Good Times Restaurants Inc (NASDAQ:GTIM) Q4 2021 Earnings Call dated Dec. 16, 2021.
Corporate Participants:
Ryan M. Zink — Chief Executive Officer
Analysts:
Presentation:
Operator
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 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 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.
Ryan M. Zink — Chief Executive Officer
Thank you, Tamya. And thank you all for joining us on the call today. As Tamya mentioned, you should have access to our earnings release and our annual 10-K filing. You also should have access to a press release where we today announced the coming retirement of our Vice President of Operations and leader of Good Times brand Scott LeFever.
Scott has been with the company for nearly its entire existence and indeed was a — with a predecessor company to Good Times and eventual affiliate of Good Times a concept called Round the Corner. Scott has been integral to the development and growth of Good Times over the years and prior to my tenure with the company also assisted our former CEO in developing systems and processes. When the company opened its first Bad Daddy’s in Colorado. Scott has been especially valuable to me as I transitioned into this role two years ago and has been an important advisor to me over that period of time. I wish Scott, the best as he transitions to a new phase of his life. Also as announced in that release, we do have a candidate identified who we expect to join the company in early 2022, and ultimately expect to succeed Scott in the leadership role for the Good Times brand. We expect to make an announcement in the coming weeks with more information on this individual.
As we approach the two year mark of operating under the dynamics of the COVID-19 pandemic, it becomes somewhat easy to say that the ever changing nature of operating restaurants in this environment has become a new normal, but that’s certainly easier said than done. Our leaders have done a fantastic job of keeping their teams motivated through staffing and product shortages that have affected not just us, but most of the players in this industry. The strong same-store sales that we’ve reported at Bad Daddy’s are evidence of this — the impact strong operators can make to achieve results even in spite of challenging external pressures. Additionally, though, we have faced product shortages through planning and execution of our supply chain team, we’ve been able to limit those shortages to generally ancillary products and have always been able to serve our key products, our burgers and chicken sandwiches without compromising quality or accepting substandard alternatives.
We’ve also been generally successful at sufficiently hiring hourly team members to maintain normal operating hours. At Good Times in fully two thirds of the system we’ve maintained regular operating hours without any adjustment. And then the remainder of the system has limited any adjustments generally to closing an hour or two early without [Phonetic] suspending breakfast service. At Bad Daddy’s, we have had only isolated incidences during the most recent quarter and to the present where we modified our operating hours. In some cases, this is meant running extremely lean and extracting the highest level of performance out of our teams.
Regardless of the situation, at both brands, I celebrate the dedication and commitment, our general managers have made to operating their restaurants to their fullest potential. We have historically been successful at internal development of management at Good Times and we continue to see that being the case. We’ve expanded our direct hire of restaurant management staff to supplement reduced ability to hire non-management team members. And this has been effective for us. The opposite has been true at Bad Daddy’s, and we attribute this to some of our success this year. Two years ago, prior to the pandemic wreaking havoc on the — on our country and on our industry, we made a philosophical shift away from a nearly exclusive focus on direct hire of restaurant management teams to one where we would focus more on internal development of current, but qualified non-management team members who truly shared our values and passion for the business. And we’re now on a path to source more than half of our management needs from existing employees.
We’ve also been recently successful in attracting former managers who may have left for opportunities outside the industry back to Bad Daddy’s. In November, we launched new online ordering experiences for both brands. Bad Daddy’s had previously offered online ordering through its website by using Olo’s white label platform that many industry participants have also been using. Olo still serves as the engine behind our online ordering platform. However, the user experience for our guests has been custom developed to enhance usability.
At Good Times, we previously did not have any online ordering capabilities and leveraged the development work done for Bad Daddy’s to simultaneously launch this new ordering method at Good Times as well. We are also using Olo as the backend engine powering online ordering at Good Times, accompanying the development of these new ordering experiences we have developed and released iOS and Android mobile apps for both brands.
While at this point, the app offers online ordering and basic company information. These applications represent the beginnings of part of our strategy to further develop digital experiences with our brands as the pandemic has catalysed a shift in consumer behaviour towards a preference for digital optimized interaction with brands. Restaurant margins have been a recent topic within the industry and we have not been immune. Beef prices have stabilized somewhat in late calendar 2021, but remain significantly elevated over prior year as well as even just a few months back. Additionally, wage rates have increased meaningfully and in percentage terms we’ve experienced double-digit wage rate increases as we have raised wages to attract and retain sufficient staff to operate our restaurants at near normal operating hours.
We’ve made pricing adjustments and productivity improvements to mitigate some of the labor cost inflation, however, particularly at Bad Daddy’s where we’ve been more reserved in raising prices, we’ve experienced higher cost of food and beverage as a percent of sales. We opened our 39th company owned traditional Bad Daddy’s during September in Montgomery, Alabama. It posted opening week sales of approximately $90,000 and has continued to be top quartile in weekly sales as the traditional honeymoon period subsides. We’re actively working to fill a pipeline of new restaurants, however, as I’ve continuously expressed, we’ll have discipline in this regard and will not commit to leases where we are not comfortable that we will hit the opening numbers we’re looking for. We currently have one lease under active negotiations. That would be a first half of fiscal 2023 opening and various other sites for which we’re negotiating letters of intent.
