Good Instances Eating places, Inc. (NASDAQ:GTIM) This fall 2022 Earnings Convention Name December 15, 2022 5:00 PM ET
Firm Contributors
Ryan Zink – President & CEO
Matthew Karnes – SVP, Finance
Convention Name Contributors
Operator
Good afternoon, women and gents. Welcome to the Good Instances Eating places Inc. Fiscal 2022 Fourth Quarter Earnings Name. By now, everybody ought to have entry to the corporate’s earnings launch, which is out there within the Buyers part of the corporate’s web site. As a reminder, part of as we speak’s dialogue will embrace forward-looking statements inside the that means of federal securities regulation.
These forward-looking statements aren’t ensures of future efficiency, and subsequently, you shouldn’t put undue reliance on them. These statements are additionally topic to quite a few dangers and uncertainties that might trigger precise outcomes to vary materially from what we count on, and subsequently, buyers shouldn’t place undue reliance on them. And the corporate undertakes no obligation to replace these statements to mirror the occasions or circumstances which may come up after this name.
Such dangers and uncertainties embrace, amongst different issues, the market worth of the corporate’s inventory prevailing infrequently, the character of different funding alternatives introduced to the corporate, the corporate’s monetary efficiency and its money flows from the operations, basic financial situations, which might adversely have an effect on the corporate’s outcomes of operations and money flows.
These dangers additionally embrace such elements as a disruption to our enterprise from the COVID-19 pandemic and the affect of the pandemic on outcomes of operations, monetary situation and prospects, which can range relying on the length and extent of the pandemic and the affect of federal, state and native governmental actions and buyer conduct in response to the pandemic; the affect and length of staffing constraints at our eating places; the unsure nature of present restaurant improvement plans and the flexibility to implement these plans and combine new eating places; delays in growing and opening new eating places due to climate, native allowing and different causes; elevated competitors; value will increase or shortages in uncooked meals merchandise; provide chain and inflationary elements as a result of unknown impacts of the struggle in Ukraine; and different issues mentioned below the Threat Elements part of Good Instances’ annual report on Type 10-Okay for fiscal 12 months ended September 27, 2022, filed with the SEC and different filings with the SEC.
Throughout as we speak’s name, the corporate will focus on non-GAAP measures, which they consider could be helpful in evaluating our efficiency. The presentation of this extra data shouldn’t be thought-about in isolation or as an alternative choice to outcomes ready in accordance with GAAP and reconciliation to comparable GAAP measures accessible in our earnings launch. And now I wish to flip the decision over to Ryan. Please go forward, sir.
Ryan Zink
Thanks, Emma, and thanks all for becoming a member of us on the decision as we speak. As talked about, you need to have entry to our earnings launch and our annual 10-Okay submitting. We’re thrilled to have grown same-store gross sales at each manufacturers this 12 months whereas navigating continued labor and product shortages, rising value of products and the unsure nature of client conduct in a extremely inflationary atmosphere.
This 12 months represents a file gross sales 12 months for Unhealthy Daddy’s within the third consecutive 12 months in 10 of the final 11 years with progress in same-store gross sales at Good Instances. As with prior quarters, we stay displeased with the corporate’s profitability this 12 months. Nevertheless, our excessive requirements forestall us from compromising on product high quality or making different selections that might drive elevated profitability within the brief time period on the expense of buyer satisfaction and loyalty, which we all know are an important drivers of the long-term profitability and success of each of our ideas.
Our focus this 12 months has been on natural progress and buyer site visitors from our present restaurant footprint. And our investments this 12 months have mirrored that mission. Final November, we launched new on-line ordering experiences at each manufacturers, together with a refreshed net expertise at Unhealthy Daddy’s, the introduction of on-line ordering for the primary time at Good Instances and the discharge of cell apps at each manufacturers.
Gross sales via this platform proceed to extend. Digital gross sales for which we embrace orders not simply via our personal platforms, however via our supply companions, exceeded 10% for the Good Instances idea throughout the fourth quarter. At Good Instances, our digital gross sales lean closely on orders originating via our supply companions. And our purpose for 2023 is to start shifting these into our native platforms and additional direct site visitors to direct digital, rising our app and web-originated orders.
