughts about Good Times Restaurants after 1Q23 results

$GTIM results show the difficulties that is facing the sector. Which we expect to last at least another couple of quarters. However, we like that Good Times Restaurants is taking a prudent approach with a clean balance sheet a fully aligned with shareholders. They continue producing positive free cash flow that they are using to buyback shares and the have acquired the remained ownership in five Bad Daddy restaurants where they have 100% now.

We liked Mr Zink and we believe that he is doing well with money allocation balancing the expansion of the business and the buyback program at depressed share prices. We believe that they are not going to get debt in the near future as there is no M&A appetite. As shareholders, we feel comfortable with the path that Good Times Restaurant is taking and we believe that our thesis will continue working in the coming months.

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As always, thank you for reading

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