Let’s review this quarter’s results. At Bad Daddy’s restaurant sales during the quarter were $24.5 million compared to $19.3 million during last year’s fourth quarter. We had approximately 15 more store weeks this quarter versus the same quarter last year, the result of the two new Bad Daddy’s opened during the year, one near the end of the quarter. As previously reported, same-store sales were 22.8% for the quarter. 37 Bad Daddy’s were in the comp base at the end of the quarter. Cost of sales at Bad Daddy’s was 31.1% for the quarter, a 230 basis point increase from last year’s quarter. The result of higher average input costs across most of our commodities offset by lower delivery mix, which carries a higher price, and that was partially offset by an average 2.4% price increase blended during the quarter.
Bad daddy’s labor costs increased by approximately 10 basis points compared to the prior year quarter to 34.3%. This year-over-year increase is primarily due to significantly higher wage rates than in the prior year, mostly offset by productivity improvements and leveraging of higher average unit volumes. Overall restaurant level operating profit, a non-GAAP measure for Bad Daddy’s was $3.7 million for the quarter or 15.0% of sales compared to $3.2 million or 17.1% of sales last year. This is due primarily to the impact of higher input costs on our cost sales partially offset by the fixed cost leverage created by higher sales.
Restaurant sales at Good Times decreased approximately $0.2 million to $8.8 million, driven by the reduced store weeks from one restaurant closure that occurred during the first quarter of this year. Food and packaging costs for Good Times were 28.5% for the quarter, a decrease of 260 basis points compared to last year’s quarter. Good Times had slightly elevated commodity costs offset by higher menu pricing and improvements in product waste and a blended 8% menu price increase during the quarter compared to the prior year.
Total labor costs at Good Times decreased 32.5% from 31.8% for the quarter last year. This is the result of higher average wage rates. Again, partially offset by menu price increases. Good Times restaurant level operating profit increased by $0.1 million for the quarter. As a percent of sales, the restaurant level operating profit increased by 140 basis points versus last year to 21.4% due primarily to lower cost of sales, partially offset by higher labor and other restaurant operating costs.
General and administrative expenses were $2.3 million during the quarter, 7.0% as a percent of total revenues. This represents an increase of approximately $0.9 million versus the prior year quarter. This quarter’s G&A expenses increased due to higher incentive compensation for multi-unit managers, excess claims costs on the company’s self-funded health plan and increased legal and accounting fees. Our net income attributable to common shareholders for the quarter was $1.3 million versus income of $1.5 million in the fourth quarter last year. Increased restaurant level operating profit was offset by higher general and administrative expenses for the quarter.
For the year, our net income to common shareholders was $16.8 million. Adjusted EBIDA for the year was no $9.6 million compared to $7.6 million in fiscal 2020. We finished the year with approximately $8.9 million in cash and no outstanding long-term debt. We have not provided explicit guidance for fiscal 2022 given uncertain inflation indicators at this time. We continue to see wage rates increase during October and November as we increased pay to successfully retain employees and to attract employees to adequately staff our restaurants. But we have noticed some moderate improvement in the labor market in December.
Our sales during the current quarter have also outpaced our initial expectations, with percentage comparisons against 2019 remaining in high single-digits for Bad Daddy’s and then compared to 2021 — compared to 2020 for Good Times, flat to slightly negative. Though, as expected, we’re seeing greater — somewhat greater declines in December as we laugh dining room closures from the prior year.
We expect margin compression on a year-over-year basis as input costs have increased and at Bad Daddy’s, we’ve been intentionally disciplined with respect to taking price increases. At Bad Daddy’s, our current pricing is 4.6% higher than it was at this same time last year and we expect to take another approximate 2% in January, which would place us at just over 6% price increase from the prior year in January.
At Good Times, our current pricing is approximately 6% higher than it was a year ago at this time. And we also expect to take some nominal additional price in January at that brand as well. While we’re still working diligently to pursue development opportunities, it is likely that new openings will occur in fiscal 2023 as we continue to be very disciplined in site selection. We’ve [Technical Issues] to our business and to our industry over the past two years. This business has constantly changing and requires a team that is dynamic and adaptable. I believe the team here at Good Times is one that has proven itself and will continue to adapt to the changing landscape of the future.
And with that Tamya, we’ll open the call for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] There are no questions waiting at this time. I will now turn the conference over to you Ryan for any closing remarks.
Ryan M. Zink — Chief Executive Officer
Thank you again, Tamya. 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 that they’ve tackled the challenges that have accompanied this long tail of the pandemic. Thank 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.
Operator
[Operator Closing Remarks]