Shortly after the tip of the fiscal 12 months, we accomplished the set up of digital menu boards and fashionable lane timers in any respect of our company-operated Good Instances eating places. And earlier than the tip of the fiscal second quarter, we count on all however 2 of our Colorado-franchised eating places to have put in the brand new menu board, that are a important a part of the modernization of the Good Instances model.
We lately accomplished the primary set up of our new signage bundle at Good Instances, and we count on to finish a minimum of 1/3 of the system this 12 months. Again in late 2019, we lowered the menu at Good Instances whereas nonetheless sustaining a compelling number of merchandise to enhance our kitchen effectivity and our order accuracy. Although we proceed to characteristic our seasonal and month-to-month burger and examined flavors, the dedication to a targeted menu in the end stays.
We proceed to optimize the menu with a twin focus of bettering labor effectivity to offset rising labor prices, but in addition delivering higher product to our clients by serving brisker and warmer burgers and fries at the next pace than our opponents. We’re extraordinarily impressed not solely with our gross sales progress at Unhealthy Daddy’s, however on the buyer retention and site visitors counts, with 3.7% same-store gross sales and solely 5.7% common worth throughout the quarter. The implied 2% site visitors erosion is considerably higher than the informal eating benchmark as measured by Black Field Intelligence.
At Unhealthy Daddy’s, digital gross sales make up about 23% of our gross sales, and whole off-premises gross sales are roughly 27% of our restaurant gross sales. Gross sales via third-party aggregators have been surprisingly constant at the same time as clients have reembraced on-premises visits. And third-party supply gross sales proceed to characterize roughly 15% of our orders. We provide supply via our personal on-line ordering and app-based ordering platform.
And much like our strategy for Good Instances, we’re exploring methods to shift site visitors from the aggregators to direct ordering. We’re devoted to an elevated stage of customer support, however our true focus stays serving up unbelievable burgers with unparalleled customization. Through the preliminary throes of the pandemic and thereafter, we simplified our menu at Unhealthy Daddy’s.
Since then, we’ve reintroduced seasonal chef specials at Unhealthy Daddy’s to offer momentum for incremental visits to shift combine into above-average margin merchandise, however whereas on the identical time, retaining environment friendly, extremely productive kitchens. Transferring into 2023 and 2024. We’re planning enlargement of Unhealthy Daddy’s with one lease already signed in Larger Huntsville, Alabama that we count on to open within the fourth fiscal quarter of 2023 with potential websites below negotiations in Birmingham and Raleigh, and analysis of enlargement alternatives in different markets.
Restaurant margins are compressed this 12 months, however we count on them to stay so into the primary quarter or first half of fiscal 2023 as we take up an 8% minimal wage improve in our Colorado eating places. Wage fee inflation has been intense, however our operators have performed a wonderful job of managing productiveness to reduce the will increase in labor value. Value of gross sales have been more difficult for us.
Over the last quarter of the 12 months, we proceed to see extraordinarily excessive hen breast prices, which have extra lately began to recede however nonetheless stay elevated. Beef and bacon had been additionally elevated throughout the fourth quarter, however have proven moderation in pricing into the primary fiscal quarter of 2023. All through the restaurant P&L, elevated supply prices, primarily at Good Instances or that portion of the enterprise has seen significant progress and elevated restore and upkeep prices throughout each ideas have additionally been a supply of margin compression.
Shifting site visitors to our direct buying platforms is one among a number of methods wherein we’re making an attempt to cut back the affect of high-cost supply aggregator charges. The present inflationary atmosphere has precipitated different restaurant teams to cut back or reevaluate facets of the event program. We’ve got, over the previous 12 months, targeted our capital deployment in areas the place we consider we’ll attain one of the best return in property with predictable money stream, together with each the acquisition of our beforehand franchised Unhealthy Daddy’s restaurant and funding into our already present eating places.
Moreover, we’ve continued to repurchase our inventory via a repurchase program, which has resulted within the buy of 316,000 shares below the corporate’s — of the corporate’s inventory throughout fiscal 2022. We proceed to repurchase shares below this program throughout fiscal 2023. A saying that is been lately posted and reposted on LinkedIn says one thing to the impact of restaurant jobs have at all times been arduous, it is simply that extra individuals at the moment are realizing this truth.
And that saying doubtless applies to the trade itself as properly. And that it, too, the trade itself, has at all times been very difficult. Restaurant firms and ideas usually deviate from core methods and turn into keen to compromise what differentiates them. We proceed to remain the course and are assured about our place in each of the restaurant segments that we function in. We’ll proceed to strengthen our manufacturers by creating nice experiences applicable for every idea for our clients, thoughtfully growing new places and rewarding hard-working staff members and leaders for his or her contributions in constructing model fairness for Good Instances and for Unhealthy Daddy’s. With that, I am going to flip to Matthew to evaluate this quarter’s outcomes.
Matthew Karnes
Thanks, Ryan. Complete revenues elevated 5% to $35.2 million for the quarter. Complete restaurant gross sales elevated $1.7 million to $34.9 million for the quarter. Complete restaurant gross sales for Unhealthy Daddy’s eating places elevated $1.5 million to $26 million for the quarter, and this improve is because of common menu worth will increase all year long in addition to the continued power of off-premise gross sales and robust demand for in-person eating.
Similar-store gross sales elevated 3.7% throughout the quarter, with 38 Unhealthy Daddy’s within the comp base on the finish of the quarter. Value of gross sales at Unhealthy Daddy’s had been 32.8% for the quarter. That is a 170 foundation level improve from final 12 months’s quarter and the results of considerably increased meals and packaging prices as seen via inflationary and provide chain stress. Unhealthy Daddy’s labor prices decreased by 110 foundation factors in comparison with the prior 12 months quarter to 33.2% for the quarter.
This lower as a proportion of gross sales displays improved productiveness and decrease unit stage incentive compensation, the latter of which ensuing from decrease restaurant-level profitability. Occupancy value at Unhealthy Daddy’s decreased 20 foundation factors to six.4% due primarily to the leveraging of upper gross sales. Unhealthy Daddy’s different working prices had been 14.7% for the quarter, a rise of 170 foundation factors, and that is primarily resulting from increased elevated spending on restore and upkeep bills, restaurant expertise prices, utilities and will increase in restaurant provide prices.
General, restaurant-level working revenue, a non-GAAP measure, for Unhealthy Daddy’s was roughly $3.4 million for the quarter or 12.9% of gross sales in comparison with $3.7 million or 15% final 12 months. The decline is primarily as a result of elevated value of gross sales and different restaurant working prices. Restaurant gross sales at Good Instances had been $8.9 million, a rise of $0.2 million, ensuing from 5.9% comp gross sales, partially offset by the closure of 1 restaurant earlier in fiscal 2022.
Meals and packaging prices for Good Instances had been 32.3% for the quarter, a rise of 430 foundation factors in comparison with the final 12 months’s quarter. Once more, the results of vital inflationary pressures on meals and packaging materials, primarily beef, bacon and oil-based merchandise and rolling over unusually low prices for our all-natural beef within the prior 12 months quarter. Complete labor prices for Good Instances decreased to 31.9% and from 32.5% for the quarter final 12 months due primarily to will increase in unit stage productiveness.
Occupancy prices at Good Instances had been 7.8%. That is a slight improve of 10 foundation factors from the prior 12 months quarter due primarily to elevated actual property tax assessments. Supply gross sales — sorry, Good Instances’ different working prices had been 12.7% for the quarter. That is a rise of 270 foundation factors and is due primarily to extra supply service fees, accompanying the next mixture of supply gross sales and better restore and upkeep bills throughout the quarter.
Good Instances restaurant-level working revenue decreased by $0.5 million for the quarter to $1.4 million. As a p.c of gross sales, restaurant-level working revenue decreased by 600 foundation factors versus final 12 months to fifteen.3% due primarily to increased prices beforehand mentioned. Mixed basic and administrative bills had been $2.8 million throughout the quarter or 8.1% as a p.c of whole income. This represents a rise of $0.5 million versus the prior 12 months quarter.
G&A bills elevated versus the prior 12 months due primarily to elevated authorized charges, coaching bills, regional value and residential workplace wage expense, partially offset by decreased underwriting losses related to the self-insured worker well being care plan and rolling over prices associated to our tender provide within the fourth quarter of ’21. We recorded impairment of long-lived property of $1.4 million throughout the quarter, and that is for the impairment of 1 Unhealthy Daddy’s restaurant within the Atlanta, Georgia market.
No impairment prices had been recorded within the prior 12 months quarter. Our web loss to frequent shareholders for the quarter was $1.3 million or a lack of $0.10 per share versus revenue to frequent shareholders of $1.3 million or $0.10 per share within the fourth quarter final 12 months. For the complete fiscal 12 months, our web loss to frequent shareholders was $2.6 million or a lack of $0.21 per share versus revenue of $16.8 million or $1.32 per share within the prior year-to-date interval.
Adjusted EBITDA for the quarter was $0.8 million in comparison with $2.5 million for the fourth quarter of 2021. And for the year-to-date interval, our adjusted EBITDA was $4.8 million versus adjusted EBITDA of $9.6 million for a similar interval in fiscal 2021. We completed the quarter with $8.9 million in money and no long-term debt. And I’ll finish with that I, too, am thrilled that we proceed to develop same-store gross sales at each manufacturers, and we proceed to put money into our eating places, our workers and our clients. And with that, I’ll give it again to Ryan.
Ryan Zink
Thanks, Matthew. Emma, presently, we are able to open the decision for questions.
Query-and-Reply Session
Operator
[Operator Instructions]. Your first query comes from the road of Brian London.
Unidentified Analyst
I used to be questioning for those who guys can — if you cannot present element, perhaps some basic coloration on the site visitors throughout each manufacturers. I’ve watched — observe a whole lot of eating places over time, and I’ve watched costs improve and site visitors decline — even earlier than the pandemic, I used to be watching this sample. So once more, if you cannot present element, that is positive. A basic really feel could be attention-grabbing, too.
Ryan Zink
Definitely, Brian. As I discussed throughout my ready remarks, throughout the fourth quarter, we had site visitors erosion at Unhealthy Daddy’s of about 2%, and that was sitting on worth of about 5.7%. We did not go into this as a lot on — within the ready remarks, however nothing has actually modified by way of our technique round worth for Unhealthy Daddy’s, which we have commented earlier than and in our filings have said that we have tried to be modest in our worth will increase.
And I feel you’d discover based mostly upon the CPI numbers, meals away from residence, particularly, meals — full-service meals away from residence lately got here in for the month of November at 8.0%. Our worth will increase have been lower than that. And our technique is to attempt to do proper by the shopper. And within the brief run, you’ve got seen that considerably in our elevated value of gross sales. That is been our technique for Unhealthy Daddy’s. I might say the worth will increase throughout the phase in quick meals have been, usually talking, increased and — though most lately, the Bureau of Labor and Statistics numbers for the CPI has been slightly below full service.
We have taken really just a little bit extra worth on the Good Instances idea. We’ve got seen just a little extra site visitors erosion there. And we’re permitting that knowledge to affect future decision-making. I feel the problem we’ve at Good Instances and at 12 of our Colorado eating places at Unhealthy Daddy’s is just the labor value that’s attributable to the upper minimal wage. And that has pushed up, as I discussed, once more, within the remarks, 8% coming in January of 2023 as a result of it is a CPI-driven worth mechanism there.
So essential to us. I agree with you that it is regarding. Its — I’ve seen restaurant firms up to now improve pricing too rapidly and past the extent that is sustainable for the shopper and that’s — that goes into our considering in each pricing choice that we make.
Operator
[Operator Instructions]. There aren’t any additional questions as we speak. Ryan, I flip the decision again to you.
Ryan Zink
Thanks once more, Emma. Urgent on into 2023, we’re excited in regards to the future for every of our manufacturers and for our firm as a complete. With a powerful stability sheet, related ideas as demonstrated by the robust gross sales and a tremendous group of leaders in any respect ranges of the staff, we’re poised to proceed to create better worth for shareholders. My thanks and appreciation exit to the whole staff who handle their clients.
That is whether or not these clients are visiting within the eating places or their inner clients who’re cared for by people right here at our residence workplace. With that, we’ll conclude as we speak’s name. I thanks all for becoming a member of us as we speak, and I want you all a protected and pleased vacation season.
Operator
Thanks for attending as we speak’s convention name. It’s possible you’ll now disconnect.
